Paccar to cut truck production despite $297M profit in second quarter
Bellevue-based Paccar didn't say whether the production cuts could bring layoffs in Renton or elsewhere.
Seattle Times business reporter
Bellevue-based Paccar said Tuesday it plans to cut North American truck production by around 15 percent, citing weaker incoming orders.
Mark Pigott, Paccar's chief executive, told analysts the company expects to deliver about 10 percent fewer trucks in the current quarter than the 37,700 it delivered in the April-June period.
Most of the order slowdown has come in the United States and Canada, Pigott said, while European orders have held mostly steady despite the debt crisis there.
Paccar's treasurer and head of investor relations, Robin Easton, did not respond to a subsequent inquiry about whether the production cuts would mean layoffs at Paccar's manufacturing facilities, including the Kenworth factory in Renton. (The company's other U.S. plants are in Texas, Ohio and Mississippi.)
The company also could reduce its build rate or add more planned shutdown days.
"The way we operate is, we try to have our production rate reflect incoming orders at a reasonable backlog, and that's what we're doing," Pigott said in a conference call.
Though the company posted a $297.2 million second-quarter profit, Pigott said weak U.S. economic growth and continued uncertainty in Europe "could dampen truck orders for the remainder of 2012."
Makers of heavy-duty Class 8 trucks have seen orders fall off since the beginning of the year, according to data from research firm FTR Associates.
Industrywide, the firm says, net orders are down 45 percent, backlog has fallen 30 percent, and the "backlog-to-build" ratio, which compares order backlog to production, is down to 3.37 — the lowest level since October 2008.
Paccar also trimmed the high end of its North American forecast for 2012 industrywide heavy-duty truck sales, from 240,000 vehicles to 230,000. The low-end forecast remained at 210,000, which would represent a modest increase over 2011 actual sales of 197,000 units.
The weaker outlook cast a shadow on Paccar's second-quarter financial results. Though Paccar shares jumped as high as $40.73 after the start of trading, they ratcheted down for most of the rest of the day before closing at $37.98, a 21-cent gain.
The truck-maker's profit for the three months ended June 30 worked out to 83 cents per share, slightly ahead of Wall Street expectations but down from the 91 cents per share the company posted in each of the two previous quarters.
The company reported truck sales of $4.19 billion in the quarter, just ahead of the consensus estimate of $4.16 billion.
Total revenues, including Paccar's financing unit, were $4.46 billion, up 12.5 percent from the second quarter of 2011 but down 6.7 percent from the first quarter; truck deliveries were down 5 percent compared with the first quarter.
Some analysts expressed surprise, given Europe's economic woes, that Paccar left its European industrywide forecast unchanged: 210,000 to 230,000 heavy-duty trucks expected to be sold this year, down from the 241,000 sold last year. But Pigott said the company's European customers say their business is holding up.
"If you just read the paper or read the Internet, it causes you to think, 'What's going on?' " he said. "But when we really talk at the ground level to the people hauling freight, there's business out there, people are buying. Not every industry or certainly not in every market, but it's reasonable."
One bright spot for Paccar was South America, up to now a fairly small part of its overall operation. Though it delivered just 4,500 trucks to the Andean nations of Chile, Peru and Ecuador in the first half of 2012, that represented a 75 percent increase over the same period last year.
Paccar hopes the new DAF manufacturing plant it is building in Ponta Grossa, Brazil, will open up that fast-growing nation as a new market. Pigott said the plant should begin producing trucks next year.
He said little, however, about an investigation by the Securities and Exchange Commission into Paccar's financial reporting. That probe, disclosed publicly in May, is focused on Paccar's loan-loss reserves, troubled-debt restructuring and segment reporting from 2008 to 2011.
The company has said it is "cooperating fully" with the SEC, and in answer to an analyst's question Pigott said only that "I think it's all on track."
Drew DeSilver: 206-464-3145 or firstname.lastname@example.org