PACCAR Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2009. Unaudited consolidated results; financial amounts are in millions of dollars except per-share data, percentages, and truck units.
Business context and results
PACCAR manufactures and distributes trucks and related parts under the Kenworth, Peterbilt, and DAF brands, and provides customer and dealer financing through PACCAR Financial Services. Management attributed sharply weaker results to the global recession and reduced truck demand across its markets.
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Consolidated revenue | $2,000.2 | $4,004.9 | $5,831.2 | $12,055.8 |
| Net income | $13.0 | $299.0 | $65.8 | $904.8 |
| Diluted EPS | $0.04 | $0.82 | $0.18 | $2.47 |
| Truck and Other pretax income (loss) | $(6.2) | $360.9 | $14.5 | $1,057.2 |
| Financial Services pretax income | $18.1 | $45.5 | $49.0 | $171.5 |
| Return on revenues | 0.7% | 7.5% | 1.1% | 7.5% |
Operating performance and material changes
- Truck and Other revenue fell 52% in Q3 to $1,758.5 and 54% year to date to $5,091.2. Worldwide new truck deliveries declined 55% in Q3 and 57% year to date; truck-segment revenue from trucks fell 59% and 61%, respectively.
- The truck segment reported a Q3 pretax loss of $21.1, versus income of $362.5 a year earlier, and a nine-month pretax loss of $32.2, versus income of $1,063.6. Truck-segment gross margin was 6.3% in Q3 and 7.6% year to date, compared with 15.4% and 15.2%. Truck-unit gross margin was negative 3.4% in Q3 and negative 2.3% year to date.
- Financial Services revenue declined 25% in Q3 and 24% year to date. Lower average earning assets and yields reduced revenue; lower funding costs and operating expenses partly offset the pressure. Provision for receivable losses was $26.6 in Q3 (down from $34.2) and $80.7 year to date (up from $76.0).
- Worldwide Financial Services accounts 30 or more days past due rose to 4.4% at September 30, 2009, from 2.7% a year earlier. Delinquencies were highest in Mexico and Australia at 10.2%, and Europe at 4.8%.
- Foreign-currency translation reduced revenue by $64.6 and pretax income by $4.7 in Q3; year-to-date reductions were $423.3 and $30.7, respectively. Lower truck production also raised the per-unit burden of fixed costs.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $864.0, versus $959.5 in 2008. Investing activities provided $394.6, compared with $547.0 used in 2008; financing activities used $1,503.8, versus $838.3 used.
- Cash and cash equivalents were $1,799.2 at September 30, down from $1,955.2 at year-end 2008. Including marketable debt securities of $240.3, cash and securities totaled $2,039.5, down $91.1 from year end.
- At September 30, Truck and Other long-term debt was $171.9. Financial Services debt comprised $3,256.5 of commercial paper and bank loans and $2,941.9 of term notes. The filing reports $3.67 billion in credit lines, of which $3.38 billion was unused; no syndicated bank-line borrowings occurred during the first nine months.
- Capital spending was $76.3 in the first nine months, versus $352.3 in 2008. Management expected 2009 capital expenditures of $100–$125 and R&D spending of $190–$200, compared with 2008 amounts of $462.8 and $341.8.
- The regular quarterly dividend was reduced from $0.18 to $0.09 per share in Q3. No shares were repurchased during the first nine months of 2009.
Outlook, unusual items, and risks
- Management expected recessionary conditions to continue weighing on truck demand and forecast lower Q4 2009 truck revenue and income than a year earlier. It expected North American 2009 Class 8 retail sales of 100,000–110,000 units and a modest improvement to 110,000–140,000 in 2010. Western and Central European heavy-duty registrations were forecast at 170,000–180,000 for 2009 and 150,000–180,000 for 2010; other international markets were expected to remain weak into 2010.
- Management expected Financial Services earning assets to keep declining in Q4 and into 2010, with lower Q4 revenue and income than the prior year. It cited weak truck-operator cash flows, past-due accounts, repossessions, and voluntary returns as continuing pressures.
- Q3 results included an $18.3 postretirement-healthcare curtailment gain and $4.2 of plant-closure costs, for a net benefit of $14.1 before tax ($8.9 after tax). Year-to-date curtailment gains totaled $66.0 before tax ($41.5 after tax), including a Q2 gain. The Madison, Tennessee Peterbilt facility was permanently closed.
- Used-truck write-downs totaled $32.3 year to date, including $13.5 in the truck segment and $18.8 in Financial Services. Management identified risks including weak industry sales, lower used-truck prices, credit losses, capital-market liquidity, interest and currency fluctuations, manufacturing under-utilization, and regulatory or supplier disruptions. The filing stated that no material changes had occurred in risk factors or market risk during the period.
- Management said disclosure controls were effective and reported no significant quarterly change in internal control over financial reporting. It also cited an investment-grade AA- rating and expected to replace credit facilities as they mature; $2.0 billion of syndicated facilities mature in June 2010 and $1.0 billion in June 2012.
Key facts for investors to verify
- Whether truck demand, factory utilization, and truck gross margins recover as projected, particularly in Europe and North America.
- Whether Financial Services delinquencies, repossessions, used-truck values, and credit-loss provisions stabilize or deteriorate.
- Whether the company maintains access to funding and replaces the facilities scheduled to mature in 2010; review Financial Services debt and liquidity separately from industrial operations.
- How much reported earnings depended on curtailment gains, and whether restructuring, warranty, pension, or impairment costs change.
- Confirm the stated spending, market-volume, and 2010 outlook assumptions against subsequent company disclosures; the filing cautions that interim results are not necessarily indicative of full-year results.