Q1 2020 Earnings Call
It's called.
All lines will be in listen only mode into the question answer session.
Today's call is being recorded and if anyone has any objections. They should disconnect at this time.
I would now like to introduce Mr., consisting of course director of Investor Relations.
He's saying please go ahead.
Good morning, we would like to welcome those listening by phone and those on the webcast. My name is kinda Hastings.
As director of Investor Relations.
Joining me this morning, our Preston fight Chief Executive Officer, Harry Skippers, President and Chief Financial Officer, and Michael Barclay Senior Vice President controller.
As with prior conference calls, we ask that any members of the media on the line participate any 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 expects results for additional information. Please see our FCC filings and the Investor Relations page on Packer Dot com.
I would now like to introduce Preston fight.
Well good morning, everyone.
Harry Skippers and I will update you on our first quarter results in our business highlights.
I'd like to begin by expressing my sincere, thanks, and appreciation to all pack our employees for their dedication.
Hard work and their upbeat spirit as we tackle today's challenges and work towards a bright future.
The trucking industry has been declared as an essential business.
Paccar employees, along with our dealers are providing critical support to our customers, we're delivering medical supplies.
Food and essential services to our communities around the world.
I also want to express my gratitude and thanks to the millions of men and women are working hard to support those affected by the pandemic.
I'm pleased to share that the Packer Foundation has donated $2 million to United way and other organizations to help our communities.
Over the next few weeks, we're beginning a gradual resumption of truck production at selected factories.
Specific restart timing for each plant in office location is being aligned with government directives.
Implementation of our work in social distancing measures.
Parts availability from suppliers and our business needs.
During this gradual restart our highest priority is on ensuring the health and safety of our employees and their families.
Looking at our first quarter financial results Paccar achieved good revenues and net income.
Our first quarter sales and financial services revenues were $5.2 billion.
At first quarter net income was $359 million.
Paccar delivered 38400 trucks during the first quarter.
Hi car parts achieved quarterly revenues of $999 million.
Parts pre tax profits were a record $215 million.
3% higher than the same period last year.
Truck and parts gross margins were 12.3% in the first quarter.
The first quarter results included $15 million and higher accruals for product support costs.
Paccar financial achieved pre tax income of $40 million.
Das Peterbilt and Kenworth delivered excellent heavy duty market share in the first quarter.
Kenworth and Peterbilt us in Canada market share increased 30.4%.
Compared to 30% for the full year 2019.
Das European market share increased to 16.7% in the first quarter compared to 16.2% last year.
And in Brazil, and the above 40 ton segment first quarter it off market share increased to a record 8.7% compared to 6.1% last year fantastic work.
Paccar has steadily grown market share over the long term by delivering excellent value to our customers in terms of product quality.
Innovative technologies and low total cost of ownership.
The global macroeconomic environment is uncertain at this time.
Therefore, we will not provide guidance on estimated 2020 truck industry market sizes.
Next quarter's truck deliveries and gross margins and paccar parts revenues.
Our employees are doing an excellent job managing through the pandemic.
We are rigorously aligning cost to the changing market conditions, including reducing capital investment and research and development costs.
As a result of the company strong culture and discipline, we've achieved 81 consecutive years of profitability.
And have a bright future.
Harry Skippers will now provide an update on paccar parts Paccar financial services and other business highlights Harry.
Thanks Preston.
Hi, there continues to provide strong operating cash flow.
Reinvestment of future growth.
Distributions to stockholders.
Operating cash flow was $416 million into first quarter.
Back our delivered excellent return on invested capital of 23% over the last five years.
Due to a combination of strong profitability.
And a consistent conservative approach to existing into business.
Yesterday that Pega board of directors announced a regular quarterly dividends.
32 cents per share.
Like our has a strong balance sheet.
With $4.3 billion of cash and marketable securities no manufacturing debt.
And an eight close to one credit rating.
Pick apart achieved quarterly revenues of $999 million, we just comparable to the same period last year.
Parts pretax profits records to another $15 million.
<unk> percent higher than the first quarter last year.
To drive growth.
Has made consistent investments two parts distribution capacity customer focus technologies.
Like a parts will open two new parts distribution centers this year.
One is in from the gross of Brazil.
The other one is in Las Vegas, Nevada.
Pick apart as also made significant investments in ecommerce platform, which is benefiting our customers and view those in this challenging time.
Pick a financial services first quarter revenues receivable at $84 million and pretax income was 48 million, reflecting lower used truck sales results.
Kenworth and Peterbilt truck resale values come on to 10% to 15% premium over competitive strokes.
Our financial is investing to increase its retail used truck simply capacity worldwide.
Which enhances its used truck sales margins.
Like our financial recently opened or used truck center in Denton, Texas.
Thanks to open additional used truck.
In product Czech Republic.
And in Madrid, Spain this year.
Hi, Good financial services has excellent ongoing access to the debt markets, including commercial paper on a regular basis issuing commercial paper on a regular basis.
During the first quarter Packer issued three five year term notes totaling $632 million.
In addition in early April.
Our financial issued 400 million dollar three year fixed rate nodes.
We have reduced 2020 capital expenditures by $100 million to a range of 525 to five front on the $75 million.
And after juice research and development expenses at $45 million to arrange of 265 to 295 million.
Like our strong financial position enables us to continue investing an important capital and R&D projects in all market conditions.
And finally, we think our excellent independent Kenworth Peterbilt and DAF do you have those for their support of our customers.
Kenworth Peterbilt and Duffy lives are well capitalize.
And have invested $2.6 billion in their businesses in the last 10 years.
These investments continue to make significant contribution.
Cars truck market share.
Pick apart and financial services performance.
Thank you we'd be pleased to answer your questions.
Hi.
Ladies and gentlemen repeatedly asked a question. Please go ahead. Please press Star then the number one on the telephone keypad.
Again Star then one to ask a question.
Your first question today comes from the line of seasoned book of Jefferies. Your line is open.
Great Good morning, everybody. Thanks.
Sure.
Maybe we go back to your comments I'm curious about a little more detail about how you're thinking about reopening production because you made a number of things. There you mentioned sort of local regulations, you mentioned Billability and then you mentioned kind of market demand.
So there's sort of three buckets to think about there but.
Can you give us any more color of the rate of re opening that you might expect as we go forward.
Hey, Steve and good to talk to you.
Sure glad to I'd tell you that the most important thing as we think about restart is again its keep reps reemphasizing. This is the health of our employees their families are concerned for getting it right, making sure we take care of them. That's number one this number two and Thats number three for us actually.
And then as we look about it we obviously want to make sure that we have alignment with the government agencies, that's really important to us.
Staying alive with best practices for how we can reopens research Society.
It's also important that we think about our supply base and their readiness for the restart of our factories and make sure we stay aligned with them and then of course, our business needs. So all those things together, we're thinking about it I can really pleased with the best practices that we put in place in the factories.
As far as temperature taking for our employees.
Distancing protocols.
Separation of the employees with spacing and barriers and then wearing masks and personal protective equipment and enhance cleaning. So all those things are going into our approach for reopening the factories.
It is going be a gradual reopening it is going to be done on a location by location basis phased manner. We already started some this week factory kind of in the startup of operations in Europe and Australia.
And then we will work through the rest of our plants in the coming weeks and make sure we take care of employees and bring the truck factories back up and running.
So would you have everything back up and running at some level by the end of the quarter perhaps.
Good way that kind of put bookends around that.
That's a long window note that feels pretty good about that it we're thinking of sooner, but we obviously don't has the final answers and we are working through that in a constructive way with the local agencies and supply base.
Great. Thanks.
You bet.
Your next question comes from the line of Andy Casey of Wells Fargo Securities.
Line is open.
Oh, thanks, and good to talk to everybody today.
Good to talk to you too.
I guess following on Steve's question.
Got it really has a strong supply chain management track record you mentioned that.
Yeah, that's one of those factors.
Couple of questions, if I may about that first.
Have you encountered any smaller suppliers running into liquidity issues and then second.
It seems like.
Well, maybe looking at kind of a piece meal reopening yeah in terms of wind to ease the current virus containment efforts.
How how much of an impact sledge challenge could that have or be gets for operations.
Back up and running.
Great question. It's a fund is funding for our teams to be working through right now with our suppliers. We have such good communication with them right now that it's really helpful to know.
When you can tell the relationships matter is we're paying attention to what what they're doing and when they're restart timings are.
And.
Large and small suppliers have been doing a really good job of keeping us informed of their readiness and they're doing the same things. We are they are trying to take care of their employees, they're trying to make sure. They stay in line with the governments and then theyre moving forward with restart and so so far that's part of the whole puzzle, we're putting together and getting the truck factories backup.
Okay.
And then just a question on the.
On the quarter and the truck segment.
Yeah, the decremental margins were.
Somewhere around 25% of 26% revenue dropped.
It's not that's the highest packers ever seen but it's kind of higher than typical.
You mentioned.
Product accrual was.
Yes running high.
But.
Could you give us a little more color, but what kind of drove the margin compression me obviously some of it as is the shutdown.
Well I think that.
As you mentioned, we had the $50 million that we took the opportunity to book.
For the improvement of our.
Continues and refinement of our engines are MX engine was a lot of that we're doing some software and hardware upgrades on the engine. So thats something that we want to do is make sure that our customers keep having the best experiences account their engines and.
As far as with the future looks like we're going to see how the.
And demick works its way through the system.
And that will certainly be.
Something we're all watching closely.
Okay. Thank you very much.
You bet.
Your next question comes from the line of Gerry.
Goldman Sachs. Your line is open.
Hi, Good morning, everyone I'd love to hear your your older Wells.
Good morning.
I Wonder if you just give us an update on dealer inventory levels personally discussion, we had last quarter, obviously different environment, but I'm wondering if you could give us an update on.
Declines in dealer inventory levels.
In March and anticipated declines.
From here and in the conversation around timing of the restart Im wondering if that.
Calculus has evolved at all given potentially an opportunity to lead out.
Inventories before werent ramping up production.
Sure sure but too.
So the North American industry is roughly 3.8 months of retail sales in inventory Paccar has less net were 3.4 months retail sales through March for Kenworth, and peterbilt dealers and of our 3.4 months roughly half of that is at bodybuilders. So that's being worked on right now and.
Im sorry inventories in really good shape right now.
Okay.
In terms of them.
Parts part of the business. Then you can you talk about what the cadence has been in April obviously very steady performance in the March quarter.
I'm wondering if youd be willing to talk about what care trends you've seen.
So far in April.
The things, it's it's interesting and just kind of gives a little help I hope is that.
75% of all goods are moved by trucks and so a lot of the trucking companies are really busy right now and they're moving around the country.
Taking care of our communities.
And as that's happening those trucks end up consuming parts. So there was a lot of.
Strong activity in March and we still have activity going on in April and what kind of watch how the quarter develops but but we expect our parts team to continue to perform really well.
Great programs, what things has been nice to watches their ecommerce programs and the weather Headley, our customers and working directly with customers and dealers to support these critical needs is going really well.
Okay.
And then in terms of.
The operational discussion.
The conversation just had been Andy on.
The warranty program. So if we back out the warranty program decremental margins would've been 20%.
Is that the sort of run rate.
Comfortable thinking through or is the level of being shutdown curve.
Yes, most of April if not old April does that through that Hasnt decremental margin math them off kilter as we think about what these corporate might look like.
I think that were.
Assessment of the impact of the product support fees does match into the margin, but I would say that looking forward and what is going to be going forward, we're going to watch other other situation develops and when we get our factories running and what the state of the economies in the second quarter.
And maybe just a clarification on the warranty program was that just a onetime over their software update or across the population or can you just give us.
Some context behind.
What exactly that warranty item was.
Well, we had the opportunity to optimize the performance of.
Our trucks and engines, mostly on our MX engine for the 2017 to 20 thinking engines, and so that was hardware and software upgrades.
This accrual, we think that that'll covered and making sure that our customers have optically performing trucks and engines always part of our game plan.
Yes. Thank you.
You bet.
Your next question comes from the line at some time Citigroup. Your line is open.
Thank you and good morning.
First question I had was on and loss provisions within that within the Finco and.
I think we're certainly higher than I was it is expecting at least the absolute level was not not obviously not directionally, but maybe if you could you comment there in terms of as or a specific region or or.
No customer said that maybe you'd call out.
And I'm, just thinking about how how that potentially looks going forward.
Should we at least shorter term habit and more challenging backdrop for.
Truckers.
At least in North America. So maybe just just how to think about.
Again loss provisions and what you experienced in the quarter.
Yes, the 50 million dollar increase and a.
Credit loss provision.
Reflects the the weaker economy.
We could economy under the new Cecil accounting standards.
Because of the more volatile number.
With that we can economy.
The calculation resulted in $50 million higher credit loss provision, if we look at the finance company.
The portfolio is in really good shape, we have a very healthy mix of.
Very good and be customers and past dues.
Okay and really low.
Currently less than 1%.
So finance company.
Is in good shape, but the the weaker economy, Andy the accounting standards.
Drive most the increase in credit loss reserve.
Okay. Thanks, Harry maybe just one last one.
Question, Jim curious on from the parts team how.
And that ensure at how closely they follow my Butt Mackay I and I know, you're not talking arena, giving guidance on.
And part sales, specifically, but I.
Kind of jumped out at me ask Mackay put out a forecast the other day that they expect and again this not to say this aligns with packer exactly but.
Talking about it parts demand to be down like 20% in the U.S. Im just curious if you had any comments on that.
I don't really have any comments on the case numbers I know that we're watching is a team has got great programs and.
Really strongly positioned to support with not just parts, but knowledge and they're doing a great job of that and as I said talking a lot of customers and our dealers. There is a lot of activity still going out there and we'll support at the level it's as needed.
Got it thanks a lot.
Your next question comes from the line of and I do have JP Morgan Your line is open.
Hi, good morning, everybody.
Putting in warning.
On the used equipment values and you know that 28% of your finance book is your pain and most of that I think is probably guaranteed residuals. So can you talk about to be used pricing and they think of business and what that might manifest itself how that might manifest itself has been go forward here.
Our used truck prices.
In Europe came down a little bit into the first quarter North America used prices was mostly mostly flat of course down compared to where we build a year ago.
Kenworth and peterbilt trucks and come on the tend to 50% premium over competitive vehicles.
So in really good shape from that perspective, but adding used truck retail centers.
Opening one and.
Czech Republic.
This quarter.
Just added one and Denton, Texas.
The.
Used truck inventories as far as we can tell in.
Europe are a little bit higher than where they've been especially for the industry.
Thus used truck inventory isn't because other typically good shape, if you compare to where they just have the inventory at the industry is yes.
I think we want that Oh, that's exactly right I mean, where we are of a lower percentage of the inventory of used trucks in Europe than the industry doesn't that puts and good positions.
But you didn't call idea used prices in Europe thing.
We are weaker than they were a quarter ago are weaker than they were.
Last year.
A little bit lower than a quarter ago.
Lower than than a year ago, but that's kind of industry wide industry Rob.
Okay, and then just on production cuts can you give us any kind of direction in terms of the number of deliveries truck deliveries you had a inc. Q1, and any idea was as you ramp back up what you would expect deliveries to be quarter over quarter. I mean, I know you can see past.
The second quarter, but as you ramp and any directionally at least give us an ballpark for Q1 and then.
Where we might think about Q2 being.
Sure and we could talk little about that in that deliveries were 38400 for the three month period.
But as far as what we'll see going forward like I said I'd come back to is our biggest folks right now is making sure that our employees are well cared for and as we watch that take care that that will ramp back up our production aligned that to the demand and we'll see where that takes us in the second quarter.
Okay I leave it there and the interest of time. Thank you Okay talk too soon.
Your next question comes from the line of David Raso of Evercore ISI.
In line is open.
Hi, Good morning, Oh, My question sort of bigger picture trying to think about this period.
The nuances of how this is different or similar then oh wait on nine sort of how you what are the differences the similarities between how you're handling this period in that period would maybe three things in particular, if you could address at a minimum you mentioned in your prepared remarks 81 consecutive years of profitability.
Obviously backing on there were two quarters that were base around breakeven just wanted to see if you could address.
The idea of this being your number 82, just if you're willing to speak to that second the gross margin declines roughly we're kind of 14, the half 15% they dropped down to eight to eight and a half in 2009, just trying to get some sense of magnitude what's different about the business model more parts whatever may be and lastly, the special dividend.
Your balance sheet. The equipment company was still net cash back in no nine be sold shows to greatly reduce the special dividend year over year, just wanted to try to weed those threeq key pieces and and answering the question of the differences in similarities of today versus the great recession.
Sure David Good to talk with you.
First off you guys start thinking that we did succeeding though eight or nine and as we look at the company right now as we sit here in 2020 were an even stronger company than we were there.
We have $4.3 billion and cash sitting.
On our balance sheet, we have great liquidity, we have great access to liquidity in the market still that hasn't changed during this timeframe. Our parts business has grown over that more than a decade issues, a foundational part of our business and as a great job.
And we haven't experienced leadership team that is enter a lot of cycles and we know how to manage things we know how to control costs than we have amazing trucks and engines out there. The MX engine is doing a great job and 43% of our build so thats helpful to us from apart standpoint, just the business that we built is really strong is doing a good job taking care.
Our customers and freight continues to move in this environment. So we feel positive about.
Our future products, we have on the field and those that were developing.
But could you address those three issues to some degree just the idea of how wherever you feel the flexing your costs how the situation may be an even just your framework sounds like you do expect obviously, some uneven but at least some reopening of the factories in the not too distant isn't future.
Can we look at own on as a guide point that if you're able to stay profitable in that environment. This should be similar the gross margins getting cut in half roughly a little bit better than that is a framework and also the handling the special dividend. If you can just give some parameters of the difference now versus then for those three issues in particular.
Let's just take less than you mentioned on dividends, we announced our dividends yesterday for the first quarter 32 cents, a share which has a strong indicator of what we've done.
We have agreed history of dividends and we'll look forward, what our future is going to be and Thats, a board decision and we take care that as we progressed through the year based upon the results.
I think that I don't think that it's a fair thing to think of it isn't Oviedo nine kind of thing there just different each situation is unique and what we've got is free being moved kind of giving you that kind of the truth of the matters afraid as being moved our company as well built we have a great position in terms of our liquidity.
Our cash position product investments our trucks are the best in the world and I feel pretty good.
And the comfort in the larger parts business in a business that's more on your own vertically integrated drive train them back Dan is that something else that.
We should take a little more comfort in versus Onein, but at the same time the unevenness of the production. It's it's really less of almost your decision that when when you can ramp up.
Means that the yet on Yankee or better about parts, a little more uncertain about the truck margins just given that in a way of them out of out of your hands sure. We have to we have stronger stronger foundational parts market. We have the growth in our engine business right and we don't I wasn't here in North America. So thats. Good I think the other thing think both share growth over that.
Timeframe has been significant so we've had really strong share growth over that time, which contributes extra volume to us and Packard is a great job. Our team is so good.
Adjusting the business both in capital and expense side to think about how the business should be run in so we really do adjust to the market conditions.
Alright. Thank you very much I appreciate the time you bet David.
Your next question comes from the line of Joel.
PMO Your line is open.
Hey, guys have dawn.
Good Joel good talk to you.
Yeah nice to hear your voice as well and so just a follow up on on kind of the this thrust of of and David's questioning does your intelligence like what what you know and see today and here does that give you a sense that by the end of the second quarter, you'll be able to give us more a more.
Or.
Whatever it is like a clearer view of what the rest of the year looks like and how things play out.
I think thats the as a general sense, you know it seems like but by the next quarter just through as well a lot more information than we do today and and we will share you share with you what we can't at that point.
And then I wonder if you could give us a little bit of a sense you know like you're probably hinting at flexibility in the factories and every time you walk through you know there's no there's fewer and fewer people are there's more automation whatever the way right. When it say it is can you give us a sense of some of the internal focus points, you guys or how to use.
In this you know this pandemic as an opportunity to come out of the situation stronger over the next five or 10 years that then youre going into it.
Well I think Joe.
What I look at his first the first and because of my mind is when we go to our factors when I go to our factories I meet with our people whether it's on a distribution center a truck factory or anywhere. It's just how impressive. They are we have such an incredible group of people and.
There are just exceptional they're just exceptional people im so proud of them and what they're doing.
So they're the ones that are everyday thinking of new ways to optimize our efficiencies and effectiveness as they do it every day and they continue in that vein and we use six sigma as a great tool for ourselves.
Optimizing and we'll continue doing that.
This is accretive time for us as we look at truck production and how we come back and we will learn some new things and there'll be helpful to improving the business and making us even more effective and efficient as we look forward.
Oh your employees are going to make make a recording of this and come back to you and asked for a race next January thanks very much.
They are the best in the World are fantastic.
Your next question comes from the line as David Magee of Baird. Your line is open.
Good morning, everyone. Good morning.
I want to train dig through a little bit of cut to the segments within the trucking space.
And your customers mean there.
Some parts that are that are strong consumer focus package delivery focus there are some that are really weak energy and auto related can you talk a little bit about that customer mix for you for your products and and how that would compare to the industry overall in general.
Sure as you did a good job as summarizing what's really going on as if you look at refrigerated carriers of protein haulers.
They obviously I've just seen a shift in where their business is going so those long haul trucking companies that are delivering that or are doing well.
Locational segment is where we're a market leader the market leader and that business has been strong and I mentioned that part of our inventories at bodybuilders right now so that inventory is being built being ready for production for summer season.
And I think as you look at some of the some of the over the road trucking companies. It varies by company talking with some of them. They have a good base of customers and those that have a good base of customers there will really well positioned and there as you said the energy sector has been lower.
But the Yang to that Youre seeing is that fuel prices are down 20% and if fuel prices are one third of the operating costs for trucking company.
Then that's helping them from their operating models as well. So that's kind of you characterize it well that's a little bit more information on it.
Okay great.
Thank you. Thank you thought that Delaney.
Okay.
Our next question comes from the line of Ross Gilardi Bank of America. Your line is open.
Morning, guys.
For us.
Adequate two questions first on on the Ptcs and the two additional.
Ones that you're going to add can you quantify at all how big of a global increase and.
You know parts footprint that this will represent when you when you open them and do you worry at all about adding.
Parts distribution.
Capacity in the middle upper recession.
And I'm trying to just get out like how many you guys have you guys have added a lot of distribution centers over the last.
Five to 10 years.
Granted that that market not going to move like you know these volatile as the overall truck cycle, but.
If we're in a slower economy for a longer period of time Dean bump up in will limit at some point is that.
How much you can continue to expand that that distribution.
At work.
Sure. We have 18 distribution centers will be adding two more it was down in Las Vegas facility, a couple of weeks ago, New and it's just beautiful.
And I know the employees were excited to move index, we were talking about it.
I think one of the things happening is there's there's always opportunity to gain share. We continue to use those distribution centers and the best practices around them to gain share for example.
Our distribution centers are more closely aligned to our dealer body, then we're able to deliver more overnight parts to our customers and keep their uptime at maximum levels, which is one of our key objectives that gives us a competitive advantage against the market. So.
Part of the thinking is not just about parts and storing them, it's about getting them to the customers as quickly as possible and that's going.
And really successful for us and helping the parts team grow the business.
Okay. So is it fair.
Are they all fairly similar in size of you adding to want to on a.
At work of 18 is the sort of like.
A 10% increase and will the business benefit from just some type of pipeline fill in a that'd be a second quarter event or second half of that.
That will help continue to support the topline for the parts business this year.
Sure you're right in saying it will continue to support the topline growth for the business.
And yes, roughly 10% there is some variance in the size of the pieces, but the roughly the right order it seem orders of magnitude.
Okay Gotcha and then just just lastly can can you quantify your energy exposure I realized that it it's tricky, but maybe at the very least you could you could tell us what portion of your U.S. and Canadian dealer network is located in the Gulf region or other energy dependent regions and anything like.
That would be really useful.
We have a very diversified portfolio.
It's not concentrated overly in energy sector. So.
The dealers that have there are some dealers that obviously have more exposure.
But our dealers are doing just such a great job of building their businesses. They have good absorption good parts and service businesses throughout diversified customer basis, even for themselves and so dealer body, some really good shape and managing that well.
Okay. Thanks.
You bet.
Yes.
Your next question comes from the line is James.
To your line is open.
Hi.
Good morning, and I'm glad everyone is a healthy you know okay. In this environment I guess just.
Two questions. One can you just talk to like on the truck side in Europe in in the U.S. like what you're hearing from your customers in terms of you know trends in April in understanding you don't want to give an industry forecasts, but what your customers are sort of telling you how they're thinking about the year because that would imply you're probably managing your business.
As for that.
For for whatever they're telling you and then I guess just my second question understanding you're taking that initiatives to cut R&D in capex, but how do you think sort of the Corona virus impacts People's view around you know alternative technologies like either your fuel cell relative to diesel in particular with diesel price.
Lower now, perhaps we focus more on economics.
He could help give color on that that would be helpful. Thank you, yes sure good to talk to Jamie.
I'd say from a customer standpoint, we do talked a lot of our customers and the dealers and keep track what's going on it and there is as we said before some SEC segments are doing well and some are experiencing moderate slowdowns and that's to be expected in a situation with this much dynamic.
Factoring going into it.
But the good customer base and they and they do a good job managing their business, so they're making the adjustments and.
There's some trucks that are not as fully utilized that's true but.
Pretty impressed with how they how they talk about their business and their customer base and and again, there an essential part of our economy and they will continue to move freight.
And are continuing to move freight so that's pretty important to keep prospective on.
From a tech standpoint in R&D capex alignment to that when I look at that it too we have some really need programs going on and we're continuing on some of the exciting programs that we have within our portfolios and some of those our R&D related so thats battery electric vehicles or work that we're doing.
That works going to continue we're going to keep moving along and doing the critical things that are going to build a bright future for our company and provide our customers that the lowest operating costs possible. So.
A bit of a look at what's going on.
Okay. Thank you.
Appreciate the color.
Your next question comes from the line Steven Fisher I think again your line is open.
Thanks, Good morning, guys, putting Steven.
I just a you guys called out some nice market share gains across the regions. What is your order share in backlog tell you about what your market share of retail and production might be over the next few quarters than other any regional differences.
Well I think we have seen good market share gains as we mentioned that 30.4% and U.S. and 16.7% in Europe.
Really strong 8.7% in Brazil and in the medium duty side also good growth in both Europe and North America. So that's been good.
And as far as what order intake has been thinking the last month, we have numbers for we had was March and we had 38% of the order intake in the month of March.
Hey, good position.
Excellent okay.
For more color on Europe, I think the.
Market share growth.
To 60.7% for Duff has been in most markets.
Especially the UK.
UK share the first quarter.
Grown 35%.
So we're really benefiting from the fact that we we have excellent factory and leaving.
And are able to build our trucks for the UK in the UK.
Okay, and then you have some plans to open up some international used truck centers, how much better do you expect the used margins to be at these company owned retail centers versus.
The other used sales channels that are out there.
What would the.
It was used truck center was one of the benefits that we have is that the.
They fell to two retail customers.
And.
The margins, we make when we sell used truck to retail customers are significantly higher than selling them to wholesale those on a go some of.
Those used truck sensitive really give us a very nice return on our investment.
Yes.
Okay. Thanks very much.
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Your next question comes from the line of Seth Weber of RBC capital markets. Your.
Your line is open.
Hey, Good morning, guys have you all morning, well.
Actually I wanted to follow up on Steve's seems last question is on the.
The U.S sales mix is there any color you can provide on sort of where do you see the the channel mix works today, where do you think it is going.
As far as retail versus wholesale eruption right anything that we can kind of used to frame up the opportunity there is to get the margins up.
When I look at as you know the ACA financial team has done a really good job of building this used truck center.
Work and we've seen even in the U.S. uptick in the in the recent time of more retail activity flowing through the used truck centers and as we build like the one in Prague and expand our capabilities that just creates a an outlet for the strong customer demand for packer products in the U.S market and it gives them a good place to go.
To get a young truck is going to serve their needs really well in.
They are happy to buy those trucks from us because they know what they're getting.
That helps values.
Right, Okay, and then I'm sorry, if I missed this like.
But they have you address we talk to just the the new truck pricing environment I think I think last quarter. You you said it was up about 2%.
I'm just wondering if anything has changed given the.
Given the that the macro but also the weakness in use pricing if anybody if any of your competitors or doing anything irrational players that.
We still feeling positive pricing neutral on the new truck side. Thanks.
Yes, well.
Lets you talked to the competitors and what they do that's a rational but for US we see as we've been steadiness in pricing and I think there continues to be a strong desire to the best trucks, which are kenworth peterbilt and off.
Okay.
Fair enough. Thank you very much guys.
Okay.
Your next question comes from the line importantly, Mechel.
Yes, because they'll KONI yeah from Morgan Stanley Your line is open.
Good morning, guys. Good to talk to you I Wonder if you could just share with us a little bit more detail on how to think about yes on the fixed cost associated with.
The plant shutdowns and then also with the plant reopened and and if any of the protocols that your enacting that could last for a bit longer.
My.
Might.
Impact so the cost basis seen over the next 12 to 18 month.
Sure as far as of the protocols were implementing.
Come back to the to the statement, it's because its core to US is our biggest focus right now is making sure that are employees are cared for operate in healthy and safe environment.
So those protocols things like temperature testing when they enter the facilities and making sure there's six feet between them or 1.5 meters in Europe.
We have put up.
Spacing and barriers where were building the trucks that people wearing masks that we're doing great cleaning.
And that we're comparing all of our practices that I just described to other industry leaders to make sure. We are the best practices in place.
Those will those will carry on as long as they need to to make sure that our plays or are.
Our healthy and protected and they are involved in the process and want them to feel comfortable with their environments and that's really important to us.
And then as far as the cost that we experience.
We're we're a company is always thinking about capital costs on expense costs and looking for ways to reduce them and our teams are fully focused on that looking that's why you see the reduction in the capex spending plans that.
We outlined in her opening comments and why we are looking at R&D reductions that we can take just so the business is optimized and set up for this suited for this industry cycle.
Is there anything you could share Thats, just maybe about yeah factory overhead cost that might not be getting caught tests for the week.
That that your shut down and then if there's any difference between the shutdown in North America had first within Europe.
Yes, there the differences that you know we have furloughs from employees during the during the stopping point and Thats.
But what we've done in North America in Europe in the Netherlands, good relationship with our unions, there with our employees there and with the government there Andy.
Been able to help us support people still working during the shutdown the overhead side of the business and Thats, great. Because we're continuing to make progress in these practices to keep the healthiest safe environment and even on the engineering side. There continue to work on new projects and processes that are aligned with government support programs and to support programs are in place not only in the Netherlands.
Also in Belgium in the UK.
And pick our qualifies for all those programs.
And then just lastly, any part Martin did well that very well at this quarter. You mentioned you know that you've been building out the ecommerce platform, but are you seeing any structural changes that you think might laugh in terms of how are your customers are interacting with that business.
In this environment.
I think that I think that well because this may hasten the move towards more and more ecommerce in the parts business.
But our and our team has built a great system to make that available for the customers for the dealers to work with and we continue to use the E commerce and the FDIC systems to help everybody have the right parts and the right places at the right time. So we can make sure customers uptime is.
Is optimized.
There may be a little bit of a move towards that furthering and thats good for paccar and good for parts team.
Great. Thanks.
You bet.
Your next question. Your line is not Alcott of Cowen Your line is open.
Good morning, and thank you so the truckload industry, which is an important part of your customer base had been dealing with some headwinds like rising insurance premiums and.
Well freight rates, which was resulting in a lot of market exit.
But now they also have the tailwind of lower diesel prices. So my question is.
If we start to see an economic rebound while at the same time oil pricing lag and remained relatively low which would be good for the health of the truckload industry do you have any sense of how quickly that could translate into into higher orders and and how quickly we could see a benefit from.
That.
That's a good commentary you offered I think it's a it's a truth of the confluence of.
The endemic in the low oil prices and the fact that.
Customers continue our customers trucking companies continue to deliver freight and when they're delivering freight to putting miles on trucks, and so that bodes well for us in the future because.
Consumable and overtime will need to replace them.
Mhm that makes sense and then just one or one follow up on our balance sheet side.
I don't have 90 fashion that but so you do.
Just to go too.
Markets in Europe.
Financial services segment.
If this economic crisis intensifies and and.
You know morphs into financial crisis, you think you may have to borrow on your manufacturing segment for your financial services segments.
So you pick or is a very strong balance sheet with $4.3 billion and cash.
The strong.
Hey, plus a one credit rating and no manufacturing that.
And that is exactly how we like it.
And we've had good access to the markets, we do have great credit ratings and good access to the markets and.
We've had no trouble and getting that term notes in or issuances in the first quarter 632 million and.
We did an issuance in April for 400 million and we have really good position support our financial services business.
Great. Thank you very much.
Your next question comes from the light of Felix motion of Raymond James.
Your line is open.
Hey, good morning, Thanks for the time, everybody I really just have a quick question around how to think about the parts business going forward I think obviously truck still moving as a positive for the business, but outside of looking at industry truck utilization was there anything we should think about around the strong one Q performance in that business.
Dealers building parts inventory, given some uncertainty had or any color on what do you think inventory levels might be today.
Sure I think that.
The most significant factors the team and Paccar parts has done a great job with our along with alongside of our dealers of having the right kind of systems in place to support the customers and so they become a go to organization in these times and they're doing a great job of meeting the demand there and I think that Theyre. Obviously is a situation is dynamic people were.
Looking at data so they want to make sure parts on the shelf to take care of the customers and they've done that and as we move forward, they're consuming those parts and though reorder.
Thank you you bet.
Your next question comes from the line of pricing said one of Longbow Research. Your line is open.
Hi, Thanks for taking my question.
Just for starters as far the social distancing and the staggered shifts that you guys are employing in the factories.
With that have any impact on production capacity.
Excuse me was last part.
I wouldn't have any impact on production capacity.
I think that we always we think that in the market. We're in we have sufficient capacity and even bringing in these great best practices will have.
Sufficient capacity to build for customers needs.
Okay and can can you provide some color around the order intake and cancellations that you've been seeing so far at least through April I, just want to understand up your backlog is essentially holding or shrinking at this point.
Yes, I think that through the month of April or backlog actually improved increase because more fully trucks and so we do have good backlog through the through the second quarter and we'll watch how that carries on.
Okay. Thanks.
Your next question comes from the line of Rob Wertheimer.
No the asking since your line is open.
Thank you and good morning. My question is just on your visibility into any future supply chain disruption from all the obvious you know impacts does that feel like a major uncertainty still or is your visibility in the supply chain and how your stars are working you know seem less volatile you know and less of a disruptor Brett.
Thanks.
You bet, we're working really closely with all suppliers of daily contact with them and we have a great strong supply base and we choose and further strengthen.
Continue just alignment with them so that when we restart they're ready to go and aligned with us being ready to go.
So their daily conversations are nothing that seems.
Unstable right now, it's just making sure they put the best practices in care for their people, which they want to do and lineup with the government directives.
Okay. That's helpful. Thank you and you made a number of a couple of comments on parts are you able to say from telematics or otherwise you know how far miles driven are down in April you know just to give a sense of real time pulse the economy.
Yeah. That's a that's interesting we do have in North America all of our trucks are connected so the peterbilt and kenworth trucks are connected and we watch vehicle miles traveled and we watch on utilization of the fleet and while it's down just a little bit. It's also holding up pretty well and remains at high levels over the historical framework.
Oh, Okay. Thank you.
But.
Your next question comes from the line of Joe O'dea vertical research your line is open.
Hi, good morning.
With respect to the facility restart.
And you talked about deploying safety protocols and government regulations and supply chain.
Can you talk about.
Any government regulations today that prevent you from operating.
And our there protocols that you have not yet deployed.
Or sort of facilities ready to operate and regulations aren't restricting you and it's just about sort of comfort level with supply chain.
Well, we continue to work in alignment with the initial.
Declarations, which is that trucking is an essential business and the parts supply is essential business. So thats one of the things we worked with and then the others to make sure that these best practices, we put in for our employees.
Our sufficient and a robust and protect that will and those two things in alignment or or what define our restart strategy.
And so you are still rolling out some of those safety protocol actions at facilities. Indeed, we are seeing lined up with each state and their directives as well.
Got it okay. Thanks very much.
But.
Your next question comes the line of route Rob.
Well, we can use your line is open.
Hey, good morning, guys and thanks for taking my questions.
I guess kind of piggybacking on.
The adjustments you guys need to to the factories.
Obviously protecting employees and respect social distancing.
He is there any cost quantification that you can kind of help us think about whether it's the impact to gross margins or or kind of incremental cost per piece associated with the cleaning the temperature taking.
As well spacing out employees, so a little bit more than we historically have seen.
Theres nothing thats that concrete or you know we take the temperatures employees were going to as a as it come back into the factories preproduction mixture of is healthy when they come to work. That's good for everybody and then the teams are doing really good job of just bringing in.
Safety protocols that worked with truck production and that overlay is has gone very well and our factories, where we're starting up like pressing that said the number one priority is to say few hundred employees that might be some costs associated with that but thats not the number one player.
No of course, you guys made that very clear almond and what kind of keep that in mind.
As we're looking forward.
As we look through kind of the first quarter can you give us a sense of what the parts revenue cadence was by month like do we see any sort of major difference in your parts revenue in the month of March relative to January February.
It was relatively flat through the quarter I mean, there were weeks in differences by weeks, but it was relatively flat through the through the first three for each of the months.
That's helpful and then on the the provisions for loan.
For losses on receivables.
Step up that we saw obviously kind of tied to the economy, reaching any difference in terms of d. The receivables you have for from the customers relative to dealers in kind of one of those two channels was there.
Was there a big customer impact I'm just trying to.
And as we think about the impact looking forward.
Right.
We talked about the.
Caused use being maybe low.
Most customers are in good position to pay their bills on time.
Finance companies doing well, we're financing a stable portion of our the trucks that we sell.
And.
Good good well data customers that pay their bills.
Appreciate the time guys.
You bet, we good day.
Your next question comes the line of Jeff Kauffman.
Capital management.
Your line is open.
Thank you very much and thank you for taking my question.
Yes, I guess said two quick questions.
Number one following up on went Jamie was asking earlier.
Is this more a deferral on capex at all or in the well or more of a structural adjustment were maybe we're not going to certain things and.
Where do you think.
In terms of that I think Jamie was hinting is the E b movement slowing down because low fuel prices and pushing things out but.
In terms of looking at R&D programs your capital spending where is the flex and kind of what do you think should be pushed out at this kind of environment.
Okay happy to answer that question with you. So I'd say that is whether differ or cancel we we have a great portfolio projects they'll have good returns and provide values to our customers and so with those projects.
Off to overlook every knows can we do a phase now can we postponed a phase two later point.
Very few that will cancel we just look at how that how well they can be done and how to become more efficient it doing them.
And as that lies into the E beam movement or autonomous vehicles or connected vehicles. Those technology should continue to be progressing into the truck industry in the coming years and paccars going to continue to be a leader in offering TV vehicles to our customers and developing a ton of as vehicles.
Averaging partnerships and working with their suppliers and doing it house development. So that we can have all of those ready when our customers want them and we will will continue to have that leadership position.
Okay that answer both questions. Thank you.
You bet.
Thank you.
And there are no further questions in queue. At this time are there any additional remarks from the company.
Yeah, I guess I'd just like this close by saying Thank you Debbie for the calls and again just to recognize the outstanding people in our company, they're doing such a fantastic job.
And then also to recognize those people that are handling and managing and working with the Copa situation around the world in our heartfelt thoughts and prayers are with them, we're all going to come through the stronger in the final analysis.
Ladies and gentlemen, this concludes Packers, earning call earnings call. Thank you for your participation you may now disconnect.
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Mhm.
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