Paccar Inc. posted record Q1 sales and earnings, increasing production despite stubborn supply chain disruptions. The company reaped benefits from a practically all-new lineup of medium- and heavy-duty trucks introduced over the last year.
“Paccar’s investments in vehicle, powertrain and technology initiatives are delivering increased profitability,” CEO Preston Feight said in a press release. The Bellevue, Washington-based company delivered 43,000 trucks in the quarter. The newly introduced models accounted for one in three units produced. Current generation trucks will be sold well into 2023.
But as the percentage of more fuel-efficient new models in production rises, Feight said he likes Paccar’s prospects. Depending on supply disruptions, Paccar expects to produce 44,000 to 48,000 trucks in Q2.
“With higher production; and a more favorable mix of new model trucks, we anticipate second-quarter gross margins to be in the range of 13.5% to 14%,” said Harrie Schippers, Paccar president and chief financial officer.
Out of build slots
Paccar (NASDAQ: PCAR) essentially is sold out of build slots for the year, Feight said. Some additional production could be added if the supply chain crisis eases. Behind the strong Q1 sales and earnings, the company’s market share rose to 28% in the quarter compared to 24% a year ago. For the full year, Feight said Paccar expects to hold about a 31% share.
“We could easily get more order bookings than we need but it’s a function of, well, filling the backlog with strong business and not getting exposed out to 2023, where we don’t know exactly what costs are going to be,” Schippers said.
The company is continuing red-tagging, building trucks to near completion and parking them while awaiting semiconductors. or other critical components. The number of red tags remains about 3,000 units.
“Chips have become less of the issue and more there’s general supply challenges in terms of getting all the materials we need into the plants at any given time,” Feight told analysts on a conference call Tuesday.
Extended trade-in cycles benefit parts sales and earnings
Capacity-restricted new truck deliveries across the industry has raised the typical age of the truck on the road by 10% to 15%.
Fleets unable to get new equipment keep their trucks in service beyond normal trade-in cycles. That increases the need for replacement parts. Paccar also uses more proprietary content in its trucks and engines, which keeps customers in the fold longer.
Unlike rival Volvo Group, Paccar has little exposure to Russia and parts coming from war-torn Ukraine. Volvo took a $423 million charge against Q1 earnings after suspending business in Russia
“Our parts availability and the ability to produce trucks has been good,” Schippers said.
Paccar appears somewhat upbeat on Class 8 production, forecasting an industry build of 260,000 to 290,000 trucks this year.
“U.S. economic and industrial production growth are projected to be good this year,” Schippers said. “The new Kenworth T680 and Peterbilt 579 trucks are delivering the highest fuel efficiency in the industry, which is appealing to our customers faced with increased energy costs.”
The new Class 8 models are 7% more fuel efficient than the models they replaced. The trucks are the most aerodynamic in company history, allowing them to move with less wind interference. In global markets, Paccar’s new XF, XG and XG+ from DAF Trucks are 10% more fuel efficient than previous models.
Sales and earnings by the numbers
First-quarter 2022 sales increased to $6.47 billion compared to $5.85 billion in the first quarter of 2021. Net income of $600.5 million, or $1.72 per diluted share, was up 28% compared to $470.8 million, or $1.35, in the same period last year.
In addition to sales and earnings, Paccar achieved a gross margin of 13.4%. It put up other big numbers including:
- Parts revenues of $1.39 billion and record parts pretax profits of $340.2 million, up 35% over a year ago.
- Record financial services pretax profits of $147.0 million, up 92% from a year ago.
- Cash flow from operations of $459.3 million.
Editor’s note: Recasts and updates throughout from earnings call transcript