PACCAR Q4 2025 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
January 28, 2025
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Operator

Good morning, and welcome to 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, Packar's Director of Investor Relations. MR. Hastings, please go-ahead.

Ken Hastings
Senior Director of Investor Relations at PACCAR

Good morning. We'd like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. And joining me this morning are Preston Fight, Chief Executive Officer; Harry Skippers, President and Chief Financial Officer; and Bryce, 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 -- and the Investor Relations Page of pacar.com. I would now like to introduce Preston Fight.

Preston Feight
Chief Executive Officer at PACCAR

Hey, good morning, everyone. Harry, Bryce, Ken, and I will update you on our 4th-quarter 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, PACR achieved annual revenues of $33.7 billion, net income of $4.2 billion and an after-tax return on revenues of 12.4%. This is the second-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 DOF Trucks, record results in our Parts division and another good year for PACCAR Financial Services. PACCAR shareholders and customers benefited from the $8.6 billion 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 $7.9 billion and net income was $872 million. PACCAR Parts achieved excellent 4th-quarter revenues of $1.6 billion and pre-tax profits of $428 million. Last year's US and Canadian Class-8 truck retail sales were 268,000 units. Kenworth and 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 US economy is projected to expand by more than 2%. The vocational truck sector, where Peterboat and Kenworth are the market leaders is steady. The less-than-truckload market is performing well, while the truckload segment is beginning to show signs of improvement. The US 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 industry-leading fuel efficiency and driver comfort. DOF 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. 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, DOF trucks are now sold-in Mexico and in the Andian region of South America. PACAR Truck, parts and other gross margins were a 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 Trucks provide to customers as well as the continued growth of PACCAR Parks. In the 4th-quarter, PACCAR delivered 43,900 trucks and in the first-quarter of 2025, deliveries are forecast to be around 40,000. We estimate PACCAR's worldwide first-quarter truck and parts gross margins to be similar to the 4th-quarter 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. DOF was honored as the Fleet Truck of the Year in the UK. PACCAR Parts celebrated the 30th anniversary of TRP. Earned the environment and Energy Leader Award for sustainability and Kenworth celebrated the 50th anniversary of its world-class truck factory in, Ohio. We look-forward to an excellent year in 2025 as we celebrate the 120th anniversary of PACCAR's founding in 1905. Harry Skippers will now provide an update on Packer Parts, Packer Financial Services and other business highlights. Harry?

Harrie Schippers
President & Chief Financial Officer at PACCAR

Thank you,. In 2024, Pecker Parts set new records for revenues and profits. Annual revenues increased by 4% to a record $6.7 billion and pretax profit increased to a record billion. Parts gross margins averaged 30.9%. In the current freight environment, we estimate parts sales to grow by 2% to 4% this year. Pecca Parts' excellent long-term growth reflects the benefits of investments that increase vehicle uptime and convenience for customers. Aftermarket parts business provides strong profitability through all phases of the business cycle. 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 dust truck market-share in the largest truck market in Europe. Financial Services achieved 4th-quarter pretax income of $104 million. Annual pretax income was $436 million. Pecca Financial is performing well with a portfolio that has excellent credit quality and low past dues. 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. Financial operates 13 new truck centers around the world to support the sale of premium Genworth, Peterville and Hughes Trucks and is adding a new used truck center in Warsaw, Poland this year. Last year, Pecker invested $796 million in capital projects and $453 million in research and development. Delivered an excellent return on invested capital of 25.5%. This year, we are planning capital investments in the range of $700 million to $800 million and R&D expenses in the range of $460 million to $500 million 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. Is expanding manufacturing capacity at our factories in Europe, North-America, Brazil and Australia. These investments will support future growth as well as our customers' success, independent Kenworth, Peterbilt and Diras consistently invest in their businesses, enhancing our industry-leading distribution network and making a significant contribution to long-term success. Looks forward to another excellent year in 2025. Thank you. We'd be pleased to answer your questions.

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Operator

Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypads. If you'd like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure you're unmuted locally. As a reminder, that's star followed by one on your telephone keypads now. Our first question comes from Zakaria of JPMorgan. Tammy, your line is open. Please go-ahead.

Tami Zakaria
Analyst at J.P. Morgan

Hey, good morning. Thank you so much for taking my questions. So my first question -- question is on the delivery guide. Can you help us understand how to think about deliveries by geography in the first-quarter versus the 4th-quarter, trying to bridge the gap and where that difference is coming from, which geography, if you could highlight?

Preston Feight
Chief Executive Officer at PACCAR

Yeah. Happy, Tammy. Good to talk to you . What I would share with you is in the US, we expect Class-A 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-VI implementation in Mexico that was in the 4th-quarter. So that kind of was -- there was a bit of a pre-buy in Mexico that won't be present in the first-quarter. And also if you're doing comparisons of Q4, Q1, and we had good supplier performance in the 4th-quarter 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 US, 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 US markets.

Tami Zakaria
Analyst at J.P. Morgan

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

Preston Feight
Chief Executive Officer at PACCAR

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

Okay, great. Thank you.

Preston Feight
Chief Executive Officer at PACCAR

You bet.

Operator

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

Kyle Menges
Analyst at Smith Barney Citigroup

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 Bodybuilder's pipelines? And just could you maybe give us a gauge of how many of those orders actually have a customer's name attached? Thank you.

Preston Feight
Chief Executive Officer at PACCAR

Yeah. 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 Kenworth and Peterbilt's inventory levels at 2.3 months. So our inventory is in good shape. There is a backlog at bodybuilders, but those are really spoken for trucks?

Kyle Menges
Analyst at Smith Barney Citigroup

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 US 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 Feight
Chief Executive Officer at PACCAR

Yeah. 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. There were strong builds. There was, if you recall, a mirror factory fire that amplified some deliveries in the 3rd-quarter. So when you're comparing 3Q to 4Q, you'd see lower deliveries in 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 and they work well with bodybuilders. They're gaining our market-share. In fact, we've grown from 14.5% to 18% share in the meaning of duty market last year. So we feel-good about our position. The cadence of Q of half-one to half-two, probably would expect it also to see strengthening in the second-half

Operator

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

Stephen Volkmann
Analyst at Jefferies Financial Group

Great. Good morning, everybody. Thank you for taking the call. I'm curious as we sort of do the dumb math and look at the 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 daycab happening or more vocational or how do we think about kind of what's going on in price-mix?

Harrie Schippers
President & Chief Financial Officer at PACCAR

Yes, Steve, there's a little bit of mix, regional mix going on. So North-America has more vacation or holidays in the 4th-quarter. 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 at Jefferies Financial Group

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

Preston Feight
Chief Executive Officer at PACCAR

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

Stephen Volkmann
Analyst at Jefferies Financial Group

Okay. Thank you guys.

Preston Feight
Chief Executive Officer at PACCAR

You bet.

Operator

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

Rob Wertheimer
Analyst at Melius Research

Thank you. I had two, if I may. First is just I'd love to hear your thoughts on gross margin trend and truck pricing. It seems like news markets have stabilized inventory at least on sleep versus come down. I don't know if you see that in 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 Feight
Chief Executive Officer at PACCAR

Sure. Yeah, sure. Robert. 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 noticed, the truckload carriers started to come back into the market and then probably gaining strength through the course of the year.

Harrie Schippers
President & Chief Financial Officer at PACCAR

And then on the used truck side, Rob, I would add that PACCA Financial's used truck inventory is at very healthy and low levels right now and so that's also a good thing. That's a good leading indicator as well for the bottom there.

Rob Wertheimer
Analyst at Melius Research

Okay, perfect. And then Preston, just spark 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 thoughts there. I'll stop there. Thank you.

Preston Feight
Chief Executive Officer at PACCAR

Yeah, 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 US and Europe, maybe especially true in Europe.

Operator

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

Steven Fisher
Analyst at UBS Group

Hi, thanks. Good afternoon. I just wanted to touch upon the margins in the first-quarter. As you said,, they're going to be pretty stable, which is pretty impressive on 10% lower production. So I guess I'm just curious what is enabling that steadiness of the margins in light of that lower level of production.

Preston Feight
Chief Executive Officer at PACCAR

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

Steven Fisher
Analyst at UBS Group

Okay. And I guess just curious about the broader pricing environment now. Are you -- 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-point on margins and pricing discounts for the year?

Preston Feight
Chief Executive Officer at PACCAR

Sure. Great question again. And I think what we've shared and we continue to share is like we see 2025 with improvement coming 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 at UBS Group

Okay. Thank you very much.

Operator

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

Preston Feight
Chief Executive Officer at PACCAR

Charlie, why don't we why don't we go to the next caller? Of course. Yeah, Charlie next questioner

Operator

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

Jamie Cook
Analyst at Truist Securities

Hi, good morning. Just to clarify, can you speak specifically what price-cost was for truck and for parts in the 4th-quarter specifically and what's implied by region for 2025? And then my second question, it sounds like you would say the first-quarter is the trough, you know 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.

Harrie Schippers
President & Chief Financial Officer at PACCAR

Yeah. I mean, that'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 will 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 first-quarter as well. So those are contributing to a general upward trend in our mind?

Jamie Cook
Analyst at Truist Securities

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

Harrie Schippers
President & Chief Financial Officer at PACCAR

I don't think we provided by geography,.

Jamie Cook
Analyst at Truist Securities

Okay. And then I guess the follow-up question was by the second-half of 2025, 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 first-quarter as the market improves in the second-half of the year, we would expect margins of the development to improve accordingly.

Preston Feight
Chief Executive Officer at PACCAR

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

Jamie Cook
Analyst at Truist Securities

Great. Thank you very much.

Preston Feight
Chief Executive Officer at PACCAR

You bet. Thank you. Our next question comes from Tim of Raymond James. Tim, your line is open. Please go-ahead. 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 second-quarter, but maybe you just give some color on that. Sure, Tim. Good question, good insight to gain for everybody. So I think that we're roughly 75% or 3/4 full in Q1 and probably more like half-full in Q2. So that's kind of where things look like, pretty reasonable levels.

Tim Thein
Analyst at Raymond James

Got it. Okay. And the -- with presumably the composition of that backlog much more weighted, I would assume towards vocational. And should we think about any mix impact from that? Just if that subposition is correct, that would be a like 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 there?

Preston Feight
Chief Executive Officer at PACCAR

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

Tim Thein
Analyst at Raymond James

Okay. Okay, got it. And then maybe for Harry, just as if a big if, 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, what impact that foreign-exchange had on margins in the 4th-quarter and what that may imply if the dollar were at today's levels for the first-quarter.

Brice Poplawski
Vice President and Controller at PACCAR

Yeah, this is Brice. I'll just comment on that. We had a negative effect on our net income in the 4th-quarter from the foreign currencies of about $20 million and something we -- obviously, we don't know what's going to happen in rates. But as you said, if they stay where there are, there would be a recurring effect.

Preston Feight
Chief Executive Officer at PACCAR

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

Tim Thein
Analyst at Raymond James

Okay. Thank you very much.

Operator

Thank you. Our next question will go to Castillo of Morgan Stanley., your line is open. Please go-ahead.

Angel Castillo
Analyst at Morgan Stanley

Hi, can you hear me this? Yeah, you're not giving us quite the static you did on the first time. I apologize for that. Well, 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&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 will be doing it in phases and deciding to move forward or is it -- we should assume that all three phases are moving forward?

Preston Feight
Chief Executive Officer at PACCAR

Yeah, sure. It was a great question, both of them. So R&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?

Angel Castillo
Analyst at Morgan Stanley

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

Preston Feight
Chief Executive Officer at PACCAR

Or a couple of things. One is, we've just started to see spot rates 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.

Angel Castillo
Analyst at Morgan Stanley

Very helpful. Thank you.

Preston Feight
Chief Executive Officer at PACCAR

You bet.

Operator

Thank you. As a reminder, if you'd like to ask a question, please dial star, followed by one on your telephone keypads. Our next question comes from David Rasso of Evercore ISI. David, your line is open. Please proceed.

David Raso
Analyst at Evercore ISI

Hi, thank you for the time. Your comment about strengthening market as the year progresses, how is 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 and how you think about pricing.

Preston Feight
Chief Executive Officer at PACCAR

Well, you know, we've -- 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, and then we'd be ready for that too. I think 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 engine in California, so we can be available to that. And if things shift around, we'll be ready in that position as well. And to the first question you asked about pricing and 2026 product shipments. I think as the market moves around and people are experiencing the great performance of the Kenworth People and Dolph Trucks, we expect that we will see strengthening price position for ourselves As the course of the year progresses. But we think that trend carries on even beyond '25 we anticipate..

David Raso
Analyst at Evercore ISI

And we hear the model year '26 start shipping in April. I know there'll be a little mix of '25s and '26 in 2Q, but is that accurate we start getting some of the '26 models shipping in 2Q of this year?

Preston Feight
Chief Executive Officer at PACCAR

Yeah. Your comment, David, there I don't know what that is, but that doesn't resonate to me of a model year '26 shifting in April for us. So I'm not sure how to answer that.

David Raso
Analyst at Evercore ISI

Okay. Well, we can talk offline, but basically the higher pricing sequentially is what you're referencing as the year goes on. Have you want to name the model? Yeah, that's fair, but yeah, yeah. Okay. Thank you very much. I appreciate it.

Preston Feight
Chief Executive Officer at PACCAR

You bet.

Operator

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

Jerry Revich
Analyst at The Goldman Sachs Group

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 first-quarter, maybe we're seeing a decline in per truck costs. I'm wondering based on your contract structures, et-cetera, can you just talk about the cadence over the next couple of quarters?

Preston Feight
Chief Executive Officer at PACCAR

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

Jerry Revich
Analyst at The Goldman Sachs Group

Okay. And separately, on the topic of EPA 27, I appreciate the base-case is 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 US? How would you see that scenario playing out in your planning process.

Harrie Schippers
President & Chief Financial Officer at PACCAR

You know, 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 of PACCAR. And so we'll make sure we have the right products in front of the customers that are going to give them the best operating condition for the regulatory environment.

Jerry Revich
Analyst at The Goldman Sachs Group

Appreciate it. Thank you.

Preston Feight
Chief Executive Officer at PACCAR

You bet.

Operator

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

Jeffrey A. Kauffman
Analyst at Vertical Research Partners

Okay. Thank you very much. I two questions. Number-one, 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.

Preston Feight
Chief Executive Officer at PACCAR

Like we said, I think more or less half of the impact is currency. And there is another element there that in the 4th-quarter, the US and Canada have more holidays. So the mix was a little bit more heavily towards Europe and other markets outside the US where average sales prices and trucks are smaller and average sales prices are lower.

Jeffrey A. Kauffman
Analyst at Vertical Research Partners

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

Preston Feight
Chief Executive Officer at PACCAR

You know, 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.

Jeffrey A. Kauffman
Analyst at Vertical Research Partners

And so, Preston, what would some of those opportunities be in your mind? Oh, the fact that we produce local for local have factories in the US where we produce the trucks for the US, same in Mexico, Brazil, Europe makes us very well-protected to things like tariffs, for example. And so we feel we're in a really good spot there. Okay. Thank you very much.

Preston Feight
Chief Executive Officer at PACCAR

You bet.

Operator

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

Michael Feniger
Analyst at Bank of America

Yeah. 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 -- 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 Feight
Chief Executive Officer at PACCAR

Yeah. 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 pass for those trucks and sharing that value equation. That's the most fundamental thing. And the more -- the more we can do that for them, the better it works for us. And you gave a nod to the people that pack are 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 -- 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?

Michael Feniger
Analyst at Bank of America

Great. And just on parts, the last 3/4, your revenue is up 4%. I think the pre-tax profit has been slightly down year-over-year. Is there anything on the last that you would want to flag on '24? I'm just curious, you know, 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.

Harrie Schippers
President & Chief Financial Officer at PACCAR

And in 2024, we saw parts sales increase by 4%. At the same time, we see that the market for sales for parts was down 2% or 3%. So growing our parts sales in a smaller market at excellent margins, that's a really impressive performance by the entire Pecker 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.

Michael Feniger
Analyst at Bank of America

Thank you.

Preston Feight
Chief Executive Officer at PACCAR

Yeah, you bet.

Operator

Thank you. As a final reminder, if you'd like to ask a question on today's call, please dial star followed by one on your telephone keypads. Our next question comes from Scott Group of Wolfe Research. Scott, your line is open. Please go-ahead.

Scott Group
Analyst at Wolfe Research

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 markets down in parts, sales are up 4% and I guess this year you think the market is flat-to-up, but the parts growth slows. So help me understand why we're not seeing a pickup in parts sales if the market is improving?

Preston Feight
Chief Executive Officer at PACCAR

Well, one of the things as 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 two 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. It's strongly related to freight activity on the rest of the business. So it should also have that kind of cadence.

Scott Group
Analyst at Wolfe Research

Okay, that makes sense. And then I think you said 75% sold for the first-quarter, half-full for the second-quarter. Just do you have any sort of context, is that sort of about right? Is that ahead of schedule behind schedule? And then do you have any view if you know the order strength of late, has pre-buy activity started yet or is that still all on the come?

Preston Feight
Chief Executive Officer at PACCAR

Yeah. You know, 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 '25 and then in '26 are happening. But I wouldn't say there's really been any significant order intake in that area.

Scott Group
Analyst at Wolfe Research

Thank you guys. Appreciate it.

Preston Feight
Chief Executive Officer at PACCAR

Yeah, you Bet.

Operator

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

Unidentified Participant
at PACCAR

Yeah. Hi, thank you for taking my question. I just had a question about the European market. If you could give some flavor about different countries there and also how you see the market progress throughout '25? I mean you have the guidance, but if you could give some flavor that, please?

Preston Feight
Chief Executive Officer at PACCAR

Yeah, sure. Let me start and then Harry can add-in some thoughts to it. I mean, the general sense for us is that 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 and 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 about the market. Gary, I don't know what you'd add to that.

Harrie Schippers
President & Chief Financial Officer at PACCAR

Yeah, overall 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 Dov has a strong presence there. So it has a little bit bigger impact on 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 should do really well.

Unidentified Participant
at PACCAR

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

Preston Feight
Chief Executive Officer at PACCAR

The capacity utilization is good. 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.

Unidentified Participant
at PACCAR

And the backlog -- and the coverage there for that saw us the second-quarter is about the same as the average that you mentioned for the whole group is that --

Preston Feight
Chief Executive Officer at PACCAR

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

Unidentified Participant
at PACCAR

Okay, great. Thank you very much.

Preston Feight
Chief Executive Officer at PACCAR

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

Operator

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

Preston Feight
Chief Executive Officer at PACCAR

Like to thank everyone for joining the call and thank you, Charlie.

Corporate Executives
  • Ken Hastings
    Senior Director of Investor Relations
  • Preston Feight
    Chief Executive Officer
  • Harrie Schippers
    President & Chief Financial Officer
  • Brice Poplawski
    Vice President and Controller
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