PACCAR Inc (NASDAQ:PCAR) Q4 2024 Earnings Call Transcript

PACCAR Inc (NASDAQ:PCAR) Q4 2024 Earnings Call Transcript January 28, 2025

PACCAR Inc misses on earnings expectations. Reported EPS is $1.66 EPS, expectations were $1.7.

Operator: Good morning, and welcome to PACCAR’s Fourth Quarter 2024 Earnings Conference Call. All lines will be in a listen-only mode until the question-and-answer session. Today’s call is being recorded, and if anyone has an objection, they should disconnect at this time. I’d now like to introduce Mr. Ken Hastings, PACCAR’s Director of Investor Relations. Mr. Hastings, please go ahead.

Ken Hastings: Good morning. We’d like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR’s Director of Investor Relations. And joining me this morning are Preston Feight, Chief Executive Officer; Harrie Schippers, President and Chief Financial Officer; and Brice Poplawski, 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 that may affect expected results. For additional information, please see our SEC filings at the Investor Relations and the Investor Relations page of paccar.com. I would now like to introduce Preston Feight.

Preston Feight: Hi. Good morning, everyone. Harrie, Brice, Ken and I will update you on our fourth quarter and full year 2024 results as well as other business highlights. PACCAR’s outstanding employees delivered strong results by providing our customers with the highest quality trucks and transportation solutions in the industry. In 2024, PACCAR achieved annual revenues of $33.7 billion, net income of $4.2 billion and an after-tax return on revenues of 12.4%. This is the second highest profit in the company’s history, and it was a great year for PACCAR. PACCAR’s strong financial performance reflects the higher profitability of the latest generation of Kenworth, Peterbilt and DAF Trucks, record results in our Parts division and another good year for PACCAR Financial Services.

PACCAR shareholders and customers benefited from the $8.6 billion invested over the past 10 years in new products, world-class facilities and state-of-the-art technologies. PACCAR achieved 86 consecutive years of net income and has paid a dividend every year since 1941. In 2024, PACCAR declared $4.17 per share in dividends, including a year-end dividend of $3 per share. This is a 53% payout of net income and a dividend yield of 4%. PACCAR’s fourth quarter revenues were $7.9 billion, and net income was $872 million. PACCAR Parts achieved excellent fourth quarter revenues of $1.6 billion and pre-tax profits of $428 million. Last year’s US and Canadian Class 8 truck retail sales were 268,000 units. Kenworth and Peterbilt’s share increased to a strong 30.7%, up from 29.5% in the prior year.

In the medium-duty market, Kenworth and Peterbilt’s excellent new medium-duty truck has created customer value and market share grew from 14.5% to 18% as they produce a record 21,500 medium-duty trucks. In 2025, the US economy is projected to expand by more than 2%. The vocational truck sector, where Peterbilt and Kenworth other market leaders is steady. The less-than-truckload market is performing well, while the Truckload segment is beginning to show signs of improvement. The US and Canadian Class 8 truck market is forecast to be in a range of 250,000 to 280,000 vehicles. We anticipate a strengthening market as we progress through the year. European above 16-tonne truck registrations were 316,000 last year. Customers appreciate DAF’s industry-leading fuel efficiency and driver comfort.

DAF trucks have a competitive advantage in the European market due to an innovative, aerodynamic design and feature the largest and most luxurious cabin interior. In 2025, the European economy is forecast to grow modestly. We expect above the 16-tonne truck market to be in the range of 270,000 to 300,000 registrations. Last year, the South American above 16-tonne market was 119,000 vehicles and is expected to be similar this year. DAF’s market share in the important Brazilian market was right around 10%, and reflects a 23% production increase to more than 10,000 trucks in 2024. In addition to its successful growing business in Brazil, DAF trucks are now sold in Mexico and in the Andean region of South America. PACCAR Truck, Parts, and other gross margins were solid 15.9% in the fourth quarter.

These margins are considerably higher than in prior industry cycles, reflecting the increased value of the new Kenworth, Peterbilt, and DAF trucks provide to customers as well as the continued growth of PACCAR Parts. In the fourth quarter, PACCAR delivered 43,900 trucks and in the first quarter of 2025, deliveries are forecast to be around 40,000. We estimate PACCAR’s worldwide first quarter Truck and Parts gross margins to be similar to the fourth quarter and in a range of 15.5% to 16%. In addition to the strong financial performance, other business highlights in 2024 included PACCAR’s progress on Amplify Cell Technologies, our joint venture to manufacture commercial vehicle batteries in the United States. DAF was honored as a Fleet Truck of the Year in the U.K. PACCAR Parts celebrated the 30th anniversary of TRP.

Peterbilt earned the Environment and Energy Leader Award for Sustainability and, Kenworth celebrated the 50th anniversary of its world-class truck factory in Chillicothe, Ohio. We look forward to an excellent year in 2025 as we celebrate the 120th anniversary of PACCAR’s founding in 1905. Harrie Schippers will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights. Harrie?

Harrie Schippers: Thank you, Preston. In 2024, PACCAR Parts set new records for revenues and profits. Annual revenues increased by 4% to a record $6.7 billion, and pre-tax profit increased to a record $1.71 billion. Parts gross margins averaged 30.9%. In the current freight environment, we estimate Part sales to grow by 2% to 4% this year. PACCAR Parts’ excellent long-term growth reflects the benefits of investments that increase vehicle uptime and convenience for customers. PACCAR’s aftermarket parts business provides strong profitability through all phases of the business cycle. PACCAR Parts has expanded to 20 parts distribution centers or PDCs worldwide, including a new PDC in Germany, which opened in November. This PDC enhances parts availability and delivery times to German dealers and customers and is part of a strategy to increase DAF’s truck market share in the largest truck market in Europe.

PACCAR Financial Services achieved fourth quarter pre-tax income of $104 million. Annual pre-tax income was $436 million. PACCAR Financial is performing well with a portfolio that has excellent credit quality and low past dues. PACCAR Financial provides the highest quality service in the market and makes it easy for customers to do business with them through the efficient use of technology in the credit application and loan servicing processes. PACCAR Financial operates 13 used truck centers around the world to support the sale of Premium, Kenworth, Peterbilt and DAF used trucks, and is adding a new used truck center in Warsaw, Poland this year. Last year, PACCAR invested $796 million in capital projects and $453 million in research and development.

PACCAR delivered an excellent return on invested capital of 25.5%. This year, we are planning capital investments in the range of $700 million to $800 million and R&D expenses in the range of $460 million to $500 million as we invest in key technology and innovation projects. These include new clean diesel and alternative fuel engines, the next generation of battery electric powertrains, advanced driver assistance systems and integrated connected vehicle services. PACCAR is expanding manufacturing capacity at our factories in Europe, North America, Brazil and Australia. These investments will support PACCAR’s future growth as well as our customers’ success. PACCAR’s independent Kenworth, Peterbilt and DAF dealers consistently invest in their businesses, enhancing our industry leading distribution network and making a significant contribution to PACCAR’s long-term success.

PACCAR looks forward to another excellent year in 2025. Thank you. We’d be pleased to answer your questions.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Tami Zakaria of JPMorgan. Tami, your line is open. Please go ahead.

Tami Zakaria: Hey good morning. Thank you so much for taking my question. So my first question is on the delivery guide. Can you help us understand how to think about deliveries by geography in the first quarter versus the fourth quarter, trying to bridge the gap and where that difference is coming from, which geography, if you could highlight?

Preston Feight: Yeah. Happy, Tami. Good to talk to you. What I would share with you is in the US, we expect Class 8 to be flat or up even a little bit in Q1. But what we’ve seen is the medium-duty market, which has just been very robust is probably normalizing now. So we’ll see us a bit smaller medium-duty market. I’d also remind people that there was a Euro 6 implementation in Mexico that was in the fourth quarter. So that was there was a bit of a pre-buy in Mexico that won’t be present in their first quarter. And also, if you’re doing comparisons of Q4, Q1, we had good supplier performance in the fourth quarter that allowed our normal year-end inventory reduction that take place. So all those things kind of had an impact, and maybe the only last one I’d add is we have fewer production days outside the US, specifically in South America as an impact.

So all that goes into that delivery guidance. But in essence, we’re seeing flat Class 8, maybe slightly up Class 8 in the U.S. markets.

Tami Zakaria: Got it. That is very helpful color. Thank you. And my second question is on the investments for Amplify. The JV you have with Cummins and Daimler. Do you think you could revisit that — the whole idea could be rethought at this point given the current administration shift away from BEVs.

Preston Feight: Well, I’ll share this with you. I am so happy with how that’s going. And I think if I could remake the decision now knowing what I know, I’d make same decision. It’s a long-term strategic objective for our company to be able to offer our customers a full portfolio of powertrain choices. We see that there will be places where battery electric vehicles make sense or could be hybrid vehicles. And our Amplify Cell Technologies joint venture will allow us to have the lowest cost, highest quality batteries so that we’ll be the most competitive in the market, which will be in support of our customers.

Tami Zakaria: Okay. Great. Thank you.

Preston Feight: You bet.

Operator: Thank you. Our next question comes from Kyle Menges of Citi. Kyle, your line is open. please go ahead.

Kyle Menges : Thanks, guys. So you did reference the vocational strength, and it seems like that’s been a big piece of why we’ve seen this order resilience in Class 8. But I guess just what gives you confidence that dealers aren’t overordering here to stay in body builders pipelines? And just could you maybe give us a gauge of how many of those orders actually have a customer’s name attached? Thank you.

Preston Feight: Yes. Yes. We have all of our customers there feel really solid. In fact, if you — one way to look at it is inventory. So the industry inventory is running, what, 3.1 months in heavy-duty and Kenworth and Peterbilt’s inventory levels at 2.3 months. So our inventory is in good shape. There is a backlog at body builders, but those are really spoken for trucks.

Kyle Menges : Okay. Thank you. And then if you could just provide maybe a little more color on how you’re thinking about the medium-duty market in U.S. and Canada as we progress through the year. You mentioned probably down a little bit in 1Q, but I guess just how are you thinking about the growth as we move throughout the year, first half versus second half would be helpful? Thank you.

Preston Feight: Yes. I think that what we saw kind of referencing back, Kyle, to last year, you’d say that we had a pretty steady set of builds in the year. There were strong builds. There was, if you recall, a mirror factory fire that amplified some deliveries in the third quarter. So when you’re comparing 3Q to 4Q, you’d see lower deliveries at 4Q. And now we just think that the medium-duty market is going to go back to more normal, historically normal levels. And in those normal levels, we’ll continue to see our new products perform well. Customers seem quite happy with the new 2.1-meter wide Kenworth and Peterbilts. They work well, body builders, they’re gaining our market share. In fact, we’ve grown from 14.5% to 18% share in the medium-duty market last year. So we feel good about our position. The cadence of half one to half two probably would expect it also to see strengthening in the second half.

Operator: Thank you. Our next question comes from Steven Volkman of Jefferies. Steven, your line is open. Please proceed.

Steven Volkman: Great. Good morning everybody. Thank you for taking my call. I’m curious as we sort of do the dumb math and look at total truck revenues divided by the deliveries, it seems like the kind of revenue per truck was down 5%-ish, which is one of the bigger declines we’ve seen recently. And I know there’s a lot in there between price and mix and things like that. But I’m curious, if you can provide any color, was that mostly mix? Is there kind of more day cab happening or more vocational? Or how do we think about kind of what’s going on in price mix?

Harrie Schippers: Yes, Steve, there’s a little bit of mix — regional mix going on. So North America is more vacation or holidays in the fourth quarter. That’s a little bit stronger mix in Europe in Q4. And then on top of that, we had unfavorable foreign exchange rates. So it’s a very strong dollar. And that probably accounts for half of the reduction in average sales price.

Steven Volkman: Got it. Okay. Right. A lot in there. Okay. And then slightly differently, have you guys announced or started telling your customers kind of the order of magnitude of the expected price increase for the 2027 regulations that we’re all looking forward to.

Preston Feight: We’re having general conversations with them about that, and we’re still saying it can be the $10,000, $15,000 price range for adjustments to 2027. Obviously, the details of that aren’t finalized, but that’s kind of what it feels like right now.

Steven Volkman: Okay. Thank you, guys.

Preston Feight: You bet.

Operator: Our next question comes from Rob Wertheimer of Melius Research. Rob, your line is open. Please go ahead.

Rob Wertheimer: Thank you. I had two, if I may. First is just I’d love to hear your thoughts on gross margin trend and truck pricing. It seems like used market to stabilize, inventory at least on sweep business come down. I don’t know if you see that and probably better data that you have. And just curious whether you see any hopefulness or the reverse on new truck pricing? That’s my first one.

Preston Feight: Yes. Sure. Rob, what we’d say is that we’re looking into Q1 and seeing like things should be pretty steady, as you can tell from our guide, where we said 15.5% to 16% gross margin. So see that things are starting to look up but just beginning to, as we noticed the truckload carriers starting to come back into the market and then probably gaining strength through the course of the year.

Harrie Schippers: And then on the used truck side, Rob, I would add that PACCAR Financials used truck inventory is at very healthy and low levels right now. And so that’s also a good thing.

Preston Feight: That’s a good leading indicator as well.

Rob Wertheimer: The bottom there. Okay. Perfect. And then Preston, just spark my curiosity, you mentioned hybrid trucks. And I think across the auto, maybe even the truck world, years ago, there was a bit of resistance to hybrids and the feeling that you’d go full electric. I’m curious what you’re hearing from your customers. Is that something that there’s actual demand for now? Or they really use cases that are non-regulatory? I’m just curious about your thoughts there. I’ll stop there. Thank you.

Preston Feight: Yes. Great question, Rob. I think what we see is that through hybrid systems, we might be able to improve fuel efficiency and likewise, greenhouse gas by double-digit levels. And if we’re able to do that, that’s obviously desirable for our customers. There is an added cost to it. So the balance of what’s the payback time sits into there. So there is a striving for a business case, which is free of regulatory hurdles, but we know that there will be regulations coming and going over time. So that could also be an added incentive to hybrid business case. And that’s true for both US and Europe, maybe especially true in Europe.

Operator: Thank you. Our next question comes from Steven Fisher of UBS. Steven, your line is open. Please go ahead.

Steven Fisher: Hi. Thanks. Good afternoon. I just wanted to touch upon the margins in the first quarter. As you said, Preston, they’re going to be pretty stable, which is pretty impressive on 10% lower production. I guess, I’m just curious what is enabling that steadiness of the margins in light of that lower level of production?

Preston Feight: Well, I think what we’re seeing is the trucks are performing really, really well. So that’s helpful to us, obviously, in terms of discussions with customers. Fuel economy is great. The reliability is great. Our warranty costs are slightly down. And it just feels like between all those factors and where the market is starting to head, we think that we’ll see that kind of a margin appear in the first quarter.

Steven Fisher: Okay. And I guess, just curious about the broader pricing environment now. Do you think that it’s now kind of more stable that we’re in this part of the downturn? And how confident can we be that sort of we’ve hit the low point on margins and pricing discounts for the year?

Preston Feight: Sure. Great question again. And I think what we’ve shared and we continue to share is like we see 2025 with improvement coming throughout the year. We think for sure in the second half, maybe it’s in the second quarter, we’ll have to watch how world develops, of course, but it feels like a positive trend.

Steven Fisher: Okay. Thank you very much.

Operator: Our next question comes from Angel Castillo of Morgan Stanley. Angle, your line is open. Please go ahead. Angel, we are receiving a lot of feedback from your line. We’ll just try and re-open your connection.

Preston Feight: Hey, Charlie, why don’t we go to the next caller, yes, Charlie let’s go to the next caller.

Operator: Our next question comes from Jamie Cook of Truist Securities. Jamie, your line is open. Please go ahead.

Jamie Cook: Hi. Good morning. Just to clarify, can you speak specifically what price cost was for truck and for parts in the fourth quarter specifically and what’s implied by region for 2025? And then my second question, it sounds like you would say the first quarter is the trough for margins in total. Is that for total company? Or is that also for truck margins? And I’m just wondering, if you get to the back half of the year, do you expect to see sales growth and then get back to a position where we’re actually seeing incremental margins versus decremental? Thank you.

Preston Feight: Yeah. I mean, that’s another way of asking what we already talked about, I think, quite a bit. But the truck for Q4 price versus cost was negative 0.6% on price and cost was 2.7%. And what we’re expecting to see is some trending improvement through the course of the year, Jamie. And so we think that will be favorable to your point, and we see continued strong parts margins, so like 30.9% in 4Q, and we would expect to see continued good margins in the first quarter as well. So those are contributing to a general upward trend in our mind.

Jamie Cook: But was that by geography, I guess my question was.

Harrie Schippers: I don’t think we provide it by geography, Jamie.

Jamie Cook: Okay. And then I guess the follow-up question was by the second half of 2025, should we start to see incremental margins? Are you assuming sales volumes are up versus decrementals? I mean your margins are pretty impressive right now in the first quarter.

Harrie Schippers: As the market improves in the second half of the year, we would expect margin development to improve accordingly.

Preston Feight: Yes. I mean, I think, Jamie, nice comment on — thanks also for the comment on the margins because it is — these are cycle-over-cycle, good margin improvements, a few hundred basis points. And we do think that as we’ve said last time we remain consistent. This time, we think that 2025 will see improvement throughout the year. And as it improves, that will be good for our incrementals.

Jamie Cook: Great. Thank you very much.

Preston Feight: You bet.

Operator: Thank you. Our next question comes from Tim Thein of Raymond James. Tim, your line is open, please go ahead.

Tim Thein: Thank you. Good morning. Maybe just first question, just in terms of any comments you could provide just as it pertains to order activity and how the backlog is filling in both North America and Europe? Just curious, in terms of how far your lead-times extend and how that presumably quoting into the second quarter, but maybe you could just give some color on that?

Preston Feight: Sure Tim. Good question, good insight to gain for everybody. I think that we’re roughly 75% or 75% full in Q1 and probably more like half full in Q2. So, that’s kind of where things look like, pretty reasonable levels.

Tim Thein: Got it. Okay. And the — presumably the composition of that backlog, much more weighted, I would assume, towards vocational. And should we think about any mix impact from that? Just if that supposition is correct, that would be a heavier weighting than normal? Is there much of an impact, again, from a product mix standpoint? Or is that kind of a neutral dynamic there?

Preston Feight: Tim, I think that the vocational — the heavy influence of vocational was more of a last year thing. And as vocational steady now, I think the mix shift is kind of coming back to more traditional levels.

Tim Thein: Okay. Okay, got it. And then maybe for Harrie, just if — a big if, but we had the dollar at today’s levels through the quarter, some pretty big moves against some of your key currencies. Is there a way to think about, A, what FX had — what impact that foreign exchange had on margins in the fourth quarter and what that may imply if the dollar were at today’s levels for the first quarter?

Brice Poplawski: Yes, this is Brice. I’ll just comment on that. We had a negative effect on our net income in the fourth quarter from the foreign currencies of about $20 million. And that’s something we will — obviously, we don’t know what’s going to happen to rates. But as you said, if they stay where there are, obviously, it would be a recurring effect.

Harrie Schippers: And it’s all factored into our guidance of between 15.5% to 16%.

Tim Thein: Okay, thank you very much.

Operator: Thank you. Our next question will go to Angel Castillo of Morgan Stanley. Angel, your line is open, please go ahead.

Angel Castillo: Hi, Yes, can you hear me at this time?

Preston Feight: Yes, you’re not giving us quite the static you did on your first time.

Angel Castillo: I apologize for that. It sounds like it is working right now. So, maybe — thanks for taking my question. I apologize if somebody asked it, but just I think you lowered the R&D expense for the full year. Can you just talk about maybe what’s driving that? And maybe going back to one of the initial questions around the Amplify JV, obviously, a lot of good, I guess, strategic reasons to continue to invest in that, but I believe it was a multiphase project. Is it fair to assume that it will be — you will be doing it in phases and deciding to move forward? Or is it — we should assume that all three phases are moving forward?

Preston Feight: Yeah, sure. It’s a great question, both of them. So R&D is going to be still year-over-year, we thinking slightly up. So probably in the range of 5% up from last year just because there’s a lot of great projects for us to be working on. Of course, the Amplify ONE [ph] doesn’t really fit into that space. But what we’re doing with Amplify is we’ve cleared the ground now. We’re putting in the buildings. And then what we’ll do is measure how much capacity we need to install. But we want to get started on that. So we have some capacity available for the markets that exist. And then we’ll just scale capacity based upon market demands for the EVs or hybrids.

Angel Castillo: That’s helpful. And then I wanted to go back to some comments you’ve made this quarter and I guess last quarter as well in terms of maybe some green shoots on the TL are starting to see some improvements. I think you mentioned that you could maybe see some improvement as soon as 2Q. Can you just give us a little bit more color what exactly are you hearing from your customers in terms of potential green shoots on the TL market? And maybe what would give you confidence in that 2Q number starting to show a rebound versus maybe more of a second half?

Preston Feight: A couple of things. One is, we’ve just started to see spot rates improvement. So that’s something that’s measuring into our thoughts. I’d say some of the capacity has come out the market. So it’s making it easier for the good carriers to become successful. And then I would also add, as we said earlier, that the used market inventories are quite low. And so that’s kind of a tell of how the world is starting to turn a little bit. So all of those are soft indicators of what we think is to come.

Angel Castillo: Very helpful. Thank you.

Preston Feight: You bet.

Operator: Thank you. [Operator Instructions] Our next question comes from David Raso of Evercore ISI. David, your line is open. Please proceed.

David Raso: Hi. Thank you for the time. Your comment about strengthening market as the year progresses; how is that influencing how you’re pricing the 2026 model years that start shipping in April? And then wrapping with that maybe a bit, your reaction to some of the recent executive orders from the White House just to think about how that influences, how you think about the pre-buy, which I assume sort of dovetails a little bit into how you think about pricing?

Preston Feight: Well, we look at the executive orders, we pay attention to it, but we know what the rules are today, and we are ready for those rules. If they were to change then we’d be ready for that, too. I think one of the things we’ve been able to do is develop the suite of technologies we need. The California has already implemented low NOx engines and PACCAR has a NOx engine in California. So we can be available to that. And I think shift around, we’ll be ready in that position as well. To the first question you asked about pricing in 2026 product shipments. I think as the market moves around and people are experiencing the great performance of the Kenworth, Peterbilt and DAF trucks, we expect that we will see strengthening price position for ourselves as the course of the year progresses, right? We think that trend carries on even beyond 2025 we anticipate.

David Raso: And we hear the model year 2026 start shipping in April. I know there’ll be a little mix of 2025s and 2026s in 2Q. But is that accurate? We start getting some of the 2026 models shipping in 2Q for this year?

Preston Feight : Yes. Your comment, David, there, I don’t know what that is, but that doesn’t resonate to me of a model year 2026 shifting in April for us. So I’m not sure how to answer that.

David Raso: Okay. We can talk offline. But basically, the higher pricing sequentially is what you’re referencing as the year goes on however you want to name the model.

Preston Feight : That’s fair, but — yes.

David Raso: Yes. Okay. Thank you very much. I appreciate it.

Preston Feight : You bet.

Operator: Thank you. Our next question comes from Jerry Revich of Goldman Sachs. Jerry, your line is open. Please go ahead.

Jerry Revich : Yes. Hi. Good morning and good afternoon, everyone. I wanted to ask on the per truck performance in terms of operating cost. Can you talk about the cadence that you expect over the next couple of quarters? It sounds like based on the gross margin guidance for the first quarter, maybe we’re seeing a decline in per truck costs. I’m wondering based on your contract structures, et cetera. Can you just talk about the cadence over the next couple of quarters?

Harrie Schippers: If you look at the cost per truck, Jerry, in 2024, we saw some more content on trucks, especially in Europe, where we — because of legal requirements, some are connected, ADAS and other features we added during the year. We expect those cost levels to be more or less stable as we enter the New Year, but no specific special developments in 2025 as far as I can tell right now.

Jerry Revich : Okay. So — and separately, on the topic of EPA 27, I appreciate the base case is it’s going to move forward, but obviously, governments can make changes. In a scenario if there’s an adverse legal ruling or something along those lines, can you talk about how the company would react in that scenario if we have different regulations for California and other states versus the rest of the U.S., how would you see that scenario playing out in your planning process?

Preston Feight : One of the things that’s great about PACCAR is the quality of people in this company and our ability to be nimble and reactive is, I think, second to none. So I think if there are changes in regulations, there is nobody better at adjusting to those regulatory changes than the people at PACCAR. And so we’ll make sure we have the right products in front of the customers that are going to give them the best operating condition for regulatory environment.

Jerry Revich : Okay. Appreciate it. Thank you.

Preston Feight : You bet.

Operator: Our next question comes from Jeff Kauffman of Vertical Research Partners. Jeff, your line is open. Please go ahead.

Jeff Kauffman: Okay. Thank you very much. Two questions. Number one, I want to come back to — the change in revenue per truck was down about 4.9. I think you mentioned that was price. I’m assuming most of the rest of the difference is mix and currency. Could you give me an idea of how to think about that math?

Harrie Schippers: Yes. Like we said, I think more or less half of the impact is currency. And there is another element there that in the fourth quarter, U.S. and Canada have more holidays. So the mix was a little bit more heavily towards Europe and other markets outside the U.S. but average sales prices — trucks are smaller and average sales prices are lower.

Jeff Kauffman: Okay. Thank you. And I just want to follow-up on David Raso’s question. Obviously, as the administration comes out with new rules is that you to comply, where do you think — ignoring 2027 in the EPA, but are there other rulings that have been discussed, that would be risk worth thinking about in terms of its impact to PACCAR from the new administration?

Preston Feight: I don’t think of them as risk as much as I think of them as opportunities. I think any time environments change, if you operate better than your competitors, then you’ll find yourself in a winning position and that’s where we intend to be.

Jeff Kauffman: So Preston, what would some of those opportunities be in your mind?

Preston Feight: The fact that we produce local-for-local, have factories in the US, where we produce the trucks for the US. Same in Mexico, Brazil, Europe makes us very well protected to things like tariffs, for example. So we feel we’re in a really good spot there.

Jeff Kauffman: Okay. Thank you very much.

Preston Feight: You bet.

Operator: Thank you. Our next question comes from Michael Feniger of Bank of America. Michael, your line is open. Please go ahead.

Michael Feniger: Yes. Hi, everyone. Thanks for having me on. Just PACCAR has clearly gained a lot of share. I realize it’s because of your great trucks and your products, just I’m curious if we see other OEMs raising capacity, trying to go after your market share, pricing intensifies, I’m curious how you guys weigh the puts and takes there? Is PACCAR more likely to continue to kind of price for your premium trucks and look to hold that margin? Or is it every year, your goal is to try to gain that level of market share? Is that not as linear? Is that more over a multi-cycle basis? Just kind of curious how you think about that because you guys have gained so much share and there is some other OEMs kind of raising capacity?

Preston Feight: Yes. The way we think about it is we try to, first off, make sure that we produce great trucks for our customers. And if we produce great trucks for our customers that are valuable to them, then they’re willing to pay us for those trucks and share in that value equation. That’s the most fundamental thing. The more we can do that for them, the better it works for us, and you gave a nod to the people that PACCAR producing great trucks. I’d also share in that our dealers are really outstanding and do a good job of supporting our customers and going out there and showing them the benefits of our trucks. So it’s really about great trucks that achieve benefits to our customer. That helps us maintain our premium position and allows us also to simultaneously gain market share.

Michael Feniger: Great. And just on parts. The last three quarters, your revenue is up 4%. I think the pre-tax profit has been slightly down year-over-year. Is there anything on the last — that you would want to flag on 2024? I’m just curious as we kind of kind of turn the page, does pre-tax profit — does the parts profit grow in line with sales as we kind of look at 2025? Just any moving pieces there would be helpful.

Harrie Schippers: In 2024, we saw part sales increased by 4%. At the same time, we see that the market for auto sales for parts was down 2% or 3%. So growing our parts sales in a smaller market at excellent margins, that’s a really impressive performance by the entire PACCAR parts team. And as we go into 2025, we expect parts to grow by 2% to 4% for the year. So that will be another strong year for PACCAR parts.

Michael Feniger: Thank you.

Preston Feight: Yes, you bet.

Operator: [Operator Instructions] Our next question comes from Scott Group of Wolfe Research. Scott, your line is open. Please go ahead.

Scott Group: Hey. Thanks. Good morning, good afternoon. I just want to actually follow-up on that last question. So if you think about last year, the markets down and parts sales are up 4%. And I guess this year, you think the market is flat to up, but the parts growth slows. So help me understand why we’re not seeing a pickup in part sales if the market is improving?

Preston Feight: Well, one of the things is Harrie indicated, is like the cadence of the parts market last year and like the general market, it’s going to be a tale of two halves, probably for the total market. So what we’re talking about right now is Q1 and excellent parts performance in Q1, and we would expect to see then growth through the course of the year.

Harrie Schippers: It’s strongly related to freight activity on the rest of the business. So it should also have that kind of cadence.

Scott Group: Okay. That makes sense. And then I think you said 75% sold for the first quarter, half full for the second quarter. Just do you have any sort of context does that sort of about right, is that ahead of schedule, behind schedule? And then do you have any view of the order strength of late, has pre-buy activity started yet? Or is that still all on the come?

Preston Feight: Yeah. We’re in a fairly normal position for our backlogs, really kind of normal for this kind of part of the cycle. And I would say that the discussions around what people are going to do for the second half of 2025 and then in 2026 are happening. But I wouldn’t say there’s really been any significant order intake in that area.

Scott Group: Thank you, guys. Appreciate it.

Preston Feight: Yeah. You bet.

Operator: Thank you. Our next question comes from Mats Liss of Kepler Cheuvreux. Max, your line is open. Please go ahead.

Mats Liss: Yeah. Hi. Thank you for taking my question. I just had a question about the European market. If you could give some flavor about well different countries there and also how you see the market progress around 2025. I mean, you have the guidance, but if you could give some flavor there, please?

Preston Feight: Yeah, sure. Let me start and then Harrie can add some thoughts to it. I mean, the general sense for us is the European economy is maybe going to experience slight growth, I think really slight potentially in Germany. What we saw last year is that the Eastern — Central and Eastern European markets were softer because of geopolitics, I would say. So that has some impact on the market overall. We’ll see if that that continues through this year. And kind of leads to, I think, people in Europe feeling moderately okay about the market. Harrie, I don’t know what you would add to that.

Harrie Schippers: Overall, markets in Europe last year was down 8%. And then we talk about Western Europe, maybe down 5%, but Central and Eastern Europe in the 20% range. So, especially countries like Poland, Lithuania are more impacted. And DAF has a strong presence there. So it has a little bit bigger impact on DAF than it maybe has on some of our competitors. But looking into 2025, the market and the range that we guided, that’s a good market in which PACCAR should do really well.

Mats Liss: Okay. Great. Thank you. And could you just add a comment there regarding your capacity utilization in Europe with DAF?

Harrie Schippers: Capacity utilization is good.

Preston Feight: We have capacity for when the market grows. We continue to make smart investments in the factories there. We have our factory in the UK factory in the Netherlands. And so we can produce the trucks we need to. We continue to make those factories more and more efficient.

Mats Liss: And the back — or the coverage there for first and second quarter is about the same as the average that you mentioned for the whole group?

Harrie Schippers: Yes, that’s correct. Europe is more or less in line with what Preston just mentioned in the total group.

Mats Liss: Okay, great. Thank you very much.

Harrie Schippers: You’re welcome.

Preston Feight: You bet. Have a good day.

Operator: Thank you. We have no further questions in the queue at this time. So, I’ll hand back over to the management team for any further or final remarks.

Preston Feight: I’d like to thank everyone for joining the call, and thank you, Charlie.

Operator: Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.