Q3 2023 Paccar Inc Earnings Call

October 24, 2023

Operator: Good morning, and welcome to PACCAR's Q3 2023 earnings conference call. All lines will be in listen-only mode until the question and answer session. Today's call is being recorded, and if anyone has any objections, they should disconnect at this time. I would now like to hand the call over to Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.

Good morning, and welcome to pack caused third quarter 2023 earnings conference call.

All lines will be in listen only mode until the question answer session.

Today's call is being recorded and if anyone has any objection. They should disconnect at this time.

Now I'd like to hand, the call over to Mr. Ken Hastings, <unk> director of Investor Relations. Mr. Hastings. Please go ahead.

Ken Hastings: Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations, and joining me this morning are Preston Feight, Chief Executive Officer, Harry Skippers, President and Chief Financial Officer, and Bryce Poploski, Vice President and Controller. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results. For additional information, please see our SEC filings and the investor relations page of PACCAR. I would now like to introduce Preston Feight.

Ken Hastings: Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations, and joining me this morning are Preston Feight, Chief Executive Officer, Harrie Schippers, President and Chief Financial Officer, and Brice Poplawski, Vice President and Controller. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results. For additional information, please see our SEC filings and the investor relations page of PACCAR. I would now like to introduce Preston Feight.

Good morning, we would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings <unk> director of Investor Relations and joining me. This morning are Preston Feight, Chief Executive Officer, Harry Skippers, President and Chief Financial Officer, and Brett Bryce Poplawski.

Vice President and controller.

As with prior conference calls, we ask that any members of the media on the line participate in a listen only mode.

Certain information presented today will be forward looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results.

For additional information please see our SEC filings and the Investor Relations page of Packer.

I would now like to introduce Preston Feight.

Preston Feight: Hey, good morning. Harry, Bryce, Ken, and I will update you on our record third quarter financial results and other business highlights. PACCAR's outstanding employees delivered this excellent performance by providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR's third quarter net income increased 60% year over year to a record $1.23 billion, and revenues increased 23% to $8.7 billion. Truck parts and other gross margins expanded to 19.5% in the third quarter, compared to 14.9% in the same period last year. PACCAR's global investments in innovative new DAF, Kenworth, and Peterbilt trucks, as well as investments in technology and manufacturing, were key elements in delivering this strong performance. PACCAR Parts third quarter revenues increased to $1.58 billion.

Preston Feight: Hey, good morning. Harrie, Brice, Ken, and I will update you on our record third quarter financial results and other business highlights. PACCAR's outstanding employees delivered this excellent performance by providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR's third quarter net income increased 60% year over year to a record $1.23 billion, and revenues increased 23% to $8.7 billion. Truck parts and other gross margins expanded to 19.5% in the third quarter, compared to 14.9% in the same period last year. PACCAR's global investments in innovative new DAF, Kenworth, and Peterbilt trucks, as well as investments in technology and manufacturing, were key elements in delivering this strong performance. PACCAR Parts third quarter revenues increased to $1.58 billion.

Hey, good morning.

Sorry, Bryce, Ken and I will update you on our record third quarter financial results and other business highlights.

Patkars outstanding employees delivered this excellent performance by providing our customers with the highest quality trucks and transportation solutions in the industry.

Got cards third quarter net income increased 60% year over year to a record $123 billion and revenues increased 23% to $8 7 billion.

Truck parts and other gross margins expanded to 19, 5% in the third quarter compared to 14, 9% in the same period last year.

<unk> global investments and innovative new das Kenworth, and peterbilt trucks as well as investments in technology and manufacturing were key elements in delivering this strong performance.

Pack, our parts third quarter revenues increased to $1 five 8 billion.

Preston Feight: Parts pretax profits were $412 million, or 10% higher than the same period last year. PACCAR Parts provides its customers with industry-leading technology that enhances their uptime. PACCAR Financial earned a strong pretax income of $134 million in Q3, reflecting its high-quality portfolio. We estimate this year's US and Canadian Class 8 market to be in a range of 295,000 to 315,000 trucks, and next year to be in a range of 260,000 to 300,000 vehicles. Customers are replacing their trucks with the new heavy and medium-duty Peterbilt and Kenworth models that enhance their operational efficiencies, achieve industry-leading fuel economy, and attract and retain the best drivers. Demand is strong for Kenworth and Peterbilt trucks, with Q1 2024 filling in quickly.

Parts pretax profits were $412 million, or 10% higher than the same period last year. PACCAR Parts provides its customers with industry-leading technology that enhances their uptime. PACCAR Financial earned a strong pretax income of $134 million in Q3, reflecting its high-quality portfolio. We estimate this year's US and Canadian Class 8 market to be in a range of 295,000 to 315,000 trucks, and next year to be in a range of 260,000 to 300,000 vehicles. Customers are replacing their trucks with the new heavy and medium-duty Peterbilt and Kenworth models that enhance their operational efficiencies, achieve industry-leading fuel economy, and attract and retain the best drivers. Demand is strong for Kenworth and Peterbilt trucks, with Q1 2024 filling in quickly.

Parts pretax profits were $412 million or 10% higher than the same period last year.

<unk> are parts provides its customers with industry, leading technology that enhances their uptime.

Our financial earned a strong pre tax income of $134 million in the third quarter, reflecting its high quality portfolio.

We estimate this year's U S and Canadian class eight market to be in a range of 295 to 315000 trucks.

And next year to be in a range of 260 to 300000 vehicles.

Customers are replacing their trucks with the new heavy and medium duty peterbilt and kenworth models that enhance their operational efficiencies achieved industry, leading fuel economy and attract and retain the best drivers.

Demand is strong for kenworth and peterbilt trucks with the first quarter of 2020 for filling in quickly.

Preston Feight: In Europe, this year's truck industry registrations in the above 16-ton segment are estimated to be in a range of 310,000 to 330,000 vehicles. The 2024 market is expected to be in the range of 260,000 to 300,000 trucks. The new DAF trucks have redefined the premium truck segment in Europe and offer superior aerodynamics, award-winning fuel economy, and enhanced features that make them the driver's choice. The South American above 16-ton market is projected to be in a range of 105,000 to 115,000 trucks this year and in a similar range next year. DAF Brazil recently celebrated its 10th anniversary and has increased its greater than 16-ton share to a record 10%. The DAF lineup of trucks is performing exceptionally well for customers in all Brazilian operating environments.

In Europe, this year's truck industry registrations in the above 16-ton segment are estimated to be in a range of 310,000 to 330,000 vehicles. The 2024 market is expected to be in the range of 260,000 to 300,000 trucks. The new DAF trucks have redefined the premium truck segment in Europe and offer superior aerodynamics, award-winning fuel economy, and enhanced features that make them the driver's choice. The South American above 16-ton market is projected to be in a range of 105,000 to 115,000 trucks this year and in a similar range next year. DAF Brazil recently celebrated its 10th anniversary and has increased its greater than 16-ton share to a record 10%. The DAF lineup of trucks is performing exceptionally well for customers in all Brazilian operating environments.

In Europe . This year's truck industry registrations in the above 16 tonne segment are estimated to be in a range of 310 to 330000 vehicles.

The 2024 market is expected to be in the range of 260 to 300000 trucks.

The new <unk> trucks have redefined the premium truck segment in Europe and offer superior Aerodynamics award winning fuel economy and enhanced features that make them the driver's choice.

The South American above 16 tonne market is projected to be in a range of 105 to 115000 trucks this year and in a similar range next year.

Dov, Brazil recently celebrated its 10th anniversary and has increased its greater than 16 tonne share to a record 10%.

The <unk> lineup of trucks is performing exceptionally well for customers in all Brazilian operating environments.

Preston Feight: PACCAR recently announced its participation in a new battery cell joint venture. The joint venture will be located in the United States and will manufacture battery cells for use in medium and heavy-duty trucks. PACCAR's proprietary battery cells will create value for our customers and help them achieve their future operational and environmental goals. PACCAR's employees and dealers are delivering excellent results for our customers, and we're excited about the future. Thank you. Harry Skippers will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights.

PACCAR recently announced its participation in a new battery cell joint venture. The joint venture will be located in the United States and will manufacture battery cells for use in medium and heavy-duty trucks. PACCAR's proprietary battery cells will create value for our customers and help them achieve their future operational and environmental goals. PACCAR's employees and dealers are delivering excellent results for our customers, and we're excited about the future. Thank you. Harrie Schippers will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights.

<unk> recently announced its participation in a new battery cells joint venture.

The joint venture will be located in the United States and will manufacture battery cells for use in medium and heavy duty trucks.

<unk> proprietary battery cells will create value for our customers and help them achieve their future operational and environmental goals.

<unk> employees and dealers are delivering excellent results for our customers and we're excited about the future.

Thank you Perry Skippers will now provide an update on pack our parts Packer financial services and other business highlights.

Harrie Schippers: Thanks, Preston. PACCAR delivered 50,100 trucks during Q3. We estimate Q4 deliveries to be similar and in a range of 48,000 to 51,000 trucks. More production days in Q4 in Europe will be offset by fewer production days due to holidays in North America. The supply base is improving but continues to limit production. Truck parts and other gross margins increased to 19.5% in Q3. We anticipate Q4 gross margins to be around 19%, reflecting the strong performance of our new truck models and PACCAR Parts. PACCAR Parts delivered Q3 gross margins of 31.5%. PACCAR Parts' innovative programs, such as Advanced Fleet Management Services, and Predictive Dealer Inventory Management, help customers increase vehicle uptime and their financial performance.

Thanks Kristen.

Okay car delivered 50100 trucks during the third quarter.

We estimate fourth quarter deliveries to be similar.

And in the range of 48 to 51000 trucks.

More production days in the fourth quarter to Europe .

Will be offset by fewer production days due to holidays in North America.

The supply base is improving but continues to limit production.

Truck parts and other gross margins increased to 19, 5% through the third quarter.

We anticipate fourth quarter gross margins to be around 19%.

Selecting the strong performance of our new truck models.

Our parts.

Paccar parts delivered third quarter gross margins of 31, 5%.

Paccar parts innovative programs, such as advanced Fleet management services.

And predictive dealer inventory management to help customers increase vehicle uptime and their financial performance.

Harrie Schippers: For Q4, we expect parts sales to be 7% to 9% higher than in the same period of last year. PACCAR Financial Services results in Q3 benefited from excellent portfolio quality and positive used truck results. Pretax income was $134 million. PACCAR Financial is the market leader, supporting the superior Kenworth, Peterbilt, and DAF products with innovative technologies and a strong global used truck network. In the last two years, DAF, Kenworth, and Peterbilt have introduced more new truck models than at any comparable time in the company's history. The pace of these introductions continues with the new flagship Peterbilt Model 589, that begins production in Q1 2024.

For Q4, we expect parts sales to be 7% to 9% higher than in the same period of last year. PACCAR Financial Services results in Q3 benefited from excellent portfolio quality and positive used truck results. Pretax income was $134 million. PACCAR Financial is the market leader, supporting the superior Kenworth, Peterbilt, and DAF products with innovative technologies and a strong global used truck network. In the last two years, DAF, Kenworth, and Peterbilt have introduced more new truck models than at any comparable time in the company's history. The pace of these introductions continues with the new flagship Peterbilt Model 589, that begins production in Q1 2024.

Operator: All lines will be in listen only mode until the question and answer session.

For the fourth quarter, we expect parts sales to be 7% to 9% higher than in the same period of last year.

Operator: Today's call is being recorded. And if anyone has any objections, they should disconnect at this time.

Paccar financial services results in the third quarter benefited from excellent portfolio quality and positive used truck results.

Ken Hastings: I would now like to hand the call over to Mr Ken Hastings, Paccor's director of investor relations. Mr Hastings, please go ahead.

Pretax income was $134 million.

Ken Hastings: Good morning. We would like to welcome those listening by phone and those on the website. My name is Ken Hastings, Paccor's director of investor relations and joining me this morning are Preston Fight, Chief Executive Officer, Harry Schippers, President and Chief Financial Officer, and Bryce Papalowski, Vice President and Controller. As with prior conference calls, we ask that any members of the media on the line participate in a listen only mode. Certain information presented today will be forward looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results. For additional information, please see our FCC filings and the investor relations page of Paccor.

Pekka financial is the market leader supporting the superior Kenworth, Peterbilt and <unk> products.

Innovative technologies and a strong global used drug network.

And the last two years Dove, Kenworth, and Peterbilt introduced more new truck models than any comparable time in the company's history.

The pace of these introductions continues with a new flagship Peterbilt model 589 that begins production in the first quarter of 2024.

Harrie Schippers: PACCAR's capital investments in new and expanded facilities, innovative products, and new technologies have created the highest performing trucks and transportation solutions in the industry and will contribute to excellent financial returns for many years. PACCAR's return on invested capital further improved to an industry-leading 35% in the first nine months of this year. This year's capital expenditures are projected to be between $650 and 675 million and will increase to $675 to 725 million next year. Research and development expenses will be $410 to 420 million this year, and increase to between $470 and 520 million next year.

PACCAR's capital investments in new and expanded facilities, innovative products, and new technologies have created the highest performing trucks and transportation solutions in the industry and will contribute to excellent financial returns for many years. PACCAR's return on invested capital further improved to an industry-leading 35% in the first nine months of this year. This year's capital expenditures are projected to be between $650 and 675 million and will increase to $675 to 725 million next year. Research and development expenses will be $410 to 420 million this year, and increase to between $470 and 520 million next year.

Capital investments in new and expanded facilities innovative products and new technologies have created the highest performing trucks and transportation solutions in the industry and.

Preston Fight: I would now like to introduce Preston Fight. Hey, good morning. Harry, Bryce, Ken and I will update you on our record third quarter financial results and other business highlights. Paccor's outstanding employees delivered this excellent performance by providing our customers with the highest quality trucks and transportation solutions in the industry. Paccor's third quarter net income increased 60% year over year to a record $1.23 billion and revenues increased 23% to $8.7 billion. Truck parts and other gross margins expanded to 19.5% in the third quarter compared to 14.9% in the same period last year.

And we will contribute to excellent financial returns for many years.

Becker is return on invested capital further improved to an industry, leading 35% in the first nine months of this year.

This year's capital expenditures are projected to be between 656 under the $75 million.

Will increase to $675 million to $725 million next year.

Key search and development expenses will be 410 to 410 $2 million this year.

That increased to between 470 $520 million next year.

Preston Fight: Paccor's global investments in innovative new DAF, Kenworth and Peterbilt trucks, as well as investments in technology and manufacturing were key elements in delivering this strong performance. Paccor's third quarter revenues increased to $1.58 billion. Paccor's pre-tax profits were 412 million or 10% higher than the same period last year. Paccor's parts provides its customers with industry leading technology that enhances their uptime. Paccor financial earned a strong pre-tax income of $134 million in the third quarter reflecting its high quality portfolio.

Harrie Schippers: In addition to the capital and R&D investments, the company will own a 30% share in the battery cell joint venture and expects to invest $600 to 900 million over the coming three years. With the most advanced truck range in the industry, efficient investments, strong aftermarket parts and financial services businesses, and exciting new strategic opportunities, PACCAR is positioned well for the future. Thank you. We would be pleased to answer your questions.

In addition to the capital and R&D investments, the company will own a 30% share in the battery cell joint venture and expects to invest $600 to 900 million over the coming three years. With the most advanced truck range in the industry, efficient investments, strong aftermarket parts and financial services businesses, and exciting new strategic opportunities, PACCAR is positioned well for the future. Thank you. We would be pleased to answer your questions.

In addition to the capital and R&D investments the company will own a 30% share in the battery sale joint venture.

And expects to invest $6 million to $900 million over the coming three years.

With the most advanced truck range in the industry efficient investments.

Long after market parts and financial services businesses.

An exciting new strategic opportunities Becker is positioned well for the future.

We would be pleased to answer your questions.

Okay.

Operator: Thank you. As a reminder, if anyone would like to register a question, please press star followed by one on your telephone keypad. When preparing to ask your question, please ensure you are unmuted locally, and if you would like to withdraw your question, please press star followed by two. So that's star followed by one on your telephone keypad to register a question. Our first question today comes from Tammy Zakaria from J.P. Morgan. Tammy, please go ahead. Your line is open.

Operator: Thank you. As a reminder, if anyone would like to register a question, please press star followed by one on your telephone keypad. When preparing to ask your question, please ensure you are unmuted locally, and if you would like to withdraw your question, please press star followed by two. So that's star followed by one on your telephone keypad to register a question. Our first question today comes from Tami Zakaria from JPMorgan. Tami, please go ahead. Your line is open.

Preston Fight: We estimate this year's US and Canadian class rate market to be in a range of 295 to 315,000 trucks and next year to be in a range of 260 to 300,000 vehicles. Customers are replacing their trucks with the new heavy and medium-duty Peterbilt and Kenworth models that enhance their operational efficiencies, achieve industry leading fuel economy, and attract and retain the best drivers. The man is strong for Kenworth and Peterbilt trucks with the first quarter of 2024 filling in quickly.

Thank you as a reminder, anyone would like to register a question. Please press star followed by one on your telephone keypad.

When preparing to ask a question. Please ensure you Amit lately and if you would like to withdraw your question. Please press star followed by <unk>.

But if I have one on your telephone keypad too much to your question.

Our first question today comes from Tami Zakaria from Jpmorgan. Please go ahead. Your line is open.

Tami Zakaria: Hi, thank you so much for taking my questions. My first question is about parts growth. I think, in the press release, you said you're opening a PDC in Germany next year. How should we be thinking about parts growth in 2024, in terms of how long does it take a PDC to sort of ramp and reach runway capacity? How to think about growth overall, if you could give some color on that, that would be very helpful.

Hi, Thank you so much for taking my question.

So my first question is about correct.

Preston Fight: In Europe, this year's truck industry registrations in the above 16 ton segment are estimated to be in a range of 310 to 330,000 vehicles. The 2024 market is expected to be in the range of 260 to 300,000 trucks. The new DOF trucks have redefined the premium truck segment in Europe and offer superior aerodynamics, award winning fuel economy, and enhanced features that make them the driver's choice. The South American above 16-ton market is projected to be in a range of 105 to 115,000 trucks this year and in a similar range next year. DOF Brazil recently celebrated its 10th anniversary and has increased its greater than 16-ton share to a record 10%. The DOF lineup of trucks is performing exceptionally well for customers in all Brazilian operating environments.

I think in the press release, we said Youre opening of television in Germany next year.

So how should we be thinking about parts. So.

And China is there any floor.

In terms of how long does it take a PDC to sort of ramp in the foundry capacity.

How to think about growth overall, if you could give some color on that that would be very helpful.

Preston Feight: Sure. Happy to start with that, and Harry can add anything he wants. You know, I think what Harry shared with you is that we think parts growth is going to be in the 7% to 9% in the Q4. And to your point on the effect of a PDC, it's almost immediately good for the business, right? What a PDC does is it allows us to have closer points of contact with our customers, get them parts in a more quick way, and support their businesses for more same-day or next-day parts delivery. So it's really quickly beneficial to them, Tammy.

Preston Feight: Sure. Happy to start with that, and Harrie can add anything he wants. You know, I think what Harrie shared with you is that we think parts growth is going to be in the 7% to 9% in the Q4. And to your point on the effect of a PDC, it's almost immediately good for the business, right? What a PDC does is it allows us to have closer points of contact with our customers, get them parts in a more quick way, and support their businesses for more same-day or next-day parts delivery. So it's really quickly beneficial to them, Tami.

Sure happy to start with that and Terry can add anything he wants.

What <unk> shared with you is that we think parts growth is going to be in the 7% to 9% in the fourth quarter.

And to your point on the effective of PDC. It's almost immediately good for the business right, where the PDC does is it allows us to have closer points of contact with our customers get them parts of it are more quick way and support their businesses for more same day or next day parts delivery. So it's really quickly beneficial to them Tammy.

Tami Zakaria: Got it. That's, that's very helpful. And then, how should we think about decremental margins next year, given you're expecting truck sales down both in Europe and US, Canada?

Got it that's very helpful and then.

Preston Fight: Paccor recently announced its participation in a new battery-cell joint venture. The joint venture will be located in the United States and will manufacture battery cells for use in medium and heavy-duty trucks. Paccor's proprietary battery cells will create value for our customers and help them achieve their future operational and environmental goals. Paccor's employees and dealers are delivering excellent results for our customers and we're excited about the future.

How should we think about decremental margins next year, given youre expecting truck sales.

Preston Fight: Thank you.

Don Bolton.

Europe and U S Canada.

Preston Feight: You know, I think what we've been able to do in the last few years, and we shared this, is we've introduced more new product than any time in our history, and we continue to that with the new Peterbilt Model 589. Those products are doing exceptionally well for us in the marketplace. So we're pleased with how they're performing, and that means performing for our customers, so they're getting value out of that. I think we'll watch how the market develops for next year, and we'll have a lot better insights into margin and what's going on as we get into Q1 2024.

I think what we've been able to do in the last few years and we shared this as we've introduced more new products at anytime in our history and we continue to that with the new Peterbilt model 589, those products due to exceptionally well for us in the marketplace. So we're pleased with how they're performing and that means performing for our customers. So they are getting value out of that and I think we'll watch how the market develops.

Preston Fight: Paccor's proprietary battery cells will create value for our customers and help them achieve their future operational and environmental goals. Paccor's employees and dealers are delivering excellent results for our customers and we're excited about the future. Thank you.

Harry Schippers: Perry Skippers will now provide an update on Paccor parts, Paccor financial services, and other business highlights. Thanks, President. Paccor is delivered 50,100 trucks during the third quarter. We estimate fourth quarter deliveries to be similar and in a range of 48 to 51,000 trucks. The more production days in the fourth quarter in Europe will be offset by fewer production days due to holidays in North America. The supply base is improving that continues to limit production.

Next year, we'll have a lot better insights into margin and what's going on as we get into the first quarter for 2024.

Tami Zakaria: Okay, great. Thank you so much.

Okay, great. Thank you so much.

Preston Feight: You bet.

You bet.

Operator: Thank you. Our next question today is from Steve Volkman from Jefferies. Steve, please go ahead. Your line is open.

Operator: Thank you. Our next question today is from Stephen Volkmann from Jefferies. Stephen, please go ahead. Your line is open.

Thank you.

Our next question today is from Steve Volkmann from Jefferies. Please go ahead. Your line is open.

Harrie Schippers: Hi, good morning, everybody. Thanks for taking the question. Preston, I think it was you who was talking about the launch of the new Peterbilt, I think in January 2024, you said. Sorry if I got that wrong. I'm just curious-

Stephen Volkmann: Hi, good morning, everybody. Thanks for taking the question. Preston, I think it was you who was talking about the launch of the new Peterbilt, I think in January 2024, you said. Sorry if I got that wrong. I'm just curious-

Hi, good morning, everybody. Thanks for taking the question.

Okay.

The press and I think it was you who is talking about the launch of the new Peterbilt I think in January of 'twenty. Four you said, sorry, if I got that wrong I'm. Just curious how you are right they give the launches.

Harry Schippers: Paccor parts and other close margins increased to 19.5% in a third quarter. We anticipate fourth quarter close margins to be around 19%. Reflecting the strong performance of our new truck models and Paccor parts. Paccor parts deliver third quarter close margins of 31.5%. Paccor parts innovative programs such as advanced fleet management services and predictive dealer inventory management help customers increase vehicle uptime and their financial performance. For the fourth quarter, we expect part sales to be 7 to 9% higher than in the same period of last year.

Preston Feight: You're right.

Harrie Schippers: How big of a launch is that? Okay, great. How big of a launch is that? How much of your, of your North American revenue could that be? And where I'm trying to go with this is, you guys always seem to engineer in sort of higher margins as you do these changeovers. So I'm trying to figure out how much of a tailwind that might be in 2024.

Stephen Volkmann: How big of a launch is that? Okay, great. How big of a launch is that? How much of your, of your North American revenue could that be? And where I'm trying to go with this is, you guys always seem to engineer in sort of higher margins as you do these changeovers. So I'm trying to figure out how much of a tailwind that might be in 2024.

Great how big of a launch is that how much of your of your North American revenue could that be in where I'm trying to go with this is you guys always seem to engineer and sort of higher margins. As you do these changeover. So I'm trying to figure out how much of a tailwind that might be in 2024.

Preston Feight: Hey, Steve. Well, first of all, I mean, the thing about it, what we try to engineer in is higher value for our customers, and I think that that's what we've been able to do with these new products. The five eighty-nine, well, the right word is it's cool. When we did the introduction for it, it was just exciting to see it. It's gonna be iconic in the industry. It looks fantastic, and I think it'll be a, a great flagship for the Peterbilt team. As far as percentages, maybe, Harry, you wanna-

Preston Feight: Hey, Stephen. Well, first of all, I mean, the thing about it, what we try to engineer in is higher value for our customers, and I think that that's what we've been able to do with these new products. The five eighty-nine, well, the right word is it's cool. When we did the introduction for it, it was just exciting to see it. It's gonna be iconic in the industry. It looks fantastic, and I think it'll be a, a great flagship for the Peterbilt team. As far as percentages, maybe, Harrie, you wanna-

Hey, Steve well first of all I mean, the thing about it what we try to engineer and has higher value for our customers and I think that that's what we've been able to do with these new products. The 589, well the right word is it's cool.

When we did the introduction for it it was <unk>.

It's exciting to see it it's going to be iconic in the industry.

It looks fantastic and I think it'll be a great flagship for the peterbilt team as far as percentages, maybe Harry you want to.

Harrie Schippers: The five eighty-nine, Steve, will replace the three eighty-nine. A good way to think about it, the three eighty-nine is now about 20% of Peterbilt's production. So, maybe 6 to 7% of PACCAR's total production. The five eighty-nine, like I said, will replace it and maybe grow even a little bit more.

Harrie Schippers: The five eighty-nine, Stephen, will replace the three eighty-nine. A good way to think about it, the three eighty-nine is now about 20% of Peterbilt's production. So, maybe 6 to 7% of PACCAR's total production. The five eighty-nine, like I said, will replace it and maybe grow even a little bit more.

Harry Schippers: Paccor financial services results in the third quarter benefited from excellent portfolio quality and positive use truck results. Pdx income was $134 million. Paccor financial is the market leader supporting the superior Kenworth, Peterville and Duff products with innovative technologies and a strong global use truck network. In the last two years, Duff, Kenworth and Peterville have introduced more new truck models than at any comparable time in the company's history. The pace of these introductions continues with the new flagship Peterville model 589 that begins production in the first quarter of 2024.

The $5 89, Steve will replace the $3 89.

A good way to think about it. The 389 is now about 20% of <unk> production.

So maybe 67% of Becker's total production.

589, like I said, we'll be plays it and maybe go even a little bit more.

Stephen Volkmann: Great. Okay, thank you for that. And then, my follow-up is on the financial services, Harry. I'm curious, obviously, it was down a little bit year over year. How do the higher rates that we're seeing in the market kind of layer in? Because obviously, you get some income, I guess, on your cash balances, which is great, but then there's probably some headwinds in the finance book, and I don't know, just any color you could give us on that would be great.

Stephen Volkmann: Great. Okay, thank you for that. And then, my follow-up is on the financial services, Harrie. I'm curious, obviously, it was down a little bit year over year. How do the higher rates that we're seeing in the market kind of layer in? Because obviously, you get some income, I guess, on your cash balances, which is great, but then there's probably some headwinds in the finance book, and I don't know, just any color you could give us on that would be great.

Great. Okay. Thank you for that and then my follow up is on.

The financial services, Terry I'm curious, obviously, it was down a little bit year over year.

How does the higher rates that we're seeing in the market kind of layer in because obviously you get some income I guess.

On your cash balances, which is great. But then there is probably some headwinds in the finance book and I don't know it just any color you could give us on that would be great.

Harry Schippers: Package Capital Investments in new and expanded facilities, innovative products and new technologies have created the highest performing trucks and transportation solutions in the industry and will contribute to excellent financial returns for many years. Package return on invested capital further improved to an industry leading 35% in the first nine months of this year. This year's capital expenditures are projected to be between $650 and $675 million and will increase to $675 to $725 million next year.

Preston Feight: Yeah, the portfolio quality space continues to be very strong. We have a portfolio of almost $20 billion now, with past dues less than 1%. So yeah, higher interest rates do drive higher payments for our customers. But with all the new products that we launched that have better fuel efficiency, they do see savings on the fuel bill that more than offset the higher interest payments in today's environment.

Harrie Schippers: Yeah, the portfolio quality space continues to be very strong. We have a portfolio of almost $20 billion now, with past dues less than 1%. So yeah, higher interest rates do drive higher payments for our customers. But with all the new products that we launched that have better fuel efficiency, they do see savings on the fuel bill that more than offset the higher interest payments in today's environment.

Yes.

The portfolio of quality, Steve continues to be very strong.

The portfolio of almost $20 billion now.

With past use less than a percent so higher interest rates do drive higher payments for our customers.

With all the new products that we launch that that will fuel efficiency.

You see savings on the fuel Bill.

But more than offset the higher interest payments in today's environment.

Stephen Volkmann: Okay. Thank you, guys.

Okay. Thank you guys.

Preston Feight: You bet.

You bet.

Operator: Thank you. Our next question is from Chad Dillard from Bernstein. Chad, please go ahead. Your line is open.

Thank you.

Harry Schippers: Deception development expenses will be $410 to $420 million this year and increased to capital and R&D investments, the company will own a 30% share in the battery cell joint venture and expects to invest $6 to $900 million over the coming three years. With the most advanced truck range in the industry, efficient investments, strong off-the-market parts and financial services businesses and exciting new strategic opportunities, Package position well for the future.

Next question is from Chad Dillard from Bernstein Chad. Please go ahead. Your line is open.

Chad Dillard: Hi, good morning, guys. First question-

Alright, good morning, guys. So.

Preston Feight: Good morning

Chad Dillard: ... for you is, how much visibility do you have into engine rebuilds? And what does it tell you about your engine parts demand or, or what it could look like more broadly into 2024?

So first question once again.

How much visibility do you have any.

<unk> results.

And what does it tell you about your engine parts demand or what it could look like more broadly.

2024.

Preston Feight: Well, I think we have pretty good visibility to the life of the engine. So our parts team does a fantastic job of tracking miles, or a lot of our vehicles are connected, so we get to see what miles are accumulating. We obviously manage what's going on from an engine parts utilization standpoint, and then as the population is still reaching a point of maturity, we expect to see the amount of rebuilds increasing over time. So that should be still accretive to the parts business.

Well I think we have pretty good visibility to the life of the engine. So our parts team does a fantastic job of tracking miles or a lot of our vehicles are connected so we get to see with miles are accumulating we obviously manage what's going on from an engine part utilization standpoint, and then as the population is still reaching a point of maturity.

Harry Schippers: Thank you.

Operator: We would be pleased to answer your questions.

We expect to see the amount of rebuilds, increasing over time, so it should be still accretive to the parts business.

Operator: Thank you. As a reminder, if anyone would like to register a question, please press star flip by one on your telephone keypad.

Chad Dillard: Got it. That's helpful. And the second question, can you talk about your approach to managing the growth air pocket in 2024? You know, just given that we do have a pre-buy ahead of the 2027 emission standards, that could probably start in 2025 and 2026. Just want to get a sense for how you're thinking about, you know, labor, line rates, you know, maintaining your suppliers so you can, you know, catch the rebound.

Operator: As a reminder, if anyone would like to register a question, please press star flip by one on your telephone keypad. When preparing to ask your question, please ensure you are immediately and if you would like to withdraw your question, please press star flip by two. So that's star flip by one on your telephone keypad to register a question.

Got it Thats helpful.

And the second question can you talk about your approach to managing the growth of air pocket in 'twenty four.

Operator: When preparing to ask your question, please ensure you are immediately and if you would like to withdraw your question, please press star flip by two. So that's star flip by one on your telephone keypad to register a question.

Just given that you have a pre buy ahead of the 2007 emission standards that could probably start in 2025 and 26.

Wanted to get sense for how you're thinking about.

Camille Zacharia: Our first question today comes from Camille Zacharia from JPMorgan, Camille Peacefulhead, R&D Open. Hi. Thank you so much for taking my questions. So my first question is about parts growth. I think in the first release we said you're opening a PDC in Germany next year. So how should we be thinking about parts growth in 2024, in terms of how long does it take a PDC to sort of ramp and reach around the capacity, how do you think about growth overall if you could give some color on that? That would be very helpful.

Camille Zacharia: Our first question today comes from Camille Zacharia from JPMorgan, Camille Peacefulhead, R&D Open. Hi. Thank you so much for taking my questions.

Labor line rates.

Maintaining your suppliers. So you can catch the rebound.

Preston Feight: Yeah, I think that what we see is, right, and we've been talking about this for a little while with you guys, is our approach has been to spend money in research to make sure we have the right products sitting out there, and we do. So we're really well positioned with the newest product lineup. That matters a lot. And then I think where we're sitting in time is markets that haven't been able to be fully met for a few years, and now people starting to think about what the future might be in terms of 2027 emissions, which could make this a stronger for longer, kind of a good approach. Obviously, your word was air pocket. I got to tell you, I've never heard that word before, but I'll use it with you.

Yes, I think that what we see is right and we've been talking about this for a little while with you guys is our approach has been to spend money in research to make sure the right products sitting out there and we do so really well positioned with the newest product lineup that matters a lot and then I think where we're sitting and time is markets that haven't been able to be fully met for few years and now people.

Harry Schippers: So my first question is about parts growth. I think in the first release we said you're opening a PDC in Germany next year. So how should we be thinking about parts growth in 2024, in terms of how long does it take a PDC to sort of ramp and reach around the capacity, how do you think about growth overall if you could give some color on that? That would be very helpful. Sure.

Starting to think about what the future might be in terms of 2027 emissions, which could make this a stronger for longer kind of a good approach. Obviously your word was air pocket I got to tell you I've never heard that before but.

Preston Feight: If there's an air pocket next year, we'll see what that looks like as we get into 2024.

If there's an air pocket next year, we'll see what that looks like as we get into 2024.

I'll use it with you and if there is an air pocket next year, we will see what that looks like as we get into 2024.

Preston Fight: Sure. Happy to start with that and Harry can add anything once. I think what Harry shared with you is that we think parts growth is going to be in the 7% and 9% in the fourth quarter and to your point on the effective of PDC, it's almost immediately good for the business, right? What a PDC does is it allows us to have closer points of contact with our customers, get them parts that are more quick way and support their businesses for more same day or next day parts delivery. So it's really quickly beneficial to them, Camille. Got it. That's very helpful.

Harry Schippers: Happy to start with that and Harry can add anything once. I think what Harry shared with you is that we think parts growth is going to be in the 7% and 9% in the fourth quarter and to your point on the effective of PDC, it's almost immediately good for the business, right? What a PDC does is it allows us to have closer points of contact with our customers, get them parts that are more quick way and support their businesses for more same day or next day parts delivery. So it's really quickly beneficial to them, Camille. Got it. That's very helpful.

Chad Dillard: Great. Thank you.

Great. Thank you.

Preston Feight: You bet.

Yeah.

Chad Dillard: Thanks.

You bet.

Operator: Thank you. Our next question is from Rob Wertheimer from Melius Research. Rob, please go ahead. Your line is open.

Sure.

Thank you.

Next question is from Bob last time from Melius Research. Please go ahead. Your line is open.

Rob Wertheimer: Yeah, one market question, then hopefully a more interesting strategic. So just, just on the outlook, is there any material mix shift, you know, kind of coming through in your customer conversations or order flow towards vocational? And just in general, does that outlook, you know, anticipate a decline in sentiment, or does it, you know, sort of follow along with one you've already seen in the customer base?

Yes, one market question, then hopefully more interesting strategic so just just on the outlook is there any material mix shift kind of coming through in your customer conversations or order flow towards vocational.

Preston Fight: And then how should we think about detrimental margins next year, given you're expecting truck sales down both in Europe and US Canada? You know, I think what we've been able to do in the last few years and we shared this is we've introduced more new product than any time in our history and we continue to do that with the new Peterbilt Model 589. Those products are exceptionally well for us in the marketplace.

Harry Schippers: And then how should we think about detrimental margins next year, given you're expecting truck sales down both in Europe and US Canada? You know, I think what we've been able to do in the last few years and we shared this is we've introduced more new product than any time in our history and we continue to do that with the new Peterbilt Model 589. Those products are exceptionally well for us in the marketplace.

And just in general does that outlook.

Anticipate a decline in sentiment or does it sort of follow along with what you've already seen in the customer base.

Preston Feight: No, Rob, I think you're paying attention to what's going on. I mean, we do see a really strong vocational market out there, and we see a strong medium-duty market. The LTL market's very strong. And then, as we were talking about in the last question, from Chad, the idea that I think customers that are sophisticated are paying attention to the next few years and want to keep their fleet age at a, at a low level. So there's a lot of contemplation for them to stay on a, on a smart buying cycle for them. And frankly, as we've said, and we keep saying, right, these new trucks are providing good value to them, so there's a reason for them to keep buying trucks.

Well, Rob I think I think youre paying attention, what's going on I mean, we do see a really strong vocational market out there.

We see strong medium duty market. The <unk> market is very strong and then as we were talking about in the last question from Chad the idea that I think customers that.

Preston Fight: So we're pleased with how they're performing and that means performing for our customers. So they're getting value out of that. And I think we'll watch how the market develops for next year and we'll have a lot better insights into margin and what's going on as we get into the first quarter for 2024.

Harry Schippers: So we're pleased with how they're performing and that means performing for our customers. So they're getting value out of that. And I think we'll watch how the market develops for next year and we'll have a lot better insights into margin and what's going on as we get into the first quarter for 2024. Okay, great. Thank you so much. You bet. Thank you.

Our sophisticated are paying attention to the next few years and want to keep their fleet age at a low level. So there's a lot of contemplation for them to stay on our smart buying cycle for them and frankly, as we've said and we keep saying right. These new trucks are providing good value to them. So there's a reason for them to keep buying trucks and I think that all factors into where we think the market is going to be looking forward.

Camille Zacharia: Okay, great. Thank you so much. You bet. Thank you.

Preston Feight: I think that all factors into where we think the market is going to be, looking forward.

I think that all factors into where we think the market is going to be, looking forward.

Unknown Attendee: Our next question today is from the bulkmen from Jeffries. Please go ahead, you'll answer him. Hi, good morning everybody. Thanks for taking a question. Preston, I think it was you who was talking about the launch of the new Peter built, I think in January of 24 you said, sorry if I got that wrong. I'm just curious, you're right, big of a launch is that. Okay, great. How big of a launch is that how much of your of your North American revenue could that be?

Jeffrey Kauffman: Our next question today is from the bulkmen from Jeffries. Please go ahead, you'll answer him. Hi, good morning everybody. Thanks for taking a question. Preston, I think it was you who was talking about the launch of the new Peter built, I think in January of 24 you said, sorry if I got that wrong. I'm just curious, you're right, big of a launch is that. Okay, great. How big of a launch is that how much of your of your North American revenue could that be?

Rob Wertheimer: Okay, perfect. Then another one just on the battery investment. This has been a subject of some debate as your future trucks will presumably have higher content, you know, with batteries and/or autonomy and other things, but just sticking with the batteries for the moment. And some question as to whether those batteries would be commodity provided by somebody else or more individually designed for your trucks, you know, by you. And this seems to lean in the latter direction. I wonder if you could comment on, you know, the proprietary nature of it, the chemistry, and you know, what you expect on, you know, this investment and the timing of when those trucks might actually, you know, start to roll in numbers to market. I'll stop there. Thanks.

Okay perfect and then another one just on the battery investment this has been a subject of some debate.

As your future trucks will presumably have higher content with batteries and autonomy and other things, but just sticking with the batteries for the moment.

And some question as to whether those batteries would be commodity provided by somebody else or.

More individually designed to your trucks.

And this seems to lean in a latter direction I Wonder if you could comment on.

The proprietary nature of it the chemistry and what you expect on this investment and the timing of when those trucks might actually start to roll in numbers to market I'll stop there. Thanks.

Unknown Attendee: And where I'm trying to go with this is you guys always seem to engineer in sort of higher margins as you do these changeovers. So I'm trying to figure out how much of a tail and that might be in 2024. Well, first of all, I mean, the thing about it, what we try to engineer in this higher value for our customers and I think that that's what we've been able to do with these new products.

Jeffrey Kauffman: And where I'm trying to go with this is you guys always seem to engineer in sort of higher margins as you do these changeovers. So I'm trying to figure out how much of a tail and that might be in 2024. Well, first of all, I mean, the thing about it, what we try to engineer in this higher value for our customers and I think that that's what we've been able to do with these new products.

Preston Feight: Yeah, there was a lot of questions in there, but let me kind of give you an overview and come back into it if you want to.

Yes, there was a lot of questions in there, but let me kind of give you an overview come back into it if you want to so what we see is as we move forward, there's going to be a host of technologies employed for how we use motive power and clean diesels can be part of it. We obviously think that batteries are going to be part of it as we did this joint venture and the proprietary battery cells, and we think that hygiene can.

Rob Wertheimer: Okay.

Preston Feight: So what we see is, as we move forward, there's going to be a host of technologies employed for how we use motive power, and clean diesel is going to be part of it. We obviously think that batteries are going to be part of it, as we did this joint venture into proprietary battery cells. We think that hydrogen can play a role as well, whether that's internal combustion or it could be through fuel cells. But in the case of batteries, when you create a battery electric vehicle, the cost of the vehicle is highly impacted and influenced by the cost of the battery. So having it be more vertically integrated is an advantage, we think, for our customers, and gives us an ability to control both the energy in the battery as well as the battery energy management system to the vehicle.

Unknown Attendee: The 589, well, the right word is it's cool. We did the introduction for it. It was just exciting to see it. It's going to be iconic in the industry. It looks fantastic and I think it'll be a great flagship for the Peter built team. As far as percentages, maybe Harry, you want to the 589, Steve will replace the 389 and a good way to think about it. The 389 is now about 20% of Peter built production. So maybe six, seven percent of perestroial production. And the 589, like I said, will replace it and maybe grow even a little bit more. Great. Okay.

Jeffrey Kauffman: The 589, well, the right word is it's cool. We did the introduction for it. It was just exciting to see it. It's going to be iconic in the industry. It looks fantastic and I think it'll be a great flagship for the Peter built team. As far as percentages, maybe Harry, you want to the 589, Steve will replace the 389 and a good way to think about it. The 389 is now about 20% of Peter built production. So maybe six, seven percent of perestroial production. And the 589, like I said, will replace it and maybe grow even a little bit more. Great. Okay.

Unknown Attendee: Thank you for that.

unknown: Thank you for that.

Play a role as well, whether that's internal combustion or it could be through fuel cells, but in the case of batteries. When you create a battery electric vehicle the cost of the vehicle is highly impacted and influenced by the cost of the batteries. So having it be more vertically integrated is an advantage, we think for our customers and gives us an ability to control both the energy in the battery as well as the battery energy manage.

Preston Feight: So we felt like getting involved in that space was important, and we think that'll be a few years before it develops. Obviously, we don't have our regulatory approvals yet, and so we'll give a little bit of caution that we need those approvals for forward-looking, but that feels like it's going in a good direction. And then as I think about the kinds of chemistry you asked about, the technology we've chosen is LFP, lithium iron phosphate or some derivative of that, that we might use. And the benefit of that is it's a safer battery chemistry. It doesn't rely on rare earth minerals, it's more durable, it's faster to charge, and it has a better life capability, so and a better cost structure.

So we felt like getting involved in that space was important, and we think that'll be a few years before it develops. Obviously, we don't have our regulatory approvals yet, and so we'll give a little bit of caution that we need those approvals for forward-looking, but that feels like it's going in a good direction. And then as I think about the kinds of chemistry you asked about, the technology we've chosen is LFP, lithium iron phosphate or some derivative of that, that we might use. And the benefit of that is it's a safer battery chemistry. It doesn't rely on rare earth minerals, it's more durable, it's faster to charge, and it has a better life capability, so and a better cost structure.

Our system to the vehicle. So we felt like getting involved in that space was important and we think there'll be a few years before it develops obviously, we don't have our regulatory approvals, yet and so give us a little bit of caution that we need those approvals for.

Harry Schippers: And then my follow-up is on the financial services. Harry, I'm curious obviously with that a little bit here over a year. How do the higher rates that we're seeing in the market kind of layer in because obviously you get some income, I guess, on your cash balances, which is great, but then there's probably some headwinds in the finance book.

Forward looking but that feels like it's going in a good direction and then as I think about the kinds of chemistry, you asked about the technology, we've chosen as LSP.

Iron phosphate or some derivative of that that we might use.

And the benefit of that as a safer battery chemistry. It doesn't rely on rare Earth minerals is more durable it's faster to charge and it has a better life capability.

Harry Schippers: And I don't know, just any color you could give us on that would be great. Okay. The portfolio quality, Steve continues to be very strong. We have a portfolio of almost $10 billion now, with past dues less than a percent. So higher interest rates do drive higher payments for our customers. But with all the new products that we launched that are fuel efficiency, they do see savings on the fuel bill that more than offset the higher interest payments in today's framework. Okay.

Preston Feight: So all those factors were the reason we chose that technology, and I give huge, huge credit to our technology teams that have thought this through for the last several years as they made this decision and got us going on this great path.

So all those factors were the reason we chose that technology, and I give huge, huge credit to our technology teams that have thought this through for the last several years as they made this decision and got us going on this great path.

And a better cost structure. So all of those factors are the reason, we chose that technology and he just a huge huge credit to our technology teams have thought this through for the last several years as they made this decision and got us going on this great path.

Harrie Schippers: Thank you.

Rob Wertheimer: Thank you.

Thank you.

Preston Feight: You bet.

You bet.

Operator: Thank you. Our next question is from David Raso from Evercore ISI. David, please go ahead. Your line is open.

Thank you Alan.

Next question is from David Raso from Evercore ISI. David. Please go ahead. Your line is open.

David Raso: Thank you very much. The comments earlier about the Q1 2024 are starting to fill up quickly. Can you give us some insight on how the pricing is for those Q1 deliveries, and then maybe a sense of the cadence year over year that you expect the US, Canada, down 8% to play out for the industry? Thank you.

Thank you very much the comments earlier about the first quarter of 'twenty four are starting to fill up quickly.

Unknown Attendee: Thank you, guys. You bet. Thank you.

unknown: Thank you, guys. You bet. Thank you.

Can you give us some insight on how the pricing is for those first quarter deliveries.

Chad Dillard: Our next question is from Chad Dillard from Van Seen. Chad, please go ahead. Your line is excellent. All right. Good morning, guys. So first question for you is how much visibility do you have into engineering builds? And what does it tell you about your engine parts demand or what it can look like more broadly into 2024? Well, I think we have pretty good visibility to the life of the engines. So we're part seen as a fantastic job of tracking miles or a lot of our vehicles are connected.

And then maybe a sense of the cadence year over year that you expect the U S, Canada down 8% to play out for the industry the industry. Thank.

Chad Dillard: So we get to see what miles are accumulating. We obviously manage what's going on from an engine part utilization standpoint. And then as the population is still reaching a point of maturity, we expect to see the amount of rebuilds increasing over time. So that should be still creative to the parts business. And the second question, can you talk about your approach to managing the growth air pocket in 24? Just give it that we do have a pre-by ahead of the 27 emission standards that could probably start in 2025 and 26.

Thank you.

Preston Feight: Well, I think if you, if you think about pricing, what we did is we shared with you what our, where our vision is best, David, and that's at the fourth quarter. So that's where we gave you a gross margin expectation around 19%. And as I said, it's filling in quickly. But I think that the key we've been focusing on is making sure that customers do realize the value of the products. They are. That factors into the pricing, obviously. And I'll say it's a competitive world out there. So I think I look forward to having the conversation with you on pricing and what's going on in the marketplace as we get into the earnings in the first quarter there. So that kind of is where that sits.

Chad Dillard: So that should be still creative to the parts business.

Well I think if you if you think about pricing what we did is we shared with you what our vision is best David and Thats at the fourth quarter. So Thats why we gave you a gross margin expectation of around 19% and as I said, it's filling in quickly, but I think that the.

The key we have been focusing on is making sure that customers do realize the value of the products.

<unk>.

That factors into the pricing, obviously and I will say, it's a competitive world out there. So I think it's a look forward to having a conversation with you on pricing and what's going on in the marketplace. So as we get into the earnings in the first quarter there.

So that kind of where that sits from a secondary question of cadence I think we're seeing as I said, the first quarter looks pretty good and I think that the overall sentiment as well there may be some moderation in truckload people are trying to figure out how to think about the next three years and so I don't I'm not smart enough to know what Q2.

Preston Feight: From a secondary question of cadence, you know, I think we're seeing, as I said, the first quarter looks pretty good. And I think that the overall sentiment is, while there may be some, some moderation in truckload, people are trying to figure out how to think about the next three years. And so I don't- I'm not smart enough to know what Q2, Q3, Q4 are gonna look like. We just feel like, we'll see some, some adjustments there from this year, but that it should still at a, stay at, at, like, a replacement demand level.

From a secondary question of cadence, you know, I think we're seeing, as I said, the first quarter looks pretty good. And I think that the overall sentiment is, while there may be some, some moderation in truckload, people are trying to figure out how to think about the next three years. And so I don't- I'm not smart enough to know what Q2, Q3, Q4 are gonna look like. We just feel like, we'll see some, some adjustments there from this year, but that it should still at a, stay at, at, like, a replacement demand level.

Chad Dillard: And the second question, can you talk about your approach to managing the growth air pocket in 24? Just give it that we do have a pre-by ahead of the 27 emission standards that could probably start in 2025 and 26. I just want to give some for how you're thinking about labor, line rates, maintaining your suppliers so you can catch the rebound. Yeah, I think that what we see is right, and we've been talking about this for a little while with you guys, is our approach has been to spend money and research to make sure we have the right product sitting out there and we do.

Q3, Q4, we're going to look like and we just feel like.

Chad Dillard: I just want to give some for how you're thinking about labor, line rates, maintaining your suppliers so you can catch the rebound. Yeah, I think that what we see is right, and we've been talking about this for a little while with you guys, is our approach has been to spend money and research to make sure we have the right product sitting out there and we do. So really well positioned with the newest product line up that matters a lot.

We will see some some adjustments there from this year, but it should still at a state like a replacement demand level.

David Raso: That's helpful. The order book right now, how far can the dealers order out to, say, US, Canada, in, into 2024?

That's helpful. The order book right now how far can the dealers order out to say U S, Canada and into 'twenty four.

Preston Feight: Looking at the first half.

Chad Dillard: So really well positioned with the newest product line up that matters a lot. And then I think where we're sitting in time is markets that haven't been able to be fully met for a few years. And now people starting to think about what the future might be in terms of 2027 emissions, which could make this a stronger for longer kind of a good approach. Obviously, your word was air pocket, I've never heard that word before, but I'll use it with you. And if it's an air pocket next year, we'll see what that looks like as we get into 2024. Thank you. You bet.

Looking at the first half.

David Raso: First half. Okay, thank you so much.

Chad Dillard: And then I think where we're sitting in time is markets that haven't been able to be fully met for a few years. And now people starting to think about what the future might be in terms of 2027 emissions, which could make this a stronger for longer kind of a good approach. Obviously, your word was air pocket, I've never heard that word before, but I'll use it with you. And if it's an air pocket next year, we'll see what that looks like as we get into 2024. Thank you. You bet.

First half okay. Thank you so much.

Preston Feight: You bet.

You bet.

Operator: Thank you. Our next question is from Jerry Revich from Goldman Sachs. Jerry, please go ahead. Your line is open.

Thank you.

Our next question is from Jerry Revich from Goldman Sachs. Jimmy. Please go ahead. Your line is open.

Jerry Revich: Yes. Hi, good morning, good afternoon, everyone.

Yes, hi, good morning, and good afternoon, everyone.

Preston Feight: Hey, Jerry.

Jerry Revich: I wonder if we just talk about the new product portfolio, I mean, in Europe, I think your profitability per truck has doubled with the new products, similar on the medium duty product lineup. Is it possible, Harry, for us to have a discussion of what proportion of the portfolio fits this new product paradigm versus the type of rollouts that we have still in front of us over the next couple of years? How far away are we through rolling out this new higher margin portfolio that seems to be a big step higher for you folks?

Jerry Revich: I wonder if we just talk about the new product portfolio, I mean, in Europe, I think your profitability per truck has doubled with the new products, similar on the medium duty product lineup. Is it possible, Harrie, for us to have a discussion of what proportion of the portfolio fits this new product paradigm versus the type of rollouts that we have still in front of us over the next couple of years? How far away are we through rolling out this new higher margin portfolio that seems to be a big step higher for you folks?

Hey, Jerry can you just talk about.

The new product portfolio.

In Europe , I think your profitability per truck has doubled with the new products similar on the medium duty product lineup is it possible here for us to have a discussion of what proportion of the portfolio fits.

Rob Werfheimer: Thank you. Now next question is from Rob Werfheimer from Melius Research. Rob, please go ahead, you'll analyze them.

This new product paradigm versus the type of rollout. So we have still in front of us.

Preston Fight: Yeah, one market question, then hopefully more interesting strategic. So just just on the out. Is there any material, mixed shift, you know, kind of coming through any customer conversations or order flow towards vocational. And just in general, does that look, you know, anticipate a decline in sentiment or is it, you know, sort of follow along with one you've already seen in the customer base? Rob, I think you're paying attention what's going on.

Over the next.

Couple of years, how far away are we through rolling out this.

You have a higher margin portfolio that seems to be a big step higher.

For you folks.

Harrie Schippers: And the New DAF is currently a little over 80% of all the trucks that DAF is building. And remember, DAF is also building trucks for export outside Europe. But I would say within Europe, almost all the trucks that we're selling are the new DAF, with the improved aerodynamics and the better fuel economy, because that's what customers want. And then going forward, yeah, we're planning to bring that new DAF product also to other markets. And any market where we're currently selling DAF is an opportunity to sell the new DAF in the future.

The new Dove is currently a little over 80% of all the tricks of Dove is building I remember that is also building trucks for expert outside Europe , but I would say within Europe , almost all the trucks that we're selling are the new dove.

Preston Fight: I mean, we do see a really strong vocational market out there. We see a strong medium duty market, the LPL market is very strong. And then as we were talking about in the last question from Chad, the idea that I think customers that are sophisticated or paying attention to the next few years and want to keep their fleet age. And at a low level. So there's a lot of contemplation for them to stand on a smart buying cycle for them.

With the improved aerodynamics into better fuel economy, because that's what customers want.

And then going forward, yes, we are planning to bring that new desk protocols at the border markets.

Any markets, where we're currently selling to us is an opportunity to sell the new dove into future.

Preston Fight: And frankly, as we've said, and we keep saying, right, these new trucks are providing good value to them. So there's a reason for them to keep my truck. And I think that all factors into where we think the market is going to be looking forward.

Jerry Revich: And sorry, Harry, can we expand that conversation in North America as well? So with the five eighty-nine rolling out, what's the remaining opportunity within the book for upgrades that you folks have planned?

Jerry Revich: And sorry, Harrie, can we expand that conversation in North America as well? So with the five eighty-nine rolling out, what's the remaining opportunity within the book for upgrades that you folks have planned?

Sorry, Harry can we expand that conversation in North America as well so with the $5 89 rolling out whats the remaining opportunity within the book for for upgrades that you folks have planned.

Preston Fight: Okay, perfect.

unknown: Okay, perfect.

Unknown Attendee: And then another one just on the battery investment. This has been a subject of some debate as your future trucks will presumably have higher content, you know, what batteries and autonomy and other things, but just sticking with the batteries for the moment. And some question as to whether those batteries would be commodity provided by somebody else or more individually designed for your trucks, you know, about you.

unknown: And then another one just on the battery investment. This has been a subject of some debate as your future trucks will presumably have higher content, you know, what batteries and autonomy and other things, but just sticking with the batteries for the moment. And some question as to whether those batteries would be commodity provided by somebody else or more individually designed for your trucks, you know, about you.

Harrie Schippers: Well, like I said, the 589 is – the 389 is 20% of Peterbilt's production, so it's about 6-7%, maybe, of PACCAR's production. So with the 589 replacing the 389 next year, it'll be a similar percentage, I would think, as the 389 is today.

Like I said the 589 is the 300.

89 is 20% of <unk> production. So it's about 67% maybe affect gross production so with the $5 89 to be placing the 389 next year.

It'll be a similar percentage I would think is <unk> 89 is today.

Jerry Revich: There's a pipeline for new products from there, it sounds like.

Preston Fight: And this seems to lean in the ladder direction. I wonder if you could comment on, you know, the proprietary nature of it, the chemistry and, you know, what you expect on, you know, this investment and the timing of when those trucks might actually, you know, start to roll in numbers to market. I'll stop there. Thanks. Yeah, there was a lot of questions in there, but let me kind of give you an overview and come back into it if you want to.

And there is a pipeline for new products from there it sounds like.

Preston Feight: Of course, yeah. I'll help a little bit here, like, you know, you see what our R&D numbers are for next year. We think there's a ton of great projects that we have out there that provide good value to our customers and shareholders, and so, that pipeline is very full.

Of course, yeah, I'll help a little bit here is like you.

You see what our R&D numbers are for next year. We think there is a ton of great projects that we have out there that provide good value to our customers and shareholders and so we that that pipeline is very full.

Jerry Revich: Okay, super. Can I ask, on the battery electric investment, you know, you folks have really good connectivity with your clients on, on the consultation side. Once you get the plant up and running, how quickly, based on your conversations, do you think demand will ramp up? You know, how big are the concerns around the utilities' ability to keep up versus, you know, having a product that's gonna be producible at scale that you folks are effectively gonna be solving for, for the industry in 2027?

Yeah.

Okay Super.

Preston Fight: So what we see is, as we move forward, there's going to be a host of technologies employed for how we use motive power. I think clean diesel can be part of it. We obviously think that batteries are going to be part of it as we did this joint venture in the proprietary battery cells. And we think that hydrogen can play a role as well, whether that's internal combustion, or it could be through fuel cells.

And can I ask on the battery electric investment you folks have really good connectivity with your clients on the consultation side.

Once you get the plant up and running how quickly based on your conversations that you think.

<unk> will ramp up how big are the concerns around the utility's ability to keep up versus having a product that's going to be producible upscale, but you folks are effectively going to be solving for for the industry in 2027.

Preston Fight: But in the case of batteries, when you create a battery electric vehicle, the cost of the vehicle is highly impacted and influenced by the cost of the battery. So having it be more vertically integrated is an advantage we think for our customers and give us an ability to control both the energy in the battery as well as the battery energy management system to the vehicle. So we felt like getting involved in that space was important.

Preston Feight: Yeah, I think you, I think you just captured the issues that are unknowable at this point right now. Regulation is a factor, energy is a factor, infrastructure is a factor in the rate of adoption for EVs. Price is a factor as well. What our position is, as PACCAR, is we want to make sure that we offer our customers the right solutions, right? So we make the investments now. We're less concerned about whether the adoption curve is rapid in 2027 or if it's 2028 or whenever it is. We'll have great diesel engines, we'll have great electric vehicles, we'll have great hydrogen vehicles, and that puts us in a position of supporting their needs, regardless of the circumstance.

Yes. Thank you I think you were just captured the issues that are unknowable at this point right now regulation is a factor energy as a factor infrastructure as a factor in the rate of adoption for evs prices a factor as well, but our position is as Pac cars, we want to make sure that we offer our customers the right solutions right. So we make the investments now we're less concerned about whether the adoption curve is.

Preston Fight: And we think that it'll be a few years before it develops. Obviously, we don't have our regulatory approvals yet. And so we'll give a little bit of caution that we need those approvals for forward looking, but that feels like it's going in a good direction. And then as I think about the kinds of chemistry you asked about, the technology we've chosen is LFP. I'm looking at my own phosphate or some derivative of that that we might use, and the benefit of that is it's a safer battery chemistry, it doesn't rely on rare earth minerals, it's more durable, it's faster to charge, and it has a better life capability.

Preston Fight: So, and a better class structure. So all those factors of the reason we chose that technology and a huge, huge credit to our technology teams that have taught this through for the last several years as they made this decision and got us going on this great path. Thank you. You bet. Thank you.

Rapid and 'twenty seven or if its 28 or whenever it is we will have great diesel engines look grid electric vehicles will create hydrogen vehicles and that puts us in a position of supporting their needs regardless of the circumstance.

Jerry Revich: Sure. I appreciate the discussion. Thank you.

I appreciate the discussion thank you.

Preston Feight: You bet.

You bet.

Operator: Thank you. Our next question today comes from Stephen Fisher from UBS. Stephen, please go ahead. Your line is open.

Operator: Thank you. Our next question today comes from Steven Fisher from UBS. Steven, please go ahead. Your line is open.

Thank you.

Our next question today comes from Steven Fisher from UBS. Steven. Please go ahead. Your line is open.

Stephen Fisher: ... Thanks. Good morning. Preston, you gave us some reasons for generally high margins in, in terms of the investments in technology and, and manufacturing. But I guess, what was so much better than you expected, in margins in the quarter and, at the TPO level? I mean, still like 100 basis points above your, your midpoint. Just curious, kind of, was there any one of those factors or just conservatism that you're now baking into your numbers?

Steven Fisher: ... Thanks. Good morning. Preston, you gave us some reasons for generally high margins in, in terms of the investments in technology and, and manufacturing. But I guess, what was so much better than you expected, in margins in the quarter and, at the TPO level? I mean, still like 100 basis points above your, your midpoint. Just curious, kind of, was there any one of those factors or just conservatism that you're now baking into your numbers?

Thanks, Good morning.

Preston you gave us some reasons for generally high margins in terms of the investments in technology and manufacturing, but what was so much better than you expected.

David Lasso: Our next question is from David Lasso from Evacore ISI. David, please go ahead, you line is open. Thank you very much. The comments earlier about the first quarter of 24 are starting to fill up quickly. Can you give us some insight on how the pricing is for those first quarter deliveries and then maybe a sense of the cadence year over year that you expect the U.S. Canada down 8% to play out for the industry, the industry. Thank you.

In margins in the quarter.

The CTO level I mean still about.

100 basis points above your midpoint. So just curious kind of was there any one of those factors or just conservatism that you're baking into your numbers.

Preston Feight: You know, I think that we, as we've shared with you and Stephen, is that we're looking at the steadiness of supply has been improving, but we've certainly had some impacts from that, so that's a factor in there. I think that our rest of world markets are doing exceptionally well for us in addition. So that's a factor in there as well. And, you know, we just had a smoother set of builds that probably happened for us, and those are probably the biggest things.

Preston Feight: You know, I think that we, as we've shared with you and Steven, is that we're looking at the steadiness of supply has been improving, but we've certainly had some impacts from that, so that's a factor in there. I think that our rest of world markets are doing exceptionally well for us in addition. So that's a factor in there as well. And, you know, we just had a smoother set of builds that probably happened for us, and those are probably the biggest things.

I think that we as we've shared with you Stephen is that we're looking at.

The steadiness of supply has been improving but we certainly had some impacts from that so that's a factor in there I think that our rest of world markets are doing exceptionally well for us. In addition, so that's a factor in there as well and we just had we had a smoother set of builds that probably happened for us.

Preston Fight: Well, I think if you think about pricing what we did is we shared with you what our vision is best, David, and that's at the fourth quarter. So that's where we gave you a gross margin expectation around 19%. And as I said, it's filling in quickly, but I think that the key we've been focusing on is making sure that customers do realize the value of the products they are. That factors into the pricing obviously and I'll say it's a competitive world out there.

<unk>.

Those are probably the biggest things.

Stephen Fisher: Okay, that's helpful. And then I'm curious, what indication do you have from your suppliers for costs on 2024? At this point, does it make sense to assume that the costs are generally going to be higher? And do you have an overall sort of cost strategy, as you think about framing up 2024 at this point?

Steven Fisher: Okay, that's helpful. And then I'm curious, what indication do you have from your suppliers for costs on 2024? At this point, does it make sense to assume that the costs are generally going to be higher? And do you have an overall sort of cost strategy, as you think about framing up 2024 at this point?

Okay. That's helpful. And then I was curious what indications do you have from your suppliers for costs in 2024 at this point does it make sense to assume that the costs are generally going to be higher.

Preston Fight: So I think it's a look forward to having the conversation with you on pricing and what's going on in the marketplace as we get into the earnings in the first quarter there. So that kind of where that sits from a secondary question of cadence. You know, I think we're seeing, as I said, the first quarter looks pretty good. And I think that the overall sentiment is while there may be some some moderation in truck load. And people are trying to figure out how to think about the next three years.

Do you have an overall.

Cost strategy.

Do you think about framing up 2024 at this point.

Preston Feight: Yeah, I think that as you can see, you know, we see various commodities moving in different directions, some moving in a downward position, some moving up, and obviously there's some labor pressure. Those are probably the biggest influencers on cost right now. I think that we'll look at 2024 when we get into January and see how that's looking then.

Yes, I think that as you can see and we see various commodities moving in different directions. So moving down we're positioned moving up and obviously, there's some labor pressure those are.

Probably the biggest influencers on cost right now and I think that we will look at 2024, when we get into January and see how that's looking.

David Lasso: And so I don't I'm not smart enough to know what Q2 Q3 Q4 are going to look like. We just feel like we'll see some some adjustments there from this year, but that it should still at a stay at like a replacement demand level. That's helpful. The order book right now. How far can the dealers order out to say US Canada into 24? Looking at the first half. First half. Okay. Thank you so much. You bet. Thank you.

Stephen Fisher: Okay, just take one quick clarification. The cost you mentioned on the R&D, or sorry, on the new battery plant, how does that flow through the financials? Is that part of R&D costs, or where does that flow through?

Steven Fisher: Okay, just take one quick clarification. The cost you mentioned on the R&D, or sorry, on the new battery plant, how does that flow through the financials? Is that part of R&D costs, or where does that flow through?

Okay, and then just a quick clarification the costs you mentioned on the R&D sorry on the.

Our new battery plant, how does that flow through the financials is that going to be in or is that part of R&D costs or where does that flow through.

Harrie Schippers: That won't show up as R&D. It'll show up as an investment, as part of our 30% investment in the joint venture.

But that won't show up as our R&D It will show up as an investment.

As part of our 30% investment in the joint venture.

Stephen Fisher: Okay, very good. Thank you.

Steven Fisher: Okay, very good. Thank you.

Okay very good thank you.

Jerry Revich: Our next question is from Jerry Revitch from Goldman Sachs. Jerry, please go ahead. You'll end up in. Yes, hi. Good morning. Good afternoon, everyone. Hey, Jerry. The new product portfolio. I mean, in Europe, but I think your profitability per truck has doubled with the new products similar on the medium duty product lineup.

Yeah.

Operator: Thank you. Our next question is from Tim Thein from Citigroup. Tim, please go ahead. Your line is open.

Thank you.

Our next question is from Tim Thein from Citigroup. Please go ahead. Your line is open.

Timothy Thein: Great. Thank you. Good morning. The question, I just wanted to come back, maybe Preston, a little bit higher level, thoughts on parts in 2024. If you look back, you know, historically, there has been some relationship when PACCAR's truck volumes decline and, you know, industry profitability comes under or is under pressure, that has weighed on parts sales. Obviously, not nearly the same kind of magnitude, but just as you know, but we're coming through, you know, weird times from an inventory stocking levels, and I can imagine that maybe there was some restocking that helped parts growth this year.

Tim Thein: Great. Thank you. Good morning. The question, I just wanted to come back, maybe Preston, a little bit higher level, thoughts on parts in 2024. If you look back, you know, historically, there has been some relationship when PACCAR's truck volumes decline and, you know, industry profitability comes under or is under pressure, that has weighed on parts sales. Obviously, not nearly the same kind of magnitude, but just as you know, but we're coming through, you know, weird times from an inventory stocking levels, and I can imagine that maybe there was some restocking that helped parts growth this year.

Great. Thank you. Good morning. The question I, just wanted to come back and pressing a little bit higher level thoughts on parts.

In 'twenty four and if you look back historically there has been.

Harry Schippers: Is it possible, Harry, for us to have a discussion of what proportion of portfolio fits this new product paradigm versus the type of rollout. So we have still in front of us over over the next couple of years. How far away are we through rolling out this new higher margin portfolio that seems to be a big step higher for you folks. And the new job is currently a little over 80% of all the tricks that Dav is building.

Some relationship when pack.

<unk>, our stock volumes decline in industry profitability comes under areas under pressure that that has weighed on on parts sales, obviously not nearly the same kind of magnitude, but just as you were coming through.

Weird times from inventory stocking levels.

And I can imagine that maybe there was some restocking that that help hartsville this year, but as you kind of weigh this altogether in an environment, where global truck volumes are declining.

Timothy Thein: But as you just kind of weigh this all together in an environment where global truck volumes are declining and, you know, from what we can observe, you know, trucker profitability in developed markets under some pressure, how do you think that all, you know, comes together in terms of PACCAR's parts sales in 2024? Any just-

But as you just kind of weigh this all together in an environment where global truck volumes are declining and, you know, from what we can observe, you know, trucker profitability in developed markets under some pressure, how do you think that all, you know, comes together in terms of PACCAR's parts sales in 2024? Any just-

Harry Schippers: I remember that is also building tricks for export outside Europe. But I would say within Europe, almost all the tricks that we're selling are the new job with the improved aerodynamics and the better fuel economy because that's what customers want. And then going forward, yeah, we're planning to think that new job product also to bother markets. And any market per ever currently selling that is an opportunity to sell the new job industry. Future.

And.

And from what we can observe trucker profitability in developed markets under some pressure how do you think that all.

Comes together in terms of.

<unk> Park sales and 24.

Preston Feight: Yeah, sure.

Timothy Thein: Again, I know you're not going to give a point estimate, but just how you're thinking about that for 2024?

Tim Thein: Again, I know you're not going to give a point estimate, but just how you're thinking about that for 2024?

And then I know you are not going to give a point estimate, but just how youre thinking about that for 'twenty four.

Preston Feight: Absolutely, Tim. Fun to talk about it. I think that the overarching view I take of it is our parts team has done a great job of transitioning over the past several years. They're not really parts providers, they're transportation solutions providers, right? So they're thinking about what's valuable to the customer and what's valuable in the engagement with the dealer, and they've done a really good job of that, and I think that's foundationally lifted their performance over time, which goes along to the, was it roughly 9%, per year growth they've had over the past 20 years. So I think that they've done a really nice job of continuing to evolve the business through the application of technology and analytics, and I expect that that will, over the medium term, continue and long term continue. So positive in that regard.

Harry Schippers: And so, Harry, can we expand that conversation in North America as well? So with the 589 rolling out, what's the remaining opportunity within the book for operators that you folks have planned? Well, like I said, the 589 is, the 389 is 20% of peanut milk production. So it's about 6, 7% maybe of pecars production. So with the 589 to be placing the 389 next year, it'll be a similar percentage I would think as the 389 is today.

Absolutely Tim fun to talk about it I think.

Overarching view I take over as our parts team has done a great job of transitioning over the past several years, they're not really parts providers or transportation <unk> solutions providers right. So theyre thinking about what's valuable to the customer and what's valuable and the engagement with the dealer and they've done a really good job of that and I think thats foundational lifted their performance overtime, which goes along to the.

It was at roughly 9% per year growth, we've had over the past 20 years. So I think that they've done a really nice job of continuing to evolve the business through the application of technology and analytics and I expect that that will over the medium term continuing long term continue.

Harry Schippers: And there's a pipeline for new products from there. It sounds like. Of course, you know, I'll help a little bit here is like, you know, you see what our R&D numbers are for next year. We think there's a ton of great projects that we have out there that provide good value to our customers and shareholders. And so we that that pipeline is very full. Okay, super.

So positive in that regard I heard everything you said about the sensitivity to market. There is truth in that as well and that way. We will just look at what 2024 dozen.

Preston Feight: I heard everything you said about the sensitivity to market. There's truth in that as well, and that way we'll just look at what 2024 does then.

I heard everything you said about the sensitivity to market. There's truth in that as well, and that way we'll just look at what 2024 does then.

Timothy Thein: Okay, fair enough. And then, and maybe, one, just from an inventory level at, at, at your dealers, both new and used, just where, where do we sit there?

Tim Thein: Okay, fair enough. And then, and maybe, one, just from an inventory level at, at, at your dealers, both new and used, just where, where do we sit there?

Okay Fair enough and then maybe.

Unknown Attendee: And can I ask on the battery electric investment, you know, you folks have really good connectivity with your clients on the consultation side.

unknown: And can I ask on the battery electric investment, you know, you folks have really good connectivity with your clients on the consultation side.

One just from that.

Inventory level.

Your dealers, both new and used.

Preston Fight: Once you get the plant up and running, how quickly, based on your conversations, do you think demand will ramp up, you know, how big are the concerns around the utilities ability to keep up versus, you know, having a product that's going to be producible at scale that you folks are effectively going to be solving for the industry in 2027. Yeah, I think you I think you just captured the issues that are unknowable at this point right now.

Preston Feight: Yeah.

Timothy Thein: I guess, you know, kind of the related question is, is the appetite for dealers from a stocking perspective in 2024. Just where does that sit? I'm sure it varies by geography, but maybe just some thoughts on that. Thank you.

Preston Feight: Yeah.

Tim Thein: I guess, you know, kind of the related question is, is the appetite for dealers from a stocking perspective in 2024. Just where does that sit? I'm sure it varies by geography, but maybe just some thoughts on that. Thank you.

Just where do we stand there and I guess kind of.

The related question is is the appetite for dealers from a stocking.

Perspective in 'twenty four just what does that say I'm, sorry varies by geography.

Preston Feight: Yeah, very good, Tim. You did ask that the first time. Sorry, I missed it. We saw that there was some probably strong interest in having enough inventory when supply was limited, and I think that that was then mitigated for a little bit. I would say things are more back to normal in terms of overstock, destock, and kind of sitting at a level where inventory feels like at a rational and healthy level for our dealers now.

Just some thoughts on that thank you very.

Very good Tim you did ask that in the first I'm, sorry, I missed it.

We saw that there was some probably.

Strong interest in having enough inventory when supply was limited and I think that that was an mitigated for a little bit and I would say things are more back to normal in terms of overstock destock and kind of sitting at a level of inventory feels like at a rational and healthy level for our dealers now.

Preston Fight: Regulation is a factor. Energy is a factor. Infrastructure is a factor in the rate of adoption for EVs. Price is a factor as well. What our position is is pack ours. We want to make sure that we offer our customers the right solutions, right? So we make the investments now. We're less concerned about whether the adoption curve is rapid in 27 or if it's 28 or whenever it is.

Timothy Thein: All righty, thank you.

Tim Thein: All righty, thank you.

Alright, thank you.

Preston Feight: You bet.

You bet.

Operator: Thank you. Our next question today is from Nicole DeBlase, from Deutsche Bank. Nicole, please go ahead. Your line is open.

Preston Fight: We'll have great diesel engines, we'll have great electric vehicles, we'll have great hydrogen vehicles, and that puts us in a position of supporting their needs, regardless of the circumstance. Yeah, appreciate the discussion. Thank you. You bet.

Thank you.

Our next question today is from Nicole <unk> from Deutsche Bank. Nicole. Please go ahead. Your line is open.

Stephen Fisher: Yeah, thanks. Good morning, guys.

Nicole DeBlase: Yeah, thanks. Good morning, guys.

Yes, thanks, good morning, guys.

unknown: Yeah, appreciate the discussion. Thank you. You bet.

Steven Fisher: Thank you. Our next question today comes from Steven Fisher from NEBS. Steven, please go ahead, your line is open. Thanks. Good morning.

Preston Feight: Hey, Nicole.

Hey, Nicole.

Stephen Fisher: Maybe just starting on Europe. So obviously, a lot of talk about US and Canada on this call, but what are you guys seeing from an order perspective within Europe that's kind of underpinning a weaker outlook for 2024 relative to the US?

Nicole DeBlase: Maybe just starting on Europe. So obviously, a lot of talk about US and Canada on this call, but what are you guys seeing from an order perspective within Europe that's kind of underpinning a weaker outlook for 2024 relative to the US?

Maybe just starting on.

Steven Fisher: Thank you. Our next question today comes from Steven Fisher from NEBS. Steven, please go ahead, your line is open. Thanks. Good morning.

Europe . So obviously a lot of talk about U S and Canada on this call, but what are you guys seeing from an order perspective within Europe , that's kind of underpinning a weaker outlook for 2024 relative to the U S.

Preston Fight: Preston, you gave us some reasons for generally high margins in terms of the investments in technology and manufacturing, but what was so much better than you expected in margins in the quarter and at the PPL level? I mean, still like a hundred basis points above your mid points, just curious kind of was there any one of those factors or just conservatism that you're now baking into your numbers? You know, I think that we as we've shared with you and Steven is that we're looking at the steadiness of supply has been improving, but we certainly had some impact from that. So that's a factor in there. I think that our rest of world markets are doing exceptionally well for us in addition. So that's a factor in there as well.

Preston Feight: Yeah, I think that what we're seeing in Europe is like, you know, we have good fill going into the first quarter. It feels like the general economies over there feel a bit more moderated than they are here, and so there's probably more contemplation going on within the customer base there.

Yes, I think that what we're seeing in Europe is like we have good fill going into the first quarter. It feels like the general economies over there feel a bit more moderated than they are here and so theres, probably more contemplation going out within the customer base there.

Scott Group: ... Okay, okay, makes sense.

Nicole DeBlase: ... Okay, okay, makes sense.

Okay.

Thanks.

Harrie Schippers: No, I think that's, that's absolutely correct. Yes, the market is a little bit softer there, and that's why we're forecasting a market between 260,000 and 300,000 for next year. So that's somewhat of a decline compared to this year.

No I think that's absolutely correct.

The market is a little bit softer there and that's why we're forecasting a market between 260 <unk> for next year. So that's somewhat of a decline compared to this year.

Scott Group: Understood. In the US, can you just speak to a little bit of what you're hearing by customer size? Any major divergence in order activity from, like, small versus medium versus large fleets?

Nicole DeBlase: Understood. In the US, can you just speak to a little bit of what you're hearing by customer size? Any major divergence in order activity from, like, small versus medium versus large fleets?

Understood and then in the U S. Can you just speak to a little bit of what you are hearing by customer side. So any major divergence in order activity, unlike small versus medium versus large fleets.

Preston Fight: So that's a factor in there. I think that our rest of world markets are doing exceptionally well for us in addition. So that's a factor in there as well. And, you know, we just had a we had a smoother set of builds that probably happened for us, and those are probably the biggest things. Okay, that's helpful.

Steven Fisher: And, you know, we just had a we had a smoother set of builds that probably happened for us, and those are probably the biggest things. Okay, that's helpful.

Preston Feight: I think it's kind of interesting, like we said earlier in the macro scale of it, there's a lot of sectors that are doing exceptionally well right now. The vocational sector is probably just spinning up. It's a very strong sector for PACCAR. In North America, with Peterbilt and Kenworth having roughly 40% of that market, so that's good. See some real strength in the LTL market as well. See real strength in the medium duty market as well. As I shared earlier, I think that the large truckload carriers are contemplating what they're going to do and thinking about the next three years and keeping their fleets at a young spot. And I think for all our customers, there's the advantage of the new truck, right?

I think it's kind of interesting is it like we said earlier in the macro scale of it there is a lot of sectors that are doing exceptionally well right now the vocational sector is probably a spinning up it's a very strong sector for pass car in North America, with Peterbilt, and kenworth, having roughly 40% of that market. So thats good see real strength in the <unk> market as well see real strength in the media.

Preston Fight: And then I'm curious what indications you have from your suppliers for costs on 2024. At this point, does it make sense to assume that the costs are generally going to be higher, and you have an overall sort of cost strategy. Do you think about printing up 2024? at this point. Yeah, I think that as you can see, you can see various commodities moving in different directions, some moving in a downward position, some moving up, and obviously there's some labor pressure. Those are the probably the biggest influencers on cost right now.

Duty market as well.

As I shared earlier I think that the large truckload carriers are contemplating what theyre going to do in thinking about the next three years and keeping their fleets at a young spot and I think for all of our customers. There is the advantage of the new truck right. If the truck is providing a 7% benefit in fuel economy, it's compelling reasons to buy that truck plus the drivers love it so those things factor.

Preston Fight: And I think that we'll look at 2024 when we get into January and see how that's looking then.

Preston Fight: Do you think about printing up 2024? at this point. Yeah, I think that as you can see, you can see various commodities moving in different directions, some moving in a downward position, some moving up, and obviously there's some labor pressure. Those are the probably the biggest influencers on cost right now.

Preston Feight: If the truck is providing a 7% benefit in fuel economy, it's compelling reasons to buy that truck, plus the drivers love it. So those things factor in, and that kind of gives you a walkthrough across the sectors of the market.

If the truck is providing a 7% benefit in fuel economy, it's compelling reasons to buy that truck, plus the drivers love it. So those things factor in, and that kind of gives you a walkthrough across the sectors of the market.

We're in and that kind of gives you a walk through across the sectors of the market.

Preston Fight: And I think that we'll look at 2024 when we get into January and see how that's looking then.

Scott Group: Perfect. Thank you. I'll pass it on.

Nicole DeBlase: Perfect. Thank you. I'll pass it on.

Perfect. Thank you I'll pass it on.

Preston Feight: You bet.

You bet.

Preston Fight: Okay, we just take one quick clarification. The cost you mentioned on the R&D, sorry on the new battery plant. How does that flow through the financials? Is that going to be an R&D cost or what where does that flow through? That's going to show up as R&D. It will show up as an investment as part of our 30% investment in the joint venture. Okay, very good. Thank you.

Operator: Thank you. Our next question is from Matt Elkott from Cowen. Matt, please go ahead. Your line is open.

unknown: Okay, very good.

Thank you.

Our next question is from Matt Alcott from Cowen.

unknown: Thank you.

Go ahead your line is open.

Matt Elkott: Good morning. Thank you. So your 2024 US and Canada Class 8 forecast, it reflects what seems to be a smaller decline than some may have feared. My question is, given you guys have higher exposure to infrastructure than some of your peers, do you think PACCAR can do even better than this forecast in the US, that is?

Good morning. Thank you. So your 2020 for U S and Canada to class eight forecast.

Reflect what seems to be a smaller decline than some may have feared.

My question is given you guys have higher exposure to.

Infrastructure than some of your peers do you think backlog can do even better than this forecast in the U S.

Preston Feight: Better than the forecast in terms of?

Better than the forecast in terms of.

Tim Syne: Our next question is from Tim Syne from City Group. Tim, please go ahead. Your line is open. Great. Thank you. Good morning.

Matt Elkott: A smaller decline, even than the 8% that you, you're expecting for the industry.

A smaller decline than the 8% that youre expecting for the industry.

Harrie Schippers: Our strong presence in the vocational segment, where we have 40% market share, that strength obviously should translate into PACCAR doing really well next year.

Tim Syne: The question I just wanted to come back and be pressed in a little bit higher level thoughts on parts in 24. If you look back historically, there has been some relationship when we pack our truck volumes decline and industry profitability comes under areas under pressure that has weighed on parts sales, obviously not nearly the same kind of magnitude. But just as you know, but we're coming through, you know, weird times from a inventory stocking levels. And I can imagine that maybe there was some restocking that that helped parts grill this year, but it's just just kind of way this all together in an environment where global truck volumes are declining.

Preston Fight: The question I just wanted to come back and be pressed in a little bit higher level thoughts on parts in 24. If you look back historically, there has been some relationship when we pack our truck volumes decline and industry profitability comes under areas under pressure that has weighed on parts sales, obviously not nearly the same kind of magnitude. But just as you know, but we're coming through, you know, weird times from a inventory stocking levels.

Our strong presence in the vocational segment, where we have 40% market share.

That strength, obviously should translate into.

Doing really well next year.

Matt Elkott: Okay. But so relative to the industry forecast, you think you might be able to outperform, or you're not ready to say that?

Okay.

So relative to the industry forecast do you think you might be able to outperform.

Outperformer youre not ready to say that.

Preston Feight: Well, I think what we did is we gave the forecast with the range, because that's what we think the range could be, right? That's why we came out $260 to 300, is 'cause that's how we see it.

Well I think what we did is we gave the forecast with a range because thats, what we think the range could be alright, and Thats, where we came out $2 60 to 300, because thats, how we see it.

Matt Elkott: Okay. And then just one more follow-up. If you, if we do have a higher mix of vocational in the next year or two, can you just talk a bit more about what it could mean for, you know, margins and pricing and as well as, you know, the kind of fluidity of the manufacturing process?

Okay.

And then just one more follow up if you if we do have a higher mix of vocational into next year or two can you just talk a bit more about what it could mean for <unk>.

Preston Fight: And I can imagine that maybe there was some restocking that that helped parts grill this year, but it's just just kind of way this all together in an environment where global truck volumes are declining. And, you know, in from what we can observe, the trucker profitability and develop markets under some pressure, how do you think that all comes together in terms of pack our park sales in 24 and any any just again, I know you're not going to give us one estimate, but just how you're thinking about that for 24.

Margins and pricing as well as.

Can the fluidity of the manufacturing process.

Preston Feight: Well, our truck plants, and it's a good opportunity. Thanks for bringing it up. I mean, the mixture and how that works is our truck plants have just done an absolutely amazing job around the world, managing the last few years. And they are artisans at being able to build the trucks that they need to build. So I couldn't be more proud of them and pleased with the results that they've delivered. And I think that if we see mix shifts from on-highway into the vocational market, that's very adaptable for us. We can build any truck in our factories that we need to, and they're very good at putting those trucks out.

Preston Fight: And, you know, in from what we can observe, the trucker profitability and develop markets under some pressure, how do you think that all comes together in terms of pack our park sales in 24 and any any just again, I know you're not going to give us one estimate, but just how you're thinking about that for 24. Absolutely. Tim, fun to talk about it. I think that the overarching view I take of it is our parts team has done a great job of transitioning over the past several years.

Well, our truck plants and it's a good opportunity thanks for bringing up I mean, the mixture and how that works as archrock months are just done.

And absolutely amazing job around the world managing last few years and they are.

They are artisans at being able to build the trucks that they need to build so I couldnt be more proud of them and pleased with the results that they've delivered and I think that if we see mix shifts from on highway into the location market. That's very doubtful for us we can put any truck in our factories that we need to.

Preston Fight: Absolutely. Tim, fun to talk about it. I think that the overarching view I take of it is our parts team has done a great job of transitioning over the past several years. They're not really parts providers. They're transportation solutions providers, right? So they're thinking about what's valuable to the customer and what's valuable in the engagement with the dealer and they've done a really good job of that. I think that's foundationally lifted their performance over time, which goes along to the was it roughly 9% per year growth they've had over the past 20 years.

Preston Fight: They're not really parts providers. They're transportation solutions providers, right? So they're thinking about what's valuable to the customer and what's valuable in the engagement with the dealer and they've done a really good job of that. I think that's foundationally lifted their performance over time, which goes along to the was it roughly 9% per year growth they've had over the past 20 years. So I think that they've done a really nice job of continuing to evolve the business through the application of technology and analytics. And I expect that that will over the medium term continue and long term continue. So positive in that regard, I heard everything is said about the sensitivity to market. There's truth in that as well.

They're very good at putting those trucks out so I think that that will be just fine for us if we see that shift and it will it'll be it'll be good for pass car and good for our customers.

Preston Feight: So I think that that'll be just fine for us if we see that shift, and it'll be good for PACCAR and good for our customers.

So I think that that'll be just fine for us if we see that shift, and it'll be good for PACCAR and good for our customers.

Matt Elkott: Great. Thank you very much.

Great. Thank you very much.

Preston Feight: You bet.

You bet.

Operator: Thank you. Our next question is from Jeff Kauffman from Vertical Research Partners. Jeff, please go ahead. Your line is open.

Thank you.

Our next question is from Jeff Kauffman from vertical Research partners Jefferies. Go ahead. Your line is open.

Preston Fight: So I think that they've done a really nice job of continuing to evolve the business through the application of technology and analytics. And I expect that that will over the medium term continue and long term continue. So positive in that regard, I heard everything is said about the sensitivity to market. There's truth in that as well. And that way we'll just look at what 2024 does then. Okay, fair enough.

Jeffrey Kauffman: Thank you very much, and congratulations. I wanna think a little bit, but you're welcome. I wanna think a little bit about this joint venture. So you said, I guess two questions. Number one, on CapEx, you said $600 to 900 million. Let's assume that you can get all of the approvals that you need. Does that imply, when we're thinking about 2025, 2026 CapEx, we could be looking at a billion-plus in terms of total firm CapEx? That's question one.

Jeff Kauffman: Thank you very much, and congratulations. I wanna think a little bit, but you're welcome. I wanna think a little bit about this joint venture. So you said, I guess two questions. Number one, on CapEx, you said $600 to 900 million. Let's assume that you can get all of the approvals that you need. Does that imply, when we're thinking about 2025, 2026 CapEx, we could be looking at a billion-plus in terms of total firm CapEx? That's question one.

Thank you very much and congratulations.

I wanted to think a little bit.

Welcome.

I wanted to think a little bit about this joint venture.

Preston Fight: And that way we'll just look at what 2024 does then. Okay, fair enough.

So you said I guess two questions number one on Capex, you said $600 million to $900 million, let's assume that you can get all of the approvals that you need does that imply when we're thinking about $25 26, capex, we could be looking at $1 billion plus in terms of total firm Capex. That's question one.

Preston Fight: And then maybe one just from an inventory level at your dealers, both newly used, just where do we sit there? And I guess, you know, kind of the related question is the appetite for dealers from a stocking perspective in 24, just what is that said? I'm sure there is by geography, but some thoughts on that.

Preston Feight: Let us go for that question, then you can do your second one here, and probably take it-

I'll just go for that question and then you can get a second one here at <unk>.

Harrie Schippers: So, the $600 to 900 million investment in the joint venture will be showing up as an investment. It will not show up as our capital investment plan.

$6 million to $900 million investment in the joint venture.

We will be.

Showing up as an investment it will not show up as our capital investment plan.

Preston Fight: Thank you. Yeah, very good to meet it as that in the first time. Sorry, I missed it. We've saw that there was some probably Strong interest in having enough inventory when supply was limited, and I think that that was then mitigated for a little bit. And I would say things are more back to normal in terms of overstock, destock, and kind of sitting at a level where inventory feels like a rational and healthy level for our dealers now. All righty, thank you. You bet.

Jeffrey Kauffman: Okay.

Jeff Kauffman: Okay.

Harrie Schippers: The capital numbers you just mentioned for this year and next year are without the joint venture.

Operator: Thank you.

unknown: Thank you.

Okay capital numbers future 19 physician next year without the joint venture.

Jeffrey Kauffman: Okay. Thank you. And then question two, you know, I'm thinking back to the future here, 21 gigawatts at the factory.

Jeff Kauffman: Okay. Thank you. And then question two, you know, I'm thinking back to the future here, 21 gigawatts at the factory.

Okay. Thank you and then question two.

I'm thinking back to the future here 21 Gigawatts.

Preston Feight: Love it.

At the factory.

Jeffrey Kauffman: You know, I wanna bring it into something that I can convert into trucks. So if I think of 21GW, and maybe your smaller trucks are 250 to 300kWh batteries, and your larger trucks are kind of 600, 750kWh batteries, I'm just gonna take an average of 500. Are we talking about kind of 40 to 50 thousand vehicles a year that this plant could theoretically battery, and then you would have a 30% interest in that that shows up as other income, investment and joint venture?

Jeff Kauffman: You know, I wanna bring it into something that I can convert into trucks. So if I think of 21GW, and maybe your smaller trucks are 250 to 300kWh batteries, and your larger trucks are kind of 600, 750kWh batteries, I'm just gonna take an average of 500. Are we talking about kind of 40 to 50 thousand vehicles a year that this plant could theoretically battery, and then you would have a 30% interest in that that shows up as other income, investment and joint venture?

I wanted to bring it into something that I can convert into trucks. So if I think of 'twenty, one gigawatts and maybe your smaller trucks are 250 to 300 kilowatt hour batteries in your larger trucks are kind of 600 750 kilowatt hour batteries. So I'm just kind of take an average of 500.

Nicole DeBlaze: Our next question today is from Nicole DeBlaze from Deutsche Bank. Nicole, please go ahead. You'll enjoy them. Yeah, thanks. Good morning, guys. Hey, Nicole.

Are we talking about kind of 40 to 50000 vehicles a year.

Preston Fight: Maybe just starting on Europe. So obviously a lot of talk about US and Canada on this call, but what do you guys think from an order perspective within Europe that's kind of under pending a week or outlook for 2024 relative to the US? Yeah, I think that what we're seeing in Europe is like, you know, we have good fill going into the first quarter. It feels like the general economies over there feel a bit more moderated than they are here. And so there's probably more contemplation going on within the customer base there.

This plant could theoretically battery and then you would have a 30% interest in that that shows up as other income.

Investment in joint venture.

Preston Feight: Yeah, Jeff, that is perfect math. I think you can use that, and you probably can go back to the future with that.

Yes, Jeff that is perfect math, but.

I think you can use that you probably can go back to the future with that.

Jeffrey Kauffman: Awesome. Thanks so much. Have a great day.

Jeff Kauffman: Awesome. Thanks so much. Have a great day.

Awesome.

Thanks, so much.

Preston Feight: You too.

Yeah.

You too.

Operator: Thank you. Our last question registered is from Scott Group, from Wolfe Research. Scott, please go ahead. Your line is open.

Thank you.

Our last question is from Scott Group from Wolfe Research Scott. Please go ahead. Your line is open.

Scott Group: Hey, thanks. So I just wanted to just follow up on one of the earlier questions. What percentage of your mix is typically the large truckload? And then within the 2024 trucks... Is there any change in mix of sales with the MX versus not? Is that mix going higher or lower?

Harry Schippers: Okay, thank you. I think that's that's absolutely correct. The market is a little bit softer there. And that's why we're forecasting a market between $260 and $3,000 for next year. So that's somewhat over the client compared to this year.

Hey, Thanks, So I just wanted to just follow up on one of the earlier questions. What percentage of your mix is typically the large truckload and then within the 2024 trucks is there any change in mix of sales with the IMAX versus not is that mix going higher.

Nicole DeBlaze: Understood.

unknown: Understood.

Preston Fight: And then in the US, can you just speak to a little bit of what you're hearing by customer size, so any major divergence and order activity from like small versus medium versus large fleets? I think it's kind of interesting is that like we said earlier in the macro scale of it, there's a lot of sectors that are doing exceptionally well right now. Vocational sector is probably just spinning up. It's it's a very strong sector for PACR in North America with Peterville and Kenworth having roughly 40% of that market.

Lower.

Preston Feight: On the mix of sales, I mean, I think that you can kind of see variance within the model, right? I think if you're asking, it's like you could look at fleets and customers in the mid-sized, over-the-road segments being a big part of it. Vocational is kind of a part of it, then, but the LTL is a part of it in the greater than 1,600 Class 8 markets. I think that they split up as the biggest part of that is the truckload, and then obviously the LTL combined, and then you get into the vocational, beyond is next behind that. So that's kind of how we think of it, and we don't really worry through what the percentage of each will be because there's such overlap between them.

And the mix of sales.

I think that you can kind of see variance within the model right.

I think if you are asking is like you could look at.

Fleets and customers in the mid sized over the road segment as being a big part of it vocational is kind of a part of it but the <unk> is a part of it and the greater than 60% of your class eight markets and I think that they split up is the biggest part of that is the truckload and then obviously the <unk> combined and then you get into the vocational behind us.

Preston Fight: So that's good. See real strength in the LTO market as well. See real strength in the medium duty market as well. As I shared earlier, I think that the large truck load carriers are contemplating what they're going to do and thinking about the next three years and keeping their fleets at a young spot. And I think for all our customers, there's the advantage of the new truck, right. If the truck is providing a 7% benefit in fuel economy, it's compelling reasons to buy that truck plus the drivers love it. So those things factor in and I kind of give you a walk through across the sectors of the market.

unknown: Perfect. Thank you. I'll pass it on. You bet.

Matt Elkort: Thank you.

Next behind that so that's kind of how we think of it and we don't really work through what the percentage of each will be because theres such overlap between them.

Scott Group: Any changes again in the mix of what you're selling for 2024, if MX penetration is higher, lower, unchanged?

And then any changes again.

What you are selling for 24.

<unk> penetration is higher lower unchanged.

Preston Feight: Yeah, we think the MX engine is going to be doing really well next year, right? It was 43% of our build in this quarter, and we expect to see that growing. We've been working through supply constraints on it, and as we've worked through that, we think there's great upside for that next year.

Yes, we think the <unk> engine is going to be doing really well next year right. It was 43% of our build in the quarter. This quarter and we expect to see that growing we've been working through supply constraints on it and and as we've worked through that we think there's great upside for that next year.

Unknown Attendee: Perfect. Thank you. I'll pass it on. You bet. Thank you.

Our next question is from Matt Elkort from Taiwan. Matt, go ahead. Your line is open. Good morning. Thank you. So your 2024 U.S, and Canada Class H forecast reflects what seems to be a smaller decline than some may have feared. My question is, given you guys have higher exposure to infrastructure than all the appears, do you think PACR can do even better than this forecast in the U.S, that is better than the forecast in terms of a smaller decline than the 8% that you're expecting for the industry?

Preston Fight: Our next question is from Matt Elkort from Taiwan. Matt, go ahead. Your line is open. Good morning. Thank you. So your 2024 U.S, and Canada Class H forecast reflects what seems to be a smaller decline than some may have feared. My question is, given you guys have higher exposure to infrastructure than all the appears, do you think PACR can do even better than this forecast in the U.S, that is better than the forecast in terms of a smaller decline than the 8% that you're expecting for the industry?

Scott Group: Okay. Any color on how to think about the FinCo margins from here? Loss provisions up a little bit, but how do we think about FinCo from here?

Okay any color on how to think about the spin co margins from here loss provisions up a little bit, but how do we think best and go from here.

Harrie Schippers: Yeah, the FinCo should continue to do strong in Q4 and next year. Credit losses were $6 million in the quarter, but that's really a very small number to the total, almost $20 billion portfolio. So excellent credit quality, and like I said, we expect the finance company to continue to do well.

And I think we should continue to do strong in the fourth quarter and next year.

Credit losses were $6 million in the quarter, but that's really a very small number to the total almost $20 billion portfolio. So.

Excellent credit quality.

We expect to find it's good for you to continue to do well.

Scott Group: Okay. Then if I could just ask one more, just big picture. I know there's been a lot of questions about gross margin, but, you know, you go back thirty years, it's never-- you've never had a year at over 16%, and this year is going to be over 19%. So it's a lot of what you've been talking about. I guess, what do you think is the right-- what's the new range that you would think about through a cycle for PACCAR gross margin going forward?

Okay, and then if I could just ask one more just big picture I know, there's been a lot of questions about gross margin, but you go back 30 years, it's never you've never had a year.

Preston Fight: Our strong presence in the vocational segment where we have 40% market share that that strength obviously should translate into PACR doing really well next year. Okay. So relative to the industry forecast, you think you might be able to outperform or you're not ready to say that? Well, I think what we did is we gave the forecast with the range, because that's what we think the range could be. That's what we came out to 60 to 300 is because that's how we see it.

At over 16% and this year is going to be over 19%. So it's a lot of what <unk> been talking about I guess, what do you think is the right.

What's the new range that you would think about through cycle for pack, our gross margin going forward.

Preston Feight: Well, I think that the reason we've seen that gross margin is because there is an incredible team of people at PACCAR that are working every day to give our customers great value, and they're succeeding in that. It's a huge part of it. We have a fantastic dealer network. They're doing a great job, and I think our customers are seeing the value in that as well. So that's the overarching things that are driving it up, and we aim to continue to deliver on that. I think predicting the future gets a little risky, and we'll look at how that comes through. It depends on the cycles and everything else, but I can't be more pleased with how PACCAR is positioned for the future and what it'll be able to deliver.

Well I think that the reason we've seen that gross margins because there is an incredible team of people at <unk> that are working everyday to give our customers great value and theyre succeeding in that it's a huge part of it we have a fantastic dealer network Theyre doing a great job and I think our customers are seeing the value in that as well. So that's the overarching things that are driving it up and we aim to continue to deliver on that.

Preston Fight: Okay, and then just one more follow up. If you if we do have a higher mix of vocational in the next year or two, can you just talk a bit more about what is what it could mean for, you know, margins and pricing and as well as, you know, the kind of fluidity of the manufacturing process? Well, our truck plans and it's a good opportunity. Thank you for bringing up. I mean, the mixture and how that works is our truck plans are just done.

I think predicting the future gets a little risky and we will look at how that comes through it depends on the cycles and everything else, but I can't.

Be more pleased with how <unk> is positioned for the future and what it will be able to deliver.

Scott Group: All right. Thank you, guys. Appreciate it.

Alright. Thank you guys. Appreciate it you bet you bet.

Preston Feight: You bet. You bet. Have a good day.

Have a good day.

Preston Fight: An absolutely amazing job around the world managing last few years. And they are, they are artisans at being able to build the trucks that they need to build. So I couldn't be more proud of them and please with the results that they've delivered. And I think that if we see mixed shifts from on highway and the vocational market, that's very adaptable for us. We can build any truck in our factories that we need to.

Okay.

Operator: Thank you. This is all the questions we have today, so I'd like to hand back to management for any closing remarks.

Thank you.

<unk>, we have today, so I'd like to hand back to management for any closing remarks.

Preston Fight: And they're very good at putting those trucks out. So I think that that'll be just fine for us if we see that shift. And it will, it'll be, it'll be good for pack our and good for our customers. Great. Thank you very much. You bet. Thank you.

Ken Hastings: We'd like to thank everyone for joining the call, and thank you, Operator.

We'd like to thank everyone for joining the call and thank you operator.

Okay.

Operator: Thank you, everyone, for joining today's call. You may now disconnect your lines and have a lovely day.

Thank you everyone for joining today's call you may now disconnect your lines and have a lumpy Jay.

Yeah.

Okay.

Yes.

Sure.

Yes.

Okay.

Yeah.

Jeffrey Kauffman: Our next question is from Jeff Kaufman from vertical research partners. Jeff, please go ahead, you'll end up them. Thank you very much and congratulations. I want to think a little bit, but you're welcome. I want to think a little bit about this joint venture. So you said, I guess two questions. Number one on catbacks. You said 600 to 900 million. Let's assume that you can get all of the approvals that you need.

Jeffrey Kauffman: Does that imply when we're thinking about 25, 26 catbacks, we could be looking at a billion plus in terms of total firm catbacks. That's question one. Let's go for that question. Then you can go second one. Harry, probably take it. So the, the, the six to 900 million investment in the joint venture will, will be showing showing up as an investment. It will, will not show up as our capital investment plan. So the capital numbers. 19 for this year and next year are without the joint venture. Okay. Thank you.

unknown: So, and then question two. You know, I'm thinking back to the future here. 21 gigawatts at the factory, but I love it. You know, I want to bring it into something that I can convert into trucks. So if I think of 21 gigawatts and maybe your smaller trucks are 250 to 300 kilowatt hour batteries in your larger trucks are kind of 600 to 750 kilowatt hour batteries. I'm just going to take an average of 500.

Preston Fight: Are we talking about kind of 40 to 50,000 vehicles a year that this plant could theoretically battery. And then you would have a 30% interest in that that shows up as other income investment and joint venture. Yeah, Jeff, that is perfect math. I think you can use that and you probably can go back to the future with that. Awesome. Thanks so much. That was great. You too.

unknown: Thank you.

Scott Group: Our last question registered is from Scott Group, from Wolf Research.

Preston Fight: Scott, please go ahead to your line of statements. Hey, thanks. So, I just wanted to just pop up on one of the earlier questions. What percentage of your mix is typically the large truck load? And then within the 2024 trucks, is there any change in mix of sales with the MF? Max versus not, is that mix going higher or lower? On the mix of sales, I mean, I think that you can kind of see variance within the model, right?

Preston Fight: I think if you're asking is like, you could look at fleets and customers in the mid-sized over the road segments, being a big part of it, vocationals kind of a part of it. But the LPL is a part of it in greater than 16 hundred class eight markets. And I think that they split up as the biggest part of that is the truck load. And then obviously the LPL combined. And then you get into the vocational beyond is next behind that.

Preston Fight: So that's kind of how we think of it. And we don't really worry through what the percentage of each will be because there's such overlap between them. And then any changes again in the of what you're selling for 24 mx penetration higher lower unchanged. Yeah, we think the mx engine is going to be doing really well next year, right? It was 43% of our build on the quarter this quarter. And we expect to see that growing. We've been working through supply constraints on it. And as we've worked through that, we think there's great upside for that next year.

Harry Schippers: Okay. Any color on how to think about the Finco margins from here lost provisions up a little bit, but how do we think about Finco from here? I think we should continue to strong in the fourth quarter and next year. Credit losses were six million in the quarter, but that's really a very small number to the total almost 20 billion dollar portfolio. So excellent credit quality. And like I said, we expect the finance company to continue to do well.

Preston Fight: And then if I could just ask one more just big picture. I know there's been a lot of questions about gross margin, but you know, you go back 30 years. It's never you've never had a year at over 16% and this year is going to be over 19%. So it's a lot of what you've been talking about. I guess what do you think is the right. What's the new range that you would think about through a cycle for pack our gross margin going forward?

Preston Fight: Well, I think that the reason we've seen that gross margins because there is an incredible team of people at pack are that are working every day to give our customers great value and they're succeeding in that. It's a huge part of it. We have a fantastic deal in that work. They're doing a great job. And I think our customers are seeing the value in that as well. So that's the overarching things that are driving it up.

Preston Fight: And we aim to continue to deliver on that. I think predicting the future gets a little risky. And we'll look at how it comes through. It depends on the cycles and everything else, but I can't be more pleased with how pack our position for the future and what it'll be able to deliver.

unknown: All right. Thank you guys. Appreciate it. You bet. Have a good day. Thank you.

Operator: This is all the questions we have today.

Ken Hastings: So I'd like to hand back to management for any closing remarks. I'd like to thank everyone for joining me call and thank you, operator. Thank you everyone for joining today's call.

Operator: You may now disconnect your lines and have a lovely day.

Q3 2023 Paccar Inc Earnings Call

Request a DemoDemo

PCAR

PACCAR

Earnings