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CTW.1122. PACCAR

Medium- and heavy-duty trucks are vital to the global economy, but they threaten the global climate: They account for 25% of all automobile-based CO2 emissions, even though they make up just 10% of the vehicles on the road. Paccar, which owns top-selling heavy truck brands including Peterbilt, Kenworth, and DAF, is doing its part to green the trucking fleet. Paccar’s first EVs hit the market in 2021, and it now sells a total of seven battery-electric models worldwide. Semis in general cost anywhere from $100,000 to over $500,000, and Paccar estimates it will deliver hundreds of electric trucks this year; the company, based in Bellevue, Wash., expects more than half of its production to be zero-emissions vehicles by 2035. Paccar’s brands have also been refuting the stereotype that electric haulers can’t tackle steep hills: Earlier this year, the DAF CF Electric truck became the first battery-electric heavy truck to tame Austria’s highest mountain pass, on the Grossglockner High Alpine Road.

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Paccar is a light-, medium-, and heavy-duty truck manufacturer that also provides technical and financial services support for its products.

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G500-2020-497-Paccar

The company manufactures light, medium, and heavy duty trucks under the brand names Peterbilt, Kenworth, and DAF.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-118-Paccar

This year's Fortune 500 marks the 65th running of the list.

Here are the World's Most Admired Companies for 2018 as ranked in their industries. See who made the list.

This year's Fortune 500 marks the 64th running of the list.

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This year's Fortune 500 marks the 63rd running of the list.

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This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Get insights into Paccar including business profile, stock information, news, and rankings from Fortune.

Paccar (PCAR): Company Profile, Stock Price, News, Rankings

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Paccar

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Good morning, and welcome to PACCAR's 4th Quarter 2024 Earnings Conference Call. All lines will be in listen only mode until the question and answer session. Today's call is being recorded. And if anyone has any objection, they should disconnect at this time. I'd now like to introduce Mr.

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

Good morning. We'd like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. And joining me this morning are Preston Feit, Chief Executive Officer Harry Skippers, President and Chief Financial Officer and Bryce Poplowski, Vice President and Controller. As with prior conference calls, we ask that any members of the media on the line participate in a listen only mode.

Certain information presented today will be forward looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings at the Investor Relations page of paccar.com. I would now like to introduce Preston Feit.

Hey, good morning, everyone. Harry, Bryce, Ken and I will update you on our Q4 and full year 2024 results as well as other business highlights. PACCAR's outstanding employees delivered strong results by providing our customers with the highest quality trucks and transportation solutions in the industry. In 2024, PACCAR achieved annual revenues of $33,700,000,000 net income of $4,200,000,000 and an after tax return on revenues of 12.4%. This is the 2nd highest profit in the company's history and was a great year for PACCAR.

PACCAR's strong financial performance reflects the higher profitability of the latest generation of Kenworth, Peterbilt and DAF trucks, record results in our parts division and another good year for PACCAR Financial Services. PACCAR shareholders and customers benefited from the $8,600,000,000 invested over the past 10 years in new products, world class facilities and state of the art technologies. PACCAR has achieved 86 consecutive years of net income and has paid a dividend every year since 1941. In 2024, PACCAR declared $4.17 per share in dividends, including a year end dividend of $3 per share. This is a 53% payout of net income and a dividend yield of 4%.

PACCAR's 4th quarter revenues were $7,900,000,000 and net income was $872,000,000 PACCAR Parts achieved excellent 4th quarter revenues of $1,600,000,000 and pre tax profits of $428,000,000 Last year's U. S. And Canadian Class 8 truck retail sales were 268,000 units. Kenworth and Peterbilt's market share increased to a strong 30.7%, up from 29.5% in the prior year. In the medium duty market, Kenworth and Peterbilt's excellent new medium duty truck has created customer value and market share grew from 14.5% to 18% as they produced a record 21,500 medium duty trucks.

In 2025, the U. S. Economy is projected to expand by more than 2%. The vocational truck sector, where Peterbilt and Kenworth's other market leaders is steady. The less than truckload market is performing well, while the truckload segment is beginning to show signs of improvement.

The U. S. And Canadian Class 8 truck market is forecast to be in a range of 250,000 to 280,000 vehicles. We anticipate a strengthening market as we progress through the year. European above 16 ton truck registrations were 316,000 last year.

Customers appreciate DAS industry leading fuel efficiency and driver comfort. DAS trucks have a competitive advantage in the European market due to an innovative aerodynamic design and feature the largest and most luxurious cab interior. In 2025, the European economy is forecast to grow modestly. We expect the above 16 ton truck market to be in the range of 270,000 to 300,000 registrations. Last year, the South American above 16 ton market was 119,000 vehicles and is expected to be similar this year.

DAF's market share in the important Brazilian market was right around 10% and reflects a 23% production increase to more than 10,000 trucks in 2024. In addition to its successful growing business in Brazil, DAF trucks are now sold in Mexico and in the Andean region of South America. PACCAR truck parts and other gross margins were solid 15.9% in the 4th quarter. These margins are considerably higher than in prior industry cycles, reflecting the increased value that the new Kenworth, Peterbilt and DOP trucks provide to customers as well as the continued growth of PACCAR Parts. In the Q4, PACCAR delivered 43,900 trucks.

And in the Q1 of 2025, deliveries are forecast to be around 40,000. We estimate PACCAR's worldwide 1st quarter truck and parts gross margins to be similar to the Q4 and in a range of 15.5% to 16%. In addition to the strong financial performance, other business highlights in 2024 included PACCAR's progress on Amplify Cell Technologies, our joint venture to manufacture commercial vehicle batteries in the United States. DAF was honored as the Fleet Truck of the Year in the UK. PACCAR Parts celebrated the 30th anniversary of TRP.

Peterbilt earned the Environment and Energy Leader Award for Sustainability. And Kenworth celebrated the 50th anniversary of its world class truck factory in Chillicothe, Ohio. We look forward to an excellent year in 2025 as we celebrate the 120th anniversary of PACCAR's founding in 190 5. Harry Skippers will now provide an update on PACCAR Parts, Packard Financial Services and other business highlights. Harry?

Thank you, Preston. In 2024, Packard Parts set new records for revenues and profits. Annual revenues increased by 4% to a record $6,700,000,000 and pre tax profit increased to a record $1,71,000,000 Parts gross margins averaged 30.9%. In the current freight environment, we estimate parts sales to grow by 2% to 4% this year. PACCAR Parts' excellent long term growth reflects the benefits of investments that increase vehicle uptime and convenience for customers.

Pekka's aftermarket parts business provides strong profitability through all phases of the business cycle. Pekka parts has expanded to 20 parts distribution centers or PDCs worldwide, including a new PDC in Germany, which opened in November. This PDC enhances parts availability and delivery times to German dealers and customers and is part of a strategy to increase DAS truck market share in the largest truck market in Europe. PACCAR Financial Services achieved 4th quarter pretax income of $104,000,000 Annual pretax income was €436,000,000 Becker Financial is performing well with a portfolio that has excellent credit quality and low past dues. Becker Financial provides the highest quality service in the market and makes it easy for customers to do business with them through the efficient use of technology in the credit application and loan servicing processes.

Pekka Financial operates 13 used truck centers around the world to support the sale of premium, Kenworth, Peterbilt and DAF used trucks and is adding a new used truck center in Warsaw, Poland this year. Last year, Pegaard invested $796,000,000 in capital projects and $453,000,000 in research and development. PACCAR delivered an excellent return on invested capital of 25.5%. This year, we are planning capital investments in the range of 700 $1,000,000 to $800,000,000 and R and D expenses in the range of $460,000,000 to $500,000,000 as we invest in key technology and innovation projects. These include new clean diesel and alternative fuel engines, the next generation of battery electric powertrains, advanced driver assistance systems and integrated connected vehicle services.

PACCAR is expanding manufacturing capacity at our factories in Europe, North America, Brazil and Australia. These investments will support PACCAR's future growth as well as our customers' success. PACCAR's independent Kenworth Peterbilt and DAF dealers consistently invest in their businesses, enhancing our industry leading distribution network and making a significant contribution to PACCAR's long term success. PACCAR looks forward to another excellent year in 2025. Thank you.

We'd be pleased to answer your questions.

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

Hey, good morning. Thank you so much for taking my questions. So my first question is on the delivery guide. Can you help us understand how to think about deliveries by geography in the Q1 versus the Q4, trying to bridge the gap and where that difference is coming from, which geography, if you could highlight?

Yes. Happy, Tammy. Good to talk to you. What I would share with you is in the U. S, we expect Class 8 to be flat or up even a little bit in Q1.

But what we've seen is the medium duty market, which has just been very robust, is probably normalizing now. So we'll see a bit smaller medium duty market. I'd also remind people that there was a Euro 6 implementation in Mexico that was in the Q4. So that kind of was there was a bit of a pre buy in Mexico that won't be present in the Q1. And also if you're doing comparisons of Q4, Q1, we had good supplier performance in the Q4 that allowed our normal year end inventory reduction to take place.

So all those things kind of had an impact and maybe the only last one I'd add is we have fewer production days outside the U. S, specifically in South America as an impact. So all that goes into that delivery guidance. But in essence, we're seeing flat Class 8, maybe slightly up Class 8 in the U. S.

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

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

And our Amplify Cell Technologies joint venture will allow us to have the lowest cost, highest quality batteries, so that we'll be most competitive in the market, which will be in support of our customers.

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

Thanks, guys. So you did reference the vocational strength and it seems like that's been a big piece of why we've seen this order resilience in Class 8. But I guess just what gives you confidence that dealers aren't over ordering here to stay in bodybuilders pipelines? And just could you maybe give us a gauge of how many of those orders actually have a customer's name attached? Thank you.

Yes, we have all of our customers there feel really solid. In fact, if you one way to look at it is inventory. So the industry inventory is running what 3.1 months in heavy duty and can work in Peterbilt's inventory levels at 2.3 months. So our inventory is in good shape. There is a backlog at bodybuilders, but those are really spoken for trucks.

Okay. Thank you. And then if you could just provide maybe a little more color on how you're thinking about the medium duty market in U. S. And Canada as we progress through the year?

You mentioned probably down a little bit in 1Q, but I guess just how are you thinking about the growth as we move throughout the year, first half versus second half would be helpful. Thank you.

Yes. I think that what we saw kind of referencing back Kyle to last year, you'd say that we had a pretty steady set of builds in the year. They were strong builds. There was, if you recall, a mirror factory fire that amplified some deliveries in the Q3. So when you're comparing 3Q to 4Q, you'd see lower deliveries at 4Q.

And now we just think that the medium duty market is going to go back to more normal, historically normal levels. And in those normal levels, we'll continue to see our new products perform well. Customers seem quite happy with the new 2.1 meter wide Kenworth and Peterbilts. They work well with bodybuilders. They're gaining our market share.

In fact, we've grown from 14.5% to 18% share in the medium duty market last year. So we feel good about our position. The cadence of Q of half 1 to half 2 probably would expect it also to see strengthening in the second half.

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

Great. Good morning, everybody. Thank you for taking the call. I'm curious, as we sort of do the dumb math and look at total truck revenues divided by the deliveries, it seems like the kind of revenue per truck was down 5% -ish, which is one of the bigger declines we've seen recently. And I know there's a lot in there between price and mix and things like that.

But I'm curious, if you can provide any color. Was that mostly mix? Is there kind of more day cab happening or more vocational? Or how do we think about kind of what's going on in price mix?

Yes, Steve. There's a little bit of mix regional mix going on. So North America is more vacation or holidays in the Q4. So a little bit stronger mix in Europe in Q4. And then on top of that, we had unfavorable foreign exchange rates.

So it's a very strong dollar and that probably accounts for half of the reduction in average sales price.

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?

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

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

Thank you. I had 2, if I may. First is just I'd love to hear your thoughts on gross margin trend and truck pricing. It seems like used market to stabilize inventory, at least on sleep versus come down. I don't know if you see that and probably better data that you have.

And just curious whether you see any hopefulness or the reverse on new truck pricing? That's my first one.

Yes, sure. It's Rob. What we'd say is that we're looking into Q1 and seeing like things should be pretty steady as you can tell from our guide where we said 15.5% to 16% gross margin. So we see that things are starting to look up, but just beginning to as we notice the truckload carriers starting to come back into the market and then probably gaining strength through the course of the year.

And then on the used truck side, Rob, I would add that PACCAR Financial's used truck inventory is at very healthy and low levels right now. So and so that's also a good thing.

Yes, it's a good leading indicator as well.

In the bottom there. Okay, perfect. And then Preston, just it sparked my curiosity. You mentioned hybrid trucks. And I think across the auto and maybe even the truck world years ago, there was a bit of resistance to hybrids and the feeling that you'd go full electric.

I'm curious what you're hearing from your customers. Is that something that there's actual demand for now? Are there really use cases that are non regulatory? I'm just curious about your thought there. I'll stop there.

Yes. Great question, Rob. I think what we see is that through hybrid systems, we might be able to improve fuel efficiency and likewise greenhouse gas by double digit levels. And if we're able to do that, that's obviously desirable for our customers. There is an added cost to it.

So the balance of what's the payback time sits into there. So there is a striving for a business case, which is free of regulatory hurdles, but we know that there will be regulations coming and going over time. So that could also be an added incentive to a hybrid business case. And that's true for both U. S.

And Europe, maybe especially true in Europe.

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

Thanks. Good afternoon. I just wanted to touch upon the margins in the Q1. As you said, Preston, they're going to be pretty stable, which is pretty impressive on 10% lower productions. I guess I'm just curious what is enabling that steadiness of the margins in light of that lower level of production?

Well, I think what we're seeing is the trucks are performing really, really well. So that's helpful to us obviously in terms of discussions with customers. Fuel economy is great, the reliability is great, our warranty costs are slightly down and it just feels like between all those factors where the market is starting to head, we think that we'll see that kind of a margin appear in the Q1.

Okay. And I guess just curious about the broader pricing environment now. Do you think that it's now kind of more stable that we're in this part of the downturn? And how confident can we be that sort of we've hit the low points on margins and pricing discounts for the year?

Sure. Great question again. And I think what we've shared and we continue to share is like we see 2025 with improvement coming throughout the year. We think for sure in the second half, maybe it's in the second quarter, we'll have to watch how the world develops of course, but it feels like a positive trend.

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

We are Hey, Charlie, why don't we go to the next caller?

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

Hi, good morning. Just to clarify, can you speak specifically what price cost was for truck and for parts in the Q4 specifically and what's implied by region for 2025? And then my second question, it sounds like you would say the Q1 is the trough for margins in total. Is that for total company or is that also for truck margins? And I'm just wondering if you get to the back half of the year, do you expect to see sales growth and then get back to a position where we're actually seeing incremental margins versus decremental?

Yes. I mean, it's another way of asking what we've already talked about, I think quite a bit. But the truck for Q4 price versus cost was negative 0.6% on price and cost was 2.7%. And what we're expecting to see is some trending improvement through the course of the year, Jamie. And so we think that'll be favorable to your point.

And we see continued strong parts margins. So like 30.9% in 4Q and we would expect to see continued good margins in the Q1 as well. So those are contributing to a general upward trend in our mind.

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

I don't think we provided by geography, Jamie.

Okay. And then I guess the follow-up question was that by the second half of twenty twenty five, should we start to see incremental margins? Are you assuming sales volumes are up versus decrementals? I mean your margins are pretty impressive right now in the Q1.

Yes. As the market improves in the second half of the year, we would expect margin to the development to improve accordingly.

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

Thank you. Our next question comes from Tim Thean 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 Q2, but maybe you just give some color on that?

Sure, Tim. Good question. Good insight to gain for everybody is I think that we're roughly 75% or 3 quarter full in Q1 and probably more like half full in Q2. So that's kind of where things look like pretty reasonable levels.

Got it. Okay. And the presumably the composition of that backlog much more weighted, I would assume towards vocational. Should we think about any mix impact from that? Just if that supposition is correct, that would be a heavier weighting than normal.

Is there much of an impact again from a product mix standpoint? Or is that kind of a neutral dynamic

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

Okay. Okay. Got it. And then maybe for Harry, just as if a big yes, but if we had the dollar at today's levels through the quarter, some pretty big moves against some of your key currencies. Is there a way to think about, A, what FX had or impact that foreign exchange had on margins in the Q4 and what that may imply if the dollar were at today's levels for the Q1?

Yes. This is Bryce. I'll just comment on that. We had a negative effect on our net income in the Q4 from the foreign currencies of about $20,000,000 and something we will obviously we don't know what's going to happen to rates. But as you said, if they stay where there are, obviously it would be a recurring effect.

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

Thank you. Our next question will go to Angel Castillo of Morgan Stanley. Hang on. Your line is open. Please go ahead.

Yes. You're not giving us quite the static you did on your first time.

I apologize for that. It sounds like it's working right now. So maybe thanks for taking my question. I apologize if somebody asked it, but just I think you lowered the R and D expense for the full year. Can you just talk about maybe what's driving that?

And maybe going back to one of the initial questions around the Amplify JV, obviously, a lot of kind of good, good, I guess, strategic reasons to continue to invest in that, but I believe it was a multi phase project. Is it fair to assume that it will be you'll be doing it in phases and deciding to move forward? Or is it we should assume that all three phases are moving forward?

Yes. Sure. That's a great question, both of them. So R and D is going to be still year over year we're thinking slightly up. So probably in the range of 5% up from last year just because there's a lot of great projects for us to be working on.

Of course, the Amplify one doesn't really fit into that space. But what we're doing with Amplify is we've cleared the ground now, we're putting in the buildings and then what we'll do is measure how much capacity we need to install, but we want to get started on that. So we have some capacity available for the markets that exist. And then we'll just scale capacity based upon market demands for the EVs or hybrids.

Paccar (PCAR) Q4 2024 Earnings Call Transcript

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