NASDAQ:PCAR PACCAR Q3 2024 Earnings Report $90.29 -1.75 (-1.90%) Closing price 04/29/2025 04:00 PM EasternExtended Trading$90.46 +0.17 (+0.19%) As of 04/29/2025 07:24 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast PACCAR EPS ResultsActual EPS$1.85Consensus EPS $1.82Beat/MissBeat by +$0.03One Year Ago EPS$2.34PACCAR Revenue ResultsActual Revenue$8.24 billionExpected Revenue$7.66 billionBeat/MissBeat by +$580.49 millionYoY Revenue Growth-5.20%PACCAR Announcement DetailsQuarterQ3 2024Date10/22/2024TimeBefore Market OpensConference Call DateTuesday, October 22, 2024Conference Call Time12:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by PACCAR Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 22, 2024 ShareLink copied to clipboard.There are 17 speakers on the call. Operator00:00:00Good morning, and welcome to PACCAR's Third Quarter 2024 Earnings Conference Call. All lines will be in a listen only mode until the question and answer session. Today's call is being recorded. And if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Operator00:00:18Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead. Speaker 100:00:26Good 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 Feitz, Chief Executive Officer Harry Skippers, President and Chief Financial Officer and Bryce Poplotsky, 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. Speaker 100:00:54Certain 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 Brettson Feit. Speaker 200:01:11Thanks, Ken. Good morning, everyone. Harry, Bryce, Ken and I will update you on our excellent Q3 financial results and other business highlights. I'd like to start by thanking PACCAR's wonderful employees who deliver PACCAR's high quality trucks and transportation solutions to our customers all around the world. PACCAR earned a strong $972,000,000 on revenues of $8,200,000,000 for an industry leading after tax return on revenue of 11.8 percent. Speaker 200:01:40PACCAR Parts 3rd quarter revenues increased 5% to $1,660,000,000 and pre tax profits were 407,000,000 dollars PACCAR Financial earned pre tax income of $107,000,000 in the 3rd quarter. We estimate this year's U. S. And Canadian Class 8 market to be around 260,000 trucks and next year to be in the range of 250,000 to 280,000 vehicles. The vocational segment where Peterbilt and Kenworth are the market leaders is strong and is expected to remain strong with continued infrastructure investments. Speaker 200:02:16The less than truckload market is performing well, while the truckload segment seems to have stabilized. Peterbilt and Kenworth's combined Class 8 share has increased from 29.5% to 31.1%. Kenworth and Peterbilt's dealer inventory is a healthy 2.9 months. Kenworth and Peterbilt increased their medium duty market share in the 1st 9 months of this year to 17.2% compared to 14.5% last year. In Europe, this year's truck industry registrations in the above 16 tons segment are estimated to be around 300,000 vehicles. Speaker 200:02:57The 2025 market is expected to be in the range of 270,000 to 300,000 trucks. Last month at the IAA Truck Show in Germany, DAF introduced its new 2025 lineup of trucks, which improve fuel economy by 3% and use advanced driver assistance systems to enhance safety. In addition, the 2025 vehicles feature PACCAR's connected truck solutions, which bring great value to the customer. The South American above 16 ton market is projected to be in a range of 110,000 to 120,000 trucks this year and in a similar range next year. PACCAR's premium lineup of trucks are performing well for customers in South America, especially in the important Brazilian market. Speaker 200:03:43PACCAR and its dealers are delivering excellent trucks and transportation solutions to our customers and we are excited about the future. Thank you. Harry will now provide an update on PACCAR Parts, PACCAR Financial Services and other business highlights. Harry? Speaker 300:03:57Thanks, Preston. PACCAR delivered 44,900 trucks during the Q3. We expect 4th quarter deliveries to be around 42,000 vehicles. More production days in Europe will be offset by fewer production days due to normal holidays in North America and some supplier related limitations. Pega parts delivered 3rd quarter gross margins of 30.1%. Speaker 300:04:25Parts quarterly sales grew by 5% compared to the same period last year and are expected to grow around 4% in the 4th quarter. Pega Parts' focus on expanding its customer base and providing a full range of transportation solutions is delivering sales growth in a smaller aftersales market. Pega Parts just opened a new distribution center in Maersbach, Germany. This new distribution center increases the number of dealers and customers benefiting from receiving parts on the same or next day in the important German market. Truck Parts and Other gross margins were 16.6% in the 3rd quarter. Speaker 300:05:11We anticipate 4th quarter gross margins to be in the range of 15.5% to 16%. Becker Financial Services results in the 3rd quarter benefited from excellent portfolio quality. Pretax income was $107,000,000 The used truck market has normalized in North America, while remaining soft in Europe. PACCAR Financial is a market leader in supporting customers with innovative technologies that provide seamless credit application and loan servicing processes. PACCAR's net income Speaker 400:05:49of Speaker 300:05:49$3,300,000,000 in the 1st 9 months of this year generated a strong $3,200,000,000 operating cash flow. PACCAR's return on invested capital was an excellent 25% in the 1st 9 months of this year. This year's capital expenditures are projected to be between $760,000,000 $800,000,000 and research and development expenses will be $450,000,000 to $470,000,000 Next year, we estimate the company will invest $700,000,000 to $800,000,000 in capital projects and $480,000,000 to $530,000,000 in research and development projects. PACCAR continues to expand manufacturing capacity at our factories in Europe, United States, Mexico, Brazil and Australia. These investments are supporting PACCAR's growth as well as our customers' success. Speaker 300:06:50PACCAR's investments in its premium truck lineup, efficient manufacturing capacity, best in class parts and financial services businesses and the continued development of advanced technologies position the company for industry leading performance in all phases of the business cycle. Thank you. We would be pleased to answer your questions. Operator00:07:42Our first question comes from the line of Steven Volkmann with Jefferies. Steven, please go ahead. Speaker 500:07:49Thank you so much. Good morning and good afternoon. I'm curious if we can talk a little bit about what you're seeing on the pricing side. I know we need to normally wait for the Q to get a sense of that, but if you can give us a quick preview of what we're seeing in pricing and kind of how you're expecting that to flow through in the Q4 as well? Speaker 200:08:13Sure. If you think about price cost, it's kind of price was flat in Q3 and costs were up 3%. So when I think about that's on the truck side. If you think about how we look forward at that, we think that the vocational market is going to remain strong. We think the less than truckload market is doing really well in addition. Speaker 200:08:32And then the truckload sector still seems to be feeling its pressure, but it does seem to have stabilized. And so we're kind of starting to see signs that maybe that tension will release over the coming months and next year, which could be good for us in terms of price versus cost as we look into next year. Speaker 500:08:53Okay, good. Maybe that starts to answer my follow-up, which is that I'm curious, overall, you're sort of flattish globally with your market forecast for next year. Maybe you'll gain a little bit of market share like you usually do. But that Q4 run rate of 15.5% to 16.% gross margin, is that a good sort of base to think about for 2025? Or is there something that could move that one way or the other? Speaker 500:09:20Thanks. Speaker 200:09:22I think if you go and look at what's been going on this year, right, the year started exceptionally strong in all sectors. And I think maybe the truckload cares about a tougher road to hold for a little while here. Maybe what you'd expect to see in 2025 is a mere image of that where the year starts a little bit like it's finishing and then accelerates I think from there. Timing exactly, I don't know that. But it does feel like that's where we're starting to see the stabilization for the truckload sector, just significant. Speaker 200:09:49And so we would expect to see some growth over the coming year. Speaker 500:09:55Super. Thank you. I'll pass it on. Speaker 600:09:58All right. Operator00:10:02Our next question comes from the line of Rob Wertheimer with Melius Research. Please go ahead. Speaker 700:10:08Hi. Thanks. Hi, Rob. Speaker 200:10:10Good morning, guys. So I guess Speaker 700:10:13just to follow-up on the question, You look at gross margin still at very healthy levels really historically, but down sequentially. Price was kind of flat you said year over year and costs creep up a little bit. Is there anything that really should otherwise be called out in the sequential move in gross margin? Thank you. Speaker 200:10:32I don't think there's anything different that I would call out for that. I think the thing that's been really good for us is the product introductions we've done over the past few years. I mean, it's just stunning how great the trucks are right now. The fuel economy is outstanding. The reliability is outstanding. Speaker 200:10:46I mean, the customer desire for the trucks is very high as well. So I think that what we'll see is people's desire to have those trucks as the market opens up. Speaker 700:10:58All right, perfect. And then I've asked you this before, and I'm not sure you'll give me a different answer now, but your differentiation is pretty good in vocational. I mean, it's a product that has a lot more has variability to it, let's say, and you guys are real leaders there. Is that at all a margin tailwind for you into next year? Speaker 200:11:18Yes, it's a very good point, Rob, and yes, it is. I would say that's a positive statement to make. I think one of the things that we look at right now is our inventory is in very good shape as we mentioned. And over half of our inventory is vocational trucks that are at bodybuilders right now. So we feel well positioned overall with inventory and then we know that our vocational inventory is strong. Speaker 200:11:37We feel like that is good for our business. Speaker 700:11:41And then vocational can be up next year and I'll stop there. I apologize. Thank you. Speaker 200:11:45I think vocational will continue to run strong next year. Speaker 700:11:54Thank you. Speaker 200:11:56You bet. Operator00:12:02Our next question comes from the line of Steven Fisher with UBS. Steven, please go ahead. Speaker 800:12:10Thanks. Good morning. You mentioned that your inventory is what you'd characterize as healthy at 2.9 months. I guess, can you talk about where that 2.9 months is relative to your ideal targets for this point in the cycle? Do you think there's sort of inventory reductions that you have to make? Speaker 800:12:31And just curious kind of what you're seeing from competitors in that perspective? And are they needing to take inventory out? And is that putting some price pressure into the market? Speaker 200:12:46Well, I'll let them talk about their inventory positions. But for our inventory position, we feel very good at 2.9 months. That's a very healthy level for us, especially as I mentioned to Rob, the fact that our vocational inventory takes up a chunk of that. So we feel quite comfortable with our inventory levels and our build rates being well positioned. Speaker 300:13:02And it's even come down a little bit during the quarter. At the end of June, we were at 3.3 months and currently we're at 2.9 months. Speaker 800:13:13Okay. And then just you mentioned about some potential reacceleration in the second half of the year. How are you thinking about the concept of a pre buy at this point? Is that kind of at all in the thinking or is it more just sort of the freight market recovering? And if it's a pre buy in your thinking, what do you think it will take to kick start that? Speaker 800:13:38Is it just timing and getting closer to another 'twenty six, 'twenty seven timeframe? Or does it actually also require some degree of improvement in the freight market? Speaker 200:13:49I think we're going to see some improvement in the freight market. Some of the carriers have started to leave the market, which is something that's been anticipated, I would say. I also think that as you think about it, there will be people's trucks have gotten older and there will be people interested in making sure they're buying enough trucks for the next several years. So that's going to take an effect I think as we go through 2025 and add to 20 25's growth. Okay. Speaker 200:14:19Thank you very much. You bet. Operator00:14:27Next question comes from the line of Tami Zakaria with JPMorgan. Tami, please go ahead. Speaker 900:14:35Hi, thank you so much. So my first question is on Europe. So your outlook for next year, I think it's down 5% at the midpoint for retail sales. And this year, your deliveries are down more than the retail sales expectation. So as we think about next year, do you plan on delivering to demand? Speaker 900:15:03Or do you expect to under produce even next year? So how should we think about production in Europe next year? Speaker 300:15:12But, Tammy, yes, European volumes have been down a little bit more than the market this year. That was really strong in Central and Eastern Europe, where the market has been more affected by the war in Ukraine and the economy is a lot slower there than in some other parts of Europe. We expect things to continue at that pace more or less into as we enter next year. And then we'll see how it progresses during the year. Speaker 200:15:41Yes, exactly what Harry said. And I think the other thing is the team in Europe has done a great job on price discipline with the great new trucks. And so I think those two things combined is we feel pretty well positioned in Europe too that we will build to demand next year. Speaker 900:15:57Got it. That is very helpful. And my second question, going back to pricing, I think you said flattish this quarter. Just trying to get a sense of did you open order books for next year? If so, what any reads on what pricing you're seeing for next year? Speaker 200:16:19Sure, Tammy. I mean, obviously, it's not so binary as opening and closing the order books, but we did have a significant engagement with a bunch of customers at the recent ATA show. So if you wanted to call that the normal cadence of fleets thinking about their purchases. We had great conversations with them, a lot of enthusiasm for the trucks and kind of an expectation of purchases next year. I think they're obviously because of the condition they're all in, it puts some price cost tension into the world right now. Speaker 200:16:47But I also feel like that's going to relieve find some relief as we go into 2025. Speaker 900:16:55Got it. Thank you. Operator00:17:01The next question comes from Angel Castillo with Morgan Stanley. Angel, please go ahead. Speaker 1000:17:09Hi, good morning and thanks for taking my question. Just wanted to go back to the margin conversation, in particular, just understanding the price cost dynamics. So you came in ahead of your expectations on total units for the Q3 and price seems to be maybe relatively stable, all things considered. But the 16.6% margin implies decrementals on a pretax basis of over 50%, which is kind of above the levels that I think of as kind of normal. So was there anything that surprised to the upside or that's leading to kind of higher decrementals than you would have typically expected? Speaker 1000:17:45And then similar kind of line of question for 4Q in terms of help us kind of bridge the gap like it's not price degradation, what's kind of causing the margin contraction? Speaker 200:17:56I don't know, Harry, you want Speaker 100:17:56to take a swing? Yes. I think mostly Speaker 300:18:01any difference with what we saw a quarter ago would be at the cost side, where we had some cost elements. There were some supplier issues at that point in time, some other operating costs. So maybe the cost side was the difference, if you want to point to something? Speaker 100:18:18Also lower volumes. Yes. Speaker 200:18:22But I think when we're looking at that, we are looking at the totality of this thing. And it feels like these are pretty healthy levels for us given this point in the cycle and where we see ourselves sitting. So it feels pretty good. Speaker 1000:18:35Got it. And then maybe, similar dynamic or just a conversation around the parts profitability. Just what do you see there in terms of that business as you think about, as we go into 2025, just in terms of profitability? It seems like it's stepped up nicely in the or it kind of remained relatively stable, I guess, from 2Q to 3Q. But that was an area that we're seeing a little bit of softness as we were talking about it last quarter. Speaker 1000:19:02So just what's kind of the ongoing trends there? Speaker 200:19:05I think the macro thing to think about in the parts market right now is that there's a smaller overall after sales market this year. And our team has just done a tremendous job of holding excellent margins in that smaller market and seeing growth in fact, right, as we talked about 5% growth this quarter. So I couldn't be more happy with the work they're doing, the systems they're bringing in, the new PDCs they're opening and how closely they're working with all the customers to grow that business. So a great story there for the parts team. Speaker 400:19:38Thank you. Operator00:19:44The next question comes from Jamie Cook with Churit Securities. Jamie, please go ahead. Speaker 1100:19:51Hi, good morning. Sorry, just to follow-up on the parts aftermarket. Can you comment specifically what price cost was like you did for truck? That would be helpful. And then I guess my other question would be, as you think about trucks, you said price flat, cost up 3%. Speaker 1100:20:11Was there any major variances sort of by region? And there's been this thesis that everyone would act more rational this cycle as some of your peers are now spun off public companies? Just any comment on what how you're seeing behavior sort of this cycle versus previous cycles? Thank you. Speaker 300:20:32So starting with parts, Jamie, for parts, price was up 3% and cost was up 4% in the quarter. And your other question was about Speaker 200:20:42Yes. I think if you think about the disciplines of the all the other OEMs being public, Listen, it's a competitive world, but PACCAR has this advantage of having premium products that people really do desire. And so the team has close relationships with the customers and feel like it puts us in a good position. And as we noted in the beginning of our commentary, we have best in class performance because of the performance of our products for our customers and we expect that will continue. Speaker 1100:21:08I guess just a follow-up question Preston, understanding your outlook for 2025 and it sounds like things should get better in the back half of the year. As we progress through the cycle and we get a pre buy ahead of 2027, is there any reason to believe PACCAR cannot deliver above average incremental margins like you did prior to this most recent sort of mini downturn given just the new product introductions etcetera? Speaker 200:21:37Yes. No, Jaeme, it's a great question, a great way to frame it. I like the way you frame it. I think we can deliver excellent performance in the coming years. So I agree with you. Speaker 900:21:48Thank you. Speaker 600:21:50You bet. Operator00:21:56The next question comes from David Raso with Evercore ISI. David, please go Speaker 200:22:01ahead. Yes. Speaker 1200:22:02Thank you for the time. I have one short term, one maybe a little bit longer term. On the builds sorry, deliveries for the 4th quarter, the 42,000, the geographic composition of that, obviously, historically, Europe will step up. Are we saying even with the extra days in Europe, we won't get a step up in Europe? So that's sort of flattish and maybe other is flattish and sequentially U. Speaker 1200:22:25S, Canada is the down 11% to get us to 42%. I'm just trying to be thoughtful about the geographic mix when I think about the margins. Speaker 200:22:35Yes. I think, David, you're not off on that. I think that it's relatively flattish, 3Q to 4Q for Europe. And, again, we've gotten our inventory in a very good position there. And then I would expect that we're maybe it's up slightly even and then we're going to see in the what we're going to see for the U. Speaker 200:22:51S. Is a normal holiday cadence. And obviously, there was a couple of hurricanes that came through, which did affect some suppliers. And so we're working through that right now with them. And the supply base is doing a great job of sorting that out and it's just something we got to kind of sort out as a team. Speaker 300:23:05On a per day basis, Europe is flattish going into the Q4, but the more production days, I think it provides a couple of 1,000 more trucks in Europe compared to the 3rd quarter in the Q4. Speaker 1200:23:19Well, that's the whole thing. If it's a couple of 1,000 more to keep the whole company down to 42, I'm just trying to figure out is North America, sorry, U. S. And Canada down 20 sequentially? I'm just trying to get a sense of the magnitude. Speaker 1200:23:34That could explain the margin pressure a little bit in the mix. Speaker 300:23:36Not 20%, but there's what is it, 7 or 8 fewer working days in the Q4 in North America. Speaker 1200:23:43Okay. That's helpful. And then on the issue of the pre buy, I'm sorry, go ahead, Preston. Speaker 600:23:49No, go ahead. Speaker 1200:23:52Well, I was just moving on to the second question I had about the pre buy. A major engine supplier we hear could be pulling their engine for 20 27 earlier, which could actually inspire maybe some buying of their engine in 2025. So I just wanted to see if you'd enlighten us on that at all, if that is maybe what's playing out, which could help 2025. And then second on the inventory for the vocational, you mentioned the bodybuilders who continue to be a bottleneck. So the inventory sitting out there in vocational does lead argue have a customer, they're just the bottleneck of the bodybuilder to finish off the job. Speaker 1200:24:27Is there something going on with the bodybuilders that can sort of break that through a little bit? And if not, is the level of vocational trucks sitting there waiting for a bodybuilder an impediment to you being able to grow your vocational business more in 2025? Speaker 200:24:45Yes. I think that what you've seen is there was this impulse throughout 2024 in the vocational market and I think that's maybe stabilized at a high level. So I think people are doing a job, a good job of catching up in what the bodybuilder capacity has been and is. So they're getting that sorted out is what it feels like David. Obviously there's some components on vocational trucks that are unique and some of those are in tight supply right now, which sends some throttle on it. Speaker 200:25:12All of that together means that I think 2025 will continue strong in the vocational sector. There's still infrastructure spending. The country is doing well. And so I would expect vocational to remain a strong point for us. And as you well know, right, we have over 40% market share in that sector. Speaker 200:25:27So that will be good for PACCAR in 2025. And coming back around to your first question, we have a great relationship with Cummins. We build our own engines. We are well positioned for today's emission standards as well as the upcoming emission standards and feel like we'll be able to offer our customers the right products for the upcoming markets and don't have any concerns about how that's going to play out. Speaker 1200:25:54Okay. I'll leave it there. Thank you so much. Speaker 300:25:56Great. Operator00:26:02Our next question comes from Jerry Revich with Goldman Sachs. Please go ahead, Jerry. Speaker 1300:26:09Yes. Hi. Good morning, good afternoon, everyone. I'm wondering if you can just talk about on the cost side, your teams have been sprinting really hard to get trucks out the door when supply is tight. And I'm wondering based on the cost of materials that are now flowing through the factories, when do you think we could see per truck costs actually coming down? Speaker 1300:26:33And if the current steel price cost curve holds in particular, do you think we could be looking at per truck cost potentially tailwind at some point in early 2025 on a year over year basis? Speaker 200:26:49Gary, that's a possibility. I think there's a little bit of labor that factors into here too that you've looked at on a year over year basis, which is something that's been incurred by the industry as a whole, including our supply base much written about. So I think we'll just have to watch how those two things interplay with each other in the coming 6 months. Speaker 1300:27:07So and then in terms of the mix of what you folks have in backlog, can you talk about that? You mentioned earlier in the conversation, the margin step down has been driven a large by mix of product. How does the mix of what you folks have left in backlog look compared to what we shipped this quarter? Speaker 200:27:32Yes. We still see the same ratios of really strong truck versus tractor production. Truck production is still running around 50%. So that's above a historical number, but very good numbers for us. Speaker 1300:27:46And you folks have improved your truck profitability significantly cycle over cycle. In the past, we've seen margins peak to trough, truck gross margins range from 400 to 1,000 basis points peak to trough. How do you think the higher margin profile that you folks have now will translate into truck cyclicality going forward? What's the impact on fixed versus variable cost versus history? Any comments that you care to make on that question? Speaker 200:28:20Sure, Jerry. I think it's a great observation on your part. I think that what we see is the company is performing at a structurally stronger level. I think that's because of the great investments and the efforts of the team to provide excellent products for our customers. I mean they really are helping our customers make money and they are desired by the drivers. Speaker 200:28:37So that's a nice position to be in. I think PACCAR's lean culture and operating disciplines are healthy and good for the company and good for our operating performance, good for our customers in terms of us being a lean operating company and good for our shareholders. So you're right in making the observation and we think that observation will hold true. Speaker 1300:29:02Okay. And lastly, some of your competitors are talking about some pretty small incremental cost increases on EPA 2027 versus what most of us expect. I'm wondering if you could just weigh in on your expectations, especially since you're already up and running in California. Can you talk about what you folks are seeing and expecting? Speaker 200:29:26Yes, sure. First of all, I see you even observed the fact that we have a certified engine in California as we're the 1st manufacturer to do that. So we're well positioned for any of the regulatory to do that. So we're well positioned for any of the regulatory conditions that we encounter. Our thoughts is it could be in the 10,000 to 15,000 range right now subject to change, depends on what the regulatory agencies do, but that feels like the right framing point for the cost as we look at 2027. Speaker 300:29:49And Jerry, bear in mind, it's not only about material cost, it's also the extended warranties that kick in with EPA-twenty 7. This will have an effect on the cost levels as well. Speaker 1300:30:02Absolutely. Thank you, everyone. Speaker 200:30:05You bet. Great questions. Operator00:30:11Our next question comes from Tim Syme with Raymond James. Tim, please go ahead. Speaker 600:30:18Great. Thank you. First one, Preston for you. Maybe I'm just curious in terms of the conversations that you and the team are having with your truckload customers as and you think about kind of the order progression as we go in coming months, it seems and I don't know if you would agree with this and obviously you've lived through lots of these truck cycles over time. But just with respect to kind of this election uncertainty and the range of political and kind of regulatory outcomes that may come about, I'm just curious, do you think there's more I mean, there's always this notion of there's a kind of a wait and see around the election, but it does seem like from our standpoint anyway, maybe this year is a little bit greater. Speaker 600:31:08So I'm curious, can you share that thought? And if so, would you you think it's fair that maybe there's a potential for more of a delayed order cadence as we look into 2025? Speaker 200:31:24I think that we have some really smart customers and our observations in those conversations is they think very clearly about their economic conditions that they're operating in. And I think they know that there needs to be a steadiness to their buying cycle of trucks because it's good for their operating models. And so they've been probably reluctant on the truckload side to be able to make the capital truck purchases they wanted for the last little while just based upon rates. And I think they're kind of hopeful that that's going to change. And I think far more important than anything like an election is when those rates change, then they will probably increase the cadence of their buys. Speaker 200:32:02And I think that that's what they're thinking about. Speaker 400:32:07Got Speaker 600:32:07it. Okay. And then just with respect to the deliveries in North America, it seems from some of the 3rd party data that maybe the Q3 you had a little bit heavier on medium duty relative to heavy duty. Is there any normalization that may occur in Q4 or is that is it not enough to call out in terms of from a mix perspective as you think 3Q to 4Q? Speaker 200:32:37Harry, you were talking you and I were talking about that, weren't you? Speaker 300:32:39Yes. So medium duty volumes Speaker 200:32:41were a little bit higher Speaker 300:32:42in the Q3 with some catch up, mirror related to some extent. So in the Q4, we expect a more normal medium bird savvy mix than like we used Speaker 600:32:54to see. Got it. Okay. And I assume, Harry, that there's not the implications from a profit perspective aren't what they would have been several years ago, just given the improvement in medium beauty side. Is that fair? Speaker 300:33:12The margins on our medium beauty products are well in line with the heavies these days. Nice observation, Tim. As a percentage, they're smaller trucks, but the percentage is very similar. Speaker 600:33:23All right. Thank you. Operator00:33:31Our next question comes from Carl Menjes with Citi. Carl, please go ahead. Speaker 600:33:39Thank you. Speaker 1400:33:39I was just curious on the R and D guide for next year, just how do we interpret the step up in R and D guidance for next year, especially given market we could be in kind of a flat to slightly up market global market for you guys next year? Speaker 200:33:58Well, if you think about where we're at this year and if you took a midpoint at 460 and then you said if you took the midpoint on something like 5 or a little over 500, it's not that big of a change. And the way we think about R and D is when we have important good projects to work on, be they powertrain or new truck systems or connectivity or electronics or all the things that will make our trucks more profitable for the customers, then we make those investments and this is the right level of R and D investment for that. Speaker 1400:34:25Got it. And then I know you've talked about a strong vocational market into next year, more related to Class 8, but just any thoughts on how we be thinking about the medium duty market next year in North America? Speaker 200:34:40I think we should see a healthy medium duty market again next year in North America as well. I think it's been good this year and there is as you just kind of indicated, there's some portion of that which hits into the vocational market. But overall, it should be a good market remain a good market is probably the right way to say it, Kyle. Speaker 600:34:58All right. Thank you. Speaker 200:35:01You bet. Operator00:35:06The next question comes from Chad Dillard with Bernstein. Chad, please go ahead. Speaker 400:35:13Hi. Good morning, guys. I just have Speaker 200:35:16a question Speaker 400:35:16for you on hey, how are you? So just a question for you on what you're embedding for your 25 North America truck guide. Just trying to think through the split between vocational versus tractor. I think you mentioned your truck was about 50% to 24%. Is that the same or a little bit higher? Speaker 400:35:35Any pre buy embedded? And then I think you mentioned that the progression of price cost will go into a worse than 25%. So is it fair to say that the Q4 is probably the trough for TPNO gross margins? Speaker 200:35:50I think what we'll expect to see is that the vocational market remains strong, but there's probably a pickup in the truckload sector. So the ratio of tractor to truck might move around a little bit towards heavier tractor as we go through the year next year. See how that starts and when that takes effect as you mentioned. But I think that what we're seeing now as we said as we started this year in a really strong position, we're finishing at a point where the truckload carriers are still feeling tension. And as we get into next year, into 2025, they're going to want to continue to buy trucks, keep their fleets at the right ages. Speaker 200:36:22And so we'll see some increase in the truckload purchases throughout the year. Timing for that, we'll see. Speaker 400:36:30Got it. Okay. And then a second question for you on the FINCO business. Just how should we think about that going into the end of the year and in 'twenty five? And more specifically, just looking at like the interest and other borrowing expenses, it seems like there's a big step up and just trying to think through how that evolves? Speaker 300:36:48The finance company continues to show strong performance. We have a very healthy portfolio of mainly A and B customers. Past dues remain low, seeing a little credit losses, but that's normal at this point in the cycle. So as we get into next year, we will continue to see strong performance of the finance company. Interest rates, we are time hedged there. Speaker 300:37:15So we issue medium term notes in line with the leases and the financing contracts that we offer. So we don't have a lot of exposure there. Speaker 1500:37:25And the portfolio this is Bryce. I'd just like to add that our portfolio is growing very nicely because we have a market right now where the banks are getting out at times and we're seeing a little bit less competition. Our market share is up actually nicely here in quarter and we expect strong continued performance in our business here. Speaker 400:37:47Great. Thank you. Operator00:37:55The next question comes from Jeff Kauffman with Vertical Research Partners. Please go ahead, Jeff. Speaker 1000:38:01Thank you Speaker 1600:38:04very much. Hey, everybody. Speaker 400:38:07I want to talk Speaker 1600:38:08a little bit about thank you, thank you and congratulations. I want to talk a little bit about the South American growth is going to be exceeding that in the near term for North America and Europe. Does this at all change the specs on the trucks in terms of what you're seeing and how that might affect ASP? Speaker 200:38:34If you think about the trucks specific to Brazil, which is the largest market in South America we're participating in, is it that really is the dock truck that we're using there. So and that truck is kind of effectively the same truck as we get in Europe. And we have had to put together certain specs for them where they're operating in different operating conditions, more 6x4s, more sugarcane kind of applications, lumber hauling applications. So it's a bit of heavier duty. So maybe the selling price is a slight bit higher there. Speaker 200:39:01But in general, I tend to think about them like a European truck. Speaker 1600:39:07Okay. And then as we transition in 2025, at some point to a market where maybe truckload LTL is growing a little faster than vocational and international. How might that be affecting ASP as we work our way through 2025? Speaker 200:39:29And I wouldn't put too much energy into trying to figure out the nuance to that if it was me. I think that you could obviously think that a high content vocational truck is more expensive than a maybe a standard 6x4 tractor, but I wouldn't probably try to parse that together. Speaker 300:39:47There's probably Speaker 500:39:48a Speaker 300:39:48higher variety and a bigger range in prices for vocational trucks than you would see for on highway. Yes. Speaker 200:39:54And then if you keep the vocational segment and you start thinking about the medium duty participation in that, I think you'd have a hard thing to kind of suss out there. Speaker 1600:40:02No, fair enough. I was just looking for some context and that's fine. So that's my one question. Speaker 200:40:08Great question. Thanks, Jeff. Good to talk to you. Operator00:40:19Our next question comes from Michael Feniger with Bank of America. Please go ahead, Michael. Speaker 600:40:25Great. Yeah. Thank you, gentlemen, for taking my questions. Just you guys have really been investing in the business, in your trucks, in your facilities. I'm just curious how much more capacity can you bring on to serve the U. Speaker 600:40:39S. Market? Is it 10% to 15%? Is it 20% more than what you guys could do previously? And is this higher capacity? Speaker 600:40:46Is this available in 2025 in the second half if we see that ramp? Or is this more of a 2026 that you guys can raise capacity in some of these facilities? Speaker 200:40:58Hey, Mike, thanks for the comments. They're nice to hear. The thing we're doing with our capital expenditures, as we noted, is we are making investments in the factories and that's not a new thing, right? We've been doing that over the past few years in anticipation of where the markets will be in our growth. So some of those capacity investments are in and complete, others are underway. Speaker 200:41:16So we have all the capacity we need for the markets in the coming years. We will not be capacity constrained and we do anticipate growth. So that feels really positive. Speaker 600:41:27Okay, helpful. And then just I guess the last question. You guys talked a little bit about a normalization in the used market in North America, a little weaker in Europe. So maybe you can kind of flesh that out. And I'm curious if the spread between the new price for a truck, let's say, in 2025 versus what you're seeing for a used truck right now, is that spread kind of normal? Speaker 600:41:49Is it wider than usual? Just curious if you guys are seeing anything there in the market? Thank you. Speaker 300:41:57As the used truck market normalizes, also that spread becomes more normal. Speaker 200:42:06If I was to think about it, I would think that what we've seen is, as we said, is used truck prices have found their space right now. And I think the trucks in the used market will look pretty good to us in 2025. And like we said, we also expect the new trucks to improve in 2025 in terms of market outlook. So it feels like they're staying together, right? There's not a big separation between new and used. Speaker 300:42:30And just looking at our inventory position in North America, that new truck inventory is at very, very healthy levels for us. So that gives us confidence that we'll be able to operate at good levels there. Speaker 600:42:45That is helpful. Thanks, gentlemen. Just the last one to squeeze in. Just on parts, I'm curious if there's anything you guys would call out that's weighed on the margin for parts that might normalize or go away next year? Like if next year, parts are up 5%, do you think the profit for parts can grow more than 5%? Speaker 600:43:08Just kind of curious on the puts and takes of what you guys have been seeing the last this year and how we think about that for 2025? Thank you. Speaker 200:43:17Yes. That's a good question, fun to think about. I think as we noted in our comments, right, there is a smaller overall aftersales market in 2024. So purely the number of parts overall has gone down that are being sold, but the parts team has grown the business even in that environment. So I think as the overall aftersales market picks up with increased freight activity, that will be good for the business and should be a tailwind for us. Speaker 200:43:52Emily? Operator00:43:55Our next question comes from Scott Group with Wolfe Research. Scott, please go ahead. Speaker 1500:44:01Hey, thanks guys. I just want to follow-up on the some of the gross margin commentary. So you had a comment that first half would be pressured and then improve in the second half next year. I'm wondering, was that a year over year or a sequential comment? Meaning, do we see further sequential gross margin pressure in the first half from where we are now? Speaker 1500:44:25Or was that just purely a year over year comment? Speaker 200:44:30Yes, Scott, you might have heard more than we said even there. I think what we actually said was we feel like we will see improvement through the course of 2025. I can't be so specific to know how that's going to play off, but it does feel like it will be a mirror image of this year. So the strength we saw in the first half in 2024 will be and then the normalization in the 3rd, Q4 here likely will be inverted as we get into 2025, but the specifics of that, they're hard to detail out. Speaker 1500:44:59Yes. I mean, ultimately, I'm trying to figure out if you think that this Q4 is the bottom for gross margin. Speaker 200:45:10Yes, I think I understand that. And I think your intuitions aren't far off. Speaker 1500:45:20Okay. And then just lastly, any thoughts on how you're sort of thinking about approaching the market next year? Is it in terms of market share growth or a little bit more focused on price? How are you balancing that for next year? Speaker 200:45:39We like to see market share growth and we like to see ourselves perform well as a company for our shareholders. So we'll be pursuing both of those next year. Speaker 1500:45:47Okay. Thank you, guys. Speaker 200:45:50You bet. Operator00:45:57Thank you. There are no other questions in the queue at this time. Are there any additional remarks from the company? Speaker 100:46:06I'd like to thank everyone for joining the call and thank you, Emily. Operator00:46:13Thank you everyone for joining us today. This concludes our call and you may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallPACCAR Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) PACCAR Earnings HeadlinesEarnings Outlook For PACCARApril 29 at 10:31 PM | benzinga.comTruckmaker PACCAR's first-quarter results slump on sluggish demandApril 29 at 10:31 PM | msn.comURGENT: This Altcoin Opportunity Won’t Wait – Act NowThe July 23rd Crypto Trigger Could Mark the Beginning of Bitcoin’s Next Big Move Bitcoin’s early 2024 ETF rally made headlines—but according to veteran crypto strategist Joel Peterson, the real wave of opportunity is about to start… and it hinges on one little-known event scheduled to take place on July 23rd.April 30, 2025 | Crypto Swap Profits (Ad)PACCAR (NASDAQ:PCAR) Misses Q1 Sales Targets, Stock DropsApril 29 at 10:31 PM | msn.comPACCAR Declares Regular Quarterly Cash DividendApril 29 at 5:20 PM | businesswire.comPACCAR Inc (PCAR) Q1 2025 Earnings Call TranscriptApril 29 at 3:04 PM | seekingalpha.comSee More PACCAR Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like PACCAR? Sign up for Earnings360's daily newsletter to receive timely earnings updates on PACCAR and other key companies, straight to your email. Email Address About PACCARPACCAR (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.View PACCAR ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Alphabet Rebounds After Strong Earnings and Buyback AnnouncementMarkets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Texas Instruments: Earnings Beat, Upbeat Guidance Fuel RecoveryMarket Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial Earnings Upcoming Earnings Automatic Data Processing (4/30/2025)Equinix (4/30/2025)KLA (4/30/2025)Meta Platforms (4/30/2025)Microsoft (4/30/2025)QUALCOMM (4/30/2025)Aflac (4/30/2025)Allstate (4/30/2025)Caterpillar (4/30/2025)Canadian Pacific Kansas City (4/30/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 17 speakers on the call. Operator00:00:00Good morning, and welcome to PACCAR's Third Quarter 2024 Earnings Conference Call. All lines will be in a listen only mode until the question and answer session. Today's call is being recorded. And if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Operator00:00:18Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead. Speaker 100:00:26Good 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 Feitz, Chief Executive Officer Harry Skippers, President and Chief Financial Officer and Bryce Poplotsky, 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. Speaker 100:00:54Certain 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 Brettson Feit. Speaker 200:01:11Thanks, Ken. Good morning, everyone. Harry, Bryce, Ken and I will update you on our excellent Q3 financial results and other business highlights. I'd like to start by thanking PACCAR's wonderful employees who deliver PACCAR's high quality trucks and transportation solutions to our customers all around the world. PACCAR earned a strong $972,000,000 on revenues of $8,200,000,000 for an industry leading after tax return on revenue of 11.8 percent. Speaker 200:01:40PACCAR Parts 3rd quarter revenues increased 5% to $1,660,000,000 and pre tax profits were 407,000,000 dollars PACCAR Financial earned pre tax income of $107,000,000 in the 3rd quarter. We estimate this year's U. S. And Canadian Class 8 market to be around 260,000 trucks and next year to be in the range of 250,000 to 280,000 vehicles. The vocational segment where Peterbilt and Kenworth are the market leaders is strong and is expected to remain strong with continued infrastructure investments. Speaker 200:02:16The less than truckload market is performing well, while the truckload segment seems to have stabilized. Peterbilt and Kenworth's combined Class 8 share has increased from 29.5% to 31.1%. Kenworth and Peterbilt's dealer inventory is a healthy 2.9 months. Kenworth and Peterbilt increased their medium duty market share in the 1st 9 months of this year to 17.2% compared to 14.5% last year. In Europe, this year's truck industry registrations in the above 16 tons segment are estimated to be around 300,000 vehicles. Speaker 200:02:57The 2025 market is expected to be in the range of 270,000 to 300,000 trucks. Last month at the IAA Truck Show in Germany, DAF introduced its new 2025 lineup of trucks, which improve fuel economy by 3% and use advanced driver assistance systems to enhance safety. In addition, the 2025 vehicles feature PACCAR's connected truck solutions, which bring great value to the customer. The South American above 16 ton market is projected to be in a range of 110,000 to 120,000 trucks this year and in a similar range next year. PACCAR's premium lineup of trucks are performing well for customers in South America, especially in the important Brazilian market. Speaker 200:03:43PACCAR and its dealers are delivering excellent trucks and transportation solutions to our customers and we are excited about the future. Thank you. Harry will now provide an update on PACCAR Parts, PACCAR Financial Services and other business highlights. Harry? Speaker 300:03:57Thanks, Preston. PACCAR delivered 44,900 trucks during the Q3. We expect 4th quarter deliveries to be around 42,000 vehicles. More production days in Europe will be offset by fewer production days due to normal holidays in North America and some supplier related limitations. Pega parts delivered 3rd quarter gross margins of 30.1%. Speaker 300:04:25Parts quarterly sales grew by 5% compared to the same period last year and are expected to grow around 4% in the 4th quarter. Pega Parts' focus on expanding its customer base and providing a full range of transportation solutions is delivering sales growth in a smaller aftersales market. Pega Parts just opened a new distribution center in Maersbach, Germany. This new distribution center increases the number of dealers and customers benefiting from receiving parts on the same or next day in the important German market. Truck Parts and Other gross margins were 16.6% in the 3rd quarter. Speaker 300:05:11We anticipate 4th quarter gross margins to be in the range of 15.5% to 16%. Becker Financial Services results in the 3rd quarter benefited from excellent portfolio quality. Pretax income was $107,000,000 The used truck market has normalized in North America, while remaining soft in Europe. PACCAR Financial is a market leader in supporting customers with innovative technologies that provide seamless credit application and loan servicing processes. PACCAR's net income Speaker 400:05:49of Speaker 300:05:49$3,300,000,000 in the 1st 9 months of this year generated a strong $3,200,000,000 operating cash flow. PACCAR's return on invested capital was an excellent 25% in the 1st 9 months of this year. This year's capital expenditures are projected to be between $760,000,000 $800,000,000 and research and development expenses will be $450,000,000 to $470,000,000 Next year, we estimate the company will invest $700,000,000 to $800,000,000 in capital projects and $480,000,000 to $530,000,000 in research and development projects. PACCAR continues to expand manufacturing capacity at our factories in Europe, United States, Mexico, Brazil and Australia. These investments are supporting PACCAR's growth as well as our customers' success. Speaker 300:06:50PACCAR's investments in its premium truck lineup, efficient manufacturing capacity, best in class parts and financial services businesses and the continued development of advanced technologies position the company for industry leading performance in all phases of the business cycle. Thank you. We would be pleased to answer your questions. Operator00:07:42Our first question comes from the line of Steven Volkmann with Jefferies. Steven, please go ahead. Speaker 500:07:49Thank you so much. Good morning and good afternoon. I'm curious if we can talk a little bit about what you're seeing on the pricing side. I know we need to normally wait for the Q to get a sense of that, but if you can give us a quick preview of what we're seeing in pricing and kind of how you're expecting that to flow through in the Q4 as well? Speaker 200:08:13Sure. If you think about price cost, it's kind of price was flat in Q3 and costs were up 3%. So when I think about that's on the truck side. If you think about how we look forward at that, we think that the vocational market is going to remain strong. We think the less than truckload market is doing really well in addition. Speaker 200:08:32And then the truckload sector still seems to be feeling its pressure, but it does seem to have stabilized. And so we're kind of starting to see signs that maybe that tension will release over the coming months and next year, which could be good for us in terms of price versus cost as we look into next year. Speaker 500:08:53Okay, good. Maybe that starts to answer my follow-up, which is that I'm curious, overall, you're sort of flattish globally with your market forecast for next year. Maybe you'll gain a little bit of market share like you usually do. But that Q4 run rate of 15.5% to 16.% gross margin, is that a good sort of base to think about for 2025? Or is there something that could move that one way or the other? Speaker 500:09:20Thanks. Speaker 200:09:22I think if you go and look at what's been going on this year, right, the year started exceptionally strong in all sectors. And I think maybe the truckload cares about a tougher road to hold for a little while here. Maybe what you'd expect to see in 2025 is a mere image of that where the year starts a little bit like it's finishing and then accelerates I think from there. Timing exactly, I don't know that. But it does feel like that's where we're starting to see the stabilization for the truckload sector, just significant. Speaker 200:09:49And so we would expect to see some growth over the coming year. Speaker 500:09:55Super. Thank you. I'll pass it on. Speaker 600:09:58All right. Operator00:10:02Our next question comes from the line of Rob Wertheimer with Melius Research. Please go ahead. Speaker 700:10:08Hi. Thanks. Hi, Rob. Speaker 200:10:10Good morning, guys. So I guess Speaker 700:10:13just to follow-up on the question, You look at gross margin still at very healthy levels really historically, but down sequentially. Price was kind of flat you said year over year and costs creep up a little bit. Is there anything that really should otherwise be called out in the sequential move in gross margin? Thank you. Speaker 200:10:32I don't think there's anything different that I would call out for that. I think the thing that's been really good for us is the product introductions we've done over the past few years. I mean, it's just stunning how great the trucks are right now. The fuel economy is outstanding. The reliability is outstanding. Speaker 200:10:46I mean, the customer desire for the trucks is very high as well. So I think that what we'll see is people's desire to have those trucks as the market opens up. Speaker 700:10:58All right, perfect. And then I've asked you this before, and I'm not sure you'll give me a different answer now, but your differentiation is pretty good in vocational. I mean, it's a product that has a lot more has variability to it, let's say, and you guys are real leaders there. Is that at all a margin tailwind for you into next year? Speaker 200:11:18Yes, it's a very good point, Rob, and yes, it is. I would say that's a positive statement to make. I think one of the things that we look at right now is our inventory is in very good shape as we mentioned. And over half of our inventory is vocational trucks that are at bodybuilders right now. So we feel well positioned overall with inventory and then we know that our vocational inventory is strong. Speaker 200:11:37We feel like that is good for our business. Speaker 700:11:41And then vocational can be up next year and I'll stop there. I apologize. Thank you. Speaker 200:11:45I think vocational will continue to run strong next year. Speaker 700:11:54Thank you. Speaker 200:11:56You bet. Operator00:12:02Our next question comes from the line of Steven Fisher with UBS. Steven, please go ahead. Speaker 800:12:10Thanks. Good morning. You mentioned that your inventory is what you'd characterize as healthy at 2.9 months. I guess, can you talk about where that 2.9 months is relative to your ideal targets for this point in the cycle? Do you think there's sort of inventory reductions that you have to make? Speaker 800:12:31And just curious kind of what you're seeing from competitors in that perspective? And are they needing to take inventory out? And is that putting some price pressure into the market? Speaker 200:12:46Well, I'll let them talk about their inventory positions. But for our inventory position, we feel very good at 2.9 months. That's a very healthy level for us, especially as I mentioned to Rob, the fact that our vocational inventory takes up a chunk of that. So we feel quite comfortable with our inventory levels and our build rates being well positioned. Speaker 300:13:02And it's even come down a little bit during the quarter. At the end of June, we were at 3.3 months and currently we're at 2.9 months. Speaker 800:13:13Okay. And then just you mentioned about some potential reacceleration in the second half of the year. How are you thinking about the concept of a pre buy at this point? Is that kind of at all in the thinking or is it more just sort of the freight market recovering? And if it's a pre buy in your thinking, what do you think it will take to kick start that? Speaker 800:13:38Is it just timing and getting closer to another 'twenty six, 'twenty seven timeframe? Or does it actually also require some degree of improvement in the freight market? Speaker 200:13:49I think we're going to see some improvement in the freight market. Some of the carriers have started to leave the market, which is something that's been anticipated, I would say. I also think that as you think about it, there will be people's trucks have gotten older and there will be people interested in making sure they're buying enough trucks for the next several years. So that's going to take an effect I think as we go through 2025 and add to 20 25's growth. Okay. Speaker 200:14:19Thank you very much. You bet. Operator00:14:27Next question comes from the line of Tami Zakaria with JPMorgan. Tami, please go ahead. Speaker 900:14:35Hi, thank you so much. So my first question is on Europe. So your outlook for next year, I think it's down 5% at the midpoint for retail sales. And this year, your deliveries are down more than the retail sales expectation. So as we think about next year, do you plan on delivering to demand? Speaker 900:15:03Or do you expect to under produce even next year? So how should we think about production in Europe next year? Speaker 300:15:12But, Tammy, yes, European volumes have been down a little bit more than the market this year. That was really strong in Central and Eastern Europe, where the market has been more affected by the war in Ukraine and the economy is a lot slower there than in some other parts of Europe. We expect things to continue at that pace more or less into as we enter next year. And then we'll see how it progresses during the year. Speaker 200:15:41Yes, exactly what Harry said. And I think the other thing is the team in Europe has done a great job on price discipline with the great new trucks. And so I think those two things combined is we feel pretty well positioned in Europe too that we will build to demand next year. Speaker 900:15:57Got it. That is very helpful. And my second question, going back to pricing, I think you said flattish this quarter. Just trying to get a sense of did you open order books for next year? If so, what any reads on what pricing you're seeing for next year? Speaker 200:16:19Sure, Tammy. I mean, obviously, it's not so binary as opening and closing the order books, but we did have a significant engagement with a bunch of customers at the recent ATA show. So if you wanted to call that the normal cadence of fleets thinking about their purchases. We had great conversations with them, a lot of enthusiasm for the trucks and kind of an expectation of purchases next year. I think they're obviously because of the condition they're all in, it puts some price cost tension into the world right now. Speaker 200:16:47But I also feel like that's going to relieve find some relief as we go into 2025. Speaker 900:16:55Got it. Thank you. Operator00:17:01The next question comes from Angel Castillo with Morgan Stanley. Angel, please go ahead. Speaker 1000:17:09Hi, good morning and thanks for taking my question. Just wanted to go back to the margin conversation, in particular, just understanding the price cost dynamics. So you came in ahead of your expectations on total units for the Q3 and price seems to be maybe relatively stable, all things considered. But the 16.6% margin implies decrementals on a pretax basis of over 50%, which is kind of above the levels that I think of as kind of normal. So was there anything that surprised to the upside or that's leading to kind of higher decrementals than you would have typically expected? Speaker 1000:17:45And then similar kind of line of question for 4Q in terms of help us kind of bridge the gap like it's not price degradation, what's kind of causing the margin contraction? Speaker 200:17:56I don't know, Harry, you want Speaker 100:17:56to take a swing? Yes. I think mostly Speaker 300:18:01any difference with what we saw a quarter ago would be at the cost side, where we had some cost elements. There were some supplier issues at that point in time, some other operating costs. So maybe the cost side was the difference, if you want to point to something? Speaker 100:18:18Also lower volumes. Yes. Speaker 200:18:22But I think when we're looking at that, we are looking at the totality of this thing. And it feels like these are pretty healthy levels for us given this point in the cycle and where we see ourselves sitting. So it feels pretty good. Speaker 1000:18:35Got it. And then maybe, similar dynamic or just a conversation around the parts profitability. Just what do you see there in terms of that business as you think about, as we go into 2025, just in terms of profitability? It seems like it's stepped up nicely in the or it kind of remained relatively stable, I guess, from 2Q to 3Q. But that was an area that we're seeing a little bit of softness as we were talking about it last quarter. Speaker 1000:19:02So just what's kind of the ongoing trends there? Speaker 200:19:05I think the macro thing to think about in the parts market right now is that there's a smaller overall after sales market this year. And our team has just done a tremendous job of holding excellent margins in that smaller market and seeing growth in fact, right, as we talked about 5% growth this quarter. So I couldn't be more happy with the work they're doing, the systems they're bringing in, the new PDCs they're opening and how closely they're working with all the customers to grow that business. So a great story there for the parts team. Speaker 400:19:38Thank you. Operator00:19:44The next question comes from Jamie Cook with Churit Securities. Jamie, please go ahead. Speaker 1100:19:51Hi, good morning. Sorry, just to follow-up on the parts aftermarket. Can you comment specifically what price cost was like you did for truck? That would be helpful. And then I guess my other question would be, as you think about trucks, you said price flat, cost up 3%. Speaker 1100:20:11Was there any major variances sort of by region? And there's been this thesis that everyone would act more rational this cycle as some of your peers are now spun off public companies? Just any comment on what how you're seeing behavior sort of this cycle versus previous cycles? Thank you. Speaker 300:20:32So starting with parts, Jamie, for parts, price was up 3% and cost was up 4% in the quarter. And your other question was about Speaker 200:20:42Yes. I think if you think about the disciplines of the all the other OEMs being public, Listen, it's a competitive world, but PACCAR has this advantage of having premium products that people really do desire. And so the team has close relationships with the customers and feel like it puts us in a good position. And as we noted in the beginning of our commentary, we have best in class performance because of the performance of our products for our customers and we expect that will continue. Speaker 1100:21:08I guess just a follow-up question Preston, understanding your outlook for 2025 and it sounds like things should get better in the back half of the year. As we progress through the cycle and we get a pre buy ahead of 2027, is there any reason to believe PACCAR cannot deliver above average incremental margins like you did prior to this most recent sort of mini downturn given just the new product introductions etcetera? Speaker 200:21:37Yes. No, Jaeme, it's a great question, a great way to frame it. I like the way you frame it. I think we can deliver excellent performance in the coming years. So I agree with you. Speaker 900:21:48Thank you. Speaker 600:21:50You bet. Operator00:21:56The next question comes from David Raso with Evercore ISI. David, please go Speaker 200:22:01ahead. Yes. Speaker 1200:22:02Thank you for the time. I have one short term, one maybe a little bit longer term. On the builds sorry, deliveries for the 4th quarter, the 42,000, the geographic composition of that, obviously, historically, Europe will step up. Are we saying even with the extra days in Europe, we won't get a step up in Europe? So that's sort of flattish and maybe other is flattish and sequentially U. Speaker 1200:22:25S, Canada is the down 11% to get us to 42%. I'm just trying to be thoughtful about the geographic mix when I think about the margins. Speaker 200:22:35Yes. I think, David, you're not off on that. I think that it's relatively flattish, 3Q to 4Q for Europe. And, again, we've gotten our inventory in a very good position there. And then I would expect that we're maybe it's up slightly even and then we're going to see in the what we're going to see for the U. Speaker 200:22:51S. Is a normal holiday cadence. And obviously, there was a couple of hurricanes that came through, which did affect some suppliers. And so we're working through that right now with them. And the supply base is doing a great job of sorting that out and it's just something we got to kind of sort out as a team. Speaker 300:23:05On a per day basis, Europe is flattish going into the Q4, but the more production days, I think it provides a couple of 1,000 more trucks in Europe compared to the 3rd quarter in the Q4. Speaker 1200:23:19Well, that's the whole thing. If it's a couple of 1,000 more to keep the whole company down to 42, I'm just trying to figure out is North America, sorry, U. S. And Canada down 20 sequentially? I'm just trying to get a sense of the magnitude. Speaker 1200:23:34That could explain the margin pressure a little bit in the mix. Speaker 300:23:36Not 20%, but there's what is it, 7 or 8 fewer working days in the Q4 in North America. Speaker 1200:23:43Okay. That's helpful. And then on the issue of the pre buy, I'm sorry, go ahead, Preston. Speaker 600:23:49No, go ahead. Speaker 1200:23:52Well, I was just moving on to the second question I had about the pre buy. A major engine supplier we hear could be pulling their engine for 20 27 earlier, which could actually inspire maybe some buying of their engine in 2025. So I just wanted to see if you'd enlighten us on that at all, if that is maybe what's playing out, which could help 2025. And then second on the inventory for the vocational, you mentioned the bodybuilders who continue to be a bottleneck. So the inventory sitting out there in vocational does lead argue have a customer, they're just the bottleneck of the bodybuilder to finish off the job. Speaker 1200:24:27Is there something going on with the bodybuilders that can sort of break that through a little bit? And if not, is the level of vocational trucks sitting there waiting for a bodybuilder an impediment to you being able to grow your vocational business more in 2025? Speaker 200:24:45Yes. I think that what you've seen is there was this impulse throughout 2024 in the vocational market and I think that's maybe stabilized at a high level. So I think people are doing a job, a good job of catching up in what the bodybuilder capacity has been and is. So they're getting that sorted out is what it feels like David. Obviously there's some components on vocational trucks that are unique and some of those are in tight supply right now, which sends some throttle on it. Speaker 200:25:12All of that together means that I think 2025 will continue strong in the vocational sector. There's still infrastructure spending. The country is doing well. And so I would expect vocational to remain a strong point for us. And as you well know, right, we have over 40% market share in that sector. Speaker 200:25:27So that will be good for PACCAR in 2025. And coming back around to your first question, we have a great relationship with Cummins. We build our own engines. We are well positioned for today's emission standards as well as the upcoming emission standards and feel like we'll be able to offer our customers the right products for the upcoming markets and don't have any concerns about how that's going to play out. Speaker 1200:25:54Okay. I'll leave it there. Thank you so much. Speaker 300:25:56Great. Operator00:26:02Our next question comes from Jerry Revich with Goldman Sachs. Please go ahead, Jerry. Speaker 1300:26:09Yes. Hi. Good morning, good afternoon, everyone. I'm wondering if you can just talk about on the cost side, your teams have been sprinting really hard to get trucks out the door when supply is tight. And I'm wondering based on the cost of materials that are now flowing through the factories, when do you think we could see per truck costs actually coming down? Speaker 1300:26:33And if the current steel price cost curve holds in particular, do you think we could be looking at per truck cost potentially tailwind at some point in early 2025 on a year over year basis? Speaker 200:26:49Gary, that's a possibility. I think there's a little bit of labor that factors into here too that you've looked at on a year over year basis, which is something that's been incurred by the industry as a whole, including our supply base much written about. So I think we'll just have to watch how those two things interplay with each other in the coming 6 months. Speaker 1300:27:07So and then in terms of the mix of what you folks have in backlog, can you talk about that? You mentioned earlier in the conversation, the margin step down has been driven a large by mix of product. How does the mix of what you folks have left in backlog look compared to what we shipped this quarter? Speaker 200:27:32Yes. We still see the same ratios of really strong truck versus tractor production. Truck production is still running around 50%. So that's above a historical number, but very good numbers for us. Speaker 1300:27:46And you folks have improved your truck profitability significantly cycle over cycle. In the past, we've seen margins peak to trough, truck gross margins range from 400 to 1,000 basis points peak to trough. How do you think the higher margin profile that you folks have now will translate into truck cyclicality going forward? What's the impact on fixed versus variable cost versus history? Any comments that you care to make on that question? Speaker 200:28:20Sure, Jerry. I think it's a great observation on your part. I think that what we see is the company is performing at a structurally stronger level. I think that's because of the great investments and the efforts of the team to provide excellent products for our customers. I mean they really are helping our customers make money and they are desired by the drivers. Speaker 200:28:37So that's a nice position to be in. I think PACCAR's lean culture and operating disciplines are healthy and good for the company and good for our operating performance, good for our customers in terms of us being a lean operating company and good for our shareholders. So you're right in making the observation and we think that observation will hold true. Speaker 1300:29:02Okay. And lastly, some of your competitors are talking about some pretty small incremental cost increases on EPA 2027 versus what most of us expect. I'm wondering if you could just weigh in on your expectations, especially since you're already up and running in California. Can you talk about what you folks are seeing and expecting? Speaker 200:29:26Yes, sure. First of all, I see you even observed the fact that we have a certified engine in California as we're the 1st manufacturer to do that. So we're well positioned for any of the regulatory to do that. So we're well positioned for any of the regulatory conditions that we encounter. Our thoughts is it could be in the 10,000 to 15,000 range right now subject to change, depends on what the regulatory agencies do, but that feels like the right framing point for the cost as we look at 2027. Speaker 300:29:49And Jerry, bear in mind, it's not only about material cost, it's also the extended warranties that kick in with EPA-twenty 7. This will have an effect on the cost levels as well. Speaker 1300:30:02Absolutely. Thank you, everyone. Speaker 200:30:05You bet. Great questions. Operator00:30:11Our next question comes from Tim Syme with Raymond James. Tim, please go ahead. Speaker 600:30:18Great. Thank you. First one, Preston for you. Maybe I'm just curious in terms of the conversations that you and the team are having with your truckload customers as and you think about kind of the order progression as we go in coming months, it seems and I don't know if you would agree with this and obviously you've lived through lots of these truck cycles over time. But just with respect to kind of this election uncertainty and the range of political and kind of regulatory outcomes that may come about, I'm just curious, do you think there's more I mean, there's always this notion of there's a kind of a wait and see around the election, but it does seem like from our standpoint anyway, maybe this year is a little bit greater. Speaker 600:31:08So I'm curious, can you share that thought? And if so, would you you think it's fair that maybe there's a potential for more of a delayed order cadence as we look into 2025? Speaker 200:31:24I think that we have some really smart customers and our observations in those conversations is they think very clearly about their economic conditions that they're operating in. And I think they know that there needs to be a steadiness to their buying cycle of trucks because it's good for their operating models. And so they've been probably reluctant on the truckload side to be able to make the capital truck purchases they wanted for the last little while just based upon rates. And I think they're kind of hopeful that that's going to change. And I think far more important than anything like an election is when those rates change, then they will probably increase the cadence of their buys. Speaker 200:32:02And I think that that's what they're thinking about. Speaker 400:32:07Got Speaker 600:32:07it. Okay. And then just with respect to the deliveries in North America, it seems from some of the 3rd party data that maybe the Q3 you had a little bit heavier on medium duty relative to heavy duty. Is there any normalization that may occur in Q4 or is that is it not enough to call out in terms of from a mix perspective as you think 3Q to 4Q? Speaker 200:32:37Harry, you were talking you and I were talking about that, weren't you? Speaker 300:32:39Yes. So medium duty volumes Speaker 200:32:41were a little bit higher Speaker 300:32:42in the Q3 with some catch up, mirror related to some extent. So in the Q4, we expect a more normal medium bird savvy mix than like we used Speaker 600:32:54to see. Got it. Okay. And I assume, Harry, that there's not the implications from a profit perspective aren't what they would have been several years ago, just given the improvement in medium beauty side. Is that fair? Speaker 300:33:12The margins on our medium beauty products are well in line with the heavies these days. Nice observation, Tim. As a percentage, they're smaller trucks, but the percentage is very similar. Speaker 600:33:23All right. Thank you. Operator00:33:31Our next question comes from Carl Menjes with Citi. Carl, please go ahead. Speaker 600:33:39Thank you. Speaker 1400:33:39I was just curious on the R and D guide for next year, just how do we interpret the step up in R and D guidance for next year, especially given market we could be in kind of a flat to slightly up market global market for you guys next year? Speaker 200:33:58Well, if you think about where we're at this year and if you took a midpoint at 460 and then you said if you took the midpoint on something like 5 or a little over 500, it's not that big of a change. And the way we think about R and D is when we have important good projects to work on, be they powertrain or new truck systems or connectivity or electronics or all the things that will make our trucks more profitable for the customers, then we make those investments and this is the right level of R and D investment for that. Speaker 1400:34:25Got it. And then I know you've talked about a strong vocational market into next year, more related to Class 8, but just any thoughts on how we be thinking about the medium duty market next year in North America? Speaker 200:34:40I think we should see a healthy medium duty market again next year in North America as well. I think it's been good this year and there is as you just kind of indicated, there's some portion of that which hits into the vocational market. But overall, it should be a good market remain a good market is probably the right way to say it, Kyle. Speaker 600:34:58All right. Thank you. Speaker 200:35:01You bet. Operator00:35:06The next question comes from Chad Dillard with Bernstein. Chad, please go ahead. Speaker 400:35:13Hi. Good morning, guys. I just have Speaker 200:35:16a question Speaker 400:35:16for you on hey, how are you? So just a question for you on what you're embedding for your 25 North America truck guide. Just trying to think through the split between vocational versus tractor. I think you mentioned your truck was about 50% to 24%. Is that the same or a little bit higher? Speaker 400:35:35Any pre buy embedded? And then I think you mentioned that the progression of price cost will go into a worse than 25%. So is it fair to say that the Q4 is probably the trough for TPNO gross margins? Speaker 200:35:50I think what we'll expect to see is that the vocational market remains strong, but there's probably a pickup in the truckload sector. So the ratio of tractor to truck might move around a little bit towards heavier tractor as we go through the year next year. See how that starts and when that takes effect as you mentioned. But I think that what we're seeing now as we said as we started this year in a really strong position, we're finishing at a point where the truckload carriers are still feeling tension. And as we get into next year, into 2025, they're going to want to continue to buy trucks, keep their fleets at the right ages. Speaker 200:36:22And so we'll see some increase in the truckload purchases throughout the year. Timing for that, we'll see. Speaker 400:36:30Got it. Okay. And then a second question for you on the FINCO business. Just how should we think about that going into the end of the year and in 'twenty five? And more specifically, just looking at like the interest and other borrowing expenses, it seems like there's a big step up and just trying to think through how that evolves? Speaker 300:36:48The finance company continues to show strong performance. We have a very healthy portfolio of mainly A and B customers. Past dues remain low, seeing a little credit losses, but that's normal at this point in the cycle. So as we get into next year, we will continue to see strong performance of the finance company. Interest rates, we are time hedged there. Speaker 300:37:15So we issue medium term notes in line with the leases and the financing contracts that we offer. So we don't have a lot of exposure there. Speaker 1500:37:25And the portfolio this is Bryce. I'd just like to add that our portfolio is growing very nicely because we have a market right now where the banks are getting out at times and we're seeing a little bit less competition. Our market share is up actually nicely here in quarter and we expect strong continued performance in our business here. Speaker 400:37:47Great. Thank you. Operator00:37:55The next question comes from Jeff Kauffman with Vertical Research Partners. Please go ahead, Jeff. Speaker 1000:38:01Thank you Speaker 1600:38:04very much. Hey, everybody. Speaker 400:38:07I want to talk Speaker 1600:38:08a little bit about thank you, thank you and congratulations. I want to talk a little bit about the South American growth is going to be exceeding that in the near term for North America and Europe. Does this at all change the specs on the trucks in terms of what you're seeing and how that might affect ASP? Speaker 200:38:34If you think about the trucks specific to Brazil, which is the largest market in South America we're participating in, is it that really is the dock truck that we're using there. So and that truck is kind of effectively the same truck as we get in Europe. And we have had to put together certain specs for them where they're operating in different operating conditions, more 6x4s, more sugarcane kind of applications, lumber hauling applications. So it's a bit of heavier duty. So maybe the selling price is a slight bit higher there. Speaker 200:39:01But in general, I tend to think about them like a European truck. Speaker 1600:39:07Okay. And then as we transition in 2025, at some point to a market where maybe truckload LTL is growing a little faster than vocational and international. How might that be affecting ASP as we work our way through 2025? Speaker 200:39:29And I wouldn't put too much energy into trying to figure out the nuance to that if it was me. I think that you could obviously think that a high content vocational truck is more expensive than a maybe a standard 6x4 tractor, but I wouldn't probably try to parse that together. Speaker 300:39:47There's probably Speaker 500:39:48a Speaker 300:39:48higher variety and a bigger range in prices for vocational trucks than you would see for on highway. Yes. Speaker 200:39:54And then if you keep the vocational segment and you start thinking about the medium duty participation in that, I think you'd have a hard thing to kind of suss out there. Speaker 1600:40:02No, fair enough. I was just looking for some context and that's fine. So that's my one question. Speaker 200:40:08Great question. Thanks, Jeff. Good to talk to you. Operator00:40:19Our next question comes from Michael Feniger with Bank of America. Please go ahead, Michael. Speaker 600:40:25Great. Yeah. Thank you, gentlemen, for taking my questions. Just you guys have really been investing in the business, in your trucks, in your facilities. I'm just curious how much more capacity can you bring on to serve the U. Speaker 600:40:39S. Market? Is it 10% to 15%? Is it 20% more than what you guys could do previously? And is this higher capacity? Speaker 600:40:46Is this available in 2025 in the second half if we see that ramp? Or is this more of a 2026 that you guys can raise capacity in some of these facilities? Speaker 200:40:58Hey, Mike, thanks for the comments. They're nice to hear. The thing we're doing with our capital expenditures, as we noted, is we are making investments in the factories and that's not a new thing, right? We've been doing that over the past few years in anticipation of where the markets will be in our growth. So some of those capacity investments are in and complete, others are underway. Speaker 200:41:16So we have all the capacity we need for the markets in the coming years. We will not be capacity constrained and we do anticipate growth. So that feels really positive. Speaker 600:41:27Okay, helpful. And then just I guess the last question. You guys talked a little bit about a normalization in the used market in North America, a little weaker in Europe. So maybe you can kind of flesh that out. And I'm curious if the spread between the new price for a truck, let's say, in 2025 versus what you're seeing for a used truck right now, is that spread kind of normal? Speaker 600:41:49Is it wider than usual? Just curious if you guys are seeing anything there in the market? Thank you. Speaker 300:41:57As the used truck market normalizes, also that spread becomes more normal. Speaker 200:42:06If I was to think about it, I would think that what we've seen is, as we said, is used truck prices have found their space right now. And I think the trucks in the used market will look pretty good to us in 2025. And like we said, we also expect the new trucks to improve in 2025 in terms of market outlook. So it feels like they're staying together, right? There's not a big separation between new and used. Speaker 300:42:30And just looking at our inventory position in North America, that new truck inventory is at very, very healthy levels for us. So that gives us confidence that we'll be able to operate at good levels there. Speaker 600:42:45That is helpful. Thanks, gentlemen. Just the last one to squeeze in. Just on parts, I'm curious if there's anything you guys would call out that's weighed on the margin for parts that might normalize or go away next year? Like if next year, parts are up 5%, do you think the profit for parts can grow more than 5%? Speaker 600:43:08Just kind of curious on the puts and takes of what you guys have been seeing the last this year and how we think about that for 2025? Thank you. Speaker 200:43:17Yes. That's a good question, fun to think about. I think as we noted in our comments, right, there is a smaller overall aftersales market in 2024. So purely the number of parts overall has gone down that are being sold, but the parts team has grown the business even in that environment. So I think as the overall aftersales market picks up with increased freight activity, that will be good for the business and should be a tailwind for us. Speaker 200:43:52Emily? Operator00:43:55Our next question comes from Scott Group with Wolfe Research. Scott, please go ahead. Speaker 1500:44:01Hey, thanks guys. I just want to follow-up on the some of the gross margin commentary. So you had a comment that first half would be pressured and then improve in the second half next year. I'm wondering, was that a year over year or a sequential comment? Meaning, do we see further sequential gross margin pressure in the first half from where we are now? Speaker 1500:44:25Or was that just purely a year over year comment? Speaker 200:44:30Yes, Scott, you might have heard more than we said even there. I think what we actually said was we feel like we will see improvement through the course of 2025. I can't be so specific to know how that's going to play off, but it does feel like it will be a mirror image of this year. So the strength we saw in the first half in 2024 will be and then the normalization in the 3rd, Q4 here likely will be inverted as we get into 2025, but the specifics of that, they're hard to detail out. Speaker 1500:44:59Yes. I mean, ultimately, I'm trying to figure out if you think that this Q4 is the bottom for gross margin. Speaker 200:45:10Yes, I think I understand that. And I think your intuitions aren't far off. Speaker 1500:45:20Okay. And then just lastly, any thoughts on how you're sort of thinking about approaching the market next year? Is it in terms of market share growth or a little bit more focused on price? How are you balancing that for next year? Speaker 200:45:39We like to see market share growth and we like to see ourselves perform well as a company for our shareholders. So we'll be pursuing both of those next year. Speaker 1500:45:47Okay. Thank you, guys. Speaker 200:45:50You bet. Operator00:45:57Thank you. There are no other questions in the queue at this time. Are there any additional remarks from the company? Speaker 100:46:06I'd like to thank everyone for joining the call and thank you, Emily. Operator00:46:13Thank you everyone for joining us today. This concludes our call and you may now disconnect.Read morePowered by