PACCAR INC Q1 FY2025 earnings call

• Congratulated Harrie Schippers on retirement, Kevin Baney's new role, and Brice Poplawski's promotion. • PACCAR achieved good revenues and net income in Q1, with PACCAR Parts having record revenues and PACCAR Financial having strong results. • Progress on EU civil litigation settlements. • PACCAR is investing in key technology and innovation projects, including next-generation powertrains and advanced driver assistance systems. • Market outlooks: U.S. and Canadian Class 8 market estimated 235,000-265,000 trucks in 2025; European above 16-ton market projected 270,000-300,000 trucks; South American above 16-ton truck market expected 100,000-110,000 vehicles in 2025.

PACCAR achieved revenues of $7.4 billion and adjusted net income of $770 million in the first quarter. PACCAR Parts had record quarterly revenues of $1.7 billion and pretax income of $427 million, with gross margins of 30.7% in Q1. PACCAR Financial had pretax income of $121 million in Q1, 6% higher than the first quarter of last year. PACCAR delivered 40,100 trucks in Q1 and anticipates delivering 37,000 to 39,000 trucks in Q2. Truck parts and other gross margins were 14.8% in Q1, with Q2 margins expected to be in the range of 13% to 14% due to tariff impacts.

• U.S. and Canadian Class 8 market estimated 235,000 to 265,000 trucks in 2025. • European above 16-ton market projected 270,000 to 300,000 trucks in 2025. • South American above 16-ton truck market expected 100,000 to 110,000 vehicles in 2025. • Q2 truck deliveries anticipated 37,000 to 39,000. • Q2 gross margins expected 13% to 14% due to tariff impacts, with potential improvement in H2 as policy and emissions regulations stabilize.

• Uncertain economic conditions and tariffs affecting the North American truck market. • Uncertainty around the truck tariff policy investigation and its impact on margins. • Regulatory uncertainties related to emissions standards, such as potential changes to GHG Phase III standards.

Q: Chad Dillard of Bernstein asked about gross margin guidance and how much incremental tariff costs are embedded and passed through to customers.

A: Preston Feight discussed tariff uncertainty and partial pass-through of costs due to the open comment period on truck tariff policy investigation.

Q: Jamie Cook of Truist inquired about margin disappointment, inventory levels, and price cost for truck and parts.

A: Preston Feight and Harrie Schippers discussed margin impact from tariffs, inventory levels at 3.1 months (below industry average), and partial pass-through of price increases.

Q: Michael Feniger of Bank of America asked about EPA emissions change impact and parts margin growth.

A: Preston Feight and Harrie Schippers discussed regulatory standards impact and parts growth expectations of 2%-4% in Q2 and full-year.

Q: Tami Zakaria of JPMorgan asked about tariff impact on parts business and sourcing.

A: Preston Feight and Harrie Schippers discussed easier pass-through of parts cost increases and parts sourcing with less than half of purchases from outside the U.S.

Q: Rob Wertheimer of Melius Research asked about Section 232 tariff policy investigation impact and managing dynamic tariff environment.

A: Preston Feight discussed the dynamic nature of the tariff environment and collaborative approach with suppliers.

Q: Stephen Volkmann of Jefferies asked about Q2 gross margin expectations and pre-buys.

A: Preston Feight discussed uncertain economic and tariff conditions and no pre-buy scenario around tariffs but potential customer buying patterns around emissions standards.

Q: Steven Fisher of UBS asked about backlog visibility and parts growth drivers.

A: Preston Feight discussed backlog visibility and parts growth driven by efficient trucks and used truck market improvement.

Q: David Raso of Evercore asked about production vs retail and sequential gross margin contraction.

A: Preston Feight discussed production vs retail alignment and sequential margin contraction due to full tariff impact without full price pass-through.

Q: Angel Castillo of Morgan Stanley asked about Q2 gross margin contraction breakdown by volume and region, and tariff mitigation levers.

A: Preston Feight discussed margin contraction mainly due to tariffs and Mexico market pause affecting deliveries.

Q: Kyle Menges of Citi asked about gross margin in Q2 and sticky cost inflation.

A: Preston Feight and Harrie Schippers discussed tariff impact on margins and stable other cost elements with productivity efforts.

Q: Tim Thein of Raymond James asked about North American capacity and footprint, and medium-duty market outlook.

A: Preston Feight discussed well-positioned North American footprint and stable medium-duty market outlook.

Q: Jerry Revich of Goldman Sachs asked about gross margin headwind makeup and production flexibility.

A: Preston Feight discussed uncertainty around tariff policy and current production flexibility plans.

Q: Jeff Kauffman of Vertical Research Partners asked about long-term truck demand outlook.

A: Preston Feight discussed long-term truck demand stability due to truck wearout and increasing efficiency.

Q: Scott Group of Wolfe Research asked about Q2 guidance directional color by region and cost/price sequential in Q2.

A: Preston Feight discussed regional delivery trends and expected price increases with tariff-related cost changes in Q2.