PACCAR Inc (PCAR) Q3 2026 Earnings Call Transcript

Operator: Good morning and welcome to PAC CAR's Third Quarter 26 Earnings Conference Call. All lines will be in a listen-only mode until the Q&A session. Today's call is being recorded. And if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Ken Hastings. PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead. We are now experiencing some technical difficulties. Please stand by while we pause the broadcast. Just 1 moment. Hello, everyone, and thank you for holding. Good morning, and welcome to PACCAR's third quarter 26 Earnings Conference Call. All lines will be in a listen-only mode until the Q&A session. Today's call is being recorded. And if anyone has an objection, they should disconnect at this time. I would now like to introduce mister Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.

Ken Hastings: Thank you, Joel, and good morning, everyone. My name is Ken Hastings, PACCAR's Director of Investor Relations. And joining me this morning are Preston Feight, Chief Executive Officer; Kevin D. Baney, president; and Brice J. Poplawski, senior vice president and chief financial officer. 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 on the investor relations page of PACCAR.com. I would now like to introduce Preston Feight.

R. Preston Feight: Thank you, Ken. Good morning, everyone. Kevin, Brice, Ken, and I will update you on PACCAR's excellent third quarter financial results and business highlights. So I would like to start by thanking our wonderful employees all around the world who did a fantastic job of providing our customers with the highest quality trucks and transportation solutions in the industry. PACCAR delivered excellent revenues of $7.94 billion, and net income of $847.5 million, in the third quarter. This is 19% revenue growth and 44% profit growth compared to the same period last year. PACCAR Parts had record quarterly revenues of $1.78 billion and PACCAR Financial Services, $138 million in profit which was an increase of 9.4% compared to the same period last year. We estimate this year's US and Canadian Class 8 market to be in a range of 240 thousand to 260 thousand trucks and next year, to grow and be in a range of 240 thousand to 280 thousand The US and Canadian truck market is being driven by economic growth, continued investments in infrastructure, and the general freight market recovery. In Europe, we project this year's above 16 ton market, to be in a range of 300 thousand to 320 thousand units and in a similar range for 2027 This represents continued truck replacement in a region with steady economic growth. We estimate this year's South American above 16 ton truck market to be in the range of 100 thousand to 105 thousand vehicles and next year to be up slightly and in the range of 105 thousand to 115 thousand trucks. PACCAR's premium trucks are performing very well for customers throughout all of Latin America. Based on strong customer orders, PACCAR increased deliveries to 40.1 thousand trucks in the third quarter. Delivery volume will increase in the fourth quarter as suppliers become more able to ramp up their production to meet continued strong customer demand. Fourth quarter deliveries are anticipated to increase and be in the range of 41 thousand to 43 thousand. PACCAR's third quarter trucks, parts, and other gross margins were a strong 14.5%. Fourth quarter gross margin should remain high, and again be in the range of 14% to 15%. We look forward to a strong finish to this year. And another very good year in 2027 as our customers benefit from PACCAR's excellent trucks, and new transportation solutions. Kevin D. Baney will now provide an update on PACCAR parts, financial services, and other business highlights.

Kevin D. Baney: Thank you, Preston. PACCAR Parts achieved record third quarter revenue of $1.78 billion This record is a result of investments in parts distribution growth of the TRP all-makes brand, expanding transportation solutions, and increasing dealer retail locations. We anticipate continued growth in the fourth quarter. PACCAR Financial Services pretax income was a robust $138 million with 9.4% year over year growth. These excellent results reflect stable finance margins and higher used truck pricing. Similar to PACCAR Parts, PACCAR Financial provides steady foundational profitability during all phases of the business cycle. Last week at the American Trucking Association's truck conference, PACCAR proudly introduced its next generation transportation solutions platform, called PACCAR Connect. This system provides a state of the art technology platform and a beautifully integrated vehicle display. PACCAR Connect has the ability to bring together fleet telematics systems, PACCAR truck data, customer specific productivity applications, Apple CarPlay, and electronic driver logs into a fully integrated system. This system will serve as a unifying platform that will enhance customer productivity and create new revenue streams for PACCAR. This year's capital expenditures are projected to be between $650 million and $700 million and R&D expenses will be $440 to $460 million. In 2027, we estimate the company will invest $650 million to $700 million in capital projects and $460 million to $500 million in R&D expenses. Key technology and innovation investments include next generation clean diesel, hybrid and battery-electric powertrain, growing the parts business, enhancing manufacturing capabilities, and expanding the connected vehicle offerings. PACCAR's industry leading trucks, best in class parts and financial services businesses and advanced technology strategy positioned the company. for an excellent future. We are pleased to answer your questions.

Operator: We will now begin the Q&A session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question is from Stephen Volkmann with Jefferies. Your line is now open. Please go ahead.

Stephen Volkmann: Great. Thank you, guys. Good morning.

R. Preston Feight: Good morning, Stephen.

Stephen Volkmann: So a couple quick ones here for me, and I will pass it on. 1, Preston, I think you mentioned that you expected sort of supply chain to kind of catch up, and I think your deliveries this quarter might have been slightly less than what you had projected. Are you seeing supply chain constraints that are limiting that? Or was that just kinda normal variability?

R. Preston Feight: Yeah, Steven. that is a nice observation. Our deliveries in the third quarter, 40.1 thousand were somewhat affected by supply constraints. And as they, we, and others are building more trucks, think the suppliers are trying to get up to speed on that, and so that is the kind of what affected Q3. And what we think is improving in Q4 with the guide to 41 thousand to 43 thousand trucks. We are working closely with our suppliers to make sure they get the parts to us so we can build trucks. Makes it a lot easier to build the trucks if we have got the parts.

Stephen Volkmann: Okay. That makes sense. And then the second 1, I am curious how you are sort of thinking about or how you are even interacting with customers relative to 2027 now? Because I am imagining but please correct me if I am wrong, that it is actually hard to sort of price trucks for 2027 when we do not know the NCPs yet. And so that probably makes it hard to take orders. Are you taking orders for 2027? And if so, can you provide any color as to sort of what people are actually ordering, you know, relative to engine.

R. Preston Feight: Hey, Stephen. that is great. So we made the observation of it is easier to build trucks if you have got parts, it is easier to price trucks if you know the cost. And I think that the government's doing a very nice job actually of looking at the 2027 emissions regulations and figure out how they are able to set the NCP levels As you noted, they are not finalized yet. And I think that does give some customers pause. About what their price will be. So we have had excellent discussions with our customers. You know, we know them for many years. And ATA was a great opportunity to sit with a lot of them. Talk about what their needs are for 2027, and I think they feel everyone we met with feels like they would like to keep buying the 200-milligram engines so they have time to prove out the technology of the new engines. The lower NOx engines, And so I think they are starting to place their orders. We are seeing good inquiry and increasing order intake, but, obviously, that will likely increase as we have certainty around NCPs. Understood. Thank you so much.

Operator: Your next question is from Jerry Revich with Wells Fargo. Your line is now open. Please go ahead.

Jerry Revich: Yes. Hi. Good morning. Good afternoon, everyone. I am wondering if you could just talk about the lead indicators that you are tracking for the parts business and what do you expect the outlook to be over the next couple of quarters normally? You folks have some visibility a couple of quarters out given contract rates are moving higher. I am wondering if you could just give an update on how you are thinking about the cadence.

Kevin D. Baney: Jerry, this is Kevin. As we look at the parts business, you know, right now in a smaller parts market, team's done a great job increasing volume, growing share. Know, share is 1 of those things that we measure. And right now, with customers have elevated operating costs, they have got higher diesel prices, they have got an increased number of unseated trucks. And so they are focused on really required maintenance at this point, and so we spend a lot of time working with them. 1 of our key things we look at is our share of wallet with our customers, and we have been able to grow share and increase while they are elevated cost. And as things return to more normal conditions for them, we anticipate to keep growing.

Jerry Revich: And when do you think that will be based on what you are hearing? You expect an acceleration exiting the fourth quarter? Or is it possible to get a sense, Kevin?

Kevin D. Baney: Yeah. We can. We anticipate continued growth in the fourth quarter, and we have been able to grow share. And so that is a key metric for us. I think we really provide ease of doing business with our customers. And so we continue to grow the revenue with them, gain share, and anticipate that to continue.

Jerry Revich: Super. And can I ask, though, margin outlook 14% to 15% for the fourth quarter? What we are hearing is really good pricing for fourth quarter delivery slots and a sequential improvement from third quarter pricing. So does the margin outlook embed some of the uncertainty on the parts side versus improved profit per unit on the truck side? Or can we just unpack the push and the pull there, if you do not mind?

R. Preston Feight: Yeah. Sure. I think a simpler way to think about it is when we are building trucks and we have deliver or build them without all the parts, there is a cost adder in that. It has some impact to price cost in the quarter as we think it might occur. Obviously, we are doing everything we can to minimize that. I think the parts team is, as Kevin said, doing a great job of getting the market share gains margin growth. So we feel positive about how they are doing. And then I think as we look at our pricing power, it has been good with our customers. There is a strong demand for the 200-milligram engines, which we think carries into 2027 as well. So it feels pretty positive from that standpoint. it is really just about those efficiencies that we would have to deal with in the fourth quarter. And I think the other part of it is it is always a function of. there is a lag factor between pricing a truck and your backlog. And so that sits into the factors as well. Appreciate the discussion. Thank you. Yeah. Great. Good talking to you, Jerry.

Operator: Your next question is from Tami Zakaria with JPMorgan. Your line is now open. Please go ahead.

Tami Zakaria: Good afternoon. Thank you so much. I will have. I will ask 1 question today. So I heard you comment about some delays in how customers are trying to or there is delays in how they are trying to decide what to order next year. But as you. A part of this discussion, are you getting a sense that customers are looking to buy the non-compliant engines and planning to pay a penalty on it? Or is there willingness to adopt a compliant platform even if it comes with a higher cost. So any color on what which you guys and customers are leaning toward at the moment?

R. Preston Feight: Sure. I think, you know, 1 of the things I would start with Tami, is to say that we have very good visibility right now. Obviously, the year is full and we are filling the first quarter, so that is a pretty positive position to begin with. I think the customers are beginning to order, but it is just the beginning of that when they would expect the fleets to be thinking about their capital allocations for next year. So it is kind of part 1 of your commentary. And then I would share in it. We have said this a lot is, like, we have not met with a customer Every customer we meet with is much more interested in proven, stable technology They have had time to vet in their operations. And so they are asking for us to deliver to them trucks with the 200-milligram and NCP. Because that makes their operation smoother. Compared to introducing new technology from any manufacturer that they have not had enough time with. And so that is kind of where the world sits right now. Understood. Thank you. You bet.

Operator: Your next question is from Rob Wertheimer with Melius Research. Your line is now open. Please go ahead.

Rob Wertheimer: Thank you. I think Kevin mentioned half a dozen things that could affect the parts margin, which was down a little bit year over year this quarter, you know, from mix to, maybe people delaying some purchases to investments. I wonder if you could just, you know, break that down. And is there any kind of price competition that is, led to lower margin, or is it other factors?

Kevin D. Baney: Rob, it is just primarily mix right now due to the elevated operating costs that we see with the customers. You know, we have got great trucks with a lot of proprietary content. The engine business, I mentioned the connected. So really see as the customer's operating conditions improve, we see a nice balance of that mix. back between all-makes and proprietary.

R. Preston Feight: Rob, I would add on what Kevin said and echo it in different ways. Like, think about it, the way the enforcement of CDLs went in 2026, and they pulled a lot of trucks out of service. If the truck's pulled out of service and they are sitting against the wall, if you will, then that means that there is less miles driven on some of those newer trucks. So it is just postponing parts purchases. We think that will come back, obviously, and that is kinda what Kevin said. With high fuel prices being the other factor. So just kind of the way the market is running, and I am so pleased with what the team's been able to do in terms of growing the parts business in a market which is kind of constrained. They have done a really nice job in that factor. Alright. Thank you.

Rob Wertheimer: And if I may sneak in another 1, you may. You mentioned a couple times the launch of PACCAR Connect and potentially even new revenue streams that might come out of it. But what are the biggest kind of pain points, whatever you wanna call it, that your customers are feeling that might be solved by this, and how does that evolve over time? I will stop there. Thank you.

R. Preston Feight: Yeah, thanks Rob. Great question. We are really excited about The product is really cool. I do not know if you had a chance to see it, but if you get in 1 of the new Peterbilt or Ken trucks with the integrated system, I mean, what you end up with in today's world is people install third party third party telematics systems into their truck, which requires getting into the dash, cutting things, installing hardware, this eliminates the need to do that. So step 1 is it gives us, PACCAR, an opportunity on a hardware side because now we are doing that work for the customer in a much more integrated factory direct manner. They are all gonna be excited about that. We hear that from them. Then you think they get the choice of the telematics system they want to put in as we are doing this as in kind of an open source system. Kind of like an-- I can liken it to an iOS on your phone. An operating system on your phone where you can add applications that can be bespoke to a customer, specific to a customer, or they can be PACCAR applications and those applications can be revenue accretive for PACCAR. They are also really beneficial for our customers. And you think about how it builds into the parts business in the future, as we understand what the truck is doing it gives us the opportunity to do predictive maintenance on the truck or direct it towards our dealerships So integrating our businesses with our customers in a way that is beneficial for their profitability and ours feels like just an exciting time. Yeah.

Kevin D. Baney: Well, I will just add to it. It allows us to stay connected longer with the customer through their operating cycle. And so ease of doing business around the parts business will really help. Thank you.

Operator: Your next question is from Kyle Menges with Citigroup. Your line is now open. Please go ahead.

Analyst: Yeah. Good morning, everyone. Thank you for taking my question. Just 1 from my side. A quick 1 on tariffs. Are you able to confirm that we are still some 1-off benefit from tariffs during the quarter? And if so, how much? And should we expect there to be further 1-off benefit coming in 4Q And is Q1 then the point where we sort of get to a clean sort of point from a tariff perspective.

R. Preston Feight: You know, Lewis, what we have seen is there is been the tariffs have gotten a little more stable. We have still seen tariff costs that we incur. We are importing. We have had some benefits as well, but it is really not been material to the results of our performance. And so it is just kind of in the mix. Okay. So just to be clear, there was not any sort of 1-off benefit in Q3? No. it is kind of like it just is. it is continuing as we sort through the tariff process and work with the suppliers and work with the government and try to get clarification on-- yeah. This is Brice.

Brice J. Poplawski: A comparable I think we mentioned in the quarter as well during the call, comparable kind of activity.

R. Preston Feight: Okay. Thank you very much.

Operator: Your next question is from David Raso with Evercore ISI. Your line is now open. Please go ahead.

David Raso: Hi. Thank you for the time. You used to speak to gross margin as the third quarter guide and then further increases in the fourth quarter. Just so we are clear, the change in now the third to fourth quarter gross margins are more flattish as a base case, Is that more because the truck margins are not going to grow sequentially the way you would have thought due to the supplier related inefficiencies? Or is it also related to the parts margins being less than you thought? Then I just had a quick follow-up on truck margins more broadly.

R. Preston Feight: Yes, David. Good to talk to you. I would say that your first comment is more accurate than your second comment. And that it is just the cost of production right now is having some impact. We are seeing great truck pricing. But it is just that uncertainty there.

David Raso: Well, that is what I wanted to back into the second question. So the profitability per truck was the highest since the fourth quarter 24. And you did it with 3.8 thousand less trucks delivered. Right? So it appears very impressive. You did have more US Canada mix this quarter than back then. Brice cost was negative back then. I am not sure if you commented if price/cost was still positive this quarter like last, so maybe you can confirm that. I think we are all just trying to level set Alright. Maybe the supplier issue does not extend into 2027, but what do I do with the fourth quarter margin as a LaunchPad thinking about 2027? I know there is a lot in there with penalty revenues on the trucks in 2027, and how that dampens the margin. But again, just trying to think through this margin performance and how to think about the fourth quarter launch for 2027 thoughts. Thank you.

R. Preston Feight: Yes. David, like usually, you give these great questions. it is fun to talk with you. And you bring up a very important point as to think back at just a year ago, and September of 2025, income was $590 million and this quarter, it is $847 million So the teams have just done a fantastic job each quarter increasing total profitability. And they have done that through truck pricing and through discipline operating performance like PACCAR always does. It sets us up really well for the future. It puts us in a very strong position to look forward into things. Obviously, the more stable the market is and the more clean the production costs are, easier it gets for us. I think you asked or you mentioned I think was kind of an ask, about price/cost, and price/cost remained favorable in the quarter. That was mostly due to, on the price side, the favorable price realization we are getting on our truck price.

David Raso: I guess I asked the question without asking you for guidance for 2027 for our margin. Would you look at this fourth quarter then with, again, the drag of maybe pass through revenues with not much margin on the penalty, but assuming less supplier issues. Just how would you want us to think about 2027 truck margins versus this third, fourth-quarter kind of run rate?

R. Preston Feight: Yeah. Great. that is that is a-- it is a great way to think about it. If you think about 2027, we are calling the market up. We are doing that without having the certainty of what the cost structure will be in 2027, which means we are pretty bullish. We have made our bullish position on 2027 We think that any of the uncertainty will show up in the first part of the year, and then clarity will be through the second, third, and fourth quarter. Then as we get towards the end of the year, we would expect it to even strengthen. So I think our general sense is the uncertainty will dissipate and the market will become stronger as the year passes. Okay. I appreciate the time. Thank you. You bet. Thanks, David.

Operator: Your next question is from Chad Dillard with Bernstein. Your line is now open. Please go ahead.

Chad Dillard: Good afternoon, guys.

R. Preston Feight: Hey, Chad.

Chad Dillard: So I want to-- So I want to go back to the parts business. Can you update us on what that outlook is for 2026? And then I think you talked about seeing some outgrowth, and I have a recall from the Investor Day, you talked about a $3.5 billion parts opportunity. Just any color on just how fast you are outgrowing and where you are tracking versus that goal?

Kevin D. Baney: Yeah, Chad. This is Kevin. So outlook for 2026, I mentioned the continued growth in the fourth quarter, and we will finish within the range that we had forecasted, the 3% to 5% we have given previously. Outlook next year is continued growth. We see as we watch customers operating conditions, as Preston mentioned, We forecast the market to increase. We have got connected platform out there. And we see the continued growth. We mentioned in the Investor Day the opportunity with the second owner. We mentioned the parts market down. Some of the growth that we have seen with our record revenue has come from growth in the second market. And so we have grown with our fleet services program. And then we have also grown the percent of our TRP in all makes. And a portion of that comes from the from the second owner.

Chad Dillard: Got you. that is helpful. And then in your North America guidance for 2027 implies about a 4% increase at the midpoint. Was hoping you could break down how you are thinking about the vocational versus tractor market as we go into next year?

R. Preston Feight: I would kinda look at the markets and think that we have really run a below replacement demand on the fleets. I think that they have had some relief from that because of the driver situation. But they recognize the high performance, great fuel economy, low operating costs, and driver appeal of new trucks. So I think they are very interested in getting new trucks. And are starting down that pathway. And then I think that the general infrastructure investments that are happening in America are very good for the vocational market for the coming years. And since we are the leader in the vocational market, there have 40% share there. Think that bodes well for us also because those are good trucks for us to sell. Great. Thank you. You bet.

Operator: Your next question is from Kyle Menges with Citigroup. Your line is now open. Please go ahead.

Kyle Menges: I just wanted to follow-up on Chad's part question. And I think if I heard you correctly, you are still thinking that parts growth can be in the range of 3% to 5% for the full year. So I think that would imply parts growth of around high single digits. In the fourth quarter versus you have been tracking in the low singles through the first 9 months of this year. So what gives you confidence in that high single digit growth in the fourth quarter?

R. Preston Feight: I would say we have a great team of people that are working closely with our dealers and our customers and that the freight market's returning. And so those are the factors that push us into that confidence.

Kevin D. Baney: Yeah, Kyle, and I will add that we have seen a growth in our fleet services program. So that shows that we continue to gain new customers, the ease of doing business with our parts programs. We gain new customers, and we continue to increase our share of wallet With our current customer base. So we are planning for ongoing growth.

Kyle Menges: Got it. Thanks. And then and then I also wanted to follow-up on some of the earlier Q and A related to 2027 I mean, sounds like you are thinking second half might be a little bit stronger than first half. I am curious if you think then that first half of 2027 could be a little bit softer, just from a delivery perspective than where you will be at in the second half of 26. And then and then I guess you are expecting the second half of 27 to be a bit stronger Well, Kyle, I do not know.

R. Preston Feight: You might be putting a little too many words in my mouth. I think that we have to see what the NCP levels are set at, and I think that will be very significant to how the market reacts in the beginning of the year. We have seen good interest, but we have seen, obviously, the customers would like to know what the NCP level is gonna be. We know they would like to buy a truck that is durable reliable, and proven for themselves. But we need to see NCP levels and those become finalized and if they are set at a level which is helpful to the truckers, who are already dealing with high fuel prices, then that will be good for the market in the early part of the year. And then, obviously, as you get into the latter part of the year and customers get some time, we will see what their reactions are. it is a little bit tougher to predict the market in the second half, when it is 9 months to a year from now. Jerry, thanks for the time. You bet. Good talking with you.

Operator: Your next question is from Jamie Cook with Truist Securities. Your line is now open. Please go ahead.

Jamie Cook: Hi. Thanks for the. Allowing me to ask a question. I guess my first question, Preston, could you just speak to sort of your competitive positioning in the U.S. with Section 32? how you are performing from a market share opportunity relative to your initial expectations, or do you think, and how you are balancing sort of market share for price in this type of environment? Can we get the Section 32 benefits dropping to the bottom line? Then I guess my second question again, sorry to ask about next year, but I will anyway. Assuming the U.S. market outperforms Europe next year, just thinking from a geographic mix perspective, the impact on margins can would North America be accretive? Or is there just sort of more noise associated with NTPs and supplier constraints and stuff like that. Thank you.

R. Preston Feight: Yeah. Looking at your first question, I would say probably the easiest thing to do is look at truck margin. Since December 2025 until now and say that gone from $240 million to $570 million. I think that kind of answers the question of the of the positioning of what is happening and holding market share as a relatively flat position. Yeah.

Kevin D. Baney: And, Tami, and just a comment about Europe, you know, we still forecast Europe to remain strong in that 300 to 320. DAF's done a great job maintaining its position and seeing a increase in order activity in the back half of this year, and we have increased build commensurate with the increased orders. So good forecast in Europe for next year.

R. Preston Feight: Thank you. Thanks, Tami. Good talking to you.

Operator: Your next question is from Steven Fisher with UBS. Your line is now open. Please go ahead.

Steven Fisher: Thanks. Good morning. So you were able to maintain or hit your margin targets despite the lower deliveries in the quarter. So I guess I am just curious what kind of helped that Was it just some general conservatism at the beginning? Were there any particular mixed dynamics in there? I think you already said that the tariffs were not sort of a material benefit to it. So I am just curious what drove that hitting the margins despite the lower deliveries?

R. Preston Feight: Steven, the simple answer, and it is really true, is amazing people. And we have a great team of people all around PACCAR. And you have had the chance to be in our factories. You meet the people that work there. You watch what they do every day and how well they can perform in spite of complications, it is super impressive. And it happens at every part of the business, the financial services business, the parts business. So those are the contributors more than anything else is to the performance in lieu of lower deliveries. They just keep doing a great job. And so that is probably the biggest thing. Okay. Thank you.

Steven Fisher: And then obviously, there is a lot of talk about supply chain challenges on the call. Just curious how broad those challenges are. Is that mostly within domestic markets? Is it related to imports? Is it just a few, or is it is it more broad? Any help you can give on that. Thanks.

R. Preston Feight: Yeah. I think the easiest way to think about it at the macro level is you know, build rates have gone up significantly, and they have gone up rather quickly. That just puts a tax on the system. We have great suppliers. They do a good job of working with us. it is just expecting them to go up this quickly in support of the total industry has been you know, created some work for them and a few misses. And all you have to do is miss a single part on a truck, it becomes impactful. So almost all of them are performing really well. But all it takes is 1 or 2 missed parts to make it meaningful. And so our teams are working closely with them, and we are making great progress. Hence, the guide for hire deliveries in Q4. Thank you very much. You bet. Good talking to you, Steven.

Operator: Next is from Angel Castillo with Morgan Stanley. Your line is now open. Please go ahead.

Angel Castillo: Hi. Good afternoon, and thanks for taking my question. Preston, I wanted to ask a little bit of a bigger picture question around autonomous. So clearly, the trucker here is under quite a bit of pressure, you know, ranging from drivers to high fuel prices. Just I was curious if you could elaborate or at least comment, I guess, in terms of what you are seeing in terms of customers' appetite for perhaps autonomous trucks given your work with your partners? And know, more specific to PACCAR, as you are seeing the market evolve and all these pressure points on your on a trucker, any changes as to, like, your appetite or the pace at which you wanna move in terms of these investments to develop, you know, autonomous solutions here that you might be able to deploy to gain share, but more importantly, to help your customer solve some of those issues.

R. Preston Feight: Yeah. Great. I love the way you ended the question, Angel, and thank you helping our customers because that is kind of what we try to do every day. If we have the opportunity to develop safe, reliable technology, that helps our customers, and that is-- then we see autonomy being able to do that, then that is the path we are on. We are developing our own proprietary autonomous vehicle platform which will make it easier for autonomous systems to be integrated into the truck in the factory. We think that is a significant advantage for the future going forward. Our pace of play on this is really about safety first. Right? These are 40 ton vehicles. We want to make sure that they are completely capable, fully validated with production parts just like any new program we do. And that is determining the pace of our introductions. We have good partners and Stack, Aurora, and others. as we work forward with our customers and how to deploy that. We obviously think the deployment will happen somewhat gradually. In lanes, in weather climes, and then it will roll out a progressive way. And I think, the other instructive thing to think at the macro level is it is gotta be a win for our customers. it is gotta be a win for the developers and it is gotta be a win for PACCAR. And so when all those parties are winning and we have a durable, reliable, safe system, that is when it will begin to deploy at scale. So that feels pretty good. I think the other thing that we look at in that is macroscopically, it is very good for PACCAR. Because trucks are still gonna need maintenance, and they are still gonna need taken care of, and it is gonna involve our dealers and support systems for those trucks because now there will not be a driver at that point. So the PACCAR Connect system and all of the information we have on trucks will integrate us more to the vehicle. Very helpful. Thank you. And then.

Angel Castillo: We have had, I guess, a lot of discussion around the P and L, but was hoping to kind of pivot it to maybe the cash flow a little bit. Can you just talk about what you expectation is for cash flow from operations and free cash flow for, I guess, just cash flow from operations for the year. And the extent that you kind of elaborate a little bit more on kind of the third quarter and year to date, cash generation. Is that kind of as expected? Are there any puts and takes there that maybe surprised or that we should be mindful of as we think about cash flow generation for the remainder of the year or in the third quarter that may or may not have kind of potentially caused it to be a little bit light? Just any, again, more color that you can provide on cash flow generation this year, that would be helpful.

Brice J. Poplawski: Sure, Angel. This is Brice. I would just tell you, we feel pretty proud of the cash we generate. We generate cash in the. Through the 9 months, $2.5 billion is greater than our net income, and a lot of companies cannot say that. So it is very high quality of earnings. So we are pretty proud about that result. And for the year, we would expect similar kind of scenario where the income would be generated through the cash from operations, meaning net income is the biggest driver. And if you are commenting about last year's number, it had a 1-off kind of a large effect because our wholesale dealer flooring inventory was down. So that was kind of a 1-off, not a typical thing where dealer flooring changes that much in a given year. Very helpful. Thank you.

Operator: Your next question is from Scott Group with Wolfe Research. Your line is now open. Please go ahead.

R. Preston Feight: Scott, you out there? Okay, Joel. I think we maybe can leave it there.

Operator: Sounds good. It looks like. Oh, it does look like Scott has tried to dial in 1 more time. Would you like me to put him onto the stage? Sure. Okay. Yes, please.

Scott Group: Great. So this is Scott,

Operator: Hey, guys from Wolfe Research. Your line is now open, Scott.

Scott Group: Hey, guys. Can you hear me now?

R. Preston Feight: Yeah. We got you, Scott. Glad you got in.

Scott Group: Alright. Fantastic. Thank you. So it sounds like you guys were at ATA last week meeting with customers. Just wondering sort of the tenor of the conversations truck rates going up a lot, driver market tight. Are you hearing about fleet growth? Is it just replacement and sort of how you think that plays out and maybe what that what you think that means for the used market going forward as well?

R. Preston Feight: I think we are sitting in a transition point where the fleets would like to be growing. They are still managing cash flow. They have seen cost be high with fuel, so fuel is a cash-- fuel increases the cash flow problem for them. They are managing driver costs. that is a cash flow impact to them. If they would like to be growing their businesses, some of them are starting to see that ability, but it is really just beginning to be there. there is been some consolidation over the past few years that is taking some absorption of fleet size into the market that is now, I think, finishing. It makes it feel like they will begin to see increases in fleet size in the coming quarters. Okay. that is helpful.

Scott Group: And just you know, on this, like, idea of all this, like, very near term uncertainty, I do not know if you guys can give any color, like, what percentage of Q1 is, like, sold out now? And know, it sounds like pricing is really good in Q4. Does that logically take a step back in Q1, if we are. We have less stuff sold at this point, just any sort of near term thoughts there. Thanks.

R. Preston Feight: Yeah. Great question. I think when we look at it, just having the year filled as we sit here, and it is been filled for a little bit, gives us confidence that there is demand that is strong out there. And now I think that as we are filling Q1, it is pretty early. Like, you think a lot of fleets come into ATA. We are talking about ATA. And they are just starting to decide what capital to allocate and how they are going to do that. So it is pretty early days for Q1 to have a real look yet. Think we will get a better view of that in the coming 4 to 8 weeks here. And, obviously, getting certainty of NCPs. And if they are at a low level to support our customers' wishes, the proven product. That will be advantageous to the build of Q1. Okay. And then just, like, last thing real quick.

Scott Group: When do you think you are gonna get that certainty on NCP? Is that in the next 4 to 8 weeks, or could that get pushed out to next year even?

R. Preston Feight: I do not even know. Yeah. I think 4 to 8 weeks feels like a good number. Obviously, we do not make those rules. So, we just receive them, and we continue to have a great working relationship with the government trying to sort this out for the betterment of the industry. But the timing is unclear at this point. Thank you, guys. Have a great day.

Operator: There are no other questions in the queue at this time. Are there any additional remarks from the company?

Ken Hastings: Thank you, Joel, and thanks, everyone, for joining the call.

Operator: Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.