Q2 2019 Earnings 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, Paccars director of Investor Relations.
Mr. Hastings. Please go ahead.
Good morning, we would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, Paccars director of Investor Relations.
And joining me. This morning. This morning, our Preston fight Chief Executive Officer.
Every skippers, President and Chief Financial Officer, and Michael Barkley, Senior Vice President and controller.
As with prior conference calls, we ask that any members of the media on the line participate in a listen only mode.
Certain information presented today will be forward looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results for additional information. Please see our SEC filings and the Investor Relations page of Paccar Dot com.
I would now I would now like to introduce breadth and fight.
Good morning.
Very skippers, Michael Barkley and I will update you on Packers excellent second quarter results and business highlights.
First and foremost I'm very proud of our exceptional employees, we're passionate about providing our customers the highest quality highest performing trucks and services in the world.
I also want to thank those analysts who participated in our Investor Conference in New York in May.
The pack our team appreciated the opportunity to provide an update on our business.
Paccar achieved record quarterly sales and financial services revenues of $6.6 billion and excellent net income of $620 million, resulting in a 9.3% after tax return on revenues.
Paccar parts generated record revenues of over $1 billion.
And record pretax profits of $211 million.
Parts revenues increased 6% and profits grew 8% compared to the second quarter of last year.
Paccar achieved robust truck parts and other gross margins of 14.8%.
Driven by record truck deliveries aftermarket parts demand and strong operational performance.
Paccar delivered a record 52300 trucks during the second quarter.
39% higher than the second quarter of last year.
This reflects increased build in North America, partially offset by lower build in Europe .
The U.S. and Canadian class eight industry backlog remains high.
Kenworth and Peterbilt 2019 production schedules are substantially full.
With customers ordering trucks for delivery in the first half of next year.
In Europe .
The off has achieved an excellent year to date market share of 16.7% and the DAF XF was honored as the fleet truck of the year in the UK.
Paccar continues to provide excellent annual operating margins, resulting in strong operating cash flow for distribution to shareholders.
And for reinvestment in future growth.
Paccar declared second quarter dividends of 32 cents per share and first half dividends of 64 cents per share.
First half dividends were 21% higher than dividends declared in the same period last year.
The company has delivered annual dividends in the range of 45% to 55% of net income for many years and has paid a dividend every year since 1941.
Cards increased its quarterly dividend in average of 11% per year during the last 20 years.
We repurchased 345000 shares of stock during the second quarter for the $484 million remaining in the current board of directors authorization.
Paccars investing in future growth with capital expenditures of $675 million to $725 million.
R&D expenses of $320 million to $340 million this year.
These investments will fund enhanced aerodynamic truck models.
Integrated power trains zero emissions electric and hydrogen fuel cell technologies.
Advanced driver assistance systems and truck connectivity.
We're also enhancing our manufacturing and distribution facilities.
At the Kenworth Chillicothe, Ohio truck factory, we added a new robotic can build so and are constructing a new state of the art paint facility, which will lower operating costs enhance quality and increase capacity.
To meet increased customer demand for the popular Paccar MX engine, we're adding machining and assembly equipment in the Columbus, Mississippi engine plant.
We recently opened two global software R&D centers, one in Kirkland, Washington, and one in Eindhoven and the Netherlands.
These centers will accelerate the development of embedded vehicle software and Packer connected vehicle solutions for our customers.
In the third quarter truck deliveries will be higher in North America due to higher build rates.
And lower in Europe , reflecting the normal three week summer shutdown.
Global deliveries will be 5% to 7% higher than the third quarter of last year.
We forecast third quarter gross margins for truck parts and other to remain strong and be in a range of 14.5% to 15%.
2019 will be another outstanding year for the company.
Harry Skippers will now provide an update on truck markets.
Paccar parts and Paccar financial services.
Thanks Preston.
You as economy is in good shape.
Helped by strong top markets growing wages.
And increased business investment.
Freight tonnage has grown a healthy 4.4% year to date.
We've raised our estimate of us and Canadian.
Clos eight truck industry retail sales.
Two range of 302, sealant and 20000 vehicles this year.
We're in a period of robust customer demands.
Demonstrated but historically high backlog.
Truck production levels and retail sales.
The U.S. accounted a closet backlog was 188000 trucks at the end of June .
Kenworth and peterbilt backlog represented.
36% of the industry.
We are raising our European above 16, some market projection to a range of 320000 vehicles. This year.
European economies are growing at a lower rate than last year.
Becca delivered record first half net income of $1.5 billion.
Bigger parts achieved record first half revenues of 2 billion a $30 million.
And record pretax profits of $418 million.
Becker has steadily increased its truck and engine market share over the years.
Resulting in a greater number of pickup trucks and engines in operation.
This large and growing kenworth Peterbilt and DAF truck Park has driven 8% annual pecker parts revenue growth over the last 15 years.
This generates consistent high margin profitability in all phases of the business cycle.
We continue to invest into parts business with new parts distribution centers under construction.
In Las Vegas, Nevada.
Implant the gross of Brazil.
We expect parts sales to grow 5% to 7% for the full year 2019.
Becca financial services second quarter pre tax income of $18 million.
11% higher than the second quarter last year.
Becca financial portfolio performed well.
This year Becca financial will open used truck centers in Prague, Czech Republic, and Denton, Texas.
To support solid customer demand for Duff beautiful and kenworth trucks.
When a fact, our greatest assets does not appear on the balance sheet.
I'm, referring to the independent financially strong kenworth peterbilt and DAF dealers.
Walt rate more than 2200 sales service TRP store locations worldwide.
Are you looking to reflect the industry leading quality.
And premium product brand image, Kenworth, Peterbilt and DAF trucks.
But proud of our global dealer network. They are the best in the industry.
Thank you we would be pleased to answer your questions.
At this time, if he would like to ask a question. Please press Star then the number one on your telephone keypad.
Our first question comes from Stephen Volkmann with Jefferies. Your line is now open.
Hey, good morning, everybody.
Good morning.
Harry I Wonder if I could get you to make a few more comments about some of your kind of end market visibility and what I'm thinking about is obviously you said you are sort of taking orders for the first half of 2020.
But of course, the overall order rate is has come down quite a bit and I'm curious just kind of what you're hearing from customers and seeing in your order trends.
Relative to demand in 2020, do you think things pick up again as we get into the fall selling season or are you hearing kind of caution because freight rates have come down just kind of a.
So some thoughts about the quality of the 2020 order.
So if you look at the backlog for North America today, we're in really good shape and like precedent set where we're increasing build rates in North America.
Europe , the backlog very normal and production levels are in line with the orders into back looking to market as we see it today.
Okay. So do you have any kind of preliminary thoughts about what 2020 might look like obviously the market is sort of primed for a big decline.
Well, we typically comment on 2020, once we get get closer to it so that's probably something for the next call.
All right I figured it might be worth a try can I sneak one more in on just kind of what you're seeing relative to pricing in the new truck environment.
Yeah, we look at the pricing realization in trucks.
In the second quarter, we saw as a couple percent price realization largely offset by costs and.
So that's kind of imbalance with each other.
Okay, great. Thank you very much.
Our next question comes from Tim.
Casey with Wells Fargo Securities.
Your line is now open.
Thanks, a lot good morning as well.
Good morning.
Habit.
Question.
On the on the shipments and went up about 1.5% in Q2 from Q1.
It's a little different.
Then the outlook on the short term that you gave last quarter or 2% to 4%.
Was the entire difference between actual and predicted driven by Europe .
And if so.
I guess to piggyback on Steve's question can you describe what your European order intake, maybe was compared to last year.
And then also some color around the the.
Overall market development.
Yeah. So just look at the start at the highest level of it we did see growth in North America. This year and that was as we said us a little bit by what we experienced in Europe , we have really good balance in Europe right now between.
Order intake in or build rates. So we've got that set up really well and in fact, if you look at the first half market share results. You know we were at 16.7%, which is above last year's record 16.6%. So that's that's set up very nicely for US right now and we kind of see that order intake is as I said matching into what we what we're doing with build right now.
Okay. Thank you and then.
On the just specifically looking at the truck segment margin and it pretty much seem to be in line with what you were looking for but.
Flattish up maybe 10 basis points year over year, and then down from Q1.
Despite higher revenue in both cases can you.
Can you elaborate now that the quarters done in terms of.
You know what some of the headwinds might have been that limited the segment's ability to realize you know maybe some better margin leverage on that revenue growth.
Sure I think if you look at if you start with these issues.
14.8% in the overall gross margin feels very strong so when we look at it from a year over year standpoint truck has been able to hold on to that I think.
The reason it doesn't see significant movement up is because it's already operating at a very high level. So we're at a very efficient point in the in the gross margins.
And then I think if you just talked about it a little bit from.
From a sequential standpoint.
The only difference between Q1 and Q2 has to do with really the customer mix, it's happened between quarter, one and quarter to.
Okay. Thank you very much.
Our next question comes from Joel Tiss with BMO. Your line is now open.
Hey, guys hasn't gone.
Really good how's it going for you.
All right.
I wondered just to try to to be a Steve for a second here can you talk about second half production instead of just third quarter and the you know the production schedules and just sort of give us a little bit of an idea. So maybe we can have a small window into the fourth quarter.
Well, we if I try to talk about in terms of second half we have again North America going up in the second half.
And then in Europe , We think is stable, where we've got it right now so we feel like those are balanced for what we would expect to see through the second half.
Okay, and then beyond the customer mix it sounded like in North America, but maybe I'm reading too much into that is there any.
Any negative.
Margin the incremental margins to 10% you've been kind of running 12 or 13 is there any because Latin America was so strong is that a factor in there or not at all.
Latin America is a small percentage of the business still so it really doesn't have that much weighting factor to us I mean, there's a little bit of benefit to it but there's not a lot.
Okay, and then just last on the receivables up 30% is there any any color you can add to that.
Rebounding.
Hi.
Increasing in the build rates has been the primary driver of that.
Okay. It just seems like it's up a lot more than builds.
Okay. Thank you very much.
The next question comes from the line of Jerry Revich with Goldman Sachs.
Your line is open.
Yes, hi, good morning, good afternoon, everyone.
Good morning, good afternoon.
I'm wondering if you could expand on your comments on the European production adjustment that you took in the quarter due to match an incoming order rates when was that.
Production adjustment.
Take place and as we think about the third quarter.
Normal seasonality would have production down 5% to 10% sequentially for you in Europe . So are we on that.
The right production point entering the third quarter were.
We should see that normal seasonality or.
Production coming down sequentially more than that.
Normal 5% to 10% right.
So the adjustments we made were just in the second quarter and again those they happened throughout the second quarter and they still delivered Asus excellent market share that we saw.
From the third quarter looking forward, we do have a normal summer shutdown, which is a three week summer shutdowns. So there is a overall effect on the market, but from a daily build rate standpoint, we're in a good position.
Okay and in North America, we obviously know that you folks are built to order in one market in flex, we typically see production adjustments from you folks first so when you folks are raising build rates sequentially threeq versus Twoq Q.
That implies that you've had a full.
Club scrub and you're comfortable with the level of dealer inventory is it can you just confirm that point on that the expected deliveries for for Threeq, you have from customer specification to them as opposed to.
What are some typical dealer specs.
I think you Didnt really nice job of characterizing it actually we do do a backlog scrub and make sure that we have clean orders in there and we do build to order and as we've looked through that and we see that there's.
Still very strong order backlog as Harry said, the 36% of the backlog for the industry as ours.
And so we want to make sure that we get the trucks are the customers they need the trucks to run the businesses and so we're in the matter of building as quickly as we can for him.
And in terms of the level of dealer inventories can you just calibrate us out of the industry statistics that we have you know you mentioned a backlog were 36% of the backlog what about out of inventories well. If you think of the inventory numbers for the industry. The right 2.8 months and for a pack or in North America. It's 2.3.
So we have our inventory in very good position with our dealers.
Okay.
Alright, thank you.
Our next question comes from the line of.
Dying with JP Morgan.
Your line is now open.
Hi, everybody.
I'd like to circle back to Europe , and mean registrations year to date are up closer to 10% and your.
Deliveries are basically flat, maybe up slightly year to date.
Can you talk about the discrepancy have we seen a pull forward to registrations ahead of this midyear tackle GAAP requirement or is there anything unusual going on in the marketplace versus like how you are choosing to deliver.
No I think you actually nailed it and I think that remote telegraph is probably the biggest impact and was pulled forward. The pull forward the orders from in front of June 15th.
And so that's what we saw and we still expect the market in the 300 to 320000 truck range.
And.
We should be able to have.
Really excellent market share with their build rates from the first half and second half for that.
And just as a follow up to that though again on Europe and given the announcement today and the new leadership in the UK and does that.
Raised a really accelerate the concerns around Brexit and the impact that that could have on prayed 10, and just the whole industry as we get closer to the end of the year or what are you hearing over there in terms of now it sounds like it's a little bit more dependent upon.
Yeah. So one of the nice things for us as we are the market leader in the UK, we do a great job all around Europe , and our shares up in Europe and up in the UK also specifically so as we look at what might happen with Brexit, we have a great advantage in that we do manufacture all our truck models for the UK in the UK. So I don't know what the outcomes will be but packers really well positioned with our manufacturing base in Europe to two.
Take advantage of it either way it goes.
I I, yeah, I meant more broadly what impact it might have on just pray 10, and the whole European economy any comments on that.
Yeah, I don't think we know that answer any better than anybody else I would say that we've been pleasantly surprised with how the UK has performed in the first half of the year, there's and strong customer demand in the first half and Thats been great.
Okay. Thank you I'll get back in line I appreciate it.
Thanks, Dan.
Our next question comes from David Leiker with Baird.
Your line is now open.
Good morning, everyone.
Good morning.
I wanted to.
Talk about Thats kind of triangle effect between orders backlog.
Inventories you can throw councils in there.
And what we're going through here in North America.
As while the order rates have fallen backlogs have remained elevated and I'm not sure we've ever gone through a period of falling orders, where backlogs remain elevated and wondering if that.
Might change a little bit of the economics of the earnings you might see you guys. These lower order rates flow through the numbers.
Oh I think you know what I think you have to keep in mind is the bigger the bigger picture what happened last year and we have 458000 industry orders last year. So that's a big number and it takes a while for that to normalize through things, but it's it's not going to have any effect on our financial performance. We've got great financial performance and our dealers are doing really well and our customers love the trucks and so those things continue to work well and and the results will be solid.
Right and then just on the pick on Europe also.
Any particular markets or areas over there that that you feel more worried that others have made a lot of those a lot of your customers from those markets are exporting out of Europe into other parts of the world as well.
No I think I think that Europe has done really well this year for us I mean, obviously, we have the the market range of 300 to 320000 trucks and us gaining share. So this would be the fourth year in a row above 300000, if it stays like this and that's a fantastic market size and the dog team all the employees of team the dealers are doing increased job.
Growing the business.
The customers love the trucks and the fuel economies outstanding and it's working really well.
Okay, great. Thank you.
Our next question comes from Steven Fisher with UBS.
Your line is now open.
Thanks, Good afternoon, and good morning.
Hi, good afternoon, and good morning.
How does the orders that you guys have taken for 2020 compared to the level of what you'd typically take in it at this time of the year for the following year I assume its.
Got to be much higher and if that's so I guess why are our customers I guess going back to Steve Oakland to question why.
Our customers rushing to place orders if freight fundamentals are softening.
Well I would say it this way as I say, we probably just to get to the first part of your question. We do see order intake for 2020 higher than we might typically see it.
That's in large part because in a in a different market you might see that there is a lot more activity surrounded about filling in threeq and Fourq you.
The current year year end, but since that's substantially full there's interest in 2020.
So thats kind of just I think where People's Energy's go too.
But with freight fundamentals softening why wouldn't they just wait it out a little bit to see how the rest of the year is going to go.
I think some people do but freight fundamentals are really mixed right. We have a great economy in North America GDP growth is occurring I think through May 18 truck tonnage was up 4.4%. So there's there's not like things are going badly and we spend a lot of time as our team with our employees and our dealers talking to customers and.
No.
Customers are doing a good job that you see the truck companies earnings reports and they're coming out really strong in a lot of cases. So there's there's a lot of reason for optimism too.
Got it and then you said that the cost to offset price in the quarter. It sounded like price said it was up a couple of percent.
Which may be down why up 1% or so from the first quarter.
And I would have expected cost to be coming down. So I guess why was the pricing growth moderating.
And.
How should we be expecting that those costs are actually coming down going forward here.
You want me to offer any color, it's like frozen just said, it's mostly customer mix that.
Pricing was in line with the cost increases more or less.
And what was that customer mix difference between Q2 and Q1.
So the customers to differences in the first quarter lot of the dealers will have stock trucks on their on their lots and those are the small quantity buys and then we get to a more distributed look at customer mix in the second quarter. So there's still the stock orders, but then there's you know just to a low to large size customers come in.
Terrific. Thanks, guys.
But.
Our next question comes from Seth Weber with RBC capital markets.
Your line is now open.
Hey, good morning, everybody.
I just want to go back I think your guidance for the parts revenue growth for this year you moderated the top and I think you're now saying five to seven it was previously five to eight is there anything you would call out there that is causing the just sort of the moderation. Thanks, Yeah sure. The parts business is really doing fantastic continues to perform at a high level.
Pick up can you just to say that as we look at we look at where our investments are going in that business and the new distribution centers and pull into gross in Brazil in Las Vegas, and the way the team is moving through the initiatives of things like E Commerce.
And TRP growth is really fantastic. The only reason for any adjustment is really a currency effect that we pushed into the 5% to 7%.
The revenues in Europe in euros that translate into fewer dollars when we when we do the translation.
That's helpful. Thank you and then maybe just a quick follow up on the Finco margin actually came down sequentially is there anything that you'd call out there and is that sort of the run rate. We should think of going forward. Thank you.
You know I don't think so I don't think it's when we look at the new business generation is actually up quarter over quarter. So it was more about portfolio that I think you're talking about but the team is doing really good. If you looked at their earnings per quarter. It went up to 80 million and and is 164 million in the first half and she is doing fantastic.
Yes.
Okay. Thank you very much guys.
Our next question comes from Ross Ghilarducci with Bank of America. Your line is now open.
Hi, Thanks, guys.
I was just wondering what are you seeing in the Mexican truck market.
And.
What would you do if you know some of the trade tensions that started to re materialized a couple of months ago came back in.
Do you think Youre your overall footprint in North America, given your relative lack of exposure to Mexican production is behind any of the order share strength that you've seen in other words are our customers, perhaps ordering more from paccar, just because theres greater surety surety of supply given some of your competitors being relatively more exposed to our Mexican production.
Yeah, I think you talked that team and the team in Mexico is doing a really good job down there we have great trucks, obviously the newest trucks. We've introduced the latest generation are fantastically well received by the customers.
And so their share was was exceptionally good and if you look at their was emissions changes happening in the middle of the year. So there was a strong buy ahead of that but even since then.
Order intake as has been positive and doing quite well. So I don't I don't think it's really affected by were people think we're going to build the trucks and we obviously can build trucks in Mexico for Mexico, We can make our domestic us and Canadian production and local market. So.
I think we just manufacturing footprint that works well and I don't I don't think there's anything about trade tensions affecting that it was more about great trucks and people.
And I guess, that's the point most of what you produced in Mexico is for the Mexican market correct and if you did see Paris all of a sudden actually come back and put in place do you feel like you have sufficient capacity and the U.S. market to just relocate some of that production and a very short term basis.
Yes, we do have that capability.
Okay, and then I think you made a comment about adding engine capacity in Mississippi, If I, if I heard it right and.
I Wonder if you could talk a little bit more about that are you seeing share shift more towards the MX engine with the trucks that youre selling.
You know the MX engines, MX 11, and 13 engines are doing really well, they're providing I think that just outstanding fuel economy and the market space people have had time to get used to them obviously now.
And we're seeing strong demand from our customers for those engines for their lightweight and high performance. So we've increased our capacity and Columbus and.
I'm just recently finished that capacity increase at the end of the second quarter and.
And to be able to build some more engines for our customers in the second half.
Can you say roughly how much you've increased capacity in Columbus.
You know its been meaningful but it's it's you know.
10% to 20% kind of numbers.
Got it okay. Thank you and just lastly on on Brazil, maybe you could comment there I mean, you've had obviously pretty explosive growth.
Over the last couple of years, we remind us where you are on market share and I think from the beginning the target was to get to 10% in five to six years.
You know as we as you continue to get closer to that number do you start to grow more in line with the with the Brazilian market in the next couple of years.
Well you know the trucks adopt trucks in Brazil or are working very very well for our customers is down there just a couple of months ago and the dealers and customers are really excited with the performance they get the reliability and durability and fuel economy that are providing in Brazil.
So that's enabling our continued growth.
The year over year standpoint market years up just a bit and it will continue to grow.
Continue to make investments in Brazil, the parts business is doing really well down there.
In the middle of building, a new distribution center in phone, a gross or 160000 square foot distribution center and put a grocer.
Which will support the business growth.
And the market overall is improving in Brazil, so really feeling good about the efforts. Our team has made down there. The results are bringing the success of the dealers now and just how the business is going to continue forward.
Thank you.
You bet.
Our next question comes from the line of Jamie Cook with Credit Suisse.
Your line is now open.
Hello, I guess just a question specifically what is your visibility in 2020 this quarter relative to last quarter I'm, just trying to understand if its increased and to what degree and then my second quarter second question is.
Assuming industry forecasts are correct next year.
I'm just if you can walk us through there is there anything we should consider yeah with regards to decrementals relative to previous cycles in the sense that one I would assume the parts business. You know obviously helps your your your margins you have the content on the MX engine at the same time, one could argue your more vertically integrated in R&D costs should be structurally higher self theirs.
Anything you could help us out with and then one is is the.
Our that she had decrementals be meaningfully different and in Europe versus the U.S. Thanks.
Sure. It was a lot of questions in there I'll make trees, if I can get them right for you from a 2020 order intake I think that we're seeing as I said earlier.
The higher percentage than we do typically we have great visibility that means comparatively to normal times for 2020.
<unk> declined to kind of really talk about a specific value there, but it feels positive compared to previous years.
From a effective what 2020 is overall market is going to be I think as Harry said and we would all say is a little bit early to be talking about what the full market size is going to be in 2020.
And from an effect on decremental margin or margins.
Or incremental margins as they may end up being.
I'd say that we see that a we keep our operating costs really low.
And I think that means there's relatively minor shifts in the decremental or incremental margins and continue to provide great value to our two.
The margin, but the overall margin.
Stateside.
Okay, but no there's no meaningful difference relative to previous downturns I mean is there any structural reason why decrementals would be.
Better or or just I mean, if you're right on the topline incrementals, that's a different question, but on Decrementals.
No I don't think so.
Okay. Thanks.
Thank you.
You bet.
Our next question comes from cardiac <unk> with Morgan Stanley .
Your line is now open.
Hi, Thanks, Thanks for the question HM.
Going back to Andy's question.
Your production this quarter.
I think you had originally forecasted but all the increase would be from North America kind of looks like it.
Pretty evenly split between North America, and how their so why is your North America production in line with your expectations and I just kept your kind of outlook just wanted to confirm that.
Yeah, our North American production was inline with expectations I think the only place where there was any.
Slight slight change was in Europe , where we just make sure we got our build rates adjusted to the market.
So that's the overall effect.
Okay got it and then just on the Capex range just wanted to make sure. This similar to last quarter, where it's a lot of projects you know getting done faster or moving more quickly than expected or you know are there any new projects that we should be thinking about.
Sure we [laughter], it's really fun I mean, we're we're making these great investments in the future for the company and so that's why you're seeing the capex changes, but we have just some fantastic opportunities that are really in terms of our capacity and quality in our factories are distribution centres for parts and used trucks.
And then maybe most importantly for the long term benefit is the investments in new products that we're creating and so we have a lot of programs going on and are successfully moving along and we think it's really building a bright future for us.
Okay got you and then just finally in South America, I think you slightly reduced your industry item. They are just wanted to confirm that and maybe how it compares I think last quarter you had guided to Brazil at 65 to 75000, just wanted to understand that dynamic labor.
I think the guidance for Brazil is the same as what we did last time I think for total South America that income might have dropped 5000.
So from a signal or 900 110 for South American total.
But its outside Brazil.
Brazil is still guiding at 70000 as a midpoint 65 to 75000, South America's 100 to 110000.
That's great. Thank you.
You bet.
Our next question comes from Jeff Kauffman with loop capital markets. Your line is now open.
Thank you very much good morning, everyone and good morning.
Thank you you know a lot of my questions have been answered at this point just a couple knits.
You mentioned that you are seeing orders for 2020 at this point yet we do know there are some aspects of the trucking market seeing pain, particularly on the pricing side to your point not so much the volumes have you seen any change on the specs that customers are asking for 2020 versus 2019.
No. It's it's nice question I think that really the customers are always looking for the most fuel efficient lowest operating cost trucks, if they can find.
And that's the beauty about being Paccar is we provide that to our customers.
Yeah, he's passionate team of people.
Great job of making sure that the trucks, we develop and sell.
Really at the best and most efficient vehicles for our customers and so I think that's what they're always looking at we're always talking to the customers not to make sure the spec state lined up that way, but there hasn't been any.
A fundamental shift.
Okay, and then just one last net.
I did notice the tax rate was up a little bit sequentially from the first quarter that could be just randomness, but I'm wondering might that have to do with may be more profitability being driven out of North America.
Sure what should I be thinking in terms of tax rate for the full year.
Yeah, I think you hit it on the on the head there at the income mix up on North American tax rates, including states are a little bit higher than Europe , and so so that affected the quarter.
Okay, Alright, that's all I have other questions have been asked already congratulations and thank you great. Thank you and thanks a lot.
Our next question comes from Joe O'dea with vertical research. Your line is now open.
Hi.
It would be North America build rate going up in Threeq, you I think historically, it's not uncommon to then see it come down in Fourq, you, but that's usually with Europe going up and so I'm just curious with some of what's going on in Europe right. Now should we expect that that you have at your current plans at this point or that that increase in the build rate in North America for Threeq or something that you would maintain in Fourq you.
Yeah, we have a we have a strong backlog as we said the substantially full for the second half.
And so we don't see any reason not to think the build rates stays roughly where it is for the fourth quarter.
In the U.S. and Canada.
But you're right that the fourth quarter in the U.S and Canada will have more holidays than the third quarter. You are supposed to go and Europe is just the opposite so daily build rate doesn't change necessarily okay. Just a question on the daily build rate so yes.
And then it sounds from your comments around months of inventory industry. A 2.8 on year to 2.3, I think historically the industry averages me on the low twos. So I'm. Just curious you know historically where were you average as we think about sort of through cycle targets.
This is within our normal band and it's kind of a healthy space to be.
Perfect and then just one on the 2020 orders Youre, taking how does the pricing compare to 2019.
You know that's just depends on the on the customer, but the pricing is a fairly consistent right now.
Got it thanks very much you bet.
Next question comes from Neil Frohnapple with Buckingham Research.
Your line is now open.
Hi, good morning, I guess.
Inventory at your used truck centers, starting to rise at all and any thoughts on the used truck market in North America, and Europe , both from a demand and pricing standpoint.
Yeah, I think if you look at the used trucks.
Maybe they maybe the the pricing has moderated a bit from where it was in Q1, but one of the nice thing about being part of Paccars, our trucks to command the 10% to 15% premium in the market.
And as we've watched our market share grow over the past several years, we've invested in creating a great used truck capability selling capability. So that's why we've got this new facility used truck facility. We're building in Denton, Texas, a few years ago, We did one Los Angeles.
In Europe , we're creating one in Prague, and the Czech Republic as well.
And then adding on capacity, we have a fantastic dealer network that does a good job of managing used trucks and distributing used trucks to customers. So between our premium position in our capability, we feel like we're in a good space.
Okay and as a follow up on that if used truck prices were to continue to moderate what's the time lag as far as when that would start impacting the finco profitability I think usually run through that interest and other line is that a couple of quarter lagger.
Any thoughts there.
Yeah, I don't think weve kind of can calibrate it into which quarter would have an impact on it obviously would depend on the amount of effect and it depends a lot on the percent of retail versus wholesale and our team has done a really good job of.
Selling a lot of used trucks and a retail position. So there is too many mix effects in there to really characterize it.
Okay, and then just one final one on the medium duty market here in North America any notable changes.
To the outlook, we are seeing from customers marketshare et cetera. Thank you.
Yeah sure. Thanks for the questions no the market size seems consistent to what we've said previously.
And 100000 units plus or minus and then the business is doing really well and I think that our trucks are performing well in space and our market share will be roughly in the same range.
Great. Thanks, so much.
You bet.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Robert Wertheimer.
Wertheimer with Melia.
Your line is now open.
Thank you and good morning, everybody.
Good morning.
My question is pretty simple I wonder if you could just remind us of the mechanics on orders for next year is the order book open for all models and configuration, and then is pricing established or hateful sort of just taking a bet on it and is that the same as every year this year.
So I would say that the order book is open for old trucks, and all models of we love we love taking orders for trucks, it's something we enjoy a lot.
And so when I think about it in terms of the pricing being established.
In the deals that were that were discussing right now those end up being with the customers and they end up being focused around what we've done previously and what their spec is and what we're doing so those end up being worked through in almost individually.
Okay perfect Thats it thanks.
You bet.
Our next question comes from Scott Group with Wolfe Research. Your line is now open.
Hey, good morning, guys, it's Rob on for Scott.
Good morning, Robert.
A quick clarification question with regard to the build rate am I hearing you right that you guys are basically planning on maintaining the third quarter level of production in the fourth quarter.
Precisely increase your you're implying there in the back half half guidance.
I think the firm's space is the third quarter going up and then we watch where the fourth quarter.
As we substantially or full watch with the fourth quarter does.
But I don't expect to see any significant shifts.
That's helpful and in your preliminary comments about the order book.
And the strength looking out to next year Rico's intimating that we could see revenue actually be up next year.
I don't think we intimated next year.
Okay.
And then just a couple of quick questions with regard to the used truck market.
You said you saw it soften up a little bit.
Could you describe it if you're seeing that in one specific channel I am kind of small fleets are kind of the owner operator, operator ended the marketplace and what sort of increase on a year over year basis, you're seeing from a price realization currently would be helpful as well.
Yeah, I think it's we think about it in terms of you know that the paccar products Kenworth and Peterbilt North America off in your bridge as they command a premium so its a relative positioning to the competition, they're doing really well.
And then I think from a as I said earlier I think.
A lot of effect has to do with how many trucks are coming back into what percent you retail those trucks out and we've been able to grow our retail percentage.
Especially in North America, which has brought US good results so as far as the overall trends of the market I think those the guarantees are difficult to to plan forward too.
But we'll watch them, we have a great team is managing that business really well.
Yeah that's helpful.
Final, one, which I guess kind of relates to the Finco is we saw a slight uptick in the provision for losses on receivables, obviously still in a low level on it and that was a sequential uptick still.
Nicely improved on a year over year basis.
Well, that's driving that is that just some of the small a small carriers, you're seeing a little bit of softening in terms of their their their receivables or is this.
Most most most of that is due to the larger portfolio.
But Pos do remain past dues remain really low credit losses remained low that the portfolio is managed really well we've got a lot of good customers that make money with their trucks and pay their bills on time.
Really helpful. Appreciate the time guys. Yeah, you bet have a good day.
Our next question comes from David Raso with Evercore.
Your line is now open.
Hi, Thank you quick question.
North America, I know you slice it U.S., Canada, how you give deliveries but in your commentary about your backlog can you just help us a bit with your U.S., Canada or one defining as North America your backlog year over year as we sit today, just some sense of the year over year.
In that position.
Well, it's up substantially year over year from a from a normal cycle. Obviously, that's moderated from what happened in 2018 is 350000 truck order intake or 450000 truck order intake. So it's if you look at it on a pure sequential year over year, it's probably down but is down from a level that was.
You know.
Not sustainable so high and so compared to normal levels, it's still very high and very strong 73000 trucks in a backlog.
Doing really well.
Yes look I mean, clearly the industry is down mid data, we most all use its down about 17% year over year I'm, just trying to get a feel it's your backlog down laugh.
Then the animal I think the best way to think about that Steve. It is to think about that as a percentage of backlog that Harry talked about earlier that 36% of the industry backlog, which is you know if we call. This a 30% market share and 36% of industry backlog means we have very healthy backlog relative to our market share.
Yeah. So we're just trying to figure out how much of that goes into 2020, how much is helping the fourth quarter is that if the fourth quarter build just have a normal seasonal.
Less build days, but the daily rate stays the same I would argue that's probably a little better than people think and I'm just trying to get a feel.
Well that helps the fourth quarter.
What does that mean about 2020, but you're still speaking pretty constructively about your orders into 2020, So just trying to.
For the Mosaiq here, together, but but again your backlogs doing better than the industry given the.
The share gain obviously implied in that backlog versus the.
The industry totals.
Yeah, I think you're characterizing it really well David I think thats, Okay, you're right, there's a pretty well to that and we'll watch what 2020 does as it gets closer to us.
Very helpful. Thank you guys you bet.
There are no other questions in queue at this time are there any.
Additional remarks from the company.
Yes, we'd like to thank everyone for joining the call and thank you operator.
Thanks, everyone have a great day.
Ladies and gentlemen.
Concludes Packers earnings call. Thank you for participating you may now disconnect.