PACCAR (PCAR, Financial) is seeing tremendous traction for its DAF vehicles in the European market. It recorded 13.8% market share, with 16 tonne truck market totalling about 227,000 units in 2014. Looking forward, the company expects its European above 16-tonne truck market to grow in the range of 200,000 to 240,000 vehicles in fiscal 2015. This is really an encouraging growth and should improve its bottom line performance this year. Moreover, the U.K economy is expected to grow more than 2% this year that should add extra growth to its truck market.
Better times ahead
It reported better than expected results for the fourth quarter 2014. Its earnings for the quarter rose approximately 18% to $1.11 per share from $0.94 per share a year ago. This topped the consensus estimates of $1.09 earnings per share for the fourth-quarter. Also, its revenue came in at $5.12 billion, an uptick of 11% as against $4.6 billion last year. The consensus was anticipating revenue of $4.87 billion in revenue for the quarter.
PACCAR is seeing tremendous growth across its business profiles such as parts, trucks and financial services segments. The truck sales expanded to $14.59 billion, while its parts sales came in at $3.08 billion for fiscal year 2014. This represents significant improvement of 12% and 9% respectively over 2013. This positive contribution from its businesses is delivering higher operating margins for PACCAR.
The truck market generated about $1.16 billion, and the parts business produced $497 for fiscal 2014. The pre-tax profits of the trucking business rose 24%, while the profitability for its parts business expanded 19%. Further, the company has strategically enlarged its product and service offerings. It is experiencing strong freight tonnage, high fleet utilization and innovation across the business profiles that will drive its growth in the future. Also, its continuous investment in the newer technologies should enhance its profitability this year.
Furthermore, the company should benefit from better overall global demand for trucks. It expects the industry retail sales to grow between 250,000 and 280,000 vehicles in the United States and Canada this year. The company anticipates higher consumer spending, replacement demand and fleet expansion to drive sales for vehicles. This is driving sales for class 8 trucks in the North-America. Its class 8 truck market rose 17.9% to 250,000 units in the fiscal 2014.
It is seeing continuous momentum in its class6, 7, and 8 trucks that should improve its sales this year. It expects its vehicle delivery in the first-quarter to be around 15% to 18% higher than the first-quarter 2014. It forecasts its truck margins to be 1% to 1.5% better over first-quarter 2014.
Ending remarks
PACCAR is benefiting from freshness in its products and services. Also, the investment in the world class technologies should create better demand for its vehicles in the future. The analysts expect its earnings to grow at CAGR of 12.30% for the next five years. This indicates reasonable growth for the company in the future.
Moreover, the stock is cheap as it is trading at the forward P/E of 13.77, which is below its trailing P/E of 16.65. It has PEG ratio of 1.19 that continues to support its growth in the future. It has profit and operating profit margins of 7.15% and 10.53% respectively for the past twelve months. Its balance sheet carries total cash of $2.94 billion and total debt of $8.28 billion. PCAR has operating cash flow of $2.12 billion and levered free cash flow of $2.51 billion.
Also, it has strategically expanded its product and service offerings with investments in newer technologies that should drive its growth in the future.
