David Raso

Baney gave concrete leading indicators including the 8% fleet services increase and European strength.

Feight quantified build slot fill and pointed to carryover demand into 2027.

Management confirmed clean quarter with no AIPA benefit, attributing margin gains to volume leverage, price/cost advantage, and favorable product mix

Management explained Q2 margin growth tempered by competitive pricing and parts growth at 3% lagging truck volume growth of 6-7K units

Feight confirmed net positive price-cost in Q1. Q4 was impacted by factory conversion costs and overtime to get trucks out.

Feight noted Q4 orders include spread-delivery fleet orders; recent intake is closer-in, building backlog for higher builds in outer quarters.

Feight cited full 232 benefit, NOx clarity improving demand, strong December/January orders, and elimination of Q4 local-for-local transition costs.

Poplawski confirmed bonus depreciation programs in place. Feight noted mixed customer response: vocational and LTL ordering, TL still hesitant.

Feight emphasized 35mg is the law; as time passes it becomes harder to revert. PACCAR prepared for either outcome with products ready.

Q4 shifts volume toward Europe (fewer holidays) from North America (more holidays). Order book 60-70% full for Q4.

Feight confirmed production and retail sales well aligned with healthy inventory levels, mainly applicable to Q2 but generally for full year.

Feight confirmed Raso's thesis: Q2 has full tariff cost without full price pass-through. As tariff policy stabilizes, price and cost should align.

Feight expects strengthening pricing through 2025 and beyond as customers experience great truck performance. Ready for any regulatory scenario.

CFO deflected on quantifying 2027 power gen capacity, saying it would be too much guidance now, but confirmed capacity will be higher.

CEO cautioned final rule details may shift but said customers want both current and new products, expecting more current-product buying initially with a ramp into new engines.

Mark explained Distribution mix shift toward whole goods over higher-margin parts, plus tough pricing comparisons from mid-2025. Long-term bullish on Distribution margin expansion.

Rumsey noted strong order trends, improving spot rates, and supply base constraints potentially limiting upside. Adding third shift for medium-duty at Rocky Mount plant.

Smith clarified the 50bps is EBITDA percent dilution from inflated revenues and costs, not a dollar P&L hit. Raso pushed for exit rate clarity. Smith confirmed pricing ex-tariffs is not a big feature of 2026; new product pricing comes in 2027.

Smith noted electrolyzer losses are less than half of Accelera total. Impairment doesn't change cost trajectory much, further actions under review for cost reduction.

Smith confirmed heavy decrementals ahead with recent truck orders among weakest 3-4 month periods in 20 years. Customer down days described as 'a sea of red' for Q3.

Smith was transparent about significant margin pressure ahead but emphasized nothing structural. Decrementals consistent with prior cycles on full-year basis.

Smith confirmed USMCA compliance for on-highway engine plants but declined to quantify Mexico/China exposure, promising quarter-by-quarter disclosure.

Rumsey clarified it's broad uncertainty causing customers to pause, not specific price pushback. OEMs and fleets in wait-and-see mode.

Smith cited aftermarket pricing opportunity, engineering cost normalization post-peak, and potential China upside. Cost control and aftermarket are near-term drivers.

Smith confirmed most D&A increase flows through Engines and Components from HELM platform investment, with modest Power Systems share.

Matt gave demand color, declined 2027 guidance but expressed confidence the large-project tailwinds carry into next year, justifying more fleet.

Matt confirmed goal to exceed 1.5% inflation hurdle for full year. Rate remains positive, time utilization high and not a headwind. Q4 mix anomaly did not repeat. Guidance embeds positive fleet productivity.

Ted said Q1 benefit from restructuring was around $10M. Broad cost leverage across labor, delivery, and R&M. Key challenge is sustaining through busy season, especially delivery. Matt emphasized cost mitigation efforts are working.

Matt noted delivery is largely a pass-through and fuel has little markup. Fleet productivity gap between Q2 (3.3%) and Q3 (2%) was entirely mix variability. Rate and time both up.

Matt clarified CapEx was not a 2026 pull-forward but a response to current large project wins. Expects 2026 to include replacement CapEx of $3-4B+ plus growth CapEx. Planning in progress.

Matt noted ancillary drag should moderate as Yak laps, with less ancillary impact on margins in H2. Matt confirmed this is the biggest mover for improved incrementals.

Matt acknowledged good visibility for large projects but declined to comment on 2026 broadly. Expects mega project, power, and infrastructure tailwinds to continue.

Ted noted David's math didn't adjust for fleet inflation. Embedded in midpoint is continuation of positive fleet productivity. Not signaling weakness.

Matt confirmed 2025 CapEx fully negotiated, 80%+ with POs, no tariff impact. Multiple non-tariff vendors available in each equipment category. Ted added uncertainty favors rental.

Management said the order cadence was as expected and pointed to strong technology take rates as the best signal.

Sprayers/planters down ~20% (upper range). Tractors improving to ~down 15% (lower range) on pickup in order velocity. Combines finishing better at down 10-15%. Ag fundamentals still challenged but more stable vs late summer. Used MY22-23 tractors down 20% sequentially. Fleet aging driving replacement demand. Back-half production rates increasing on actual orders.

Large ag down YoY every quarter but margins improve significantly from Q1. Q2 highest net sales and margin quarter with more traditional seasonality post-Q1. Q4 particularly strong on shipment timing. Q1 margin impact driven by lean production, not structural.

Q4 sequentially up high single digits in large ag, driven by increasing Brazil shipments. Green shoots in Europe and South America, but NA remains uncertain for FY2026.

Detailed breakdown: $400M tariff cost in H2 = 2-2.5pp margin drag. Less price favorability, less material favorability vs H1. Small YoY sales change amplifies decremental math.

Confirmed fiscal year-end inventory target roughly flat YoY. Normal seasonal build in H1 then drawdown in H2. Significant portion is in-transit already retail sold.

Distinguished 220+ hp (below 10-year average I/S ratios) from mid-range 6000 series (higher than desired, being underproduced at Mannheim).

On quarterly cadence, confirmed Q3/Q4 roughly flat to slightly up YoY. On tariffs/administration, deflected with 'too early to know' but May emphasized 75%+ US assembly and net exporter status.

Raso probed the CI-versus-P&E volume trade-off; Creed said P&E growth is production-constrained, not demand-constrained, and CI inventory should draw down in Q4.

Joe explained all 3 segments already had growth ambitions from Investor Day. The change from 6% to 6-9% CAGR is driven by the incremental power gen opportunity. Joe expressed satisfaction at being able to raise targets so soon after November Investor Day.

Bonfield clarified $800M tariff cost is incremental dollar cost before any pricing mitigation with 2% pricing action completely separate. On backlog versus sales guide Bonfield noted 62% of backlog deliverable in next twelve months is lower than historical average reflecting longer-dated P&E orders. Revenue guide conservative relative to backlog growth reflecting capacity constraints in P&E rather than demand weakness.

Bonfield acknowledged question covered full 2026 guidance and deferred to January update. Noted positive that price headwind lapped in Q4. Tariffs still headwind into 2026. Tax rate increased this year from R&D capitalization legislation but expected to improve from foreign tax adjustments. Promised more color at Investor Day next week. Still in planning process for 2026.

Creed reiterated pricing flexibility in backlog. Merchandising price headwind will lessen as programs are lapped with halving in Q3 and further narrowing in Q4. Prefer to mitigate tariffs through other means before using pricing lever. Net impact of merchandising plus volume in CI expected positive in H2. Two years ago in constrained environment pulled back on discounting so current programs represent return to normalized competitive levels. Bonfield emphasized operating leverage as most optimal margin management tool.

Creed said some contractual arrangements exist for frame agreements and solar long orders but generally company has pricing flexibility in backlog. No evidence of widespread pre-buying based on dealer visits. E&T and RI backlog orders mostly backed by true customer orders not dealer inventory. CI customers unlikely to buy machines ahead of pricing if uncertain about future work.

Bonfield explained CI had negative absorption in Q4 as inventory declined and E&T had higher labor costs from adding workers to increase output. Material costs will decline in 2025 but offsets within manufacturing costs from volume absorption. Depreciation mostly within manufacturing costs from investment spending. Price cost will not see the offset seen in previous years.

Vik confirmed tariff pricing is dollar neutral but margin dilutive. All tariff-related pricing actions taken through 2025 are in the numbers. YoY tariff headwind normalizes Q2-Q4 as prior year had same tariffs. Mitigation plus in-year pricing drives Q4 positive momentum.

Vik confirmed margins comparable across product lines with no dramatic mix impact. Compressors ~65% of revenue so naturally the biggest driver. Positive contributions expected from all technologies. Short-cycle momentum in vacuum/blower and compressor segments encouraging.

Vik confirmed January orders playing out as expected with nothing atypical from seasonality or guidance framework perspective.

Vicente confirmed pure project timing. Full year EMEA ITS orders were positive low single digits organically despite Q4 weakness. Mediterranean countries (Spain, Italy, France) growing faster than Central Europe (Germany) but good activity pipeline.

Vicente confirmed long-cycle projects (12-18 months) have contractual clauses allowing adjustments for special alloys and material changes. Also opportunity for supply chain cost mitigation on long cycle. Short and medium cycle difficult to reprice retroactively.

Vicente noted Section 232 removes exclusions putting strain on competitors importing product. In-region-for-region manufacturing creates competitive advantage. Opportunity to accelerate market share and penetration, though still too early to see full impact.

Vik confirmed midyear pricing actions drive H2 acceleration. Multiple pricing actions taken through the year across both segments.