Pull Your Money Out of This Stock Before Next Week

Neha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Of the several industrial companies that will report their quarterly numbers next week, one I am going to watch closely is PACCAR (NASDAQ: PCAR). Despite the underlying weakness in the trucking industry, PACCAR’s stock has kept its positive momentum, gaining 8% year to date. It hit its 52-week high barely a month ago.

Yet, the truck maker might find it hard to keep up this momentum, because several things tell me disappointment awaits PACCAR investors.

Hard times

The Street can’t see beyond the $3.7 billion revenue from PACCAR’s first quarter, which would be a sharp 18% fall from first quarter 2012. EPS is projected to be 24% lower year over year.

Analysts seem to be unenthused about PACCAR right now as their projections look better for rivals who are also about to announce their quarterly reports. For Cummins (NYSE: CMI), revenue estimates fell short of the $4 billion mark (which would be an 11% drop from last year) while EPS is expected to drop by 22%. But Oshkosh (NYSE: OSK) is a sharp contrast because the Street projects its second-quarter EPS to more than double year over year even with a 2% fall in revenue. Both companies are expected to report on April 30.

So, what's working for Oshkosh that isn't for the other two? In present economic conditions, Oshkosh can find support in its access equipment business, which depends on the construction industry that has improved considerably in recent months. Nearly a third of its revenue comes from this business, a fact that also encouraged the company to improve its 2013 EPS guidance to a range of $2.80 to $3.05. It earned $2.27 per share last year. Cummins shares PACCAR’s fate because it is also an engine and truck player, which isn't the best place to be right now. Cummins hinted at a ‘challenging’ first quarter in its last earnings call and even slashed its full-year revenue guidance significantly. It could even turn out as the worst quarter this year. Clearly, the truck industry is in bad shape.

Bad news all the way

Deliveries of heavy-duty Class 8 trucks, a segment which is also among PACCAR’s biggest revenue drivers, slumped 15% in February. PACCAR’s Kenworth brand led the decline in the industry with a massive 38% fall in deliveries. The brand unfortunately also took the biggest hit in Class 7 and Class 6 truck segments with a staggering 53% and 37% plunge in sales, respectively. That was in sharp contrast to Ford’s massive 341% surge in Class 6 sales even as its Class 7 truck sales fell 44%. What surprised me was Navistar International’s (NYSE: NAV) brand’s relatively decent performance. International Class 7 truck sales slipped just 3% in February while gaining an impressive 30% gain in medium Class 5 truck segment ahead of Ford’s 24% gain. PACCAR lost 48% in the segment.

As if these dismal numbers weren’t enough, March provided another 21.5% plunge in Class 8 truck sales. Through March, total sales of medium and heavy-duty trucks were down 9% from the comparable period last year. Naturally, PACCAR has little to rejoice, and I am expecting low single-digit decline in its production as well as deliveries for the first quarter.

What you should focus on

Given the weak backdrop of the industry, my focus next week will largely be on how PACCAR aims to increase sales especially when Navistar is bouncing back. Failure of its ambitious engine technology and an increase of warranty claims last year not only cost Navistar billions, but also stripped it off some valuable market share. For PACCAR, it was a make hay while the sun shines situation. But Navistar has already charted  a massive turnaround plan that includes a new CEO on the job, taking unprofitable ventures off its books, and submitting its tried-and-tested technology powered 13-liter engines to the EPA for certification. Armed with its new engines, Navistar expects to bounce back within months. Although Navistar still had losses to the tune of $123 million in its first quarter, it was nevertheless a 20% improvement over the year-ago quarter.

With Navistar back in the race, I’d like to know what PACCAR plans to do. Will it enter the natural-gas market with more vigor now? That’s a huge possibility as much as it remains a challenge. The lack of gas fueling stations remains the biggest roadblock, and numbers from natural-gas engine technology specialist, Westport Innovations’ (NASDAQ: WPRT), last quarter were discouraging. Its losses more than doubled on the back of an 18% drop in revenue. The important figure to note is that the venture between Cummins and Westport, which is also the latter’s lifeline, witnessed a sharp 35% drop in shipments.

Interestingly enough, Cummins Westport's engine shipments to the North American truck market climbed 52% during the quarter, which bodes well for PACCAR. More importantly, Westport expects a 21% jump in revenue this year even at the lower range of its guidance and hopes to see more heavy-duty trucks run on natural gas. It considers 15% of heavy-duty trucks in North America to run on gas by 2017 an achievable number. PACCAR is already powering its next-generation trucks with Cummins-Westport engines. The latest test results for its Peterbilt brand 587 Class 8 truck that runs on Cummins’ 15-liter engines are reportedly good. Updates on this, and PACCAR’s strategy to step on the gas, is what my eyes will be on next week.

Foolish takeaway

PACCAR’s upcoming earnings report will be critical because it will lay out plans and guidance for the full year. Also, PACCAR’s numbers are a good gauge for the trucking industry, as well as a great lead indicator for Cummins’ earnings report, as it is also Cummins’ largest customer. Stay tuned as I take you through PACCAR’s numbers next week. Click here to add the stock to your watchlist.


Neha Chamaria has no position in any stocks mentioned. The Motley Fool recommends Cummins, Paccar, and Westport Innovations. The Motley Fool owns shares of Cummins, Paccar, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure