PACCAR Earnings Estimate Scorecard

May.16.10 | About: PACCAR Inc. (PCAR)

PACCAR Inc. (NASDAQ:PCAR) reported its first quarter earnings for 2010 on April 20, 2010, outperforming the Zacks Consensus Estimate by 4 cents per share. The market reacted positively, with share prices rising in the subsequent days.

Analysts were optimistic given the company’s impressive results and better outlook, as more than half of the analysts covering the stock revised their estimates upward. Below we will cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for both short-term and the long-term outlook for the stock.

Earnings Report Review

PACCAR’s earnings topped the Zacks Consensus Estimate with the help of revenue growth. Revenue during the quarter escalated 12%, led by higher sales of trucks and aftermarket distribution of parts along with a rise in Financial Services profits and revenues. The higher earnings also helped PACCAR to improve its cash flow by a staggering 214%.

In the truck business, PACCAR benefited from a small “pre-buy” in the U.S. and Canadian markets as customers took delivery of vehicles with new EPA 2010 engine emission technology. The improvement in PACCAR Financial Services results was led by a 10% fall in interest and other expenses, and a reduction of 13% in provision for credit losses.

The company continues to expect sales for above 15-ton vehicles to lie in the range of 150,000–180,000 units in 2010, compared with 168,000 units in 2009. The U.S. and Canadian Class 8 retail sales are projected to be in the range of 110,000–140,000 units during the year, an increase from 108,000 units last year. PACCAR also plans to increase its capital investments in 2010, targeting new products and enhancing operating efficiency.

(See PACCAR Earnings Blog: PACCAR Profits More than Double)

Earnings Estimate Revisions – Overview

Estimates have improved since the earnings release, implying analysts’ optimism about the stock. The share price movement was favorable as well, suggesting PACCAR is a good stock to own. The company has witnessed top-line growth, its cash flow is healthy and its outlook is enticing. Let's move into the earnings estimate details.

Agreement of Analysts

The table below shows a strong agreement among the analysts regarding the outlook of PACCAR’s earnings. Out of 17 analysts covering the stock, 13 have revised upward the estimate for 2010, and only 2 analysts have revised downward. Looking into 2011, the trend is even stronger. There were 12 analysts revising estimates upward, while none moved in a downward direction. This impressive trend in estimate revisions promises a consistent stream of earnings.

Magnitude of Estimate Revisions

Earnings estimates for 2010 are raised by 10 cents from 89 cents to 99 cents since the earnings announcement. Analysts are even more confident about 2011. They have raised the estimates by 21 cents from $2.09 to $2.30 for the year. This looks promising again as analysts continue to value the stock at an increasing premium.

PACCAR’s core business in Europe is improving. The company expects an improvement in year-over-year production in the continent, especially with its light/medium trucks, marketed under the DAF nameplates. This is because dealers in the continent, whose new-truck inventory had depleted in the first quarter of 2010 from the year-ago level, are now looking to purchase fresh stock.

PACCAR is well positioned in key non-U.S. markets, particularly in Mexico and Australia. Over 60% of PACCAR’s revenues and profits are generated outside the U.S. The company has a leading share in Mexico (38%) and Australia (22%), both of which saw a surge in demand due to emission regulations.

However, the growth in the Class 8 truck markets has been sluggish. Retail sales volume in the U.S. and Canadian markets for these trucks will not be significantly above the 2009 levels, feels the company.

Further, PACCAR’s debt level has increased significantly. In 2009, the company’s long-term debt shot up to $172.3 million and then stabilized at $173.1 million in the first quarter of 2010 from $19.3 million in 2008.

These have led us to reiterate our Neutral recommendation on the stock for the long-term and Zacks #3 Rank (Hold) for the short-term.