PACCAR Earnings Surge 21 Percent on Record Sales
2 February 1999
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BELLEVUE, Wash.--Feb. 2, 1999--PACCAR's sales and earnings accelerated to record levels in 1998 due to exceptional demand for its products in Europe and North America as strong industry sales continued into their sixth year, according to Mark C. Pigott, PACCAR chairman and chief executive officer.Net income of $416.8 million ($5.30 per share diluted) for the year exceeded 1997 earnings of $344.6 million ($4.41 per share diluted). Consolidated net sales for 1998 were $7.6 billion, an increase of 17 percent from the $6.5 billion recorded a year ago.
Fourth quarter consolidated net sales grew 17 percent to $2.1 billion compared to sales of $1.8 billion in the fourth quarter of 1997. Net income for the quarter of $114.9 million ($1.46 per share diluted), rose 18 percent compared with net operating income of $97.7 million earned during the same quarter a year ago. Net income of $132.7 ($1.70 per share diluted) for the fourth quarter of 1997 included a $35 million after-tax gain from the sale of a subsidiary.
PACCAR's key performance measures -- return on equity and return on sales -- increased sharply in 1998. Return on beginning equity climbed to 27.8 percent in 1998 from the 22.8 percent achieved in 1997. The company's 1998 return on sales increased to 5.5 percent from 4.8 percent a year ago. Both comparisons exclude the nonrecurring gain from the sale of Trico Industries in 1997.
PACCAR increased its regular dividend by 33 percent in December as it raised the quarterly payment from 15 cents to 20 cents per share effective March 5, 1999.
"1998 was an outstanding year for PACCAR. Sales and earnings were driven by a dramatic increase in production at company factories worldwide, which resulted in PACCAR delivering a record 93,800 trucks in 1998, compared with 79,000 the year before. Perhaps most gratifying was our success in maintaining industry-leading quality, improving operating efficiency and delivering shareholder value as the company boosted production and strengthened its worldwide distribution network," Pigott said.
Increased Shareholder Value
"Creating sustainable growth in shareholder value is a key PACCAR objective," said Pigott. "Last year, stockholders' equity increased by 18 percent to $1.8 billion, which is a great achievement when you consider that PACCAR declared more than $170 million in dividends, including a $1.60 per share special dividend, in 1998.
"PACCAR is the leading truck manufacturer in the world in terms of generating shareholder value and the only truck manufacturer to generate profits for over 60 consecutive years. PACCAR also has paid dividends every year since 1941," he added.
Production Increases Across the Board
"During the past two years, PACCAR has undertaken a significant capital expenditure program aimed at upgrading all of our manufacturing facilities worldwide, which enabled PACCAR to be well-positioned to take advantage of the surging demand for our trucks in 1998, particularly in Europe and North America," said Pigott.
The company said the acquisition of Leyland Trucks (UK) during the year was important as it provided PACCAR with an outstanding workforce of more than 700 employees, a state-of-the-art 600,000 square-foot factory and superior Class 4-7 cabover trucks that have the potential to be used throughout the world.
"Leyland Trucks represents an important piece of the strategy to grow our presence in Europe, particularly in the market for 6-15T trucks. We already have made significant progress towards our goal of increasing profitable market share in the European 15T and over market as DAF recorded a 10.5 percent share in that category," Pigott said.
The company said it is making major strides in terms of consolidating its operations in Europe and taking advantage of the synergies between the companies in terms of product development, purchasing consolidation and financial services.
Pigott noted that construction of the new PACCAR truck factory in Ste. Therese, Canada, continues on schedule for a mid-1999 opening. "The $80 million investment at Ste. Therese will create a world-class facility and help PACCAR achieve its goal of significantly increasing market share in the North American medium-duty truck market by offering the highest-quality, most-reliable trucks in the industry. Our customers are delighted with their Peterbilt and Kenworth Class 6/7 trucks," Pigott said.
Worldwide Investments
PACCAR enhanced its industry-leading, customer support initiatives with the opening of its 12th parts distribution center (PDC). Located in San Luis Potosi, Mexico, the $10 million, 75,000 square-foot facility -- the largest truck parts PDC in Mexico -- enables PACCAR to deliver parts to customers within 24 hours and serves as an important link for PACCAR's growing business in Central and South America.
"At the same time, PACCAR's investments in product development and enhanced quality initiatives helped ensure that our Kenworth, Peterbilt and DAF brands continue to embellish their excellent reputation for technological innovation, superior performance, economical operation and high resale value in the marketplace," said David J. Hovind, president.
"Customer acceptance of the Kenworth T2000 and DAF 95XF models continues to be very positive," Hovind said. "For example, Kenworth has sold over 11,000 T2000 units since its introduction, and DAF sales of the 95XF climbed to 27,500 units since its 1997 launch."
Hovind also said the company's Six Sigma Program is currently active on more than 130 projects, which will improve business processes, reduce costs and generate profits. "In fact, Six Sigma has produced tangible profit improvements in just one year and we fully expect ongoing positive results in the years ahead," he said.
The company said it continues to increase its investment in enhanced information technology (IT) processes and systems and is a leader in developing software for retailing pre-owned trucks on the Internet. PACCAR's innovative Used Truck Locator, for example, has set new standards for E-commerce in the global truck industry.
Agreement was reached on a four-year contract with the United Auto Workers (UAW) at the Peterbilt Nashville, Tennessee, factory during the fourth quarter, ending a work stoppage which began May 4.
Finance and Leasing
Michael A. Tembreull, vice chairman, said fourth quarter and year-end results for PACCAR's finance companies were lower than those recorded a year ago due to higher operating expenses, loan loss provisions and a one-time charge for systems development work. PACCAR Leasing achieved record sales and profits in 1998.
Retail auto parts and industrial winches increased sales and achieved record earnings in 1998. "PACCAR Automotive, which includes Al's Auto Supply and Grand Auto stores located in six states in the Western U.S., has grown its retail outlets 40 percent in the past two years and opened its 176th store last year," noted Tembreull.
"PACCAR Winch, the largest industrial winch manufacturer in the world, benefited from strong growth in North American equipment markets as well as increasing its share of the mechanical winch and mobile crane markets," he added.
1999 Truck Markets
The truck industry estimates retail sales for heavy-duty trucks in North America to range from 205,000 to 225,000 units in 1999 versus approximately 250,000 last year. Sales for medium-duty trucks is expected to be 115,000 to 125,000 vehicles. In Europe, heavy-duty retail sales are expected to be between 185,000 and 195,000 trucks compared to 205,000 in 1998, while demand for medium-duty trucks will range from 75,000 to 85,000 units.
PACCAR, a $7.6 billion company, is a leader in the design, development and manufacture of high quality light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt, DAF and Foden nameplates. It also provides financial services and distributes truck parts related to its principal business. In addition, the Bellevue, Washington-based company manufactures industrial winches and sells general automotive parts and accessories through its retail outlets.
PACCAR shares are traded on the NASDAQ Exchange, symbol PCAR, and its homepage can be found at www.paccar.com.
PACCAR Inc
SUMMARY INCOME STATEMENTS
(in millions of dollars (a))
Three Months Ended Full Year Ended
December 31 December 31
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1998 1997 1998 1997
-------- --------- ---------- ---------
Truck and Other Net Sales $2,118.7 $1,804.1 $7,577.7 $6,479.4
======== ========= ========== =========
Financial Services Revenues $ 85.2 $ 75.5 $ 317.1 $ 284.3
======== ========= ========== =========
Income Before Taxes:
Truck and Other $ 161.8 $ 126.3 $ 553.4 $ 379.6
Financial Services 10.2 18.9 62.2 71.3
Gain on Sale of Subsidiary 55.7 55.7
Investment Income 9.6 8.0 33.3 24.7
Other, net (1.7) (1.7) 4.2 3.4
--------- --------- -------- --------
Total Income Before
Income Taxes 179.9 207.2 653.1 534.7
Income Taxes 65.0 74.5 236.3 190.1
-------- -------- -------- --------
Net Income $ 114.9 $ 132.7(b) $ 416.8 $ 344.6(b)
======== ======== ======== ========
Net Income Per Share:
Basic $ 1.47 $ 1.71 $ 5.34 $ 4.43
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Diluted $ 1.46 $ 1.70 $ 5.30 $ 4.41
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(a) Except per share amounts.
(b) Includes $35 million after-tax gain on sale of Trico Industries.