Q2 2026 PACCAR Inc Earnings Call

July 28, 2026

Operator 3: PACCAR Q2 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, 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: PACCAR Q2 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, 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 #2: 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 an objection, they should disconnect at this time.

Speaker #2: I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.

Speaker #3: Good morning, and welcome to PACCAR's second quarter 2026 earnings conference call. All lines will be in listen-only mode. My name is Ken Hastings, PACCAR's Director of Investor Relations.

Ken Hastings: Good morning, welcome to PACCAR's Q2 2026 Earnings Conference Call. All lines will be in listen-only mode. 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. 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 and the investor relations page of paccar.com. I would now like to introduce Preston Feight.

Speaker #3: And joining me this morning are Preston Feight, Chief Executive, and Bryce Puckett, Senior Vice President and Chief Financial Officer. Certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results.

Speaker #3: For additional information, please see our SEC filings and the Investor Relations page of PACCAR.com. I would now like to introduce Preston Fight.

Speaker #4: Hey, thanks, Ken. Good morning, everyone. In the second quarter, PACCAR's outstanding employees did an excellent job of increasing production to provide our customers with the highest quality trucks and transportation solutions in the industry.

Preston Feight: Hey, thanks, Ken. Good morning, everyone. In Q2, PACCAR's outstanding employees did an excellent job of increasing production to provide our customers with the highest quality trucks and transportation solutions in the industry. Their hard work, high performance, and dedication enabling PACCAR to continue increasing build rates in our factories around the world. PACCAR's Q2 revenues were $7.5 billion, and net income was $752 million, an increase of 24% from Q1. These results were driven by strong truck division performance. PACCAR Parts performed well and achieved record quarterly revenues of $1.75 billion and quarterly pre-tax income of $417 million. PACCAR Financial also performed well, achieving pre-tax income of $124 million. Now, looking at this year's US and Canadian heavy truck market. The US economy is growing, and the truck market is strengthening as freight rates have increased and regulatory clarity has been provided.

Speaker #4: Their hard work, high performance, and dedication enable PACCAR to continue increasing build rates in our factories around the world. PACCAR's second quarter revenues were $7.5 billion, and net income was $752 million, an increase of 24% from the first quarter.

Speaker #4: These results were driven by strong truck division performance. PACCAR Parts performed well and achieved record quarterly revenues of $1.75 billion and quarterly pre-tax income of $417 million.

Speaker #4: PACCAR Financial also performed well, achieving pre-tax income of $124 million. Now, looking at this year's U.S. and Canadian heavy truck market, the U.S. economy is growing, and the truck market is strengthening, as freight rates have increased and regulatory clarity has been provided.

Speaker #4: First half retail sales were 105,000 trucks, and we expect that the second half could be around 145,000, resulting in a full-year market size of around 250,000 units.

Preston Feight: H1 retail sales were 105,000 trucks, and we expect that H2 could be around 145,000, resulting in a full-year market size of around 250,000 units. In Europe, the economy is growing modestly, and the truck market is healthy. We project the 2026 European above 16-ton market size to be around 310,000 trucks. DAF's premium trucks are providing customers with the latest technology and the best operating efficiency. 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 the range of 100,000 to 110,000 vehicles. In Q2, PACCAR's truck deliveries increased from 33,000 to 38,700. Q3 deliveries are estimated to grow and be around 42,000, as build rate increases are partially offset by the normal European summer shutdown period.

Speaker #4: In Europe, the economy is growing modestly, and the truck market is healthy. We project the 2026 European above-16-ton market size to be around 310,000 trucks.

Speaker #4: DOTS premium trucks are providing customers with the latest technology and the best operating efficiency. This year's South American above 16-ton market, where DOTS trucks are desired by customers for their durability and advanced technology, is expected to be in the range of 100,000 to 110,000 vehicles.

Speaker #4: In the second quarter, PACCAR's truck deliveries increased from 33,000 to 38,700. Third quarter deliveries are estimated to grow and be around 42,000, as build rate increases are partially offset by the normal European summer shutdown period.

Speaker #4: PACCAR's truck parts and other second quarter gross margins increased from 13.1% to 14.4% due to very good overall performance. Third quarter margins are forecast to be a strong 14.5%, and then further increase in the fourth quarter.

Preston Feight: PACCAR's truck parts and other Q2 gross margins increased from 13.1% to 14.4% due to very good overall performance. Q3 margins are forecast to be a strong 14.5%, and then further increase in Q4. PACCAR's exceptional range of trucks, compelling parts business, industry-leading financial services, and customer-focused product development strategy position the company well for an excellent H2 2026 and future. Kevin will now provide an update on PACCAR Parts, PACCAR Financial, and other business highlights. Kevin?

Speaker #4: PACCAR's exceptional range of trucks, compelling parts business, industry-leading financial services, and customer-focused product development strategy position the company well for an excellent second half of 2026 and the future.

Speaker #4: Kevin will now provide an update on PACCAR Parts, Financial Services, and other business highlights. Kevin?

Speaker #3: Thank you, Preston. PACCAR Parts achieved record second quarter revenues of $1.75 billion and strong profits of $417 million. Gross margins increased to 29.4%. Increasing truck utilization is beginning to lead to more parts and service activity, and we expect higher parts sales growth in the second half.

Kevin Baney: Thank you, Preston. PACCAR Parts achieved record Q2 revenues of $1.75 billion and good profits of $417 million. Gross margins increased to 29%. Increasing truck utilization is beginning to lead to more parts and service activity, and we expect higher parts sales growth in the H2. Revenue from PACCAR Parts Fleet Services program grew 8% in the Q2, which is an indicator that customers are beginning to increase parts purchases. For the full year, we estimate parts sales growth in the range of 3% to 5%. PACCAR Financial Services pre-tax income was a robust $124 million. Their high performance is a result of steady finance margins and strengthening used truck markets. Earlier this month, the EPA clarified a key NOx-related emissions regulation. The clarification extends the timeline to introduce 35 milligram NOx engines.

Speaker #3: Revenue from the PACCAR Parts Fleet Services program grew 8% in the second quarter, which is an indicator that customers are beginning to increase parts purchases.

Speaker #3: For the full year, we estimate parts sales growth in the range of 3% to 5%. PACCAR Financial Services’ pre-tax income was a robust $124 million. Their high performance is a result of steady finance margins and strengthening used truck markets.

Speaker #3: Earlier this month, the EPA clarified a key NOx-related emissions regulation. The clarification extends the timeline to introduce 35-milligram NOx engines. Next year, customers will be able to buy the current generation of engines with an associated nonconformance fee.

Kevin Baney: Next year, customers will be able to buy the current generation of engines with an associated non-conformance fee. This will be beneficial for customers as it will ensure new technology is fully validated before being purchased by customers. It is also likely to have a positive impact on the size and strength of next year's truck market. This year, PACCAR is planning capital investments in the range of $700 to $750 million and R&D expenditures in the range of $450 to $480 million. PACCAR is investing in customer-focused technology and innovation projects, including advanced flexible manufacturing that enhances efficient local-for-local production, the development of next-generation clean diesel engines, industry-leading hybrid and electric powertrains, and integrated connected vehicle services. We are looking forward to the success that our customers, dealers, and PACCAR will experience in the coming quarters and years. We are now pleased to answer your questions.

Speaker #3: This will be beneficial for customers, as it will ensure new technology is fully validated before being purchased by customers. It is also likely to have a positive impact on the size and strength of next year's truck market.

Speaker #3: This year, PACCAR is planning capital investments in the range of $700 to $750 million, and R&D expenditures in the range of $450 to $480 million.

Speaker #3: PACCAR is investing in customer-focused technology and innovation projects, including advanced flexible manufacturing that enhances efficient local-for-local production, the development of next-generation clean diesel engines, industry-leading hybrid and electric powertrains, and integrated connected vehicle services.

Speaker #3: We are looking forward to the success that our customers, dealers, and PACCAR will experience in the coming quarter and years. We are now pleased to answer your questions.

Speaker #2: Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator 3: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question, and 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 Stephen Volkmann from Jefferies. Steve, your line is open. Please go ahead.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question, and 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 Stephen Volkmann from Jefferies. Steve, your line is open. Please go ahead.

Speaker #2: To withdraw your question, press star-1 again. We ask that you pick up your handset when asking a question, and if you are muted locally, please remember to unmute your device.

Speaker #2: Please stand by while we compile the Q&A roster. Your first question comes from the line of Steve Volkman from Jefferies. Steve, your line is open.

Speaker #2: Please go ahead.

Speaker #5: Thank you. Good morning, everyone.

Stephen Volkmann: Thank you. Good morning, everyone.

Speaker #4: Hi, Steve. I'm wondering if we can dive in on the gross margin. I think this quarter came in a bit stronger than you had expected.

Preston Feight: Hi, Steve.

Kevin Baney: Morning.

Stephen Volkmann: I'm wondering if we can dive in on the gross margin. I think this quarter came in a bit stronger than you had expected. What are the moving parts that would explain that?

Speaker #4: What are the moving parts that would explain that?

Speaker #5: Sure. There are a couple of things. Thanks for the question. Probably one of the things is, the volume of trucks was higher. And then, most significantly, I think our local-for-local production is benefiting PACCAR.

Preston Feight: Sure. There's a couple things. Thanks for the question. Probably one of the things is volume of trucks was higher, then most significantly, I think our local-for-local production is benefiting PACCAR. I also think that the team did a fantastic job in cost controls. Our price versus cost was favorable for us, even more than we thought it would be. That was also a positive. Those are the biggest majorities of what influenced it, and as I said, local-for-local production provides some tariff benefits to us.

Speaker #5: I also think that the team did a fantastic job in cost control, so our price versus cost was favorable for us—even more than we thought it would be.

Speaker #5: So that was also positive. Those are the biggest majorities of what influenced it. And as I said, local-for-local production provides some tariff benefits to us.

Speaker #4: Okay, great. And what are you seeing in the market relative to pricing? Because you have a little bit more, I guess, local-for-local than some of your competitors?

Stephen Volkmann: Okay, great. What are you seeing in the market relative to pricing? Because you have a little bit more, I guess, local-for-local than some of your competitors. Are you seeing overall pricing coming up in the market, which gives you some opportunity?

Speaker #4: Are you seeing overall pricing kind of coming up in the market, which gives you some opportunity?

Speaker #5: Yeah. I think what's happening in the general market is our customers are starting to experience better operating conditions for themselves. Spot rates are up, I don't know, 20%.

Preston Feight: I think what's happening in the general market is our customers are starting to experience better operating conditions for themselves. Spot rates are up 20%. Contract rates are up 6.5%. We're seeing favorability for how they're operating their businesses. I think the driver pool has become a little bit more constrained, which is helping them realize operating benefits, and I think we all share in that together. We've seen some favorability in terms of how we're able to price trucks as we look forward.

Speaker #5: Contract rates are up 6.5%. So, we're seeing favorability in how they're operating their businesses. I think the driver pool has become a little bit more constrained, which is helping them realize operating benefits.

Speaker #5: And I think we all share in that together. So, we've seen some favorability in terms of how we're able to price trucks as we look forward.

Speaker #4: Great. Thank you, guys.

Stephen Volkmann: Great. Thank you, guys.

Speaker #5: You bet. Have a great day, Steve.

Preston Feight: You bet. Have a great day, Steve.

Speaker #4: You as well.

Speaker #2: Your next question comes from the line of Jerry Revich from Wells Fargo. Please go ahead.

Stephen Volkmann: You as well.

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

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

Speaker #6: Yes, hi. Good morning, good afternoon, everybody. I thought the profit per truck performance was especially strong in the quarter. I'm wondering, was there any IEP A refund benefit or anything along those lines that contributed to the really strong cost improvement?

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

Preston Feight: Hey, Jerry.

Jerry Revich: Hi. The profit per truck performance was especially strong in the quarter. I'm wondering, was there any IEEPA refund benefit or anything along those lines that contributed to the really strong cost improvement?

Speaker #5: I think if you look at that performance, it was largely driven from a net price-cost benefit. And the biggest part of that was really the team's operating effectiveness and good warranty performance by the team, and efficiencies due to local-for-local.

Preston Feight: I think if you look at that performance, it was largely driven from a net price cost benefit, and the biggest part of that was really the team's operating effectiveness and good warranty performance by the team, efficiencies to the local-for-local, but we did have a net tariff benefit. We had some tariffs that we have to pay, of course, with the raw material stuff, and then we had some offset tariffs. The net was the bigger part of it, was really operating strength.

Speaker #5: But we did have a net tariff benefit. We had some tariffs that we have to pay, of course, with the raw material stuff. And then we had some offsetting tariffs, but the net—the bigger part of it—was really operating strength.

Speaker #6: Thank you for the color. Is it possible to just quantify the refund that you saw in the quarter, just to put a finer point on the run-rate profit per truck?

Jerry Revich: Thank you for the color. Is it possible just to quantify the refund that you saw in the quarter, just to put a finer point on the run rate profit per truck?

Speaker #5: No, we didn't put that out. And we think that it'll remain strong, so we think that the tariff position we had in the second quarter will look similar to the third quarter.

Preston Feight: No, we didn't put that out, and we think that it'll remain strong. We think that the tariff position we had in Q2 will look similar to Q3.

Speaker #6: That's really great to hear. What we had been hearing until the EPA's new ruling was that you folks, for the fourth quarter deliveries, were pulling back discounts, and so the price realization was set to improve by over $5,000.

Jerry Revich: That's really great to hear. What we hadn't been hearing until the EPA's new ruling was that you folks, for Q4 deliveries, were pulling back discounts. The price realization was set to improve by over $5,000 in Q4 versus Q3. Could you update, is that still happening, considering the more phased approach to the EPA 2027 rollout?

Speaker #6: And the fourth quarter versus the third quarter, can you just update us on that? Still happening, considering the more phased approach to the EPA '27 rollout?

Speaker #5: Well, I think the EPA has done a very nice job in paying attention to what the industry's needs are. I appreciate the work the administration has done in helping make sure we put fully validated products out into the marketplace.

Preston Feight: I think the EPA's done a very nice job in paying attention to what the industry's needs are. I appreciate the work the administration has done in helping make sure we put fully validated products out into the marketplace. It's been nice to work with the ATA and the customers and the administration to put a government business relationship in place that is working well. I think what they did is they took, not all of the pre-buy, but they kind of smoothed it, and I think it creates a stronger position for 2027 to be a good market for the industry. I think that's kind of how we experience in that. If it's a good market for our customers, then it tends to be a good market for us as well.

Speaker #5: So it's been nice to work with the ATA and the customers, and the administration, to put a government-business relationship in place that is working well.

Speaker #5: I think what they did is they took not all of the pre-buy, but they kind of smoothed it. And I think it creates a stronger position for 2027 to be a good market for the industry.

Speaker #5: And so I think that's kind of how we experience that. And if it's a good market for our customers, then it tends to be a good market for us as well.

Speaker #6: Yep. Thank you.

Jerry Revich: Thank you.

Speaker #5: You bet. Have a great day.

Preston Feight: You bet. Have a great day.

Speaker #2: Your next question comes from the line of Tammy Zakaria from J.P. Morgan. Please go ahead.

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

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

Speaker #7: Hey, good morning. Congrats on excellent results. Two questions. The first one is on the gross margin guide for the third quarter. It seems like you're expecting a somewhat sequentially flattish gross margin, despite deliveries being higher in North America—probably being a higher mix, given the shutdowns in Europe.

Tami Zakaria: Hey, good morning. Congrats on excellent results. Two questions. The first one is on the gross margin guide for Q3. It seems like you're expecting somewhat sequentially flattish gross margin, despite deliveries being higher and North America probably being a higher mix given the shutdowns in Europe. What underpins that margin guide? Why wouldn't margin be better sequentially? Is there any cost headwind you're expecting in this Q3 that you didn't have in Q2?

Speaker #7: So, what underpins that margin guide? Why wouldn’t margin be better sequentially? Is there any cost headwind you’re expecting in the third quarter that you didn’t have in the second quarter?

Speaker #5: That's a great question, Tammy. Thanks for asking. There are a couple of things that factor in. One, you're fully aware of, which is that as truck increases, it has a ratio mix to parts.

Preston Feight: Great question, Tami. Thanks for asking. There's a couple things that factor. One, you're fully aware of, right, which is that as truck increases, it has a ratio mix to parts, and that increase has an impact. That's why that's around 14.5%. There also happens to be in the Q3, where probably the mix of our actual trucks we're building is shifting a little bit. Maybe a little less vocational, a little bit more fleet trucks that we're building. Put those two things together, and we stay with the strong margin, but the nice thing is, with the higher build, we see profit increasing in the quarter and continuing to strengthen through the year.

Speaker #5: And that increase has an impact, so that's why it's around 14.5%. And there also happens to be—in the third quarter—the mix of our actual trucks we're building is shifting a little bit.

Speaker #5: So maybe a little less vocational, a little bit more fleet trucks that we're building. So put those two things together, and we stay with the strong margin. But the nice thing is, with the higher build, we see profit increasing.

Speaker #5: In the quarter, and continuing to strengthen throughout the year.

Speaker #7: Got it. That is helpful. And then my second question is on the NOx-compliant engines. If I remember correctly, you expected that to be, call it, $8,000 to $10,000 more expensive than a non-compliant one.

Tami Zakaria: Got it. That is helpful. My second question is on the NOx compliant engines. If I remember correctly, you expected that to be, call it, $8,000 to $10,000 more expensive than a non-compliant one. With the NCPs that have been announced, it seems like the fine could be lower than the cost of a compliant engine. Just wanted to know if that's how you interpreted it, and if so, how could that impact your customer behavior next year when the EPA NOx regulation goes into effect?

Speaker #7: But with the NCPs that have been announced, it seems like the fine could be lower than the cost of a compliant engine. Just wanted to know if that's how you interpreted it.

Speaker #7: And if so, how could that impact your customer behavior next year, when the EPA NOx regulation goes into effect?

Speaker #5: Hey, Tammy. Thanks for the second question. Good question. I think a lot of information came out just as recently as July 9 on that, when the EPA made the announcement.

Preston Feight: Hey, Tami, thanks for the second question. Good question. I think a lot of information came out just as recently as 9 July on that one, the EPA made the announcement. It's still preliminary. It's a notice of proposed rulemaking, so there's still a comment period that we're in, so things could even change from here. We'll have to see what that looks like. We probably won't get a final answer till much later in the year. The way it's currently proposed is we would expect to see NCPs running at something like $6,000 to $7,000 range per truck. As you noted, the cost of fully compliant 35 milligram engines would likely be higher than that.

Speaker #5: It's still preliminary. It's a notice of proposed rulemaking, so we're still in a comment period. Things could even change from here.

Speaker #5: We'll have to see what that looks like. We probably won't get a final answer until much later in the year. But the way it's currently proposed, we would expect to see NCPs running at something like the $6,000 to $7,000 range per truck.

Speaker #5: And as you noted, the cost of fully compliant 35-milligram engines would likely be higher than that. But I think a lot of what went into the discussion was the desire to make sure that the engines from all the manufacturers and engine companies were fully validated, and that customers had enough time with them.

Preston Feight: I think a lot of what went into the discussion was the desire to make sure that the engines from all the manufacturers and engine companies were fully validated and that customers had enough time with them. That was a big portion of what happened here. I think the result of that is, as shared earlier, means that the end of the year will improve, I think it bodes well for a good 2027 operating condition for the customers and for us.

Speaker #5: So that was a big portion of what happened here. So I think the result of that, as shared earlier, means that the end of the year will improve.

Speaker #5: And then, I think it bodes well for a good 2027 operating condition for the customers and for us.

Speaker #7: Understood. Thank you.

Tami Zakaria: Understood. Thank you.

Speaker #5: Great.

Preston Feight: Great.

Speaker #2: Your next question comes from the line of Rob Wertheimer from Melius Research. Please go ahead.

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

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

Speaker #8: Thank you. Preston, you just touched on this, and I think maybe Kevin did earlier. But the EPA shift, or proposed rule, may benefit 2027 a bit.

Rob Wertheimer: Thank you. Preston, you just touched on this, I think maybe Kevin did earlier, the EPA shift or proposed rule may benefit 2027 a bit. My question's a bit of a soft one, but when you talk to customers now, are people pre-buying or do they just need trucks? There's a couple things that maybe tightened up fleet dynamics, I'm curious about, maybe it's a soft question, but what people are buying for. Into 2027, those comments are around a continued pre-buy or more just that people have confidence, in the engine and aren't shying away from it? Thank you.

Speaker #8: And my question's a bit of a soft one, but when you talk to customers now, are people pre-buying, or do they just need trucks?

Speaker #8: There are a couple of things that maybe tightened up fleet dynamics, and so I'm curious—maybe it's a soft question—but what are people buying for?

Speaker #8: And then into '27, those comments are around a continued pre-buy, or more just that people have confidence in the engine and aren't shying away from it.

Speaker #8: Thank you.

Speaker #5: Yeah, sure. Good question. It's good to think through that a little bit. I think part of what's happening is they've been in a tough operating condition—our customers, many of them have been in a tough operating condition for a few years now.

Preston Feight: Yeah, sure. Good question. Good to think through that a little bit. I think part of what's happening is they've been in a tough operating condition. Our customers, many of them, have been in a tough operating condition for a few years now. That meant they've been careful with capital. They've probably kept trucks longer than they would have wanted to, and you can see that, especially as a pronounced H1 of this year, where it really showed up in 105,000 trucks of retail. I think that now what's happening is they're trying to get back into their normal operating models. The trucks we're building today are the most fuel-efficient trucks we've ever built, so they're very helpful to the customers to operate them. The driver environment's the best it's ever been. The engines are performing the best they've ever performed.

Speaker #5: That meant they've been careful with capital. They've probably kept trucks longer than they would have wanted to. And you can see that, especially in the pronounced first half of this year, where it really showed up in 105,000 trucks at retail.

Speaker #5: I think that now what's happening is they're trying to get back into their normal operating models. The trucks we're building today are the most helpful for the customers to operate them.

Speaker #5: The driver environment is the best it's ever been. The engines are performing the best they've ever performed. So, we have a great product lineup out there.

Preston Feight: We have a great product line about there, and I think that since they have the operating capital to use, they'd like to be using those trucks. Since they're just starting to do that, it seems like it's going to ramp through the H2, like I said, probably 145,000 retail H2. Then I think we should expect a very healthy market in 2027.

Speaker #5: And I think that since they have the operating capital to use, they'd like to be using those trucks, since they're just starting to do that.

Speaker #5: It seems like it's going to ramp through the second half. Like I said, probably 145,000 retail in the second half. And then I think we should expect a very healthy market in '27.

Speaker #8: Okay, thank you. And does the EPA rule advantage any of your competitors more, due to stored-up credits? Is that any headwind to market share or pricing in 2027 as well?

Rob Wertheimer: Okay. Thank you. Then just the EPA, does that advantage any of your competitors more through stored-up credits? Is that any headwind to market share or price in 2027, Rob? Thanks.

Speaker #8: Thanks.

Speaker #5: No, actually, I think that maybe the situation is very level right now and maybe to our advantage a little bit. The NCPs are allowing everybody to make sure we get the right products out there validated.

Preston Feight: No, actually, I think that maybe the situation is very leveling now and maybe to our advantage a little bit in that the NCPs are allowing everybody to make sure we get the right products out there validated. Customers get the experience with the products, they'll get the experience with our products and the quality of product we're able to introduce in a more gradual way versus it being step change. The fine level, if you look at the shape of the curve for the fines, for most manufacturers, I think maybe all manufacturers, as it's currently written, the fine's going to be in that $6,000 to $7,000 range if they choose to offer today's products. That kind of levels it out also.

Speaker #5: So customers get to experience the products. They'll get the experience with our products and the quality of product we're able to introduce in a more gradual way, versus it being step-changed.

Speaker #5: But the fine level, if you look at the shape of the curve for the fines, for most manufacturers—I think maybe all manufacturers as it's currently written—the fine is going to be in that $6,000 to $7,000 range if they choose to offer today's products.

Speaker #5: And so that kind of levels it out also.

Speaker #8: Thank you.

Rob Wertheimer: Thank you.

Speaker #5: Bet.

Preston Feight: Matt.

Speaker #2: Your next question comes from the line of David Rasso from Evercore ISI. Please go ahead.

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

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

Speaker #5: Hi, thank you. Your comments about '27—can you take us through your thoughts right now when you're speaking to your suppliers about the cadence from Q4 into Q1?

David Raso: Hi. Thank you. Your comments about 2027, can you take us through your thoughts right now when you're speaking to your suppliers about the cadence Q4 into Q1? Second question on the parts business. Can you help us get a little more comfort with the parts growth exiting 2026? Obviously, the back half of the year has to step up a little. Just trying to think that through and not to give 2027 parts guidance, but just how to think about that growth rate exiting 2026 as we think about 2027. Thank you.

Speaker #5: And then, second question on the parts business. Can you help us get a little more comfort with the parts growth exiting '26? Obviously, the back half of the year has to step up a little.

Speaker #5: Just trying to think that through and not to give '27 parts guidance, but just how to think about that growth rate exiting '26 as we think about '27.

Speaker #5: Thank you. Thanks, David. I'll take the first one, and Kevin can cover the parts one. We can add anything you want. So, the first one, too.

Preston Feight: Thanks, David. I'll take the first one. Kevin can cover the parts one. He can add anything he wants to the first one, too. The quarterly cadence of the market is, as I kind of was just describing with Rob, I really see that the market's ramping up. We're certainly full through Q3, mostly full for the year, probably like 90% full for the year, even as we're ramping up production at a rate that's as quick as is reasonable to do. That's kind of limiting the market size a little bit right now. We will sell out of build slots probably in the next month or two here. As we're out of build slots, I think there'll be carryover into 2027.

Speaker #5: The quarterly cadence of the market is, as I was just describing with Rob, I really see that the market's ramping up.

Speaker #5: We're certainly full through the third quarter, mostly full for the year—probably about 90% full for the year—even as we're ramping up production.

Speaker #5: At a rate that's as quick as is reasonable to do. So that's kind of limiting the market size a little bit right now. So we will sell out of build slots probably in the next month or two here.

Speaker #5: And as we're out of build slots, then I think there'll be carryover into 2027. And then I think, because of the way the EPA implemented this approach, it'll allow people to have the product they want next year, which I think will be in a good operating condition.

Preston Feight: I think because of the way the EPA implemented this approach, it'll allow people to have the product they want next year, which I think they'll be in a good operating condition. It'll help the cadence of the year next year start strong and probably be strong through the year.

Speaker #5: And so it'll help the cadence of the year next year start strong and probably be strong through the year. Yeah. And just to add to what Preston said, PACCAR was the first to announce build rate increases earlier in the year.

Kevin Baney: Just to add to what Preston said, PACCAR was the first to announce build rate increases earlier in the year, a lot of strong communication with the supply base on the rate of increase throughout the year. Feel pretty good about the support we're getting at the elevated build levels. On the parts side, David, the parts will grow at a faster rate in the H2 based on the strength of the truck market. Capacities come out, utilization's increased, freight rates have increased. We're seeing customers buying more parts now. A good indicator is that the larger customers are buying through our fleet services program. We've seen an 8% increase quarter-over-quarter. Also Europe is running strong.

Speaker #5: And so, a lot of strong communication with the supply base on the rate of increase throughout the year. So, feel pretty good about the support we're getting at the elevated build levels.

Speaker #5: And then, on the parts side, David, parts will grow at a faster rate in the second half based on the strength of the truck market. Capacity has come out, utilizations have increased, and freight rates have increased.

Speaker #5: We're seeing customers buying more parts now. A good indicator is that the larger customers are buying through a fleet services program. I've seen an 8% increase quarter over quarter.

Speaker #5: And then also, Europe is running strong. And so, as we see the stronger truck market in the second half of this year and into next year, we're confident with the parts growth.

Kevin Baney: As we see the stronger truck market H2 of this year and into next year, we're confident with the parts growth.

Speaker #5: Thank you.

David Raso: Thank you.

Speaker #2: Your next question comes from the line of Chad Dillard from Bernstein. Please go ahead.

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

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

Speaker #3: Hey, good afternoon, guys. I have a question for you on EPA '27. So the noncompliance is about $6,000 to $7,000. If you did comply with 35 milligrams, it's plus $10,000.

Chad Dillard: Hey, good afternoon, guys.

Preston Feight: Hey, Chad.

Chad Dillard: I have a question for you on EPA 2027. Noncompliance is about $6,000 to $7,000. If you did comply with 35 milligrams, it's +$10,000. Assuming the EPA rules hold, how does that change your product strategy? Will you stick with the 200 milligram product and just pass that extra cost on the customers? Are you sticking with going as planned with the 35 milligram product?

Speaker #3: So, assuming the EPA rules hold, how does that change your product strategy? Will you stick with the 200-milligram product and just pass that extra cost on to customers?

Speaker #3: Or are you thinking of going as planned with the 35-milligram product?

Speaker #5: Great question. We are planning on selling the current product to our customers. That's the engagement we've had with many, many customers—that that's their preferred approach, to ease into this thing.

Preston Feight: Great question. We are planning on selling the current product to our customers. That's the engagement we've had with many customers, is that that's their preferred approach, is to ease into this thing. Both for our excellent PACCAR engines and our partner's engines, Cummins, the plan is to begin 2026 selling those engines and then getting our customers' experience with the 35 milligram engines as the year progresses. As you noted, if the numbers stay where they are and at $6,000 to $7,000, there's still an advantage for them in taking the current product. That's kind of how we think the year shapes up, which is, I think, favorable for the industry. I think it's a great approach for the industry.

Speaker #5: So, both for our excellent PACCAR engines and our partners' engines, Cummins, the plan is to begin in 2026 selling those engines and then getting our customers' experience with the 35-milligram engines as the year progresses.

Speaker #5: But as you noted, if the numbers stay where they are—and at 6,000 to 7,000—there's still an advantage for them in taking the current product.

Speaker #5: So that's kind of how we think the year shapes up, which is, I think, favorable for the industry. I think it's a great approach for the industry.

Speaker #3: Okay, great. And second question, just coming back to tariffs—just to be clear, the IEPA refunds—was there anything in Q2 or through the rest of the year?

Chad Dillard: Okay, great. Second question, just coming back to tariffs, just to be clear, the IEEPA refunds, was there anything in Q2 or through the rest of the year? Secondly, assuming the rules stay where they are today, how do we think about the year-on-year comps as we're trying to think through the bridge to 2027 for tariffs?

Speaker #3: And then, secondly, assuming the rules stay where they are today, how should we think about the year-on-year comps as we're trying to bridge to 2027 for tariffs?

Speaker #5: Yeah, I think that the tariff situation has become a little bit more clear, Chad, in that the 232 is durable. There doesn't seem to be any real challenge to that.

Preston Feight: Yeah. I think that the tariff situation has become a little bit more clear, Chad, in that the 232 is durable. There doesn't seem to be any real challenge to that. I think it is favorable for PACCAR in that our teams, as we shared previously, but I've been in all our factories just in the last month, and I just can't tell you how cool it is to see those great people building every model of truck in the factories in Ohio and in Texas in a way that's supportive to the approach of the administration of building local for local. Great job on that. That gives us a stable tariff operating environment, I think.

Speaker #5: I think it is favorable for PACCAR, in that our teams—as we shared previously—but I was, I've been in all of our factories just in the last month, and I just can't tell you how cool it is to see those great people building every model of truck in the factories in Ohio and in Texas.

Speaker #5: In a way that's supportive of the administration's approach of building local for local. So, great job on that. That gives us a stable tariff operating environment, I think.

Speaker #5: So, looking at that—and yeah, there's a little bit of IEPA benefit in Q2, but that'll carry forward into Q3. And the bigger effect of tariffs really ends up being the 232.

Preston Feight: Looking at that, yeah, there's a little bit of IEEPA benefit in Q2, that'll carry forward into Q3, the bigger effect of tariffs really ends up being the 232 as you look forward into next year.

Speaker #5: As you look forward into next year.

Speaker #3: Great. Thank you.

Chad Dillard: Great. Thank you.

Speaker #5: Great.

Preston Feight: Great.

Speaker #3: Okay.

Speaker #2: Your next question comes from the line of Kyle Menges from Citigroup. Please hold. Please go ahead.

Kevin Baney: Okay.

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

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

Speaker #4: Great. Thank you. I was hoping just if we could hone in on margins a little bit, maybe as we get into 2027. I mean, you sound a little bit more confident in volumes and then easing into the new truck platform, I guess, in 2027, new engine platform.

Kyle Menges: Great. Thank you. I was hoping just if we could hone in on margins a little bit, maybe as we get into 2027. You sound a little bit more confident in volumes, then easing into the new truck platform, I guess, in 2027, new engine platform. I'm just curious how you're thinking about margin ramifications, maybe as you start with selling 2026 engines in the H1 of next year, but then start to produce on the new engines and just how to think about margin impact as you do that.

Speaker #4: And I'm just curious how you're thinking about margin ramifications, maybe as you start with selling 2026 engines in the first half of next year, but then start to produce on the new engines, and just how to think about margin impacts as you do that.

Speaker #5: Yeah, I think that the NCPs that'll be out there are fees that'll be paid not to the manufacturer, that'll be paid to the government.

Preston Feight: I think that the NCPs that will be out there are fees that will be paid not to the manufacturer, that will be paid to the government. That's a straight pass-through for us, and that's how we would look at that. It really shouldn't have any effect on margin. We're not going to try to make a profit on those penalties. That's just a pass-through. We think the strength of the market will be good for PACCAR in 2027. Should do great, and we think that, again, the allowance to sell the current model year products throughout next year, which is a distinct possibility of what we will do with an introduction of 2027, feels really good. Feels like it's the right approach and should be positive, Kyle.

Speaker #5: So that's a straight pass-through for us, and that's how we would look at that. So, it really shouldn't have any effect on margin. We're not going to try to make a profit on those penalties.

Speaker #5: That's just a pass-through. But we think the strength of the market will be good for PACCAR in 2027—should do great. And we think that, again, the allowance to sell the current model year products throughout next year, which is a distinct possibility of what we'll do with the introduction of 2027, feels really good.

Speaker #5: Feels like it's the right approach. And it should be positive, Kyle.

Speaker #4: Got it. And then also on parts—it sounds like maybe some of the larger fleet customers are contributing more to the parts demand this year or so.

Kyle Menges: Got it. Also on parts, it sounds like maybe some of the larger fleet customers contributing more to the parts demand this year. Just curious, as you see the over-the-road market come back and maybe a recovery become more broad-based and see more demand pick up from small and mid-sized fleets, just how to think about parts margins maybe as that mix within the customer base shifts a little bit. I would imagine maybe small, mid-sized fleets, they'd be buying more TRP parts, which I think come at a lower margin. Just how to think about that.

Speaker #4: Just curious, as you see the over-the-road market come back and maybe a recovery become more broad-based, and as you see more demand pick up from small and mid-sized fleets, how should we think about parts margins as that mix within the customer base shifts a little bit?

Speaker #4: I mean, I would imagine maybe small and mid-sized fleets would be buying more TRP parts, which I think come at a lower margin. So, just how should we think about that?

Speaker #5: Yeah, Kyle. So the right to the fleet services was a good indicator for the large fleets, but we're also seeing the increase in the small- to mid-size as well.

Kevin Baney: Yeah, Kyle. The reference to the fleet services was a good indicator for the large fleets, but we're also seeing the increase in the small to mid-size as well, and it's just a reflection of the utilization picking up across the industry. That's good. We're also seeing an increase in our TRP parts sales as well. I think those are all strong indicators of improved parts sales. Just on the margin side, we still have the newest truck platforms in the industry, with strong proprietary content, the engine business as well. I think we had talked earlier calls about the focus on service-only required maintenance, and as the truck side improves, I think we'll just see all indications improve on the parts side as well.

Speaker #5: And it's just a reflection of the utilization picking up across the industry, so that's good. We're also seeing an increase in our TRP parts sales as well.

Speaker #5: So I think those are all strong indicators of improved parts sales. And then just on the margin side, we still have the newest truck platforms in the industry.

Speaker #5: With strong proprietary content, the engine business as well. I think we talked earlier, on the call, about the focus on service-only required maintenance. As the truck side improves, I think we’ll see all indications improve on the parts side as well.

Speaker #4: Helpful. Thank you.

Kyle Menges: Helpful. Thank you.

Speaker #5: Great.

Preston Feight: Great.

Speaker #2: Your next question comes from the line of Jamie Cook from Truist Securities. Please go ahead.

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

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

Speaker #6: Hi, good morning. Thank you for your time, and congrats on a nice quarter. I guess my first question: the delivery surprise was to the upside relative to your guide, but US and Canada was down, which I was surprised by.

Jamie Cook: Hi. Good morning, your time, and congrats on a nice quarter. My first question, the deliveries surprise to the upside relative to your guide, but US and Canada was down, which I was surprised by. I think you implied every region should be up. What's driving that? Within the 42,000 deliveries in Q3, what are you expecting for US and Canada? Preston, it sort of dovetails into the margins because the margins were very impressive with US and Canada down. I always thought that was one of your more profitable regions, correct me if I'm wrong. My second question on the Q3 margins, you mentioned mix, like a little more fleet, a little less vocational.

Speaker #6: I think you implied every region, so it should be up. So what's driving that? And within the 42,000 deliveries in the third quarter, what are you expecting for the U.S. and Canada?

Speaker #6: And I guess, Preston, that sort of dovetails into the margins, because the margins were very impressive with US and Canada down. I always thought that was one of your more profitable regions.

Speaker #6: So, correct me if I’m wrong. And then, I guess my second question—on the third quarter margins—you mentioned mix: like a little more fleet, a little less vocational.

Speaker #6: Could you just help us understand what you're seeing across TL, LTL, and vocational in terms of the order book? And is fleet being higher just a function of demand improving there, or is there something more negative happening on the vocational side?

Jamie Cook: Can you just help us understand what you're seeing across TL, LTL, and vocational, in terms of the order book? Is fleet being higher just a function of demand improving there, or is there something more negative happening on the vocational side? Thanks. I know there was a lot in there.

Speaker #6: Thanks. I know there was a lot in there.

Speaker #5: Wow, Jamie. That was a lot. Let me try to work from the back of it to the front. You're right. There is some mix shift, and it's not about really anything other than the fleets and the truckload carriers increasing their demand in the months we're in now and looking forward.

Preston Feight: Wow, Jamie, that was a lot. Let me try to work from the back of it to the front. You're right, there is some mix shift, it's not about really anything other than the fleets and the truckload carriers increasing their demand in the months we're in now and looking forward. That's probably the biggest thing that's affecting the margin there. From a build mix standpoint, if I just take it more generically, I would say that we did have a few hundred trucks that we didn't even deliver in the US. That's probably a difference in the US that we saw just from some supplier constraints that we're starting to experience as the market ramps up. We think those will come through in the quarter, we do expect healthy demand improvement, or not even demand, but delivery improvement in the US markets.

Speaker #5: So that's probably the biggest thing that's affecting the margin there. And then from a build mix standpoint, if I just take it more generically, I would say that we did have a few hundred trucks that we didn't even deliver in the US.

Speaker #5: That's probably a difference in the U.S. that we saw, just from some supplier constraints that we're starting to experience as the market ramps up.

Speaker #5: And so we think those will come through in the quarter, and we do expect healthy improvement—not even demand, but delivery improvement—in the US markets.

Speaker #5: And then we had good European performance. The team did a great job there in the quarter. And so, I think you put the strong U.S. performance, the increasing truck market in the U.S., the strong European performance—they were all factors in it.

Preston Feight: We had good European performance. The team did a great job there in the quarter. I think you put the strong US performance, the increasing truck market in the US, the strong European performance, they were all factors in it. They all came together well, we think that'll continue.

Speaker #5: They all came together well, and we think that'll continue.

Speaker #6: Thank you.

Jamie Cook: Thank you.

Speaker #5: Yeah, you bet. If I missed something there, feel free to jump in on that, because there was a lot.

Preston Feight: Yeah, you bet. If I missed something there, feel free to jump in on that because there was a lot.

Speaker #6: You did a great job. I'm good, thanks.

Jamie Cook: You did a great job. I'm good, thanks.

Speaker #5: All right. Take care, Jamie.

Preston Feight: All right. Take care, Jamie.

Speaker #2: Your next question comes from the line of Steven Fisher from UBS. Please go ahead.

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

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

Speaker #7: Thanks. Good morning. Just on the US-Canada retail outlook—sounds like you're centering around 250,000 there. Just curious, with half a year to go, why not narrow the range at all?

Steven Fisher: Thanks. Good morning. On the US-Canada retail outlook, sounds like you're centering around 250,000 there. Curious, with half a year to go, why not narrow the range at all? Are there still scenarios where you think you could reasonably say either the 230 or the 270 end?

Speaker #7: Are there still scenarios where you think you could reasonably say either the 230 or the 270 end?

Speaker #5: I think that we left it that way, but it's really calling a midpoint at 250. I think the question still centers around inventory and what happens with inventory in that.

Preston Feight: I think that we left it that way, but it's really calling a midpoint at 250. I think the question still centers out around inventory and what happens with inventory in that, because I think we have a great understanding of what build's going to be, and now it's just what happens with inventory.

Speaker #5: Because I think we have a great understanding of what build is going to be, and now it's just a matter of what happens with inventory.

Speaker #7: Okay, makes sense. And then, I'm not sure if I missed it—on the parts side, relative to that new 3–5% range for the year.

Steven Fisher: Okay. Makes sense. I'm not sure if I missed it, but on the parts side, relative to that new 3% to 5% range for the year, Q3, are we thinking that it will sort of be at the low end of that 3% to 5% or somewhere in between? Anything specific, if I missed it on Q3 guide for parts?

Speaker #7: Q3, are we thinking that it will sort of be at the low end of that 3 to 5, or somewhere in between? Was there anything specific I missed on the Q3 guide?

Speaker #7: For parts.

Speaker #5: Yeah. We didn't provide Q3 guidance, but seeing how all went, what I'll add is that we did see sequential growth in Q2 as we went through the quarter.

Kevin Baney: We didn't provide Q3 guide, but what I'll add is that we did see sequential growth into Q2 as we went through the quarter. That's why I just called it the three to five for the H2. I think we'll see growth continue throughout the H2.

Speaker #5: And so that's why I just called it the 3 to 5 for the second half. We'll see growth continue throughout the back half of the year.

Speaker #7: But I don't think we think it's at the low side of that range. I think we believe it's more towards the high side of that range.

Preston Feight: I don't think we think it's at the low side of that range. I think we think it's more towards the high side of that range.

Speaker #7: Okay. Terrific. Thank you.

Steven Fisher: Okay, terrific. Thank you.

Speaker #2: Your next question comes from the line of Angel Castillo from Morgan Stanley. Please go ahead.

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

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

Speaker #5: Hi, good afternoon. Thanks for taking my question. Preston, I just wanted to go back to the discussion around the EPA '27. I think the 2027 dynamic for unit sales makes sense, but specifically, could you address the ability to use credits to sell or to offset some of the NCPs?

Angel Castillo: Hi. Good afternoon. Thanks for taking my question. Preston, I just wanted to go back to the discussion around the EPA 2027. I think the 2027 dynamic for unit sales makes sense, but specifically to the ability to use credits to sell or to offset some of the NCPs. Just curious, why wouldn't that, I guess, create the ability for some competitors to ultimately sell the current engine at no incremental penalty? Maybe, to the extent that there is any implications of that, I guess, what are the impacts on potential for passing through price next year on the new engine or just competitive dynamics on price?

Speaker #5: Just curious, why wouldn't that, I guess, create the ability for some competitors to ultimately sell the current engine at no incremental penalty? And then, maybe to the extent that there are any implications of that, what are the impacts on the potential for passing through price next year on the new engine, or just competitive dynamics on price?

Speaker #7: Yeah, Angel, I don't tend to want to talk about what other competitors are going to do from their strategies. I can just kind of see what the public qualifications are out there, and I know where people's engines are qualified.

Preston Feight: Yeah, Angel, I don't tend to want to talk about what other competitors are going to do from their strategies. I can just kind of see what the public qualifications are out there, and I know where people's engines are qualified. So what we see is if the engines are qualified at today's level, then the penalties are going to be in that 6 to $7,000 range for kind of everybody. Of course, people can

Speaker #7: And so, what we see is, if the engines are qualified at today's level, then the penalties are going to be in that $6,000 to $7,000 range for kind of everybody.

Speaker #7: And of course, people can—please hold. We...

Speaker #2: We are experiencing technical difficulties. Please stand by while we address the issue.

Operator 3: Please hold. We are experiencing technical difficulties. Please stand by while we address the issue.

Operator: Please hold. We are experiencing technical difficulties. Please stand by while we address the issue.

Kevin Baney: Test. Can you hear? Jade, can you hear us?

Speaker #5: Preston, can you hear? Jade, can you hear us?

Speaker #2: Yes, we can. Thank you, everybody, for holding. We will now resume the Q&A.

Operator 3: Yes, we can. Thank you everybody for holding. We will now resume the Q&A.

Operator: Yes, we can. Thank you everybody for holding. We will now resume the Q&A.

Speaker #5: All right.

Preston Feight: Hi. Can you hear me?

Speaker #7: We don't know where we cut off, Jade. Should Preston—

Kevin Baney: We don't know where we cut off, Jade. Should Preston.

Speaker #8: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Operator 1: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Operator: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Speaker #2: Thank you for standing by. We will now resume the broadcast.

Operator 3: We're standing by. We will now resume the broadcast.

Operator: We're standing by. We will now resume the broadcast.

Speaker #5: So Angel, if you're still there, I hope you could hear the answer. If not, let me know and we'll come back through it.

Preston Feight: Angel, if you're still there, I hope you could hear the answer. If not, let me know and we'll come back through it.

Speaker #7: Alright, Jade, why don't we go to the next question? And Angel can get back in the queue if he wants to do that again.

Kevin Baney: Jade, why don't we go to the next question and Angel can get back in queue if he wants to do that again.

Speaker #5: Can you hear me?

Angel Castillo: Can you hear me?

Speaker #7: Yep. We got you.

Speaker #5: It can.

Preston Feight: Yep. We got you.

Angel Castillo: Hey, Ken?

Speaker #7: Yeah. Go ahead.

Kevin Baney: Yeah. Go ahead.

Speaker #5: All right. Perfect. All right, thank you. Yeah, I guess just maybe switching gears a little bit, I wanted to ask a separate one—a little bit bigger picture and more technology, I guess.

Angel Castillo: Perfect. All right. Thank you. Yeah, I guess just maybe switching gears a little bit, wanted to ask a separate one. A little bit bigger picture and more technology, I guess. I noticed one of your partners, Aurora, had launched a second-generation hardware and driverless freight routes with the different OEM partners. Just give us an update on how some of your partnerships with Aurora here are progressing, how you see that evolving over time. Just any kind of plans here to start kind of approving driverless operations or just what your strategic kind of approach here is going to be on some of those autonomous innovation.

Speaker #5: I noticed one of your partners, Aurora, had launched a second-generation hardware and driverless freight routes with a different OEM partner. So just give us an update on how some of your partnerships with Aurora here are progressing, and how you see that evolving over time.

Speaker #5: Are there any plans to start approving driverless operations, or can you share what your strategic approach is going to be with regard to some of those autonomous innovations?

Speaker #7: Yeah. PACCAR is developing its autonomous vehicle platform. We're really happy with the progress we're making in that. We have good partners in Aurora, Stack, Kodiak, and the others that we work with.

Preston Feight: Yeah, PACCAR's developing its autonomous vehicle platform. We're really happy with the progress we're making in that. We have good partners in Aurora, Stack, Kodiak, and the others that we work with, so we feel good about the progress we are making on that. It's significant. We have no plans to take the driver out at this point in time.

Speaker #7: So we feel good about the progress we are making on that. It's significant. We have no plans to take the driver out at this point in time.

Speaker #5: Understood. Thank you.

Angel Castillo: Understood. Thank you.

Speaker #2: Your next question comes from the line of Scott Group from Wolf Research. Please go ahead.

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

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

Speaker #9: Hey, thanks. Good afternoon. So, all we keep hearing from truckers is it's a supply-driven cycle—rates are going up a lot, but demand is sort of stable. There are fewer drivers.

Scott Group: Hey, thanks. Afternoon. All we keep hearing from truckers is supply-driven cycle. Rates are going up a lot, but demand sort of stable. Fewer drivers. Does that change the way you think about what an up cycle could look like in terms of where orders and builds can go, are you hearing about fleet growth, or do you think that's less likely now in this sort of supply-driven tightening?

Speaker #9: Does that change the way you think about what an upcycle could look like, in terms of where orders and builds can go? Are you hearing about fleet growth, or do you think that's less likely now?

Speaker #9: And this sort of supply-driven tightening?

Speaker #5: Yeah, that's a great question. I think that if you just look at it in general, while freight tonnage index is increasing only modestly, it's at a high level.

Preston Feight: Yeah, great question. I think that if you just look at it in general, while freight tonnage index is increasing only modestly, it's at a high level. It's not as if there's not a lot of freight being hauled out there. The GDP growth that the US is experiencing, that's positive because as we all know, over 70% of the freight is moved by trucks. As the economy grows, the truck grows. I think that the reshoring and local-for-local efforts that are happening in the industrial base right now are good for trucks and especially good for PACCAR. I think all of those things give us confidence in where the market should head towards in the coming year or two here.

Speaker #5: So it's not as if there's not a lot of freight being hauled out there. The GDP growth that the US is experiencing is positive because, as we all know, over 70% of the freight is moved by trucks.

Speaker #5: So as the economy grows, the truck grows. And I think that the reoring and local-for-local efforts that are happening in the industrial base right now are good for trucks and especially good for PACCAR.

Speaker #5: So I think all of those things give us confidence in where the market should head towards in the coming year or two here.

Speaker #9: Okay. And then, just lastly, I've got one very short term, and then one longer term. Mechanically, if someone placed a—what in their mind was a pre-buy for delivery in '26—are they able to now push that to '27?

Scott Group: Okay. Just lastly, I've got one very short term and then one longer term. Mechanically, if someone placed that in their mind was a pre-buy for delivery in 2026, are they able to now push that to 2027? Are you seeing that? Maybe just my longer-term thought, as we enter an up cycle, where do you think ultimately gross margins can get to relative to where they've been in prior cycles?

Speaker #9: Are you seeing that? And then maybe just my longer-term thought—as we enter an upcycle, where do you think, ultimately, gross margins can get to relative to where they've been in prior cycles?

Speaker #5: Yeah, I think what we think is that there were many people who thought that there would be a huge pre-buy at the end of the year.

Preston Feight: Yeah, I think what we think is that there was many people thought that there would be a huge pre-buy at the end of the year. I think that what we kind of expect now is with the smart positioning that the EPA did, it'll be just a continued improved cycle through the balance of the year with a stronger 2027 and not much drop off. That feels pretty positive to me. As far as the margins longer term, I think, we've done a good job of investing in the right products so that our team has produced the best trucks that can be built. I think we're building in the right locations, so that's also positive for margin. We feel good about the company's short, mid, and long-term performance.

Speaker #5: And I think that what we kind of expect now is, with the smart positioning that the EPA did, it'll be just a continued, improved cycle through the balance of the year.

Speaker #5: With a stronger 2027 and not much drop-off, that feels pretty positive to me. As far as the margins longer term, I think we've done a good job of investing in the right products.

Speaker #5: So, our team has produced the best trucks that can be built, and I think we're building them in the right locations. So that's also positive for margin.

Speaker #5: And we feel good about the company's short-, mid-, and long-term performance.

Speaker #9: Thank you.

Scott Group: Thank you.

Speaker #5: You bet.

Preston Feight: You bet.

Speaker #2: At this time, there are no further questions in the queue. Are there any additional remarks from the company?

Operator 3: At this time, there are no further questions in the queue. Are there any additional remarks from the company?

Operator: At this time, there are no further questions in the queue. Are there any additional remarks from the company?

Speaker #5: We'd like to thank everyone for joining the call, and thank you, operator Jade.

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

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

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

Q2 2026 PACCAR Inc Earnings Call

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