Paccar: Petercars And K-Whoppers

| About: PACCAR Inc. (PCAR)

It's been said to invest in what you know. I spent thirty years as an over the road trucker, so I think I can state with a reasonable amount of certainty that I know a little about trucks. In my opinion Paccar (NASDAQ:PCAR), the manufacturer of Peterbilt and Kenworth, builds the finest truck in the world.

All of today's semi tractors are well built. The very nature of the job and the sad state of this country's infrastructure mandate quality vehicles. Navistar International (NYSE:NAV), Mack, a member of the Volvo group and Freightliner, owned by Daimler (OTCPK:DDAIF) all produce first-rate vehicles that provide Paccar with stiff competition. It's Paccar, however, and more exactly Peterbilt and Kenworth, that set the standard for the rest. Simply put, Paccar acts and the others react.

In the course of this article, I hope you'll excuse me if I digress occasionally and give you a bit of trucking information. Some of this information is totally useless and some of it might save your life. Here's a little of the useless stuff.

The title of this article contains two of the nicknames drivers have given Peterbilt and Kenworth. Here are a few more sobriquets truckers have given other makes. Because Navistar's ancestor was International Harvester, it will always known as "Binder" or "Farm-All". Many years ago, Freightliner was the roughest riding truck in the industry. Even though that has long since changed, the make is still known as a "Freightshaker". A Mack truck, of course, is a "Bulldog" or a "Puppy Dog". That's enough nonsense.

In 2009, when truck sales fell 45%, Paccar still showed a profit of $.31 a share. Even more remarkable is the fact that despite the violent mood swings in the trucking sector, Paccar has shown a profit for 74 straight years. That's a streak that started when Hitler was drooling over Poland. In the last 10 years, the truck maker has returned 16.2% annually to shareholders. This compares to 7% for the S&P 500. Paccar is modestly leveraged and the payout ratio on its 1.7% dividend is a paltry 25%. The company also has the adorable little habit of declaring special dividends at the end of the year. A little Christmas gift for the shareholders, if you will. Since 1995, there have been 5 stock splits.

Paccar is increasing its global presence with the DAF model and now has a 16% market share in Europe. A new manufacturing facility is being built in South America and the company set a sales record in Russia. A recently constructed parts distribution center is due to open this year in the Netherlands.

How about a little useful information? Did you know a car traveling 55 M.P.H. takes 150 feet to come to a complete stop? A forty ton semi takes 300 feet. Give them a lot of room, at least 4 car lengths. It might save your life.

I believe the economic stars are lining up for Paccar and its brethren. More and more reports are pointing to a resurgent economy in this country. Unemployment is falling, new home starts are rising and many companies are rushing to raise money. The stock market is on a tear and people looking at their plump 401s' feel a lot richer than they did a year ago. Goods and materials have to be moved and a large part of that job is done by trucks.

Another thing benefiting Paccer is the aging North American fleet. These trucks need more and more maintenance and Paccar, with its world-class parts and service platform, is more than up to the task. Business has been good, so good in fact that beginning in 2012, the truck builder started reporting its parts division as a separate segment in their annual confessional.

Fleet managers repair for only so long, however, before making the decision to purchase new equipment. The life span of a tractor as far as a trucking company is concerned is between 500,000 and 600,000 miles; that's about 4 years. If properly maintained, these trucks could and will go a million miles or more. That being said, when a unit gets older, little things can go wrong. These are things not normally covered in a routine maintenance schedule. Much of the freight these fleets haul is time sensitive. Try calling SuperValu (NYSE:SVU) for instance, and telling them that the load of fresh strawberries they need up in Fargo on Tuesday won't be there until Wednesday because your truck has a broken whatchamacallit. A couple of calls like that and you'll lose the account. It behooves these trucking outfits to keep their fleets as modern as possible. It's just good business.

Obviously, Paccar has the trucks to sell, but the real growth in this area is the company's leasing and financing operations. This sector is where the margins are fat and sassy. In 2012, Paccar's financing division claimed only 6.4% of total revenue, but accounted for over 19% of total pretax income.

Here's another safety tip. Trucks have blind spots. Please learn where they are and avoid them. I guarantee you this is a life saver.

A few weeks ago, I wrote an article about Snap-On Tools. In it, I tried to explain that regardless of cost, professional technicians would always covet these tools. There is a parallel scenario with the Peterbilt and Kenworth brands. There is a mystique to these trucks. As a professional driver, to drive one of these models is to make a strong statement about yourself and the seriousness with which you take your job.

In any Peterbilt or Kenworth dealer you will find what I call the jewelry shop. Here, you can find any kind of chrome trinket imaginable for your ride. Expensive trinkets I might add. Paccar sells tons of this stuff. Many drivers of Paccar equipment don't drive their trucks, they wear them.

If you're still up to it, here is one last piece of useless information. On a beautiful fall afternoon about ten years ago, my trailer brakes failed while I was coming down a mountain in Colorado. You know what? Your life does flash in front of you.

I retired in 2009. My Peterbilt had 2,000,000 miles under its belt. I sold it to my son. He's still driving it. Now that might be some information you can use.

Check out Paccar and let me know what you think.


Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PCAR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.