PACCAR Q1 2025 Earnings Report

PACCAR EPS Results

• Actual EPS: $1.46
• Consensus EPS: $1.58
• Beat/Miss: Missed by -$0.12
• One Year Ago EPS: $2.27

PACCAR Revenue Results

• Actual Revenue: $6.91 billion
• Expected Revenue: $7.13 billion
• Beat/Miss: Missed by -$220.74 million
• YoY Revenue Growth: -16.00%

PACCAR Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, April 29, 2025
• Conference Call Time: 11:00AM 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 Q1 2025 Earnings Call Transcript

Key Takeaways

• PACCAR reported first-quarter revenues of $7.4 billion and adjusted net income of $770 million, with PACCAR Parts achieving record quarterly revenues of $1.7 billion and pre-tax income of $427 million.
• The company forecasts 2025 truck markets of 235K–265K units in North America, 270K–300K above-16 ton vehicles in Europe and 100K–110K above-16 ton vehicles in South America, and expects Q2 deliveries of 37K–39K trucks.
• First-quarter gross margins were 14.8%, and Q2 margins are guided to 13–14% reflecting full-quarter tariff costs and timing lags on pricing, with potential upside if tariff investigations are resolved favorably.
• PACCAR plans $700–800 million in capital investments and $450–480 million in R&D for 2025 to advance next-generation powertrains, driver-assistance systems, connected services and expand manufacturing capacity.
• Leadership changes include the retirement of President & CFO Harry Skippers, promotion of Kevin Bainie to EVP of PACCAR Financial Services and Bryce Poplowski to Senior Vice President & CFO.

Presentation

[Operator]

Good morning, and welcome to PACCAR's First Quarter twenty twenty five 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 an objection, you should disconnect at this time. I would now like to introduce Mr.

[Operator]

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

[Ken Hastings, Director of Investor Relations at Paccar]

Good morning. We would 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 Kevin Bainie, Executive Vice President 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 Investor Relations 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.

[R. Preston Feight, CEO & Director at Paccar]

Thanks, Ken. Good morning, everyone. First, I'd like to congratulate Harry Skippers on his upcoming retirement after a wonderful thirty nine year career at PACCAR. We'll all miss him. And we wish him all the best on the next chapter in his life.

[R. Preston Feight, CEO & Director at Paccar]

Congratulations to Kevin Bainie, our Executive Vice President, who's been responsible for DAF Trucks and will now become responsible for PACCAR Financial Services. Kevin will also work with Ken on Investor Relations. And congratulations to Bryce, who has been promoted to PACCAR Senior Vice President and CFO, reporting directly to me. I'd like to thank PACCAR's outstanding employees who did an excellent job providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR achieved good revenues and net income in the first quarter, including record revenues at PACCAR Parts, good performance by the truck divisions and strong financial services results.

[R. Preston Feight, CEO & Director at Paccar]

PACCAR achieved revenues of $7,400,000,000 and adjusted net income of $770,000,000 PACCAR Parts achieved record quarterly revenues of $1,700,000,000 and quarterly pre tax income of $427,000,000 We're pleased with the continued growth at PACCAR Parts after a record setting 2024. PACCAR Financial had a very good quarter, achieving pre tax income of $121,000,000 to 6% higher than the $114,000,000 in the first quarter of last year. We estimate this year's U. S. And Canadian Class eight market to be in a range of 235,000 to 265,000 trucks.

[R. Preston Feight, CEO & Director at Paccar]

The North American truck market is being affected by uncertain economic conditions and the overall impact of new tariffs. In Europe, DOPS premium aerodynamic trucks provide customers with the latest technology and the best operating efficiency. We project the 2025 European above 16 ton market to be in a range of 270,000 to 300,000 trucks. This year's South American above 16 ton truck market, where DAF trucks are highly desired by our customers, is expected to be in a range of 100,000 to 110,000 vehicles. PACCAR delivered 40,100 trucks during the first quarter and anticipates delivering 37,000 to 39,000 trucks in the second quarter.

[R. Preston Feight, CEO & Director at Paccar]

PACCAR's truck parts and other gross margins were 14.8% in the first quarter as economic uncertainties and tariffs began affecting input costs and truck pricing. For the full quarter of current tariff related impacts, we anticipate second quarter margins could be in a range of 13% to 14%. Margins could improve considerably depending on how the announced truck tariff policy investigation progresses. In the second half of the year, we anticipate increased customer demand as policy and emissions regulations become more stable. PACCAR's industry leading trucks, expanding parts business, best in class financial services and advanced technology strategy position the company well for an excellent future.

[R. Preston Feight, CEO & Director at Paccar]

Harry Skippers will now provide an update on PACCAR Parts, PACCAR Financial Services and other business highlights. Harry, over to you one last time.

[Harrie Schippers, President & CFO at Paccar]

Thanks, Preston. PACCAR's first quarter adjusted net income of $770,000,000 excludes the $265,000,000 after tax provision related to EU civil litigation settlements. Is making good progress on resolving the civil litigation. The company has settled with the majority of claimants and continues to pursue appropriate resolutions. PACCAR Parts achieved record revenues in the first quarter with excellent gross margins of 30.7%.

[Harrie Schippers, President & CFO at Paccar]

We estimate parts sales to grow by 2% to four percent in the second quarter and for the full year. Parts is beginning to benefit from the live data of the 600,000 connected Kenworth Peterbilt and Dove trucks in operation. This connectivity enhances our customers' operational efficiency and vehicle uptime. PACCAR Parts has 20 parts distribution centers worldwide and continues to expand its global distribution network. PACCAR Financial Services pretax income was a robust $121,000,000 compared to $114,000,000 a year earlier.

[Harrie Schippers, President & CFO at Paccar]

This reflects solid portfolio growth and continued strong credit quality. PACCAR Financial operates 13 used truck centers around the world to support the sale of premium Kenworth, Peterbilt and DAF used trucks and is building a new used truck center in Warsaw, Poland this year. Used truck demand and pricing improved in the first quarter and we expect it to further improve throughout the year. Similar to PACCAR Parts, PACCAR Financial provides steady profitability during all phases of the business cycle. In 2025, we're planning capital investments in the range of 700,000,000 to $800,000,000 and R and D expenses in the range of $450,000,000 to $480,000,000 as we continue to invest in key technology and innovation projects.

[Harrie Schippers, President & CFO at Paccar]

These include next generation powertrains, advanced driver assistance systems and integrated connected vehicle services. PACCAR is also investing in manufacturing capacity to support future long term growth and our customers' success. This includes an expansion of the DAF factory in Brazil, construction of a new PACCAR engine remanufacturing facility in Columbus, Mississippi and an expansion of the PACCAR Technical Center in Washington State. As Preston noted, this is my last earnings conference call. PACCAR is an exceptional company, and I want to thank all my colleagues, past and present, for making it such a wonderful place to have a career.

[Harrie Schippers, President & CFO at Paccar]

We're pleased to answer your questions.

[Operator]

Our first question comes from Chad Dillard of Bernstein. Chad, your line is open. Please go ahead.

[Chad Dillard, Analyst at Bernstein]

Hi, good morning guys.

[Harrie Schippers, President & CFO at Paccar]

Hey, Chad.

[Chad Dillard, Analyst at Bernstein]

Hey. So I wanted to dig a little bit more into your guidance for gross margins. I was hoping you could tease out just how much are you embedding in terms of incremental tariff costs and how much you expect to pass through to customers? And then just talk through how we're thinking about gross margins for the balance of the year, please.

[R. Preston Feight, CEO & Director at Paccar]

Yes, Chad. As we shared in our comments, it's a little bit uncertain out there right now in terms of what the tariff policies will look like. You may or may not be following how they apply to trucks specifically, but last week the government announced a section two thirty two investigation into tariffs for medium and heavy duty trucks to value what their policies would be. There's an open comment period through the May and then they haven't declared when they would make any kind of revision to those policies, but they're under review which could have meaningful impact to what the impact is on a per truck basis. And obviously that's an input cost to us right now, so it could have a shaping form factor for us in Q2 and beyond.

[R. Preston Feight, CEO & Director at Paccar]

And of hard to actually know what the exact numbers are going to be because of that uncertainty. But we think that right now, you know, we are an American company that builds our trucks in the markets for the markets. So our teams in Denton and Chillicothe are doing a great job building trucks for us for The US markets, but there are components that come into those factories from our suppliers from other countries. And so we don't know how they would be affected.

[Chad Dillard, Analyst at Bernstein]

Got it. That's helpful. And then just over to the Vocation side of your business. I know that you guys tend to over index to that part of the market. I would just be curious on how you're thinking

[Chad Dillard, Analyst at Bernstein]

you go through the balance of the year?

[R. Preston Feight, CEO & Director at Paccar]

Yes, it's still a solid part of our business right now. I mean, the vocational market is reasonable and so it feels like that will continue to be a strength throughout the year. And we'll see how that plays. The LTL market still also feels stable. And I think everybody kind of is aware that the truckload carriers are still under some pressure.

[R. Preston Feight, CEO & Director at Paccar]

And so that pressure is something that we feel in the market estimations for the year.

[Chad Dillard, Analyst at Bernstein]

Okay. Thanks. I'll pass it on.

[R. Preston Feight, CEO & Director at Paccar]

Cool. Have a good day.

[Operator]

Thank you. Our next question comes from Jamie Cook of Truist. Jamie, your line is open. Please proceed with your question.

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

Hi, good morning. I guess, if you could just unpack a little further the margin disappointment relative to I mean, deliveries were essentially in line with expectations. The margins, were lighter relative to your guide. I know you talked about input costs and and truck pricing. If you could unpack that more and let us know, you know, what price cost was for for both truck and parts.

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

I guess that's my first question. And then my question, just, you know, your comfort level with inventory level some of the, industry experts, the you know, the inventory levels are really elevated. And I'm wondering if that's a concern in yours, how that impacts orders and if you could comment on your order specifically. And then last, congratulations to Harry. Thank you for all your help throughout the years and congrats, Bryce.

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

Look forward to working with you. Thanks.

[Harrie Schippers, President & CFO at Paccar]

Thank you.

[R. Preston Feight, CEO & Director at Paccar]

Well, Jamie, it's nice of you to recognize, Harry. We're all going to miss him greatly. He's a good guy. To pick up on your first question, I mean, think if you try to I think your words unpack it a little bit further. If I think about the margin, think of sequentially cost being up 1% and price being relatively flat.

[R. Preston Feight, CEO & Director at Paccar]

And that's really a factor of the tariff impacts that we saw, but they weren't a full quarter of impact of those tariffs. That's the easiest way to think about the delta of what we shared previously and what we experienced today. And now what we see coming into a look for Q2 is we took the conservative view we shared with you is to say that if there's a full quarter of tariff impacts, it could look like this. Now life isn't quite that straightforward because we'll also be pricing those tariffs into our customers' trucks as we go along, but we do have the backlog that we have to manage and we can't just pass that along as we have relationships with people. So there's a partial pass along and we'll work with our suppliers on that as well.

[R. Preston Feight, CEO & Director at Paccar]

So it's kind of few inputs and a few outputs out of this. And we see that over time, we'll be adjusting our pricing to match the tariffs, but it takes some time to do that. Or as we mentioned, the tariffs might change, and that would reduce the need to make those adjustments.

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

Did did you guys put through the four to 7% that's out there in the sorry. Go ahead. Go ahead.

[Harrie Schippers, President & CFO at Paccar]

No. Go ahead, Jamie.

[R. Preston Feight, CEO & Director at Paccar]

Go ahead, Jamie.

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

No. I was just gonna say a follow-up. You know, there's been talk that, you know, the industry has put through an incremental, I think, percent to 7% price increase, you know, at the end of the first quarter. Wondering if you were in if if you also were were put putting price increases through at that level. And then, sorry, you can answer after that the question on the elevated inventories.

[R. Preston Feight, CEO & Director at Paccar]

Yep. Inventory. Yeah. For sure. Yeah.

[R. Preston Feight, CEO & Director at Paccar]

Your numbers are about the right numbers to think about in terms of what's been passed along. You just have to get into the sequencing of when you announce a price increase, when you're gonna build it, what your backlog was that already was behind that. So you don't affect all of that and that's the puts and takes of that. If I switch over to your question on inventory levels, we look at the inventory for Class A for the industry is around four months and we're at three point one months. And then I think back to the earlier conversation we had with Chad, you know, we have a lot of vocational trucks, so we're probably actually lighter on a like for like comparison because vocational trucks take a longer time to get a body put on and put back into service, put into service.

[R. Preston Feight, CEO & Director at Paccar]

So we feel pretty comfortable with our three months of retail inventory.

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

Thank you. That was very helpful.

[R. Preston Feight, CEO & Director at Paccar]

Great. Have a good day.

[Operator]

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

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

Thank you. Thanks guys for taking my question. Just on the EPA emissions change, if there is a change in '27, how how does that inform your view in terms of how you guys are looking at your cost as the truck markets soft? So, you know, is this a time when you guys normally might pull back more cost to protect margins? Or is there an eye on 2026 where we you know, if there is a view that the EPA twenty seven is is still intact that we have to build towards that.

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

So just kinda curious how that also is shaping your guys' kind of view as you kinda go through 2025.

[R. Preston Feight, CEO & Director at Paccar]

Yeah. Great great conversation for us to have together, I think. As we think about the regulatory standards, there's a lot that gets mixed into that conversation. And it's really not one conversation, it's really a couple parts to that. One is greenhouse gas or CO two reductions, which have a standard which is intended to come into effect in 2027.

[R. Preston Feight, CEO & Director at Paccar]

So that's where you see an ACT impact, clean truck impact. The EPA has stated that they intend to look at those standards and potentially not implement GHG phase three in 2027. That would mean the number of electric vehicles, the kind of CO2 reductions that come with that could be adjusted. That's not what they've done yet, but that's what they've made a stated intent to address. Those changes really don't have a significant input cost change for us in terms of vehicle costs.

[R. Preston Feight, CEO & Director at Paccar]

So the trucks that are GHD compliant aren't don't look like the diesel trucks that are GHD compliant don't have a real different cost structure in 2027. So if those changes are made, there might just be less requirements for EVs made. That's a part one of this regulatory discussion. The part two of the regulatory discussion is around NOx. And the NOx standards which are in place call for reduction from today's 200 milligram engines down to a 35 milligram engine.

[R. Preston Feight, CEO & Director at Paccar]

That's the law that's in place today. If that law enacts, then cost of the vehicles will go up significantly because there'll be additional hardware required to meet those NOx levels. The government has said they intend to look at that and consider whether that will stay at 200 or, excuse me, move to three thirty five milligrams or stay at today's 200. And that's less clear that there would be really an adjustment there. The good thing for PACCAR is we've made great investments in clean diesel technology along the way, never adjusted from that as we've shared with you over the years.

[R. Preston Feight, CEO & Director at Paccar]

And so we're prepared for any of these situations that come up. We've got great engines for today that meet the NOx standard at today's cost structure. We've got new engines designed and running that can meet the 35 NOx standard, and they come with some on cost. So whichever way the standards go, we'll be in a very good position to meet those for our customers. And, of course, what the government does will inform the market's reaction.

[R. Preston Feight, CEO & Director at Paccar]

And so what we look at is, say, today's numbers are thirty five milligrams that would drive up the cost of a product in 2027, and we're prepared for that. If it changes, we'll be in good shape too.

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

Understood. If I could just my follow-up, just if you could kind of dive into the parts side, it seems like the growth was a little slower than we expected. Margins, just are we starting to kind of normalize here? What do you kind of see when we think of the parts margins on a year over year sequential basis? We kind of think about that profitability?

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

You just kind of think about that as we're thinking for the full year and into Q2, but for 2025? Thank you.

[Harrie Schippers, President & CFO at Paccar]

So we were very proud of the parts team that they've been able to grow parts sales in the first quarter in a soft market for parts and service. And the margin levels of above 30%, that's pretty good margin for PACCAR Parts. And think TIM does an amazing job getting solid good margins out of a soft market these days. And we expect parts to continue that growth throughout the year at levels between 24%.

[R. Preston Feight, CEO & Director at Paccar]

And I would add to everything Harry said And let's say he shared in his opening comments the number of connected vehicles we have now and the number of connected vehicles and the technology that our parts team is bringing gives us a great confidence that parts will continue to grow over the short, medium and long term at good levels.

[Operator]

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

[Tami Zakaria, Executive Director at JP Morgan]

Hey. Good morning to all, and congrats to Kevin on the new role. And Harry, what an exemplary career at PACCAR. And I will definitely miss you, but best of luck. I'm sure great things await you.

[Tami Zakaria, Executive Director at JP Morgan]

So so I wanted to ask a question on tariffs again. I just wanted to clarify, and I appreciate the situation is very fluid, but it seems like there aren't any potential Section two thirty two tariffs embedded in the second quarter gross margin guide. Is that correct? And if so, what's essentially embedded in that 13% to 14%? Does it include the now paused tariffs which could become effective at any point next month?

[Tami Zakaria, Executive Director at JP Morgan]

So so what's really in that 13 to 14% guide?

[R. Preston Feight, CEO & Director at Paccar]

13 to 14% includes tariffs as they are today, is the impact of what's going on there. So that's as it is, that's as the rules are today, that's what we've given you. The section two thirty two adjustments could include impact on foreign made trucks, it could include impact on components, it could also include exemptions on components for US made trucks. None of that is clear. And so we have to wait and see what that looks like.

[Harrie Schippers, President & CFO at Paccar]

I think it's okay to summarize that the of the impact would be less unfavorable or even favorable. Is that

[R. Preston Feight, CEO & Director at Paccar]

I think that's a fair way to say it. I mean, that's kind of what we that we try to give you that conservative look at the quarter with the standards of today because we know what we know. And if the rules change, then we think that if anything, it should be upside for us.

[Tami Zakaria, Executive Director at JP Morgan]

Understood. That's that's very helpful. And then in the same thread, I wanted to understand the impact potential impact of tariffs on the parts business. I I I know that you don't manufacture parts yourself, but any color on what mix of parts come into The U. S.

[Tami Zakaria, Executive Director at JP Morgan]

From the outside and how much is locally sourced and whether you have to take pricing to offset some of these tariff headwinds on the cost of procurement?

[R. Preston Feight, CEO & Director at Paccar]

Yes. Go ahead.

[Harrie Schippers, President & CFO at Paccar]

So it's

[Harrie Schippers, President & CFO at Paccar]

only the precedent will continue. But for parts, we don't have a backlog. So if we get cost increases for parts, it's much easier to pass those on with almost immediate effect. So it has less of a margin impact there. There is parts that are sourced and are impacted by tariffs, but we're working with the suppliers.

[Harrie Schippers, President & CFO at Paccar]

And if and when those costs for us would go up, would increase prices accordingly.

[R. Preston Feight, CEO & Director at Paccar]

Yeah. And just to give you ballparks, I'd say less than half of our purchases are really from maybe country of origin outside The U. S. Parts, it's a little bit higher percentage than nominal, but it's not it's not the majority. Because as you said, we actually do make some of our parts.

[R. Preston Feight, CEO & Director at Paccar]

Right? The the proprietary part are in many cases things we do make for ourselves and do get made in America.

[Tami Zakaria, Executive Director at JP Morgan]

Understood. That's very helpful. Thank you.

[R. Preston Feight, CEO & Director at Paccar]

You bet.

[Operator]

Thank you. 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. My first question is on the Section two thirty two tariff truck policy investigation. Is a potential positive there a relative one because you make more trucks in The US, I suppose, than some of your competitors? Or is it more of an industry comment you were making where they could kind of offset some of the hit to purchase parts from overseas?

[R. Preston Feight, CEO & Director at Paccar]

I think it could be both, Rob. I think yours is an astute observation, but I think it could be both. It could be a relative and it could be an absolute.

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

Okay. Perfect. Thank you. And the second one is gonna be a little bit general, but, you mentioned, you know, you have the truck backlog, you're not repricing those instantly for tariffs. I'm a little bit curious how are you managing through this fairly dynamic environment?

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

I mean, when you know the tariff, are you pricing that immediately into, current orders? Or do you not because the tariff could change by the time the truck gets made and delivered? And a little bit, if you're willing, same question on do you anticipate any margin impacts on from production variances from supply chain from when you order and when you choose to order depending on tariff. I mean, is that a potential margin risk towards the end of the year or not? And if I don't get back on the line, I'd just like to say, Harry, congratulations.

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

It's been a pleasure talking with you over the years, and thank you for everything.

[Harrie Schippers, President & CFO at Paccar]

Thanks, Scott.

[R. Preston Feight, CEO & Director at Paccar]

Yeah. I think that all the things you said in terms of the pricing structures and the timing for them are all are all true, but there's not a single thirty second answer I could give you about how they affect things. There are times when we have a backlog we're protecting. There's times when component prices are coming in. There's times when we know what they're going to be.

[R. Preston Feight, CEO & Director at Paccar]

There's times when it's little bit uncertain. We're still defining HTS codes, is what the government defines the tariff structures around. And so we're deciding whether those specific components or subassemblies are USMCA compliant. That's having some impact. So I I really can't give you a better answer than it's pretty dynamic right now.

[R. Preston Feight, CEO & Director at Paccar]

And the beautiful thing about being part of this company is having great people who are thinking about it every day. And we work closely with our suppliers on this. I think collaboratively with our suppliers, our dealers, our customers, and this great team, we feel like we've got our fingers really on the pulse of it and are right on top of it.

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

Understood. Thank you.

[R. Preston Feight, CEO & Director at Paccar]

You bet.

[Operator]

Thank you. Our next question comes from Steve Volkmann of Jefferies. Steve, your line is open. Please go ahead.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

Thank you very much and my congratulations as well, Harry. You're going to miss this, believe it or not. And my question is, I can see you shaking your head there. Anyway

[Harrie Schippers, President & CFO at Paccar]

No.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

I curious based

[Harrie Schippers, President & CFO at Paccar]

I said I know I will, Rob. Know I will miss this, please. So I'm going

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

to All right.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

Well, anyway, I'm curious, I know there's a

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

lot of moving pieces on the tariffs here. Assuming nothing changes on to February, they just that doesn't happen. And what's in place today stands, is it reasonable to assume the gross margins will be the lowest of the year in the second quarter and then sort of improve as the year progresses as pricing comes in?

[R. Preston Feight, CEO & Director at Paccar]

Well, like you know, we're in a really uncertain economic time and tariff time. So guiding the second quarter is something more than even a lot of people are doing. Asking me to go out into Q3 and Q4 and forecast that. I'm very reluctant to that. We do feel like we have a great strategy in place and that the more time passes, the more likely we are to get that in place.

[R. Preston Feight, CEO & Director at Paccar]

And we do feel like the market will strengthen as we get into the second half of the year. So if you want to suppose that into improving margins, that's a fair supposition.

[Harrie Schippers, President & CFO at Paccar]

Building our trucks in The U. S. For The U. the end of the day, that should be a good thing for us.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

Okay. And then I don't know if, Preston, this is what you were thinking, but I'm curious how you're thinking about the potential for pre buys. And now it feels like there could be two flavors here. One, ahead of any emission changes. I think we've talked about that on previous calls.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

I'm curious if for an updated thought there. But we might also see some pre buys if this $2.32 thing comes in and people wanna buy the pre tariff trucks off the lot, maybe. I don't know. Just any thoughts in in that direction would be great.

[R. Preston Feight, CEO & Director at Paccar]

I don't I don't really see that commentary on the section two thirty two of the buying the trucks off the lot because we're really building trucks for customers, so they have a customer name on them. And the consideration of section two thirty two is whether there would be tariffs applied to trucks built outside of The US and then how they would treat components that are coming into trucks that are built in The US. So I don't really think there's kind of a pre buy scenario around tariffs that I would envision. I would say that regarding the regulatory standards as we shared, if there is a current NOx standard implemented or if there's a NOx standard change implemented in 2027, so a move from 200 milligram engines to 35 engines, that will affect hardware on trucks, which will drive up costs on trucks. And so that could drive customer buying patterns into 2026.

[R. Preston Feight, CEO & Director at Paccar]

The thing is nobody knows that right now because the rule is in place, the law is in place around the thirty five milligram NOx standard, but there is a statement made that they're considering opening it back up. And we recognize that on cost for our customers makes their lives difficult, so we're well positioned to offer our customers a two hundred milligram engine if that's what's legally allowed. And we also recognize that the government says it's gotta be thirty five milligram engines. We have great engines to offer them there too.

[Stephen Volkmann, Equity Analyst at Jefferies & Company Inc]

Thank you.

[R. Preston Feight, CEO & Director at Paccar]

You bet.

[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 very much. And I'll, of course, add my thank you to Harry and congratulations. It's been a real pleasure. Just from a backlog perspective and ordering, what kind of visibility do you guys have to Q2 to Q4 at this point? We've heard some anecdotes about it's really challenging for buyers to kind of step up and place orders at the moment.

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

So I'm curious what kind of visibility and what's the fill out look like at this point and how does that vary between North America and Europe?

[R. Preston Feight, CEO & Director at Paccar]

Yeah, sure. I think we're in the kind of a normal pattern for ourselves of where we are in the market cycle. We have substantially full in the second quarter taking orders through the third and fourth quarter right now. I'd say that this can be actually comparable between The U. S.

[R. Preston Feight, CEO & Director at Paccar]

And Europe in terms of backlog, kind of that substantially full in the second quarter and starting to think through the third quarter right now. And I agree with your comments that the customers are trying to discern what their buying pattern should be and what the tariff policies will be. And so they're kind of contemplative of that and it's affecting some people's buying patterns. But listen, the trucks we're building today are the most efficient trucks we've ever built and they're good for operating cost and the customers love them. So there is that pull towards those trucks as well.

[Scott Group, MD & Senior Analyst at Wolfe Research]

That makes sense. And then

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

just on the parts growth, I'm just curious what do you think is going to drive the acceleration in that in Q2 and for the rest of the year? What kind of sort of freight conditions you're assuming for that? And then I know you've mentioned a couple of times about general improvements for the second half of the year. Just curious, I guess beyond parts, what are you assuming is going to change to drive that improvement? Thank you.

[R. Preston Feight, CEO & Director at Paccar]

You bet. I just think the general comment, the last one first. It feels to me like our customers, truckload customers have been in a kind of a long period of low rates and yet there's still a lot of ton miles being driven. So trucks are being used and kind of back to what I just stated before is like the trucks we're building today are the most efficient, highest performing trucks we've ever built. And so there is a desire for those trucks especially as their older trucks continue to accumulate miles.

[R. Preston Feight, CEO & Director at Paccar]

But also add that we're seeing the used truck market start to show some good signs of pricing in The US and so that's an upside for people to think about turning their fleets also. So if there's a good residual value on their truck and there always is for the PACCAR premium trucks, then that's helpful to them to think about how they want to do their second half buys.

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

Thank you.

[R. Preston Feight, CEO & Director at Paccar]

You bet.

[Operator]

Our next question comes from David Raso of Evercore. David, your line is open. Please go ahead.

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

Hi, thank you for the time. And obviously, you, Harry, for all the meetings and time in Europe together. And obviously, to you and Kevin. First question, production versus retail, 2Q. How are you thinking about your deliveries, your production versus retail?

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

And sort of how do you think about production versus retail for the rest of the year? And then I have a quick follow-up about the sequential pattern of cost versus price.

[R. Preston Feight, CEO & Director at Paccar]

For production versus retail, think they're pretty much in good position with each other. We already talked about inventory levels for us being in a reasonable position. So I think production versus retail, there's not a lot of step change between the two of them. Then your sequential question is what specifically, And that's

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

a full year comment on production versus retail, just to clarify the first part. That's a comment basically for the rest of the year, not just 2Q. You're pretty comfortable production Well, would say

[R. Preston Feight, CEO & Director at Paccar]

it more specifically to Q2. I'd say it more specifically to 2Q, but I think it does generally apply to the full year.

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

Okay. Then a follow-up. The math you're implying sequentially is, say, is down $250,000,002 $70,000,000 sequentially, but gross profit is down $190,000,000 right? So a pretty challenging decremental sequentially. But when I think about that, the second quarter getting full tariff impact from what we know now, not speculating about future tariffs?

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

Is it a full quarter of tariff hit, but not a full benefit from the pricing actions you're expected to take? So would the idea be by third quarter that negative sequential gross margin, all else equal, should get better? Or is it now we're getting what we can on price in 2Q and that quarter hit on tariffs? It doesn't really necessarily get any better in 3Q. Just trying to get a sense of that negative sequential, how painful is that?

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

Or is that just the way to think about it the rest of the year?

[R. Preston Feight, CEO & Director at Paccar]

David, I can always count on you to come up with some good analysis for us. And once again, didn't disappoint. I would say that your assessment is about correct. It's like the sequential change is really because of the full quarter impact of the tariffs without the ability to fully pass that into price. And then as we see stability in tariff policy going forward, you would expect to see the pass on of price and cost to be more aligned.

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

Okay. Thank you very much. I appreciate it.

[R. Preston Feight, CEO & Director at Paccar]

Great question. Thanks.

[Operator]

Thank you. Our next question comes from Angle Castillo of Morgan Stanley. Your line is open. Please proceed with your questions.

[Angel Castillo, Executive Director at Morgan Stanley]

Hi. Thanks for taking my question. And Harry, I just want to echo everybody else. Congratulations and wish you all the best. Maybe just to continue to unpack that a little bit more, the 2Q, could you just maybe parse out how much of that is maybe volume related to the contraction in gross profit margin sequentially?

[Angel Castillo, Executive Director at Morgan Stanley]

How much of that is volume versus the tariff flow that you're talking about? And if you could talk about also the deliveries you're guiding to for 2Q by region that would be helpful.

[R. Preston Feight, CEO & Director at Paccar]

I would say that, of course, when you have if there's a few less trucks in the quarter that could have some impact, but I would say it's mostly more to do with the discussion around tariffs is driving it. So that feels more likely to be the talking point. And then in a by region standpoint, I think the North America or US, Canada feels relatively flat in deliveries, similar Europe. What we've seen is the Mexico market is really kind of given a pause right now and that pause is probably because their economy can be impacted by the trade discussions that are ongoing, so customers are hesitant there. And that's really the biggest number change between deliveries in q one and two.

[Angel Castillo, Executive Director at Morgan Stanley]

Got it. That's that's very helpful. And then could you maybe on the tariff side, there's been a lot of discussion around the pricing ability, but maybe could you touch on just your the levers or the ability to maybe mitigate some of these potential headwinds kind of near term as you think about either cost management or other kind of initiatives you can implement? And just more broadly strategy wise, how should we think about just all of this uncertainty impacting your desire to either invest or the location or maybe the areas that you choose to invest in going forward, Right? So the r and d reduction, so just a broader discussion there would be helpful.

[R. Preston Feight, CEO & Director at Paccar]

Well, I would I would frame the investment appetite we have as to continue making great investments on the products that we have for the future with no real deviation in that approach. We we love what our business plans and product plans look like for the next five years and so we'll continue making those investments because they have great returns for our customers and our company and our shareholders. So no change there at all. High confidence in those product developments, that's what I would share on that one. And can you remind me again your first question?

[R. Preston Feight, CEO & Director at Paccar]

Yeah.

[Angel Castillo, Executive Director at Morgan Stanley]

Just on the tariffs, just anything that you can do in terms of levers that you can pull for cost management or other ways to kind of mitigate some of the the margin pressure.

[R. Preston Feight, CEO & Director at Paccar]

Yeah. I mean, we work closely with our suppliers. Obviously, it's one of the key elements we can do here. So where are components coming from? And are they USMCA qualified?

[R. Preston Feight, CEO & Director at Paccar]

So does that mean they have an HC a code applied to them? Do they have a code applied to them and an understanding that they are USMCA compliant? And if they do, then that reduces the tariff impact. That's really dynamic because you're talking about not just first tier but second and third tier suppliers. So I think we have a great team of people working on this cost management programs in partnership with our wonderful suppliers.

[R. Preston Feight, CEO & Director at Paccar]

Together they're controlling costs in the best way possible and we think there is some potential to mitigate some of those costs no matter what the scenario.

[Angel Castillo, Executive Director at Morgan Stanley]

Very helpful. Thank you.

[Harrie Schippers, President & CFO at Paccar]

Great.

[Operator]

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

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

Thank you. And I'll echo everyone else. Congrats on the retirement, Harry, and best wishes. I was hoping if you guys could, just elaborate on the gross margin in the quarter and just what's embedded in the guide for 2Q? And I think just more specifically, I'm trying to get a handle on the cost inflation you're seeing and what could actually be, I guess, stickier, notwithstanding tariff impacts?

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

Just kind of thinking about what could maybe be a little bit stickier on the cost inflation side, just in kind of the big buckets of raw materials, components, labor, and I guess anything else to call out.

[R. Preston Feight, CEO & Director at Paccar]

Yeah, I feel like we've done a pretty good job of explaining everything we can around gross margins for Q1 to Q2. And I think that most of the impacts are really related to the cost impact and most of the Q2 cost impact is assigned to tariffs. And I think we've kind of shared quite a bit on that. I'm not sure what else I could add on that. I don't know if anybody else would.

[Harrie Schippers, President & CFO at Paccar]

On the other cost elements, we've seen cost being flat, good productivity flows through our cost reduction efforts. Have cost reduction CMP programs going on with a lot of our suppliers and productivity in the factories is going well too with offline inventories at low levels, production is pretty smooth in most factories. So yes, from that perspective, things are moving well along.

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

Okay. Got it. And then I just wanted to dig into the parts growth a little bit more for the second quarter, expecting anything up 2% to 4%. Just a little surprised by that, I guess, with deliveries implied down 20% and then freight activity could be fairly muted. Just help me understand what gives you confidence in parts growth of that 2% to 4%.

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

I guess, is it a lot of it pricing?

[Harrie Schippers, President & CFO at Paccar]

Some of it isn't pricing. So if you look at the first quarter, sequentially, was up like 2.5, cost was up similar. But the price increase of between 23%, of course, that helps with revenue growth as well.

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

Okay. Thank you.

[Operator]

Thank you. Our next question comes from Tim Thein of Raymond James. Tim, your line is open. Please proceed.

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

Great. Thank you. Good morning.

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

Maybe

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

just to start as an update just from the standpoint of your sorry, your footprint in North America. And just thinking, again, obviously, hard hard to to know where where the tariff winds and are gonna blow. But if as we sit here today, I'm just curious if if the company is thinking of of any changes to the footprint with respect to the the Canadian and and Mexican output. And then I guess related to that, there's been some capacity increases that have been put forth. And I'm just think I'm curious if you're rethinking those or how you're approaching those with the potential that you know, maybe the market sizes aren't as large as maybe what we would have thought a year or so ago.

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

So kind of a two part question just on the North American capacity and footprint.

[R. Preston Feight, CEO & Director at Paccar]

Thanks, Tim. Thanks for your question. Footprint in North America is really well positioned. I think we have a great Peterbilt factory, a principal Peterbilt factory in Denton, Texas. Fantastic people, fantastic investments we've made there, brought up the efficiencies.

[R. Preston Feight, CEO & Director at Paccar]

Chillicothe, Ohio also does a great job for us for our Kenworth factory for Class A. We have our plant in Renton, Washington, which has capacity for us. Those are the principal three Class A truck plants that we use for North American for US production. And then we have our plant in Mexico, which basically produces a lot for the Mexican market. That's its biggest space that we've done and we've made great investments in that because the market down there is good and we're the market leader in Mexico.

[R. Preston Feight, CEO & Director at Paccar]

And then we have our Saint Therese factory. We've made investments there and that's a great factory with good people in it too. So we feel like the footprint we're probably the best footprint of anybody, I think, and feel very proud of our people and the great work they do in those factories. We can't give them enough of a shout out for how good they are, especially in dynamic times. And then I would say the the capital investments we've made around capacity will be well served for us.

[R. Preston Feight, CEO & Director at Paccar]

Right? We don't think about quarters of our investments, we think about years and providing great values to our customers and being able to build the trucks they want from us, better, cleaner, more efficient trucks. And that's what those investments have been centered around. And so they're gonna be good for our shareholders, good for our customers, good for our dealers and good for PACCAR.

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

Okay. Thank you, Preston. And just on the medium duty market, obviously, it's becoming a bigger one, a more important one for PACCAR in recent years. The outlook for 90,000 to 100,000 units in '25, was that altered in terms of how you're thinking about the market size this year?

[R. Preston Feight, CEO & Director at Paccar]

We still think that's the market size for the medium duty market.

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

Okay. All right. Thank you.

[Harrie Schippers, President & CFO 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, everyone, and congratulations, Harry, Bryce and Kevin. Can I ask in terms of the impact of tariffs that we spoke to over the course of this call, so over the past two quarters, your profit per truck as a result of the tariffs is down about $5,000 for 2Q versus 4Q roughly? Based on where you're putting trucks in March and April, is it fair to say you're going to make up a big chunk of that headwind based on the mid single digit number for pricing that you quoted?

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

Preston, it sounds like you should be able to make really good progress in 3Q relative to that number. But I'm wondering if you could put a finer point on that.

[R. Preston Feight, CEO & Director at Paccar]

Jerry. Think I understand the math you're doing and I think it's really hard to see what q three is gonna look like right now simply because we I think we really should wait and see what the tariff policy is and what the changes might be to it. And it'll be a lot easier to talk about that once we have that clarity for ourselves. So I think that's let's just hang on that question for a little bit and see what the policies become.

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

Okay. Fair enough. And then in terms of your production flexibility, could make any truck at any plant if you want to. Depending on how tariffs go, what extent could it make sense to make medium duty trucks in The US plant? In other words, what kind of impact on productivity would it make if you just increase the variability skew if you choose to move that direction?

[R. Preston Feight, CEO & Director at Paccar]

Yeah. I mean, you said we have the flexibilities in our plans, which is great, but we like the way we have our build laid out right now and don't have any plans to change that.

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

Okay. Thank you.

[Operator]

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

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

Thank you very much. And like everybody else, Harry, best of luck in retirement. Congratulations to Kevin and Bryce. I feel like the tariff and EPA questions have been beaten pretty hard here. So

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

I want to go back to the We do too.

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

I want to go back

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

to your comment, which I thought was great, which is, look, freight is still moving and ton miles are still up. And this is really kind of a tariff cost impact. And at the end of the day, we still got to move freight. So I guess my takeaway is despite the uncertainty and despite people delaying decisions, think would your view be over a three to five year period that there's unlikely to be any destruction in truck demand over the long term?

[R. Preston Feight, CEO & Director at Paccar]

Jeff, think that's the right observation to make, right? America, over 70% of the product in America is moved by trucks. It's still going to be moved by trucks in the next three to five years and trucks are wear out items. And the trucks we build become more and more efficient which increases people's desire to have them. So the number of trucks over that period of time is going to be constant.

[R. Preston Feight, CEO & Director at Paccar]

We expect our percentage to grow over time because we build the very best trucks and that becomes increasingly important. We have the best dealers. And so we expect that that's going to increase over time. So that bodes well for the future.

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

That's my one. Thanks.

[R. Preston Feight, CEO & Director at Paccar]

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, MD & Senior Analyst at Wolfe Research]

Hey. Thanks. On the guidance for delivery, do you have any just directional color by region you can give?

[R. Preston Feight, CEO & Director at Paccar]

Yeah. Yeah. I think we even shared that a little bit earlier, but maybe you didn't catch it, is we think that The US market's relatively flat. We think Europe's relatively flat. We think most of the impact and change sequentially is through Mexico.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Okay. Helpful.

[Scott Group, MD & Senior Analyst at Wolfe Research]

And then I think you guys said cost in Q1 was up 1% sequentially and price was flat. Do you have just a how should we think about that embedded within the guide for q two in terms of costs sequential and price sequential?

[R. Preston Feight, CEO & Director at Paccar]

Yeah. We would expect in q two, would see some price increase and then depending on how the tariff structures, there could be cost higher than that.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Okay. So I guess, ultimately, my big picture question is like, is this is q two a timing issue as was suggested earlier of full cost impact of tariff, but a timing inability to price it? Or is there some in a soft market, is there some lack of ability to actually get the full pricing benefit? Is it is it a timing issue, or is it a pricing power issue? I guess is ultimately my question.

[R. Preston Feight, CEO & Director at Paccar]

I thought that look at it like you did with the with the timing issue being the principal effect there for the quarter. And I think that's the right way to think about it. It's mostly a timing effect. I mean, there's obviously, it depends on the state of the market, but I think that the biggest impact right now is this timing impact of pricing versus the cost timing.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Okay. Thank you. Appreciate it.

[R. Preston Feight, CEO & Director at Paccar]

You bet.

[Operator]

Thank you. There are no further questions in the queue at this time. Are there any additional remarks from the company?

[Ken Hastings, Director of Investor Relations at Paccar]

We'd like to thank everyone for joining the call and thank you operator.

[Operator]

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

Participants

Executives

• Harrie Schippers, President & CFO

Analysts

• Ken Hastings, Director of Investor Relations at Paccar
• R. Preston Feight, CEO & Director at Paccar
• Chad Dillard, Analyst at Bernstein
• Jamie Cook, Managing Director - Equity Research at Truist Securities
• Michael Feniger, Director of Equity Research at Bank of America Merrill Lynch
• Tami Zakaria, Executive Director at JP Morgan
• Rob Wertheimer, Director of Research at Melius Research LLC
• Stephen Volkmann, Equity Analyst at Jefferies & Company Inc
• Steven Fisher, Managing Director & Equity Research Analyst at UBS Group
• Scott Group, MD & Senior Analyst at Wolfe Research
• David Raso, Senior Managing Director & Partner at Evercore
• Angel Castillo, Executive Director at Morgan Stanley
• Kyle Menges, Vice President - Equity Research Analyst at Citi
• Tim Thein, Managing Director & Research Analyst at Raymond James Financial
• Jerry Revich, Senior Investment Leader & Head of US Machinery, Infrastructure, Sustainable Tech franchise at Goldman Sachs
• Jeffrey Kauffman, Partner & Transportation and Logistics Equity Research at Vertical Research Partners