PACCAR Inc. (NASDAQ:PCAR) Q2 2017 Earnings Conference Call Transcript

Jul 25, 2017 • 12:00 pm ET

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PACCAR Inc. (NASDAQ:PCAR) Q2 2017 Earnings Conference Call Transcript

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Presentation
Operator
operator

Good morning, and welcome to PACCAR's Second Quarter 2017 Earnings Conference Call. All lines are been in listen-only mode, until the question-and-answer session. Today's call is being recorded, and if anyone has any objections, they should disconnect at this time.

I would now like to introduce Mr. Ken Hastings, PACCAR's Director of IR. Mr. Hastings, please go ahead.

Executive
Ken Hastings

Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of IR. And joining me this morning are Ron Armstrong, CEO; Harrie Schippers, EVP and CFO; and Michael Barkley, SVP and Controller. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode.

(Forward-Looking Cautionary Statements)

I would now like to introduce Ron Armstrong.

Executive
Ronald Armstrong

Good morning. PACCAR reported strong revenues and net income for the second quarter of 2017. PACCAR's second quarter sales and Financial Services revenues were $4.7 billion, and second quarter net income was $373 million, a 7.9% after-tax return on revenues. PACCAR Parts achieved record quarterly revenues of $823 million, and record pretax profits of $152 million.

PACCAR achieved excellent combined truck and parts gross margins of 14.6%, driven by higher North American truck deliveries, the strong European truck market and the record PACCAR Parts results. I'm very proud of our 24,500 employees around the world who have delivered outstanding products and services to our customers.

PACCAR delivered 39,400 trucks during the second quarter, 13% higher than the first quarter and 6% above last year's second quarter. Peterbilt and Kenworth raised build rates during the quarter in response to robust order intake this year. Looking ahead, PACCAR expects 2% to 3% higher deliveries in the third quarter compared to the second due to the higher build rates in all markets, partially offset by fewer build days in Europe due to the normal summer shutdown. Third quarter gross margins are projected to be comparable to second quarter margins.

We've raised our forecast for Europe's above 16-tonne market to a range of 290,000 to 310,000 units, reflecting strong demand and the steady economic outlook. Europe's GDP growth expectations for this year are 1.8% in the U.K. and on the continent. Freight transport activity on German highways year-to-date was at record levels and up 3.6% compared to the same period last year.

During the second quarter, DAF introduced new model year 2017 XF and CF trucks which deliver up to 7% higher fuel economy compared to the previous models. This contributed to DAF's 10% growth in above 16-tonne orders in the first half this year compared to the same period last year.

U.S. and Canadian Class 8 truck industry retail sales are expected to be in the range of 200,000 to 220,000 units this year. Class 8 truck industry orders were up 44% in the first half this year compared to the same period in 2016. Peterbilt and Kenworth's Class 8 retail sales market share was an excellent 31% in