PACCAR Inc (NASDAQ:PCAR) reported its fourth-quarter 2024 earnings, revealing a slight miss on earnings per share (EPS) compared to analyst forecasts. The company posted an EPS of $1.66, falling short of the $1.70 expected. Despite this, PACCAR's revenue exceeded expectations, reaching $7.91 billion against a forecast of $7.57 billion. In response, PACCAR's stock rose by 0.89% in pre-market trading, closing at $110.89. According to InvestingPro, the company maintains a "GREAT" financial health score of 3.0, reflecting its strong market position with a market capitalization of $58.15 billion.
Key Takeaways
- PACCAR's Q4 revenue outperformed forecasts, reaching $7.91 billion.
- EPS fell short of expectations at $1.66 versus the forecasted $1.70.
- Stock price increased by 0.89% in pre-market trading despite the EPS miss.
- Continued investment in hybrid and electric vehicle technologies.
- Strong market position with increased market shares in key segments.
Company Performance
PACCAR demonstrated robust performance in the fourth quarter of 2024 with revenues of $7.9 billion, contributing to an annual revenue total of $33.7 billion. The company's net income for the quarter was $872 million, with an after-tax return on revenues of 12.4%. The company has continued to expand its market presence, notably increasing its market share in the Class 8 and medium-duty truck segments.
Financial Highlights
- Revenue: $7.91 billion in Q4, surpassing the forecast of $7.57 billion.
- Earnings per share: $1.66, missing the $1.70 forecast.
- Annual net income: $4.2 billion.
- Dividend: $4.17 per share, with a 53% payout ratio.
Earnings vs. Forecast
PACCAR's Q4 EPS of $1.66 was below the forecast of $1.70, marking a minor miss that contrasts with the company's historical trend of meeting or exceeding earnings expectations. However, the revenue of $7.91 billion exceeded forecasts by 4.5%, highlighting strong sales performance.
Market Reaction
Despite the EPS miss, PACCAR's stock saw a 0.89% rise in pre-market trading, reaching $110.89. This increase reflects investor confidence in the company's long-term strategy and revenue growth. Trading at a P/E ratio of 14.01, InvestingPro analysis suggests the stock is currently overvalued compared to its Fair Value. Analyst targets range from $93 to $134, with more detailed valuation insights available in the comprehensive Pro Research Report, one of 1,400+ company analyses available to subscribers.
Outlook & Guidance
PACCAR remains optimistic about market improvements throughout 2025, expecting stronger pricing in the latter half of the year. InvestingPro subscribers have access to 8 additional exclusive ProTips about PACCAR's financial health, market position, and growth prospects, along with detailed analysis of the company's competitive advantages and risks. The company projects truck deliveries to reach 40,000 units in Q1 2025, with parts sales anticipated to grow by 2-4%. Future regulatory compliance costs are estimated to be significant, potentially impacting profitability.
Executive Commentary
CEO Preston Feit emphasized PACCAR's adaptability and focus on customer value, stating, "If we produce great trucks for our customers that are valuable to them, then they're willing to pay us for those trucks." He also highlighted the company's strong workforce and its ability to respond to market changes effectively.
Risks and Challenges
- Regulatory compliance costs could increase by $10,000-$15,000 per truck by 2027.
- Potential supply chain disruptions may affect production and delivery schedules.
- Economic fluctuations could impact demand in key markets such as the U.S. and Europe.
- Increased competition in the electric vehicle market may pressure margins.
- Currency exchange rate volatility could affect international revenues.
Q&A
During the earnings call, analysts inquired about potential pre-buy activity for 2026 models and PACCAR's strategy for handling upcoming regulatory changes. The company expressed confidence in its ability to adapt and emphasized its focus on enhancing truck performance and customer satisfaction.
Full transcript - PACCAR Inc (PCAR) Q4 2024:
Charlie, Conference Call Operator: Good morning, and welcome to PACCAR's 4th Quarter 2024 Earnings Conference Call. All lines will be in listen only mode until the question and answer session. Today's call is being recorded. And if anyone has any objection, they should disconnect at this time. I'd now like to introduce Mr.
Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.
Ken Hastings, Director of Investor Relations, PACCAR: Good morning. We'd like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. And joining me this morning are Preston Feit, Chief Executive Officer Harry Skippers, President and Chief Financial Officer and Bryce Poplowski, Vice President and Controller. As with prior conference calls, we ask that any members of the media on the line participate in a listen only mode.
Certain information presented today will be forward looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings at the Investor Relations page of paccar.com. I would now like to introduce Preston Feit.
Preston Feit, Chief Executive Officer, PACCAR: Hey, good morning, everyone. Harry, Bryce, Ken and I will update you on our Q4 and full year 2024 results as well as other business highlights. PACCAR's outstanding employees delivered strong results by providing our customers with the highest quality trucks and transportation solutions in the industry. In 2024, PACCAR achieved annual revenues of $33,700,000,000 net income of $4,200,000,000 and an after tax return on revenues of 12.4%. This is the 2nd highest profit in the company's history and was a great year for PACCAR.
PACCAR's strong financial performance reflects the higher profitability of the latest generation of Kenworth, Peterbilt and DAF trucks, record results in our parts division and another good year for PACCAR Financial Services. PACCAR shareholders and customers benefited from the $8,600,000,000 invested over the past 10 years in new products, world class facilities and state of the art technologies. PACCAR has achieved 86 consecutive years of net income and has paid a dividend every year since 1941. In 2024, PACCAR declared $4.17 per share in dividends, including a year end dividend of $3 per share. This is a 53% payout of net income and a dividend yield of 4%.
PACCAR's 4th quarter revenues were $7,900,000,000 and net income was $872,000,000 PACCAR Parts achieved excellent 4th quarter revenues of $1,600,000,000 and pre tax profits of $428,000,000 Last year's U. S. And Canadian Class 8 truck retail sales were 268,000 units. Kenworth and Peterbilt's market share increased to a strong 30.7%, up from 29.5% in the prior year. In the medium duty market, Kenworth and Peterbilt's excellent new medium duty truck has created customer value and market share grew from 14.5% to 18% as they produced a record 21,500 medium duty trucks.
In 2025, the U. S. Economy is projected to expand by more than 2%. The vocational truck sector, where Peterbilt and Kenworth's other market leaders is steady. The less than truckload market is performing well, while the truckload segment is beginning to show signs of improvement.
The U. S. And Canadian Class 8 truck market is forecast to be in a range of 250,000 to 280,000 vehicles. We anticipate a strengthening market as we progress through the year. European above 16 ton truck registrations were 316,000 last year.
Customers appreciate DAS industry leading fuel efficiency and driver comfort. DAS trucks have a competitive advantage in the European market due to an innovative aerodynamic design and feature the largest and most luxurious cab interior. In 2025, the European economy is forecast to grow modestly. We expect the above 16 ton truck market to be in the range of 270,000 to 300,000 registrations. Last year, the South American above 16 ton market was 119,000 vehicles and is expected to be similar this year.
DAF's market share in the important Brazilian market was right around 10% and reflects a 23% production increase to more than 10,000 trucks in 2024. In addition to its successful growing business in Brazil, DAF trucks are now sold in Mexico and in the Andean region of South America. PACCAR truck parts and other gross margins were solid 15.9% in the 4th quarter. These margins are considerably higher than in prior industry cycles, reflecting the increased value that the new Kenworth, Peterbilt and DOP trucks provide to customers as well as the continued growth of PACCAR Parts. In the Q4, PACCAR delivered 43,900 trucks.
And in the Q1 of 2025, deliveries are forecast to be around 40,000. We estimate PACCAR's worldwide 1st quarter truck and parts gross margins to be similar to the Q4 and in a range of 15.5% to 16%. In addition to the strong financial performance, other business highlights in 2024 included PACCAR's progress on Amplify Cell Technologies, our joint venture to manufacture commercial vehicle batteries in the United States. DAF was honored as the Fleet Truck of the Year in the UK. PACCAR Parts celebrated the 30th anniversary of TRP.
Peterbilt earned the Environment and Energy Leader Award for Sustainability. And Kenworth celebrated the 50th anniversary of its world class truck factory in Chillicothe, Ohio. We look forward to an excellent year in 2025 as we celebrate the 120th anniversary of PACCAR's founding in 190 5. Harry Skippers will now provide an update on PACCAR Parts, Packard Financial Services and other business highlights. Harry?
Harry Skippers, President and Chief Financial Officer, PACCAR: Thank you, Preston. In 2024, Packard Parts set new records for revenues and profits. Annual revenues increased by 4% to a record $6,700,000,000 and pre tax profit increased to a record $1,71,000,000 Parts gross margins averaged 30.9%. In the current freight environment, we estimate parts sales to grow by 2% to 4% this year. PACCAR Parts' excellent long term growth reflects the benefits of investments that increase vehicle uptime and convenience for customers.
Pekka's aftermarket parts business provides strong profitability through all phases of the business cycle. Pekka parts has expanded to 20 parts distribution centers or PDCs worldwide, including a new PDC in Germany, which opened in November. This PDC enhances parts availability and delivery times to German dealers and customers and is part of a strategy to increase DAS truck market share in the largest truck market in Europe. PACCAR Financial Services achieved 4th quarter pretax income of $104,000,000 Annual pretax income was €436,000,000 Becker Financial is performing well with a portfolio that has excellent credit quality and low past dues. Becker Financial provides the highest quality service in the market and makes it easy for customers to do business with them through the efficient use of technology in the credit application and loan servicing processes.
Pekka Financial operates 13 used truck centers around the world to support the sale of premium, Kenworth, Peterbilt and DAF used trucks and is adding a new used truck center in Warsaw, Poland this year. Last year, Pegaard invested $796,000,000 in capital projects and $453,000,000 in research and development. PACCAR delivered an excellent return on invested capital of 25.5%. This year, we are planning capital investments in the range of 700 $1,000,000 to $800,000,000 and R and D expenses in the range of $460,000,000 to $500,000,000 as we invest in key technology and innovation projects. These include new clean diesel and alternative fuel engines, the next generation of battery electric powertrains, advanced driver assistance systems and integrated connected vehicle services.
PACCAR is expanding manufacturing capacity at our factories in Europe, North America, Brazil and Australia. These investments will support PACCAR's future growth as well as our customers' success. PACCAR's independent Kenworth Peterbilt and DAF dealers consistently invest in their businesses, enhancing our industry leading distribution network and making a significant contribution to PACCAR's long term success. PACCAR looks forward to another excellent year in 2025. Thank you.
We'd be pleased to answer your questions.
Charlie, Conference Call Operator: Thank you. Our first question comes from Tami Zakaria of JPMorgan. Tami, your line is open. Please go ahead.
Tami Zakaria, Analyst, JPMorgan: Hey, good morning. Thank you so much for taking my questions. So my first question is on the delivery guide. Can you help us understand how to think about deliveries by geography in the Q1 versus the Q4, trying to bridge the gap and where that difference is coming from, which geography, if you could highlight?
Preston Feit, Chief Executive Officer, PACCAR: Yes. Happy, Tammy. Good to talk to you. What I would share with you is in the U. S, we expect Class 8 to be flat or up even a little bit in Q1.
But what we've seen is the medium duty market, which has just been very robust, is probably normalizing now. So we'll see a bit smaller medium duty market. I'd also remind people that there was a Euro 6 implementation in Mexico that was in the Q4. So that kind of was there was a bit of a pre buy in Mexico that won't be present in the Q1. And also if you're doing comparisons of Q4, Q1, we had good supplier performance in the Q4 that allowed our normal year end inventory reduction to take place.
So all those things kind of had an impact and maybe the only last one I'd add is we have fewer production days outside the U. S, specifically in South America as an impact. So all that goes into that delivery guidance. But in essence, we're seeing flat Class 8, maybe slightly up Class 8 in the U. S.
Markets.
Tami Zakaria, Analyst, JPMorgan: Got it. That is very helpful color. Thank you. And my second question is on the investments for Amplify, the JV you have with Cummins (NYSE:CMI) and Daimler (OTC:MBGAF). Do you think you could revisit that or the whole idea could be rethought at this point given the current administration shift away from bevs?
Preston Feit, Chief Executive Officer, PACCAR: Well, I'll share this with you. I am so happy with how that's going. And I think if I could remake the decision now knowing what I know, I'd make the same decision. It's a long term strategic objective for our company to be able to offer our customers the full portfolio of powertrain choices. We see that there will be places where battery electric vehicles make sense or it could be hybrid vehicles.
And our Amplify Cell Technologies joint venture will allow us to have the lowest cost, highest quality batteries, so that we'll be most competitive in the market, which will be in support of our customers.
Tami Zakaria, Analyst, JPMorgan: Okay, great. Thank you.
Preston Feit, Chief Executive Officer, PACCAR: You bet.
Charlie, Conference Call Operator: Thank you. Our next question comes from Kyle Menjes of Citi. Kyle, your line is open. Please go ahead.
Kyle Menjes, Analyst, Citi: Thanks, guys. So you did reference the vocational strength and it seems like that's been a big piece of why we've seen this order resilience in Class 8. But I guess just what gives you confidence that dealers aren't over ordering here to stay in bodybuilders pipelines? And just could you maybe give us a gauge of how many of those orders actually have a customer's name attached? Thank you.
Preston Feit, Chief Executive Officer, PACCAR: Yes, we have all of our customers there feel really solid. In fact, if you one way to look at it is inventory. So the industry inventory is running what 3.1 months in heavy duty and can work in Peterbilt's inventory levels at 2.3 months. So our inventory is in good shape. There is a backlog at bodybuilders, but those are really spoken for trucks.
Kyle Menjes, Analyst, Citi: Okay. Thank you. And then if you could just provide maybe a little more color on how you're thinking about the medium duty market in U. S. And Canada as we progress through the year?
You mentioned probably down a little bit in 1Q, but I guess just how are you thinking about the growth as we move throughout the year, first half versus second half would be helpful. Thank you.
Preston Feit, Chief Executive Officer, PACCAR: Yes. I think that what we saw kind of referencing back Kyle to last year, you'd say that we had a pretty steady set of builds in the year. They were strong builds. There was, if you recall, a mirror factory fire that amplified some deliveries in the Q3. So when you're comparing 3Q to 4Q, you'd see lower deliveries at 4Q.
And now we just think that the medium duty market is going to go back to more normal, historically normal levels. And in those normal levels, we'll continue to see our new products perform well. Customers seem quite happy with the new 2.1 meter wide Kenworth and Peterbilts. They work well with bodybuilders. They're gaining our market share.
In fact, we've grown from 14.5% to 18% share in the medium duty market last year. So we feel good about our position. The cadence of Q of half 1 to half 2 probably would expect it also to see strengthening in the second half.
Charlie, Conference Call Operator: Thank you. Our next question comes from Stephen Volkmann of Jefferies. Stephen, your line is open. Please proceed.
Stephen Volkmann, Analyst, Jefferies: Great. Good morning, everybody. Thank you for taking the call. I'm curious, as we sort of do the dumb math and look at total truck revenues divided by the deliveries, it seems like the kind of revenue per truck was down 5% -ish, which is one of the bigger declines we've seen recently. And I know there's a lot in there between price and mix and things like that.
But I'm curious, if you can provide any color. Was that mostly mix? Is there kind of more day cab happening or more vocational? Or how do we think about kind of what's going on in price mix?
Harry Skippers, President and Chief Financial Officer, PACCAR: Yes, Steve. There's a little bit of mix regional mix going on. So North America is more vacation or holidays in the Q4. So a little bit stronger mix in Europe in Q4. And then on top of that, we had unfavorable foreign exchange rates.
So it's a very strong dollar and that probably accounts for half of the reduction in average sales price.
Stephen Volkmann, Analyst, Jefferies: Got it. Okay, right. A lot in there. Okay. And then slightly differently, have you guys announced or started telling your customers kind of the order of magnitude of the expected price increase for the 2027 regulations that we're all looking forward to?
Preston Feit, Chief Executive Officer, PACCAR: We're having general conversations with them about that, and we're still saying it can be in the $10,000 to $15,000 price range for adjustments to 2027. Obviously, the details of that aren't finalized, but that's kind of what it feels like right now.
Harry Skippers, President and Chief Financial Officer, PACCAR: Okay. Thank you, guys.
Preston Feit, Chief Executive Officer, PACCAR: You bet.
Charlie, Conference Call Operator: Our next question comes from Rob Wertheimer of Melius Research. Rob, your line is open. Please go ahead.
Rob Wertheimer, Analyst, Melius Research: Thank you. I had 2, if I may. First is just I'd love to hear your thoughts on gross margin trend and truck pricing. It seems like used market to stabilize inventory, at least on sleep versus come down. I don't know if you see that and probably better data that you have.
And just curious whether you see any hopefulness or the reverse on new truck pricing? That's my first one.
Preston Feit, Chief Executive Officer, PACCAR: Yes, sure. It's Rob. What we'd say is that we're looking into Q1 and seeing like things should be pretty steady as you can tell from our guide where we said 15.5% to 16% gross margin. So we see that things are starting to look up, but just beginning to as we notice the truckload carriers starting to come back into the market and then probably gaining strength through the course of the year.
Harry Skippers, President and Chief Financial Officer, PACCAR: And then on the used truck side, Rob, I would add that PACCAR Financial's used truck inventory is at very healthy and low levels right now. So and so that's also a good thing.
Preston Feit, Chief Executive Officer, PACCAR: Yes, it's a good leading indicator as well.
Rob Wertheimer, Analyst, Melius Research: In the bottom there. Okay, perfect. And then Preston, just it sparked my curiosity. You mentioned hybrid trucks. And I think across the auto and maybe even the truck world years ago, there was a bit of resistance to hybrids and the feeling that you'd go full electric.
I'm curious what you're hearing from your customers. Is that something that there's actual demand for now? Are there really use cases that are non regulatory? I'm just curious about your thought there. I'll stop there.
Thank you.
Preston Feit, Chief Executive Officer, PACCAR: Yes. Great question, Rob. I think what we see is that through hybrid systems, we might be able to improve fuel efficiency and likewise greenhouse gas by double digit levels. And if we're able to do that, that's obviously desirable for our customers. There is an added cost to it.
So the balance of what's the payback time sits into there. So there is a striving for a business case, which is free of regulatory hurdles, but we know that there will be regulations coming and going over time. So that could also be an added incentive to a hybrid business case. And that's true for both U. S.
And Europe, maybe especially true in Europe.
Charlie, Conference Call Operator: Thank you. Our next question comes from Steven Fisher of UBS. Steven, your line is open. Please go ahead.
Steven Fisher, Analyst, UBS: Thanks. Good afternoon. I just wanted to touch upon the margins in the Q1. As you said, Preston, they're going to be pretty stable, which is pretty impressive on 10% lower productions. I guess I'm just curious what is enabling that steadiness of the margins in light of that lower level of production?
Preston Feit, Chief Executive Officer, PACCAR: Well, I think what we're seeing is the trucks are performing really, really well. So that's helpful to us obviously in terms of discussions with customers. Fuel economy is great, the reliability is great, our warranty costs are slightly down and it just feels like between all those factors where the market is starting to head, we think that we'll see that kind of a margin appear in the Q1.
Steven Fisher, Analyst, UBS: Okay. And I guess just curious about the broader pricing environment now. Do you think that it's now kind of more stable that we're in this part of the downturn? And how confident can we be that sort of we've hit the low points on margins and pricing discounts for the year?
Preston Feit, Chief Executive Officer, PACCAR: Sure. Great question again. And I think what we've shared and we continue to share is like we see 2025 with improvement coming throughout the year. We think for sure in the second half, maybe it's in the second quarter, we'll have to watch how the world develops of course, but it feels like a positive trend.
Steven Fisher, Analyst, UBS: Okay. Thank you very much.
Preston Feit, Chief Executive Officer, PACCAR: You bet.
Charlie, Conference Call Operator: Our next question comes from Angel Castillo of Morgan Stanley (NYSE:MS). Angel, your line is open. Please go ahead. And Hel, we are receiving a lot of feedback from your line. We will just try and reopen your connection.
Jeff Kauffman, Analyst, Vertical Research Partners: We are Hey, Charlie, why don't we go to the next caller?
Preston Feit, Chief Executive Officer, PACCAR: Of course.
Steven Fisher, Analyst, UBS: Yes. Charlie, let's go to
Ken Hastings, Director of Investor Relations, PACCAR0: the next caller and Yes. Yes.
Charlie, Conference Call Operator: Our next question comes from Jamie Cook of Truist Securities. Jamie, your line is open. Please go ahead.
Ken Hastings, Director of Investor Relations, PACCAR1: Hi, good morning. Just to clarify, can you speak specifically what price cost was for truck and for parts in the Q4 specifically and what's implied by region for 2025? And then my second question, it sounds like you would say the Q1 is the trough for margins in total. Is that for total company or is that also for truck margins? And I'm just wondering if you get to the back half of the year, do you expect to see sales growth and then get back to a position where we're actually seeing incremental margins versus decremental?
Thank you.
Preston Feit, Chief Executive Officer, PACCAR: Yes. I mean, it's another way of asking what we've already talked about, I think quite a bit. But the truck for Q4 price versus cost was negative 0.6% on price and cost was 2.7%. And what we're expecting to see is some trending improvement through the course of the year, Jamie. And so we think that'll be favorable to your point.
And we see continued strong parts margins. So like 30.9% in 4Q and we would expect to see continued good margins in the Q1 as well. So those are contributing to a general upward trend in our mind.
Ken Hastings, Director of Investor Relations, PACCAR1: But was that by geography, I guess my question was?
Harry Skippers, President and Chief Financial Officer, PACCAR: I don't think we provided by geography, Jamie.
Ken Hastings, Director of Investor Relations, PACCAR1: Okay. And then I guess the follow-up question was that by the second half of twenty twenty five, should we start to see incremental margins? Are you assuming sales volumes are up versus decrementals? I mean your margins are pretty impressive right now in the Q1.
Harry Skippers, President and Chief Financial Officer, PACCAR: Yes. As the market improves in the second half of the year, we would expect margin to the development to improve accordingly.
Preston Feit, Chief Executive Officer, PACCAR: Yes. I mean, I think Jamie nice comment. Thanks also for the comment on the margins because it is these are cycle over cycle good margin improvements, a few hundred basis points. And we do think that as we've said last time we remain consistent this time, we think that 2025 will see improvement throughout the year. And as it improves, that will be good for our incrementals.
Ken Hastings, Director of Investor Relations, PACCAR1: Great. Thank you very much.
Preston Feit, Chief Executive Officer, PACCAR: You bet.
Charlie, Conference Call Operator: Thank you. Our next question comes from Tim Thean of Raymond (NSE:RYMD) James. Tim, your line is open. Please go ahead.
Ken Hastings, Director of Investor Relations, PACCAR2: Thank you. Good morning. Maybe just first question, just in terms of any comments you could provide just as it pertains to order activity and how the backlog is filling in both North America and Europe. Just curious just in terms of how far your lead times extend and how that presumably quoting into the Q2, but maybe you just give some color on that?
Preston Feit, Chief Executive Officer, PACCAR: Sure, Tim. Good question. Good insight to gain for everybody is I think that we're roughly 75% or 3 quarter full in Q1 and probably more like half full in Q2. So that's kind of where things look like pretty reasonable levels.
Ken Hastings, Director of Investor Relations, PACCAR2: Got it. Okay. And the presumably the composition of that backlog much more weighted, I would assume towards vocational. Should we think about any mix impact from that? Just if that supposition is correct, that would be a heavier weighting than normal.
Is there much of an impact again from a product mix standpoint? Or is that kind of a neutral dynamic
Preston Feit, Chief Executive Officer, PACCAR: there? Tim, I think that the vocational the heavy influence of vocational was more of a last year thing. And as vocational is steady now, I think the mix shift is kind of coming back to more traditional levels.
Ken Hastings, Director of Investor Relations, PACCAR2: Okay. Okay. Got it. And then maybe for Harry, just as if a big yes, but if we had the dollar at today's levels through the quarter, some pretty big moves against some of your key currencies. Is there a way to think about, A, what FX had or impact that foreign exchange had on margins in the Q4 and what that may imply if the dollar were at today's levels for the Q1?
Ken Hastings, Director of Investor Relations, PACCAR3: Yes. This is Bryce. I'll just comment on that. We had a negative effect on our net income in the Q4 from the foreign currencies of about $20,000,000 and something we will obviously we don't know what's going to happen to rates. But as you said, if they stay where there are, obviously it would be a recurring effect.
Harry Skippers, President and Chief Financial Officer, PACCAR: And it's all factored into our guidance of between 15.5% to 16%.
Ken Hastings, Director of Investor Relations, PACCAR2: Okay. Thank you very much.
Charlie, Conference Call Operator: Thank you. Our next question will go to Angel Castillo of Morgan Stanley. Hang on. Your line is open. Please go ahead.
Ken Hastings, Director of Investor Relations, PACCAR4: Hi. Can you hear me this time?
Preston Feit, Chief Executive Officer, PACCAR: Yes. You're not giving us quite the static you did on your first time.
Ken Hastings, Director of Investor Relations, PACCAR4: I apologize for that. It sounds like it's working right now. So maybe thanks for taking my question. I apologize if somebody asked it, but just I think you lowered the R and D expense for the full year. Can you just talk about maybe what's driving that?
And maybe going back to one of the initial questions around the Amplify JV, obviously, a lot of kind of good, good, I guess, strategic reasons to continue to invest in that, but I believe it was a multi phase project. Is it fair to assume that it will be you'll be doing it in phases and deciding to move forward? Or is it we should assume that all three phases are moving forward?
Preston Feit, Chief Executive Officer, PACCAR: Yes. Sure. That's a great question, both of them. So R and D is going to be still year over year we're thinking slightly up. So probably in the range of 5% up from last year just because there's a lot of great projects for us to be working on.
Of course, the Amplify one doesn't really fit into that space. But what we're doing with Amplify is we've cleared the ground now, we're putting in the buildings and then what we'll do is measure how much capacity we need to install, but we want to get started on that. So we have some capacity available for the markets that exist. And then we'll just scale capacity based upon market demands for the EVs or hybrids.
Ken Hastings, Director of Investor Relations, PACCAR4: That's helpful. And then I wanted to go back to some comments you made this quarter and I guess last quarter as well in terms of maybe some green shoots on the TL or starting to see some improvements. I think you mentioned that you could maybe see some improvement as soon as 2Q. Can you just give us a little bit more color what exactly are you hearing from your customers in terms of potential green shoots on the TL market? And maybe what would kind of give you confidence in that 2Q number starting to show a rebound versus maybe more of a second half?
Preston Feit, Chief Executive Officer, PACCAR: There are a couple of things. One is we've just started to see spot rates of improvement. So that's something that's measuring into our thoughts. I'd say some of the capacity has come out of the market. So it's making it easier for the good carriers to become successful.
And then I would also add, as we said earlier that the used market inventories are quite low. And so that's kind of a tell of how the world is starting to turn a little bit. So all of those are soft indicators of what we think is to come.
Ken Hastings, Director of Investor Relations, PACCAR4: Very helpful. Thank you.
Preston Feit, Chief Executive Officer, PACCAR: You bet.
Charlie, Conference Call Operator: Thank you. Our next question comes from David Raso of Evercore ISI. David, your line is open. Please proceed.
Ken Hastings, Director of Investor Relations, PACCAR5: Hi, thank you for the time. Your comment about strengthening market as the year progresses, how was that influencing how you're pricing the 26 model years that start shipping in April? And then wrapping with that maybe a bit, your reaction to some of the recent executive orders from the White House just to think about how that influences how you think about the pre buy, which I assume sort of dovetails a little bit into how you think about pricing?
Preston Feit, Chief Executive Officer, PACCAR: Well, we look at the executive orders, we pay attention to it, but we know what the rules are today and we are ready for those rules. If they were to change, then we'd be ready for that too. Like one of the things we've been able to do is develop the suite of technologies we need. California has already implemented low NOx engines and PACCAR has a low NOx engine in California. So we can be available to that.
And if things shift around, we'll be ready in that position as well. To the first question you asked about pricing in 2026 product shipments, I think as the market moves around and people are experiencing the great performance of the Kenworth, Peterbilt and Doff trucks, we expect that we will see strengthening price position for ourselves as the course of the year progresses. But we think that trend carries on even beyond 25% we anticipate.
Ken Hastings, Director of Investor Relations, PACCAR5: And we hear the model year 26% starts shipping in April. I know there'll be a little mix of 25% and 26% in 2Q. But is that accurate? We start getting some of the 26 model shipping in 2Q for this year?
Preston Feit, Chief Executive Officer, PACCAR: Yes. Your comment David there, I don't know what that is, but that doesn't resonate to me of a model year 20 6 shifting in April for us. So I'm not sure how to answer that.
Ken Hastings, Director of Investor Relations, PACCAR5: Okay. We can talk offline, but basically the higher pricing sequentially is what you're referencing as the year goes on, however you want to name
Preston Feit, Chief Executive Officer, PACCAR: the model. Yes, that's fair. But yes.
Ken Hastings, Director of Investor Relations, PACCAR5: Okay. Thank you very much. I appreciate it.
Preston Feit, Chief Executive Officer, PACCAR: You bet.
Charlie, Conference Call Operator: Thank you. Our next question comes from Jerry Revich of Goldman Sachs. Jerry, your line is open. Please go ahead.
Ken Hastings, Director of Investor Relations, PACCAR6: Yes. Hi. Good morning and good afternoon, everyone. I wanted to ask on the per truck performance in terms of operating costs. Can you talk about the cadence that you expect over the next couple of quarters?
It sounds like based on the gross margin guidance for the Q1, maybe we're seeing a decline in per truck costs. I'm wondering based on your contract structures, etcetera, can you just talk about the cadence over the next couple of quarters?
Harry Skippers, President and Chief Financial Officer, PACCAR: If you look at the cost per truck, Gerry, in 2024, we saw some more content on trucks, especially in Europe, where we because of legal requirements, some more connected ADAS and other features were added during the year. We expect those cost levels to be more or less stable as we enter the New Year, But no specific special developments in 2025 as far as I can tell right now.
Ken Hastings, Director of Investor Relations, PACCAR6: Okay. So and separately on the topic of EPA-twenty seven, I appreciate the base cases. It's going to move forward, but obviously governments can make changes in the scenario if there's an adverse legal ruling or something along those lines. Can you talk about how the company would react in that scenario if we have different regulations for California and other states versus the rest of the U. S?
How would you see that scenario playing out in your planning process?
Preston Feit, Chief Executive Officer, PACCAR: One of the things that's great about PACCAR is the quality of the people in this company and our ability to be nimble and reactive is I think second to none. So I think if there are changes in regulations, there is nobody better at adjusting to those regulatory changes than the people at PACCAR. And so we'll make sure we have the right products in front of the customers that are going to give them the best operating condition for the regulatory environment.
Ken Hastings, Director of Investor Relations, PACCAR6: Okay. Appreciate it. Thank you.
Ken Hastings, Director of Investor Relations, PACCAR4: You bet.
Charlie, Conference Call Operator: Our next question comes from Jeff Kauffman of Vertical Research Partners. Jeff, your line is open. Please go ahead.
Jeff Kauffman, Analyst, Vertical Research Partners: Okay. Thank you very much. Two questions. Number 1, I want to come back to the change in revenue per truck was down about 4.9%. I think you mentioned 0.6% of that was price.
I'm assuming most of the rest of the difference is mix and currency. Could you give me an idea of how to think about that math?
Harry Skippers, President and Chief Financial Officer, PACCAR: Yes. Like we said, I think more or less half of the impact is currency. And there is another element there that in the Q4, the U. S. And Canada have more holidays.
So the mix was a little bit more heavily towards Europe and other markets outside the U. S. Where average sales prices and cold trucks are smaller and average sales prices are lower.
Jeff Kauffman, Analyst, Vertical Research Partners: Okay. Thanks. And I just want to follow-up on David Raso's question. Obviously, as the administration comes out with new rules, you say you comply. Where do you think ignoring 27 in the EPA, but are there other rulings that have been discussed that would be risk worth thinking about in terms of its impact to PACCAR from the new administration?
Preston Feit, Chief Executive Officer, PACCAR: No, I don't think of them as risks as much as I think of them as opportunities. I think anytime environments change, if you operate better than your competitors, then you'll find yourself in a winning position and that's where we intend to be.
Jeff Kauffman, Analyst, Vertical Research Partners: So Preston, what would some of those opportunities be in your mind?
Harry Skippers, President and Chief Financial Officer, PACCAR: The fact that we produce local for local factories in the U. S. Where we produce the trucks for the U. S, same in Mexico, Brazil, Europe makes us very well protected to things like tariffs, for example. So we feel we're in a really good spot there.
Ken Hastings, Director of Investor Relations, PACCAR7: Okay. Thank you very much.
Preston Feit, Chief Executive Officer, PACCAR: You bet.
Charlie, Conference Call Operator: Thank you. Our next question comes from Michael Feniger of Bank of America. Michael, your line is open. Please go ahead.
Ken Hastings, Director of Investor Relations, PACCAR0: Yes. Hi, everyone. Thanks for having me on. Just PACCAR has clearly gained a lot of share. I realize it's because of your great trucks and your products.
Just I'm curious if we see other OEMs raising capacity, trying to go after your market share, pricing intensifies. I'm curious how you guys weigh the puts and takes there? Is PACCAR more likely to continue to kind of price for your premium trucks and look to hold that margin? Or is it every year your goal is to try to gain that level of market share? Is that not as linear?
Is that more over a multi cycle basis? Just kind of curious how you think about that because you guys have gained so much share and there is some other OEMs kind of raising capacity?
Preston Feit, Chief Executive Officer, PACCAR: Yes. The way we think about it is we try to first off make sure that we produce great trucks for our customers. And if we produce great trucks for our customers that are valuable to them, then they're willing to pay us for those trucks and sharing that value equation. That's the most fundamental thing and the more we can do that for them, the better it works for us. And you gave a nod to the people at PACCAR producing great trucks, I'd also share in that our dealers are really outstanding and do a good job of supporting our customers and going out there and showing them the benefits of our trucks.
So it's really about great trucks that achieve benefits to our customer that helps us maintain our premium position and allows us also to simultaneously gain market share.
Ken Hastings, Director of Investor Relations, PACCAR0: Great. And just on parts, the last three quarters, your revenue is up 4%. I think the pretax profit has been slightly down year over year. Is there anything on the last that you would want to flag on 2024? I'm just curious as we kind of turn the page, does pre tax profit, does the parts profit kind of grow in line with sales as we kind of look at 2025?
Just any moving pieces there would be helpful.
Harry Skippers, President and Chief Financial Officer, PACCAR: In 2024, we saw part sales increase by 4%. At the same time, we see that the market for after sales for parts was down 2% or 3%. So growing our part sales in a smaller market at excellent margins, that's a really impressive performance by the entire Packer Parts team. And as we go into 2025, we expect parts to grow by 2% to 4% for the year. That will be another strong year for Packer Parts.
Ken Hastings, Director of Investor Relations, PACCAR4: Thank you.
Preston Feit, Chief Executive Officer, PACCAR: Yes, you bet.
Charlie, Conference Call Operator: Thank you. Our next question comes from Scott Group of Wolfe Research. Scott, your line is open. Please go ahead.
Ken Hastings, Director of Investor Relations, PACCAR8: Hey, thanks. Good morning, good afternoon. I just want to actually follow-up on that last question. So if you think about last year, the market's down and parts sales are up 4% and I guess this year's you think the market's flat to up, but the parts growth slows. So help me understand why we're not seeing a pickup in parts sales if the market is improving?
Preston Feit, Chief Executive Officer, PACCAR: Well, one of the things is Harry indicated is like the cadence of the parts market last year. And like the general market, it's going to be a tale of 2 halves probably for the total market. So what we're talking about right now is Q1 and excellent parts performance in Q1 and we would expect to see them growth through the course of the year.
Harry Skippers, President and Chief Financial Officer, PACCAR: It's strongly related to freight activity and the rest of the business. So it should also have that kind of cadence.
Ken Hastings, Director of Investor Relations, PACCAR8: Okay. That makes sense. And then I think you said 75% sold for the Q1, half full for the Q2. Just do you have any sort of context? Is that sort of about right?
Is that ahead of schedule, below behind schedule? And then do you have any view if the order strength of late has pre buy activity started yet or is that still all on the come?
Preston Feit, Chief Executive Officer, PACCAR: Yes. We're in a fairly normal position for our backlogs, really kind of normal for this kind of a part of the cycle. And I would say that the discussions around what people are going to do for the second half of twenty twenty five and then in twenty twenty six are happening, but I wouldn't say there's really been any significant order intake in that area.
Ken Hastings, Director of Investor Relations, PACCAR8: Thank you guys. Appreciate it.
Preston Feit, Chief Executive Officer, PACCAR: Yes, you bet.
Charlie, Conference Call Operator: Thank you. Our next question comes from Matt Sliss of Kepler Cheuvreux. Matt, your line is open. Please go ahead.
Ken Hastings, Director of Investor Relations, PACCAR7: Yeah. Hi. Thank you for taking my question. I just had a question about the European market there. If you could give some flavor about different countries there And also how you see the market progress of 2025?
I mean, you have the guidance, but if you could give some flavor there, please?
Preston Feit, Chief Executive Officer, PACCAR: Yes, sure. Let me start and then Harry can add some thoughts to it. I mean the general sense for us is the European economy is maybe going to experience slight growth, I think really slight potentially in Germany. What we saw last year is that the Eastern Central Eastern European markets were softer because of geopolitics, I would say. So that has some impact on the market overall.
We'll see if that continues through this year. And that kind of leads to, I think, people in Europe feeling moderately okay without the market.
Kyle Menjes, Analyst, Citi: Terry, I don't
Preston Feit, Chief Executive Officer, PACCAR: know what you would add to that.
Harry Skippers, President and Chief Financial Officer, PACCAR: Yes. Overall, the markets in Europe last year was down 8%. And then we talk about Western Europe maybe down 5%, but Central and Eastern Europe in the 20% range. So especially countries like Poland, Lithuania are more impacted and DAF has a strong presence there. So it has a little bit bigger impact on DAF than it maybe has on some of our competitors.
But looking into 2025, the market in the range that we guided, that's a good market in which Pekka should do really well.
Ken Hastings, Director of Investor Relations, PACCAR7: Okay, great. Thank you. And could you just add a commentary regarding your capacity utilization in Europe with DAF?
Harry Skippers, President and Chief Financial Officer, PACCAR: Capacity utilization is good.
Preston Feit, Chief Executive Officer, PACCAR: We have capacity for when the market grows. We continue to make smart investments in the factories there. We have our factory in the UK, factory in the Netherlands. And so we can produce the trucks we need to. We continue to make those factories more and more efficient.
Ken Hastings, Director of Investor Relations, PACCAR7: And the backlog the coverage there for the 1st and second quarter is about the same as the average that you mentioned for the whole group?
Harry Skippers, President and Chief Financial Officer, PACCAR: Yes, that's correct. Europe is more or less in line with what Preston just mentioned on the total group.
Ken Hastings, Director of Investor Relations, PACCAR7: Okay, great. Thank you very much.
Preston Feit, Chief Executive Officer, PACCAR: You're welcome. You bet. Have a good day.
Charlie, Conference Call Operator: Thank you. We have no further questions in the queue at this time. So I'll hand back over to the management team for any further or final remarks.
Ken Hastings, Director of Investor Relations, PACCAR: I'd like to thank everyone for joining the call and thank you, Charlie.
Charlie, Conference Call Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
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