01—Abstract
Summary
Summary of the 10-K filed March 1, 2011. Cited figures are marked; the original filing is the authoritative source.
PACCAR Inc's 2010 Form 10-K shows a sharp cyclical recovery from the 2009 downturn.
Consolidated net sales and revenues rose 27% to $10.29 billiona (from $8.09 billion), and net income increased to $457.6 million, or $1.25 per diluted share, versus $111.9 million ($0.31) in 2009. Truck segment income before taxes jumped to $501.0 million from $25.9 million, driven by 79,000 truck deliveries (up from 61,000) and higher aftermarket parts sales. Truck gross margin turned positive at 5.2% (from -0.9%), and total truck segment gross margin improved to 12.0% from 8.3%.
Results were also helped by a $66.0 millionb pretax postretirement curtailment gain, which was recorded in 2009 and is therefore a prior-year item rather than a 2010 driver. Note that 2010 Other segment results were a $15.3 million pretax loss. The Financial Services segment (PACCAR Financial) was a steadier contributor, with pretax income up 81% to $153.5 million on a lower provision for credit losses ($61.0 million, down $29.8 million) and higher lease margins.
Average earning assets fell 13% to $7.57 billionc, and 30+ day past-dues improved to 3.0% from 3.8%. Total assets were $14.23 billion and stockholders' equity was $5.36 billion, with Truck and Other holding $2.04 billion in cash and cash equivalents plus $450.5 million in marketable securities. Operating cash flow was a strong $1.55 billion.
Looking ahead, management guided to 2011 U.S./Canada Class 8 industry sales of 180,000 to 200,000 units (up 40% to 60%), European above-15-tonne demand of 220,000 to 240,000 units (up 20% to 30%), capital spending of $400 to $500 milliond, and R&D of $250 to $300 million. The company also disclosed ongoing EU and UK competition investigations into commercial vehicle manufacturers and a pending NLRB decision regarding the 2008 Madison, Tennessee work stoppage, with a possible exposure range of nil to $15.0 million that it contests.
02—Key points
Key Highlights
- Revenue up 27% to $10.29B in 2010 (from $8.09B) on higher truck deliveries (79,000 units vs. 61,000) and aftermarket parts growth (parts sales up 16% to $2.19B).
- Net income rose to $457.6M ($1.25 diluted EPS) from $111.9M ($0.31) in 2009, though 2009 included a $41.5M after-tax curtailment gain that flatters the prior-year comparison.
- Truck segment pretax income surged to $501.0M from $25.9M; truck gross margin turned positive at 5.2%, and total truck gross margin rose to 12.0% from 8.3%.
- Financial Services pretax income increased 81% to $153.5M, supported by a $29.8M lower credit loss provision and higher lease margin, while average earning assets declined 13%.
- Balance sheet remains strong with $14.23B total assets, $5.36B equity, and $2.49B in Truck and Other cash plus marketable securities; operating cash flow was $1.55B.
- 2011 outlook calls for U.S./Canada Class 8 demand of 180,000–200,000 units (+40–60%) and European 15-tonne+ demand of 220,000–240,000 (+20–30%), with capex of $400–500M and R&D of $250–300M.
- Open regulatory matters include EU and UK competition investigations into commercial vehicle manufacturers and a contested NLRB ruling on the 2008 Madison, TN work stoppage (estimated exposure nil to $15.0M).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 1, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $10.29B$8.09B | +27.3% |
| Interest Expense | $230.20M$267.60M | −14.0% |
| Net Income | $457.60M$111.90M | +308.9% |
| EPS (Basic) | $0.83$0.21 | +303.2% |
| EPS (Diluted) | $0.83$0.21 | +303.2% |
| Shares Outstanding (Basic) | 547.50M545.70M | +0.3% |
| Shares Outstanding (Diluted) | 549.30M547.35M | +0.4% |
05—Questions
Frequently Asked Questions
What drove PACCAR's earnings recovery in 2010?
The recovery was driven by a rebound in market demand: truck deliveries rose 29% to 78,800 units, average truck selling prices increased by $523.1 million in aggregate, and aftermarket parts volume grew $266.7 million. Operating leverage on fixed costs and improved margins on new trucks (gross margin up to 5.2% from -0.9%) also contributed significantly.
How much of the 2010 result was from one-time items?
The 2009 comparison was affected by a $66.0 million pretax ($41.5 million after tax) curtailment gain on postretirement healthcare, which inflated 2009 results. The 2010 results did not include a comparable gain. Other segment results were a $15.3 million pretax loss in 2010, and the company noted the Mexican tax law change added $11.4 million of tax expense in 2009.
How healthy is the Financial Services portfolio?
Credit quality improved. Worldwide 30+ day past-dues fell to 3.0% from 3.8%, net charge-offs declined to $83.3 million from $108.2 million, and the provision for losses dropped to $61.0 million. However, U.S. and Canada past-dues rose slightly to 2.1%, and one large customer accounted for 1.1 percentage points of that figure. Portfolio assets totaled $7.9 billion.
What are the key risks and open legal matters investors should monitor?
Key risks include cyclical truck demand, competition from banks and finance companies in financing, credit and residual value risk on used trucks, liquidity access in commercial paper markets (the company holds A+/A1 ratings), and currency and interest rate exposure. Legal matters include an EU Competition Commission investigation (opened January 2011) and a UK OFT investigation into commercial vehicle pricing, both of which the company is cooperating with, plus the NLRB Madison, Tennessee ruling with an estimated exposure of nil to $15.0 million that the company disputes.
What is the 2011 outlook for PACCAR?
Management expects strong growth driven by market recovery. U.S. and Canada Class 8 industry sales are forecast at 180,000–200,000 units (up 40–60%), and European above-15-tonne demand at 220,000–240,000 units (up 20–30%). The company plans capital spending of $400–500 million, R&D of $250–300 million, and Financial Services earning assets growth of 5–10%. Improving freight conditions are expected to further reduce past-dues and credit losses.
06—Continue