Q2 2020 Paccar Inc Earnings Call
Good morning, welcome to record second quarter 2020 earnings conference call all lines will be in listen only mode until the question and answer session.
Today's call is being recorded in 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.
Your Hastings. Please go ahead.
Good morning, we would like to welcome those listening by phone and those on the webcast. My name is kinda Hastings Paccars director of Investor Relations.
Joining me. This morning. This morning, our Preston fight Chief Executive Officer.
Skippers, President and Chief Financial Officer.
Michael Barclay Senior Vice President controller.
As with prior conference calls, we ask that for me members of the media on the line participate and they listen only mode.
[laughter].
Certain information presented today will be forward looking at involve risks and uncertainties, including general economic and competitive conditions that may affect expected results for additional information. Please see our FCC filings I mean, investor relations page of Packer Dot com.
I would now like to introduce Preston fight.
Well good morning.
Harry Skippers, Michael Barkley and I will update you on our second quarter results and business highlights.
First and foremost I appreciate and I'm thankful for outstanding employees. During this dynamic time have kept their highest priority on health and safety.
Hi car employees kept his focus while delivering excellent production and distribution performance in support of our customers businesses.
Hi car achieved good quarterly revenues and net income in the second quarter 2020.
Hi cars results reflect limited truck production and aftermarket sales early in the quarter that was associated with Covance 19.
Global demand and production and aftermarket sales steadily strengthened throughout the quarter.
Our second quarter sales and financial services revenues were $3.1 billion in second quarter net income was 148 million.
Paccar delivered 18100 trucks during the second quarter.
Paccar parts achieved quarterly revenues of 824 million and pre tax profits of $152 million.
Truck parts and other gross margins were 9.6%.
Our financial achieve pretax income of $56 million.
The U.S. and Ken class a truck market is rebounding.
Plus a truck industry orders in June were 28% higher than June last year.
Customers realize the benefits of low fuel costs and in many sectors experienced increased freight volumes and improved pricing as the quarter progressed.
We estimate class eight industry retail sales in the USA and Canada to be in a range of 160 to 190000 trucks. This year.
Kenworth and peterbilt market shares at 29.6% year to date half a point higher than the first half of last year.
In Europe monthly orders for adopt trucks also increase as the quarter progressed.
European truck industry registrations in the above 16 ton market are estimated to be in a range of 190 to 220000 vehicles.
Tough year to date shares 15.8%.
The South American above 16 ton market is projected to be in a range of 60 to 80000 trucks in 2020.
In the Brazilian about 40 ton segment were dock competes das market share through June increased to a record 9.1% of three percentage points from last year.
In all regions, our market estimates assume that economies continue to gradually reopened but could be revised their returns to lock down conditions.
We're excited about kenworth, Peterbilt and DAF leadership in zero emissions powertrain programs.
To date, we've deployed over 60 battery electric hybrid and hydrogen powered trucks.
The off Peterbilt and Kenworth have battery electric vehicles operating in North America and in Europe.
These vehicles are placed with customers and local and regional delivery.
Fuse collection and port applications.
We expect that these customer segments will be the first to adopt battery electric technology, because they typically operate in the city and return home everyday for recharging.
Our team Paccars simultaneously developing hydrogen fuel cell powered vehicles and has built 10 Kenworth T. Six eightys for customers in the port of Los Angeles.
In the longer term hydrogen could be promising for long haul applications due to its high energy density and it's relatively fast refueling times.
Anchor will begin production of battery electric trucks next year.
Volumes are expected to grow gradually as the cost of batteries decreases charging infrastructure is expanded and regulations drive customer adoption of these technologies.
Paccars a leader in zero emissions vehicles.
Harry Skippers will now provide an update on paccar parts Paccar financial services and other business highlights.
Thanks Preston.
Thank our continues to provide excellent operating cash flow.
For reinvestment in future growth.
Distributions to stockholders.
Last week, the fact, our board of directors announced a regular quarterly dividend.
32 cents per share.
Becker's strong balance sheet.
With $4.2 billion cash and marketable securities no manufacturing debt.
And then a plus day one credit rating.
Pick apart the chiefs quarterly revenues of $824 million.
Pre tax profits grew 152 million.
Many customers deferred truck maintenance during April amaze economic uncertainty.
In June parts demand threeq over Twoq nicely and is returning to normal levels.
To drive growth.
Hi, guys make consistent investments departs distribution capacity.
Customer focus technologies.
Becca parts opened two new parts distribution centers this year.
When it comes the gross of Brazil.
Other one in Las Vegas.
Becca parts has also made significant investments in its ecommerce platform, which is benefiting our customers and dealers.
Financial services second quarter revenues were $360 million.
Pre tax income improved.
$48 million into first quarter 256 million into second quarter.
Collecting strong portfolio performance.
Used truck results were stable quarter on quarter.
Becker financial is increasing our retail used truck simply capacity worldwide.
Which enhances margins.
Pick a financial recently opened used truck central's intent in Texas and in product Czech Republic.
Plans to open another facility immigrant Spain.
Kenworth, and peterbilt truck resale values come onto 10% to 15% premium over to competition.
We have rigorously align costs to this year's market conditions.
As DNA was reduced by 33% to $94 million through the second quarter.
We are maintaining R&D and capital investments forecast as we continue to invest and new aerodynamic trick models and advanced powertrain technology.
You search and development expenses are expected to be in a range of 265 to two another $95 million this year.
Capital investments are projected to be in a range of 525 to 575 million dose.
Customer demands and higher order intake will result in increased production during the third quarter.
Third quarter truck parts of old gross margins.
Estimated to be in a range of 12% to 13%.
Thank you we'd be pleased.
To answer your questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad, well pause for a moment compared with Q and a roster.
Hi, Thanks question comes from Jamie Cook with Credit Suisse.
Line is now open.
Hi, good morning, and nice quarter I guess my first question. One I think you said you expected production to be up in the third quarter is there any way you could sort of give more color and how we think about that by region. I guess would be my first question with which would be helpful. And then my second question can you just.
So to speak Q.
You know channel inventory for the industry and where pack our sits with regards to channel inventory. Thank you.
Hi, Jamie good to hear from you thanks for taking the time.
Start with your first question on truck production for the third quarter first we saw steadily increasing production through the second quarter.
And that really as a result of the good freight market. That's out there right now in fact, if you think about freight you can think about the levels were operating at or kind of similar to the beginning of 2018, so really solid levels of freight going on in the world.
Customers are profitable fuel prices are low and activity continues to be high and that's carrying our build up into the third quarter as Harry mentioned.
And we obviously build the to customer order. So that's a good thing.
Like kind of look at your second question I think about where we are relative to the industry.
Through the second quarter.
It was nice because retail sales outpaced built by about 10000 units for the first half of the year.
And that means it.
Inventory retail build are all well matched up right now.
And we feel good about our position because we have about 33% of the orders in the first half of the year feeling pretty good position right. Now we have good backlog good visibility were substantially full through the third quarter and taking orders in the fourth quarter and into the first part of next year.
Im sorry, one last question just you commented about the parts sales at day improved throughout the quarter is there anyway, you can help US you know with the cadence of improvement like how many parts sales year over year exit in the month of June relative to where we started off and I'll get back you after that thank you.
Bill.
Hard parts sales in June work.
6% below June of 2019, so we saw some nice improvement who are of course.
Thanks, so much.
You bet.
Our next question comes from Nicole Deblase with Deutsche Bank your.
Your line is now open.
Yeah. Thanks, good morning.
Yeah.
I just wanted to start on a little bit more on order trends in June that the color around you asked in Canada was really helpful. But could you guys can try but you're also seeing in Europe have you off the seen significant improvement.
In the later part of the quarter.
Yes, thats great. Thanks for the follow up on though we did see Europe also increases order intake through the course of the quarter and as we're getting good order intake in Europe as well.
[music].
And we've increased built along with that order intake in Europe, and we've got good visibility in fact, we're really full and Europe through the third quarter.
Unlike like press Sunset also in Europe customer activity continues to be good.
Couple of days ago demands statistic for Germany came out.
And the number of Columbus was driven on German motorways for which.
Germany collects Texas was only down 4% compared to a year ago means of 96% of the the miles were driven to same as last year.
Thanks.
Our next question comes from Garden with Jpmorgan. Your line is open.
Yes, hi, good morning.
Maybe you could talk about market share in Europe stuff at 15.8% year to date I think that was comparable to 16.7 a year ago.
And then longer term.
Look at everything that's happening in Europe, with the Green deal and all of the news in the last couple of days about their push towards hydrogen.
I noticed that neither DAF, nor paccar are a member of the hydrogen consular hydrogen initiative in Europe. So can you talk about said adopt strategy for fuel cells and hydrogen in Europe I know you talk a lot about their.
The strategy, but a little bit more longer term can you talk about.
Hi, Dave might react to hydrogen environment. Thank you.
Yes, good to talk to you and you have a more mature standpoint and in Europe, we look at that and we have pretty good market share. We've been good order intake what we'd see relative positioning has been to the shape of the market in Europe.
During the cobot event. Some countries were closed on longer deliveries were delayed and different countries at different sides of the market. So some of its just cyclicality and timing of that as we see the market right now.
When we look into the.
Zero emissions vehicles, specifically around hydrogen I'll, let me kind of characterize paccar strategy. There were three prong strategy, which is really first have to have the technologies and that could be battery electric and hydrogen fuel cells. We come down the line. So we have great technology. Our teams are on top of all of the capabilities that are developing these vehicles and really proud of the engineering team.
R&D teams around.
Paccar that have done just fantastic job of having said that leadership positions US one element is just being aware of the technology, having it on vehicles.
Second element, that's going to be critical to that as having good distribution. When it comes to market. So dealer network that works really well Packer, obviously is very proud of our relations with our dealers are the best in the world and do a great job and so having the ability to sell and support take care of our customers that's a big deal.
And in the third part of being able to have electric vehicles are hydrogen fuel cell vehicles. As you have to have flexible manufacturing capabilities. So that you can combine not just zero emissions, but clean diesel technologies and run them down the same line. So you can maintain efficiencies and be profitable in that way.
And in Packers case, we have actual factories that exist in can build vehicle. So that's kind of nice.
And I would say that specific to hydrogen fuel cells, where your question was was really pointed to we mentioned in our in our disclosures that we have 10 trucks were putting into operations in the ports ability.
They happen to be can fortysix eightys, but we have a global approach technology, and we can use doff kenworth and peterbilt leverage each other's capabilities. So it's really.
That's just where we're starting right now, but they can be applied in Europe. When the time is right.
Great. Thank you for that and that can you just maybe then expand on the 10 trucks that they're.
Going to allay.
Does it take once you put trucks. These 10 trucks in to pilot testing and whenever.
What are the timelines and what kind of timeframe should we be thinking about before these trucks would actually be commercialized I'm just trying to get a sense of.
What needs to happen to both from 10 trucks to commercialization.
Sure. Thanks happy to do that the trucks that were putting in the port some of them already gathering miles and those trucks are in a partnership with Toyota as a fuel cell provider, there and thats going really well as well as shell from an energy hydrogen provider the time to production commercialization. There's a there's a there's a cost element to that which has to come into it in.
To play on hydrogen is 12 or $13 per kilogram and in order for to be really efficient.
Commercialization standpoint, it needs to be into two or $3 per kilogram range. So thats, a little bit there needs to be infrastructure put in place as well and then the cost of fuel cells needs to come down. So we don't see that is something thats a near term.
Commercialization, we see that is.
Five to 10 year kind of a window, where it might play itself into the market.
And that was that North America.
Response, Northern Europe, or do you feel the same in Europe still the same in Europe that response is really a global response economics work the same way.
Okay I leave it there on follow up offline. Thank you.
Good talking again, yes into.
Our next question comes from Stephen Volkmann with Jefferies. Your line is now open.
Hi, Good morning, guys, Hey, good morning, Steven.
Maybe we can go back to parts I think you said sort of the exit rate in June was down about 6%.
Do you kind of first see us getting back to flat or even growth in the second half from the parts business.
Yes, thats would be a kind of a fair way to characterize the Stephen is obviously going to depend enough rate goes you know as trucks move parts move and so we've seen good truck movements. So we anticipate good parts movement and we've got to the team has done a great job of developing our capabilities continuing to develop our capabilities. They put in place the new E Commerce system, which makes it even.
Easier for customers to get truck parts, the same day or next day.
We just launched two new Pdcs, one in Las Vegas, Nevada, the other one and pump the gross of Brazil, which makes it having the right parts in the right locations, even better and so yes between the general economic stayed in our fantastic team. The parts Division, we do expect the second half looked really good.
Okay, great. Thanks, and then maybe a little more broadly you've done a really pretty amazing job I think whips decremental margins on the truck business, considering how low production close in the quarter and I know you talked Preston about some of the cost actions that you've taken them Im curious as things start to rebound.
The second half and presumably into 21 is there any reason to think that your incremental margin might be higher than the historical kind of 15, 20% or is the stuff that you've done more kind of temporary and we should just kind of think of the history as being a good guide.
Fund conversation to have we always think about cost control rigorous and data in that application and.
The team did a great job did a great job and it really dynamic time in this quarter.
Controlling the cost while still working on the really important projects, we have going on and so we made the right progress on the.
Cool things are going be introducing in the coming years and as far as this relationship to Incrementals margins.
Watch all the market goes as we look into the out phase and see where that goes.
Some of the stuff the structural and some of it is depending on what we want to spend the money on where there's a good return.
Understood Okay. Thanks.
Our next question comes from Jerry's I think with Goldman Sachs.
Line is open.
Yes, hi, good morning, everyone, Hey, good morning.
I'm wondering if you could just expand.
Sure.
Fuelcell suppliers strategy. So obviously, you're working with Toyota on consideration of 10 trucks should do you view that as.
Structure going forward, where you would have a single fuel cell supplier or how do you see that a ball beginning are there any different configuration. So we should be thinking about whether we're talking about trucks in Europe worse at U.S. versus different fuelcell type applications that might lend itself to a different engineering design can you just expand on those points. Please.
[music].
Going to turn the engineering me on Gerry.
Okay.
To say that it's early days on these technologies right now as far as they are ready for commercialization. So the most important thing for us has to be abreast involved with partnered with great companies.
Like we have our great relationships with the current supply base and watching how it develops there'll be some invention there'll be some cost downs during this becoming few years.
Our goal is to make sure that we're in a position to provide our customers the lowest operating cost vehicles whenever the market is ready for them. When there is infrastructure when there is regulation and when the technologies ready and so it's early days and we feel like we're really on top of it in and we're focused on a plan that is actionable and.
Double.
Okay. So we will stay tuned and in terms of adding to your cost performance. We're really stands out is as she may reduction.
Particular can you just talked about how many how much of that was driven by furloughs or.
You bet items, specifically I think you address the gross margin performance previously is but can you talk about how much of the X gene a reduction stays with us here.
Production recovers.
Well some of it was for low some of those structural and some of that was travel to so so as we.
See production activity levels go up into the third and fourth quarters.
Yeah.
Some of this will be sustainable and.
Some of the activity levels will be higher so.
Okay.
And then lastly can you just comment on your material cost performance in the quarter given all the moving pieces in the supply chain, where are you able to achieve.
Net benefit from lower parts lower input costs or did that get even apply airfreight.
It was relatively flat there was there was puts and takes and all those areas on as we came back up and production.
Okay I appreciate the discussion thanks.
Good day.
Our next question comes from Ross Gilardi with Bank of America. Your line is now open.
[music].
Hi, good morning, everybody good morning.
I just was going to go back to just that the near term truck delivery outlook I said, a little bit of hesitation for you guys.
To provide too much guidance, they're realizing there's still a lot of uncertainty, but can you help us out at all I mean, we looking at 10% increase Q2 to Q3, a 50% increase should like should we think about it kind of getting halfway back to where you were in Q1, just how the normal seasonality going to be impacted by co that we have the.
In the normal.
Summer shutdowns in Europe for example, and any other color you can provide there really helpful.
Yes, yes happy too.
Look at Europe will help our normal summer shutdowns that began last week or this week. So we have that going on right now.
And in general we we as we said we will build the trucks. The order were substantially full through the third quarter. So that gives you some kind of clarity what's going on there we're seeing ticking build rate increases where they make sense to take them and I think like the whole world, we're watching how the situation develops.
And customers are looking at home situation develops so providing too much beyond that.
Feels little bit early.
Okay got it.
Maybe Preston just I'd love to hear your thoughts.
Just how and how you're thinking about it from a planning perspective, just the shape of the cycle from here I mean, it's.
Obviously I saw nice nice improvement off of the extreme lows in April as the quarter progress but.
Are you do you think will renew our real V shaped recovery here or did we did see a kind of a sharp bounce off the bottom and.
Perhaps headed for several years of kind of below replacement demand environment as the as the fleet ages and just.
Everybody out there are deals a lot of uncertainty just general thoughts and that will be will be really interesting.
Well I think that the easiest thing for us the news watch how the truck market is doing what shall freight is being all watch housing starts auto industry and lot of activity. The auto industry right. Now housing starts are strong right now the general economy seems to be gathering momentum and rebounding the shape of that curve I don't know I don't know.
So simple to characterize that way, but we feel good with the where customers are succeeding and as customers, succeeding and hauling freight and there's movement in the World then that's good for Paccar.
Okay. Thanks, a lot.
Our next question comes from Andy Casey with Wells Fargo. Your line is now open.
Good good morning, and afternoon everybody.
Good afternoon.
Thanks.
A lot has been answered array, but in the looking back at the quarter.
We had truck revenue modestly outperformed volume could you could you comment on if that was pricing mix or something else.
We have an art I'm thinking about what your question really is can you kind of give us another spin at that.
Yeah that the truck volumes were down.
About 100 basis points more than.
Revenue on the truck segment.
And I'm just wondering given you probably had some currency headwinds.
What the what the main drivers were.
It was a little bit currency headwinds, but does not material maybe its end to end to end market mix sort of product mix I didnt look into the details of that.
Okay. Okay. Thanks, Harry and then.
Switching back to the zero missions.
Power train discussions primarily on this timing for hydrogen.
A lot of market excitement out there, but it doesn't really sound like.
Your expectation in terms of when that technology can potentially.
The impacts of market change too much relative to what you said last year is that correct.
I think you're accurate Thats correct, we think theres a lot of long term promise for hydrogen.
It.
Its long term promise.
Okay.
Okay. Thank you very much.
You bet.
Good day.
Our next question comes from David Raso with Evercore ISI. Your line is now open.
Hi, Thanks for taking my question.
I understand the third quarter gross margin guide.
Piece of the Midpoints, implying a better gross margin than the first quarter.
And I know there was the 50 million.
Engine hit to the first quarter, but just trying to.
Triangulate.
Volume versus gross margin I mean, the first quarter had over 38000 deliveries this quarter just had 18.
To have the third quarter gross margin above.
The first quarter when you ship 38.
I'm just trying to understand.
Somewhat implicitly having the number.
Should be above 30000 units, but even then you would still need pretty strong mix. The within the geography is the type of trucks and of course, you highlighted part should do relatively well can you just put all that together just some sense of a better gross margin in third quarter than one quarter.
But again, you're not even a half of the trucks that you deliver them in first quarter.
On the second quarter. So we're all just trying to get a sense of I mean that 30000 deliveries 35, because obviously it's impressive if you can have that higher gross margin with that much less volume delivered threeq versus one too.
Well I mean, you did a great job of characterizing it actually David I mean think about the second quarter. Five of 12 weeks were down we've returned to normal build rates now so build rates are our steady and growing as we said and it and at good levels and to shift operations and we would see the third quarter looking a lot more like the first quarter in terms of volumes and.
The parts business is strong and strengthening and so those things together as you put them together get you to that 12% to 13% margin range feel good about that theyre quite that's that's helpful. Okay. Because it kind of dovetails into the question have you can tell about a wholesale receivables coming in your dealers destock well, but your own inventory didn't go down much.
Right, which to me indicated you must have some confidence on your bills for the third quarter and your comment right. There does suggest that there's a there's a big ramp.
Yes, you're correct.
Okay. That's all I was expecting.
Alright, guys I appreciate it.
Yes, we're growing cure the growing the inventory through into the because we're growing built strong relationship.
Terrific. Thank you.
You bet.
Our next question comes from Steven Fisher with UBS your.
And your line is now open.
Thanks, Good morning, guys.
Just.
Wanted to ask about the other finco little bit more wonder if you could talk about the how much of the 25 million dollar year over year decline in the profitability was a function of.
Hi, or credit provisions versus lower used truck values. I think you said they used trucks were stable, but I wasn't sure if that was.
That was a pricing comment in particular.
They used trucks being stable this quarter over quarter.
So if we compare to the second quarter of last year.
Use drugs results were down.
As a result.
Lower lower used truck prices and genitals.
We've been adding used truck sandoz.
As we discussed and.
Although used truck prices are done we do get a 10% to 50% premium for four or used trucks.
And.
Credit loss reserve as it has a small impact also compared to last few credit losses were up 4 million.
Interest yields and spreads were down a little bit too.
Although we have a very strong portfolio currently with a very healthy mix of a and b customers.
Hello, fast use who.
Which remains well below 1%.
Okay. That's helpful. And then could you just talk about the supply chain, how close to full production and delivery rates would you say, they're running now and are there any spots at your kind of still keeping an eye on for any concerns our suppliers are doing really well the everybody that in this industry is.
On a fantastic job of responding.
Through the last quarter and putting in good safety and health and safety protocols. Those are in place in the supply base is doing a great job of providing products.
Okay. Thank you.
Yet.
Our next question comes from the line of Tim Dine with Citigroup. Your line is now open.
Thank you good morning.
First question is just on the.
Grow truck gross margins are you able that could give us any any color as to where you were exiting June just from a margin perspective, obviously that the quarter I'm sure had quite a bit of variability in it.
Hey can you can you segment it that precisely in terms of where.
Again, where you exited.
June from a gross margin standpoint.
Harry Meta yes, obviously the June was was better than to the second quarter average as we were ramping up production again getting back to close to normal build and truck center.
Most to normal sales and parts of June was was ended the quarter strong.
Okay.
All right and then maybe just on parts and I'm curious if if.
You have kind of a similar question just from standpoint of mix, maybe what that.
And he talked about the deposit activity in some sense lease deferring maintenance, which is.
Fairly intuitive and getting probably had fewer engine overhauls in the quarter as well is that is mix and thats margins.
Do you expect that to improve in the second half noticeably or is it is it just kind of leverage with the improvement in in revenues at your your.
Your fourq.
Of course is parts margins are higher than truck margins in it.
Parts stay higher than trucks that has a favorable effect on the overall margin we saw that into second quarter.
Happened later this year too.
Okay. Then the question area is more good part specific I'd did you sell.
<unk> margins on the sales in the first half.
With parts you did a lower.
Less favorable mix because of just the type and the nature of the product sold or not not that not meaningful that factor I think we initiated question I know I think that wasn't significant as far as a proprietary versus all makes parts mixture might've been a little pack, but it was much more about the.
During of maintenance and just what happened in April in early May with our dealers and what our customers are doing in watching the uncertainty and then they rebounded through that and have accelerated out of that.
Got it Okay, and then just last one Harry yours or Michael maybe just.
Quick modeling one that step down in DNA from the first quarter.
Should second half look more like the first for the second quarter from a DNA expense standpoint.
DNA, what do you mean by DNA.
Depreciation and amortization was 79 in the first quarter went to like 51 or 52, we have a lot of depreciation is on a units to production basis, and so and production goes down the depreciation necessarily follow so as production goes up you'd expect that to go up some as well.
Okay very good thank you.
Our next question comes from the line of Adam Allman with Cleveland Research. Your line is now open.
Hi, good morning, good afternoon, everyone.
Good afternoon, I was wondering if we could.
I think somewhere about European truck fundamentals.
I guess you noted that.
Used truck pricing was stable here in the U.S. could you expand on whats happening over in Europe, and how used truck inventories work going on around the second question into and I guess, you mentioned that Europe borders.
Improved through the quarter, but I'm not sure if that means that we've actually gotten.
Year over year growth like like we saw in the U.S., maybe you can discuss on that first thanks.
Sure, let let the European market is as Harry said anything the good thing to think about is that note mileage and it's off slightly from last year's very high levels and so it continues to be good order intake continues to be strong in Europe.
I think that.
As we think about the markets Theyre just opened up in the last 30 days were border travel and things were allowed and so is there still finding their way into that deliveries are still happening into the eastern European countries, and and we see strengthening throughout the European market.
That's just theres, a little bit and it was an unstable period there for a couple of months and now it's stabilizing and strengthening and that's what we're seeing happening.
Okay.
Do you get a sense that there was kind of demand that we.
Refilled now and then there could be a step back or are there any end indicators that you look at within the order books that give you confidence at their sustainability to us I.
Yes, I think we have a high degree of confidence that the order book as well matched to a production rates and that we see.
Good order intake as I said, we're effectively full through the third quarter in Europe, which is great. Good visibility orders continue to come in.
We continue to look at the business just smoothly accelerating.
Our next question comes from the line of Rob Wertheimer with Smelliest Research. Your line is now open.
How do you everybody.
I had two questions. If I may I first wanted to maybe it's a little bit the soft while we are your op margin was really remarkable in a quarter with maybe maximum disruption I suppose just on volumes and also just had to do with workforce and so forth obviously versus own nine you did better and obviously parts are one sort of long term success story is there anything else you'd highlight that sort of structurally different that allow.
Due to perform so well this quarter and then I had a strategic wanted to follow up.
Let's start with that when I think we're really proud of the team throughout paccar.
The great job of treating every cost is variable always do did this time as well you mentioned to import you mentioned parts is an important part of the business, which has grown and provides greece stability in the ability for a company in the finance company also is another leg of that which has a great job of having great new business volumes that came in through the course of the quarter good.
Spreads on the business they operate really well.
Fantastic part of Paccars team.
Okay. Okay. That's helpful I might want to follow up offline. The couple of things, but just one big picture strategic you've obviously got.
Hydrogen electric economists a lot of different technology streams that you you Ben as you do using the supply chain to sort of.
Leverage and evaluate and so forth and you saw when your competitors partner up more more closely with two simple.
Can you give us a sense of the timeframe on when big strategic decisions might be made we have to worry about announcements like that or do you think on each of those different streams hydrogen electric autonomous nowhere, two or three or four years away from you know critical points, maybe just give a sense of.
How much to worry when or think about when things like that happen.
Sure happy to do that I think the key to keep in mind as the customer at the end today is interested in the lowest total cost of operation that's what the trucking companies like to think about.
That's what they're trying to deliver and they're doing that and they'll use zero emissions vehicles, whether battery electric or hydrogen fuel cells to do that and so what we do.
Evaluate those technologies developed those technologies and bring them to market as soon as they are ready in of commercially the right answer or regulations ask us to bring in the market.
We think thats a they developed iteratively, we're always making those strategic decisions, but which way things will go we continue to develop zero emissions vehicles, while we develop clean diesel at the same time, because that's going to be the motive power for the coming years primary motive power for the coming years and then on autonomy. It's a great technology, we have strong partnerships.
With a lot of autonomous vehicle companies, we have developed economies vehicles. If you look around at the space of you'll see the vast majority of the vehicles that are operating at all for modes and in trial are peterbilt, and kenworth and das and so.
We'll watch that technology and when it's ready we'll bring into our customers.
Okay. Thank you.
You bet.
Our next question comes from the line of Rob Salmon with Wolfe Research.
In line is now open.
Okay, Thanks, and I guess to piggyback, a little bit in terms of some of the departs questions a little bit earlier in the queue. I think you had noted that parts is down about 6% in the last month could you give us a sense of kind of what the exit rate as we left June and what we're seeing kind of.
Early in July front from a parts revenue standpoint, it has that inflecting positive at this point or is it still down year over year basis.
At part is really returning to normal right now I mean as Harry as Harry characterize it rates. It's recovered nicely is strengthening and the easy way to think about it is as trucks move they use parts and trucks are moving so parts are getting used in our team has done a great job of supporting the customers.
Very much return to the strong normal.
That's helpful and we've seen a real nice kind of uptick in terms of spot.
Spot demand and a lot of load indicators also we've seen a nice improvement new us with regard to can contracted volumes with the truckers have you seen in improvement kind of in the month in June and ended July for me used truck performance with regards to price realization.
That you guys, you're seeing or is that was that pretty stable kind of throughout the throughout twoq you into end into July thus far.
We had great volume in June for used truck sales, both in Europe and in the U.S. and Canadian markets that was good.
What we're seeing some green shoots in terms of the pricing and used truck market right now and that's positive.
Appreciate the time.
You bet.
Our next question comes from the line of Joe O'dea with vertical research. Your line is now open.
Hi, good morning, everyone.
Good morning, just one question on new technologies, and specifically the battery electric that you plan to have in production next year.
How do you envision.
Sort of going to market with those are you comfortable leasing those vehicles is that something that you're primarily looking not to carry on your books just given early stages uncertainty on residuals trying to understand how how you think about selling them.
Yes fund to talk with that with you about that I mean, we think the visa come into production next year could be leased or purchase both are available pack lease as you know celebrating their fortyth anniversary and as a great leasing operation. So we can run them through pack lease and we can also the customers purchase them.
We we bring some of the market, we have confidence and its performance and we do with the electric vehicles and we bring about the price point is obviously at this at this stage of the development and next year will be higher than diesel but.
People are interested in seeing what that technology.
Feels like in their fleets and then obviously, we have regulations coming in the 24 25 time framework some markets will need to electric vehicles, and so that's what's going to.
Bring some gradual increase in demand.
And from a.
Regional perspective, the 2020 launches is for both Europe and North America.
Correct, we're developing trucks for both Europe and North America.
2021.
Got it thanks very much.
You bet.
Our next question comes from the line of Courtney components with Morgan Stanley. Your line is now open.
Hi, Thanks to the question guys.
Just following up on Joe's question, when we're thinking about I think a lot of your comments about you know the kind of the modest growth has come from the demand side, but can you help us understand what are the bottleneck in terms of just switching your lines to battery electric from an investment perspective in the factory are you taking you never do.
The line in just six unit to battery or is it more complex than that and what's the length of time.
I guess if demand ends up the pricing to the positive how quickly can you ramp those production levels on battery electric and then you know same question for hydrogen acknowledging that that's a little bit about longer term out.
According to good to talk to you.
From a demand standpoint, and from a flexible manufacturing standpoint. It is really important to note new bend to many of our factories that when you look at Packers factories, we build to order their custom trucks that can be configured with various displacements of diesel engines are different numbers of axles and et cetera et cetera.
And our teams and our operations teams do a great job of being able to integrate different designs onto our mainline thats one of the real core talents that paccar has and electric vehicles will be the same kind of thing will be mounting them on our lines, whether it's the batteries the electric motors.
Capabilities will all be mounted online and we have flexible lines that can accommodate that in low and high volume. So we're prepared it's really nice to have actual factories that are able to build trucks and we can do that today and we'll be able to accommodate all the demand in the future.
Okay. Thanks, that's helpful.
And then just on the party you mentioned that your ecommerce sales increasing 20% in the first half can you just comment a little bit on.
What customers are purchasing was that mostly you know dealers or with the customers. You haven't historically you know been it's been exposed to get done a good job kind of broadening the reach of your parts business over time, just curious just another avenue or if it's really just replacing existing.
Got it.
It is it's a mixture of both coordinates some dealers some customer orders. It's a great system that gives them that flexibility to get what they want and to see the related parts.
Whenever they need to it makes it a little bit quicker to receive the parts, but it's all parts of the business. So there's some replacement theres some new demand that comes from it as well.
Okay, Great and then just lastly.
You talked about the strength in orders in June in both.
Yes in Europe.
Can you just comment on which customers are you seeing coming back first I think last quarter, you talked a lot about locational being strong and is that still that's driving the order book at this point or are you.
Seeing kind of some of those cortile.
I'd come back.
It's pretty broad I mean, the customers coming back or broad right now it's some of the bigger customers in the various sectors that are continuing to used trucks. It will need to replace trucks and they might have postponed to buy for quarter, but now they're ordering location work continues to be strong and we're doing really well and medium duty. So.
All kind of seems to be growing equivalent we right now.
Okay, great. Thank you.
But.
Okay reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Jeff Kauffman with loop capital markets. Your line is now open.
Thank you very much in congratulations.
I was kind of curious are your customers asking you for anything different these days I.
I mean, we've we've pulled back from the a bit but there's a lot a piano pressure in the industry. There's a lot of struggling carriers out there still.
What's changing in terms of what customers are asking for on the vehicle.
I think it's easy to say whats constant and Wisconsin is they want great trucks, they want premium products that support the brands help them operate efficiently in their businesses lowest total cost of operation. So.
Great fuel consumption, great fuel efficiency, and they want a truck their product and that stuff in peterbilt, and kenworth and mixer drivers happy and Thats, an important part of their operations I think those fundamentals stay right with US right now we're happy to provide those was great trucks.
Mhm granite, but in terms of options packages in terms of things people want to see on the truck is any of that changing with the customers are no not really I.
I think you could say theres been an increase in the past several years of safety systems.
Lets people want to see.
Just the continued availability.
Of eight us kinds of features level, one features growing towards level too.
So thats something thats come along.
Well. That's my question. Thank you very much you bet everyday.
Yeah, no other questions in the 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.
Thanks to everyone have a great day.
Ladies and gentlemen, this concludes Packers earnings call. Thank you for participating you may now disconnect.
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