How did PACCAR perform financially in 2012?

PACCAR reported record net sales and revenues of $17.05 billion, up from $16.36 billion in 2011, and net income of $1.11 billion ($3.12 per diluted share), compared with $1.04 billion ($2.86) the prior year. Growth came mainly from higher North American truck demand and record parts sales, while Europe was weaker.

What is the outlook for 2013?

Management expects U.S. and Canadian Class 8 retail truck sales of 210,000 to 240,000 units in 2013, compared with 224,900 in 2012, and European over-16-tonne registrations of 210,000 to 250,000 units, versus 221,500 in 2012. Capital spending is guided to $400 to $500 million, mainly for the DAF plant in Brazil, which is expected to begin production in late 2013. Financial Services average earning assets are expected to grow 5% to 10%, though rising credit losses are possible if freight conditions weaken.

What regulatory or legal risks does the filing disclose?

The SEC opened a formal investigation in April 2012 into PACCAR's financial reporting from 2008 to 2011, focusing on loan loss reserves, troubled debt restructurings and segment reporting. The company is cooperating fully and has not recorded a specific charge. The EU Competition Commission is investigating major European truck makers, including PACCAR's subsidiaries, over possible coordination of commercial policy, and the subsidiaries are also cooperating. A separate NLRB matter regarding the Madison, Tennessee plant is considered remote in its likelihood of an adverse outcome.

Is PACCAR's dividend sustainable, and how much cash does it return?

In 2012 PACCAR paid $809.5 million in dividends, versus $217.4 million in 2011. Dividends declared per share were $1.58, including a $0.80 year-end extra. The payout was higher than operating cash flow in 2012, funded partly by long-term debt issuance of $2.20 billion, which is largely used to fund the Financial Services portfolio. The company states it expects to continue paying regular dividends but gives no assurance about future amounts, which depend on earnings, capital needs and financial conditions.

How concentrated is PACCAR's exposure to Europe and to Cummins?

Europe is a meaningful but declining share: European truck revenues fell 18% to $3.22 billion in 2012, and European truck deliveries dropped 11%. Engines not made by PACCAR are purchased from Cummins under a long-term supply agreement; the filing states a loss of Cummins supply would have a material effect on results. PACCAR also has a supply arrangement with Renault V.I. for cabs used in certain DAF light-duty trucks, representing about 3% of consolidated revenues.

PCAR 10-K FY2012 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 27, 2013. Cited figures are marked; the original filing is the authoritative source.

PACCAR Inc (PCAR) closed fiscal 2012 with record consolidated net sales and revenues of $17.05 billion^a, up from $16.36 billion in 2011, driven by higher truck deliveries and record aftermarket parts sales.

Net income rose to $1.11 billion^b ($3.12 per diluted share) from $1.04 billion ($2.86) in 2011, marking the 74th consecutive year of profitability and the fourth-highest in company history. Truck segment pre-tax income rose 6% to $920.4 million, with a pre-tax return on revenues of 7.0%, while the Parts segment's pre-tax income fell 5% to $374.6 million as margins compressed. Financial Services pre-tax income grew 30% to $307.8 million, helped by lower borrowing rates and a lower provision for credit losses.

Truck unit sales increased to 140,400 from 138,000, with record heavy-duty market share in North America (28.9%) and record European heavy-duty share (16.0%), offset by a 9% decline in the European over-16-tonne market. Investors should weigh several items beyond the headline results. Cash flow from operations declined to $1.52 billion^c, and total cash and marketable securities fell by $551.7 million to $2.47 billion, largely because dividends paid rose to $809.5 million, including special dividends.

Management guides to 2013 U.S./Canada Class 8 retail sales of 210,000 to 240,000 units, with capital spending of $400 to $500 million^d focused on the new DAF plant in Brazil. The filing also discloses an active SEC formal investigation (opened April 2012) into 2008 to 2011 financial reporting, covering loan loss reserves, troubled debt restructurings and segment reporting, plus an EU Competition Commission investigation of European truck makers. Both remain unresolved, and the company describes them as cooperative inquiries without estimating financial exposure.

02—Key points

Key Highlights

Record consolidated net sales and revenues of $17.05 billion (up 4% from $16.36 billion), with net income of $1.11 billion or $3.12 per diluted share, up from $2.86 in 2011.
Truck segment (77% of revenues) pre-tax income rose 6% to $920.4 million; truck unit deliveries increased 2% to 140,400, and gross margin held at 10.2%.
Parts segment revenues grew 4% to $2.67 billion (a record), but pre-tax income fell 5% to $374.6 million as the pre-tax return on revenues dropped from 15.3% to 14.0%.
Financial Services pre-tax income rose 30% to $307.8 million; the 30+ day past-due rate improved to 0.6% from 1.5%, and the portfolio grew to $10.8 billion in total assets.
Shareholder returns were substantial: $809.5 million in dividends paid in 2012, including special dividends, and total dividends declared of $1.58 per share versus $1.30 in 2011.
Cash and marketable securities declined $551.7 million to $2.47 billion, and operating cash flow fell to $1.52 billion from $1.59 billion.
An SEC formal investigation (opened April 2012) into 2008-2011 financial reporting, and an EU Competition Commission investigation of European truck makers, remain open; the company is cooperating with both.

03—One dollar

04—Financials

Financial Highlights

10-KFY2012filed February 27, 2013

Revenue$17.05B Net Income$1.11B6.5% Net Margin EPS (Diluted)$2.08 Total Assets$18.63B Cash & Equivalents$1.27B Free Cash Flow$1.00B

Financial Statements

FY2012 against FY2011

Line item	FY2012FY2011	FY2011	Change
Revenue	$17.05B$16.36B	$16.36B	+4.3%
Net Income	$1.11B$1.04B	$1.04B	+6.6%
EPS (Basic)	$2.09$1.91	$1.91	+9.1%
EPS (Diluted)	$2.08$1.91	$1.91	+9.1%
Shares Outstanding (Basic)	532.65M544.95M	544.95M	−2.3%
Shares Outstanding (Diluted)	533.70M546.60M	546.60M	−2.4%

05—Questions

Frequently Asked Questions

How did PACCAR perform financially in 2012?
PACCAR reported record net sales and revenues of $17.05 billion, up from $16.36 billion in 2011, and net income of $1.11 billion ($3.12 per diluted share), compared with $1.04 billion ($2.86) the prior year. Growth came mainly from higher North American truck demand and record parts sales, while Europe was weaker.
What is the outlook for 2013?
Management expects U.S. and Canadian Class 8 retail truck sales of 210,000 to 240,000 units in 2013, compared with 224,900 in 2012, and European over-16-tonne registrations of 210,000 to 250,000 units, versus 221,500 in 2012. Capital spending is guided to $400 to $500 million, mainly for the DAF plant in Brazil, which is expected to begin production in late 2013. Financial Services average earning assets are expected to grow 5% to 10%, though rising credit losses are possible if freight conditions weaken.
What regulatory or legal risks does the filing disclose?
The SEC opened a formal investigation in April 2012 into PACCAR's financial reporting from 2008 to 2011, focusing on loan loss reserves, troubled debt restructurings and segment reporting. The company is cooperating fully and has not recorded a specific charge. The EU Competition Commission is investigating major European truck makers, including PACCAR's subsidiaries, over possible coordination of commercial policy, and the subsidiaries are also cooperating. A separate NLRB matter regarding the Madison, Tennessee plant is considered remote in its likelihood of an adverse outcome.
Is PACCAR's dividend sustainable, and how much cash does it return?
In 2012 PACCAR paid $809.5 million in dividends, versus $217.4 million in 2011. Dividends declared per share were $1.58, including a $0.80 year-end extra. The payout was higher than operating cash flow in 2012, funded partly by long-term debt issuance of $2.20 billion, which is largely used to fund the Financial Services portfolio. The company states it expects to continue paying regular dividends but gives no assurance about future amounts, which depend on earnings, capital needs and financial conditions.
How concentrated is PACCAR's exposure to Europe and to Cummins?
Europe is a meaningful but declining share: European truck revenues fell 18% to $3.22 billion in 2012, and European truck deliveries dropped 11%. Engines not made by PACCAR are purchased from Cummins under a long-term supply agreement; the filing states a loss of Cummins supply would have a material effect on results. PACCAR also has a supply arrangement with Renault V.I. for cabs used in certain DAF light-duty trucks, representing about 3% of consolidated revenues.

06—Continue

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