PACCAR Inc. (PCAR) announced that it would release its results for the first quarter of 2011 before the market opens on April 19, 2011. Washington-based PACCAR Inc. earned a profit of 46 cents in the fourth quarter, exactly matching the Zacks Consensus Estimate. In the upcoming quarter, the Zacks Consensus Estimate for PACCAR Inc. is pegged at a profit of 49 cents per share, reflecting an annualized growth of 157%. The upside potential of the estimate, essentially a proxy for future earnings surprises, is just 2.04%.
With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters. This is reflected in the average earnings surprise of 15.66%, with mixed experiences in the last four quarters. The last quarter recorded a negative surprise while the other three saw positive surprises.
Fourth Quarter Review
PACCAR reported a profit of $ 169.8 million or 46 cents per share in the fourth quarter of 2010, which more than tripled from $ 46.1 million or 13 cents per share in the same quarter of 2009. The profit was in line with the Zacks Consensus Estimate.
Net sales and Financial Services revenues soared 37% to $ 3.06 billion, which was higher than the Zacks Consensus Estimate of $ 2.75 billion. The rise in sales and profit was attributable to increased sale of trucks and parts, higher aftermarket revenues and increased profits in Financial Services.
Revenues in the Truck and Other segment jumped 42% to $ 2.82 billion. The company’s DAF brand acquired 15.2% of market share in 2010 in the above 15-tonne market, the highest in its 82-year history.
Revenues in the Financial Services segment dipped 4% to $ 243.8 million from $ 254.9 million in the same quarter of 2009. Pretax income was $ 49.9 million compared with $ 35.6 million in the fourth quarter of 2009. The provision for credit losses was $ 12.6 million versus $ 23.7 million in the prior year.
The company’s cash and marketable debt securities amounted to $ 2.43 billion as of December 31, 2010, up from $ 2.06 billion as of December 31, 2009. Long-term debt declined to $ 150 million from $ 172.3 million as of December 31, 2009. The company’s debt-to-capital ratio improved to 2.7% as of December 31, 2010, from 3.3% in the year-ago period.
Estimate Revisions Trend
The first quarter 2011 estimate remained unchanged at 49 cents. This implies that the analysts are cautious about the stock. The overall macro economic condition has marred the near-term visibility of the analysts.
Agreement of Estimate Revisions
Only 1 out of the 15 analysts covering the stock for the first quarter of fiscal 2011 has made a downward revision in the last 7 days. However, no upward revision has been made in the past 30 days. A slow recovery of the market as well as the doubt surrounding the sustainability of the ongoing improvement has forced the analysts to remain cautious on the stock.
Magnitude of Estimate Revisions
The first quarter 2011 estimate remained unchanged at 49 cents in the last 7 days, last 30 days and in the last 60 days. The Zacks Consensus Estimate for the first quarter is 158% higher than the year-ago profit of 19 cents.
Our Take
The North American heavy-duty truck market is improving creating opportunities for the truck manufacturers including PACCAR. In 2010, the total market for heavy-duty trucks in North America was 142,096 trucks, up 20% from 117,983 trucks in 2009. This year, the North American market for heavy-duty trucks is expected to reach 220,000 units driven by increased demand to replace the aging population of heavy-duty trucks. Demand for trucks in South America is rising given attractive incentives namely subsidized financing. Similarly, European markets are also showing signs of progress.
However, the sustainability of the improvement is yet to be observed. In addition, competition from big truck makers like Daimler AG (DDAIF) and Volvo AB (VOLVY) may also harm PACCAR’s business over the long term.
Thus shares of PACCAR Inc. are maintaining a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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