Stock Story -
Trucking company PACCAR (NASDAQ:PCAR) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 2.1% year on year to $8.26 billion. It made a GAAP profit of $2.13 per share, down from its profit of $2.33 per share in the same quarter last year.
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PACCAR (PCAR) Q2 CY2024 Highlights:
- Revenue: $8.26 billion vs analyst estimates of $8.25 billion (small beat)
- EPS: $2.13 vs analyst expectations of $2.15 (in line)
- Gross Margin (GAAP): 18%, up from 15.3% in the same quarter last year
- Free Cash Flow of $219.7 million, down 82.8% from the previous quarter
- Market Capitalization: $57.16 billion
Founded more than a century ago, PACCAR (NASDAQ:PCAR) designs and manufactures commercial trucks of various weights and sizes for the commercial trucking industry.
Heavy Transportation EquipmentHeavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, PACCAR grew its sales at a mediocre 7% compounded annual growth rate. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. PACCAR's annualized revenue growth of 18% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
This quarter, PACCAR reported a rather uninspiring 2.1% year-on-year revenue decline to $8.26 billion of revenue, in line with Wall Street's estimates. We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates. This signals PACCAR could be a hidden gem because it doesn't get attention from professional brokers.
Operating Margin Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
PACCAR has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 11.9%.
Looking at the trend in its profitability, PACCAR's annual operating margin rose by 6.2 percentage points over the last five years, showing its efficiency has significantly improved.
in line with the same quarter last year. This indicates the company's overall cost structure has been relatively stable.
EPS Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
PACCAR's EPS grew at a spectacular 15.8% compounded annual growth rate over the last five years, higher than its 7% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into PACCAR's earnings quality to better understand the drivers of its performance. As we mentioned earlier, PACCAR's operating margin expanded by 6.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For PACCAR, its two-year annual EPS growth of 49.5% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, PACCAR reported EPS at $2.13, down from $2.33 in the same quarter last year. This print was close to analysts' estimates. Over the next 12 months, Wall Street expects PACCAR to perform poorly. Analysts are projecting its EPS of $9.44 in the last year to shrink by 11.9% to $8.32.
Key Takeaways from PACCAR's Q2 Results We struggled to find many strong positives in these results. Its EPS missed. Overall, this was a bad quarter for PACCAR. The stock traded down 2.8% to $106.02 immediately following the results.
