Will PACCAR go Cummins' Way?
Neha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After Cummins (NYSE: CMI) lowered its sales forecast for the full-year, the question on everyone’s mind is-- will PACCAR (NASDAQ: PCAR) go the same way? Read along to know what to expect from the truck maker as it releases its second-quarter numbers next week.
Smooth ride
PACCAR’s second-quarter truck deliveries figure shouldn’t disappoint us. Though I am expecting them to be sequentially lower, year-on-year growth is likely to remain high. That’s because although there has been some softness in the truck market lately, the situation at PACCAR isn’t that grim. As an example, take the case of the medium to heavy-duty Class 6-7 truck segment sales for the month of June. While Class 6 sales fell for most makers, including Ford (NYSE: F) which reported a 79.5% slip in sales, PACCAR’s Kenworth brand sold 60% more trucks compared to the year-ago period. Similarly, while Class 7 sales were down for Ford, PACCAR’s sales rose 30%.
Stepping on the accelerator
Turning focus to the critical heavy- duty Class 8 segment sales -- a big revenue driver for PACCAR—the story remains equally upbeat. Year-to-date, total U.S. Class 8 sales have risen nearly 38%.
PACCAR yet again proved how its sales are zooming past peer Navistar International’s (NYSE: NAV) crawling pace. Navistar has been facing the heat of piling warranty and repair claims. The wounds have got bigger with the company failing to obtain the U.S. Environmental Protection Agency's certification for its engine technology. So PACCAR can make the most of the situation. It is already gaining market share in the U.S. In the first five months of the year, Kenworth sales grew a massive 67% while Peterbilt sales climbed 59% from the year-ago period. A look at the following table will tell you how PACCAR can soon give Navistar a run for its money.
|
Brand Name |
% rise in unit sales from comparable month last year |
||
|
June |
May |
April |
|
|
Navistar International |
-8.8% |
26.7% |
19.2% |
|
PACCAR Peterbilt |
18.7% |
33.4% |
41.2% |
|
PACCAR Kenworth |
19.7% |
36.7% |
53.9% |
As you can see, the last quarter has been pretty good for PACCAR. A sequential downtrend may be visible, but we are more concerned with year-over-year growth here, which thankfully is good. PACCAR is thus most likely to meet or even beat analyst estimates of a 14.6% jump in its second-quarter top line.
A step ahead
Talking of Class 8 trucks, if the last earnings call found mention of the launch of PACCAR’s ‘next generation’ truck models, this time I am expecting a progress report on their production which kicked off recently. Orders had already started flowing in even before production started. These trucks are a step into the future for PACCAR, not only because of their upgraded and innovative technology, but also because they’ll be powered by the new heavy duty ISX 12G engines made by Cummins in collaboration with Westport Innovations (NASDAQ: WPRT). Cummins-Westport engines are already finding favor with industry players, but PACCAR has a distinct advantage as the largest and oldest Cummins’ customer. I am looking forward to an insight into further plans revolving around these trucks and engines in the upcoming earnings call.
The headwinds
Not all’s good though. Europe is a headwind as PACCAR derives nearly a third of its revenue from the struggling region. This might hurt deliveries in the second quarter. Nevertheless, its European DAF unit (which is also one of the leading truck producers in the region) continues to gain market share.
But more than the numbers and plans, I feel all ears will be tuned to what PACCAR has to say about its full-year earnings outlook, especially after Cummins slashed its own some days back. There’s no doubt that the truck market is slowing down. After rising for several months, truck tonnage reversed its upward run in the past two months, declining sequentially. Freight volumes are flat too, although carriers like FedEx and United Parcel Service continue to raise freight rates.
More importantly, as shown above, heavy-duty truck sales are declining sequentially, which is anything but good news for PACCAR. So I won’t be surprised if the company gives a muted outlook for the full year.
Foolish wrap up
PACCAR is most likely to deliver a mixed bag next week. If numbers impress, guidance might not. But then, I feel a good portion of the uncertainties have already been factored in its share prices which have lost 14% in the past three months.
My verdict is, in case its shares behave funnily after results, you might have a chance to power your portfolio with this solid company. The trucking market is anyway not going to slip so soon. Why? I’ll tell you when I wrap up PACCAR’s earnings in details next week. Add PACCAR to your watchlist and keep following me to make sure you do not miss it.
Nehams has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and Westport Innovations. Motley Fool newsletter services recommend Cummins, Ford, PACCAR Inc, and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
