Heavy truck manufacturer Paccar (PCAR) has historically been one of the most profitable companies in its industry. However, the truck market is very cyclical. It appears the cycle is back into an upswing, but there are several overhanging concerns about whether the current cycle has legs.
Paccar manufactures the Kenworth and Peterbilt brands of heavy trucks in the United States and the DAF brand in Europe. The company has a 15 percent share of the European heavy truck market and controls about 25 percent of the U.S. market. In the first half of 2011, Paccar initiated sales of DAF trucks in South America and will build a manufacturing plant in Brazil.
The truck market cycle peaked for Paccar in 2006, when the company earned a net profit of $1.5 billion. Profit for the next two years was $1.2 and $1 billion respectively. In 2009, the recession hit truck sales hard and Paccar earned just $111 million, less than the company earned in 2001, the start of the previous up cycle in heavy trucks. For 2010, net income increased to $458 million or $1.25 per share.
For the first two quarters of 2011, Paccar posted earnings of 49 cents and 65 cents per share, respectively. The Paccar board increased the ongoing quarterly dividend by 50 percent to 18 cents per share. The consensus earnings forecast for full year 2011 is $2.60 per share, more than double the 2010 earnings. Forecast earnings for 2012 are $3.55 per share.
Paccar missed the consensus estimate of 69 cents per share for the second quarter. Investors can watch how the company performs for the next several quarters to get a feel for the strength and growth possibilities of the current up cycle in the truck industry in the face of a slow economy.
Recently, the analysts at McAdams Wright Ragen and D.A. Davidson upgraded PCAR to buy from hold and neutral. The Avondale Partners analysts upgraded the stock to market outperform from market perform.
The company reports next on Oct. 25.
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