DBRS Confirms PACCAR Inc and Related Entities, Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating of PACCAR Inc at AA (low) and the Senior Unsecured Debt and Commercial Paper ratings of PACCAR Financial Ltd. (together with PACCAR Inc., PACCAR or the Company) at AA (low) and R-1 (middle), respectively. All trends are Stable. The confirmations of the ratings are underpinned by PACCAR’s solid market position as a global premium truck manufacturer, its perceived high product quality as well as its large-scale and strong operating efficiencies. The ratings also incorporate the Company’s robust financial risk profile and very conservative financial policy.

PACCAR generated record sales in 2017, with its industrial operations achieving revenue growth of 14.8% year over year (YOY). The Company’s worldwide deliveries increased 12.8% to 158,900 units from 140,900 units in 2016. PACCAR’s Class 8 truck deliveries in the United States and Canada significantly outperformed the industry average volume growth, resulting in a meaningful market share gain. Deliveries in Europe grew moderately, although market share decreased nominally. Concurrently, PACCAR’s aftermarket parts business segment reported higher revenues and operating profits, reflecting good demand in all markets. Overall, the Company’s industrial operations continued to deliver sound operating performance, with operating margins remaining constant YOY at 10.3% (10.4% in 2016). PACCAR’s financial services revenues increased moderately YOY, while pre-tax earnings were lower YOY, mainly caused by lower results on returned lease assets, higher borrowing rates and unfavourable foreign currency effects.

Looking ahead, global truck industry volumes are expected to grow moderately in 2018, based on anticipated economic growth in both North America and Europe. Industry volumes in North America are expected to benefit from ongoing growth in the U.S. industrial sectors, combined with projected increases in capital investments in the region encouraged by the new tax policy (in which the statutory income tax was lowered to 21% from 35%). European markets are expected to remain strong in 2018. PACCAR continues to invest in its aftermarket parts business, expanding distribution facilities to enhance logistics performance and to increase capacity. As such, DBRS expects PACCAR’s revenues and operating performance to continue to improve in 2018.

DBRS expects PACCAR’s credit metrics to remain within its current rating range for the foreseeable future given the Company’s exceedingly low leverage and strong earnings generation. PACCAR’s industrial operations maintain a substantial net cash position with minimal debt levels. DBRS sees limited potential for an upgrade in the medium term as PACCAR’s business risk and financial risk profiles are well commensurate with the current rating. Conversely, DBRS does not foresee any severe industry downturn in the near term that could lead to negative rating actions. The Company’s strong balance sheet and liquidity position provides a considerable cushion that will readily absorb any unexpected declines in earnings.

Notes:
All amounts are in U.S. dollars unless otherwise specified.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodologies are Rating Companies in the Automotive Manufacturing and Supplier Industries (October 2017), DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2018) and DBRS Criteria: Guarantees and Other Forms of Support (January 2018), which can be found on dbrs.com under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.