January 30, 2009, Bellevue, Washington PACCAR earned its fourth highest annual net income in its 103-year history in 2008 and has delivered a remarkable 70 consecutive years of net profit to its shareholders, said Mark C. Pigott, chairman and chief executive officer. PACCARs financial results reflect the benefits of the companys quality products and services, geographic diversification, excellent aftermarket revenues and financial services income. I am very proud of our 18,000 employees who have delivered exceptional performance to our shareholders and customers, especially in todays very difficult business conditions.
PACCARs excellent balance sheet and strong cash flow have enabled ongoing investments in capital projects such as diesel engines, new vehicles and factory productivity improvements. These projects will assist the company in achieving its long-term growth objectives, noted Pigott. However, the severe recession is affecting our business in North America and Europe. Our fourth quarter 2008 financial results were negatively impacted by reduced gross margins, lower build rates and temporary plant shutdowns. These challenges are increasing in 2009. PACCAR is rigorously reducing operating expenses and capital expenditures to align the business with the slower markets.
Net Income and Revenue
PACCAR net earnings were $113.1 million ($.31 per diluted share) for the fourth quarter of 2008 compared to the $261.1 million ($.71 per diluted share) earned in the fourth quarter of 2007. Fourth quarter net sales and financial service revenues were $2.92 billion compared to $3.76 billion reported for the comparable period in 2007. During the quarter, the company generated $345.4 million in operating cash flow.
For the full-year 2008, consolidated net sales and financial service revenues were $14.97 billion versus $15.22 billion in 2007. Net income earned in 2008 of $1.02 billion ($2.78 per diluted share) was 17 percent lower than the $1.23 billion ($3.29 per diluted share) earned during 2007. Cash dividends of $.82 per share were declared during 2008, including a special dividend of $.10 per share. During the last decade, PACCARs regular dividends have had an annualized increase of 19.8 percent per year. In 2008, PACCAR distributed $859.7 million to shareholders in dividends and share repurchases.
Global Truck Market Update
Industry sales above 15 tonnes in Western and Central Europe were 330,000 units in 2008, the second best year ever, said Aad Goudriaan, DAF president. DAF achieved an excellent market share in the above 15 tonne market of 14.2 percent and has a medium-term goal of 20 percent market share. DAF is the European leader in premium-quality products and achieved record sales and production in 2008, delivering over 64,000 vehicles. The very challenging 2009 market could range from 200,000-240,000 units, noted Goudriaan.
Class 8 industry retail sales in the U.S. and Canada were 153,000 in 2008 compared to 176,000 in 2007 and reflected the recessionary economy, particularly the slowdown in the housing and automotive sectors, said Dan Sobic, PACCAR executive vice president. Industry retail sales in 2009 are expected to be in the range of 130,000-170,000 vehicles, reflecting continued economic weakness. PACCARs 2008 retail share of the U.S. and Canadian Class 8 market was 26 percent. Our customers are benefiting from lower fuel prices and improved availability of drivers, even though freight tonnage is comparable to 2000 levels.
Bill Jackson, Peterbilt general manager, commented, There is some good news longer term about the industry. The average age of the North American industry fleet is the highest in the last 15 years. Truck retail sales are below the five-year average of 235,000 units because of the current recession. In a normal cycle, many truck operators would replace their vehicles in the next 12-24 months to maintain a competitive operating cost structure. The truck industry is generating good parts and service business due to the aging fleet and the industry is poised to rebound when the general economy improves.
Strong Dealer Performance Worldwide
An important element of PACCARs strength is the robust profitability of its global dealer network, with over 1,900 locations. Kenworth, Peterbilt and DAF dealers invested over $250 million in 2008 as they added more than 100 new locations, installed state-of-the-art inventory management systems and enhanced their customer support programs. Tom Plimpton, PACCAR vice chairman, commented, The industry leadership of PACCARs dealers benefits our customers and the global transportation industry. With a record 1.5 million PACCAR vehicles in operation, DAF, Kenworth and Peterbilt dealers have excellent parts and service businesses, high-quality product ranges, and comprehensive finance and leasing programs."
DAF Dealership Frankfurt, Germany
PACCAR Delivers Excellent Long-Term Shareholder Return
In the last ten years, PACCAR shareholder return has averaged 17.6 percent per year versus the S&P 500 Index average return of a negative 1.4 percent. PACCARs shareholder return exceeds the S&P 500 return for the previous three-, five-, ten- and twenty-year time periods. PACCARs return on beginning shareholders equity (ROE) was 20.3 percent in 2008.
During 2008, PACCAR repurchased 5.05 million shares for $230.5 million. In July 2008, PACCARs Board of Directors approved the repurchase of an additional $300 million of the companys common stock. No shares were repurchased in the fourth quarter.
Operating Highlights 2008
Financial Highlights Fourth Quarter 2008
Financial Highlights Full Year 2008
PACCAR is the industry leader in the development of environmentally friendly technologies, shared Bob Christensen, PACCAR senior vice president. PACCAR will expand its presence in the growing market for liquefied natural gas (LNG) trucks by beginning production of Kenworth Class 8 LNG vehicles in early 2009 under an agreement with Westport Innovations Inc. The Kenworth vehicles, coupled with Westports HPDI fuel system, will offer low greenhouse gas emissions while delivering outstanding horsepower, torque and efficiency comparable to a diesel engine, added Christensen.
Other green environmental initiatives in 2008 include:
Kenworth T370 Hybrid Utility Truck
Product, Facility and Technology Investments
PACCAR increased its investments in product development, plant efficiency and global customer service during 2008 in order to meet long term market demand, said Jim Cardillo, PACCAR president. PACCAR invested a record $805 million in capital projects and product research and development in 2008. During 2009, PACCAR will focus capital investment on projects that will generate excellent customer benefits in the short and medium term. Capital expenditures are being streamlined and are estimated to be $150-$200 million in 2009, while research and development expenses are expected to be $200-$250 million.
Major 2008 investments include:
Lower Commodity Prices Benefit Manufacturing Industries
One of the positive benefits for all manufacturing industries worldwide is the reduction of commodity prices, such as steel, oil, natural rubber, aluminum and copper, noted Tom Lundahl, PACCAR vice president purchasing. The average cost of these commodities has reduced by approximately one third compared to the levels during the commodity price bubble in 2008, but should further reduce to reach the normalized commodity cost trend of the last ten years. We are working closely with our suppliers who are judiciously managing their businesses through these difficult markets.
Financial Services Companies Achieve Good Results in Difficult Markets
PACCAR Financial Services (PFS) has a portfolio of 166,000 trucks and trailers, with total assets of $10.0 billion. PACCAR Leasing, a major full-service truck leasing company in North America and Europe with a fleet of over 32,000 vehicles, is included in this segment.
Fourth quarter pretax income was $45.4 million compared to the $76.2 million earned in the fourth quarter last year. Fourth quarter revenues were $292.2 million compared to $327.3 million in the same quarter of 2007. For the full year, revenues increased to $1.26 billion from $1.19 billion for 2007 and pretax income was $216.9 million compared to $284.1 million a year ago. During 2008, profit was impacted by the increased provision for credit losses due to higher truck repossessions. The provision for credit losses in the fourth quarter of 2008 was $26.9 million, down from the $34.2 million in the third quarter of 2008.
PACCAR Financial Services profitably supports the sale of PACCAR trucks in 20 countries on three continents with a comprehensive portfolio of finance and lease products, said Ron Armstrong, PACCAR senior vice president. PACCARs strong balance sheet, complemented by its AA- credit rating, enables PFS to offer competitive retail financing to Kenworth, Peterbilt and DAF dealers and customers. Good margins, strong credit quality and excellent portfolio management are providing solid earnings. PACCAR Financial utilizes funding programs such as commercial paper, complemented by the public medium-term note market. PACCAR Financial recently issued $178.5 million of two-year medium-term notes under its ongoing shelf registration. Armstrong added, Corporate liquidity availability is gradually recovering in the United States, but is still uneven in other countries capital markets.
PACCAR is a global technology leader in the design, manufacture and customer support of high-quality light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt and DAF nameplates. It also provides financial services and information technology and distributes truck parts related to its principal business. PACCAR shares are listed on the NASDAQ Global Select Market, symbol PCAR, and its homepage is www.paccar.com.
PACCAR will hold a conference call with securities analysts to discuss fourth quarter earnings on January 30, 2009, at 9:00 a.m. Pacific time. Interested parties may listen to the call by selecting Live Webcast at PACCARs homepage. The Webcast will be available on a recorded basis through February 6, 2009.
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on managements current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information about these factors is contained in PACCARs filings with the Securities and Exchange Commission.
* J.D. Power and Associates 2008 Heavy-Duty Truck Studysm. For more information please go to www.jdpower.com.