Q1 2026 PACCAR Inc Earnings Call

April 28, 2026

Speaker #1: Good morning, and welcome to PACCAR's first quarter 2026 earnings conference call. All lines will be in listen-only mode until the question and answer session.

Operator 2: Good morning, welcome to PACCAR's Q1 2026 earnings conference call. All lines will be in a listen-only mode until the question and answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.

Operator: Good morning, welcome to PACCAR's Q1 2026 earnings conference call. All lines will be in a listen-only mode until the question and answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.

Speaker #1: Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations.

Speaker #1: Mr. Hastings, please go ahead.

Speaker #2: Good morning and welcome, everyone. My name is Ken Hastings, PACCAR's Director of Investor Relations. Joining me this morning are Preston Fite, Chief Executive Officer; Kevin Bainey, President; and Bryce Paploski, Senior Vice President and Chief Financial Officer.

Ken Hastings: Good morning, and welcome, everyone. My name is Ken Hastings, PACCAR's Director of Investor Relations. Joining me this morning are Preston Feight, Chief Executive Officer, Kevin Baney, President, and Brice Poplawski, Senior Vice President and Chief Financial Officer. 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 that may affect expected results. For additional information, please see our SEC filings at the investor relations page of PACCAR. I would now like to introduce Preston Feight.

Speaker #2: 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 that may affect expected results for additional information, please see our SEC filings at the investor relations page of PACCAR.

Speaker #2: I would now like to introduce Preston Fite.

Speaker #3: Hey, thanks, Ken. Good morning, everyone. In the first quarter, PACCAR's outstanding employees did an excellent job providing our customers with the highest quality trucks and transportation solutions in the industry.

Preston Feight: Hey, thanks, Ken. Good morning, everyone. In Q1, PACCAR's outstanding employees did an excellent job providing our customers with the highest quality trucks and transportation solutions in the industry. I really appreciate their hard work, their high performance, and dedication as we increase build rates in our factories all around the world. PACCAR achieved revenues of $6.8 billion and net income of $605 million in Q1. These results were generated by strong PACCAR Parts and Financial Services results, as well as solid growth in the truck businesses. PACCAR Parts achieved quarterly revenues of $1.7 billion and quarterly pre-tax income of $402 million. PACCAR Financial had a strong quarter, achieving pre-tax income of $116 million.

Speaker #3: I really appreciate their hard work, their high performance, and dedication as we increased build rates in our factories all around the world. PACCAR achieved revenues of $6.8 billion and net income of $605 million in the first quarter.

Speaker #3: These results were generated by strong PACCAR Parts and Financial Services results, as well as solid growth in the truck businesses. PACCAR Parts achieved quarterly revenues of $1.7 billion and quarterly pre-tax income of $402 million.

Speaker #3: PACCAR Financial had a strong quarter, achieving pre-tax income of $116 million. Looking at this year's U.S. and Canadian truck market, we estimate it to be in a range of 230,000 to 270,000 units.

Preston Feight: Looking at this year's US and Canadian truck market, we estimate it to be in a range of 230,000 to 270,000 units. The market is strengthening as driver and fleet capacity becomes limited and customers begin to realize higher freight rates. This is somewhat moderated by fuel and other operating cost volatility. In Q1, Kenworth launched a new C580 heavy-duty vocational truck. This large multi-axle model was introduced at the Conexpo trade show and is a unique super heavy-duty truck used in severe service applications around the world. We project the 2026 European above 16 ton market size to be in a range of 280,000 to 320,000. DAF's premium aerodynamic trucks provide customers with the latest technology and best operating efficiency.

Speaker #3: The market is strengthening, as driver and fleet capacity becomes limited, and customers begin to realize higher freight rates. This is somewhat moderated by fuel and other operating cost volatility.

Speaker #3: In the first quarter, Kenworth launched a new C580 heavy-duty vocational truck. This large, multi-axle model was introduced at the CONEXPO trade show and is a unique super heavy-duty truck used in severe service applications around the world.

Speaker #3: We project a 2026 European above 16-ton market size to be in a range of $280 to $320,000. DOF's premium aerodynamic trucks provide customers with the latest technology, and best operating efficiency.

Speaker #3: As mentioned on the January earnings call, the DOF XF and XT electric vehicles won the International Truck of the Year 2026 honor. In the first quarter, DOF extended its EV leadership by introducing new flagship XG and XG+ electric vehicles.

Preston Feight: As mentioned on the January earnings call, the DAF XF and XD electric vehicles won the International Truck of the Year 2026 honor. In Q1, DAF extended its EV leadership by introducing new flagship XG and XG+ electric vehicles. In addition, the XF Electric earned another award, the 2026 Eco-Friendly Truck of the Year in Spain. This year's South American above 16 ton market, where DAF trucks are desired by customers for their durability and advanced technology, is expected to be in a range of 100,000 to 110,000 vehicles. In Q1, PACCAR delivered 33,100 trucks, and in Q2 will deliver an estimated 37,000 to 38,000 vehicles. PACCAR's truck, parts, and other gross margins increased from 12% to 13.1% in Q1 due to improved truck segment performance.

Speaker #3: In addition, the XF electric earned another award, the 2026 Eco-Friendly Truck of the Year in Spain. This year's South American above 16-ton market where DOF trucks are desired by customers for their durability and advanced technology is expected to be in a range of $100 to $110,000 vehicles.

Speaker #3: In the first quarter, PACCAR delivered 33,100 trucks, and in the second quarter, we’ll deliver an estimated 37,000 to 38,000 vehicles. PACCAR's truck parts and other gross margins increased from 12% to 13.1% in the first quarter, due to improved truck segment performance.

Speaker #3: Second quarter margins are forecast to expand to around 13.5%, as global production volumes increase. We anticipate continued performance improvements in the second half of the year, as our customers benefit from our local-for-local manufacturing strategy, experience better operating conditions, and purchase trucks in front of the coming 2027's emissions change.

Preston Feight: Q2 margins are forecast to expand to around 13.5% as global production volumes increase. We anticipate continued performance improvements in H2 as our customers benefit from our local-for-local manufacturing strategy, experience better operating conditions, and purchase trucks in front of the coming 2027's emissions change. PACCAR's exceptional range of trucks, compelling PACCAR Parts business, industry-leading Financial Services, and advanced technology strategy position the company well for an excellent future. Kevin will now provide an update on PACCAR Parts, Financial Services, and other business highlights. Kevin?

Speaker #3: PACCAR's exceptional range of trucks compelling parts business, industry-leading financial services, and advanced technology strategy position the company well for an excellent future. Kevin will now provide an update on PACCAR parts, financial services, and other business highlights.

Speaker #3: Kevin?

Speaker #2: Thanks, Preston. PACCAR parts achieved first quarter revenues of $1.7 billion and profits of $402 million. Gross margins were 29.6%. We estimate parts sales to grow by about 3% in the second quarter and be in the range of $3 to 6% for the full year.

Kevin Baney: Thanks, Preston. PACCAR Parts achieved Q1 revenues of $1.7 billion and profits of $402 million. Gross margins were 29.6%. We estimate parts sales to grow by about 3% in Q2 and be in the range of 3% to 6% for the full year. PACCAR Parts has 21 parts distribution centers worldwide and has plans to expand its global distribution network and TRP stores. As mentioned in our recent Analyst Day, we continue to see great opportunities for broad-based parts growth and look forward to realizing that opportunity in partnership with our outstanding dealer network. PACCAR Financial Services pre-tax income was a robust $116 million. The continued strong performance is a result of solid asset growth, improving margins, and a used truck market that is beginning to strengthen.

Speaker #2: PACCAR parts has 21 parts distribution centers worldwide and has plans to expand its global distribution network in TRP stores. As mentioned in our recent analyst day, we continue to see great opportunities for broad-based parts growth and look forward to realizing that opportunity in partnership with our outstanding dealer network.

Speaker #2: PACCAR financial services pre-tax income was a robust $116 million. The continued strong performance is a result of solid asset growth, improving margins, and a used truck market that is beginning to strengthen.

Speaker #2: This year, we're planning capital investments in the range of $725 to $775 million and R&D expenses in the range of $450 to $500 million.

Kevin Baney: This year, we're planning capital investments in the range of $725 to $775 million and R&D expenses in the range of $450 to $500 million as we continue to invest in key technology and innovation projects. These include advanced flexible manufacturing technologies, next-generation powertrains, PACCAR's autonomous vehicle platform, and integrated connected vehicle services. We are excited for the growth PACCAR will experience in the coming quarters and years. We are now pleased to answer your questions.

Speaker #2: As we continue to invest in key technology and innovation projects, these include advanced flexible manufacturing technologies, next-generation powertrains, PACCAR's autonomous vehicle platform, and integrated connected vehicle services.

Speaker #2: We are excited for the growth PACCAR will experience in the coming quarters and years. We are now pleased to answer your questions.

Speaker #4: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

Operator 3: We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Feniger of Bank of America. Your line is open. Please go ahead.

Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Feniger of Bank of America. Your line is open. Please go ahead.

Speaker #4: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #4: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Feinger of Bank of America.

Speaker #4: Your line is open. Please go ahead.

Speaker #5: Thanks, everyone. Just on the parts guidance, maybe you guys can just unpack what did you see in the quarter? It feels like a slower start.

Michael Feniger: Thanks, everyone. Just on the parts guidance, maybe you guys can just unpack what did you see in the quarter. It feels like a slower start. I'd love if we could just start there of what you're seeing in the parts side, how we're looking so far through Q2, and how we should think about that in the back half with orders starting to pick up and be better than expected.

Speaker #5: I'd love if we could just start there—of what you're seeing on the parts side, how we're looking so far through Q2, and how we should think about that in the back half, with orders starting to pick up and be better than expected.

Speaker #2: Yeah, Michael, this is Kevin. I'll start with the parts side. So with fleet consolidations, and the higher fuel prices that's impacted, let's say, operating cost volatility, that's resulted in the parts market remaining soft.

Kevin Baney: Yeah, Michael, this is Kevin. I'll start with the parts side. With fleet consolidations and the higher fuel prices that's impacted, let's say, operating cost volatility, that's resulted in the parts market remaining soft. As we see as customers start to get healthy, we'll talk a little bit more about the truck market side, but as customers start to get healthy, we'll see the parts market get healthier with that as well. Just for the full year guidance for the 3% to 6%, we see that accelerating through the rest of the year.

Speaker #2: And so, as we see, as customers start to get healthy—we'll talk a little bit more about the truck market side—but as customers start to get healthy, we'll see the parts market get healthier with that as well.

Speaker #2: And so just for the full-year guidance for the three to six percent, we see that accelerating through the rest of the year.

Speaker #5: And just on my last question, just on the gross margin, 13.5—the pickup versus 13.1 in Q1—should we still think that gross margin will sequentially walk up through the year as build rates recover?

Michael Feniger: Just on my last question, just on the gross margin, 13.5%, the pickup versus 13.1% in Q1, should we still think that gross margins sequentially walk up through the year as build rates recover? Is there a pricing expectation that could also get better as well, given your comments that the US markets continue to strengthen? Just kind of curious how we should think about as you build through the year and what number we might be exiting the year as we're starting to see some strength in freight rates, even excluding fuel right now. Thank you.

Speaker #5: Is there a pricing expectation that that could also get better as well, given your comments at the US markets continue to strengthen? Just kind of curious how we should think about as you build through the year and what number we might be exiting the year as we're starting to see some strength in freight rates, even excluding fuel right now.

Speaker #5: Thank you.

Speaker #2: Hey, Michael. Thanks for the question. This is Preston. It's good to talk to you. I think you talked about a few things in there that we're seeing as we do see the increasing volumes, I'm really pleased with how the factories have been able to, again, create this local-for-local manufacturing capability in America.

Preston Feight: Hey, Michael. Thanks for the question. This is Preston. It's good to talk to you. You know, I think you talked about a few things in there that we're seeing, is we do see the increasing volumes. I'm really pleased with how the factories have been able to, again, create this local-for-local manufacturing capability in America. We see the volumes increasing, as we said, to 37,000, 38,000 in Q2. That's on the basis of build rates that we've already put in place. Teams have done a really good job of that. We see some of that margin growth coming from that volume, you know, partially offset a little bit by the price of energy, steel, aluminum, other raw material pricing in there. There is that.

Speaker #2: We see the volumes increasing, as we said, to 37,000–38,000 in the second quarter. That's on the basis of build rates that we've already put in place.

Speaker #2: So, teams have done a really good job of that. And we see some of that margin growth coming from that volume—partially offset a little bit by the price of energy, steel, aluminum, and other raw material pricing in there.

Speaker #2: So there is that. And I'm not quite sure customers have seen the full effect of tariffs yet. But we feel really good about the cadence throughout the year as the market and our customers get healthy.

Preston Feight: I'm not quite sure customers have seen the full effect of tariffs yet, but we feel really good about the cadence throughout the year as the market and our customers get healthy, and we see accelerating sequentially. Okay, Miriam, let's go to the next question.

Speaker #2: And we see accelerating sequentially.

Speaker #6: Hey, Mariam. Let's go to the next question.

Ken Hastings: Okay, Miriam, let's go to the next question.

Speaker #4: Your next question comes from the line of Jerry Revich of Wells Fargo. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Jerry Revich of Wells Fargo. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Jerry Revich of Wells Fargo. Your line is open. Please go ahead.

Speaker #7: Yes, hi. Good morning, everyone. Hey, Jerry, if we could just.

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

Preston Feight: Hey, Jerry.

Jerry Revich: I'm wondering if we could just.

Speaker #2: Hey, Jerry.

Preston Feight: Hey, Jerry.

Speaker #7: Hi. I wonder if we could just talk about the really strong profit per truck that you folks delivered in the quarter. So, with lower parts contribution, you folks still exceeded the guidance ranges.

Jerry Revich: Hi. I'm wondering if we could just talk about the really strong profit per truck that you folks delivered in the quarter. With lower parts contribution, you folks still exceeded the guidance ranges. It looks like your profit per truck was up to about $5,300 from $2,900 last quarter. Just to unpack that, how much of that was better cost execution versus mix and any other moving pieces as we think about the profile heading into the rest of the year?

Speaker #7: So it looks like your profit per truck was up to about 5,300 from 2,900 last quarter. Can we just unpack that, how much of that was better cost execution versus makes and any other moving pieces as we think about the profile heading into the rest of the year?

Speaker #2: Yeah. Jerry, thanks for the comments. I appreciate them. They're nice, well-stated. We did have price cost advantage in the quarter sequentially. So we saw ourselves up over a percent in price cost, which is good.

Preston Feight: Yeah, Jerry, thanks for the comments. I appreciate them. They're nice and well-stated. We did have price cost advantage in the quarter sequentially. We saw ourselves up, you know, over 1% in price cost, which is good. I think the teams are doing a really good job of focusing on the market we're in, being price careful to see if we can make sure that we get our percentage of the market. In fact, we saw that in terms of our percentage of market filled. In Q1, we built 31.8% of the market, which is very favorable and a good position to be in. We're balancing that growth with price cost favorability.

Speaker #2: I think the teams are doing a really good job of focusing on the market we're in. So being priced careful to see if we can make sure that we get our percentage of the market.

Speaker #2: In fact, we saw that in terms of our percentage of market filled. So in the first quarter, we built 31.8% of the market, which is very favorable and a good position to be in.

Speaker #2: And so we're balancing that growth with price cost favorability.

Speaker #7: Super. And then as we look at the backlog, how much more favorable is price cost based on what's in backlog versus what we saw in the first quarter?

Jerry Revich: Super. Then as we look at the backlog, how much more favorable is price cost based on what's in backlog versus what we saw in Q1?

Speaker #2: Well, we think we'll have favorability as we look forward into the second quarter. Obviously, we're looking at our volumes going up appreciably. We're really full through the second quarter.

Preston Feight: Well, we think we'll have favorability as we look forward into Q2. Obviously, we're looking at our volumes going up appreciably. We're really full through Q2, and we have good visibility into Q3 and Q4.

Speaker #2: And we have good visibility into the third and the fourth quarter.

Speaker #7: Okay, super. And just one last one, just to calibrate expectations around orders over the balance of the year. We're hearing that there's just a limited number of build slots available that might hamper orders over the next couple of quarters versus underlying demand.

Jerry Revich: Okay. Super. Just one last one just to calibrate expectations around orders over the balance of the year. We're hearing that there's just limited number of build slots available that might hamper orders over the next 2 quarters versus underlying demand. Is that the case for your business? You know, what proportion of your build slots are already spoken for the next 3 quarters?

Speaker #7: Is that the case for your business? What proportion of your build slots are already spoken for for the next three quarters?

Speaker #2: Yeah. Like I said, as we're full in Q2, we're a majority full in Q3, Q4. I'm not sure I recognize the commentary about people not having slots.

Preston Feight: Yeah. Like I said, we're full on Q2. We're majority full in Q3, 4. I'm not sure I recognize the commentary about people not having slots. That sounds more like a marketing scheme.

Speaker #2: That sounds more like a marketing scheme.

Speaker #7: Fair enough. Thank you.

Jerry Revich: Fair enough. Thank you.

Speaker #4: Your next question comes from the line of Tammy Zacharia of JPMorgan. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Tami Zakaria of JPMorgan. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Tami Zakaria of JPMorgan. Your line is open. Please go ahead.

Speaker #8: Hey, good morning. Thank you so much. My first question is on the simplified metal tariffs that went into effect in early April. Does that change your view on what would be the tariff impact, especially for aftermarket parts, versus the last time you spoke?

Tami Zakaria: Good morning. Thank you so much. My first question is on the simplified metal tariffs that went into effect in early April. Does that change your view on what would be the tariff impact, especially for aftermarket parts, versus the last time you spoke? Is it basically does it not change the tariff headwind that you expected?

Speaker #8: Or is it basically does it not change the tariff headwind that you expected?

Speaker #2: Hey, Tammy. It's good to hear from you. It doesn't really have a lot of impact for us because of the truck-specific 232 has specific offsets.

Preston Feight: Hey, Tami. It's good to hear from you. It doesn't really have a lot of impact for us because of the truck-specific 232 has specific offsets, and it applies mostly to those materials. There's some moderate impact, but not significant.

Speaker #2: And it applies mostly to those materials. So there's some moderate impact, but not significant. Same on the part side, Tammy.

Kevin Baney: Same on the parts side, Tami.

Speaker #8: Understood. That's helpful. And just following up on what Jerry was asking, maybe I wanted to ask it in a different way. So based on third-party data, orders have been very strong year to date.

Tami Zakaria: Understood. That's helpful. Just following up on what Jerry was asking, maybe I wanted to ask it in a different way. Based on third-party data, orders have been very strong year to date. You kept your US-Canada outlook unchanged. Does this outlook include the year-to-date strength in orders? Meaning, do you expect orders to moderate as we go through the year and as we get close to the NOx timeline, or is your view shaped by supply chain rather than demand?

Speaker #8: You kept your US-Canada outlook unchanged. Does this outlook include the year-to-date strength in orders? Meaning, do you expect orders to moderate as we go through the year and as we get close to the Knox timeline?

Speaker #8: Or is your view shaped by supply chain rather than demand?

Speaker #2: I think our view is shaped by the fact that the first quarter really didn't have a high cadence to it. So, if the first quarter ran at something around, or a little under, 200,000, then in order for it to come to the midpoint at 250,000, there's going to have to be already a rapid acceleration.

Preston Feight: I think our view is shaped by the fact that Q1 really didn't have a high cadence to it. If Q1 ran at something around or a little under 200,000, then in order for it to come to the midpoint at 250, there's gonna have to be already a rapid acceleration. We have a great supply base, but they also need to be able to spin up their operations. The rate of increase quarter-over-quarter is what probably informs the total market size.

Speaker #2: And we have a great supply base, but they also need to be able to spin up their operations. So the rate of increase quarter over quarter is what probably informs the total market size.

Speaker #8: Understood. Thank you.

Tami Zakaria: Understood. Thank you.

Speaker #2: You're welcome. Have a good day.

Preston Feight: You're welcome. Have a good day.

Speaker #4: Your next question comes from the line of Rob Wertheimer of Melius. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Rob Wertheimer of Melius. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Rob Wertheimer of Melius. Your line is open. Please go ahead.

Speaker #9: Thanks. Is there any visible impact of the war in the Middle East on confidence or demand or orders in Europe?

Rob Wertheimer: Thanks. Is there any visible impact of the war in the Middle East on confidence or demand or orders in Europe?

Speaker #2: You know what we've seen is I think there's a really good word used, confidence and demand. Rob, and I would say that confidence, yeah, I think people are paying attention to it and trying to discern what it might mean in the general economy, of course.

Preston Feight: You know, what we've seen is I think those are really good words you used, confidence and demand, Rob. I would say that confidence, yeah, I think people are paying attention to and trying to discern what it might mean in the general economy, of course. I would say from a demand standpoint, we've seen less impact. We've seen continued good order intake throughout the last couple of months, less of a show there.

Speaker #2: I would say from a demand standpoint, we've seen less impact. We've seen continued good order intake throughout the last couple of months, so less of a show there.

Speaker #9: Perfect. Thank you. And if I could just ask—I mean, I think we chatted about this once—but the rise of electric trucks in China has been very sharp.

Rob Wertheimer: Perfect. Thank you. If I could just ask, I mean, I think we chatted about this once, but the rise of electric trucks in China has been very sharp and maybe for geopolitical reasons. Could you talk about your own experience, and do you see strong demand from customers? Is there a crossover on total cost of ownership yet on some size classes, models, whatever? You know, how do you see that shape at present? Thank you. I'll stop there.

Speaker #9: And maybe for geopolitical reasons, could you talk about your own experience and do you see strong demand from customers? Is there a crossover on total cost of ownership yet on some size classes, models, whatever?

Speaker #9: And how do you see that shape at present? Thank you. I'll stop there.

Speaker #2: Yeah, you'll let us. Well, Kevin, why don't you share some thoughts?

Preston Feight: Yeah. Yeah, let us, Kevin, why don't you share some thoughts?

Speaker #9: Yeah. So Rob, you mentioned Europe. And so the geopolitical has had an impact on the fuel prices in the cost of diesel is a bigger percent of the operating cost for customers in Europe.

Kevin Baney: Yeah. Rob, you mentioned Europe, you know, the geopolitical has had an impact on the fuel prices, and the cost of diesel is a bigger percent of the operating cost for customers in Europe. There's been a lot more discussion about battery electric trucks in Europe. As we said, you know, DAF just won International Truck of the Year with the DAF XF and XD electric. They just expanded their product range. In a really good position to address the growing customer questions and demand about battery electric trucks in Europe. We're well-positioned against the competition. We've had a lot of competitors over time, and I think we're really well-positioned with a great product line.

Speaker #9: So there's been a lot more discussion about battery electric trucks. In Europe, and as we said, DOF just won International Truck of the Year with the DOF XF and XD Electric.

Speaker #9: They just expanded their product range, so they're in a really good position to address the growing customer questions and demand about battery electric trucks in Europe.

Speaker #9: And we're well positioned against the competition. We've had a lot of competitors over time. And I think we're really well positioned with a great product line.

Speaker #2: And I would say, Kevin, I had a chance to drive that XD truck of the year. It's amazing. It's just a really wonderful truck to be in.

Preston Feight: I would say, Kevin, I had a chance to drive that XD Truck of the Year. It's amazing. It's just a really wonderful truck to be in. It's gonna be great for our customers, and it just launched in the recent months. If you look at the US market, it might inform a little bit differently. I think without subsidies, then doing widespread adoption is probably less likely. There can be markets where it makes sense. Certainly, in urban environments, there could be places where EVs make sense. We just launched a couple new medium-duty models for Kenworth and Peterbilt, so we have those regional delivery EVs, which is where the market makes the most sense in America.

Speaker #2: So it's going to be great for our customers. And it just launched in the recent months. If you look at the US market, it might inform a little bit differently.

Speaker #2: I think without subsidies, then doing widespread adoption is probably less likely. There can be markets where it makes sense, certainly in urban environments. There could be places where EVs make sense.

Speaker #2: And we look forward to we just launched a couple of new medium-duty models for Kenworth and Peterbilt. So we have those regional delivery EVs, which is where the market makes the most sense in America.

Speaker #9: Thank you.

Ken Hastings: Thank you.

Rob Wertheimer: Thank you.

Speaker #2: You bet.

Preston Feight: You bet.

Speaker #4: Your next question comes from the line of David Rasso of Evercore ISI. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of David Raso of Evercore ISI. Your line is open. Please go ahead.

Operator: Your next question comes from the line of David Raso of Evercore ISI. Your line is open. Please go ahead.

Speaker #10: Hi, thank you. The question relates to trying to understand your operating leverage in the truck business, particularly. It looks like you can back into the gross margin for truck.

David Raso: Hi. Thank you. The question relates to trying to understand your operating leverage in the truck business particularly. It looks like you can back into the gross margin for truck. Must have been around, I don't know, 6.9, something like that in Q1. Sequentially, the truck revenues went up $11 million, but your gross profit went up $73 million. I'm just making sure we understand, was there anything in Q1 about, you know, reversal of old tariffs that you could take the benefit with IEEPA gone? I know we already had Section 232 already in, just making sure that's a clean. You know, that's, that kind of strength in gross profit growth on only $11 million of revenue.

Speaker #10: It must have been around $6.9 million, something like that in the first quarter. So sequentially, the truck revenues went up $11 million, but your gross profit went up $73 million.

Speaker #10: And I'm just making sure we understand, was there anything in the first quarter about reversal of old tariffs that you could take the benefit with AIPA gone?

Speaker #10: I know we already had truck 232 already in. But just making sure that's a clean that kind of strength in gross profit growth on only 11 million of revenue.

Speaker #10: I mean, I appreciate US-Canada as a percent of the shipments was a lot bigger this quarter than last quarter. So maybe that's part of it.

David Raso: I mean, I appreciate US-Canada as a % of the shipments was a lot bigger, this quarter than last quarter, so maybe that's part of it. Can you walk us through that gross margin improvement in truck on really no revenue increase?

Speaker #10: But can you walk us through that gross margin improvement in truck on really no revenue increase?

Speaker #2: Yeah. And David, you always do such a good job with your numbers. And you continue to do that. You kind of get it right is that we had somewhere above 7% for our truck margin.

Preston Feight: Yeah. David, you always do such a good job with your numbers, and you continue to do that, is you kind of get it right, is that we had somewhere above 7% for our truck margin. That came largely because the teams did a really good job selling these best-in-class products. The leverage we got off of the volume helped us as well. The price-cost advantages contributed to that. Brice, anything you'd add to that?

Speaker #2: And that came largely because the teams did a really good job selling these best-in-class products. And then the leverage we got off of the volume helped us as well.

Speaker #2: So the price-cost advantages contributed to that. Price, I think you'd add to that?

Speaker #9: Yeah. We also had I'll call it favorable product mix selling more of the Kenworth and Peterbilt brand at the year-end. They're more lower because of the holiday shutdown season.

Brice Poplawski: We also had, I'll call it, favorable product mix, selling more of the Kenworth and Peterbilt brand. At the year-end, they're more lower because of the holiday shutdown season. Of course, DAF at the end of the year usually has a few units that they're getting done on their fleets that they hold in inventory. A little bit of a favorable mix effect on where we're selling the trucks as well helped us.

Speaker #9: And then, of course, DOF at the end of the year usually has a few units that they're getting done on their fleets that they hold in inventory.

Speaker #9: So a little bit of a favorable mix effect on where we're selling the trucks as well helped us.

Speaker #2: And we didn't record any increase for AIPA-related AIPA.

Ken Hastings: we didn't record any increase for IEEPA.

Brice Poplawski: Yeah.

Ken Hastings: Related to IEEPA.

Speaker #10: So summary of all that, David, to you is very clean quarter. Nothing to put or take out of it.

Preston Feight: Summary of all that, David, to you, is very clean quarter. Nothing to put or take out of it.

Speaker #2: Yeah. That begs the question, for the next quarter, where your truck revenue could be up—call it $600 million, rough numbers—you would think, then, the gross margin impact could be a little more significant than going up only 40 bps at the company level.

David Raso: Yeah, that then begs the question for the next quarter, where your truck revenue could be up, you know, call it $600 million. You know, rough numbers. You would think then the gross margin impact would be a little more significant than going up only 40 basis points at the company level. I apologize, I think maybe earlier you mentioned parts gross margins for Q2. I don't think you called that anything particularly negative for, but maybe I didn't hear it correctly. Again, I'm just trying to understand that impressive performance for Q1 to Q1, but then Q1 to Q2 seems a lot more muted despite this is the quarter you get a bigger revenue move.

Speaker #2: And I apologize. I think maybe earlier you mentioned parts gross margins for 2Q. I don't think you call that anything particularly negative for it, but maybe I didn't hear it correctly.

Speaker #2: So again, I'm just trying to understand that impressive performance from Q4 to Q1. But then Q1 to Q2 seems a lot more muted, despite this being the quarter where you get a bigger revenue move.

Speaker #2: Yeah. Well, let's see what the quarter is. We kind of gave you the '13 and a half percent as our midpoint guidance for our margin look.

Preston Feight: Yeah. Well, let's see what the quarter is. We kind of gave you the 13.5% as our midpoint guidance for our margin look. We do see the volume being a good thing. I did mention earlier in the call, right, that our build percentage has increased in the market in North America, so we're at 31.8% of a build percentage. I also see that pricing remains competitive as our customers are just beginning to experience an acceleration in their end markets. There's a competitive price point out there in the market that's contributing also. Those are kind of the key factors that inform the Q2.

Speaker #2: We do see the volume being a good thing. I did mention earlier in the call, right, that our build percentage has increased in the market in North America.

Speaker #2: So we're 31.8% of a build percentage. And I also see that pricing remains competitive as our customers are just beginning to experience acceleration in their end markets.

Speaker #2: So there's a competitive price point out there in the market that's contributing also. And so those are kind of the key factors that inform the second quarter.

Speaker #9: Yeah, David, one other comment probably worth making. We guided to 3% growth in parts. Obviously, the truck volume would be much greater than 3%, going up by 6,000 to 7,000 trucks.

Brice Poplawski: Yeah. David, one other comment probably worth making. We guided 3% growth in PACCAR Parts. Obviously, the truck volume will be much greater than 3%, going up by 7,000 trucks, 6,000, 7,000 trucks. You have a negative, like, if you wanna call it, price mix effect that also dampens the total margin %.

Speaker #9: So you have a negative if you want to call it price mix effect that also dampens the total margin percent.

Speaker #10: No, I appreciate that. Okay. Thank you so much.

David Raso: No, I appreciate that. Okay, thank you so much.

Speaker #9: Yep.

Preston Feight: Yep. Have a great day, David.

Speaker #2: Have a great day, David.

Speaker #4: Your next question comes from the line of Chad Dillard of Bernstein. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Chad Dillard of Bernstein. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Chad Dillard of Bernstein. Your line is open. Please go ahead.

Speaker #11: Hey. Good morning, guys. So as I think about the pre-buy likely to hit later this year, what are your plans for the number of shifts or build slots?

Chad Dillard: Hey, good morning, guys. As we think about the pre-buy likely to hit later this year, what are your plans for the number of shifts or build slots? Maybe you can compare it to, like, where you are today or on a year-on-year basis. I guess, like, what I'm trying to get at is, like, how quickly could you ramp that up versus where you are today if you got a little bit more visibility into, you know, this, the durability of demand?

Speaker #11: Maybe you can compare it to where you are today or on a year-on-year basis. I guess what I'm trying to get at is how quickly could you ramp that up versus where you are today if you got a little bit more visibility into the durability of demand?

Speaker #2: We have great operations teams. I think they demonstrated that not just in the past year, but over the decades. And they continue to be able to move up quickly.

Preston Feight: You know, we have great operations teams. I think they've demonstrated that not just in the past year, but over the decades, and they continue to be able to move up quickly. I think it's more about what the supply base and order board and how quick they have visibility to it. It's about a hiring cadence across the industry that will probably inform how quick it can go up. I feel very confident in our team's ability to add the people and the capacity we need to support the market, in any market size.

Speaker #2: So I think it's more about what the supply base and order board are, and how quickly they have visibility to it. So it's about a hiring cadence across the industry that would probably inform how quickly it can go up.

Speaker #2: But I feel very confident in our team's ability to add the people and the capacity we need to support the market in any market size.

Speaker #11: Got it. And can you talk about how industry pricing behavior has changed versus the start of the year? Are some of the non-domestic producers starting to price for tariffs?

Chad Dillard: Got it. Can you talk about how industry pricing behavior has changed versus the start of the year? Are some of the non-domestic producers starting to price for tariffs?

Speaker #2: Well, I think you'd have to ask them the question of how they're thinking about their pricing scheme. They're better informed on that than we are.

Preston Feight: Well, I think you'd have to ask them the question of how they're thinking about their pricing scheme. They're better informed on that than we are. We do see a competitive market out there right now. We do see the fact that our customers, as I said, are just starting to see improvement. Raw material pricing is high. There are still those things that are putting into it. I think we're at the beginning of what feels like an acceleration, considering that the Q1 build was just under 200,000, and last year was low. If you think about the average market being 267,000 units, there's going to be some replacement demand, and there's going to be some strengthening financial performance, and those are both going to be good for us in the near and mid-term for the business.

Speaker #2: We do see a competitive market out there right now. We do see the fact that our customers, as I said, are just starting to see improvement.

Speaker #2: Raw material pricing is high. So there is still those things that are putting into it. But I think we're at the beginning of what feels like an acceleration considering that the first quarter build was just a 200, just under 200,000.

Speaker #2: And last year was low. So if you think about the average market being 267,000 units, there's going to be some replacement demand, and there's going to be some strengthening financial performance.

Speaker #2: And those are both going to be good for us in the near and mid-term for the business.

Speaker #11: Great. Thanks. I'll pass it on.

Chad Dillard: Great. Thanks. I'll pass it on.

Speaker #2: You bet.

Preston Feight: You bet.

Speaker #4: Your next question comes from the line of Steve Oakman of Jefferies. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Stephen Volkmann of Jefferies. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Stephen Volkmann of Jefferies. Your line is open. Please go ahead.

Speaker #2: Steve, we are not able to hear you. I wonder if you're on mute.

Preston Feight: Steve, we are not able to hear you. I wonder if you're on mute.

Speaker #10: Yes, I was. I'm just figuring out this phone thing after a few decades of use. Sorry about that. So I'll start again. You guys are good at managing supply chains probably the best at that.

Stephen Volkmann: Yes, I was. I'm just figuring out this phone after a few, a few decades of use. Sorry about that. I'll start again. You guys are good at managing supply chains, probably the best at that. We have a big ramp, I guess, in the H2 this year. We're starting to hear some early signs that there might be some constraints in things like memory chips and sometimes some people are even worried about aluminum supply. I'm just curious if there's anything on your radar that you're watching that could actually constrain us in this kinda H2 build that we're all expecting.

Steve Volkmann: Yes, I was. I'm just figuring out this phone after a few, a few decades of use. Sorry about that. I'll start again. You guys are good at managing supply chains, probably the best at that. We have a big ramp, I guess, in the H2 this year. We're starting to hear some early signs that there might be some constraints in things like memory chips and sometimes some people are even worried about aluminum supply. I'm just curious if there's anything on your radar that you're watching that could actually constrain us in this kinda H2 build that we're all expecting.

Speaker #10: And we have a big ramp, I guess, in the second half this year. And we're starting to hear some early signs that there might be some constraints in things like memory chips and sometimes some people are even worried about aluminum supply.

Speaker #10: I'm just curious if there's anything on your radar that you're watching that could actually constrain us in this kind of second-half build that we're all expecting.

Speaker #2: Yeah. Great question, Steve. Thanks for jumping back in and taking the time with it. I think the thing that informs, right now, in supply chain is really how much energy-related exposure people have to the supply of materials and what that might do to their cost as one factor.

Preston Feight: Yeah. Great question, Steve. Thanks for jumping back in and taking the time with it. I think that the thing that informs right now in supply chain is really how much energy-related exposure people have to the supply of materials and what that might do to their cost as one factor. Then the second, as I said previously, is the hiring cadence of people and getting them trained up to speed in a sustainable manner for our suppliers to be ready for the ramp-up and build.

Speaker #2: And then the second, as I said previously, is the hiring cadence of people and getting them trained up to speed in a sustainable manner for our suppliers.

Speaker #2: To be ready for the ramp-up and build.

Speaker #10: Got it. Okay, so nothing specific yet standing out. And then, maybe, can you just comment, Preston, about the mix that you're seeing relative to vocational versus over-the-road, I guess, maybe in terms of how the second half is going to ramp up?

Stephen Volkmann: Got it. Okay. Nothing specific yet, standing out. Maybe, can you just comment, Preston, about the mix that you're seeing relative to vocational versus over-the-road, I guess maybe in terms of how the H2 is gonna ramp up?

Steve Volkmann: Got it. Okay. Nothing specific yet, standing out. Maybe, can you just comment, Preston, about the mix that you're seeing relative to vocational versus over-the-road, I guess maybe in terms of how the H2 is gonna ramp up?

Speaker #2: It's been pretty uniform. We've seen over-the-road companies getting their recovery now, with spot rates up double digit—maybe even up to 20%. We've seen contract rates improving.

Preston Feight: It's been pretty uniform. We've seen over-the-road companies getting their recovery now with spot rates up double digit, maybe even up to 20%. We've seen contract rates improving, so that's helping our truckload carriers. The vocational market continues to be solid as well as the LTL. We're seeing orders coming in from kind of all sides as people wanna make sure that they have their fleet in the right spot for the year and next year.

Speaker #2: So that’s helping our truckload carriers. The vocational market continues to be solid, as well as the LTL. So we’re seeing orders coming in from kind of all sides.

Speaker #2: As people want to make sure that they have their fleet in the right spot for the year and next year.

Speaker #10: Great. Thank you.

Stephen Volkmann: Great. Thank you.

Steve Volkmann: Great. Thank you.

Speaker #2: You bet. Have a great day.

Preston Feight: You bet. Have a great day.

Speaker #4: Your next question comes from the line of Kyle Menges of Citigroup. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Kyle Menges of Citigroup. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Kyle Menges of Citigroup. Your line is open. Please go ahead.

Speaker #10: Thank you. I just wanted to go back to some of the comments you made on gross margin, and it sounds like you're expecting improvement really quarter over quarter as we move throughout the rest of the year. I understand volume is a big piece of that, but how are you thinking about pricing momentum, and what are you seeing as we get to the second quarter and into the second half?

Kyle Menges: Thank you. I just wanted to go back to some of the comments you made on gross margin, and it sounds like you're expecting improvement really quarter over quarter as we move throughout the rest of the year. Just I understand volume's a big piece of that, but how are you thinking about pricing momentum, you know, and what are you seeing as we get to Q2 and into H2? How are you thinking about price cost as well for the rest of the year?

Speaker #10: And how are you thinking about price cost as well for the rest of the year?

Speaker #2: Yeah. Well, I think the year is a long way off. What we typically think about for this discussion is really the next quarter. And I would say that we expect to have a price-cost favorability in the quarter.

Preston Feight: Yeah. Well, I think the year is a long way, as what we typically think about for this discussion is really the next quarter. I would say that we expect to have a price-cost favorability in the quarter. I think how that gets informed is, again, based upon what the market asks for and how raw material pricing finishes up for us. We'll see. We'll watch carefully how that raw material pricing moves through the year. Obviously, there's some volatility in the market in general, and that'll have a consequence, but we do expect to see favorability throughout the year.

Speaker #2: I think how that gets informed is, again, based upon what the market asked for and how raw material pricing finishes up for us. So we'll watch carefully how that raw material pricing moves through the year.

Speaker #2: Obviously, there's some volatility in the market in general, and that'll have a consequence. But we do expect to see favorability throughout the year.

Speaker #10: Helpful. And then we are getting pretty close now to the new EPA mandate, just curious how the new engine's performing out in the market and if you guys think that it'll be ready in time.

Kyle Menges: Helpful. Then, we are getting pretty close now to the new EPA mandate. Just curious, how the new engine's performing out in the market, and if you guys think that it'll be ready in time. Thank you.

Speaker #10: Thank you.

Speaker #2: Yeah, Kyle, thanks for that question. I think PACCAR's team does a great job of having the right engines for our customers, and so we are really pleased with the engine development programs that are ongoing right now, both for us.

Preston Feight: Yeah, Kyle, thanks for that question. I think, you know, PACCAR's team does a great job of having the right engines for our customers. So we are really pleased with the engine development programs that are ongoing right now, both for us, and we're watching how it's going with Cummins, obviously, who's a great partner for us. We look forward to seeing how the implementation rolls through for everyone. I feel great confidence in our teams and what we'll deliver.

Speaker #2: And we're watching how it's going with Cummins. Obviously, he was a great partner for us. We look forward to seeing how the implementation rolls through for everyone.

Speaker #2: But I feel great confidence in our teams and what we'll deliver.

Speaker #10: Great. Thank you.

Kyle Menges: Thank you.

Speaker #2: You bet.

Preston Feight: You bet.

Speaker #4: Your next question comes from the line of Jamie Cook of Truist Securities. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Jamie Cook of Truist Securities. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Jamie Cook of Truist Securities. Your line is open. Please go ahead.

Speaker #11: Hi, good morning, and congrats on a nice quarter. I guess my first question, Preston, if you could talk to, as we think through the second half of the year, and I guess throughout the cycle, what the setup for PACCAR is in terms of incremental margins.

Jamie Cook: Hi. good morning, and congrats on a nice quarter. I guess my first question, you know, Preston, if you could talk to, as we think, you know, through the H2 of the year and I guess throughout the cycle, what the setup for PACCAR is in terms of incremental margins. I mean, last cycle, you delivered above average incremental margins with a lot of the new product launches that came into the market. This cycle, we have, you know, the Section 232 benefit, you know, market share opportunity. I'm just wondering how you'll balance the two. Should we think of the normalized incremental margins of, like, 15% to 20% or above that?

Speaker #11: I mean, last cycle, you delivered above-average incremental margins with a lot of the new product launches that came into the market. This cycle, we have the Section 232 benefit, market share opportunity.

Speaker #11: I'm just wondering how you'll balance the two. Should we think of the normalized incremental margins of, like, 15 to 20 percent, or above that?

Speaker #11: And then I guess my second question, can you just talk to sort of channel inventory where PACCAR is sitting versus its peers and whether its peers have made any progress on destocking some of the inflated inventory in the channel?

Jamie Cook: I guess my second question, can you just talk to, sort of, you know, channel inventory, where PACCAR is sitting versus its peers and whether its peers have made, you know, any progress on destocking some of the, you know, inflated inventory in the channel? Thank you.

Speaker #11: Thank you.

Speaker #2: Yeah. Let's start with your inventory question, Jamie. I think if you look at our inventory, we feel like it's in very good shape. That's kind of around just under three months, 2.8 months.

Preston Feight: Yeah. Let's start with your inventory question, Jamie. I think if you look at our inventory, we feel like it's in very good shape. It's kind of around just under 3 months, 2.8 months. That compares to 2.2 months back in December. We've been able to get at least a little bit of inventory back into the market, which feels healthy. I think the industry overall has a higher percentage of inventory, I think over 4 months. That's kind of the lay of the land from an inventory standpoint. PACCAR feel like we're in really good shape there. Dealers have been able to get a few trucks on the lot and get ready to go. Obviously, inventory for us is affected by our higher percentage of vocational share. People getting bodies put on trucks as an influencing factor there.

Speaker #2: And that compares to 2.2 months back in December. So we've been able to get at least a little bit of inventory back into the market, which feels healthy.

Speaker #2: I think the industry overall has a higher percentage of inventory. I think over four months. So that's kind of the lay of the land from an inventory standpoint.

Speaker #2: PACCAR feels like we're in really good shape there. Dealers have been able to get a few trucks on the lot and get ready to go.

Speaker #2: Obviously, inventory for us is affected by our higher percentage of vocational share. So people getting bodies put on trucks has an influencing factor there.

Speaker #2: And then if you just think back to your first question was on margin and how we see that developing. We see margin being favorable, and we see that our build percentage at 31.8% in the first quarter is good for our performance and good for our customers to be able to get trucks for us and being full in the second quarter.

Preston Feight: If you just think back to your first question was on margin and how we see that developing. We just see margin being favorable, and we see that our build percentage at 31.8% in Q1 is good for our performance and good for our customers to be able to get trucks for us. Being full in Q2 means that we feel good about the position we're in.

Speaker #2: It means that we feel good about the position we're in.

Speaker #4: Thank you.

Jamie Cook: Thank you.

Speaker #2: You bet.

Preston Feight: You bet.

Speaker #4: Your next question comes from the line of Stephen Fisher of UBS. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Steven Fisher of UBS. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Steven Fisher of UBS. Your line is open. Please go ahead.

Speaker #12: Thanks. Good morning. I just wanted to clarify your answer on the parts acceleration that you expect in the second half. And you mentioned about clients starting to get healthier.

Steven Fisher: Thanks. Good morning. I just wanted to clarify your answer on the parts acceleration that you expect in H2. You mentioned about clients just starting to get healthier, but I think you also mentioned about fuel having an impact in Q1. I was hoping you could just give us a little more color on what you're expecting that's gonna drive the acceleration. Do you still need to see freight rates continue to rise? Do you need to see fuel costs falling? Is it just more about getting more trucks on the road? Do you need freight shipments to be picking up? Just curious kinda what will drive that acceleration.

Speaker #12: But I think you also mentioned fuel having an impact in Q1. So I was hoping you could just give us a little more color on what you're expecting that's going to drive the acceleration?

Speaker #12: Do you still need to see freight rates continue to rise? Do you need to see fuel costs falling? Is it just more about getting more trucks on the road?

Speaker #12: Do you need freight shipments to be picking up? Just curious kind of what will drive that acceleration.

Speaker #2: Yeah, you said a lot there, but it's a little bit of all of that, right? As we see the increase of the truck orders—so as more trucks are on the road and we see our customers' business improve, we see that on the parts side.

Kevin Baney: Yeah, you said a lot there, it's a little bit of all of that, right? As, you know, we see the increase of the truck orders, as more trucks are on the road, and we see our customers' business improve, we see that on the parts side. I mentioned earlier the increased fuel and the operating cost volatility because customers still focus on required maintenance. They've delayed their optional parts purchases. We see, you know, both the volume as well as the mix improving, and that leads to the acceleration through the year. We see as the truck market improves, we see the parts market follow that.

Speaker #2: I mentioned earlier the increased fuel and the operating cost volatility because customers still focus on required maintenance. And so they have delayed their optional parts purchases.

Speaker #2: So we see both the volume as well as the mix improving. And that leads to the acceleration through the year. So we see as the truck market improves, we see the parts market follow that.

Speaker #12: Okay, that's very helpful. And then I guess, to what extent have you had any discussions with your customers about the first part of 2027 planning?

Steven Fisher: Okay. That's very helpful. Then I guess to what extent have you had any discussions with your customers about the first part of 2027 planning? Really just trying to make sure I understand how you're characterizing the expected pickup in H2 of this year, whether it's really a, kind of a pre-buy or just a buy. you know, I know it's maybe a little bit early to talk about 2027, but I guess a pre-buy implies a pull forward. I guess I'm and it seems like it could be a relevant part of the discussion right now. Just curious how you would frame that.

Speaker #12: And really just trying to make sure I understand how you're characterizing the expected pickup in the second half of this year, whether it's really kind of a pre-buy or just a buy.

Speaker #12: I know it's maybe a little bit early to talk about 2027, but I guess a pre-buy implies a pull forward. So I guess it seems like it could be a relevant part of the discussion right now.

Speaker #12: Just curious how you would frame that.

Speaker #2: I like the way you framed it, Steve. I think that pre-buy versus buy, I think there's a little bit of both going on, honestly.

Preston Feight: I like the way you framed it, Steve. I think that pre-buy versus buy, I think there's a little bit of both going on, honestly. I think that there's some buy going on because of the demand that the customers are getting healthy and want their fleet age to come back to where they want it. That's a bit of the buy side. I think on the pre-buy side, obviously, there's a cost impact to a 35 milligram engine, and I think they're sensitive to that. I think there's some of the people that are looking at putting orders in front of it. Both of those are influencing the year.

Speaker #2: I think that there's some buy going on because of the demand, that the customers are getting healthy and want their fleet age to come back to where they want it.

Speaker #2: So that's a bit of the buy side. And I think on the pre-buy side, obviously, there's a cost impact to a $35 milligram engine.

Speaker #2: And I think they're sensitive to that. And so I think there are some of the people that are looking at putting orders in front of it.

Speaker #2: So both of those are influencing the year, looking into 2027. I think we'll see how the year fills out and what the full-year retail looks like and build looks like, and that'll probably give some information about what '27 will look like.

Preston Feight: Looking into 2027, I think we'll see how the year fills out and what the full year retail looks like and build looks like, and that'll probably give some information about what 2027 will look like.

Speaker #13: Yeah. Just to add, the combo of the buy versus pre-buy in the second half of the year is pretty well balanced in terms of the fill between the third and fourth quarter.

Kevin Baney: Yeah, just to add is, you know, the combo of the buy versus pre-buy is the H2 is pretty well balanced in terms of the fill between Q3 and Q4. If it was more weighted to a pre-buy, we'd see that demand towards the higher at the end of the year. We see a really nice balance in both the Q3 and Q4.

Speaker #13: If it was more weighted to a pre-buy, we'd see that demand towards the higher in the end of the year. But we see a really nice balance in both third and fourth quarter.

Speaker #12: That's really helpful. Thank you.

Steven Fisher: That's really helpful. Thank you.

Speaker #4: Your next question comes from the line of Angel Castillo of Morgan Stanley. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Angel Castillo of Morgan Stanley. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Angel Castillo of Morgan Stanley. Your line is open. Please go ahead.

Speaker #14: Hi. Good morning and thanks for taking my question. Maybe I've missed this, but I wanted to go back to the EPA dynamic. I guess has the EPA actually formalized the low NOx emissions rule that it communicated, I guess, back at the end of last year?

Angel Castillo: Hi, good morning, and thanks for taking my question. Maybe I've missed this, but wanted to go back to the EPA dynamic, I guess. Has the EPA actually formalized the low NOx emissions rule that it communicated, I guess, back at the end of last year? Does that have any bearing on the ability of the industry to ultimately launch and move forward with these engines that meet the kind of latest low NOx standard? Likewise, I guess, any implications on the customer's ability, I guess, to move forward with any, you know, orders or potential pre-buy? Just curious if that's where we're at on that and if we don't have any formalized kind of releases there.

Speaker #14: And does that have any bearing on the ability of the industry to ultimately launch and move forward with these engines that meet the kind of latest low NOx standard?

Speaker #14: And likewise, I guess, any implications on the customer's ability to, I guess, move forward with any orders or potential pre-buy? Just curious if that's where we're at on that and if we don't have any formalized kind of releases there, I guess, if you have any insights as to when we might be able to get that.

Angel Castillo: I guess if you have any insights as to when we might be able to get that?

Speaker #2: Yeah, I think the formalized release that they've made, Angel, is that it'll be a 35-milligram standard come 2027. That's the law, and there's not any kind of modification expected to that in terms of it being a 35-milligram standard for new engines in 2027.

Preston Feight: I think the formalized release that they've made, Angel, is that it'll be a 35 milligram standard come 2027. That's the law, and that's the. There's not any kind of modification expected to that in terms of it being a 35 milligram standard for new engines in 2027. The parameters around that, I think, are things that they will have to contemplate or are contemplating based upon customer and market feedback.

Speaker #2: And the parameters around that, I think, are things that they will have to contemplate or are contemplating based on customer and market feedback.

Speaker #14: Got it. And then I wanted to go back to maybe the margin discussion. Could you, I guess, just give us the shipments number that you are deliveries guidance you provided for 2Q?

Angel Castillo: Got it. I wanted to go back to maybe the margin discussion. Could you, I guess, just give us the shipments number that you or deliveries guidance you provided for Q2? Could you give that by region, specifically how much you expect US and Canada versus Europe? If we could kind of revisit the 13.5% gross profit margins. I get you mentioned, I think, a little bit more uplift from trucks maybe is a little bit of a mix drag on the overall and why you don't see that kind of incremental step change in Q2 versus Q1. I guess it wasn't entirely clear to me if there's any

Speaker #14: Could you give that by region, specifically how much you expect US and Canada versus Europe? And then if we could kind of revisit the 13.5% gross profit margins, I get you mentioned, I think, a little bit more uplift from trucks maybe is a little bit of a mixed drag on the overall and why you don't see that kind of incremental step change in 2Q versus 1Q.

Speaker #14: But I guess it wasn't entirely clear to me if there's any other drags beyond that that keep it from being more of a material step change.

Angel Castillo: Other drags beyond that keep it from being more of a material step change, quarter-over-quarter, just given the seasonality.

Speaker #14: Quarter over quarter, just given the seasonality.

Speaker #2: Yeah, just to take the question in saying that we expect in Q2, volumes are up around the world, pretty much in every market. So we've had build rate increases everywhere.

Preston Feight: Yeah. Just take the question in saying that we expect in Q2 volumes are up around the world, pretty much in every market. We've had build rate increases everywhere. That's what's driving the total increase in volume. I think we've kind of spent quite a bit of time already describing that 13.5% being volume-based improvement as well as slight price cost with still pressure on pricing in the market as tariffs maybe haven't been fully rolled through. Yet also PACCAR performing really well in terms of getting share of build up.

Speaker #2: And so that's what's driving the total increase in volume. And I think we've kind of spent quite a bit of time already describing that 13.5% being volume-based improvement, as well as slight price cost, with still pressure on pricing in the market, as tariffs maybe haven't been fully rolled through.

Speaker #2: And yet, also, PACCAR is performing really well in terms of gaining share of build-up.

Speaker #14: Understood. Thank you.

Angel Castillo: Understood. Thank you.

Speaker #2: You bet.

Preston Feight: You bet.

Speaker #4: Your next question comes from the line of Louis Marek of PNB Parabus. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Lewis Merrick of BNP Paribas. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Lewis Merrick of BNP Paribas. Your line is open. Please go ahead.

Speaker #15: Yeah, good morning, everyone. Thank you for taking my questions. We've heard about customers potentially pushing back their delivery dates for trucks. I'm just wondering, are you seeing any evidence of this occurring?

Lewis Merrick: Yeah, good morning, everyone. Thank you for taking my questions. We've heard about customers potentially pushing back their delivery dates for trucks. I'm just wondering, are you seeing any evidence of this occurring?

Speaker #2: No. I don't recognize that in our backlog. We have not seen any of that.

Preston Feight: No, I don't recognize that in our, in our backlog. We have not seen any of that.

Speaker #15: Okay. Question quick. And just quickly on the tariffs topic, could we get your latest understanding on when we could expect the previously announced 3.75% NSRP credit to be applied?

Lewis Merrick: Okay. No. Just quickly on the tariffs topic, could we get your latest understanding on when we could expect the previously announced 3.75% USMCA credit to be applied?

Speaker #2: Well, it's fairly well-defined for the truck side of the 232. And so now it's about when we can apply for them and get them back.

Preston Feight: Well, it's fairly well-defined for the truck side of Section 232. Now it's about when we can apply for them and get them back. We would expect that to be in the not distant future.

Speaker #2: And we would expect that to be in the not distant future.

Speaker #15: Okay. Thank you very much. I'll turn it over.

Lewis Merrick: Okay. All right. Thank you very much. I'll turn it over.

Speaker #2: You bet. Have a great day.

Preston Feight: You bet. Have a great day.

Speaker #4: Your next question comes from the line of Scott Group of Wolf Research. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Scott Group of Wolfe Research. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Scott Group of Wolfe Research. Your line is open. Please go ahead.

Speaker #16: Hey. Thanks. Good morning. So I'm not pre-buy versus buy sort of discussion from earlier. Do you have a sense on the buy part of it, how much of that is sort of growth fleet plans, fleet growth plans, or just sort of pent-up replacement?

Scott Group: Hey, thanks. Good morning. On that pre-buy versus buy sort of discussion from earlier, do you have a sense on the buy part of it, how much of that is sort of growth fleet plans, fleet growth plans or just sort of pent-up replacement? To the extent that there's just more replacement, do you think as we start replacing more after aging the fleets, does that naturally pressure some of the parts growth?

Speaker #16: And to the extent that there's just more replacement, do you think as we start replacing more after aging the fleets, does that naturally pressure some of the parts' growth?

Speaker #2: I think that what's going on is that you kind of said the words in the buy side of it. There's this been a tough little run for some of our customers.

Preston Feight: I think that what's going on is that, you kind of said the words. In the buy side of it, there's been a tough little run for some of our customers. Now they have the opportunity, hopefully, where we'll see better financial performance, which is enabling them to allocate capital to trucks. You know, keeping their fleet at a reasonable age is good for them. It's also good for them from an operating cost standpoint. When they're buying the Kenworth, Peterbilt or DAF trucks, they're getting a highly efficient truck into the fleet. They're taking out something that has lower fuel economy from the past and now has the best fuel economy possible for them. It's a good operating performance benefit.

Speaker #2: And now they have the opportunity hopefully where they'll see better financial performance, which is enabling them to allocate capital to trucks. Keeping their fleet at a reasonable age is good for them.

Speaker #2: And it's also good for them from an operating cost standpoint when they're buying the Kenworth, the Peterbilt, or DAF trucks. They're getting a highly efficient truck into the fleet.

Speaker #2: So they're taking out something that has lower fuel economy from past and now is the best fuel economy possible for them. So it's a good operating performance benefit.

Speaker #2: But it's kind of a tie of their financial performance and then the truck replacement cycle that they're trying to keep up with.

Preston Feight: It's kind of a tie of their financial performance and then the truck replacement cycle that they're trying to keep up with.

Speaker #15: Okay. And then maybe just lastly, orders have doubled year to date versus what they were doing a year ago. And you're still talking about a competitive pricing environment.

Scott Group: Okay. Maybe just lastly, you know, orders have doubled year to date versus what they were doing a year ago, and you're still talking about a competitive pricing environment. Why do you think we're not seeing a bigger, faster improvement in pricing?

Speaker #15: Why do you think we're not seeing a bigger, faster improvement in pricing?

Speaker #2: Well, I think that the orders are sometimes around multi-year things, and there are some projections on orders. And I think orders isn't the cleanest thing to measure.

Preston Feight: Well, I think that the orders are sometimes around multi-year things. There's some projections on orders, and I think orders isn't the cleanest thing to measure. I think it's probably a more clean measure to look at what's happening in the industry through build. If you look at build, that gives you a clean indicator of where things are. The cleanest way to look at is build and retail. If you build it, you'll retail it. Orders don't necessarily, for everyone, come through the same way. With our 31.8% of build in Q1, we feel good about the position, and we do still think that there are some orders left in the H2 to be had.

Speaker #2: I think it's probably a more clean measure to look at what's happening in the industry through build. And if you look at build, that gives you a clean indicator of where things are.

Speaker #2: So the cleanest way to look at it is build and retail. If you build it, you'll retail it. Orders don't necessarily, for everyone, come through the same way.

Speaker #2: But with our 31.8% of build in Q1, we feel good about the position. And we do still think that there are some orders left in the second half to be had.

Speaker #15: That makes sense. Thank you, guys.

Scott Group: That makes sense. Thank you, guys.

Speaker #2: Great. Have a good day.

Preston Feight: Great. Have a good day.

Speaker #4: Your next question comes from the line of Steve Bokman of Jefferies. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Stephen Volkmann of Jefferies. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Steve Volkmann of Jefferies. Your line is open. Please go ahead.

Speaker #17: Thank you. I figured it out this time. Just a quick follow-up.

Stephen Volkmann: Thank you. I figured it out this time. Just a quick follow-up.

Steve Volkmann: Thank you. I figured it out this time. Just a quick follow-up.

Speaker #2: I was going to say something if you didn't see.

Preston Feight: I was going to say, if someone to beat him, Steve.

Speaker #17: I wanted to head that off. So just a quick follow-up. I know you guys give sort of average prices in the 10-Q. I'm just curious if you might have those available for truck and parts. If not, I'll wait for the queue.

Stephen Volkmann: I wanted to head that off. Just a quick follow-up. I know you guys give sort of average prices in the 10-Q. I'm just curious if you might have those available for truck and parts. If not, I'll wait for the Q.

Steve Volkmann: I wanted to head that off. Just a quick follow-up. I know you guys give sort of average prices in the 10-Q. I'm just curious if you might have those available for truck and parts. If not, I'll wait for the Q.

Speaker #2: For the first quarter, compared to the first quarter last year, you'll see price up 2%. And you'll see our cost, unfortunately, is up higher than that.

Preston Feight: For the Q1 compared to the Q1 last year, you'll see price up 2%, and you'll see our cost, unfortunately, is up higher than that. That made our margins down on the truck segment. Then price on the parts side was up 6%. I think if you look at sequentially, you'd see price was roughly flat. Cost was down sequentially for truck, more than 1%. Sequentially for parts, price was up a couple percent, and cost was only up 1%.

Speaker #2: So that made our margins down on the truck segment. And then price in the parts side was up 6%.

Speaker #17: But I think if you look at it sequentially, you'd see price was roughly flat. Cost was down sequentially for truck, more than a percent. And sequentially for parts, price was up a couple of percent.

Speaker #17: And cost was only up a percent. Super. Thank you so much.

Stephen Volkmann: Super. Thank you so much.

Steve Volkmann: Super. Thank you so much.

Speaker #2: Sure.

Preston Feight: Sure.

Speaker #4: Your next question comes from the line of Tim Thine of Raymond James. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Timothy Thein of Raymond James. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Timothy Thein of Raymond James. Your line is open. Please go ahead.

Speaker #18: Right. Thank you. Thank you. I'll just start. The first question is just on the customer mix. Within the backlog and how that may or may not be influencing the truck margins.

Timothy Thein: Great. Thank you. Thank you. I'll just start. The first question is just on the customer mix.

Timothy Thein: Within the backlog and how that may or may not be influencing the truck margins. I'm just thinking, Preston, on the on-highway side, at least in North America, you've always skewed more towards the small and midsize fleets. You know, perhaps not as much today as you once did, you know, years ago. You know, that presumably that some of the whips and the fluctuations we've seen in diesel costs can sometimes hit those smaller carriers a bit harder. I'm just curious if that's not the only factor.

Speaker #18: And so, I'm just thinking, Preston, on the on-highway side—at least in North America—you've always skewed more towards the small and midsize fleets, perhaps not as much today as you once did years ago.

Speaker #18: But I presumably that some of the whips or the fluctuations we've seen in diesel costs can sometimes hit those smaller carriers a bit harder.

Speaker #18: So I'm just curious if that's not the only factor. But essentially, the punchline is is there a mix you within how you're filling the backlog between some of those large mega fleets versus your historical kind of bread and butter small fleet?

Timothy Thein: Essentially the punchline is, you know, is there a mix skew within how you're filling the backlog between some of those large, you know, mega fleets versus your historical kind of bread and butter small fleet?

Speaker #2: Hey, Tim. I think that's an interesting concept because people thought, but I don't really think that it's significant in terms of that. I think we've kind of got a broad mix of customers that are buying trucks right now.

Preston Feight: Hey, Tim, I think that's an interesting concept, gives me a little thought. I don't really think that it's significant in terms of that. I think we've kind of got a broad mix of customers that are buying trucks right now.

Speaker #2: I agree with your thought that the fuel surcharges are maybe more cash-impactful to the smaller customers, while they, in fact, affect everyone that may be more sensitive to it.

Timothy Thein: Yeah.

Preston Feight: I agree with your thought that the fuel surcharges are maybe more cash impactful to the smaller customers. While they affect everyone, they may be more sensitive to it. I don't think it's really informing what's going on. I think it's just that we're seeing the beginning of a market recovery. We're seeing things starting to improve for most all of our customers. They're starting to get better rates. They're starting to buy more trucks. I think it positions PACCAR well for the next coming period of time, right? For the next quarter and beyond, for the year and beyond, for a strengthening market and a strengthening performance.

Speaker #2: But I don't think it's really informing what's going on. I think it's just that we're seeing the beginning of a market recovery. We're seeing things starting to improve for most all of our customers.

Speaker #2: They're starting to get better rates. They're starting to buy more trucks. And so I think it positions PACCAR well for the next coming period of time, right? For the next quarter and beyond, for the year and beyond, for a strengthening market and a strengthening performance.

Speaker #18: Okay. Thanks, Preston. Maybe another one relevant for this deep in the queue. But it relates to the lease and rental customers. Sometimes we think about them being they can be a bit of like the canary in the coal mine when truckload markets inflect.

Timothy Thein: Okay, thanks, Preston. Maybe another one, relevant for, you know, this deep in the queue, but it relates to the lease and rental customers. You know, sometimes we think about them being, they can be a bit of like the canary in the coal mine when truckload markets inflect, you start to see a pull on lease and rental fleets. You know, I'm just looking at the PACCAR lease fleet, I guess similar to what you would see in some of the big publicly traded lease rental guys, has been declining quite a bit over the past few years. I'm just curious if you are starting to maybe see any change in terms of utilization or, you know, aspirations to maybe reverse that and start expanding the PACCAR lease fleet. Just.

Speaker #18: You start to see a pull on lease and rental fleets. I'm just looking at the PACCAR lease fleet. I guess, similar to what you would see in some of the big, publicly traded lease rental guys, it has been declining quite a bit over the past few years.

Speaker #18: I'm just curious if you're starting to maybe see any change in terms of utilization or aspirations to maybe reverse that and start expanding the PACCAR lease fleet.

Speaker #18: Just anyways, just kind of what, if any, clues you're picking up from that cohort of your customer base?

Timothy Thein: Anyways, just kind of what, if any, clues you're picking up from that cohort of your customer base.

Speaker #2: Good. Yeah. We're seeing a little bit of increase in the utilization. But also another indicator would be the used truck market. And we're seeing price utilization and volume demand starting to strengthen as well.

Kevin Baney: Good. Yeah, we're seeing a little bit of increase in the utilization. Also another indicator would be the used truck market. We're seeing price utilization and volume demand starting to strengthen as well. I think between the beginnings of the increase on both of those factors is just another indication that we're starting to see the market improve.

Speaker #2: So I think between the beginnings of the increase on both of those factors is just another indication that we're starting to see the market starting to see the market improve.

Speaker #18: All right. Good stuff. Thank you.

Timothy Thein: All right. Good stuff. Thank you.

Speaker #4: There are no other questions in the queue at this time. Are there any additional remarks from the company?

Operator 3: There are no other questions in the queue at this time. Are there any additional remarks from the company?

Operator: There are no other questions in the queue at this time. Are there any additional remarks from the company?

Speaker #2: We'd like to thank everyone for joining the call. And thank you, Miriam.

Preston Feight: We'd like to thank everyone for joining the call, and thank you, Miriam.

Operator 3: Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.

Operator: Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.

Q1 2026 PACCAR Inc Earnings Call

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