July 26, 2023

Paccar price hikes propel Q2 profit surge


Paccar charged 15% more for a new truck than a year ago, a driving force behind a surge in second-quarter profits.

But inflation-driven pricing is only part of the story of a record 70% increase in Q2 profitability.

The Bellevue, Washington-based parent of Kenworth, Peterbilt and DAF Trucks charged customers substantially more for new equipment than the roughly 9% increase it paid to build a truck.

“We expect [gross profit] margins of 18-19% in Q3. That’s a testament of how we see the price/cost analysis going,” CEO Preston Feight told analysts on the company’s earnings call Tuesday. 

Paccar sold out of build slots for 2023

Paccar is seeing strong demand for its trucks, almost all of which have been revamped in recent years to boost fuel economy. Plants are essentially out of build slots for the rest of this year. Unlike some industry predictions, Paccar sees a robust 2024.

“Being full for 2023 right now is a great place to be operating from,” Feight said. “The markets continue to be healthy for us around the world. We’re having great conversations around what the needs are going to be and the order needs are going to be for next year.”

Paccar estimates Class 8 industry retail sales in the U.S. and Canada to be in a range of 290,000-320,000 trucks this year. 

Growth markets: LTL and vocational trucks

Growth markets include less-than-truckload and vocational models, which are benefiting from federal infrastructure money being distributed to states.

“There is a limitation from the body builders’ standpoint,” Feight said. “They’re trying to build as many bodies as they can. We’re trying to build as many trucks as we can. We think that will continue for quite some time.”

Controlling sales, general and administrative expenses was another factor in the strong performance.

“All of these things are taking our profitability to a structurally improved level,” Feight said.

Paccar invested in its business, including $47 million for a new 105,000-square-foot testing facility at its Kenworth assembly plant in Chillicothe, Ohio. The company has invested $7.5 billion in products and facilities in the past decade, CFO and President Harrie Schippers said.

Parts sold for 13% more than a year ago. That’s the same margin Paccar expects for the full year, a combination of volume and higher prices. Paccar operates 18 parts distribution centers  globally covering 3.3 million square feet. A 19th center opens in Germany in 2024.

“Our ability to get parts to our customers in the same day or next has changed a lot,” Feight said. “So we are the desired place to go for parts.”

Pent-up demand for parts has been mostly met as supply chain disruptions have eased in recent quarters. The same cannot be said on the truck side. Modest supply constraints should push some orders into 2024.

Paccar build percentage growing but market share off to tough start in 1st half

The company pointed to a 9.2% market share in South America, a market Paccar entered a decade ago. It did not reveal North American or European market share figures.

“Our build percentage is increasing. And as our build percentage increases, then our market share grows,” Feight said. “We’ve seen nothing but strong demand for the products, so it’s really about being able to satiate that demand.”

There is evidence that fleets are replacing their fleets faster than previously, especially after being forced to hold on to vehicles beyond traditional trade cycles during the pandemic.

“The trucks being produced, specifically by Paccar, are providing operating cost improvements that make people want to renew their fleet sooner,” Feight said. “The value is so high that you just want to replace the truck. So we see those turns happening more frequently.”

Paccar shares closed down 2.69% at $86.31 Tuesday, paring a deeper intraday decline.   Shares have retreated since closing at a record $89.42 last Tuesday. They were up 34.4% year to date through Monday compared to the S&P 500 gain of 18.6%. The company last week raised its quarterly dividend by 8% to 27 cents from 25 cents.

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Click for more FreightWaves articles by Alan Adler.


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