PACCAR Q4 2024 Earnings Report

PACCAR EPS Results

• Actual EPS: $1.66
• Consensus EPS: $1.70
• Beat/Miss: Missed by -$0.04
• One Year Ago EPS: N/A

PACCAR Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $7.52 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

PACCAR Announcement Details

• Quarter: Q4 2024
• Date: 1/28/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, January 28, 2025
• Conference Call Time: 12:00PM ET

PACCAR (NASDAQ:PCAR) designs, manufactures, and distributes light, medium, and heavy-duty commercial trucks in the United States, Canada, Europe, Mexico, South America, Australia, and internationally. It operates through three segments: Truck, Parts, and Financial Services. The Truck segment designs, manufactures, and distributes trucks for the over-the-road and off-highway hauling of commercial and consumer goods. It sells its trucks through a network of independent dealers under the Kenworth, Peterbilt, and DAF nameplates. The Parts segment distributes aftermarket parts for trucks and related commercial vehicles. The Financial Services segment conducts full-service leasing operations under the PacLease trade name, as well as provides finance and leasing products and services to customers and dealers. This segment also offers equipment financing and administrative support services for its franchisees; retail loan and leasing services for small, medium, and large commercial trucking companies, as well as independent owners/operators and other businesses; and truck inventory financing services to independent dealers. In addition, this segment offers loans and leases directly to customers for the acquisition of trucks and related equipment. The company also manufactures and markets industrial winches under the Braden, Carco, and Gearmatic nameplates. PACCAR Inc was founded in 1905 and is headquartered in Bellevue, Washington.

PACCAR Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to PACCAR's 4th Quarter 2024 Earnings Conference Call. All lines will be in listen only mode until the question and answer session. Today's call is being recorded. And if anyone has any objection, they should disconnect at this time. I'd now like to introduce Mr.

[Operator]

Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.

[Ken Hastings, Director of IR at Paccar]

Good morning. We'd like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. And joining me this morning are Preston Feit, Chief Executive Officer Harry Skippers, President and Chief Financial Officer and Bryce Poplowski, Vice President and Controller. As with prior conference calls, we ask that any members of the media on the line participate in a listen only mode.

[Ken Hastings, Director of IR at Paccar]

Certain information presented today will be forward looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings at the Investor Relations page of paccar.com. I would now like to introduce Preston Feit.

[Preston Feight, CEO at Paccar]

Hey, good morning, everyone. Harry, Bryce, Ken and I will update you on our Q4 and full year 2024 results as well as other business highlights. PACCAR's outstanding employees delivered strong results by providing our customers with the highest quality trucks and transportation solutions in the industry. In 2024, PACCAR achieved annual revenues of $33,700,000,000 net income of $4,200,000,000 and an after tax return on revenues of 12.4%. This is the 2nd highest profit in the company's history and was a great year for PACCAR.

[Preston Feight, CEO at Paccar]

PACCAR's strong financial performance reflects the higher profitability of the latest generation of Kenworth, Peterbilt and DAF trucks, record results in our parts division and another good year for PACCAR Financial Services. PACCAR shareholders and customers benefited from the $8,600,000,000 invested over the past 10 years in new products, world class facilities and state of the art technologies. PACCAR has achieved 86 consecutive years of net income and has paid a dividend every year since 1941. In 2024, PACCAR declared $4.17 per share in dividends, including a year end dividend of $3 per share. This is a 53% payout of net income and a dividend yield of 4%.

[Preston Feight, CEO at Paccar]

PACCAR's 4th quarter revenues were $7,900,000,000 and net income was $872,000,000 PACCAR Parts achieved excellent 4th quarter revenues of $1,600,000,000 and pre tax profits of $428,000,000 Last year's U. S. And Canadian Class 8 truck retail sales were 268,000 units. Kenworth and Peterbilt's market share increased to a strong 30.7%, up from 29.5% in the prior year. In the medium duty market, Kenworth and Peterbilt's excellent new medium duty truck has created customer value and market share grew from 14.5% to 18% as they produced a record 21,500 medium duty trucks.

[Preston Feight, CEO at Paccar]

In 2025, the U. S. Economy is projected to expand by more than 2%. The vocational truck sector, where Peterbilt and Kenworth's other market leaders is steady. The less than truckload market is performing well, while the truckload segment is beginning to show signs of improvement.

[Preston Feight, CEO at Paccar]

The U. S. And Canadian Class 8 truck market is forecast to be in a range of 250,000 to 280,000 vehicles. We anticipate a strengthening market as we progress through the year. European above 16 ton truck registrations were 316,000 last year.

[Preston Feight, CEO at Paccar]

Customers appreciate DAS industry leading fuel efficiency and driver comfort. DAS trucks have a competitive advantage in the European market due to an innovative aerodynamic design and feature the largest and most luxurious cab interior. In 2025, the European economy is forecast to grow modestly. We expect the above 16 ton truck market to be in the range of 270,000 to 300,000 registrations. Last year, the South American above 16 ton market was 119,000 vehicles and is expected to be similar this year.

[Preston Feight, CEO at Paccar]

DAF's market share in the important Brazilian market was right around 10% and reflects a 23% production increase to more than 10,000 trucks in 2024. In addition to its successful growing business in Brazil, DAF trucks are now sold in Mexico and in the Andean region of South America. PACCAR truck parts and other gross margins were solid 15.9% in the 4th quarter. These margins are considerably higher than in prior industry cycles, reflecting the increased value that the new Kenworth, Peterbilt and DOP trucks provide to customers as well as the continued growth of PACCAR Parts. In the Q4, PACCAR delivered 43,900 trucks.

[Preston Feight, CEO at Paccar]

And in the Q1 of 2025, deliveries are forecast to be around 40,000. We estimate PACCAR's worldwide 1st quarter truck and parts gross margins to be similar to the Q4 and in a range of 15.5% to 16%. In addition to the strong financial performance, other business highlights in 2024 included PACCAR's progress on Amplify Cell Technologies, our joint venture to manufacture commercial vehicle batteries in the United States. DAF was honored as the Fleet Truck of the Year in the UK. PACCAR Parts celebrated the 30th anniversary of TRP.

[Preston Feight, CEO at Paccar]

Peterbilt earned the Environment and Energy Leader Award for Sustainability. And Kenworth celebrated the 50th anniversary of its world class truck factory in Chillicothe, Ohio. We look forward to an excellent year in 2025 as we celebrate the 120th anniversary of PACCAR's founding in 190 5. Harry Skippers will now provide an update on PACCAR Parts, Packard Financial Services and other business highlights. Harry?

[Harrie Schippers, President & CFO at Paccar]

Thank you, Preston. In 2024, Packard Parts set new records for revenues and profits. Annual revenues increased by 4% to a record $6,700,000,000 and pre tax profit increased to a record $1,71,000,000 Parts gross margins averaged 30.9%. In the current freight environment, we estimate parts sales to grow by 2% to 4% this year. PACCAR Parts' excellent long term growth reflects the benefits of investments that increase vehicle uptime and convenience for customers.

[Harrie Schippers, President & CFO at Paccar]

Pekka's aftermarket parts business provides strong profitability through all phases of the business cycle. Pekka parts has expanded to 20 parts distribution centers or PDCs worldwide, including a new PDC in Germany, which opened in November. This PDC enhances parts availability and delivery times to German dealers and customers and is part of a strategy to increase DAS truck market share in the largest truck market in Europe. PACCAR Financial Services achieved 4th quarter pretax income of $104,000,000 Annual pretax income was €436,000,000 Becker Financial is performing well with a portfolio that has excellent credit quality and low past dues. Becker Financial provides the highest quality service in the market and makes it easy for customers to do business with them through the efficient use of technology in the credit application and loan servicing processes.

[Harrie Schippers, President & CFO at Paccar]

Pekka Financial operates 13 used truck centers around the world to support the sale of premium, Kenworth, Peterbilt and DAF used trucks and is adding a new used truck center in Warsaw, Poland this year. Last year, Pegaard invested $796,000,000 in capital projects and $453,000,000 in research and development. PACCAR delivered an excellent return on invested capital of 25.5%. This year, we are planning capital investments in the range of 700 $1,000,000 to $800,000,000 and R and D expenses in the range of $460,000,000 to $500,000,000 as we invest in key technology and innovation projects. These include new clean diesel and alternative fuel engines, the next generation of battery electric powertrains, advanced driver assistance systems and integrated connected vehicle services.

[Harrie Schippers, President & CFO at Paccar]

PACCAR is expanding manufacturing capacity at our factories in Europe, North America, Brazil and Australia. These investments will support PACCAR's future growth as well as our customers' success. PACCAR's independent Kenworth Peterbilt and DAF dealers consistently invest in their businesses, enhancing our industry leading distribution network and making a significant contribution to PACCAR's long term success. PACCAR looks forward to another excellent year in 2025. Thank you.

[Harrie Schippers, President & CFO at Paccar]

We'd be pleased to answer your questions.

[Operator]

Thank you. Our first question comes from Tami Zakaria of JPMorgan. Tami, your line is open. Please go ahead.

[Tami Zakaria, Executive Director at JP Morgan]

Hey, good morning. Thank you so much for taking my questions. So my first question is on the delivery guide. Can you help us understand how to think about deliveries by geography in the Q1 versus the Q4, trying to bridge the gap and where that difference is coming from, which geography, if you could highlight?

[Preston Feight, CEO at Paccar]

Yes. Happy, Tammy. Good to talk to you. What I would share with you is in the U. S, we expect Class 8 to be flat or up even a little bit in Q1.

[Preston Feight, CEO at Paccar]

But what we've seen is the medium duty market, which has just been very robust, is probably normalizing now. So we'll see a bit smaller medium duty market. I'd also remind people that there was a Euro 6 implementation in Mexico that was in the Q4. So that kind of was there was a bit of a pre buy in Mexico that won't be present in the Q1. And also if you're doing comparisons of Q4, Q1, we had good supplier performance in the Q4 that allowed our normal year end inventory reduction to take place.

[Preston Feight, CEO at Paccar]

So all those things kind of had an impact and maybe the only last one I'd add is we have fewer production days outside the U. S, specifically in South America as an impact. So all that goes into that delivery guidance. But in essence, we're seeing flat Class 8, maybe slightly up Class 8 in the U. S.

[Preston Feight, CEO at Paccar]

Markets.

[Tami Zakaria, Executive Director at JP Morgan]

Got it. That is very helpful color. Thank you. And my second question is on the investments for Amplify, the JV you have with Cummins and Daimler. Do you think you could revisit that or the whole idea could be rethought at this point given the current administration shift away from bevs?

[Preston Feight, CEO at Paccar]

Well, I'll share this with you. I am so happy with how that's going. And I think if I could remake the decision now knowing what I know, I'd make the same decision. It's a long term strategic objective for our company to be able to offer our customers the full portfolio of powertrain choices. We see that there will be places where battery electric vehicles make sense or it could be hybrid vehicles.

[Preston Feight, CEO at Paccar]

And our Amplify Cell Technologies joint venture will allow us to have the lowest cost, highest quality batteries, so that we'll be most competitive in the market, which will be in support of our customers.

[Tami Zakaria, Executive Director at JP Morgan]

Okay, great. Thank you.

[Preston Feight, CEO at Paccar]

You bet.

[Operator]

Thank you. Our next question comes from Kyle Menjes of Citi. Kyle, your line is open. Please go ahead.

[Kyle Menges, Vice President - Equity Research Analyst at Citi]

Thanks, guys. So you did reference the vocational strength and it seems like that's been a big piece of why we've seen this order resilience in Class 8. But I guess just what gives you confidence that dealers aren't over ordering here to stay in bodybuilders pipelines? And just could you maybe give us a gauge of how many of those orders actually have a customer's name attached? Thank you.

[Preston Feight, CEO at Paccar]

Yes, we have all of our customers there feel really solid. In fact, if you one way to look at it is inventory. So the industry inventory is running what 3.1 months in heavy duty and can work in Peterbilt's inventory levels at 2.3 months. So our inventory is in good shape. There is a backlog at bodybuilders, but those are really spoken for trucks.

[Kyle Menges, Vice President - Equity Research Analyst at Citi]

Okay. Thank you. And then if you could just provide maybe a little more color on how you're thinking about the medium duty market in U. S. And Canada as we progress through the year?

[Kyle Menges, Vice President - Equity Research Analyst at Citi]

You mentioned probably down a little bit in 1Q, but I guess just how are you thinking about the growth as we move throughout the year, first half versus second half would be helpful. Thank you.

[Preston Feight, CEO at Paccar]

Yes. I think that what we saw kind of referencing back Kyle to last year, you'd say that we had a pretty steady set of builds in the year. They were strong builds. There was, if you recall, a mirror factory fire that amplified some deliveries in the Q3. So when you're comparing 3Q to 4Q, you'd see lower deliveries at 4Q.

[Preston Feight, CEO at Paccar]

And now we just think that the medium duty market is going to go back to more normal, historically normal levels. And in those normal levels, we'll continue to see our new products perform well. Customers seem quite happy with the new 2.1 meter wide Kenworth and Peterbilts. They work well with bodybuilders. They're gaining our market share.

[Preston Feight, CEO at Paccar]

In fact, we've grown from 14.5% to 18% share in the medium duty market last year. So we feel good about our position. The cadence of Q of half 1 to half 2 probably would expect it also to see strengthening in the second half.

[Operator]

Thank you. Our next question comes from Stephen Volkmann of Jefferies. Stephen, your line is open. Please proceed.

[Stephen Volkmann, Managing Director at Jefferies Financial Group]

Great. Good morning, everybody. Thank you for taking the call. I'm curious, as we sort of do the dumb math and look at total truck revenues divided by the deliveries, it seems like the kind of revenue per truck was down 5% -ish, which is one of the bigger declines we've seen recently. And I know there's a lot in there between price and mix and things like that.

[Stephen Volkmann, Managing Director at Jefferies Financial Group]

But I'm curious, if you can provide any color. Was that mostly mix? Is there kind of more day cab happening or more vocational? Or how do we think about kind of what's going on in price mix?

[Harrie Schippers, President & CFO at Paccar]

Yes, Steve. There's a little bit of mix regional mix going on. So North America is more vacation or holidays in the Q4. So a little bit stronger mix in Europe in Q4. And then on top of that, we had unfavorable foreign exchange rates.

[Harrie Schippers, President & CFO at Paccar]

So it's a very strong dollar and that probably accounts for half of the reduction in average sales price.

[Stephen Volkmann, Managing Director at Jefferies Financial Group]

Got it. Okay, right. A lot in there. Okay. And then slightly differently, have you guys announced or started telling your customers kind of the order of magnitude of the expected price increase for the 2027 regulations that we're all looking forward to?

[Preston Feight, CEO at Paccar]

We're having general conversations with them about that, and we're still saying it can be in the $10,000 to $15,000 price range for adjustments to 2027. Obviously, the details of that aren't finalized, but that's kind of what it feels like right now.

[Stephen Volkmann, Managing Director at Jefferies Financial Group]

Okay. Thank you, guys.

[Preston Feight, CEO at Paccar]

You bet.

[Operator]

Our next question comes from Rob Wertheimer of Melius Research. Rob, your line is open. Please go ahead.

[Rob Wertheimer, Director of Research at Melius Research LLC]

Thank you. I had 2, if I may. First is just I'd love to hear your thoughts on gross margin trend and truck pricing. It seems like used market to stabilize inventory, at least on sleep versus come down. I don't know if you see that and probably better data that you have.

[Rob Wertheimer, Director of Research at Melius Research LLC]

And just curious whether you see any hopefulness or the reverse on new truck pricing? That's my first one.

[Preston Feight, CEO at Paccar]

Yes, sure. It's Rob. What we'd say is that we're looking into Q1 and seeing like things should be pretty steady as you can tell from our guide where we said 15.5% to 16% gross margin. So we see that things are starting to look up, but just beginning to as we notice the truckload carriers starting to come back into the market and then probably gaining strength through the course of the year.

[Harrie Schippers, President & CFO at Paccar]

And then on the used truck side, Rob, I would add that PACCAR Financial's used truck inventory is at very healthy and low levels right now. So and so that's also a good thing.

[Preston Feight, CEO at Paccar]

Yes, it's a good leading indicator as well.

[Rob Wertheimer, Director of Research at Melius Research LLC]

In the bottom there. Okay, perfect. And then Preston, just it sparked my curiosity. You mentioned hybrid trucks. And I think across the auto and maybe even the truck world years ago, there was a bit of resistance to hybrids and the feeling that you'd go full electric.

[Rob Wertheimer, Director of Research at Melius Research LLC]

I'm curious what you're hearing from your customers. Is that something that there's actual demand for now? Are there really use cases that are non regulatory? I'm just curious about your thought there. I'll stop there.

[Rob Wertheimer, Director of Research at Melius Research LLC]

Thank you.

[Preston Feight, CEO at Paccar]

Yes. Great question, Rob. I think what we see is that through hybrid systems, we might be able to improve fuel efficiency and likewise greenhouse gas by double digit levels. And if we're able to do that, that's obviously desirable for our customers. There is an added cost to it.

[Preston Feight, CEO at Paccar]

So the balance of what's the payback time sits into there. So there is a striving for a business case, which is free of regulatory hurdles, but we know that there will be regulations coming and going over time. So that could also be an added incentive to a hybrid business case. And that's true for both U. S.

[Preston Feight, CEO at Paccar]

And Europe, maybe especially true in Europe.

[Operator]

Thank you. Our next question comes from Steven Fisher of UBS. Steven, your line is open. Please go ahead.

[Steven Fisher, Managing Director & Equity Research Analyst at UBS Group]

Thanks. Good afternoon. I just wanted to touch upon the margins in the Q1. As you said, Preston, they're going to be pretty stable, which is pretty impressive on 10% lower productions. I guess I'm just curious what is enabling that steadiness of the margins in light of that lower level of production?

[Preston Feight, CEO at Paccar]

Well, I think what we're seeing is the trucks are performing really, really well. So that's helpful to us obviously in terms of discussions with customers. Fuel economy is great, the reliability is great, our warranty costs are slightly down and it just feels like between all those factors where the market is starting to head, we think that we'll see that kind of a margin appear in the Q1.

[Steven Fisher, Managing Director & Equity Research Analyst at UBS Group]

Okay. And I guess just curious about the broader pricing environment now. Do you think that it's now kind of more stable that we're in this part of the downturn? And how confident can we be that sort of we've hit the low points on margins and pricing discounts for the year?

[Preston Feight, CEO at Paccar]

Sure. Great question again. And I think what we've shared and we continue to share is like we see 2025 with improvement coming throughout the year. We think for sure in the second half, maybe it's in the second quarter, we'll have to watch how the world develops of course, but it feels like a positive trend.

[Steven Fisher, Managing Director & Equity Research Analyst at UBS Group]

Okay. Thank you very much.

[Preston Feight, CEO at Paccar]

You bet.

[Operator]

Our next question comes from Angel Castillo of Morgan Stanley. Angel, your line is open. Please go ahead. And Hel, we are receiving a lot of feedback from your line. We will just try and reopen your connection.

[Preston Feight, CEO at Paccar]

We are Hey, Charlie, why don't we go to the next caller?

[Operator]

Of course.

[Operator]

Yes. Charlie, let's go to

[Operator]

the next caller and Yes. Yes.

[Operator]

Our next question comes from Jamie Cook of Truist Securities. Jamie, your line is open. Please go ahead.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Hi, good morning. Just to clarify, can you speak specifically what price cost was for truck and for parts in the Q4 specifically and what's implied by region for 2025? And then my second question, it sounds like you would say the Q1 is the trough for margins in total. Is that for total company or is that also for truck margins? And I'm just wondering if you get to the back half of the year, do you expect to see sales growth and then get back to a position where we're actually seeing incremental margins versus decremental?

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Thank you.

[Preston Feight, CEO at Paccar]

Yes. I mean, it's another way of asking what we've already talked about, I think quite a bit. But the truck for Q4 price versus cost was negative 0.6% on price and cost was 2.7%. And what we're expecting to see is some trending improvement through the course of the year, Jamie. And so we think that'll be favorable to your point.

[Preston Feight, CEO at Paccar]

And we see continued strong parts margins. So like 30.9% in 4Q and we would expect to see continued good margins in the Q1 as well. So those are contributing to a general upward trend in our mind.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

But was that by geography, I guess my question was?

[Harrie Schippers, President & CFO at Paccar]

I don't think we provided by geography, Jamie.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Okay. And then I guess the follow-up question was that by the second half of twenty twenty five, should we start to see incremental margins? Are you assuming sales volumes are up versus decrementals? I mean your margins are pretty impressive right now in the Q1.

[Harrie Schippers, President & CFO at Paccar]

Yes. As the market improves in the second half of the year, we would expect margin to the development to improve accordingly.

[Preston Feight, CEO at Paccar]

Yes. I mean, I think Jamie nice comment. Thanks also for the comment on the margins because it is these are cycle over cycle good margin improvements, a few hundred basis points. And we do think that as we've said last time we remain consistent this time, we think that 2025 will see improvement throughout the year. And as it improves, that will be good for our incrementals.

[Jamie Cook, Managing Director - Equity Research at Truist Securities]

Great. Thank you very much.

[Preston Feight, CEO at Paccar]

You bet.

[Operator]

Thank you. Our next question comes from Tim Thean of Raymond James. Tim, your line is open. Please go ahead.

[Tim Thein, Managing Director & Research Analyst at Raymond James Financial]

Thank you. Good morning. Maybe just first question, just in terms of any comments you could provide just as it pertains to order activity and how the backlog is filling in both North America and Europe. Just curious just in terms of how far your lead times extend and how that presumably quoting into the Q2, but maybe you just give some color on that?

[Preston Feight, CEO at Paccar]

Sure, Tim. Good question. Good insight to gain for everybody is I think that we're roughly 75% or 3 quarter full in Q1 and probably more like half full in Q2. So that's kind of where things look like pretty reasonable levels.

[Tim Thein, Managing Director & Research Analyst at Raymond James Financial]

Got it. Okay. And the presumably the composition of that backlog much more weighted, I would assume towards vocational. Should we think about any mix impact from that? Just if that supposition is correct, that would be a heavier weighting than normal.

[Tim Thein, Managing Director & Research Analyst at Raymond James Financial]

Is there much of an impact again from a product mix standpoint? Or is that kind of a neutral dynamic

[Tim Thein, Managing Director & Research Analyst at Raymond James Financial]

there?

[Preston Feight, CEO at Paccar]

Tim, I think that the vocational the heavy influence of vocational was more of a last year thing. And as vocational is steady now, I think the mix shift is kind of coming back to more traditional levels.

[Tim Thein, Managing Director & Research Analyst at Raymond James Financial]

Okay. Okay. Got it. And then maybe for Harry, just as if a big yes, but if we had the dollar at today's levels through the quarter, some pretty big moves against some of your key currencies. Is there a way to think about, A, what FX had or impact that foreign exchange had on margins in the Q4 and what that may imply if the dollar were at today's levels for the Q1?

[Brice Poplawski, VP & Controller at Paccar]

Yes. This is Bryce. I'll just comment on that. We had a negative effect on our net income in the Q4 from the foreign currencies of about $20,000,000 and something we will obviously we don't know what's going to happen to rates. But as you said, if they stay where there are, obviously it would be a recurring effect.

[Harrie Schippers, President & CFO at Paccar]

And it's all factored into our guidance of between 15.5% to 16%.

[Tim Thein, Managing Director & Research Analyst at Raymond James Financial]

Okay. Thank you very much.

[Operator]

Thank you. Our next question will go to Angel Castillo of Morgan Stanley. Hang on. Your line is open. Please go ahead.

[Angel Castillo, Executive Director at Morgan Stanley]

Hi. Can you hear me this time?

[Preston Feight, CEO at Paccar]

Yes. You're not giving us quite the static you did on your first time.

[Angel Castillo, Executive Director at Morgan Stanley]

I apologize for that. It sounds like it's working right now. So maybe thanks for taking my question. I apologize if somebody asked it, but just I think you lowered the R and D expense for the full year. Can you just talk about maybe what's driving that?

[Angel Castillo, Executive Director at Morgan Stanley]

And maybe going back to one of the initial questions around the Amplify JV, obviously, a lot of kind of good, good, I guess, strategic reasons to continue to invest in that, but I believe it was a multi phase project. Is it fair to assume that it will be you'll be doing it in phases and deciding to move forward? Or is it we should assume that all three phases are moving forward?

[Preston Feight, CEO at Paccar]

Yes. Sure. That's a great question, both of them. So R and D is going to be still year over year we're thinking slightly up. So probably in the range of 5% up from last year just because there's a lot of great projects for us to be working on.

[Preston Feight, CEO at Paccar]

Of course, the Amplify one doesn't really fit into that space. But what we're doing with Amplify is we've cleared the ground now, we're putting in the buildings and then what we'll do is measure how much capacity we need to install, but we want to get started on that. So we have some capacity available for the markets that exist. And then we'll just scale capacity based upon market demands for the EVs or hybrids.

[Angel Castillo, Executive Director at Morgan Stanley]

That's helpful. And then I wanted to go back to some comments you made this quarter and I guess last quarter as well in terms of maybe some green shoots on the TL or starting to see some improvements. I think you mentioned that you could maybe see some improvement as soon as 2Q. Can you just give us a little bit more color what exactly are you hearing from your customers in terms of potential green shoots on the TL market? And maybe what would kind of give you confidence in that 2Q number starting to show a rebound versus maybe more of a second half?

[Preston Feight, CEO at Paccar]

There are a couple of things. One is we've just started to see spot rates of improvement. So that's something that's measuring into our thoughts. I'd say some of the capacity has come out of the market. So it's making it easier for the good carriers to become successful.

[Preston Feight, CEO at Paccar]

And then I would also add, as we said earlier that the used market inventories are quite low. And so that's kind of a tell of how the world is starting to turn a little bit. So all of those are soft indicators of what we think is to come.

[Angel Castillo, Executive Director at Morgan Stanley]

Very helpful. Thank you.

[Preston Feight, CEO at Paccar]

You bet.

[Operator]

Thank you. Our next question comes from David Raso of Evercore ISI. David, your line is open. Please proceed.

[David Raso, Senior Managing Director & Partner at Evercore]

Hi, thank you for the time. Your comment about strengthening market as the year progresses, how was that influencing how you're pricing the 26 model years that start shipping in April? And then wrapping with that maybe a bit, your reaction to some of the recent executive orders from the White House just to think about how that influences how you think about the pre buy, which I assume sort of dovetails a little bit into how you think about pricing?

[Preston Feight, CEO at Paccar]

Well, we look at the executive orders, we pay attention to it, but we know what the rules are today and we are ready for those rules. If they were to change, then we'd be ready for that too. Like one of the things we've been able to do is develop the suite of technologies we need. California has already implemented low NOx engines and PACCAR has a low NOx engine in California. So we can be available to that.

[Preston Feight, CEO at Paccar]

And if things shift around, we'll be ready in that position as well. To the first question you asked about pricing in 2026 product shipments, I think as the market moves around and people are experiencing the great performance of the Kenworth, Peterbilt and Doff trucks, we expect that we will see strengthening price position for ourselves as the course of the year progresses. But we think that trend carries on even beyond 25% we anticipate.

[David Raso, Senior Managing Director & Partner at Evercore]

And we hear the model year 26% starts shipping in April. I know there'll be a little mix of 25% and 26% in 2Q. But is that accurate? We start getting some of the 26 model shipping in 2Q for this year?

[Preston Feight, CEO at Paccar]

Yes. Your comment David there, I don't know what that is, but that doesn't resonate to me of a model year 20 6 shifting in April for us. So I'm not sure how to answer that.

[David Raso, Senior Managing Director & Partner at Evercore]

Okay. We can talk offline, but basically the higher pricing sequentially is what you're referencing as the year goes on, however you want to name

[Preston Feight, CEO at Paccar]

the model. Yes, that's fair. But yes.

[David Raso, Senior Managing Director & Partner at Evercore]

Okay. Thank you very much. I appreciate it.

[Preston Feight, CEO at Paccar]

You bet.

[Operator]

Thank you. Our next question comes from Jerry Revich of Goldman Sachs. Jerry, your line is open. Please go ahead.

[Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs]

Yes. Hi. Good morning and good afternoon, everyone. I wanted to ask on the per truck performance in terms of operating costs. Can you talk about the cadence that you expect over the next couple of quarters?

[Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs]

It sounds like based on the gross margin guidance for the Q1, maybe we're seeing a decline in per truck costs. I'm wondering based on your contract structures, etcetera, can you just talk about the cadence over the next couple of quarters?

[Harrie Schippers, President & CFO at Paccar]

If you look at the cost per truck, Gerry, in 2024, we saw some more content on trucks, especially in Europe, where we because of legal requirements, some more connected ADAS and other features were added during the year. We expect those cost levels to be more or less stable as we enter the New Year, But no specific special developments in 2025 as far as I can tell right now.

[Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs]

Okay. So and separately on the topic of EPA-twenty seven, I appreciate the base cases. It's going to move forward, but obviously governments can make changes in the scenario if there's an adverse legal ruling or something along those lines. Can you talk about how the company would react in that scenario if we have different regulations for California and other states versus the rest of the U. S?

[Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs]

How would you see that scenario playing out in your planning process?

[Preston Feight, CEO at Paccar]

One of the things that's great about PACCAR is the quality of the people in this company and our ability to be nimble and reactive is I think second to none. So I think if there are changes in regulations, there is nobody better at adjusting to those regulatory changes than the people at PACCAR. And so we'll make sure we have the right products in front of the customers that are going to give them the best operating condition for the regulatory environment.

[Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs]

Okay. Appreciate it. Thank you.

[Preston Feight, CEO at Paccar]

You bet.

[Operator]

Our next question comes from Jeff Kauffman of Vertical Research Partners. Jeff, your line is open. Please go ahead.

[Jeff Kauffman, Partner, Transportation & Logistics Equity Research at Vertical Research Partners]

Okay. Thank you very much. Two questions. Number 1, I want to come back to the change in revenue per truck was down about 4.9%. I think you mentioned 0.6% of that was price.

[Jeff Kauffman, Partner, Transportation & Logistics Equity Research at Vertical Research Partners]

I'm assuming most of the rest of the difference is mix and currency. Could you give me an idea of how to think about that math?

[Harrie Schippers, President & CFO at Paccar]

Yes. Like we said, I think more or less half of the impact is currency. And there is another element there that in the Q4, the U. S. And Canada have more holidays.

[Harrie Schippers, President & CFO at Paccar]

So the mix was a little bit more heavily towards Europe and other markets outside the U. S. Where average sales prices and cold trucks are smaller and average sales prices are lower.

[Jeff Kauffman, Partner, Transportation & Logistics Equity Research at Vertical Research Partners]

Okay. Thanks. And I just want to follow-up on David Raso's question. Obviously, as the administration comes out with new rules, you say you comply. Where do you think ignoring 27 in the EPA, but are there other rulings that have been discussed that would be risk worth thinking about in terms of its impact to PACCAR from the new administration?

[Preston Feight, CEO at Paccar]

No, I don't think of them as risks as much as I think of them as opportunities. I think anytime environments change, if you operate better than your competitors, then you'll find yourself in a winning position and that's where we intend to be.

[Jeff Kauffman, Partner, Transportation & Logistics Equity Research at Vertical Research Partners]

So Preston, what would some of those opportunities be in your mind?

[Harrie Schippers, President & CFO at Paccar]

The fact that we produce local for local factories in the U. S. Where we produce the trucks for the U. S, same in Mexico, Brazil, Europe makes us very well protected to things like tariffs, for example. So we feel we're in a really good spot there.

[Jeff Kauffman, Partner, Transportation & Logistics Equity Research at Vertical Research Partners]

Okay. Thank you very much.

[Preston Feight, CEO at Paccar]

You bet.

[Operator]

Thank you. Our next question comes from Michael Feniger of Bank of America. Michael, your line is open. Please go ahead.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Yes. Hi, everyone. Thanks for having me on. Just PACCAR has clearly gained a lot of share. I realize it's because of your great trucks and your products.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Just I'm curious if we see other OEMs raising capacity, trying to go after your market share, pricing intensifies. I'm curious how you guys weigh the puts and takes there? Is PACCAR more likely to continue to kind of price for your premium trucks and look to hold that margin? Or is it every year your goal is to try to gain that level of market share? Is that not as linear?

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Is that more over a multi cycle basis? Just kind of curious how you think about that because you guys have gained so much share and there is some other OEMs kind of raising capacity?

[Preston Feight, CEO at Paccar]

Yes. The way we think about it is we try to first off make sure that we produce great trucks for our customers. And if we produce great trucks for our customers that are valuable to them, then they're willing to pay us for those trucks and sharing that value equation. That's the most fundamental thing and the more we can do that for them, the better it works for us. And you gave a nod to the people at PACCAR producing great trucks, I'd also share in that our dealers are really outstanding and do a good job of supporting our customers and going out there and showing them the benefits of our trucks.

[Preston Feight, CEO at Paccar]

So it's really about great trucks that achieve benefits to our customer that helps us maintain our premium position and allows us also to simultaneously gain market share.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Great. And just on parts, the last three quarters, your revenue is up 4%. I think the pretax profit has been slightly down year over year. Is there anything on the last that you would want to flag on 2024? I'm just curious as we kind of turn the page, does pre tax profit, does the parts profit kind of grow in line with sales as we kind of look at 2025?

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Just any moving pieces there would be helpful.

[Harrie Schippers, President & CFO at Paccar]

In 2024, we saw part sales increase by 4%. At the same time, we see that the market for after sales for parts was down 2% or 3%. So growing our part sales in a smaller market at excellent margins, that's a really impressive performance by the entire Packer Parts team. And as we go into 2025, we expect parts to grow by 2% to 4% for the year. That will be another strong year for Packer Parts.

[Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch]

Thank you.

[Preston Feight, CEO at Paccar]

Yes, you bet.

[Operator]

Thank you. Our next question comes from Scott Group of Wolfe Research. Scott, your line is open. Please go ahead.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research LLC]

Hey, thanks. Good morning, good afternoon. I just want to actually follow-up on that last question. So if you think about last year, the market's down and parts sales are up 4% and I guess this year's you think the market's flat to up, but the parts growth slows. So help me understand why we're not seeing a pickup in parts sales if the market is improving?

[Preston Feight, CEO at Paccar]

Well, one of the things is Harry indicated is like the cadence of the parts market last year. And like the general market, it's going to be a tale of 2 halves probably for the total market. So what we're talking about right now is Q1 and excellent parts performance in Q1 and we would expect to see them growth through the course of the year.

[Harrie Schippers, President & CFO at Paccar]

It's strongly related to freight activity and the rest of the business. So it should also have that kind of cadence.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research LLC]

Okay. That makes sense. And then I think you said 75% sold for the Q1, half full for the Q2. Just do you have any sort of context? Is that sort of about right?

[Scott Group, Managing Director and Senior Analyst at Wolfe Research LLC]

Is that ahead of schedule, below behind schedule? And then do you have any view if the order strength of late has pre buy activity started yet or is that still all on the come?

[Preston Feight, CEO at Paccar]

Yes. We're in a fairly normal position for our backlogs, really kind of normal for this kind of a part of the cycle. And I would say that the discussions around what people are going to do for the second half of twenty twenty five and then in twenty twenty six are happening, but I wouldn't say there's really been any significant order intake in that area.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research LLC]

Thank you guys. Appreciate it.

[Preston Feight, CEO at Paccar]

Yes, you bet.

[Operator]

Thank you. Our next question comes from Matt Sliss of Kepler Cheuvreux. Matt, your line is open. Please go ahead.

[Mats Liss, Equity Research Analyst at Kepler Cheuvreux]

Yeah. Hi. Thank you for taking my question. I just had a question about the European market there. If you could give some flavor about different countries there And also how you see the market progress of 2025?

[Mats Liss, Equity Research Analyst at Kepler Cheuvreux]

I mean, you have the guidance, but if you could give some flavor there, please?

[Preston Feight, CEO at Paccar]

Yes, sure. Let me start and then Harry can add some thoughts to it. I mean the general sense for us is the European economy is maybe going to experience slight growth, I think really slight potentially in Germany. What we saw last year is that the Eastern Central Eastern European markets were softer because of geopolitics, I would say. So that has some impact on the market overall.

[Preston Feight, CEO at Paccar]

We'll see if that continues through this year. And that kind of leads to, I think, people in Europe feeling moderately okay without the market.

[Preston Feight, CEO at Paccar]

Terry, I don't

[Preston Feight, CEO at Paccar]

know what you would add to that.

[Harrie Schippers, President & CFO at Paccar]

Yes. Overall, the markets in Europe last year was down 8%. And then we talk about Western Europe maybe down 5%, but Central and Eastern Europe in the 20% range. So especially countries like Poland, Lithuania are more impacted and DAF has a strong presence there. So it has a little bit bigger impact on DAF than it maybe has on some of our competitors.

[Harrie Schippers, President & CFO at Paccar]

But looking into 2025, the market in the range that we guided, that's a good market in which Pekka should do really well.

[Mats Liss, Equity Research Analyst at Kepler Cheuvreux]

Okay, great. Thank you. And could you just add a commentary regarding your capacity utilization in Europe with DAF?

[Harrie Schippers, President & CFO at Paccar]

Capacity utilization is good.

[Preston Feight, CEO at Paccar]

We have capacity for when the market grows. We continue to make smart investments in the factories there. We have our factory in the UK, factory in the Netherlands. And so we can produce the trucks we need to. We continue to make those factories more and more efficient.

[Mats Liss, Equity Research Analyst at Kepler Cheuvreux]

And the backlog the coverage there for the 1st and second quarter is about the same as the average that you mentioned for the whole group?

[Harrie Schippers, President & CFO at Paccar]

Yes, that's correct. Europe is more or less in line with what Preston just mentioned on the total group.

[Mats Liss, Equity Research Analyst at Kepler Cheuvreux]

Okay, great. Thank you very much.

[Preston Feight, CEO at Paccar]

You're welcome. You bet. Have a good day.

[Operator]

Thank you. We have no further questions in the queue at this time. So I'll hand back over to the management team for any further or final remarks.

[Preston Feight, CEO at Paccar]

I'd like to thank everyone for joining the call and thank you, Charlie.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

Participants

Executives

• Harrie Schippers, President & CFO

Analysts

• Ken Hastings, Director of IR at Paccar
• Preston Feight, CEO at Paccar
• Tami Zakaria, Executive Director at JP Morgan
• Kyle Menges, Vice President - Equity Research Analyst at Citi
• Stephen Volkmann, Managing Director at Jefferies Financial Group
• Rob Wertheimer, Director of Research at Melius Research LLC
• Steven Fisher, Managing Director & Equity Research Analyst at UBS Group
• Jamie Cook, Managing Director - Equity Research at Truist Securities
• Tim Thein, Managing Director & Research Analyst at Raymond James Financial
• Brice Poplawski, VP & Controller at Paccar
• Angel Castillo, Executive Director at Morgan Stanley
• David Raso, Senior Managing Director & Partner at Evercore
• Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs
• Jeff Kauffman, Partner, Transportation & Logistics Equity Research at Vertical Research Partners
• Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch
• Scott Group, Managing Director and Senior Analyst at Wolfe Research LLC
• Mats Liss, Equity Research Analyst at Kepler Cheuvreux