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PACCAR Inc is a global leader in the design, manufacture, and distribution of commercial trucks, aftermarket parts, and financial services. The company operates under the Kenworth, Peterbilt, and DAF nameplates, offering a range of light-, medium-, and heavy-duty trucks . In addition to trucks, PACCAR provides aftermarket parts for commercial vehicles and offers finance and leasing products related to its core offerings . The company also engages in the manufacturing and marketing of industrial winches, although this is a minor part of its business .
- Truck - Designs, manufactures, and distributes high-quality light-, medium-, and heavy-duty commercial trucks under the Kenworth, Peterbilt, and DAF nameplates.
- Parts - Distributes aftermarket parts for trucks and related commercial vehicles, enhancing vehicle performance and longevity.
- Financial Services - Provides finance and leasing products and services related to PACCAR products, supporting customers with tailored financial solutions.
- Other - Manufactures and markets industrial winches, contributing a minor portion to the company's overall sales and revenues.
What went well
- PACCAR is investing in factory capacity and anticipates growth in the coming years, ensuring they will not be capacity constrained .
- The company is performing at a structurally stronger level, with improved truck profitability and margins expected to hold true .
- PACCAR holds over 40% market share in the vocational truck sector, which is expected to remain strong in 2025 due to continued infrastructure spending .
What went wrong
- PACCAR anticipates a decrease in fourth-quarter truck deliveries to around 42,000 vehicles, down from 44,900 trucks delivered in the third quarter, due to fewer production days and supplier-related limitations . This suggests potential supply chain and production challenges ahead.
- European volumes have been down more than the market this year, particularly in Central and Eastern Europe affected by the war in Ukraine and slower economies . PACCAR expects these conditions to continue into next year, indicating ongoing weakness in a key market.
- Truck gross margins decreased to 16.6% in the third quarter and are anticipated to decline further to between 15.5% and 16% in the fourth quarter, driven by higher costs, including supplier issues and operating expenses . This reflects ongoing margin contraction that may impact profitability.
Q&A Summary
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Pricing Outlook
Q: What's the current pricing trend and outlook?
A: Pricing was flat in Q3 with costs up 3% on the truck side. The company anticipates that as market tensions ease over the coming months and next year, the pricing environment could improve, benefiting price versus cost. -
Gross Margin Outlook
Q: Is Q4 gross margin a base for 2025?
A: The year started exceptionally strong, but truckload carriers have faced challenges. In 2025, the company expects a mirror image of this year—starting like it's finishing and then accelerating. Stabilization in the truckload sector is significant, and growth is anticipated over the coming year. -
Inventory Levels
Q: Is 2.9 months inventory level acceptable?
A: The company feels very good about the 2.9 months inventory level, considering it healthy. Over half of the inventory is vocational trucks at body builders, strengthening their position. Inventory levels have decreased from 3.3 months at the end of June to 2.9 months currently. -
Vocational Market Strength
Q: Will the vocational market remain strong next year?
A: The vocational market is expected to continue running strong next year. The company's differentiation in vocational trucks serves as a margin tailwind , and they are well-positioned with strong vocational inventory. -
Prebuy Expectations
Q: Is a prebuy expected to boost demand?
A: Improvement in the freight market is anticipated as some carriers lead the market. As trucks have gotten older, buyers will be interested in purchasing enough trucks for the next several years, contributing to 2025's growth. -
Europe Production Outlook
Q: Will you deliver to demand in Europe next year?
A: The company plans to build to demand next year. European volumes have been down more than the market due to slower economies in Central and Eastern Europe affected by the war in Ukraine. They feel well-positioned in Europe with strong price discipline and great new trucks. -
Order Books and Pricing for Next Year
Q: Have you opened order books for next year? What's pricing?
A: The company engaged significantly with customers, with enthusiasm for the trucks and expectations of purchases next year. Current conditions introduce price/cost tension, but relief is expected as they move into 2025. -
Parts Profitability Outlook
Q: What's the outlook for parts profitability?
A: Despite a smaller overall aftersales market this year, the parts team has achieved 5% growth and maintained excellent margins. They expect continued strong performance as the market opens up.
Guidance Changes
Quarterly guidance for Q4 2024:
- Truck Deliveries: 42,000 (lowered from 43,000 to 44,000 )
- Gross Margins: 15.5% to 16% (lowered from 17% )
Annual guidance for 2024:
- Parts Sales Growth: 4% (no change from prior guidance )
- Research and Development Expenses: $450M to $470M (lowered from $460M to $480M )
- Capital Expenditures: $760M to $800M (raised from $725M to $775M )
- U.S. & Canadian Class 8 Market: 260,000 trucks (no change from prior guidance of 240,000 to 280,000 )
- European Truck Industry Registrations: 300,000 vehicles (raised from prior range of 260,000 to 300,000 )
- South American Above 16-tonne Market: 110,000 to 120,000 trucks (no prior guidance)
Annual guidance for next year (not previously guided):
- Capital Expenditures: $700M to $800M (no prior guidance)
- Research and Development Expenses: $480M to $530M (no prior guidance)
- U.S. & Canadian Class 8 Market: 250,000 to 280,000 vehicles (no prior guidance)
- European Truck Industry Registrations: 270,000 to 300,000 trucks (no prior guidance)
- South American Above 16-tonne Market: 110,000 to 120,000 trucks (no prior guidance)
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Your outlook for Europe next year suggests a potential decline in retail sales, and this year your deliveries have been down more than expected; do you plan to deliver to demand or continue to underproduce in Europe next year, and how should we think about your production strategy?
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With the normalization of the used truck market in North America and continued softness in Europe, how is the spread between new and used truck prices evolving, and does this present challenges or opportunities for you in 2025?
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Considering your significant investments in manufacturing capacity, how much additional capacity can you bring on to serve the U.S. market, and will this increased capacity be available in 2025 or more towards 2026?
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As we approach the 2027 emissions standards and potential pre-buy activities, is there any reason PACCAR cannot deliver above-average incremental margins like you did prior to the recent downturn, especially with your new product introductions?
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Regarding the bottlenecks at body builders affecting vocational truck deliveries, is the current level of trucks awaiting body builders hindering your ability to grow the vocational business in 2025, and what steps are you taking to alleviate this bottleneck?
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024
- Guidance:
- Truck Deliveries: Expected to be around 42,000 vehicles .
- Parts Sales Growth: Expected to grow around 4% .
- Truck Parts and Other Gross Margins: Anticipated to be in the range of 15.5% to 16% .
- Capital Expenditures: Projected to be between $760 million and $800 million for the year, and $700 million to $800 million for the next year .
- Research and Development Expenses: Expected to be $450 million to $470 million for the year, and $480 million to $530 million for the next year .
- U.S. and Canadian Class 8 Market: Estimated to be around 260,000 trucks for the year, and 250,000 to 280,000 vehicles for the next year .
- European Truck Industry Registrations: Estimated to be around 300,000 vehicles this year, and 270,000 to 300,000 trucks for the next year .
- South American Above 16-tonne Market: Projected to be in a range of 110,000 to 120,000 trucks this year and similar next year .
- Gross Margins: Expected to be in the range of 15.5% to 16% .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: Q3 2024
- Guidance:
- Truck Deliveries: Estimated to be around 43,000 to 44,000 trucks .
- Gross Margins: Projected to be around 17% .
- Parts Sales Growth: Expected to grow around 4% for the rest of the year .
- Research and Development Expenses: Projected to be $460 million to $480 million for 2024 .
- Capital Investments: Planned to be $725 million to $775 million for the year .
- U.S. and Canadian Class 8 Market: Estimated to be 240,000 to 280,000 trucks for the year .
- European Above 16-tonne Market: Projected to be 260,000 to 300,000 trucks for 2024 .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: Q2 2024 and FY 2024
- Guidance:
- Truck Deliveries: Delivered 48,100 trucks in Q1, anticipated 48,000 in Q2 .
- Gross Margins: Expected to be 18% to 18.5% in Q2 .
- Parts Sales Growth: Estimated to grow by 4% to 6% in Q2 .
- Capital Investments and R&D Expenses: Planned to be $700 million to $750 million and $460 million to $500 million for 2024 .
- Market Projections:
- U.S. and Canadian Class 8 market: 250,000 to 290,000 trucks .
- Medium-duty market in the U.S.: 100,000 units .
- European above 16-tonne market: 260,000 to 300,000 trucks .
- South American above 16-tonne market: 105,000 to 115,000 vehicles .
- Market Share:
- Kenworth and Peterbilt's U.S. Class 8 market share: 30.3% .
- Medium-duty market share: 17% .
- DAF's market share in Brazil: 10.7% .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: Q1 2024
- Guidance:
- Truck Deliveries: Forecasted to be around 48,000 units .
- U.S. and Canadian Class 8 Truck Market: Forecasted to be 260,000 to 300,000 vehicles for 2024 .
- European Above 16-tonne Truck Registrations: Expected to be 260,000 to 300,000 for 2024 .
- South American Above 16-tonne Truck Market: Expected to be 110,000 vehicles .
- Parts Sales Growth: Estimated to grow by 3% to 5% in Q1 2024 .
- Full Year Parts Sales Growth: Expected to grow 4% to 8% .
- Gross Margins: Estimated to be 18.5% to 19% .
- Capital Investments: Planned to be $700 million to $750 million for 2024 .
- Research and Development Expenses: Expected to be $460 million to $500 million for 2024 .
Competitors mentioned in the company's latest 10K filing.
- Daimler Truck Holdings AG: Included in the revised peer group effective January 1, 2022 .
- Iveco Group N.V.: Included in the revised peer group effective January 1, 2022 .
- Terex Corporation: Included in the revised peer group effective January 1, 2019 .
- AGCO Corporation: Part of the current peer group index .
- Caterpillar Inc.: Part of the current peer group index .
- Cummins Inc.: Part of the current peer group index .
- Deere & Company: Part of the current peer group index .
- Eaton Corporation: Part of the current peer group index .
- Oshkosh Corporation: Part of the current peer group index .
- TRATON SE: Part of the current peer group index effective January 1, 2021 .
- AB Volvo: Part of the current peer group index .
- Navistar International Corporation: Part of the prior peer group index from 2018 through 2020 .
- CNH Industrial N.V.: Removed from the peer group after spinning off Iveco .
- Dana Incorporated: Removed from the peer group .
Recent developments and announcements about PCAR.
Corporate Leadership
Leadership Change
Todd R. Hubbard is leaving his position as Vice President of Global Financial Services at PACCAR due to retirement after 17 years of service. His retirement will be effective on February 14, 2025 . Craig R. Gryniewicz has been elected to succeed him as Vice President of Global Financial Services. Mr. Gryniewicz previously served as President of PACCAR Financial Corp. .