Editor’s Note: Updates throughout with comments from analyst call
Paccar Inc. rode record parts sales and higher used truck prices to higher Q3 revenues and a slight decline in profits — its first miss at beating analysts’ estimates for earnings per share in a year.
The Bellevue, Washington-based parent of Kenworth and DAF Trucks and Peterbilt Motors announced Oct. 4 that a shortage of semiconductors reduced Q3 deliveries of Class 8 trucks by 7,000 units. Kenworth and Peterbilt are parking unfinished trucks until missing semiconductors and other parts are available to finish them.
The company fell about 10,000 units short because of a combination of so-called red tagged trucks and build-rate adjustments forced by parts shortages, Paccar CEO Preston Feight told analysts on a call Tuesday.
Peterbilt dealer W.M. “Rusty” Rush, CEO of Rush Enterprises, said last week he thinks as many as 40,000 trucks across the industry are in a similar condition.
“We think as we get additional supply of semiconductors that will allow us to go up to build rate,” Feight said. “We’ve now started to come up with reengineered solutions or alternate chips or brokered chips that allows us to begin to recover some the trucks in the fourth quarter. We think that is likely to continue as we get into 2022 as we’ve steadied production at somewhat still constrained level.”
Paccar Financial Services (PFS) relied on its inventory of more than 199,000 used tractors and trailers to help offset profits missing from new truck orders the company could not deliver.
“PFS achieved record third-quarter results due to excellent portfolio quality and strong used truck prices,” Paccar Vice President Todd Hubbard said in a press release. “PFS is leveraging investments in its 12 worldwide used truck centers to sell an increased number of used trucks at higher retail prices.”
Kenworth and Peterbilt truck resale values command a 10% to 20% premium over competitors’ trucks, Hubbard said.
“All the investments we’ve made in the used trucks over the years, we’re getting the dividends out of that now,” Harrie Schippers, Paccar president and CFO, said on the earnings call.
he paucity of new trucks is forcing fleets to keep trucks in service longer. That, in turn, is creating more maintenance business, of which Paccar took advantage in the quarter.
Paccar Parts achieved record Q3 pretax profit of $280.8 million, up 34% compared to $210.2 million in the year-ago quarter. Q3 revenues were a record $1.26 billion, compared to $1.02 billion in Q3 last year.
“Third-quarter parts sales and profits benefited from high customer vehicle utilization, industry-leading logistics operations, strong demand for powertrain components and the growth of our e-commerce platform,” said David Danforth, Paccar Parts general manager.
The rest of the numbers
Kenworth, Peterbilt and DAF delivered 32,800 trucks in the third quarter after accounting for the 7,000 undeliverable trucks. Production of the refreshed Kenworth T680 and Peterbilt Model 579 began in the quarter along with new Class 5-7 medium-duty models for each brand.
That raised capital spending, which should fall as Paccar switches to a bigger research and development budget for electrification, autonomous trucks and connectivity.
“Customer demand for the new Kenworth, Peterbilt and DAF trucks introduced this year is very strong,” CEO Preston Feight said.
Paccar’s Q3 net income of $377.7 million, or $1.08 per diluted share, compared to $385.5 million, or $1.11, in the year-ago period. A consensus of analysts surveyed by investor site Seeking Alpha called for $1.20 per share. Q3 revenues were $5.15 billion, compared to $4.94 billion a year ago.
Paccar (NASDAQ: PCAR) expects global truck production to improve as supply chain deliveries are resolved. The company estimates U.S. and Canada Class 8 truck industry retail sales will range between 230,000 and 250,000 vehicles this year.
Assuming improvements in the supply chain, Paccar estimates 2022 industry retail sales of Class 8 trucks of 250,000 to 290,000 vehicles.