Q2 Profit Surge Driven by Paccar Price Hikes

Q2 Profit Surge Driven by Paccar Price Hikes

Paccar’s new truck prices went up by 15% from one year to the next. This was a big reason why the company’s profits grew in the second quarter.

However, price increases brought about by inflation alone cannot account for the 70% increase in income from Q1 to Q2.

The main company of Kenworth, Peterbilt, and DAF Trucks, which is based in Bellevue, Washington, charged customers about 9% more for new equipment than it cost to make each car.

The expected gross profit margins in Q3 are 18–19%. CEO Preston Feight stated during the company’s earnings call on Tuesday that the statement is a testament to how they perceive the price/cost analysis.

Paccar sold out of build slots for 2023

Paccar trucks are in high demand. They have all been updated in the past few years to get better gas economy. There are no more places for plants to be built in 2018. Paccar is optimistic about 2024, but experts have differing opinions.

Feight said that operating from a posotion of being full for 2023 right now is a great position to be in. The markets remain healthy for us globally. We are currently engaging in productive discussions regarding the anticipated needs and prioritization for the upcoming year.

Paccar thinks that between 290,000 and 320,000 Class 8 trucks will be sold at retail in the United States and Canada. 

Growth markets: LTL and vocational trucks

The federal government gave money to the states for infrastructure. This helped grow areas like less-than-truckload and training models.

Feight said that there is a limitation from the bodybuilders’ standpoint. They are making an effort to construct as many bodies as possible. We are making an effort to construct as many trucks as possible. It is believed that it will continue for quite some time.

Taking care of selling, general, and administrative costs was one reason for the good results.

Feight said that all of these things are taking our profitability to a structurally improved level.

Paccar invested $47 million in the Kenworth assembly plant in Chillicothe, Ohio. The purpose was to construct a new 105,000-square-foot testing center. Harrie Schippers is the company’s CFO and president. He says that the company has spent $7.5 billion on new goods and infrastructure over the past ten years.

A technology-enabled Paccar Parts footprint expands

The prices of parts went up by 13% from one year to the next. Paccar thinks that this profit will stay the same throughout the year because of higher sales and prices. Paccar has 18 locations all over the world with 3.3 million square feet of space where they sell parts. In 2024, center number 19 will be in Germany.

Feight said that there has been a significant change in our ability to deliver parts to our customers on the same day or the next. We are the desired place to go for parts.

There have been fewer problems with the supply chain in recent quarters. Makers have been able to meet the pent-up demand for parts. Things are different on the other side of the car. Purchases may be delayed until 2024 due to limited supplies.

Paccar build percentage growing but market share off to tough start in 1st half

Paccar entered the South American market ten years ago and now has a 9.2% share of that market. There are no area statistics for North America or Europe in the study.

The build percentage is increasing. Feight said that as our build percentage increases, our market share grows. The products have consistently experienced strong demand, and our focus is on meeting that demand.

Because of the epidemic, fleets had to keep cars longer than usual. Now, there is proof that fleets are replacing their cars more quickly than before.

Feight said that the trucks being produced, particularly by Paccar, are offering operating cost improvements that are motivating people to renew their fleet sooner. The value is sufficiently high that one simply desires to replace the truck. Those turns are happening more frequently.

Paccar shares closed trading on Tuesday at $86.31, down 2.69 percent from when they first went on sale.  Since Tuesday, when shares hit an all-time high of $89.42, they have gone down. As of Monday, they had won 34.4% so far this year, which was a lot more than the S&P 500’s gain of 18.6%. Last Monday, the company said that its quarterly bonus would go up from 25 cents to 27 cents. This is a rise of 8%.

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