PACCAR Inc Q4 FY2025 earnings call

• Financial Results: Fourth quarter net income was $557 million, and 2025 adjusted net income was $2.64 billion, the fourth highest profit year in company history. Adjusted after-tax return on revenue was 9.3%. - Market Performance: North American Class 8 truck retail sales in 2025 were 233,000 units, with Kenworth and Peterbilt having a 30% market share. DAF trucks in Europe won the International Truck of the Year award. South American above 16-ton truck market in 2025 was 115,000 units, expected 100,000 - 110,000 in 2026. - Investments and Facilities: Completed a new engine remanufacturing facility in Mississippi and Kenworth completed a new chassis paint facility in Ohio. PACCAR Parts has 21 distribution centers worldwide, including a new one in Calgary. - Margins: Fourth quarter truck parts and other gross margins were 12%, expected to increase to 12.5% - 13% in Q1 2026.

Trucks: Fourth quarter revenues were $6.8 billion, with 32,900 trucks delivered. Annual revenues in 2025 were $28.4 billion. Deliveries are forecasted to be comparable in 2026. PACCAR Parts: 2025 annual revenues increased 3% to a record $6.9 billion, with fourth quarter revenues up 4% to a record $1.7 billion. 2026 parts sales are estimated to grow 4% to 8%. PACCAR Financial Services: 2025 annual revenues were a record $2.2 billion, with fourth quarter revenues at a record $569 million. Market share increased to 27%.

• 2026 Market Forecast: US and Canadian Class 8 truck market forecasted to be 230,000 - 270,000 units in 2026. - Parts Sales Growth: Parts sales estimated to grow 4% - 8% in 2026. - Capital and R&D Investments: 2026 capital investments expected in the range of $725 - $775 million, R&D expenses in the range of $450 million - $500 million. - Margin Guidance: Q1 2026 truck parts and other gross margins expected 12.5% - 13%, up from 12% in Q4 2025.

• Supply Chain Risks: Potential bottlenecks in the supply chain if build cadence accelerates significantly in later quarters, which could impact production and pricing. - Competitive Risks: Uncertainty regarding competitors' pricing and market response to Section 232 benefits, which could affect market share and profitability.

Q: Can you walk us through the margin improvement you expect from 4Q to 1Q despite the flat deliveries?

A: The thinking is that there was higher tariffs in the fourth quarter due to Section 232 going into effect in November, and manufacturing teams adjusted to build trucks local for local, which had some impact on margins. In Q1, they get a full quarter of benefits from the Section 232 tariff, clarity on NOx 27, and strong order intake, driving up margins to 12.5% - 13% from 12% in Q4.

Q: Can you talk about what you are seeing in the performance of your aftermarket business in January by region?

A: The forecast for Q1 is 3% growth year over year. The team did a great job in a soft parts market with record sales growth for last year and the fourth quarter. There is a mix shift towards required maintenance with AI tools, and a forecast of 4% - 8% growth for 2026, with growth accelerating as the year progresses.

Q: How are you thinking about market share versus unit profitability from a PACCAR standpoint given Section 232 evens the playing field?

A: We anticipate gaining in terms of margin and market share through the year. In the first quarter, many competitors have not fully reflected tariff costs in the market, maintaining a competitive dynamic. As the year progresses and things stabilize, we feel good about our opportunity to gain in both categories.

Q: Can you expand on the order uptick details and regional direction?

A: January continued the same level of significant order intake as December. We see US and Canada up some, and Europe down a bit as it had higher deliveries in the fourth quarter at year-end. There is strong order intake across various segments like vocational and steady LTL market.