Why Paccar Inc.'s Upcoming Earnings Report Is Equally Important for Cummins and Westport Innovations Investors

With Paccar set to release numbers this Friday, investors should keep an eye on three key factors that could decide the company's future.

Jan 29, 2014 at 9:08PM

If you want an idea about where the economy is headed, the trucking industry could be a good starting point. The demand for trucks largely depends on freight tonnage, which is considered a key bellwether of economic activity. So missing truck maker Paccar's (NASDAQ:PCAR) upcoming earnings report doesn't sound like a good idea.


Will Paccar race ahead of peers? Image source: Company website.

Moreover, since Paccar is a key Cummins' (NYSE:CMI) customer, its numbers could also give investors in the leading engine maker a hint or two about what to expect when Cummins releases earnings next week. Tracking Paccar's numbers and outlook is equally important for those betting on natural-gas technology companies, especially Westport Innovations (NASDAQ:WPRT), since Paccar is at the forefront in adopting Cummins-Westport engines into its trucks.

Naturally, a bad set of numbers from Paccar could spell trouble for many, so investors should know beforehand what to expect from its earnings report slated for Friday release. Here are three key things you should for watch for.

Truck deliveries
How many trucks Paccar delivered and expects to deliver in the coming quarters and the full year are the most important numbers that you should watch for. While the company's third-quarter deliveries improved 2% sequentially, it expects Q4 worldwide truck deliveries to climb 5% sequentially. That's good news, and it explains why analysts project Paccar's fourth-quarter revenue to increase 15% year over year. And it looks like an achievable number, considering that industry orders for the critical heavy-duty Class 8 truck segment surged 17% and nearly 50% year over year and sequentially, respectively. Growing truck delivers is also good news for Cummins investors.

While improved construction activity in the U.S. should boost Paccar's sales, Europe could stand out in Q4 as buyers rushed in overhaul their fleet before the Euro 6 environmental regulations become effective this year. Paccar's DAF trucks are the largest and fastest-growing trucks in the U.K.

Outlook for the natural-gas truck market
Paccar dominates the natural-gas-powered heavy-duty truck market in the U.S., so keep an eye on what it has to say about the demand for natural-gas trucks in its upcoming earnings call. Also, look for updates on Paccar's new launches lined up for 2014, and whether it plans to go for natural-gas engines in them. Paccar was among the first truck companies to launch two truck models, equipped with the Cummins-Westport 12-liter ISX12G engines, in 2012.

If the company continues to order more of those ISX-12G engines, Cummins and Westport Innovations investors should be happy. More importantly, Westport Innovations predicts rapid adoption of natural-gas engines by truck companies, even predicting the fuel's share in the truck market to climb to 4%-5% this year from just 1% in 2012. Paccar's views on the natural-gas market in the upcoming call could help investors guess the chances of those predictions turning true.

Growth in international markets
Markets outside the U.S. and Europe contributed nearly 27% to Paccar's total sales in 2012. With markets such as India, Latin America, and Russia projected to lead the growth in global truck sales through 2017, investors should track Paccar's plans to expand in these markets. Brazil, in particular, is in the spotlight now, with preparations in full swing for the upcoming FIFA World Cup and the 2016 Olympics games. Paccar started operating its new DAF truck plant in Brazil in October, so investors should look for updates about whether production is on track to avail the huge opportunity.

The Foolish bottom line
Last year saw a remarkable surge in the adoption of natural-gas engines by truck fleet operators, which is excellent news for Paccar. The company has everything in place to take it far: great products, strong relationships with innovators like Cummins and Westport, solid financials, and compelling growth catalysts. Paccar is also striving hard to keep costs under control, which is one reason the Street expects its Q4 earnings per share to jump 29% year over year. An earnings beat will be great, and a good 2014 guidance will be enough to push Paccar shares higher on Friday.

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Neha Chamaria has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Cummins, Paccar, and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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