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WIKI ANALYSIS
Paccar (NASDAQ: PCAR) is a U.S.-based truck manufacturer. Paccar makes medium (14,001 to 26,000 lbs) and heavy (over 26,001 lbs) trucks for the North American and European markets under the Kenworth, Peterbilt, Foden, and DAF brands.[1] In Europe, the company makes light trucks (under 8,500 lbs) under the Leyland Trucks brand.[2][3] The company held 26% of the North American heavy truck market, 14% of the European heavy truck market, and 8% of the European light/medium market in 2007.[4]
In 2007, Paccar's U.S. sales suffered due to new EPA regulations, which increased the average price of a new heavy truck by roughly $7,500 in 2007.[5] In the first half of 2008, a softening U.S. economy resulted in nearly flat consumer spending growth (0.5% and 0.2% for the first and second quarters of 2008, respectively), which means that there is less demand for trucks to transport goods.[6] On the other hand, global demand is fairly healthy and the weak dollar provided Paccar with a $590 million revenue boost in 2007.[7] Paccar's trucks compete with brands such as Mack Trucks, International Trucks, and Daimler Trucks.
Business Segments
Trucks
Paccar's Trucks segment accounted for 91% of all the company’s revenue in 2007. The segment designs and manufactures medium- and heavy-duty trucks under the Kenworth, Peterbilt, and DAF brands for the North American and European markets. The company also produces light/medium-duty trucks for the European market under the DAF brand. Paccar's trucks compete against trucks produced by AB Volvo (VOLVY), Daimler AG (DAI), and Navistar International (NAV). In North America, the company's share of the heavy-duty truck market was 26% in 2007. In Europe, the company held 14% of the heavy-duty truck market and 8% of the light/medium market.[9]
In addition to the trucks themselves, the Trucks segment also makes aftermarket parts, which are distributed through independent dealers. The trucks are essentially custom products and, with the exception of the DAF brand in Europe, customers choose up to 90% of the truck's components such as engines, axles, and transmissions.[10]
Financial Services
Financial Services brought in 8% of the company's 2007 revenue. This segment provides financing to the independent dealers that sell Paccar's trucks. It also provides leasing and retail financing to end purchasers of the company's trucks.[11]
Other
The Other segment manufactures industrial winches and markets them under the Braden, Carco, and Gearmatic brand names. Other accounted for only 1% of the company's sales in 2007.[12]
Business Financials
Paccar Revenue, Operating Income, and Net Income[14] ($ in millions)
| Segment | 2007 | 2006 | 2005 |
| Truck | 13,853 | 15,367 | 13,196 |
| Financial Services | 1,191 | 951 | 759 |
| Other | 177 | 136 | 102 |
| Total | 15,222 | 16,454 | 14,057 |
| Operating Income | 1,669 | 2,094 | 1,717 |
| Net Income | 1,227 | 1,496 | 1,133 |
Between 2006 and 2007, revenue from truck sales decreased by roughly 10%.[15] This is mainly due to a 45% decrease in cyclical demand for the company's trucks in the United States and Canada.[16]
Key Trends and Forces
Government regulation creates cyclical demand in the commercial truck market
The EPA emissions standards that came into effect on January 1, 2007 were projected to increase the price of an average new heavy truck by $7,500.[17] When new government emissions standards are introduced, the average price of a new truck usually increases as manufacturers spend more money on technology and research so that their vehicles meet the new emissions requirements. Because the new emissions standards only affect trucks manufactured after they come into effect, truckers do not need to update older trucks. As a result of the costs associated with buying trucks manufactured after emissions standards come into effect, truckers have an incentive to rush new truck purchases before the new standards come out. By the same token, truckers also tend to hold off on new truck purchases after the standards come out. This increase in truck prices combined, with a softening US economy, led to a 45% decrease in the number of trucks Paccar sold in North America from 2006 to 2007.[18]
The demand for the goods transported by truckers influences the demand for trucks
A USA TODAY survey reported that in Q1 and Q2 2008, consumer spending fell to 0.5% and 0.2%, respectively.[19] When spending on all goods decreases, businesses don't need as many trucks to transport goods, resulting in lower revenues for Paccar. The slowdown in consumer spending growth, combined with new EPA regulations, resulted in a 45% decrease in the number of trucks Paccar sold in North America in 2007.[20] On the other hand, when consumers spend more money and the demand for goods increases, businesses need trucks to transport goods and keep their shelves stocked, boosting Paccar's sales.
The weak dollar boosts Paccar's international revenues
Because Paccar reports its earnings in USD but sold 55% of its trucks outside of the United States in 2007, exchange rates affect its revenues. When the dollar depreciates, any transactions recorded in foreign currencies will convert to more dollars and increased revenues for Paccar. On the other hand, when the dollar appreciates, the opposite is true, meaning that a strong dollar decreases the value of Paccar's international sales. Between June 18, 2007 and June 18, 2008 the U.S. dollar depreciated in relation to the euro, the Canadian dollar, and the Mexican peso.[22][23][24] The decrease in the dollar's value boosted Paccar's revenues by $590 million in 2007.[25]
Key Competitors
Paccar's key competitors are:
- Daimler AG (DAI) - Daimler AG is a German manufacturer of cars, trucks, vans, buses, and other automobiles. Its light and heavy trucks compete with Paccar's models in Europe.[26]
- AB Volvo (VOLVY) - Volvo is a Swedish manufacturer of trucks, buses, and construction equipment, as well as marine and aircraft engines. Its Mack Trucks line competes with Paccar in North America and its Renault and Volvo Trucks brands in Europe.[27]
- Navistar International (NAV) - Navistar is a U.S. company whose trucks compete with Paccar under the International Trucks and MaxxForce brands in North America. Navistar also manufactures engines and aftermarket parts for trucks.[28]
Paccar and Key Competitors 2007 ($ in millions)
| Company | Revenues | Net Income | Net Profit Margins |
| Paccar, Inc | 15,222 | 292 | 1.92% |
| Daimler AG (DAI) | 136,246 | 5,462 | 4.01% |
| AB Volvo (VOLVY) | 42,302 | 2,213 | 5.23% |
| Navistar International (NAV) | 12,295 | -120 | -0.98% |
Note: Financial information for Daimler AG (DAI) and AB Volvo (VOLVY) was converted using 2007 average exchange rates.[29][30]
References
- ↑ About.com: Medium Truck
- ↑ 40CFR86.082-2, pg 240
- ↑ TDDS Technical Institue: Glossary of Terms
- ↑ PCAR 2007 10-K: Trucks, pg 3
- ↑ Emissions regs drive truck business.(new emission standards for heavy truck companies)(Brief article)
- ↑ USA TODAY survey: We're in recession, economists say
- ↑ PCAR 2007 10-K: EX-13, pg 25
- ↑ PCAR 2007 10-K: EX-13, pg 24
- ↑ PCAR 2007 10-K: Trucks, pg 2-3
- ↑ PCAR 2007 10-K: Trucks, pg 2-3
- ↑ PCAR 2007 10-K: Trucks, pg 4
- ↑ PCAR 2007 10-K: Trucks, pg 4
- ↑ PCAR 2007 10-K: EX-13, pg 25
- ↑ PCAR 2007 10-K: EX-13, pg 24
- ↑ PCAR 2007 10-K: EX-13, pg 24
- ↑ PCAR 2007 10-K: EX-13, pg 25
- ↑ Emissions regs drive truck business.(new emission standards for heavy truck companies)(Brief article)
- ↑ PCAR 2007 10-K: EX-13, pg 25
- ↑ USA TODAY survey: We're in recession, economists say
- ↑ PCAR 2007 10-K: EX-13, pg 25
- ↑ EUR to USD Exchange Rates
- ↑ EUR-USD Exchange Rates
- ↑ USD-CAD Exchange Rates
- ↑ Search for Mexican Peso to US Dollar
- ↑ PCAR 2007 10-K: EX-13, pg 25
- ↑ DAI 2007 Annual Report: Statement of Income
- ↑ Google Finance: VOLVY
- ↑ Google Finance: NAV
- ↑ Monthly Average Graph (American Dollar, Euro) 2007
- ↑ Monthly Average Graph (American Dollars, Swedish Krona) 2007
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