Investors who follow the industrial sector closely should be ready for a busy week ahead, as some of the top names turn up with their quarterly earnings reports. One company to pay attention to is PACCAR Inc (NASDAQ:PCAR). PACCAR Inc (NASDAQ:PCAR)’s earnings release is important for two reasons. One, it tells a good deal about the shape of things in the trucking industry. Two, as Cummins Inc. (NYSE:CMI)‘ largest customer, PACCAR Inc (NASDAQ:PCAR) can also give investors an idea of what to expect from Cummins Inc. (NYSE:CMI)’ quarterly numbers, which will be up about a week later.
More importantly, what PACCAR Inc (NASDAQ:PCAR) delivers Tuesday will determine whether its stock can maintain its new-found momentum. The stock is holding up strong, having gained a solid 20% over the past three months riding on encouraging industry news, such as record highs for truck tonnage in May.
Image from www.fleetowner.com.
Yet the excitement might fizzle out next week, if analyst estimates of a 10% drop in PACCAR Inc (NASDAQ:PCAR)’s second-quarter earnings per share on 7% lower revenue come true. Industry sales figures for big trucks were mixed in the past quarter, with two months of gains interspersed with one month of decline. Moreover, peer Navistar International Corp (NYSE:NAV) reported a sharp 23% dip in revenue for the second quarter, driven largely by lower truck and engine volumes.
But investors should also remember that Navistar International Corp (NYSE:NAV) has its own set of problems. The spill-over effect of its failed engine technology, and the soaring warranty claims that hit the company hard last year, still exist, which could explain the sharp fall in its sales. So PACCAR Inc (NASDAQ:PCAR)’s second quarter should at least be better than Navistar International Corp (NYSE:NAV)’s.
Nevertheless, Navistar International Corp (NYSE:NAV) is working overtime to get back into the business. After having recently won the EPA’s approval for its own 13-liter engine, Navistar International Corp (NYSE:NAV) is swiftly transitioning its heavy-duty trucks to the upgraded technology. With competition heating up, it will be interesting to see how PACCAR plans to maintain the lead in the truck market. Look for clues in PACCAR’s upcoming earnings call, and pay special attention to the company’s efforts to push further into the natural-gas fuel market, because that’s one area where PACCAR easily beats Navistar International Corp (NYSE:NAV). It could also hold the key to PACCAR’s fortunes in the future.
Natural gas and international markets
PACCAR already dominates the natural-gas-powered heavy-duty truck market in the U.S. with a 40% share, thanks to its long-standing relationship with Cummins Inc. (NYSE:CMI) and Westport Innovations Inc. (USA) (NASDAQ:WPRT).
As one of Cummins Inc. (NYSE:CMI)’ prominent customers, PACCAR is one of the first to adopt Cummins Inc. (NYSE:CMI)-Westport Innovations Inc. (USA) (NASDAQ:WPRT) engines for its truck models. So any rise in Westport Innovations Inc. (USA) (NASDAQ:WPRT)’s engine shipments means increasing demand for natural-gas vehicles, which bodes well for PACCAR.
The last quarter, though, was a soft one, with Westport Innovations Inc. (USA) (NASDAQ:WPRT) reporting a 32% dip year over year in shipments of Cummins Inc. (NYSE:CMI)-Westport Innovations Inc. (USA) (NASDAQ:WPRT) engines, as demand from international markets slowed down. But PACCAR investors should focus on the long-term prospects of natural-gas trucks, which look promising.
In PACCAR’s upcoming earnings call, investors should also look for the company’s plans, if any, to expand into China. With Westport Innovations Inc. (USA) (NASDAQ:WPRT)’s last-quarter engine sales to China more than tripling year over year, the world’s most populous country could well be the next hot spot for natural-gas vehicles. PACCAR has already made its way into Brazil, with production at its new DAF trucks plant scheduled to begin later this year. The company should update the progress of the project next week.
DAF trucks are otherwise doing well in Europe, with orders rising 29% year over year during PACCAR’s first quarter. If the order book continues to grow during the second quarter, it could help PACCAR offset weakness in some of the other markets.
The article A Bad Earnings Report Could Slam the Brakes on This Stock’s Rally originally appeared on Fool.com is written by Neha Chamaria.
Fool contributor Neha Chamaria has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Cummins, PACCAR, and Westport Innovations.
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