Lower-sales prediction rattles Paccar stockholders

Paccar reported a sharply lower second-quarter profit Tuesday, but that wasn't why investors pummeled the stock of the Bellevue-based truck maker.

They were looking at the road ahead, not the rear-view mirror, concerned that the current trough in the North American new-truck market will be deeper and last longer than expected.

Paccar said it earned $298.3 million in the three months ended June 30, down 19.4 percent from the same period in 2006. Total revenue in the quarter fell 10.8 percent, to $3.72 billion; earnings per share came in at $1.19, versus $1.47 a year earlier.

None of those declines was unexpected. On the contrary, Paccar's results actually beat Wall Street's consensus estimates, as reported by Thomson Financial.

However, Paccar also cut its forecast for industrywide North American sales this year. Other industry reports suggest the business won't be turning up any time soon.

There had been some hope that orders would start picking up this summer, said Tim Vieth, senior partner at Americas Commercial Transportation (ACT) Research, an Indiana-based research company. But, Vieth said, he's seen no evidence of that.

"You have a relatively young fleet, there's a lot of good used equipment out there and freight isn't booming," he said. "The industry has the luxury of sitting back and saying, 'I can keep my existing equipment a while longer until I know the economy is getting better.' "

According to ACT Research, North American orders for Class 8 heavy-duty trucks averaged just 13,000 a month in the first half of this year, down from an average 37,000 a month in the first half of 2006.

Trucking firms bought heavily in 2006 in advance of new emissions rules that took effect this year. Many of those "pre-bought" trucks have yet to be fully used, Paccar Chief Executive Mark Pigott said Tuesday in a conference call.

Truck sales in Europe, Mexico and Australia have stayed strong, Pigott said, and sales and profit at Paccar's parts business grew at a double-digit pace (though he declined to be specific).

Overall, however, revenue from Paccar's truck segment fell 12.9 percent, to $3.4 billion. Pre-tax profit margin slipped to 9.8 percent from 12.1 percent in the first quarter.

"There has been significant cost on transitioning from '06 to '07 engines," Pigott said in the conference call. "You can't pass through $8,000 to $10,000 cost increases. It's just a difficult thing to do."

Both revenue and profit grew at Paccar's financial-services segment, which includes its dealer-financing and leasing businesses. But that segment, while growing in importance, still accounts for just 7.2 percent of Paccar's overall sales and 14.6 percent of pre-tax profit.

On a broadly down day for U.S. stocks, Paccar shares lost $4.51, or 4.6 percent, in Nasdaq trading, closing at $92.71.

The company said it now expects total Class 8 truck sales in the United States and Canada this year to be between 180,000 and 210,000, down from the 190,000-220,000 Paccar estimated last quarter.

That's broadly in line with ACT Research's take. Vieth said the company predicts North American Class 8 production (which, unlike Paccar's estimate, includes Mexico) at about 220,000 vehicles this year, compared with the record 380,000 produced last year.

Next year, he said, production should recover to 280,000 units — assuming that order activity picks up in the second half of this year.

But so far, he said, the relatively healthy U.S. economy hasn't translated into significantly higher freight volumes for truckers.

"Until we get a sense that the economy and manufacturing are improving," Vieth said, "we're probably not going to have a big improvement in orders."

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