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Will PACCAR's (PCAR) Earnings Disappoint Investors in Q1?

PACCAR Inc. PCAR is set to report first-quarter 2016 results on Apr 26. In the last quarter, the company had delivered a negative earnings surprise of 4.85%. However, PACCAR posted positive earnings surprises in 3 of the trailing 4 quarters with an average beat of 3.52%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

PACCAR has a record of generating net profit for 77 consecutive years. We expect the company’s first-quarter 2016 results to maintain this trend. Further, PACCAR is well positioned in the key non-U.S. markets due to its strategic investments. The company continues to expand its global network of strategically located parts distribution centers. These factors should positively impact earnings during the quarter.

However, Class 8 industry retail sales for the U.S. and Canada are expected to be in the range of 230,000–260,000 units in 2016, lower than the prior projection of 240,000–270,000 units as well as 278,000 units sold in 2015. This indicates the possibility of a year-over-year decline in the first quarter as well, which may adversely impact the company’s upcoming results.

Moreover, PACCAR will record a charge of 850 million euros ($950 million) in the first quarter as a provision related to the ongoing investigation by the European Commission into anticompetitive practices by all major European medium- and heavy-duty truck manufacturers. This will significantly affect the company’s financials.

Earnings Whispers

Our proven model does not conclusively show that PACCAR is likely to beat earnings this quarter. This is because a stock needs to have both a positive http://www.zacks.com/earnings/earnings-surprise-predictions/">Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. PACCAR has an Earnings ESP of -2.11% because the Most Accurate estimate stands at 93 cents, while the Zacks Consensus Estimate is pegged at 95 cents.

Zacks Rank: PACCAR’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Ford Motor Co. F has an Earnings ESP of +4.55% and a Zacks Rank #3. The company is expected to report first-quarter 2016 results on Apr 28.

Autoliv, Inc. ALV has an Earnings ESP of +1.33% and a Zacks Rank #3. The company’s first-quarter 2016 financial results are scheduled for release on Apr 29.

Ferrari N.V. RACE has an Earnings ESP of +12.5% and a Zacks Rank #3. The company will report first-quarter 2016 financial numbers on May 2.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
FORD MOTOR CO (F): Free Stock Analysis Report
 
PACCAR INC (PCAR): Free Stock Analysis Report
 
AUTOLIV INC (ALV): Free Stock Analysis Report
 
FERRARI NV (RACE): Free Stock Analysis Report
 
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