PACCAR Is Speeding Up
PACCAR (NAS: PCAR) seems to never fail to impress. After an astounding fourth quarter, it has treated us to smashing first-quarter numbers, driving over analyst estimates on both the top and bottom lines. Things are clearly going well for the truck maker, and it looks like it will stay that way. Here's why.
As expected, PACCAR delivered 45% more trucks during the first quarter. Thanks to rising freight rates and tonnage, the trucking industry is performing pretty well. And it's not just the demand for new trucks. The fleet is aging fast, too, thus pushing the need to replace aging vehicles, particularly in markets like the U.S. and Canada. This was a key factor that drove PACCAR's revenue up by a handsome 48% in the first quarter. Revenue from the U.S. and Canada shot up 84% from the year-ago period, making up for a 6% slump in revenue from Europe.
Peers Caterpillar (NYS: CAT) and Terex (NYS: TEX) are also banking heavily on replacement demand. Terex recently hired nearly 500 employees at two U.S. plants to meet demand and Caterpillar is expecting an improvement in revenue from the European region this year on the back of replacement demand. As for PACCAR, a rising average age of vehicles could also mean higher aftermarket sales, something it witnessed in the first quarter. With the trucking market currently in great shape, the company should continue to make money from aging trucks.
Sunny days ahead
Eaton (NYS: ETN) , one of the leading transmission suppliers to the truck industry, recently dismissed fears of a slowdown in the U.S. truck market, expecting heavy-duty truck production to be 16% higher this year. PACCAR and Eaton have been working together for years to build hybrid technology power systems for PACCAR's trucks.
That the trucking industry is showing signs of a strong rebound is evident from the latest industry data. After climbing 5.9% in 2011, overall truck tonnage was up 3.1% in January and 5.5% in February, over respective year-ago periods. The American Trucking Association's Annual Trend Report also highlighted the way the market is picking up.
While enjoying the revival in the North American truck market, PACCAR is also revving up efforts to increase its foothold in markets abroad. Construction at its new heavy-duty DAF trucks facility in Brazil, which was flagged off some months back, is well on schedule, and the plant should be operational by mid-2013.
PACCAR is particularly upbeat about the two new "next-generation" truck models it launched last month. Kenworth and Peterbilt, the brands under which the models were launched, have been doing very well lately. The share of these brands in the U.S. and Canada heavy-duty Class 8 market hit a record high of 28.1% last year. Currently, they are behind Navistar International (NYS: NAV) in terms of market share. But given the pace at which their sales have surged in the past three months, PACCAR might soon give Navistar reasons to worry. Add to it PACCAR's initiatives to use a greater number of natural gas engines in its trucks, and we have a company that looks set to roar.
The Foolish bottom line
Superb performance, great growth plans, and encouraging industry trends -- PACCAR's clearly on a high. The story gets even better with PACCAR raising its quarterly dividend to $0.20, from $0.18.
Well-poised to take advantage of the reviving truck industry, PACCAR certainly deserves a spot in your watchlist. Click here to add PACCAR to your free stock-tracking watchlist.
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At the time this
article was published Fool contributor Neha Chamariadoes not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of PACCAR. The Motley Fool has a disclosure policy.
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