Q4 2019 Earnings 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 an objection. They should disconnect at this time.
I would now like to introduce Mr., Ken Hastings, Paccars director of Investor Relations.
Mr. He seems please go ahead.
Good morning, we would like to welcome those listening by phone and those on the webcast. My name is countries things Paccars director of Investor Relations and joining me. This morning, our Preston fight Chief Executive Officer, Harry Skippers, President and Chief Financial Officer, and Michael Barclay Senior Vice President and COO.
Stroller.
As with prior conference calls, we ask that any members of the media on the line participate and they listen only mode.
Certain information presented today will be forward looking at involve risks and uncertainties, including general economic and competitive conditions that may affect expected results.
Additional information please their FCC filings and the Investor Relations page Packer Dot com.
I'd now like to introduce breast and fight.
Good morning.
Very skippers and I will update you on our excellent fourth quarter and record full year 2019 years old and business highlights.
Thanks to Packers outstanding employees around the World 2019 was the best fear in the company's 114 year history.
A car achieved record revenues of $25.6 billion and record net income of two point $39 billion, a 9.3% after tax return on revenues.
Like our strong financial performance in 2019 benefited from Paccar parts record pretax profits of $831 million and Paccar financial services pre tax profits of 299 million.
Hi, Cargos achieved 81 consecutive years of net income and a total shareholder return in 2019 of 45%.
The company is paid a dividend every year since 1941.
In 2019, I heard a clear dividends of $3.58 per share a 16% increase over 2018.
Total dividends declared record $1.24 billion.
And of course fourth quarter revenues were $6.1 billion and fourth quarter net income was 531 billion.
A car delivered 45700 trucks during the fourth quarter compared to 49300 in the third quarter.
There were fewer billing days and lower build rates in North America compared to the third quarter.
Build rates in Europe remained steady.
The U.S. economy performed well in 2019, which contributed to a strong truck market.
In 2019, U.S. and Canadian class eight truck retail sales were 309000 units the second highest truck sales in history.
During 2019, Kenworth and peterbilt combined market share increased to 30%.
Hard to 29.4% in the prior year.
In 2020, the U.S. economy is expected to grow by about 2%.
The new U.S.M.C.A. and trying to phase one trade agreements could provide upside in the economy and are good for pack or.
We estimate the 202020 U.S. in Canada class eight truck market to be in a range of 230 to 260000 vehicles.
European above 16 ton truck registrations were 320000 vehicles in 2019.
Reflecting continued robust customer demand after several years of study economic growth.
Off delivered a strong 16.2% market share.
In 2020, the European economies are projected to continue growing and we expect another excellent truck market with above 16 ton registrations in a range of 260 to 290000 vehicles.
I'd like to recognize Packers high performing kenworth, Peterbilt and DAF dealers, who are the best in the industry and important contributors to our success.
Truck and parts gross margins were 14.4% in the fourth quarter.
Truck pricing increase during the quarter more than offsetting costs.
In the first quarter, we expect deliveries to be 5% to 7% lower than the fourth quarter due to normalize markets and build rates in North America.
First quarter truck and parts gross margins are estimated to be around 14%.
Back or continues to take a rigorous approach to controlling costs throughout the business cycle and delivers industry, leading operating margins.
Other 2019 accomplishments included.
Our delivering a record 199000 trucks worldwide.
Kenworth, Peterbilt and DAF expanding the range of battery electric hybrid and hydrogen fuel cell trucks in field testing with customers.
South American deliveries increasing by 60%.
The company's focus on sustainable business practices were recognized by the environmental reporting for CDP.
For the second consecutive year car achieved an a rating which puts us in the top 2% of more than 8000 companies, which report to CDP.
Paccars one of only 35 companies in the United States to earn the rating.
In addition, we're proud that peterbilt kenworth and Paccar parts were recognize as top workplaces for women by the organization women and trucking.
Harry Skippers will now provide an update on paccar parts Paccar financial services and Paccars investments in future growth.
Thanks Preston.
In 2019 pickup parts generated.
Second annual revenues of more than $4 billion.
A record annual pretax profit of 831 million.
Annual parts revenue grew 5% and profit grew 8% compared to 2018.
Parts fourth quarter revenues were 994 million dogs.
Quarterly pre tax profit was a strong two and a 5 million.
Becker has steadily increased its truck engine market share in over the years, resulting in a greater number of effect metrics and engines in operation.
At the same time.
Vigorous consistently expanded its network with parts distribution center.
Such as the ones opening this year.
Las Vegas, Nevada, and photographs of Brazil.
Kenworth Peterbilt and up do you those have made large investments to increase their service capacity.
The growing park with pickup trucks, and pharma trends and enhanced parts distribution and service network.
Future long term growth.
In 2020, we estimate part sales to grow by 4% to 6%.
Hi, Good financial services achieved 2019 record annual revenues, one point $48 billion.
New business volume of 5.6 billion.
The portfolio assets of $16.1 billion.
The portfolio continues to perform well with low past dues and low credit losses.
Fourth quarter pretax income.
$68 million.
The same as into third quarter.
Pickup parts in fact, our financial services profit contributions and homes progress financial results through all phases of the business cycle.
I'm pleased to share the into 2019.
Got it was recognized for its products and manufacturing innovations.
Duff earn truck of the unit warrants into UK, Poland, Czech Republic in Slovakia.
And the Green truck logistic solution award in Germany.
Generally to the Gulf Beautiful Denton each earned the prestigious 2019 manufacturing leadership awards from the National Association of manufacturers.
At the CES technology show in Las Vegas earlier this month.
Our showcased the level for autonomous vehicle and two battery electric trucks.
We had a terrific turn out of people interested in Pega technology.
Opportunity to see the tricks first hand.
Kenworth Peterbilt and DAF.
Each announced that they will begin producing alternative powertrain trucks in the next 12 to 18 months.
Beggars alluded an old powertrain technologies, the driver industry, including diesel.
Battery hybrid and hydrogen fuel cell.
Decker invested a record $744 million capital.
And so you're going to $27 million, an R&D expenses last year.
In 2020, we're planning capital investments into range of $625 million to $675 million.
And R&D expenses of steel and intend to see another 40 million.
These capital and R&D projects will develop a next generation fuel efficient vehicles and enhance the company's manufacturing and parts distribution facilities.
Thank you we'd be pleased to answer your questions.
At this time, if he would like to ask the question. Please press Star then the number one on your telephone keypad.
Our first question comes from Samsung with Citigroup. Your line is now open.
Oh, Thank you good morning.
Preston maybe the first one just on that guidance here for the first quarter.
I'm looking at build rates in the industry level at least projected build plans for North America, calling for a modest small sequential step up from Fourq to one Q and I'm curious, how how pack our fits into that in terms of within the context of that.
He said down.
5% to 7% deliveries were whereas North America fits in relative to Europe , and some of the other markets.
Sure you know as we as we just said, we do expect deliveries to be overall, 5% to 7% lower.
And.
That's kind of matching to where the market really is north America is more of that than Europe is Europe's been fairly stable for us through the fourth quarter and into the first quarter and really issues matching to where the normalized market has become a where we're seeing the normalized market. So it's nice for us as we have.
We have a.
Pretty good percentage of the backlog I think is roughly 34% of the backlog and compared to the inventory where there you know we are a smaller percentage of the inventory in fact, we only about.
Two months worth of inventory, two and half months of inventory sitting in there. So we are pretty good shape that way.
And it just normalizing to the market.
Okay, all right and then on the margins in that first quarter that Theres, obviously, your you'll get a little bit more help from a seasonal perspective.
And the second quarter, but.
Hi, how are you considering that that roughly 14% margin per day in the first quarter relative to their to the full year.
So we look at the first quarter, it's kind of where we stop or our guidance to it as we look at the 14% I think thats really continuing to deliver as Packer does excellent industry, leading margins and that's kind of can assistant Lee good for us.
We're pleased to be able to deliver that that's really because of the performance of our teams on the truck side the financial services side in the parts team deposit that works really well.
Already out I will not passing thank you.
Okay. Thank you have a good day.
Our next question comes from the line of and Diagon Jpmorgan. Your line is now open.
Hi, This is Tom some national Basilan.
Hello, Hi quick question on the question, a which came in at the high than we had modeled for the fourth quarter can you just talk about what drives CEO and increase this Q4.
I had run rate 2020 .
When we look at US unit one of those things were Packers, we had the lowest SGT and the industry by a substantial amount we do a great job managing that as a percentage of sales. It was actually down in 2019 at the end of the year and we always take a look we have a rigorous approach to cost control and all elements of the business.
It wasn't up cycles and down cycles will continue to manage that cost to the to the great levels, we maintain.
Until we think about it considered very little things very little is fixed costs and just try to do a great job.
Okay and can you discuss new orders in North America, New York packet relative to the industry I think last quarter you noted.
Backlog represented 36% the industry backlog led as a stand at the end of Q4 sure a backlog is really sitting around 34%.
What we have now.
As we look at orders orders are complicated thing because it depends on everybody's inputs for what's an order and what's been canceled. So we think about more as we make sure that what we're building has a firm order a customer name on it and that's what we do and so we've been able to adjust our build rates aligned with our orders in that carries forward as the as we look into next year.
Next question comes from Stephen Volkmann with Jefferies.
Okay.
Hi, good morning, gentlemen.
Im curious Preston.
Based on what you know today, obviously things could change but are the run rates for each of your factories kind of what you'd expect to be sort of stable through the year or do you think.
At some point there'll be another production cuts needed.
No I think we think about it in a little bit more close in view that we think about where that we the orders we have right now present, the backlog we need to keep the factories running smoothly and that's what we're out right. Now we've continued to adjust as I said, we think first quarter is deliveries, we don't 5% to 7% and build kind of matches that.
Initially has to tie together, so that's where we're thinking about in the first quarter. We are operating in what we think is a good economy GDP growth is going to be up almost 2% in the U.S.. We think European GDP is growing so there's some positive reasons to think about the economy and the operating environment. So we'll see.
What happens through the course of the year as far as Bill.
Okay. Thanks can you just come in and what Youre seeing in terms of used pricing and I'll pass it on.
Sure used pricing as we said in the last quarterly is continuing to be a headwind I think in the last time, we talked about it being somewhere in the double digit declines.
And so nice things for being part of pack or as we have an amazing team and APAC or financial services group that has a great job managing.
The used trucks.
We sell the best trucks in the industry and the second owners love buying back our products, it's really one of our inherent advantages.
And the other part of it as I think we continue to invest in are used truck organization. So that we add new used truck centers throughout Europe , and North America to make sure that we are beating the market needs as we grow market share means ultimately more used trucks and we want to take care of our customers with those used truck centers.
Thank you.
You bet.
Our next question comes from Andy Casey with Wells Fargo Securities. Your line is now open.
Thanks, a lot good morning.
And when I kind of flip over to financial services revenue was quite strong can you comment on what drove.
The strength in revenue and then also within.
The financial services, the provision for losses on receivables dropped.
On an absolute basis sequentially against.
In what continues to be a pretty challenging gives credit price environment that you. Just described them I'm just wondering what the drivers were for that as well sure here you want to sure. So the second financial had a good quarter.
We have a hiccup portfolio record revenues of that drives a lot of the profit improvement.
But like a presence at used trucks continue to be a headwind for the finance company.
We.
We expect that will continue into.
The first quarter.
Christmas continue to pay their bills, a fast use a low below 1%.
Net losses are favorable too.
So we expect a with all of the first quarter.
Also the finest completed to be very similar to the fourth quarter.
Okay. Thank you and just Harry back on the revenue.
And it went up pretty significantly year over year, but also sequentially.
So was there any.
Sure some of that reflects the activities.
Volume of used truck sales the flow through to find his company.
Okay.
Okay. Thank you very much.
Our next question comes from Jerry Revich of Goldman Sachs.
Your line is now open.
Hi, good morning, and good afternoon, everyone.
Hi, I'm wondering if you could please talk about what you're seeing out of your competitors in the USA and Canada typically when we are heading into production downturn you folks are the first to cut production in your market share in the initial stages of a downturn is typically lower.
As a result in this time your production sure actually went up in the first quarter over reduction here can you just talk about what you're seeing out of your competitors on what's driving.
The different cadence in terms of your production chair.
This fourth quarter compared to the past couple of production downturns.
Well.
What we experienced right now as we have just fantastic products out there.
Dealer network.
Great products out there and I think theres just as strong demand for for our products. This really is simply that can be put people want to drive the best trucks and have the best services best Powertrain and Thats, what we offer so we build again coming back to rebuild to what in order to the orders, we have and that's driving our increasing share that's ascent.
Well as we think about it it's really kind of a a nice picture for us because they're great products.
And when you look at the overall inventory picture for the industry. So we're exiting 19 with about 73000 trucks in inventory, which if you apply prior cycles looks like the industry needs to take out about 20, maybe 30000 trucks or how to dealer inventories what does that picture look like for pack.
Just as the natural transition for some custom and applications that are completed at the dealer side, how much do you anticipate your dealer inventories coming down and 20.
Good question, our inventories are in really good shape, you said 73000, so that's kind of a round number if I use around number for us its call at 18000, Kenworth and Peterbilt combined it obviously depends when you started but as we have 30% of the market share, we really only up 25% of the inventory that says again that we're in pretty good condition.
And some of that inventory quite a bit of that inventory is with bodybuilders right. Now so we have the leader in the vocational market.
And so some of those trucks are getting bodies put onto them right now.
And then.
On the parts business you folks have continued to have pretty steady performance even though.
There's been some puts and takes for freight markets can you just talk about in your outlook for 4% to 6% growth. How much is the contribution from yeah, you're engines hitting the sweet spot b.
New truck lineup hitting the sweet spot for parts consumption versus underlying free traffic can you just give us a bit context, directionally, how you're thinking about the pieces relative to the outlook.
Yeah, I think that there's a couple of things going on in the parts team continues student outstanding job.
They have great technologies are employing is something that we maybe don't give enough.
Sharing of through E. Commerce program is outstanding and Thats doing a great job, making sure with right products at the right places as we mentioned it earlier comments, we're investing in distribution centers as well the new distribution center coming online this year in Las Vegas, Nevada, another one in pumped a grocer in Brazil, those contribute to March performance.
We continue to grow our proprietary powertrain as you mentioned, so I wouldn't say that stable that's a growing opportunity for us last year. We finished at 43% reagent sales being with our MX engines. That's great. It was 47% actually in the fourth quarter.
That's another opportunity for US you mentioned, the great trucks, and the growing share that contribute to the parts teams growth. There's just a lot of great things happening on the parts team and so we have a agree future look forward to there.
So you don't need really strong pickup in freight volumes stay at the 4% to 6% growth target, where you see is the freight volume does drive demand, but it's really about the size of the park bigger bigger influences or size of the parks Isaac our proprietary content.
And that takes a few years to mature where parts consumption is really growing again looking for things that we have a agreed amount of freight being albright freight tonnage was up last year over 3% and so that's going to contribute to utilization.
We agree with you on that.
I appreciate the discussion thanks.
Good day.
Our next question comes from.
Thanks.
Your line is now open.
Yes, good morning, guys.
Morning.
I just had a question on decremental margin I mean, if you go back to 2016, you seem to have sort of a similar revenue composition of down truck production, but very steady.
Parts and that translated into kind of a 15%.
Type decremental gross margin pre R&D is there any reason why you shouldn't be able to sustain a similar level of performance or anything to think about.
This time around reverses versus that.
Oh, you think you characterize to characterize that well and we think about incrementals and decrementals in that 15% to 20% range and so as you said we saw in the 2016 timeframe and I think that's a nice way to look at it going forward.
Okay, Great and then the parts business has remained very resilient, but but certainly did decelerate a bit as the year kind of grind. It on are you seeing any type of maintenance deferrals amid softer market conditions and when you say that you expect the business to be up 4% to 6%.
In 2020 is that somewhat second half weighted or do you think will see this acceleration back to that that growth trajectory.
Out of the gate in the first half of the year.
Yeah, I think that the 4% to 6% obviously, what we said for for how we look at it going forward and I don't think I would try to stratify the up by quarter. It gets going to be good performance throughout obviously, there can always be.
Moments of cyclicality that are impossible to kind of guess where people are going to be by weeks or months, but in general with great freight volumes agreed parts team the right product lineups and the right investments, it's going to continue to deliver.
And then just on the SG Native question you got before are you are you trying to say that SGN as a percentage of sales overall should be roughly similar to where it was in 2019.
Well, that's if you go back and look it's we're SGN as kind of run for US again comparing to the industry is.
Significantly the the.
Lean this of Paccar shows through and continue to a great job managing that us SGN, a and I think we'll continue to do that going forward.
I think the context of the prior question was just than it did jump a little bit in the fourth quarters relative to the third quarter. So just holistically. If we're looking at it for the full year, just trying to get a sense if.
I would think it'll sales.
Take a longer view of it look we're packers historically performed to know that will perform in that same level as a as I think I would I would guess at shares we will continue to rigorously manage our costs and control them and make the right decisions that build the future of the company in a great way.
Okay, and then just lastly on the R&D side, I mean, you're guiding to sort of stable R&D, but with in the context of getting too.
Production models for your alternative.
Powertrain.
Models over the next over the next year and a half.
How should we think about that I guess im a little bit surprised that that number is not ramping up a little bit as you're moving in that direction.
I think we have an amazing team of engineering people around the world and they're doing a fantastic job of looking at how we should go to production. We're working closely with all the customers whose interest is in alternative power trains that we will have the right technologies for those customers when it comes time.
We continue to do that in Packers way, which is with good decision, making prudent investments and leveraging our supply base and the other companies that are out there.
Thanks, very much you bet.
Our next question comes from Jamie Cope with Credit Suisse. Your line is now open.
Hi, Good morning, I guess two follow up questions. One when you asked when you're talking about your waters and your backlog can you distinguish between what you're seeing on to vocational side first as line haul side. If there's any different variation there and then just second a nuance when you're when you're talking about Europe relative to the retail sales died in relative to what else.
Our customers have come out to said it sounds like you're seeing Europe .
Sort of more stable I'm, just wondering if Europe is trending a little better than what you would've thought so far and if so what geographies are driving that thank you.
Let's take the first part of the question I think we are the leaders and vocational market Peterbilt and kenworth R&D to great job at that location market is is doing really well throughout you us in Canada.
Housing starts up construction being strong.
Paccar does a great job there and so that's a good percentage of our orders.
We're obviously.
Pleased with how that's working and feel like that will continue through the course of the Irrs economy develops.
From the from the European side of the question.
I think Europe is working the way we thought it might work into the first quarter, where build rates or have been stable. There for two quarters now more than two quarters and we're delivering good market share and people 11. The DAF trucks Freak continues to be moved from central and eastern Europe into Western Europe , that's kind of the continuing trend line macro trend.
And we benefit from that because the off as a market leader in those areas and it really contribute to our success.
Okay. Thank you you bet.
Our next question comes from Steven Fisher with you.
Your line is now open.
Thanks, Good morning, guys exporting morning wondering how you feel about the second half visibility and your confidence in the outlook. Obviously in the first half you have more backlog, but curious how you formed your full year market view.
And your assumptions in the first half versus second half.
Yeah, I think what we did as we said that we have a growing economy. So thats contributory, we're very close with all our customers. We spent a lot of time talking about how their business are working because that's really the underlying principle for how our build will develop less even few weeks last week or two I've talked to several of my friends that are refrigerate.
Got it carriers and flatbed haulers and truckload carriers throughout the country.
This is to see other businesses are running they're running well and yet we still feel like there will be some there was probably over by in 2018 19, and so that's going to normalize itself into the 230 to 260000 kind of a market for us in Canada.
Are those customers, telling you that they're going to start stepping up their orders at some particular point in the year to be able to hit that.
Make that 200.
30 to 60 market number work.
Not that specific you know I think people buy trucks, when they need them and there's a huge population of people buying trucks, who would be.
No not accurate to model it that way not that specifically.
Okay, and then just one quick one on the at the Finco as you think about 2020.
Should we sort of carry forward this Q4 profitability level.
For the whole year of 2020 or do you think there will be.
Some fluctuations on that relative to just.
Just demand and used values.
I think the team has done a really nice job in the Finco of.
Delivering good performance, we expect that performance to deliver through the first quarter and then we'll watches that your develops through that.
Okay. Thank you.
Our next question comes from Seth Weber with RBC capital markets. Your line is now open hey, good morning, everybody good morning.
Just wanted to circle back on the Europe question I think if my numbers are right. Your market adoption are actually ticked down a little bit.
2019 versus 18 and is there anything you'd call out there from a regional or country perspective, and do you think that that reverses you're in 2020. Thanks.
So to two thoughts to that as we had 16.2% in the 2019, which was a second best year ever which is coming up for 16.6, you're right.
That was up a point and 1.3% with huge gain and we've held onto that gain and we still good momentum right now I think the other part of it is on the medium duty side, we grew our share from 9% to 9.7% during the course of 2019, So we actually grew there.
And then I think it's I wouldn't I wouldn't try to isely down from that UK did really well, but we're performing well a lot of the markets in Europe and I think the dock trucks are really performing.
And helping our customers be successful.
Okay. Thanks, and then just a follow up on I think you mentioned pricing a price cost was positive in the fourth quarter is anything you'd.
Call out for your thoughts for 2020, you expect that to continue.
I think what we saw was was prices were.
Realized over a little bit over 2% and cost a little less than 2% and watch what happens in 2020 and see how that model develops for us but.
Theres, obviously going to be fluctuations as we go forward.
Okay. That's all I had thanks guys.
Our next question comes from David Raso with Evercore ISI. Your line is now open hi, Thank you I wanted to pick up on that point about price cost is the first quarter. The implied deliveries were down about 17% year over year, and then that contacts I think the 14% gross margin would be viewed as you know.
Fairly impressive.
Rice costs, you said it was positive in the fourth quarter can you give us some sense.
The cadence or what do you expect for the first quarter I think people just trying to figure out if there's a risk to the topline.
What's the decremental on it and the first quarter the set up on the guide you know again relatively impressive at 14% gross margin with that kind of delivery decline. So you can you help us a bit on maybe mix in the backlog price costs in the first quarter, which trying to get a sense of the resiliency of that again relatively impressive decremental in the first quarter.
Yeah I think.
Thanks, a question David I think we think about it it's really about making sure. We have the right that we that we are building the right quantity of trucks, which is obviously, obviously based on having the right orders and so we have those matched well together.
We're not seeing tremendous fluctuations in costs, we're not seeing tremendous stroke fluctuations in price. So the fact that we had a good price realization in the fourth quarter was advantageous to us and we'll see what happens as we get into 2020 and watch with that model looks like.
It's kind of price cost spread in the first in the fourth quarter, you don't expect it to be terribly different in the first or second I think people just trying to figure out is that really mixed price cost benefit to get you to stay at 14% gross margins or is it just structurally with parts and so forth that we can be somewhat comfortable enough, we do want to model.
Our conservative top line.
The gross margin Resiliencies, there I mean, that's the kind of spirit or the question.
Yeah, I think if I try to get the spirit of it it really if you think about prices because the team does a great job of supporting customers and people are willing to pay for trucks us the overarching thing going on price to me is that people want to back or product because of the best.
And then they are willing to buy those products I think that part of the truck part and other gross margin performance has to do with the strong performance of our parts organization. So that as a as truck sales is down or its mixes up that's a contributor as well.
And really should both of those things that keep us performing at the industry leading levels.
But it's not necessarily because price cost gets notably better in the first quarter as and to be some thought your costs are down from steel. So there's nothing theres nothing substantial there.
I appreciate it alright, thank you.
You bet.
Our next question comes from corn, he has a bonus with Morgan Stanley . Your line is now open.
Morning, guys I'm just stuck on on the Finco again, I just wanted to understand because it seems like your pretax profit was down and I I think Steve. It asked earlier just about carrying forward the margin, but is there anything one time that was impacting.
Margins this quarter or is it just the weaker used values are there any impairments are at or increased depreciation expenses that are really causing that big step up in the interest and other borrowing extensive.
Your your final statements characterizing it actually what do you say as we had record new business volume in 2019. The 5.6 billion that was a contributor to revenue growth and then more volume on the U.S side was the other contributor revenues and and that was the headwind on the profit side.
And I think you mentioned that you're still seeing that double digit declines in U.S have you seen any stabilization and used values or is it.
It's still wait and see kind of how that marketing shakes out.
What is a dynamic market I think that the nice thing is as I said and it can't be overstressed affected, especially maybe the second the second equally the second owners really like our products. So that's helpful to us from the price position compared to the rest of the industry.
So that works to keep us at a premium.
Just for the first but the second owner and that I would share your comment that things have stabilized a little bit we see one way to look at that is it the amount of inventory coming in as equals the inventory going out. So that's helpful. As well, we're not building used inventory.
And so.
Kind of the state of where it is right now.
And then just what the Capex side I think your Capex for the year came in about 100 million below what your guidance had been any obviously didn't change the capex guidance for next year. So just wanted to understand.
What that discrepancy was.
And if anything is proceeding ahead of schedule or or any projects got caught.
No in fact, that's not exactly how we saw we saw capex was kind of slightly higher than where we started and.
And we have the a good cash flow or Capex plan for 2020, as well, which is going to deliver the great products, we need I wonder if you're looking at the cash flow statement is more than yours.
Capex commitments.
Okay, Yeah, I, just look into 575 versus the guidance for 6.6 75, but maybe maybe that's the issue.
Yes.
Yeah, I think sub 40, where is the number that we're talking about for 2019.
Okay perfect. Thank you for clarifying that a bit and then a and then just lastly, you I think the comments that your belt is remains to study I just want to actually that that means you really don't anticipate any further production cuts from the left from the built right. So you're not currently.
I think what we said as we would expect in the first quarter, the deliveries would be down 5% to 7% and that that's obviously.
Matching the order intake.
Okay perfect. Thank you.
Fit.
Our next question comes from Joel Test with BMO. Your line is now open.
Hi, guys hasn't gone.
Really good how about for you hanging in there.
So I wonder if we could if you could spend a minute just talking about Latin America about how the set up is kind of what your market share is looking like and and.
How are you thinking gain a little bit more share in 2020, and just kind of the setup in the market there.
Sure. It's a it's been a fantastic journey for Sir we have a great set of dealers really need products down there.
Got a lot of.
Success with the dealers and the customers I think the brand reputation for doff in Brazil is grown tremendously in just a very short period of time.
We're looking at our at our at our market share growth opportunities as being substantial we think for the market is relatively stable down there. So.
So Brazil's comes in at 75000 to South American market overall as 100 to 110000 as we noted we increased our deliveries by 60% last year in South America, So substantial growth that way and well does look forward to continuing growing the truck sales. The parts business is doing really well we introduced the financial service.
His business for a customer financing in Brazil last year, so lot of good activity happening for us in South America.
Okay. Thank you you bet.
Our next question comes from fuel exposure with Raymond James Your line is now open.
Yeah, Hey, Thanks for squeezing me in here I appreciate some of the color on the parts outlook, but as for sort of dissecting some of the different buckets within the business I'm curious if you have an update on the TRP stores. How many do you planned out next year and maybe any color on some sort of same store sales growth number and that existing base of the stores.
TRP has been a great. Great addition for us and reaching a new customer base they've done a fantastic job of that there's 210 stores now that are.
In operations, so that's growth year over year, we'll keep growing the number of stores, where they make sense with our dealers.
All around the world that's in Europe , it could be in Russia could be in South America in North America, all the above really so we'll continue to see the brand grow and performed well and bring new customers to paccar.
Okay, and then just curious to see if you have an update on on the margin profile into next year for the parts business on one hand, you obviously have the aging MX engine population and then the other one the TRP revenue increase that any color would be appreciated I'm not I think the margin profile will stay relatively the same rate.
Okay, like 20, 720% and that kind of range.
Thank you you bet.
Our next question comes from Adam Allman, with Cleveland Research. Your line is open.
Hi, guys. Good morning, good afternoon.
Good afternoon.
Hey, going back to the MX engine looks like you had pretty strong fourth quarter I don't know how much of that increase was.
Mix of customers that you're shipping the engine out too but.
How are you thinking about your penetration rate for for this year.
So we have a we have a great powertrain offering obviously with the MX engine. That's that's a core of it we agree relation with Cummins as well, we disagree jobs supporting our customers with their powertrain, we did grow our MX engine share to 47% in the fourth quarter for full year average of 43% part of what enabled that as we invested in manufacturing capacity and of course.
For the year last year, so we have adequate capacity to build as many amex's as we walk for the customers.
We look forward to seeing that continue to grow as we move through the cycle.
Okay got to and then just a clarification again on the on the financial services revenue can you tell us how much your used truck sales were up and not in the quarter.
I don't have that detail sitting around in front of me, but they did increase I just don't know the number in front of us.
Okay. Thank you.
You bet.
Our next question comes from Matt alcohol with Cowen. Your line is now open.
Good morning, and good afternoon, everyone. Thanks for taking my question.
Thank you or your heavy duty percentage tends to be around 85% historically.
So first are you still comfortable with that breakout longer term arm and the second part of my question what was it in the fourth quarter.
So we think that that general percentages, okay, but we have great growth opportunities in heavy side in the medium side as we look forward to it. So we'll continue to see shared developer Packer positively steady approach to it and been very successful growing share.
And we'll continue to find that seem success I don't think there'll be much of a shift, though and I don't have the exact number but you can your numbers of ratios were about right.
Okay and do you think you may have picked up some.
Shared with the the GM strike in the class six to seven categories in the fourth quarter.
We picked up share because we just have great trucks, great people great dealers.
Got it and then just one one other question. That's a you know if we take a longer term view.
Could you update us on your strategic priorities anything thats likely to become more of a focus more of a growth driver whether it's a specific reason or.
More vertical integration of paccar engines, or alternative technologies or anything else.
Well you hit some of them right, we're going to keep growing organically, we're going to grow geographically, where it makes sense and provides profit for the corporation and we're going to keep making the prudent investments and technologies that deliver great trucks and power trains to our customers when they need them. So all of those will be areas that we grow it.
Great. Thank you very much.
Good.
Our next question comes from Rob Wertheimer with millions research. Your line is now open.
Hey, everybody.
My question. If you gave helpful comments on European market share or you are you willing to sort of talk about your theme of improving straight truck market share, whether that's progressing and whether you need that to work to sort of get above a certain threshold than any update you can give us there.
As it continues to continues to be a focus will continue to do well with it we did grow as a percentage there and the straight truck market thats going to continue to be an area of we just talked on the prior question is organic growth for us.
Are you growing both well.
You have room to grow up [noise], both tractor and straight truck share in Europe or is there any kind of limit on the on the on the tractors type.
Bill there's no limit I mean, we're the market leader in tractors, and we'll continue to be enjoying that and looking for extension of that growing on the straight truck side as well.
We have the product into the straight truck side. So if you look at markets, where Duff has been for a long time to UK, Netherlands, Belgium, a straight took mark trip marketshare, there's about the same as attractive market share. So we do have the products.
Just a metal of growing that business also in markets like Germany phones, Italy and Spain.
Okay. Thank you and if I can I don't know if it doesnt answerable question, but I'll ask it anyway, just what's your what's your Hum.
In a normal up and down cycle, what's your preferred pacing up production changes given supply chain, given ramping et cetera would you be looking to make a judgment adjustments, one and two quarters out or two quarters in three quarters out just a I know you don't try to whole lot of inventory not trying to stop the dealers just a little bit about the rhythm of how you think about production.
Yes.
Yeah, I think we build trucks to orders the is the essence of it which is different than the than the automotive industry, but we do as when we talked for customers and they need to truck than we schedule that in and we try to maintain some kind of a visibility with us for a 12 weeks.
And that's how we define our production schedules.
Okay no. Thank you.
All right.
Our next question comes from Joe O'dea with vertical research. Your line is now open.
Hi, good morning, I'm, putting my impression so far and commentary around pricing expectations is that it's more of a wait and see into 2020.
What we saw the last time demand did soften in 2016 is that there was a little bit of pricing pressure and.
Im just curious whether you anticipate that we should be looking at something similar just given a little bit softer demand or if you're seeing anything different out there across competitor behavior that would suggest that the pricing can hold up.
I think if you think of it in terms of truck part and other we in the truck side, there will be obviously market dynamics drive differences. We have a continued strong performance, an increasing percentage of or performance coming from parts and they're doing a great job. So it's a little bit of balancing factor to it.
Back to prior cycles, but no I don't think you should think that deckers into anything except delivered the best margins in the industry.
And then use related but a little bit more of a have a mixed type question. Similarly going back from if we just track 2015 to 2016, the average truck price was down and it was more than just a just a pure pricing effect.
Is there anything to just be aware of with general mix in a softer demand environment, what that means for average unit pricing just given the mix effect.
I don't really think so.
There's anything in there.
Okay. Thanks, a lot.
But.
Our next question comes from Jeff Kauffman with loop capital markets. Your line is now open.
Thank you very much high everyone.
Hey, you know lot of the real smart questions have been asked here I just want to follow up with with one I think I know the answer to and just a detail.
When you're giving the 5% to 7% down figure that's that sequentially versus Fourq you, that's not a year on year number correct, yes correct.
Okay. Thank you.
And then secondly, with the U.S. pulling back a little bit more than Europe .
At least in the outlook, how should I think about tax rate or are there any other.
Changes that I would think about two to some of the other line items that would occur as a result of that.
Yeah, I don't think you can theres not much change attach rate overall.
Okay, so consistent with where we are this year.
Okay. That's all I have thank you very much and congratulations you bet in every day.
As a reminder, ladies and gentlemen to ask a question. Please press star one on your telephone keypad.
Next question comes from Andy Casey with Wells Fargo Securities. Your line is now open.
Hello again, thanks for the follow up.
Hi, Ed to two questions. One short term I know, it's a smaller volume market for you, but you have pretty good share over there I'm wondering if you could comment on whether you.
Do you expect the Australian natural disasters to have any tangible impact on 2020 demand.
Well first of all our hearts improves go out to the people there and the countries that affected by that adversely affected two but no I don't think in the longest term is going to have any impact us we'll continue to be the market leader.
Okay. Thanks, and then separately longer term.
You talked about it at CES and that again a release today. The battery electric trucks is expected to hit the market year to year and a half from now.
Are you based on your work with a customer seeing any potential for acceleration in adoption rates.
Versus what you originally expected or is it is it pretty much on track.
It's pretty much on track it has to be commercial sense or be regulated in and we have really good partnerships that we're working with to bring the right trucks to the customers and.
We will supply them, the best trucks, best alternative powertrain trucks as they need them.
Thanks, and then at a little bit more detail on that Preston.
Yeah Kinda divergent.
I think divergent potential regulations going on between the EPA and.
And car, maybe that's been closed but.
Is there potential for a significantly different adoption rate and let's say, California and associated states versus the rest of the country.
There could be I mean that can happen it can happen in Europe that way as well I think from our standpoint, that's not going to materially affect how we developed the products that we're going to dues develop the.
Technologies with the highest performance and then we will just supply those are the markets they need based upon where the customers are operating.
Okay. Thank you very much you bet.
There are no other questions in queue. At this time are there any additional remarks from the company.
We'd like to thank everyone for joining the call and thank you operator.
This concludes todays Packers earnings call. Thank you for participating you may now disconnect.