PACCAR Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
January 25, 2022

Key Takeaways

  • Financial results: In Q4, PACCAR reported revenues of $6.7 billion and net income of $511 million (up 26% year-over-year), while full-year 2021 revenues reached $23.5 billion with net income of $1.85 billion, marking the 83rd consecutive year of profitability and dividends of $2.84 per share.
  • Production & deliveries: PACCAR delivered 47,600 trucks in Q4 (45% higher than Q3) and forecasts Q1 2022 deliveries of 41,000–45,000 units (limited by semiconductor supply), with market forecasts of 250,000–290,000 Class 8 trucks in North America and strong global order backlogs.
  • Gross margin guidance: Q4 truck and parts gross margin was 11.4% due to higher offline truck mix, while Q1 2022 gross margin is expected to rise to 13.0%–13.5% as production steadies and new product ramps drive efficiency and price-cost realization.
  • Record Parts & Financial Services: PACCAR Parts posted Q4 revenue of $1.3 billion with a 38% profit increase and expects >10% parts sales growth in Q1, while Financial Services achieved record pretax income of $135 million in Q4 and $438 million for the full year on $15.4 billion portfolio assets with low delinquencies.
  • Innovation & new products: In 2021, PACCAR launched new heavy/medium-duty Kenworth, Peterbilt, and DAF trucks, advanced autonomous and zero-emission vehicle programs, and global connected services, earning multiple industry awards and planning $350 million–$400 million in R&D for 2022.
AI Generated. May Contain Errors.
Earnings Conference Call
PACCAR Q4 2021
00:00 / 00:00

There are 15 speakers on the call.

Operator

Good morning, and welcome to PACCAR's 4th Quarter 2021 Earnings Conference Call. All lines will be in a listen only mode until the end of the call. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr.

Operator

Hastings, please go ahead.

Speaker 1

Good morning. The conference call. My name is Ken Hastings, PACCAR's Director of Investor Relations. The conference call. And joining me this morning are Preston Feit, Chief Executive Officer Harry Skippers, President and Chief Financial Officer the conference call is open.

Speaker 1

And Michael Barkley, Senior Vice President and Controller. As with prior conference calls, we ask that any members of the press the end of the call, and uncertainties, including general economic and competitive conditions that may affect expected results. For additional information, please see our SEC filings the end of the call and the Investor Relations page of paccar.com. I would now like to introduce Preston Feigt. Hey, good morning.

Speaker 2

The Harry Skippers, Michael Barclay and I will update you on a very good Q4 and full year 2021 results as well as other business highlights. First, I really appreciate our outstanding PACCAR employees. They deliver the highest quality trucks and transportation solutions to our customers the and focus on the safety and health of each other. They are truly an impressive team. In 2021, the PACCAR achieved annual revenues of $23,500,000,000 and very good net income of 1,850,000,000 the PACCAR's financial performance benefited from record results in our Parts and Financial Services divisions.

Speaker 2

The PACCAR has achieved 83 consecutive years of net income and has paid a dividend every year since 1941. The In 2021, PACCAR declared dividends of $2.84 a share. PACCAR's 4th quarter revenues were $6,700,000,000 the And 4th quarter net income increased from the prior year by 26% to 511,000,000 the PACCAR Parts achieved record 4th quarter revenues of $1,300,000,000 and record pretax profits of $306,000,000 the quarter, which was a 38% increase compared to the same period last year. PACCAR delivered 47,600 trucks during the 4th quarter, the quarter is 45% higher than the Q3. This included delivering 7,000 trucks that were awaiting components.

Speaker 2

The In the Q1 of 2022, deliveries are forecast to be in the range of 41,000 to 45,000, the a number that is limited by the global supply of semiconductors. In 2021, U. S. And Canadian the Class 8 truck retail sales were 250,000 units. In 2022, the U.

Speaker 2

S. Economy and industrial production to expand by about 4%. The 2022 U. S. And Canadian Class 8 truck market deliveries are forecast to increase to a range of 250 the as the global supply chain gradually improves throughout the year.

Speaker 2

The European above 16 ton truck registrations were 278,000 units in 2021. In 2022, the The European economies are projected to continue growing, and we expect the above 16 ton truck registrations to be in a range of 260,000 to 300,000 trucks. In 2021, the South American above 16 ton truck industry registrations were 127,000. The And in 2022, the South American market is expected to be in the range of 125,000 to 135,000. The The growing global economies, robust freight activity and strong customer demand for DAF, Peterbilt and Kenworth trucks the has resulted in a substantial order backlog in all markets.

Speaker 2

Truck and parts gross margins were 11.4% in the 4th quarter, reflecting higher labor and materials costs associated with the completion of offline trucks and the resulting increased mix of trucks versus parts. The We estimate 1st quarter truck and parts gross margins to increase and be in the range of 13% to 13.5% as we ramp up production of our new products the and realize production efficiencies. In 2021, PACCAR introduced exciting new heavy and medium duty Kenworth, the Peterbilt and DAF trucks, which are proving to be very successful in the market. PACCAR also delivered many important technology and innovation milestones, the such as a strategic partnership to develop and sell autonomous trucks, production of 0 emissions vehicles, the and we launched PACCAR's proprietary global connected service offerings. The new DAF lineup launched in 2021 earned the prestigious International Truck of the Year Award, and the innovative DOF XF Hydrogen Internal Combustion Technology Vehicle the truck innovation award.

Speaker 2

Kenworth and Peterbilt earned 5 manufacturing leadership awards from the National Association of Manufacturers the And DAF Brazil was awarded the Truck Brand of the Year for the 4th time. Last year, the PACCAR was again recognized as a global leader in environmental practices by the reporting firm CDP. PACCAR achieved an Elite A rating, the conference call, which places the company in the top 200 of over 13,000 reporting companies. In 2021, the PACCAR was recognized as a top place for women to work by the Women in Trucking Organization for the 4th consecutive year. The The truck market is strong and demand is high for PACCAR's excellent new trucks and transportation solutions.

Speaker 2

The We look forward to 2022 being a very good year. Harry Schippers will now provide an update on PACCAR Parts, PACCAR Financial Services the end of the quarter and other business highlights. Harry?

Speaker 3

Thank you, Preston. In 2021, PACCAR Parts set new quarterly and annual records profit increased by 38 percent to $1,100,000,000 This is an outstanding performance by the Global Parts team the and really highlights the fact that Pega Parts is a high margin growth business. Pega Parts has expanded its global network the next 2 to 18 distribution centers and we'll open another facility in Louisville, Kentucky later this year. The We estimate parts sales to grow by over 10% in the Q1 of this year compared to the same quarter last year. The as we continue to see strong demand for parts worldwide and especially for our outstanding e commerce business.

Speaker 3

Becker Financial Services 4th quarter pretax finance income increased to a record $135,000,000 the Annual revenues grew to $1,700,000,000 in 2021 and annual pretax income increased to 438,000,000 the nearly double the profit earned in 2020. Portfolio assets were 15,400,000,000 the The portfolio continues to perform well with very low past dues and low credit losses. Becker Financial benefited from strong used truck pricing in 2021. Becker Financial increased the sales volume in its retail used truck centers, the which has contributed to higher used truck price realization. Becker Financial has 12 used truck facilities worldwide the And in 2022, we'll open another used truck center in Madrid, Spain.

Speaker 3

We expect TEGAR Financial's strong performance the to continue this year. In 2021, Becker invested $512,000,000 in capital projects the end of the year and $324,000,000 in R and D as we launched the largest number of new truck models in our history. The In 2022, we're planning capital investments in the range of $425,000,000 to $475,000,000 the And R and D expenses will increase and be in the range of $350,000,000 to $400,000,000 as we accelerate our investments in clean combustion, the 0 emissions, autonomy and connected vehicle programs. PACCAR's independent, Kenworth, Peterbilt and DOP dealers continue to invest in their businesses to provide our customers the highest level of service in the industry. These investments the quarter.

Speaker 3

Make a significant contribution to PACCAR's long term success and support the growth of PACCAR Parts and PACCAR Financial Services.

Operator

The Your first question will come from Chad Dillard with Bernstein.

Speaker 4

The Hi, good morning everyone.

Speaker 2

Good morning, Chad.

Speaker 5

So I was wondering if you

Speaker 4

could talk about just your gross the margins in the quarter, which seemed a little bit light just given the revenue that you did. And just how should we think about the breakdown between the absorption versus the price cost mix? The And then as we kind of think through the evolution from 1Q, what's the trajectory compared for the year?

Speaker 2

The Sure, happy to do that. So if you think about the Q4, our teams did a fantastic job of identifying the chips they needed Through engineering efforts, through finding broker parts, through partnering with our suppliers to come up with what they need to deliver the offline trucks, and so they did deliver the higher volume of trucks. Those trucks have been absorbed in the Q3. And so just a huge shout out to everybody that was part of that effort. I would say looking forward, we see the improvement in production steadiness.

Speaker 2

It's not completely solved, but our team has done a good job of creating a more steady production outlook for us, and so we're getting the production efficiencies associated, and hence we show you 13% to 13.5% in Q1. And then I guess I'd add to that and say that if we see that the market continues to gradually improve, we should the improvement from there.

Speaker 4

Got it. That's super helpful. And then can you talk about your backlog market share versus the retail sales market share. Are you seeing any gains from new product intros or anything like that?

Speaker 2

If I think what's happening with our backlog right now is the new trucks we launched in 2021 are just ramping up, especially in Europe, which was launched in kind of October time frame. And customers in North America for the new medium duty level, the The new Kenworth and Peterbilt are just enjoying the benefits of the 7% improvement in fuel economy. In Europe, the up to 10% improvement in fuel economy And the fact that the new European truck, the XF, XG, XG Plus, those are the only trucks in the market that meet the new Mass and Dimensions regulations. So we We have a great advantage there for those trucks and they're performing really well. That's leading to a strong backlog for us.

Speaker 2

So we have about 6 months plus of backlog and that's kind of measured by what we can build. The So as we get more parts and availability, we'll probably be able to take some additional orders and build more, but really strong backlog right now.

Speaker 6

The Great. Thanks. I'll pass it

Speaker 2

on. You bet.

Operator

Your next question will come from Jamie Cook with Credit Suisse.

Speaker 7

The Hi, good morning and congrats on a nice quarter.

Speaker 2

Thanks, Jamie.

Speaker 7

First question just digging in first on the I know you talked about margins for the Q1 and for the year. Exing out benefits from the new products, how do we think about sort of your assumptions are for price cost for the year given some of the list increases out there. Do we think we can be neutral? I guess that's my first question.

Speaker 2

The Yes, we do. I mean, we've gotten a little bit more stability than we had last year, and so I think we expect to have price cost realization as we go through the year.

Speaker 7

The Okay. That's helpful. And then, I guess my second question, just your sort of the view on the cycle with supply chain potentially easing. How are you thinking about the Q3 and what it could mean with the 2024 carbon emission standards. Do you think the production forecasts out there are correct they're in and how are you thinking about the incremental cost on the truck?

Speaker 7

Thank you.

Speaker 2

I think the first thing to start with is our customers are doing really well. There's a lot of freight to be hauled out in the market. That doesn't seem like that's a short term thing. That's a long term demand thing. So I would expect that to continue, obviously, subject to any interruptions.

Speaker 2

But if that continues well, then I would expect 2022, 2023 beyond should be good. I mean, if you think about 2024, while it's an emissions change, that emission change brings fuel economy, which should be good for our customers as well. So it looks like we're in the beginning of a good steady, strong market.

Speaker 6

The Okay. Thank you.

Speaker 3

You bet.

Operator

Your next question is from Steven Volkmann with Jefferies.

Speaker 8

The Hi. Good morning, guys. I want to ask Jamie's question just slightly differently. The Given the backlogs that you guys have and everyone across the industry, I guess I might have thought that pricecost could be positive this year Given the demand drivers, would you disagree with that or is there some other offset?

Speaker 2

No, I completely agree with you. I think that price cost should be positive for the year.

Speaker 8

Got it. Okay. Maybe I misunderstood that answer. And can you also update us maybe a little bit, Preston, you mentioned the big new product or the Maybe Harry did the big new product rollout that you guys have this year. And I know you guys always sort of target margin expansion when you do these model changeovers.

Speaker 8

And so I guess as you're rolling through that process, any updates on how you're thinking about the impact that that new model rollout will have on margins?

Speaker 3

The The new DAS, Steve, has been extremely well received in the market by customers, dealers, the press, everybody. The fuel economy improvement, the ride and drive of the vehicle, the performance, the technology. And I think Preston said it, it's the first and And only truck in the market right now that makes use of those new Masters and Dimensions regulations in Europe. So it really puts it up in a class of its own. The And it's a premium class.

Speaker 3

So yes, that's going to be very good for market share growth, margin, everything, and customers benefit from it most.

Speaker 8

The Great. Thanks, Harry. Appreciate it.

Operator

Your next question will come from Tami Zakaria with JPMorgan.

Speaker 9

The Hi, everyone. Thanks for taking my questions. I have a couple of quick ones. So the first question I have is, what's your outlook for the the parts business after a record year. I know you're guiding to 10% growth in the Q1.

Speaker 9

But beyond that, is the current the next few quarters.

Speaker 2

That's a great question, Tammy. I'd say that, indeed, we the We said 10% year over year and strong in the Q1 like it was in the Q4, and we see that the trucks are being used out there, which as they get used, means they consume parts. The So that's one thing that bodes well for the year of 2022, and I would also point to the fact that our team, our global team has done a great job the of launching things like e commerce and bringing that to our customers, which makes it easier for them to buy from PACCAR than anyone else, and that contributes to the long term success and growth of the business. The So we expect 2022 to be a great parts year.

Speaker 9

Got it. Thank you so much. And another quick one. I think you noted about 10,000 Red Tag the parked trucks end of last quarter. Any updates on that front as you exited the Q4?

Speaker 2

The Sure, Tammy. We, in the Q4, were able to deliver about 7,000 offline trucks because of the great work of the teams, and so that number has been reduced dramatically. And it's the One of the reasons we think that production is getting a little bit more stable is because we had good supply and good partnership work going on.

Speaker 9

Great. Thank you so much.

Speaker 2

You bet.

Operator

The Your next question will come from David Raso with Evercore.

Speaker 5

Hi, good morning. You noted in the press release hey, good morning. The You noted in the press release the supply chain improvement, but then on your comments, you're a little more cautious about the supply chain improving. The Can you just square up on me, you didn't raise your unit forecast at all for 22 from 3 months ago. So should we take it as the You were able to ship a bit better in the Q4, but there has not been any improvement in the supply chain.

Speaker 5

Just trying to square that up and then I have a quick follow-up on the backlog.

Speaker 2

The Sure. Let's do that first. If I think about it, supply chain has improved compared to what we experienced in 3Q and 4Q, it's definitely improved, but improved is different than being fully resolved. The And so I think we're sitting in between improved and resolved, David, just kind of give you some boxes for that. So I would

Speaker 6

Okay.

Speaker 5

So no change to the forecast though, the That improvement hasn't been baked into any updating forecast. Is that

Speaker 2

I look at it and think that we have a 250,000 to 290,000 unit range at tie side of the range, 290 is a pretty significant improvement above a 250 market in 2021. And I think that as we watch the year progress, we'll get better clarity for how supply base the next

Speaker 5

quarter. And then on the backlog, how it relates to price Generally locked in on what you can control, of course. And then how much is still out there, say, for the second half of the year on your cost the Or maybe you can get some help on some of the cost relief maybe we're seeing in some of the materials. I'm just trying to think that through. What's in the backlog and what's sort of the Left open a little bit for later in the year to see how the gross margins play out.

Speaker 2

Yes. I think of it a little bit like there's some of the trucks that have Some of the bigger customers have their backlog priced and out there and then some of the stock units and smaller fleets maybe don't and the It kind of depends, right? So it's a mixed bag and every truck order stands on its own. It obviously, the further out you go, get out a quarter or 2, it becomes the Less of it is certain, and so that gives us more flexibility as we move out a quarter or 2. But I think in general, we see this improvement come sequentially through the quarters.

Speaker 5

The Well, listen, just to clarify, and I'll hop off. And we know from in the channel, like not all orders have a price yet with it. The But it's interesting you commented on flexibility left in price for some orders. But how much of your cost have you locked in yet, meaning steel and Things you can kind of look out, maybe lock in a bit for most of the year.

Speaker 2

Sure, we do that. Yes, we do that. The David, we have long term contracts with our suppliers in many cases. We hedge in many cases, and so together, that gives us some control over our cost structure for materials.

Speaker 1

Operator, do we have a caller?

Speaker 10

The Is that Steve Fisher from UBS?

Operator

Yes. UBS, please proceed.

Speaker 10

Sorry, my line cut out there. The So it sounds like you still have a few 1,000 red tags. Does your 41,000 to 45,000 delivery numbers assume you get through all those in the quarter. And then once you do get through those, what's the underlying or the normalized margin, once you're just sort of producing and delivering at the same pace.

Speaker 2

We've had a variety of chip supplies have come in and out, and so I'm hesitant to give you an absolute answer on what the Q1 will be in terms of number of offline units that might still remain. We see improvement through the quarter, but it's every day the team is working together with supply base to work through that. So Some portion may remain as offline, but it's decreasing. And then I would say as far as underlying assumptions, we feel good about the margins looking forward into the year and seeing them grow the into a higher range.

Speaker 10

Okay. Then there were some big industry cancellations the Q4. Can you just talk about your experience with cancellations and how scrubbed your backlog is? I'm wondering whether the cancellations were more proactive or sort of reactive?

Speaker 2

Yes. From a customer standpoint, we have not had customers who don't want their trucks. The That is not something that we've experienced. I can't speak to anybody else, but I can tell you that all the customers I talk to and the teams are working with see just strong demand for as many trucks as we can get them. The

Speaker 6

Okay. Thank you.

Speaker 2

You bet. Have a good day.

Operator

Your next

Speaker 11

the So obviously delivering trucks that were non standard production, just waiting on the components is an expensive thing. I'm pretty sure the Your 1Q gross margin guide indicates this, but were you kind of already there in 4Q on cost if you sort of take those trucks out? You're up the To a pretty healthy gross margin already or is there a bunch you have to do to get to the 1Q goal, if

Speaker 2

you see what I mean? Yes, I would say the And then obviously, as we look forward and we've had a chance to react to last year's cost increases, we've been able to price that in more and more effectively, and that's how you see the trend developing. The

Speaker 11

Perfect. All right. That's pretty clear, I guess. And then the other or one of the other uncertainties overlaying the market is just Omicron and sick outs and hopefully it's obviously less severe, but People might be out. So do you have a sense on whether that's disruptive to 1Q at this point and whether it's cresting or not on your own worker absences?

Speaker 2

The Sure. I can comment to that and say that if I look at the plants around PACCAR facilities, the people are doing such the A fantastic job. I mean, probably should park on that for a little bit for just what a tremendous job the people are doing in terms of getting to work and getting the trucks built and delivered. The And I just couldn't be more pleased with the people all around PACCAR. So we see that having some limited effects on us in the the immediacy right now, but moderating as time passes.

Speaker 2

And then of course, with this latest 2 year period, who knows what 3 months from now might bring.

Speaker 11

The I understand that part. Thank you much.

Speaker 2

You bet.

Operator

Your next question will come from Jerry Revich with Goldman Sachs.

Speaker 12

The Yes. Hi. Good morning, everyone.

Speaker 2

Hi, Jerry.

Speaker 12

Can we talk about the the factory overhead costs that you folks have been reporting with obviously all of the supply chain goodness going on over the past couple of quarters that's been running the In the $70,000,000 to $100,000,000 range per quarter. How does that trend in the 4th quarter? And really nice to see the improvement in the Q1 guide. The How much of an overhang does the range, let's say, at the midpoint anticipate from that $70,000,000 to $100,000,000 run rate that We've been at continuing into the Q1.

Speaker 2

I think, Gerry, we'll let Michael answer that one for you. Yes.

Speaker 1

I would just say that our factory overhead costs the We're increased partly due to get those trucks out that we've been talking about and also due to higher volume. We see them more normalizing as the year progresses into 2022.

Speaker 12

And Michael, can you comment on Q1, does that embed something like $30,000,000 $40,000,000 headwind? Is that the ballpark? Or can you just Help us with how much of an overhang is baked into that Q1 guide?

Speaker 1

I can't comment on that specificity.

Speaker 12

The And separately, I'm wondering if you could talk about, as you folks are getting electric vehicle orders. What's the add on that you're seeing for your dealers? And to the extent you folks have opportunities to participate on charging infrastructures and the Other add ons that obviously you wouldn't get with diesel truck orders, is there a per ticket item that you can talk about or a take rate from any participation you have in contributing to building out the charging infrastructure with the trucks on those initial orders you booked the So far over the past year?

Speaker 2

Yes, it's early days, but I think it's an interesting thing to think about in terms of the 0 emissions vehicle programs, battery electric trucks. We've now got, we've We've taken orders for over 100 vehicle chargers, battery electric chargers at this point as well. So that's kind of an add on incremental business opportunity for us. And then when you get into that, as you match a charger in a vehicle, the opportunity to have software for charging optimization and battery energy management of the vehicle is something that PACCAR the has expertise in and that will benefit our customers, so that's an add on opportunity as well. So as that market begins to develop, those should be good opportunities for PACCAR.

Speaker 12

Very interesting. Thanks.

Speaker 2

You bet.

Operator

The Your next question will come from Ross Gilardi from Bank of America.

Speaker 6

Yes. Good morning, guys. The

Speaker 5

Hey, Preston, when you think about normalized North American Class 8 the Truck demand, I mean the number that's commonly thrown out forever is like 250,000 units, although obviously it's rare that we actually see a year the It's not materially above or below that number. I'm just curious, do you think that figure is still directionally the Britt, do you think normalized demand for Class A vehicles is now much higher than what you would have thought of a few years ago just due to the continued explosion of e commerce the Just a variety of

Speaker 2

other factors. Ross, I think you've posited out a good question that I think that that $250,000,000 might be a bit dated. It's hard to know what the number is, but the The trucking delivered 72% of the business around freight demand and that's not decreasing, that's increasing. E commerce contributes to that. Speed of delivery People are looking forward to contribute to that.

Speaker 2

Efficiency of trucks has gone so much, especially our PACCAR trucks, where the fuel efficiencies are so much higher. And so, yes, the I think that you're onto something there that it could be a little bit higher than that.

Speaker 5

Okay. And then the Can you talk a little bit about that, the hydrogen ice vehicle that you've got that you recently received an award on? And the What kind of reception is hydrogen kernel combustion engine getting from regulators on that engine the true zero emission solution. And how does it how do you think it stacks up on the vehicle performance versus a hydrogen fuel cell vehicle?

Speaker 2

Well, what we're trying to do as PACCAR is make sure that we pay attention to all the different opportunities out there, and then we'd like the market to decide which is the right Right now, we have great success with our battery electric vehicles, obviously a leader in the hydrogen fuel cell area, and then the team over at DAF led this hydrogen combustion engine program, which we won the Innovation Truck Award for. And so that has nearly 0 CO2 output. It's really just some trace CO2 from the lube oil stuff. The And I think we want that out there as an opportunity so that we can work with the governments and see what's going to be acceptable and what's going to provide our customers the right benefits. We think it's early days and the pre selecting the right answer is not necessary.

Speaker 2

So we'll just continue to leverage our strong partnerships, our technologies and bring the right solutions to our customers.

Operator

The Got

Speaker 2

it. Thank you. You bet.

Operator

Your next question will come from Nicole DeBlase with Deutsche Bank.

Speaker 6

The Yes, thanks. Good morning, guys.

Speaker 2

Good morning.

Speaker 6

Maybe just a question on Europe. So, what are you guys seeing there from an order perspective? I'm just kind the looks like you're forecasting deliveries more flattish in 2022, especially since you talked about improvement in supply chain.

Speaker 3

The So the order situation in Europe has been very strong and much in line with what Preston just commented on the U. S. And the rest of the world for PACCAR. I think a market between $260,000 $300,000 again is a pretty wide range And it shows that there's still quite some uncertainty, maybe COVID related stuff, the chip situation. But whatever the market does with our new trucks, the new DAF truck models, the We're in a very good position to grow market share in whatever the market size will be.

Speaker 3

So that will go well, tough production and tough volumes.

Speaker 6

The Okay, got it. Understood. And then just to follow-up on dealer inventory. So I suspect that they're probably still very low, but just wanted to get an update there and if you guys see the potential for, some restocking to help, volumes as we move into the second half of the year.

Speaker 2

The Yes, I'd say that inventories are lower than we'd wish them ideally to be, but that's obviously a result of the supply base situations and that does give us a strong confidence that we'll be able to build every truck that we can get the parts for this year, which should create a really good year. So we'll see inventory react as we can build enough trucks.

Speaker 6

The Thanks. I'll pass it

Speaker 2

on. All right, great.

Operator

Your next question will come from Courtney Yakavonis with Morgan Stanley.

Speaker 13

The Hi, good afternoon guys. Thanks for the question. Maybe if we can just go back to the question on Europe and I think that was where you saw the biggest sequential step up in deliveries this quarter. So the Is it the right way to understand that was where most of those Red Tag trucks were? And how should we be thinking about the remaining couple thousand?

Speaker 13

The Are those in Europe? Are those in North America? And then if you could also just comment the FinCo, I think you had very strong margins this quarter. Harry commented on the higher use pricing. But how should we think about that business going forward, if there's any guide rails you can give us aside from just continued strength?

Speaker 2

Sure. Courtney, how about I start off on the European the deliveries and then Harry can pick up and add anything he wants to and talk about the FinCo. There were 3 things I would think weigh into the difference sequentially in deliveries. One of them is seasonality, one of them is build rate increases that we've had and then the other is really probably the Tied to the offline reduction that we had. So those three things kind of changed the 10,000 to the 18,000.

Speaker 2

And Harry, anything you'd add on that?

Speaker 3

No, I think The off line truck production was proportional. The Dump Dump is similar than the other brands. And the seasonality is a Big impact if you compare the 3rd to the 4th quarter. The 3rd quarter has typically December shutdown with fewer production days in the 3rd quarter. And Those things combined explain the increases together with an increased build rate and that's always nice to see.

Speaker 3

For the finance company, yes, great results in the Q4. We've seen the used truck markets improve by a lot. Pekka Financial has expanded its used truck Looking into next year, I would say the outlook for the next couple of quarters is really good, and we expect Becker Financial's strong performance to continue.

Speaker 13

The Okay. Thank you.

Speaker 1

Thank you.

Operator

Your next question will come from Matt Elkott with Cowen.

Speaker 4

The Good morning. Thank you. So as you guys continue to tackle supply chain issues this year, is Is part of the solution using more engines from your suppliers as opposed to in house so you can focus on other parts of the supply chain?

Speaker 2

The That's not quite how it really works, Matt. We have each chip, it's funny, each chip kind of goes to a component and you Can't really know how that's going to shake out. They're not the same chips each place. So the teams have done a really good job, say again, figuring out how to reengineer in different chips to be used in our engines and Cummins does the same as a good partner. And we've also been able to kind of go back and track similar types of chips and find ways to use them.

Speaker 2

So I think that's independent of the engine, independent of the component really. It's just a great team effort by Ronan Patkar and our suppliers. The We would expect to see the Amex share in North America go up significantly in 2022.

Speaker 4

Got it. And just one more question on the outlook for the the Q1 of 2019. We have the disruptions pushing out some deliveries this year and last year. And then the There could be a potential pre buy in 2023. So could 2023 be materially up the end of 2020

Speaker 2

the end of 2023. And I think in general, it feels like the market is going to be really good this year and seems likely it will be very good next year as well.

Speaker 4

The Great. Thank you very much.

Speaker 2

You bet.

Operator

Your next question will come from Jeff Kauffman with Vertical Research.

Speaker 2

The end

Operator

of the

Speaker 12

call. Thank you very much.

Speaker 14

I wanted to ask a question on production rates. The When we were down in Q3, approximately what was the trucks per day production that you were seeing across the network? And then the Where are we exiting the Q4? And where do you believe that number could go by the middle of 'twenty

Speaker 2

the I would ask you I would answer it this way, so we don't really provide our build rates. So I'd just simply say is we have seen build rate increases the Q4 into now, and we would anticipate being able to or hoping to take additional build rate increases as we can get the components we need to build the trucks.

Speaker 14

The Okay. But is there any metric to think about where you are now versus where you were during the peak of the crisis in

Speaker 3

the We were 45% higher than the Q3, so that's quite a step up, if that answers the Your question? Yes. I want

Speaker 2

to add on to what Harry is saying. I think right now maybe of a 10% to 20% increase from what we've had in production deliveries and the The continuing growth in that area is what it feels like.

Speaker 14

Okay. That's all I have. Thank you.

Speaker 2

All right. Great.

Speaker 4

The

Operator

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

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