Q4 2024 PACCAR Inc Earnings Call
Speaker Change: Good morning and welcome to PACCAR's fourth quarter 2024 earnings conference call. All lines will be in listen-only mode until the question and answer session. Today's call is being recorded and if anyone has any objection they should disconnect at this time.
Speaker Change: Harry Bryce, Ken and I will update you on our fourth quarter and full year 2024 results as well as other business highlights.
Speaker Change: Patkars outstanding employees delivered strong results by providing our customers with the highest quality trucks and transportation solutions in the industry.
Speaker Change: In 2024 pack are achieved annual revenues of $33 7 billion net income of $4 2 billion and an after tax return on revenues of 12, 4%.
Speaker Change: This is the second highest profit in the company's history and was a great year for <unk>.
Speaker Change: Our strong financial performance reflects the higher profitability of the latest generation of Kenworth Peterbilt and <unk> trucks.
Speaker Change: Record results in our parts division and another good year for Pac or financial services.
Speaker Change: Pack, our shareholders and customers benefited from the $8 $6 billion invested over the past 10 years in new products.
Speaker Change: Old class facilities and state of the art technologies.
Speaker Change: Patkars achieved 86 consecutive years of net income.
Speaker Change: And has paid a dividend every year since 1941.
Speaker Change: In 2024 pack, our declared $4 17 per share in dividends, including a year end dividend of $3 per share.
Speaker Change: This is a 53% payout of net income and a dividend yield of 4%.
Speaker Change: <unk> fourth quarter revenues were $7 9 billion and net income was $872 million.
Speaker Change: Pack, our parts achieved excellent fourth quarter revenues of $1 $6 billion and pre tax profits of $428 million.
Speaker Change: Last year's U S and Canadian class eight truck retail sales were 268000 units.
Speaker Change: Kenworth and peterbilt its market share increased to a strong 37%.
Speaker Change: Up from 29, 5% in the prior year.
Speaker Change: In the medium duty market Kenworth, and peterbilt excellent new medium duty truck has created customer value.
Speaker Change: Market share grew from 14, 5% to 18% as they produced a record 21500 medium duty trucks.
Speaker Change: In 2025 U S economy is projected to expand by more than 2%.
Speaker Change: The vocational truck sector, where peterbilt and kenworth other market leaders is steady.
Speaker Change: So less than truckload market is performing well, while the truckload segment is beginning to show signs of improvement.
Speaker Change: The U S and Canadian class eight truck market is forecast to be in the range of 250 to 280000 vehicles.
Speaker Change: We anticipate a strengthening market as we progress through the year.
Speaker Change: European above 16 tonne truck registrations were 316000 last year.
Speaker Change: Customers appreciate das industry, leading fuel efficiency and drive our comfort.
Speaker Change: The off trucks have a competitive advantage in the European market.
Speaker Change: Due to an innovative aerodynamic design and features the largest and most luxurious cabin terrier.
Speaker Change: In 2025 European economy is forecast to grow modestly.
Speaker Change: We expect the above 16 tonne truck market to be in the range of 270 to 300000 registrations.
Speaker Change: Last year, the South American above 16 tonne market was 119000 vehicles annually.
Speaker Change: Expected to be similar this year.
Speaker Change: Lost market share in the important Brazilian market was right around 10% and reflects a 23% production increase to more than 10000 trucks in 2024.
Speaker Change: In addition to a successful growing business in Brazil. The off trucks are now sold in Mexico and in the Andean region of South America.
Speaker Change: Pack, our truck parts and other gross margins were solid 15, 9% in the fourth quarter.
Speaker Change: These margins are considerably higher than in prior industry cycles.
Speaker Change: Selecting the increase value, but the new kenworth, peterbilt and <unk> trucks provided to customers as well as the continued growth of our parks.
Speaker Change: In the fourth quarter pack are delivered 43900 trucks and in the first quarter of 2025 deliveries are forecast to be around 40000.
Speaker Change: We estimate <unk> worldwide first quarter truck and parts gross margins to be similar to the fourth quarter and in a range of <unk>, 15.5% to 16%.
Speaker Change: In addition to the strong financial performance other business highlights in 2024 included Patkars progress on amplify cell technologies, our joint venture to manufacture commercial vehicle batteries in the United States.
Speaker Change: <unk> was honored as the fleet truck of the year in the U K.
Speaker Change: I caught part celebrated the <unk> anniversary of TRP.
Speaker Change: Peterbilt earned the environment and energy leader award for sustainability.
Speaker Change: And kenworth celebrated the 50th anniversary of it.
Speaker Change: Its world Class truck factory in Chillicothe, Ohio.
Speaker Change: We look forward to an excellent year in 2025, as we celebrate 120th anniversary of <unk> founding and $19 five.
Speaker Change: Perry Skippers will now provide an update on packer parts.
Speaker Change: Services and other business highlights Perry.
Brendan: Thank you Brendan.
Speaker Change: In 2024 break apart set new records for revenues and profits.
Speaker Change: Annual revenues increased by 4%.
Speaker Change: A record $6 $7 billion.
Speaker Change: And pretax profit increased to a record $1 71 billion.
Speaker Change: <unk> gross margins averaged 39%.
Speaker Change: And the current freight environment, we estimate estimate parts sales to grow by two 4% this year.
Speaker Change: In fact, our parks has excellent long term growth.
Speaker Change: The snakes, the benefits of investments that increase vehicle uptime.
Speaker Change: Opinions for customers.
Speaker Change: That goes after market parts business provides strong profitability through all phases of the business cycle.
Speaker Change: Becker parts has expanded to 20 plants distribution centers for Pdc's worldwide.
Speaker Change: Including our new PDC in Germany, which opened in November.
Speaker Change: This BDC enhances parts availability and delivery times.
Speaker Change: German dealers and customers and as part of our strategy to increase thus took market share and the largest truck market in Europe.
Speaker Change: Financial services achieved fourth quarter pretax income of $104 million.
Speaker Change: Annual pre tax income was $436 million.
Speaker Change: <unk> financial is performing well with a portfolio that has excellent credit quality and low past dues.
Speaker Change: Like our financial provides the highest quality service into market.
Speaker Change: It makes it easy for customers to do business with them through the efficient use of technology and a credit application in loan servicing processes.
Speaker Change: In fact, our financial operates 13 used truck centers around the world.
Speaker Change: To support the sale of premium Kenworth, Peterbilt and <unk> used trucks.
Speaker Change: Adding a new used truck center in Warsaw, Poland. This year.
Speaker Change: Last year, Becker and invested $796 million in capital projects.
Speaker Change: $453 million in research and development.
Speaker Change: Paccar delivered an excellent return on invested capital of 25, 5%.
This year, we are planning capital investments in the range of $700 million to $800 million.
Speaker Change: And R&D expenses in the range of 462 $500 million.
Speaker Change: As we invest in key technology and innovation projects.
Speaker Change: These include new clean diesel and alternative fuel engines. The next generation of battery electric Powertrains advanced driver assistance systems and integrated connected vehicle services.
Speaker Change: Becker is expanding manufacturing capacity at our factories in Europe, North America, Brazil, and Australia.
Speaker Change: These investments will support future growth and it's about as our customers' success.
Speaker Change: Aircrafts independent Kenworth, Peterbilt and stuff do you dose <unk>.
Speaker Change: Distantly exist in their businesses.
Speaker Change: And I don't think our industry, leading distribution network and making a significant contribution to <unk> long term success.
Speaker Change: That kind of looks forward to another excellent year in 2025.
Speaker Change: Thank you we'd be pleased to answer your questions.
Speaker Change: Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to make sure. Your question. Please press star followed by two and preparing to ask your question. Please ensure your omni locally.
Speaker Change: To remind you that star followed by one telephone keypad now.
Speaker Change: Our first question comes from that Tommy Zakaria of J P. Morgan Toni Your line is open. Please go ahead.
Speaker Change: Yes.
Tommy Zakaria: Hey, good morning. Thank you so much for taking my question.
Speaker Change: So my first question is on the delivery Guy can you can you help us understand how to think about it.
Tommy Zakaria: Deliveries by geography in the first quarter.
Speaker Change: Yes.
Speaker Change: Fourth quarter trying to bridge that gap.
Speaker Change: With that.
Speaker Change: Difference is coming from which geography.
If you could highlight.
Tammy: Yeah happy Tammy good to talk to you.
Speaker Change: I'd share with you is in the U S. We expect class eight to be flat or up even a little bit in Q1.
Tammy: But what we've seen is the medium duty market, which has just been.
Tammy: Very robust, it's probably normalizing now so we'll see a bit smaller medium duty market.
Tammy: I'd also remind people that there was a euro six implementation in Mexico that was in the fourth quarter. So that kind of was there was a bit of a pre buy in Mexico that won't be present in the first quarter.
Tammy: And also if youre doing comparisons of Q4 Q1, and we had good supplier performance in the fourth quarter that allowed our normal year end inventory reductions that take place. So all those things kind of had an impact and maybe the only last one I'd add is we have fewer production days outside the U S. Specifically in South America as an impact so all that goes into that delivery.
Tammy: But in essence were seeing flat class eight maybe slightly up for class eight in the U S markets.
Tammy: Yeah.
Speaker Change: Got it that is very helpful color. Thank you and my second question is on the investments.
Speaker Change: And the investments or amplify the.
Speaker Change: On the JV, you have with Cummins and Daimler do you think.
Speaker Change: You could revisit that.
Speaker Change: Whole idea could be we thought at this point given the current administration.
Speaker Change: He's still away from beds.
Speaker Change: Well I'll share this with you I am so happy with how that's going and I think if I could we make the decision now knowing what I know I'd make the same decision.
Speaker Change: It's a long term strategic objective for our company to be able to offer our customers a full portfolio of powertrain choices, we see that there'll be places where battery electric vehicles makes sense or it could be hybrid vehicles.
Speaker Change: Our amplify cell technologies joint.
Speaker Change: Joint venture will allow us to have the lowest cost highest quality batteries, so that will be most competitive in the market.
Speaker Change: Which will be in support of our customers.
Speaker Change: Okay, great. Thank you.
You bet.
Speaker Change: Thank you. Our next question comes from Kyle Mendez of Citi. Your line is open. Please go ahead.
Speaker Change: Oh.
Speaker Change: Thanks, Scott. So you said you did reference the vocational strength and it seems like that's been a big piece of why we've seen this order of resilience and class eight but I guess, just what gives you confidence that dealers arent over ordering here to stay and bodybuilders pipelines.
Speaker Change: And just could you maybe give us a gauge of how many of those orders actually have a customer's name attached. Thank you.
Speaker Change: Yes.
Speaker Change: All of our customers there feel really solid in fact, if you one way to look at is inventory. So the industry inventory is running what three one months in heavy duty and kenworth and peterbilt inventory levels at two three months. So our inventories in good shape. There is a backlog at bodybuilders, but those are really spoken for trucks.
Speaker Change: Okay. Thank you and then if you could just provide maybe a little more color on how youre thinking about the medium duty market in U S and Canada as we progress through the year, you mentioned, probably down a little bit in <unk>, but I guess, just how are you thinking about those.
Speaker Change: The growth as we move throughout the year first half versus second half would be helpful. Thank you.
Speaker Change: Yes, I think that what we saw kind of referencing back Kyle to last year, you would say that we had a pretty steady set of builds in the in the year. They were strong build there was if you recall a mirror factory fire that amplified some deliveries in the third quarter. So when you're comparing <unk> to <unk> you'd see lower deliveries of <unk> and now we just think that the medium duty market is going.
Speaker Change: Go back to more normal historically normal levels and in those normal levels will continue to see our new products performed well.
Speaker Change: Customers seem quite happy with the new two one meter wide kenworth and peterbilt.
Speaker Change: <unk> body builders are gaining our market share in fact, we've grown from 14 in up to 18% share in the medium duty market last year. So we feel good about our position the cadence of Q of half one to half two probably would expect it also to see strengthening in the second half.
Speaker Change: Thank you. Our next question comes from Stephen Volkmann of Jeffries Steven Your line is open. Please proceed.
Stephen Volkmann: Great. Good morning, everybody. Thank you for taking the call.
Speaker Change: I'm curious.
Speaker Change: As we sort of do the dumb math and look at our total truck revenues.
Speaker Change: <unk> by the deliveries.
Speaker Change: It seems like the kind of revenue per truck was down.
Speaker Change: Flowers percentage, which is one of the bigger declines we've seen recently and I know theres a lot in there between price and mix and things like that but I'm curious.
Speaker Change: If you can provide any color was that mostly mix or is there kind of more day cab happening or more vocational or how do we think about kind of what's going on in price mix.
Speaker Change: Steve there's a little bit of mix regional mix going on so.
Speaker Change: North America is more.
Speaker Change: Vacation and holidays in the fourth quarter.
Speaker Change: So a little bit stronger mix of Europe in Q4, and then on top of that we had in <unk>.
Speaker Change: Favorable foreign exchange rates, so it's a very strong dollar.
Speaker Change: And that probably accounts for half of the reduction in average sales price.
Speaker Change: Got it okay right a lot in there okay.
Speaker Change: And then slightly differently have you guys announced or started telling your customers kind of the order of magnitude of the expected price increase for the 2027.
Speaker Change: Regulations that were all looking forward to.
Speaker Change: We're having general conversations with them about that and we're still saying it can be the 10 to $15000 price range for adjustments to 2027.
Speaker Change: Obviously, the details of that aren't finalized, but thats kind of what it feels like right now.
Speaker Change: Okay. Thank you guys.
Speaker Change: You bet.
Our next question comes from Robert Westheimer Melius Research. Your line is open. Please go ahead.
Speaker Change: Okay.
Speaker Change: Thank you I had two if I may 1st is just I'd love to hear your thoughts on gross margin trend in truck pricing. It seems like you used market stabilized inventory at least on sleep versus come out I don't know if you see that in probably better data that you have and just curious whether whether you see any any hopeful.
Speaker Change: This or the reverse on new truck pricing that's my first one.
Speaker Change: Yeah sure Rob at what we'd say is that we're looking into Q1 didn't seem like things should be pretty steady as you can tell from our guide, where we said 55% to 16% gross margin. So we see that things are starting to look up but just beginning to as we noticed the truckload carriers starting to come back into the market and then probably gain.
Speaker Change: <unk> strength through the course of the year.
Speaker Change: And then on the used truck side.
Speaker Change: Rob I would add that back our financials used truck inventory is at very healthy on low levels right now.
Speaker Change: So.
Speaker Change: And so that's also good.
Speaker Change: It's a good leading indicator as well.
Speaker Change: Yeah.
Speaker Change: For the bottom there okay perfect and then pressing just sparked my curiosity you mentioned hybrid trucks.
Speaker Change: Across the <unk> and maybe even the truck world years ago, there was a bit of resistance to hybrids and the feeling that you can go full electric Im curious what youre hearing from your customers.
Speaker Change: Is that something that theres actual demand for now or are they really use cases that are.
Speaker Change: Non regulatory I'm, just curious if I could talk there I'll stop there. Thank you.
Speaker Change: Yes, Great question, Rob I think what we see is that.
Speaker Change: Through hybrid systems, we might be able to improve.
Speaker Change: Fuel efficiency, and likewise greenhouse gas, but double digit levels and if we're able to do that thats, obviously desirable for our customers.
Speaker Change: There is an added cost to it so the balance of what's the payback time sits into there. So there is a striving for a business case, which is free of regulatory hurdles, but we know that there will be regulations coming and going overtime. So that could also be an added incentive to the hybrid business case and Thats true for both U S and Europe may be especially true in Europe.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Steven Fisher of UBS. Steven Your line is open. Please go ahead.
Steven Fisher: Hi, Thanks, good afternoon.
Steven Fisher: Just wanted to touch upon the margins in the first quarter as you said person, they're going to be pretty stable, which is pretty impressive on 10% lower productions I guess I'm just curious.
Speaker Change: What is enabling.
Steven Fisher: That.
Steven Fisher: Steadiness to the margins and in light of that that lower level of production.
Steven Fisher: Well I think what we're seeing is the trucks are performing really really well. So that's helpful to us obviously in terms of discussions with customers.
Steven Fisher: Fuel economy is great reliability is great. Our warranty costs are slightly down and it just feels like between all those factors and where the market is starting to head. We think that will we'll see that kind of a margin appear in the first quarter.
Steven Fisher: Yes.
Speaker Change: Okay, and I guess, just curious about the broader pricing environment now.
Speaker Change: Are you do you think that it's now at a more stable that worry in this part of.
Speaker Change: The downturn and how confident can we be that sort of leads we've hit the low point on margins and pricing discounts for the year.
Speaker Change: Sure Great question again, and I think what we've shared and we continue shares like we see 2025 with improvement coming throughout the year.
Speaker Change: We think for sure in the second half maybe it's in the second quarter, we will have to watch how the how the world develops of course, but it feels like a positive trend.
Speaker Change: Okay. Thank you very much.
Speaker Change: Okay.
al: Our next question comes from Al <unk> of Morgan Stanley. Your line is open. Please go ahead.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: And how we are receiving a lot of feedback from your line.
Speaker Change: Just try and reopen your connection.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We all Charlie why don't we why don't we.
Speaker Change: Next caller.
Speaker Change: Okay, Charlie landlord and the next question caller in.
Speaker Change: Yes.
Speaker Change: Our next question comes from Jamie Cook of <unk> Securities. Jamie. Your line is open. Please go ahead.
Jamie Cook: Hi, good morning, just.
Speaker Change: To clarify can.
Speaker Change: Can you speak specifically what price cost was for truck and for parts in the fourth quarter, specifically and whats implied by region for 2025, and then my second question. It sounds like you would say the first quarter was the trough.
Speaker Change: For margins.
Speaker Change: In total is that for total company or is that also for truck margins and I'm. Just wondering if you get to the back half of the year do you expect to see.
Speaker Change: <unk> growth and then get back to a position, where we're actually seeing incremental margins versus decremental. Thank you.
Speaker Change: Yes, I mean thats another way of asking what we've already talked about I think quite a bit but the truck for Q4 price versus cost was negative six on price and cost was two 7%.
Speaker Change: And what we're expecting to see is some trending improvement through the course of the year Jamie.
Speaker Change: And so we think that'll be favorable to your point and we see continued strong parts margins. So like 39% in <unk> and we would expect to see continued good margins in the first quarter as well. So those are contributing to a general upward trend in our mind.
Speaker Change: But with that.
Speaker Change: By geography, I guess my question was.
Speaker Change: I don't think we provided by geography Jamie.
Speaker Change: Okay, and then I guess the follow up question was.
Speaker Change: The second half of 2025 should we start to see incremental margins are you seeing sales volumes are up versus decremental margins are pretty impressive right now in the first quarter.
Speaker Change: As the market improves in the second half of the year, we would expect margin to be.
Speaker Change: Development to improve accordingly.
Jamie Cook: Yes, I mean, I think Jamie nice comments.
Jamie Cook: Thanks also for the comment on the margins because it is these are cycle over cycle. Good margin improvements few hundred basis points and we do think that as we said last time when we made consistent this time, we think that.
Jamie Cook: 2025, we'll see improvement throughout the year.
Jamie Cook: And as it improves that will be good for incrementals.
Jamie Cook: Okay.
Jamie Cook: Great. Thank you very much.
You bet.
Speaker Change: Thank you. Our next question comes from Tim <unk> of Raymond James Tim. Your line is open. Please go ahead.
Speaker Change: Thank you good morning maintenance first question just in terms of.
Speaker Change: Any comments you could you could provide.
Speaker Change: As it pertains to order activity and how the backlog is filling.
Speaker Change: In both North America and Europe.
Speaker Change: I'm just curious.
Speaker Change: Terms of how far you are.
Speaker Change: Lead times, extending and how that presumably coding into the second quarter, but maybe you can just give some color on that.
Speaker Change: Sure Tim Good question, good insight to gain for everybody and so I think that we're roughly 75% or three quarter full in Q1.
Speaker Change: Probably more like half full in Q2.
Speaker Change: So thats kind of where things looked like pretty reasonable levels.
Speaker Change: Got it okay and the.
Speaker Change: Presumably the composition of that backlog much more more weighted I would've assumed towards vocational.
Should we think about any mix impact from that.
Speaker Change: Yeah.
Speaker Change: If that calculation is correct that would be.
Speaker Change: A heavier weighting of normal.
Speaker Change: Is there much of an impact again from a product mix standpoint, or is that kind of a neutral yes.
Speaker Change: Dynamic there.
Tim: Tim I think that the vocational the heavy influence of vocational was more of a last year thing and as vocational steady now I think the mix shift is kind of coming back to more traditional levels.
Speaker Change: Okay. Okay got it and then maybe for Harry just as big.
Tim: Yes.
Tim: The dollar.
Tim: <unk> levels through the quarter.
Tim: Some pretty big moves against some of your key currencies is there a way to think about.
Tim: And what what.
Tim: FX had but impact at foreign exchange had on margins in the fourth quarter and what.
Tim: What that May imply if the dollar were at today's levels for the first quarter.
Tim: Yes. This is Brian I'll just comment on that we had.
Tim: <unk> effect on our net income in the fourth quarter from the foreign currencies of about $20 million.
Tim: And Thats something we will obviously, we don't know whats going to happen to rates, but as you said at a state where there are I would say it would be a recurring effect and it is.
Tim: It will affect us into our guidance of between 15.
Tim: To 16%.
Speaker Change: Okay. Thank you very much.
Tim: You bet.
Speaker Change: Thank you. Our next question will go to <unk> of Morgan Stanley. Your line is open. Please go ahead.
Speaker Change: Hi can you hear me this time.
Speaker Change: Yes, youre not given us quite the static you did in the first time.
Speaker Change: I apologize for that.
Speaker Change: It sounds like it's working right now so maybe thanks for taking my question I apologize if somebody asked it but just I think you lowered the R&D expense for the full year can you just talk about maybe what's driving that and.
Speaker Change: Maybe going back to one of the initial questions around the amplify JV, obviously, a lot of kind of.
Speaker Change: Good good I guess strategic reasons to continue to invest in that but I believe it was a multi phase project.
Speaker Change: Is it fair to assume that it will be you'll be doing it in phases and deciding to move forward or is it we should assume that all three phases are moving forward.
Speaker Change: Yeah sure. That's a great question both of them. So the R&D is going to be still year over year, we thinking.
Speaker Change: Slightly up so probably in the range of 5% up from last year, just because there's a lot of great projects for us to be working on.
Speaker Change: Of course, the amplified when it doesn't really fit into that space, but what we're doing with amplifiers. We've cleared the ground now we're putting in the buildings and then what we'll do is measure how much capacity, we need to install but we want to get started on that so we have some capacity available for the markets that exist and then we will just scaled capacity based upon market demands for the.
Speaker Change: The evs or hybrids.
Speaker Change: That's helpful. And then I wanted to go back to some comments you made this quarter and I guess last quarter as well in terms of maybe some green shoots on the TL are starting to see some.
Speaker Change: Improvements I think you mentioned you could you maybe see could maybe see some improvement as soon as <unk> can.
Speaker Change: Can you just give us a little bit more color what exactly are you hearing from your customers.
Speaker Change: In terms of potential green shoots on the TL market and maybe what would kind of give you confidence in that <unk> number starting to show a rebound versus maybe more of a second half.
Speaker Change: Sure a couple of things.
Speaker Change: One is we've just started to see spot rates of improvement, so thats something thats measuring into our thoughts.
Speaker Change: I'd say some of the capacity has come out of the market. So it's making it easier for the good carriers to become successful.
Speaker Change: And then I would also add as we said earlier that the used market inventories are quite low and so that's kind of a tell of how the world is starting to turn a little bit. So all of those are soft indicators of what we think is to come.
Speaker Change: Very helpful. Thank you.
Speaker Change: You bet.
Speaker Change: Thank you as a reminder, if you'd like to ask a question. Please dial star followed by one on your telephone keypad.
Our next question comes from David Raso Evercore ISI, David Your line is open. Please proceed.
David Raso: Hi, Thank you for the time your comment about strengthening market as the year progresses, how is that influencing how you're pricing the 26th model years that starts shipping in April.
Speaker Change: And then wrapping with that maybe a bit.
Speaker Change: Your reaction to some of the recent executive orders from.
Speaker Change: From the White House, just to think about how that influences. How you think about the pre buy which I assume sort of dovetails, a little bit and how you're thinking about pricing.
Speaker Change: Well.
<unk>.
Speaker Change: We look at the executive orders, we pay attention to it but we know what the rules are today and we are ready for those rules if they were to change.
Speaker Change: Then we would be ready for that too one of the things we've been able to do is develop the suite of technologies, we need the California's already implemented low Nox engine and Packer has a low Nox engine in California. So we can be available to that and as things shift around will be ready in that position as well.
Speaker Change: The first question you asked about pricing in 2026 product shipments I.
Speaker Change: I think as the market moves around and people are experiencing the great performance of the Kenworth Peterbilt and <unk> trucks, we expect that we will see strengthen strengthening price position for ourselves.
Speaker Change: Of course of the year progresses.
Speaker Change: We think that trend and I'm carries on even beyond 25% we anticipate.
Speaker Change: And we hear the model year 'twenty six starts shipping in April I know there'll be a little mix of 'twenty fives and 'twenty six into Q, but is that accurate we start getting some of the 26 models shipping into Q4. This year Youre comment David there I don't know what that is but that doesn't resonate to me of our model year 'twenty six shifting in April.
Speaker Change: For us so I'm not sure how to answer that.
Speaker Change: Okay, we can talk offline, but basically the higher propane sequentially.
Speaker Change: Is what youre referencing as the year goes on however, you want to name the model, Yes, that's fair but.
Speaker Change: Yeah, Yeah, Okay. Thank you very much I appreciate it.
Speaker Change: You bet.
Speaker Change: Thank you. Our next question comes from Jerry Revich of Goldman Sachs. Jerry Your line is open. Please go ahead.
Jerry Revich: Yes, hi, good morning, and good afternoon, everyone.
Jerry Revich: I wanted to ask on the per truck performance in terms of operating costs can you talk about the cadence that you expect over the next couple of quarters. It sounds like based on the gross margin guidance for the first quarter, maybe we're seeing a decline in per truck costs. I'm wondering based on your contract structures et cetera can you just talk about the cadence over the next couple of quarters.
Jerry Revich: If you look at the cost per truck Jerry in 2024, or we saw some more content on trucks, especially in Europe, where we because of.
Jerry Revich: Legal requirements and more connected and other features are added during the year.
Jerry Revich: We expect those cost levels to be more or less stable as we enter the new year.
Jerry Revich: But no specific special developments in 2025 as far as I can tell right now.
Jerry Revich: Okay.
And separately on the topic of EPA twenty-seven I appreciate the base cases, it's going to move forward, but obviously governments can make changes in.
Jerry Revich: In the scenario if there is an adverse legal ruling or something along those lines can you talk about how the company would react in that scenario. If we have different regulations for California, and other states versus the rest of the U S. How would you see that scenario playing out in your planning process.
Jerry Revich: One of the things that's great about <unk> is the quality of the people in this company and our ability to be nimble and reactive as I think second to none. So I think if there are changes in regulations. There is nobody better at adjusting to those regulated regulatory changes and the people are and so we'll make sure we have the right products in front of the customer.
Jerry Revich: That are going to give them the best operating condition for the regulatory environment.
Jerry Revich: Okay.
Jerry Revich: Got it thank you.
Jerry Revich: You bet.
Speaker Change: Our next question comes from Jeff Kauffman of Desk Research partners. Jeff. Your line is open. Please go ahead.
Speaker Change: Okay. Thank you very much.
Speaker Change: Two two questions number one I want to come back to the change in revenue per truck was down about $4. Nine I think you mentioned zero six of that was price.
Speaker Change: Assuming most of the rest of the difference is mix and currency could you give me an idea of how to think about that math.
Speaker Change: Yes, like we said I think more or less half of the impact of currency.
Speaker Change: And if there is another element there.
Speaker Change: In the fourth quarter, the USA, Canada have more holidays.
Speaker Change: So the mix was a little bit more heavily towards Europe, and other markets outside of the U S, but average sales prices and cold, Turkey small and average sales prices are lower.
Speaker Change: Okay. Thanks, and I just wanted to follow up on David <unk> question obviously.
Speaker Change: As the administration comes out with new rules.
Speaker Change: Is that you comply.
Speaker Change: Where do you think.
Speaker Change: Ignoring 27% of the EPA, but are there other.
Speaker Change: Rulings that have been discussed.
Speaker Change: That would be risk worth thinking about.
Speaker Change: In terms of its impact to Pac or from the New administration.
Speaker Change: I don't think of them as risks as much as I think of them as opportunities I think anytime environments change if you operate better than your competitors and you will find yourself in a winning position and thats, where we intend to be.
Speaker Change: Okay.
Speaker Change: So Preston what would some of those opportunities be in your mind.
So the fact that we produce local for local factories in the U S where we produce the trucks for the US same in Mexico, Brazil, Europe makes us very well protected to things like tariffs for example.
Speaker Change: So we feel that in a really good spot there.
Speaker Change: Okay. Thank you very much.
Speaker Change: You bet.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Michael <unk>.
Speaker Change: So America Michael Your line is open. Please go ahead.
Speaker Change: Yes, hi.
Speaker Change: Hi, everyone. Thanks for.
Speaker Change: Having me on.
Speaker Change: <unk> Pak our eyes, clearly gained a lot of share.
Speaker Change: I realize it's because of your great trucks and your products just I'm curious if we see other Oems raising capacity trying to go after market share pricing intensifies.
Speaker Change: I am curious how you guys weigh to puts and takes there is <unk> more likely to continue to kind of price for your premium trucks and look to hold that margin or is it every year. Your goal is to try to gain that level of market share is that not as linear as that more over over a multi cycle basis.
Speaker Change: Just kind of curious how you think about that because you guys have gained so much share and there is some other oems kind of raising capacity.
Speaker Change: Yes, the way we think about it is we try to first off to make sure that we produce great trucks for our customers and if we produce great trucks for our customers that are valuable to them.
Speaker Change: They are willing to pay us for those trucks and sharing that value equation and that's the most fundamental thing into more.
Speaker Change: The more we can do that for them the better it works for US and you gave a nod to the the people at <unk> are producing great trucks I would also share in that our dealers are really outstanding and do a good job of supporting our customers and going out there and showing them the benefits of our of our trucks. So it's really about great trucks achieved benefits to our customer that helps us maintain.
Speaker Change: Our premium position and allows us also to simultaneously gain market share.
Speaker Change: Great and just just on parts the last three quarters. Your revenues up 4% I think the pre tax profit is slightly down year over year.
Speaker Change: There anything on <unk>.
Speaker Change: That you would want to flag on 24, it I'm just curious.
Speaker Change: As we kind of turn the page.
Speaker Change: Pre tax profit departs profit kind of grow in line with sales as we kind of look at 2025, just any moving pieces there would be helpful.
Speaker Change: Okay.
Speaker Change: 2024, we saw parts sales increased by 4% at the same time, we see.
Speaker Change: The market for <unk>.
Speaker Change: <unk> was down two 3%.
Speaker Change: So growing our parts sales and a smaller market and excellent margins. That's a really impressive performance by the entire pack our parts team and.
Speaker Change: And as we go into 2025, we expect parts to grow by 2% to 4% for the year. So it'll be another strong year for pickup trucks.
Speaker Change: Thank you.
Speaker Change: Yes, you bet.
Speaker Change: Thank you as a final reminder, if you'd like to ask a question on today's call. Please dial star followed by one on your telephone keypads.
Speaker Change: Our next question comes from Scott Group Wolfe Research. Your line is open. Please go ahead.
Speaker Change: Hey, thanks.
Speaker Change: Morning, and good afternoon, I just want to actually follow up on that last question. So if you think about last year the markets down in parts.
Speaker Change: Sales were up 4% and I guess this year you think the market is flat to up.
Speaker Change: The parts growth slows so.
Speaker Change: Help me understand why we're not seeing.
Speaker Change: Pickup in parts sales if the market is improving.
Speaker Change: Well one of the things is Harry indicators like the cadence of the parts market last year and like the general market, it's going to be a tale of two halves probably for the total market. So what we're talking about right now is Q1 and excellent parts performance in Q1, and we would expect to see them grows through the course of the year.
Speaker Change: It is strongly related to freight activity on the rest of the business.
Speaker Change: It should also have the kind of cadence.
Speaker Change: Okay that makes sense and then I think you said, 75% sold for the first quarter half full for the second quarter. Just do you have any sort of context does that sort of.
Speaker Change: Right is that ahead of schedule below behind schedule and then do you have any view if.
Speaker Change: The order strength of late has pre buy activity started yet or is that still all on the come.
Yes.
Speaker Change: We're in a fairly normal position for our backlogs really kind of normal for this kind of a part of the cycle and I would say that the discussions around what people are going to do for the second half of 'twenty five and then at 26 are happening, but I wouldn't say, there's really been any significant order it taken that area.
Speaker Change: Thank you guys. Appreciate it yeah you bet.
Speaker Change: Thank you. Our next question comes from Mats Liss of Kepler Chevron. That's your line is open. Please go ahead.
Mats Liss: Yes, hi, Thank you for taking my question I guess.
Mats Liss: Question about the European market that if you could give some flavor about.
Mats Liss: Okay.
Mats Liss: Countries there.
Mats Liss: And also how you see the market progress.
Mats Liss: The five I mean, you heard the.
Mats Liss: Guidance, but.
Mats Liss: If you could give some flavor there please.
Mats Liss: Yeah sure let me start and then Harry can add some thoughts too I mean, the general sense for us as the European economy is maybe you can experienced slight growth lending really slight potentially in Germany.
Mats Liss: What we saw last year is that the eastern central Eastern European markets were softer because of geopolitics I would say so that has some impact on the market overall, we will see if that continues through this year.
Mats Liss: And that kind of leads to I think people in Europe.
Mats Liss: Feeling moderately okay without the work.
Gary: Gary I don't know what you'd add to that.
Gary: Overall the markets in Europe last year was down 8%.
Gary: And then we talk about Western Europe, maybe down, 5% central and eastern Europe, and the 20% range. So.
Gary: Especially countries like Poland Lithuania.
Gary: Are more impacted.
Gary: And has a strong presence there.
Gary: That's a little bit bigger impact on them than maybe hasnt some of our competitors.
Gary: But looking into 2025.
Gary: The market in the range that we guided it thats a good market in which brokers, who do really well.
Gary: Okay, great. Thank you and good day.
Speaker Change: Regarding your capacity utilization.
Gary: Europe.
Gary: Yeah.
Gary: The capacity utilization is good.
Gary: We have capacity for when the market growth, we continue to make smart investments in the factories. There we have a factory in the UK factory, the Netherlands, and so we can produce the trucks, we need to we continue to make those factories more and more efficient.
Gary: And the backlog.
Gary: Separately.
Gary: So second quarter its about the same but the average that you mentioned.
Gary: Okay.
Gary: Oh group.
Speaker Change: Yes, Thats correct Europe is more or less in line with what Preston just mentioned on the on the total group.
Gary: Okay, great. Thank you very much.
Speaker Change: Youre welcome to you bet have a good day.
Speaker Change: Thank you we have no further questions in the queue at this time, so I'll hand back over to the management team for any further or final remarks.
Speaker Change: I'd like to thank everyone for joining the call and thank you Charlie.
Speaker Change: Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: [music].