Paccar stays in the fast lane, but slowdown around bend

The past few years have been gravy time for U.S. truck makers. With freight volumes rising at a healthy clip and the prospect of tougher emissions rules next year, trucking firms have rushed to buy new rigs.

Perhaps no truck builder has benefited from this rush as much as Paccar. The Bellevue-based company has more than a quarter of the U.S. and Canadian market for heavy "Class 8" trucks.

Over the past 12 quarters, Paccar has made more than $3.3 billion in profit, including the $403.6 million third-quarter profit reported Tuesday.

That run is almost certain to tail off next year, industry analysts say, partly due to the softening economy, but mainly because of the costs and uncertainties related to the new Environmental Protection Agency rules.

The rules will sharply reduce the amount of soot and other pollutants that trucks' diesel engines can emit.

"It's all but a certainty that 2007 will be a very bad year," said Eric Starks, president of FTR Associates, a freight-transportation research firm in Indiana. "The question is, will the falloff be 30 percent, 50 percent or 75 percent? It's a big question, and nobody knows."

So it probably shouldn't have come as a surprise Tuesday that Wall Street was focused less on Paccar's third-quarter results — the latest in a string of record performances — and more on its outlook for 2007.

At $1.61 a share, Paccar's third-quarter profit handily beat the consensus Wall Street estimate of $1.48. However, the company's stock slipped 14 cents, closing at $60.86.

That may be because the company said it expects next year's total industry sales of heavy trucks in the United States and Canada to be between 200,000 and 230,000 units — narrower than the forecast made last quarter of 200,000 to 250,000 units, and 27 to 37 percent below this year's expected sales of 315,000 units.

During the company's conference call, stock analysts repeatedly pressed Paccar management for clues as to what spurred the changed forecast. They didn't get any.

"Realistically, we're three months smarter than we were three months ago," said Chief Executive Mark Pigott.

He added that worldwide, he still expects 2007 to be a near-record year for truck sales. Paccar derives nearly 48 percent of its sales from overseas, and Pigott said he expects business to grow in Europe, Mexico, Australia and Asia.

"[We] may see some slower markets in the U.S. and Canada," he said. "But overall, I think this will be one of the five best years for the industry. Very exciting."

Also Tuesday, Volvo reported higher profitability at its Mack Trucks subsidiary but said truck demand could be down as much as 40 percent in the first half of 2007. Last week, Mack said it would lay off 450 workers at a Pennsylvania assembly plant.

DaimlerChrysler, the parent of Portland-based Freightliner, will report its third-quarter results today. Navistar, the other leading truck maker, is in the midst of restating several years' worth of financial results and not likely to report current figures anytime soon.

Given the strong freight volumes since late 2003, trucking firms would have bought more rigs anyway the past few years, FTR's Starks said. But the impending EPA rules, which cover newly built diesel engines and entail the rollout of new ultra-low sulfur diesel fuel at filling stations, have given sales an extra push.

There has been considerable uncertainty as to how the new engines and the new fuel will perform under actual road conditions, Starks said, and whether the engines will be more expensive to maintain. "No one wants to be the first test dummy," he said.

At Paccar and other truck makers, new orders are still flowing in, though at a slower pace than last year, Starks said.

His firm predicts slower growth in freight volume for most of next year.

"They're producing as many trucks as they can," Starks said. "But the more you produce [now], the fewer you'll need to build next year."

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com