David Raso: Hi, thank you for the question. So essentially, the sequential margins, right, we’ve got truck revenues up sequentially, parts revenue down sequentially, so a little weaker mix, and a little less overhead absorption from — you can kind of see it in the company inventory, right, what didn’t ship, but you built. But on price/cost, I’m curious, the rest of the year, how do you see price cost versus what you experienced in the first quarter? I’m also curious, too, if you can help me a little bit with the FIFO, LIFO change a year ago, I know it’s only about 40% of the inventory got changed for it. Just curious at all if you could help us, how has that accounting change helped a bit with the margins? And last, I’ll throw one in there, if you can answer it. When do you expect to open the order books for ‘24? So again, price cost, LIFO, FIFO – all right, thanks.
Preston Feight: Why don’t we take it in reverse order. I would say that we’re already having good conversations with some of the customers about their needs in 2024 and there’s a strong interest in the truck, that continues to be good. It’s early days. We’ll see what happens there. Michael, you’ve got 66 calls under your belt, why don’t you do the LIFO, FIFO call?
Michael Barkley: Well, last year, the FIFO difference was about $50 million in cost. This year will probably be something similar to that, so it’s really — it helps a little bit, but it’s maybe 0.1% or 0.2%, kind of huge –
Preston Feight: And then your first question, you asked about price cost. I think we have shared that we had good price to cost realization in the first quarter. We expect that in the second quarter, and we have a good order book for the third and fourth quarter. So it should be pretty good.
David Raso: So the price cost wouldn’t be part of why gross margin is down sequentially. It’s really more the sequential revenue mix and the reduced overhead absorption. Is that fair?
Harrie Schippers: That’s correct.
David Raso: I appreciate it. Alright, thank you.
Preston Feight: You bet.
Operator: Thank you. Our next question comes from the line of Jamie Cook with Credit Suisse. Please go ahead.
Jamie Cook: I guess just my first question, back to the margin. Again, your pretax truck margins were, I think, 13.9%, which is a record high. So can you help us understand, sort of, what’s structural or related to some of the new product introductions that are more profitable versus, sort of, just deflation, sort of, helping the margin? So I guess that’s my first question. And then my second question, when you talk about the order book for 2023 being substantially full, is that across, sort of, all geographies? And what are you telling customers about pricing specifically for 2024 as you’re engaging in conversations? Thank you.
Preston Feight: Sure. First of all, I think on the new products and thanks for bringing them up because we’ve shared that we’ve invested billions of dollars in these new products. We brought them out in the last couple of years here, but they’re fully introduced. And they’re providing 7% to 10% better fuel economy, that’s just one thing. So that’s $15,000 to $20,000 of value for the customer over a few year cycle. It really makes it important for them to replace the trucks they bought even four years ago with these excellent new DAF, Peterbilt and Kenworth trucks. It’s important for them to do that, because they get an operating advantage. Never mind the fact that these are the drivers’ favorite trucks to drive, and there’s a lot of demand to have them.
You see them on the road, they’re beautiful. It’s what people want to be operating in all the markets, so that’s really important as well. I think that the other part of it is they’re efficient to build for us. So that’s also helpful. So I think that new products are good for us. It’s not just limited to the traditional markets of Europe and North America. South America is doing excellent as well. The DAF brand is a leading brand there. We’re gaining market share quickly. The dealers are doing really well, and South America is a growing part of our performance, which is contributing to our overall margin growth. As far as what we see, it is substantially full in all markets. So that includes South America, Europe, North America, Australia, Mexico, pretty much everywhere.
So the demand for PACCAR is great right now. And as far as 2024, well, 2024, it’s the early conversations with people as they’re, kind of, figuring out what their capital plans will be and how many trucks they’ll buy next year. So it’s the early conversations.
Jamie Cook: Thank you.
Preston Feight: You bet.
Operator: Our next question comes from the line of Steven Fisher with UBS. Please go ahead.
Steven Fisher: Thanks. Good morning, I want to come back to the Parts business. I’m curious what actually drove the faster-than-expected revenue growth in your parts business? The guidance, again, is somewhat similar to what you rolled out for Q1, so curious what was the surprising part to you? I mean it doesn’t seem like it was an accelerating freight market since we don’t really have that. So I’m curious about that. And maybe just generally how cyclical or really not cyclical you think the Parts revenues might be over the next few years?
Preston Feight: Harrie, do you want to share some thoughts on that?
Harrie Schippers: Sure. I think I want to echo what Preston said that we’ve invested a lot of new systems to make it easier for our dealers and customers to have the right parts on the shelf when trucks come into workshop. It is the proprietary components, the PACCAR engines, the PACCAR transmission, PACCAR axles, all the new proprietary parts on the new trucks, where customers only can get service at a Kenworth, Peterbilt or DAF dealership. So the trucks come into our workshops. And once it’s in the workshop, our teams do a great job to make sure the parts are there that those trucks need and that sells the parts. We’ve invested in more distribution centers, added a new one in Louisville, Kentucky. So we continue to build out that footprint.
I think the first quarter was especially strong in Europe, where we saw Parts growing really strong. It’s just a combination of all those efforts that come together and having the parts available, strong performance by the team worldwide.
