01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
PACCAR Inc (NASDAQ: PCAR) reported fiscal 2008 results that were strong relative to a sharply deteriorating market.
Net income fell 17% to $1.02 billiona ($2.78 per diluted share) from $1.23 billion ($3.29) in 2007, though management described it as the fourth-best result in the company's 103-year history. Total net sales and revenues declined about 2% to $14.97 billion. Truck and Other revenue fell to $13.71 billion, driven by weaker U.S. and Canadian Class 8 demand (Class 8 market down to 152,600 units from 175,800), partly offset by record DAF deliveries in Europe (63,700 units, up 6%) and a weaker U.S. dollar that added roughly $450 million to revenue.
Truck segment gross margin compressed to 14.3% from 14.9%, reflecting lower North American and Australian volumes and higher commodity-driven material costs. Financial Services was a bright spot on revenue, which rose 6% to $1.26 billionb, but pre-tax income fell 24% to $216.9 million as net charge-offs jumped to $104.8 million from $25.8 million and the share of accounts 30+ days past due rose to 3.3% from 2.0%. Liquidity remains solid: total cash and marketable securities were $2.13 billion, the company holds $3.51 billion of credit lines with $3.26 billion unused, and it issued $750 million of medium-term notes in February 2009.
Cash from operations fell to $1.30 billionc from $2.06 billion. Shareholder returns were $629 million in dividends and $231 million in buybacks, and stock performance lagged sharply, with the total return index falling to 134.92 in 2008 from 251.52 in 2007. The outlook is weak.
Management expects North American retail Class 8 sales of 130,000 to 170,000 units in 2009 and Western and Central European heavy-duty registrations to fall 30% to 40%. Truck capital spending is being cut to $150 to $200 milliond, R&D is guided at $200 to $250 million, and Financial Services earning assets are expected to shrink. Investors should weigh PACCAR's strong balance sheet, AA- credit rating, and European exposure against a likely earnings decline in 2009 and rising credit risk in the finance portfolio.
02—Key points
Key Highlights
- Net income of $1.02 billion ($2.78 diluted EPS) in 2008, down from $1.23 billion ($3.29) in 2007, with return on revenues of 6.8% versus 8.1%.
- Truck segment revenue of $13.55 billion fell 2%: North American deliveries dropped to 44,900 units from 53,000, while DAF set a European record of 63,700 units.
- Truck gross margin declined to 14.3% from 14.9% due to lower North American and Australian volumes and higher commodity costs for steel, copper, and crude-based materials.
- Financial Services pre-tax income fell 24% to $216.9 million as net charge-offs rose to $104.8 million from $25.8 million and 30+ day delinquencies climbed to 3.3% from 2.0%.
- Strong liquidity: $2.13 billion in cash and marketable securities, $3.26 billion of unused credit lines, an AA- rating, and a $750 million bond issue in February 2009.
- Outlook for 2009 is weak: North American Class 8 retail sales are forecast at 130,000 to 170,000 units, and European heavy-duty registrations are projected to fall 30% to 40%. Capital spending is being cut to $150 to $200 million.
- Shareholder returns: $629 million in dividends and $231 million in share repurchases in 2008, with $8 million of the $300 million July 2008 buyback authorization still available for future repurchases. The total stockholder return index fell to 134.92 from 251.52.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $14.97B— | — |
| Interest Expense | $327.10M— | — |
| Net Income | $1.02B$1.23B | −17.1% |
| EPS (Basic) | $1.86$2.21 | −15.7% |
| EPS (Diluted) | $1.85$2.19 | −15.5% |
| Shares Outstanding (Basic) | 546.30M556.65M | −1.9% |
| Shares Outstanding (Diluted) | 548.85M559.95M | −2.0% |
05—Questions
Frequently Asked Questions
How did PACCAR perform in 2008 despite the downturn?
PACCAR earned $1.02 billion, or $2.78 per diluted share, in 2008, down from $3.29 in 2007. Management called this the fourth-best result in the company's history. Europe offset weakness in North America: DAF delivered a record 63,700 trucks and European truck revenue rose to 49% of the truck segment total from 42%. A weaker dollar also added about $450 million to revenue.
Why did North American truck sales decline, and what is the outlook?
U.S. and Canadian Class 8 demand fell to 152,600 units in 2008 from 175,800 in 2007, and PACCAR's deliveries in the region dropped to 44,900 from 53,000. PACCAR's market share slipped to 26.0% from 26.4%. The company expects 2009 North American retail sales of 130,000 to 170,000 trucks, a significant further decline, and has reduced planned capital spending accordingly.
Is the Financial Services segment at risk from rising credit losses?
Credit quality weakened sharply. Net portfolio charge-offs rose to $104.8 million from $25.8 million, the provision for losses on receivables more than doubled to $102.9 million, and accounts 30+ days past due reached 3.3% from 2.0%. Financial Services earning assets are expected to decline in 2009 as truck sales fall, which will pressure revenue and income.
Is PACCAR's balance sheet and liquidity strong enough to weather a downturn?
Liquidity is solid. The company held $2.13 billion of cash and marketable securities, had $3.26 billion of unused credit lines, and carries an AA- investment-grade rating. Truck and Other long-term debt was only $19.3 million. Most debt sits in Financial Services, whose $7.47 billion in borrowings are largely funded through commercial paper and medium-term notes, and the company issued $750 million of new notes in February 2009.
What is the dividend and share repurchase picture?
PACCAR paid $629 million in dividends in 2008 and repurchased $231 million of stock. Quarterly dividends were $0.18 per share, plus a $0.10 year-end extra. The company has $8 million left under the October 2007 buyback authorization and a further $300 million authorized in July 2008 that had not been used at year-end. Management said it expects to continue paying regular dividends but gave no assurance of future amounts.
06—Continue