Paccar Financials Benefit from Strong International, Aftermarket Parts Business

In reporting its second quarter earnings, Paccar said it benefited from its global business and strong aftermarket parts and financial service businesses, helping to offset soft demand in North America.

"Paccar reported very good revenues and net income for the second quarter of 2008," said Mark C. Pigott, chairman and chief executive officer. "Paccar benefited from balanced global diversification, with over 65 percent of revenues originating outside the U.S. and continued solid performance from the company's aftermarket parts and financial services businesses. Robust demand for Paccar products in Europe and international markets continues to generate excellent earnings and provide opportunities for growth, tempered by the continued softness in the U.S. and Canadian truck markets."

Capital expenditures and research and development expenses increased to a total of $205 million during the second quarter.

Paccar earned $313.5 million ($0.86 per diluted share) for the second quarter of 2008, an increase of 5 percent compared to $298.3 million ($0.79 per diluted share) earned in the second quarter last year. Second quarter net sales and financial services revenues increased to $4.11 billion from $3.72 billion in 2007. Net sales and financial services revenues for the first six months of 2008 were $8.05 billion compared to $7.70 billion last year. For the first six months of 2008, Paccar reported net income of $605.8 million ($1.65 per diluted share), compared to $663.9 million ($1.77 per diluted share) in 2007.

The company also reported it is nearing completion of its previously announced $300 million share repurchase program. During the second quarter of 2008, Paccar repurchased 1.89 million of its common shares for $89.8 million. Paccar has repurchased a total of 5.62 million shares for $262.5 million under this $300 million repurchase authorization. Earlier this month, the Paccar Board of Directors approved the repurchase of an additional $300 million of its outstanding common stock.

"Paccar strong net profits and excellent cash flow make the company's shares an attractive long-term investment," said Mike Tembreull, Paccar vice chairman. "The stock repurchase program reflects the Board's confidence in Paccar's successful global business growth." Paccar has earned a net profit for 69 consecutive years and has paid a dividend every year since 1941. The company's stock, including reinvested dividends, has outperformed the S&P 500 Index for the previous three-, five- and ten-year time periods.

In May, the steel structure for Paccar's new $400 million engine manufacturing and assembly facility in Columbus, Miss., was completed. "Construction of the world-class, high-technology engine facility is on schedule and is due to be completed in late 2009," said Jim Cardillo, Paccar executive vice president. The facility will complement the company's engine factory in the Netherlands and expand the manufacture of Paccar 12.9L and 9.2L engines for use in Kenworth, Peterbilt and DAF vehicles.

In June, Paccar Parts began operations at its new 260,000-square-foot parts distribution center (PDC) in Budapest, Hungary. The PDC supports DAF's dealers and customers in Central and Eastern Europe. Paccar Parts also completed a 45,000-square-foot expansion of the San Luis Potosi, Mexico, PDC. This investment will provide increased service to Kenworth dealers in Mexico where Kenworth's high-quality trucks have earned a 40 percent share of the Class 8 market.

The company is also growing in Asian markets. While Paccar has sold transportation equipment in Asia for 100 years, the company notes, the development of highway systems in China and India will increase intra-country commerce, resulting in demand for reliable, high-quality commercial vehicles. Following the opening of a new office in Shanghai, China in 2007, Paccar plans to open an information technology, engineering and purchasing office in Pune, India, in 2008.

"The European economy, especially Central Europe, continues to experience moderate growth," shared Aad Goudriaan, DAF Trucks president. "Industry truck sales in Europe above 15 tonnes are expected to set a record of 350,000-360,000 units compared to 340,000 in 2007. DAF's range of premium vehicles are the quality and resale value leaders in Europe. DAF's long-term goal is to achieve over 20 percent market share," noted Goudriaan. DAF is increasing production by 5 percent in September to meet strong customer demand for its award-winning vehicles.

"The dramatic increase in diesel prices, coupled with declining housing starts and auto production, impacted U.S. and Canadian Class 8 truck sales in the first half," said Dan Sobic, Paccar senior vice president. Industry retail sales for 2008 are expected to be in the range of 150,000-165,000 vehicles.

Strong financial services also helped Paccar's financials. Financial Services (PFS) has a portfolio of 169,000 trucks and trailers, with total assets of $11.1 billion. Paccar Leasing, a major full-service truck leasing company in North America with a fleet of over 32,000 vehicles, is included in this segment. Second quarter pretax income of $58.7 million compares to the $68.9 million earned in the second quarter of 2007. Second quarter revenues were $330.5 million compared to $286.8 million in the same quarter of 2007. For the six-month period, pretax income was $126.0 compared to $134.5 in 2007. First-half revenues increased to $647.9 from $550.8 million for the same period a year ago. Finance margins improved due to portfolio growth, but profit was reduced due to an increase in the provision for credit losses due to higher repossessions in the U.S. and Canada. Credit losses increased in the second quarter of 2008 to $23.0 million versus $15.3 million in the first quarter of 2008.