Morningstar | Paccar Beats Expectations with Record 2Q Performance; Maintaining FVE
Narrow-moat Paccar posted strong second-quarter earnings boasting record deliveries and profits. The firm capitalized on tight truck market capacity and grew second-quarter earnings per share by 50% to $1.59. Global deliveries reached a record 46,400 and North America deliveries climbed 22% over last year. The manufacturer also gained market share in the European above 16-tonne segment with its DAF brand, expanding from 15% to 17% during the past year.Paccar's truck segment turned in strong results, growing its top line 26% year over year and expanding operating margins 100 basis points. Management attributed strong second-quarter results to robust truck demand, citing North American Class 8 truck orders in the first half of 2018 more than double the first half of 2017. Paccar's parts business also registered solid revenue growth at 17% over the prior-year second quarter. Management expects aftermarket demand to carry over into the second half of the year and plots full-year parts sales growth near 14%, slightly higher than the 10% we model.
Paccar's outlook for truck markets remains elevated, and backlogs have swelled thanks to orders well into 2019. We agree that markets will remain tight and we model 50 basis points of operating margin expansion in 2018. However, we believe markets will cool off through midcycle and maintain our expectation that normalized operating margins will reach 10% by 2022. We maintain our $71 fair value estimate.
PACCAR is a multinational company operating in three principal industry segments: the Truck segment includes the design, manufacture and distribution of light-, medium- and heavy-duty commercial trucks, which are configured with engine in front of cab or cab-over-engine; the Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles; and the Financial Services segment includes finance and leasing products and services provided to customers and dealers. The company's other business includes the manufacturing of industrial winches in two United States plants and marketing them under the Braden, Carco and Gearmatic nameplates.
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