The Latest On Profits: Nothing To Rave AboutJoan O'C. Hamilton
As companies posted third-quarter results, investors reacted by bidding stocks up or down depending on how surprising the numbers were. Two companies that may offer future surprises include United Telecommunications, operator of the Sprint long-distance network, and heavy-truck maker Paccar.
A TRUCKLOAD OF PROFITS
Demand for heavy trucks continues to cough, sputter, and stall. So shareholders of Paccar Inc. were pleasantly surprised with the company's ahead-of-schedule delivery on Oct. 17: The Bellevue (Wash.) manufacturer of Peterbilt and Kenworth heavy trucks earned 50~ a share, outstripping Wall Street's consensus estimate by a full 15~. Despite an 8% drop in revenues, to $613.5 million, Paccar's profit jumped 21%, to $17 million.
With the recessionary mud truckmakers have been mired in, Paccar's numbers are impressive. Since 1988, unit sales of heavy trucks have sunk steadily and figure this year to plunge to about 97,000, from 121,000 in 1990, says Steven J. Colbert, a Prudential Securities Inc. analyst. For example, Paccar rival Navistar International Corp. lost $31 million in the quarter on an 11% drop in revenues.
But while Paccar cited a steadily improving economic climate for its gains, analysts aren't exactly sanguine. Insists Colbert: "It doesn't indicate a major turn in truck manufacturing." Indeed, some question whether Paccar can sustain momentum in its heavy-truck business, which makes up 85% of total revenues. "They did some discounting in May and June, and it resulted in a lot of orders that they shipped in the third quarter," says Mitchell I. Quain, an analyst with Wertheim Schroder & Co.
MEXICAN LUCK. As a result, Quain believes the fourth quarter might be unusually soft. Further, the company's nontruck businesses, including a chain of auto-parts stores and an oil-field equipment business, contributed more to the bottom line last quarter than in past periods. The company would not comment.
Much of Paccar's recent good fortune originated in Mexico. The reviving economy there is stoking demand for trucks. VILPAC, Paccar's 49%-owned Mexican partner, makes Kenworth trucks and is running full out. Paccar in September announced it will invest more than $60 million to update that plant. Of all international markets, "Mexico has the greatest potential over the next four to five years," says a Paccar rival, who predicts some 4,000 Kenworths--twice last year's level--will be sold there in 1991.
James L. Hebe, executive vice-president of Freightliner Corp., says his Portland (Ore.) company is doing well in the U. S. by cutting costs and adapting to customer service demands. But he concedes the forecast is gloomy: "I don't see truck sales picking up for at least six months." So for Paccar, the word is still "caution--more curves ahead."