PACCAR (PCAR)

Trucking company PACCAR (NASDAQ:PCAR) reported Q3 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 19.1% year on year to $6.67 billion. Its GAAP profit of $1.12 per share was 2.6% below analysts’ consensus estimates.

Company Overview

Founded more than a century ago, PACCAR (NASDAQ:PCAR) designs and manufactures commercial trucks of various weights and sizes for the commercial trucking industry.

Heavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.

Companies competing against PACCAR include Navistar International, (NYSE:NAV), Volvo (STO:VOLV-B), and Daimler Truck Holding (ETR:DAI).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, PACCAR grew its sales at a decent 8.9% compounded annual growth rate. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. PACCAR’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 7.1% over the last two years. PACCAR isn’t alone in its struggles as the Heavy Transportation Equipment industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, PACCAR’s revenue fell by 19.1% year on year to $6.67 billion but beat Wall Street’s estimates by 0.8%.

Looking ahead, sell-side analysts expect revenue to decline by 2.4% over the next 12 months. Although this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.

PACCAR has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 16.8% gross margin over the last five years. That means PACCAR paid its suppliers a lot of money ($83.17 for every $100 in revenue) to run its business.

PACCAR’s gross profit margin came in at 19.9% this quarter, up 3.1 percentage points year on year. Zooming out, however, PACCAR’s full-year margin has been trending down over the past 12 months, decreasing by 2.1 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

PACCAR has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.1%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, PACCAR’s operating margin rose by 3.9 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, PACCAR generated an operating margin profit margin of 17.8%, up 5.4 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

PACCAR’s EPS grew at a remarkable 13.4% compounded annual growth rate over the last five years, higher than its 8.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of PACCAR’s earnings can give us a better understanding of its performance. As we mentioned earlier, PACCAR’s operating margin expanded by 3.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For PACCAR, its two-year annual EPS declines of 19.2% mark a reversal from its (seemingly) healthy five-year trend. We hope PACCAR can return to earnings growth in the future.

In Q3, PACCAR reported EPS of $1.12, down from $1.85 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects PACCAR’s full-year EPS of $5.11 to grow 9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

PACCAR has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 9.4% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that PACCAR’s margin expanded by 9.1 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

PACCAR’s free cash flow clocked in at $1.36 billion in Q3, equivalent to a 20.4% margin. This result was good as its margin was 7.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although PACCAR hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 32.2%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, PACCAR’s ROIC has increased significantly over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Companies with more cash than debt have lower bankruptcy risk.

PACCAR is a profitable, well-capitalized company with $9.07 billion of cash and no debt. This position is 17.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

While revenue beat slightly, EPS missed. Overall, this quarter was mixed. Investors were likely hoping for more, and shares traded down 3.1% to $94.41 immediately following the results.

Updated: December 4, 2025 at 10:01 PM EST

Before investing in or passing on PACCAR, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

PACCAR isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s rising cash profitability gives it more optionality, the downside is its organic revenue declined.

PACCAR’s P/E ratio based on the next 12 months is 21.7x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $107.47 on the company (compared to the current share price of $108.51).