PACCAR (PCAR) Q2 2026 Earnings Call Transcript

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DATE

Tuesday, July 28, 2026 at 12:00 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer - R. Preston Feight
• President - Kevin D. Baney
• Senior Vice President and Chief Financial Officer - Brice J. Poplawski
• Director of Investor Relations - Ken Hastings

TAKEAWAYS

• Net Sales and Revenues -- $7.55 billion, representing an increase from $7.51 billion in the second quarter of the prior year.
• Net Income -- $752.0 million, marking a 24% increase compared to the first quarter of 2026.
• Global Truck Deliveries -- 38,700 units, increasing from 33,000 units in the preceding quarter.
• Third Quarter Delivery Forecast -- approximately 42,000 units, as planned build rate increases are partially offset by seasonal European summer factory shutdowns.
• PACCAR Parts Revenues -- $1.75 billion, representing a quarterly record for the segment.
• PACCAR Parts Pretax Income -- $417.0 million, compared to $416.5 million in the same period last year.
• Financial Services Pretax Income -- $124.1 million, driven by steady finance margins and strengthening used truck markets.
• U.S. and Canada Class 8 Retail Sales Guide -- 230,000 to 270,000 trucks for the full year 2026.
• European Above 16-Ton Market Guide -- approximately 310,000 trucks, reflecting a healthy market and modest economic growth.
• South American Above 16-Ton Market Guide -- 100,000 to 110,000 vehicles, driven by customer demand for durable technology.
• Truck, Parts, and Other Gross Margin -- 14.4%, increasing from 13.1% in the first quarter due to higher volume and favorable price-cost balance.
• Third Quarter Gross Margin Forecast -- 14.5%, with management expecting further expansion in the fourth quarter.
• Parts Sales Growth Forecast -- 3% to 5% for the full year, with growth expected to accelerate during the second half.
• Fleet Services Revenue Growth -- 8% in the second quarter, serving as an indicator of increased parts purchase activity.
• Capital Investments Guide -- $700 million to $750 million for 2026, focused on flexible manufacturing and next generation clean diesel engines.
• R&D Expenditures Guide -- $450 million to $480 million for 2026, supporting hybrid, battery-electric, and connected vehicle services.
• Nonconformance Penalty (NCP) Estimate -- $6,000 to $7,000 per truck for current-generation engines under proposed EPA NOx regulatory clarifications.
• Spot Freight Rates -- 20% increase, contributing to improved operating conditions for fleet customers.
• Contract Freight Rates -- 6.5% increase, reflecting constrained industry freight capacity.
• Financial Services Total Assets -- $22.3 billion, with a portfolio of 222,000 trucks and trailers.
• Operating Cash Flow -- $700.8 million generated during the second quarter.
• Diluted EPS -- $1.43, compared to $1.37 in the same period last year.

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RISKS

• Feight stated, "there is probably a difference in the U.S. that we saw just from some supplier constraints that we are starting to experience as the market ramps up," noting that several hundred trucks were not delivered in the second quarter due to these constraints.
• Feight warned that regarding the EPA NOx emissions clarification, "We probably will not get a final answer till much later in the year," as the proposal remains in a notice of proposed rulemaking stage.

SUMMARY

Management at PACCAR Inc (NASDAQ:PCAR) reported a net price-cost benefit driven by operating effectiveness and increased production rates across all factories. The company stated it is adapting its product strategy to recent EPA regulatory clarifications regarding NOx emissions, which allow for the continued sale of current engine models with nonconformance penalties through 2027. PACCAR indicated that local-for-local production strategies are providing tariff benefits while aftermarket demand is rising due to increased truck utilization.

• CEO Feight noted that the recent EPA clarification allows the industry to ease into new technology, stating the situation is "very leveling now and maybe to our advantage a little bit" as it ensures products are fully validated before customer purchase.
• Management reported a mix shift in production, with increased demand from fleet and truckload carriers resulting in a higher proportion of fleet trucks relative to vocational models.
• CEO Feight attributed the projected market ramp-up to fleet replacement cycles, stating, "They have probably kept trucks longer than they would have wanted to," following several years of careful capital allocation.
• The company confirmed that build slots for the remainder of 2026 are nearly 90% full, with management expecting to sell out of remaining slots within one to two months.
• President Baney highlighted that large fleet customers are increasing parts purchases, as evidenced by 8% growth in the PACCAR Parts fleet services program quarter over quarter.
• PACCAR continues the development of its autonomous vehicle platform with partners including Aurora and Stack AV, though CEO Feight stated, "We have no plans to take the driver out at this point in time."
• Management indicated that local-for-local production in Texas and Ohio provides a stable operating environment regarding Section 232 tariffs.

INDUSTRY GLOSSARY

• Class 8: Heavy-duty trucks with a gross vehicle weight rating exceeding 33,000 pounds, commonly used for long-haul freight.
• DAF: PACCAR's premier European truck brand, headquartered in the Netherlands.
• EPA: The U.S. Environmental Protection Agency, which sets emissions standards for heavy-duty engines.
• Local-for-local: A manufacturing strategy where products are manufactured in the same region where they are sold to optimize logistics and minimize tariffs.
• NOx: Nitrogen oxides, a group of highly reactive gases that are regulated by emissions standards to reduce air pollution.
• Nonconformance Penalty (NCP): A fee paid by vehicle manufacturers to the government for each vehicle sold that does not meet a specific emissions standard.
• TRP: PACCAR's global brand of aftermarket parts for trucks, trailers, and buses of all makes.

Full Conference Call Transcript

Operator: Good morning, and welcome to PACCAR's Second Quarter 2026 Earnings Conference Call. 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.

Ken Hastings: Good morning, and welcome to PACCAR's second quarter 2026 Earnings Conference Call. All lines will be in-- My name is Ken Hastings, PACCAR's director of investor relations. And joining me this morning are R. Preston Feight, Chief Executive Officer Kevin D. Baney, President, and Brice J. Poplawski, Senior vice president and chief financial officer. Certain information presented today will be forward-looking and involve risk and uncertainties that may affect expected results. For additional information, please see our SEC filings and the Investor Relations page of paccar.com. I would now like to introduce Preston Feight.

R. Preston Feight: Thanks, Ken. Good morning, everyone. In the second quarter, PACCAR's outstanding employees did an excellent job of increasing production to provide our customers with the highest quality trucks and transportation solutions in the industry. Their hard work, high performance, and dedication is enabling PACCAR to continue increasing build rates in our factories around the world. PACCAR's second quarter revenues were $7.5 billion and net income was $752 million, an increase of 24% from the first quarter. These results were driven by strong truck division performance. PACCAR Parts performed well and achieved record quarterly revenues of $1.75 billion and quarterly pre-tax income of $417 million. PACCAR Financial also performed well, achieving pre-tax income of $124 million.

Now looking at this year's U.S. and Canadian heavy truck market. the U.S. economy is growing, and the truck market is strengthening. As freight rates have increased and regulatory clarity has been provided. First half retail sales were 105,000 trucks. And we expect that the second half could be around 145,000 resulting in a full year market size of around 250,000 units. Europe, the economy is growing modestly, and the truck market is healthy. We project the 2026 European above 16-ton market size to be around 310,000 trucks. DAF's premium trucks are providing customers with the latest technology, and best operating efficiency.

This year's South American above 16-ton market where DAF trucks are desired by customers for their durability and advanced technology, is expected to be in the range of 100,000 to 110,000 vehicles. In the second quarter, PACCAR's truck deliveries increased from 33,000 to 38,700. Third quarter deliveries are estimated to grow and be around 42,000 as build rate increases are partially offset by the normal European summer shutdown period. PACCAR's truck parts, other second quarter gross margins increased from 13.1% to 14.4% due to very good overall performance. Third quarter margins are forecast to be a strong 14.5% and then further increase in the fourth quarter.

PACCAR's exceptional range of trucks, compelling parts business, industry-leading financial services, and customer-focused product development strategy, position the company well for an excellent second half of 2026 and the future. Kevin will now provide an update on PACCAR Parts, financial services, and other business highlights. Kevin?

Kevin D. Baney: Thank you, Preston. PACCAR Parts achieved record second quarter revenues of $1.75 billion and good pre-tax profits of $417 million. Gross margins increased to 29.8%. Increasing truck utilization is beginning to lead to more parts and service activity, and we expect higher parts sales growth in the second half. Revenue from PACCAR Parts fleet services program grew 8% in the second quarter, which is an indicator customers are beginning to increase parts purchases. For the full year, we estimate parts sales growth in the range of 3% to 5%. PACCAR Financial Services pre-tax income was a robust $124 million. Their high performance is a result of steady finance margins and strengthening used truck markets.

Earlier this month, the EPA clarified a key NOx-related emissions regulation. The clarification extends the timeline to introduce 35-milligram NOx engines. Next year, customers will be able to buy the current generation of engines with an associated nonconformance penalty. This will be beneficial for customers as it will ensure that new technology is fully validated before being purchased by customers. It is also likely to have a positive impact on the size and strength of next year's truck market. This year, PACCAR is planning capital investments in the range of $700 million to $750 million, and R&D expenditures in the range of $450 million to $480 million.

PACCAR is investing in customer-focused technology and innovation projects including advanced flexible manufacturing, that enhances efficient local-for-local production, the development of next generation clean diesel engines, industry-leading hybrid and electric powertrains, integrated vehicle and connected vehicle services. We are looking forward to the success that our customers, dealers, and PACCAR will experience in the coming quarters and years. We are now pleased to answer your questions.

Operator: Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press one on your telephone keypad. To withdraw your question, press one again. We ask that you pick up your handset when asking a question and if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Stephen Volkmann from Jefferies. Steven, your line is open. Please go ahead.

Stephen Volkmann: Thank you. Good morning, everyone. Hi, Steven. Good morning. I am wondering, if we can dive in on the gross I think this quarter came in a bit stronger than you had expected. What are the moving parts that would explain that?

R. Preston Feight: Sure. There are a couple things. Thanks for the question. Probably one of the things is volume of trucks was higher. And then most significantly, I think our local production is benefiting PACCAR. I also think that the team did a great job in cost controls on price versus cost was favorable for us. Even more than we thought it would be, so that was also a positive. Those are the biggest majorities of what influenced it. And as I said, local-for-local production provides some tariff benefits to us.

Stephen Volkmann: Okay. Great. And what are you seeing in the market relative to price? Because you have a little bit more, I guess, local-for-local than some of your competitors. Are you seeing overall pricing kind of coming up in the market, gives you some opportunity?

R. Preston Feight: Yeah. I think what is happening in the general market is our customers are starting to experience better operating conditions for themselves. Spot rates are up 20%. Contract rates were up 6.5%, so we are seeing favorability for how they are operating their businesses. I think the driver pool has become a little bit more constrained, which is helping them realize operating benefits. And I think we all share in that together. So we have seen some favorability in terms of how we are able to price trucks as we look forward. Great. Thank you, guys. You bet. Have a great day, Steven.

Operator: Next question comes from the line of Jerry David Revich from Wells Fargo. Please go ahead.

Jerry Revich: Yes. Hi. Good morning. Good afternoon, everybody. Hi. I thought the profit per truck performance was especially strong in the quarter. I am wondering, was there any EPA refund benefit or anything along those lines that contributed to the really strong cost improvement?

Brice J. Poplawski: You know, I think if you look at that performance, it was largely driven from a net price-cost benefit. And the biggest part of that was really the team's operating effectiveness and good warranty performance by the team. Efficiencies to the local-for-local, but we did have a net tariff benefit We had some tariffs. We have to pay, of course, with the raw material stuff, and then we had some offset tariffs But the net was the bigger part of it was really operating strength.

Jerry Revich: Thank you for the color. Is it possible just to quantify the refund that you saw in the quarter just put a finer point on the run rate profits per truck? No.

Brice J. Poplawski: We did not put that out, and we think that it will be remain strong. So we think that the tariff position we had in the second quarter will look similar to the third quarter. that is really great to hear.

Jerry Revich: And then what we had been hearing until the EPA's new ruling was that you folks the fourth quarter deliveries were pulling back discounts and so the price realization was set to improve by over $5,000 in the fourth quarter versus the third quarter. Can you update us that still happening considering the more phased approach to the EPA 2027 rollout?

R. Preston Feight: I think the EPA has done a very nice job in paying attention to what the industry's needs are. I appreciate the work the administration has done in helping make sure we put valid fully validated products out into the marketplace. So it is been nice to work with the ATA and the customers and the administration to put a government business relationship in place that is working well. I think what they did is they took not all of the prebuy, but they kind of smoothed it And I think it creates a stronger position for 2027 to be a good market for the industry. And so I think that is kind of how we experience in that.

And if it is a good market, for our customers, then it tends to be a good market for us as well. Yep. Thank you. You bet. Have a great day.

Operator: Your next question comes from the line of Tami Zakaria from JPMorgan. Please go ahead.

Tami Zakaria: Hey. Good morning. Congrats on the excellent results. Two questions. The first one is on the gross margin guide for the third quarter. It seems like you are expecting somewhat sequentially flattish gross margin. Despite deliveries being higher and North America probably being higher mix, given the shutdowns in Europe? So what underpins that margin guide? Why would not margin be better sequentially? Is there any cost headwind you are expecting in this third quarter that you did not have in the second quarter?

R. Preston Feight: You know, great question, Tami. Thanks for asking. There are a couple of things that are a factor. One, you are fully aware of, right, which is that as truck increases, it has a ratio mix to parts. That increase has an impact, so that is why it is around 14%. And there also happens to be in the third quarter, probably the mix of our actual trucks we are building is shifting a little bit. Those two things together. So maybe a little less vocational, a little bit more fleet trucks that we are building. So put, we stay with the strong margin. But the nice thing is with the higher build, we see profit increasing.

In the quarter and continuing to strengthen through the year.

Tami Zakaria: Got it. That is helpful. And then my second question is on the NOx compliant engines. If I remember correctly, you expected that to be call it $8,000 to $10,000 more expensive than the noncompliant one, but with the NCPs that have been announced, it seems like the fine could be lower than the cost of a compliant engine. Just wanted to know if that is what if that is how you interpreted it. And if so, how could that impact your customer behavior next year when the EPA and NOx regulation goes into effect?

R. Preston Feight: Hey, Tami. Thanks for the second question. Good question. I think a lot of information came out just as recently as July 9 on that when the EPA made the announcement. It is still preliminary. It is a notice of proposed rulemaking, so there is still a comment period that we are in. So things could even change from here. We will have to see what that looks like. We probably will not get a final answer till much later in the year. But the way it is currently proposed is we would expect to see NCPs running at something like the $6,000 to $7,000 range per truck.

And as you noted, the cost of fully compliant 35-milligram engines would likely be higher than that. But I think a lot of what went into the discussion was the desire to make sure that the engines from all the manufacturers and engine companies were fully validated and the customers had enough time with them that was a big portion of what happened here. So I think the result of that is, as shared earlier, means that the end of the year will improve and then I think it bodes well for a good 2027 operating condition for the customers and for us. Understood. Thank you.

Operator: Great. Your next question comes from the line of Rob Wertheimer from Melius Research. Please go ahead.

Rob Wertheimer: Thank you. Preston, you just touched on this. I think maybe Kevin did earlier, but, you know, the EPA shift or closed rule may benefit 2027 a bit. And my question is a bit of a soft one, but when you talk to customers now, are people prebuying, or do they just need trucks? You know, there is there are a couple things that maybe tightened up fleet dynamics. And so I am curious about maybe it is a soft question, but like what people are buying for. And then in the 2027, those comments around a continued prebuy or more just that people have confidence in the engine and are not shying away from it. Thank you.

R. Preston Feight: Yeah, sure. Good question. Good to think through that a little bit. I think part of what is happening is they have been in a tough operating condition. Our customers, many of them, been in a tough operating condition for a few years now. That meant they have been careful with capital. They have probably kept trucks longer than they would have wanted to, and you can see that especially as a pronounced first half of this year. Where it really showed up in a 105,000 trucks of retail. I think that now what is happening is they are trying to get back into their normal operating models.

The trucks we are building today are the most fuel efficient trucks we have ever built, so they are very helpful to customers to operate them. The driver environment's the best it is ever been. The engine's performing the best they have ever performed. We have a great product line out there, and I think that since they have the operating capital to use, they would like to be using those trucks. Since they are just starting to do that. It seems like it is going to ramp through the second half. Like I said, probably 145,000 retail in the second half. And then I think we should expect a very healthy market in 2027. Okay. Thank you.

Rob Wertheimer: And then just the EPA, does that advantage any of your competitors more through sort of credits? Is that any headwind to market share or price in 2027? I will stop there. Thanks.

R. Preston Feight: Well, actually, I think that the maybe the situation is very leveling now and maybe to our advantage a little bit. In that the NCPs are allowing everybody to make sure we get the right products out there validated. So the customers get the experience with the products. They will get the experience with our products and the quality of product we are able to introduce in a more gradual way versus it being step changed But the fine level if you look at the shape of the curve for the fines, for most manufacturers, they may be all manufacturers, as it is currently written.

The fine's going to be in that $6,000 to $7,000 range if they choose to offer. Today's products. And so that kind of levels it out. Also, thank you.

Operator: Your next question comes from the line of David Raso from Evercore ISI. Please go ahead.

David Raso: Hi. Thank you. Your comments about 2027. Can you take us through your thoughts right now when you are speaking to your suppliers about the cadence Q4 into Q1? And then second question on the parts business. Can you help us get a little more comfort with the parts growth exiting 2026? Obviously, the back half of the year has to step up a little bit. Just trying to think that through and not to give 2027 parts guidance, but just how to think about that growth rate exiting 2026 as we think about 2027. Thank you.

R. Preston Feight: Thanks, David. I will take the first one, then Kevin can cover the parts one. We can add anything he wants to the first one too. The quarterly cadence of the market is as I kind of was just describing with Rob, is I really see that the market's ramping up. We are certainly full through the third quarter, mostly full for the year, probably like 90% full for the year even as we are ramping up production. At a rate that is as quick as is reasonable to do. So that is kind of limiting the market size a little bit right now. So we will sell out of build slots probably in the next month or two here.

And as we are out of build slots, then I think there will be carryover into 2027. And then I think because of the way the EPA implemented this approach, it will allow people to have the product they want next year, which I think they will be in a good operating condition. And so it will help the cadence of the year next year start strong and probably be strong through the year.

Kevin D. Baney: And just to add to what Preston said, PACCAR was the first to announce build rate increases earlier in the year, and so a lot of strong communication with the supply base on the rate of increase throughout the year. So feel pretty good about the support we are getting, at the elevated build levels. And then on the parts side, David, parts will grow at a faster rate in the second half based on the strength of the truck market. Capacity has come out, utilization has increased, freight rates have increased. We are seeing, customers buying more parts now. A good indicator is that the larger customers are buying through our fleet services program.

We have seen an 8% increase quarter over quarter. And then also Europe is running strong. And so as we see the stronger truck market second half of this year and into next year, we are confident with the parts growth. Thank you.

Operator: Your next question comes from the line of Chad Dillard from Bernstein. Please go ahead.

Chad Dillard: Hi, good afternoon, guys. This is Chad. I have a question for you on EPA 2027. So noncompliance is about $6,000 to $7,000. to comply with 35 milligrams, you know, plus $10,000. So assuming the EPA rules hold, how does that change your product strategy? So will you stick with the 200-milligram product and just pass that extra cost on to the customers? Or are you thinking with going as planned with the 35-milligram product?

R. Preston Feight: Great question. We are planning on selling the current product to our customers. That is the engagement we have had with many, many customers is that is their preferred approach is to ease into this thing. So both for our excellent PACCAR engines and our partner's engines Cummins. And the plan is to begin 2027 selling those engines. Then getting our customers experience with the 35-milligram engines as the year progresses. But as you noted, if the numbers stay where they are and it is $6,000 to $7,000, there is still an advantage for them in taking the current product. So that is kind of how we think the year shapes up. Which is, I think, favorable for the industry.

I think it is a great approach for the industry.

Chad Dillard: Okay. Great. And second question, coming back to tariffs and just to be clear, the EPA refund, was there anything in 2Q or through the rest of the year? And then secondly, assuming things as we are trying to think through the rules stay where they are today, how do we think about the year-on-year bridge to 2027 for tariffs?

R. Preston Feight: I think that the tariff situation has become a little bit more clear, Chad, and that what is in place is durable. There does not seem to be any real challenge to that. I think it is favorable for PACCAR. In that our teams, as we shared previously, but I was and I have been in all our factories just in the last month, and I just cannot tell you how cool it is to see those great people building every model of truck in the factories in Ohio and in Texas. In a way that is supportive to the approach of the administration of building local-for-local. So great job on that. That gives us a stable tariff operating environment.

So looking at that, and, yeah, there is a little bit of benefit in Q2, but that will carry forward in Q3. And the bigger effect of tariffs really ends up being Section 232. As you look forward into next year. Great. Thank you. Great. Okay.

Operator: Your next question comes from the line of Kyle Menges from Citi. Please go ahead.

Kyle Menges: Great. Thank you. I was hoping just if we could hone in on margins a little bit, maybe as we get into 2027. I mean, you sound a little bit more confident in volumes. And then easing into the new truck platform, I guess, in 2027, the new engine platform. And I am just curious how you are thinking about margin ramifications maybe as you start with selling the 2026 engines in the first half of next year, but then start to produce on the new engines and just how to think about margin impact. As you do that.

R. Preston Feight: Yeah. I think that the NCPs that will be out there are fees that will be paid not to the they will be paid to the government. So that is a straight pass through for us, and that is how we would look at that. So it really should not have any effect on margin. We are not going to try to make a profit on those penalties. that is just a pass through. We think the strength of the market will be good for PACCAR in 2027. Should do great.

And we think that the, again, the allowance to sell the current model of your products throughout next year. is a-- which is a distinct possibility what we will do with an introduction of 2027. Feels really good. I feel like it is the right approach, and should be positive. Kyle.

Kyle Menges: Got it. And then and also on parts, I mean, it sounds like maybe some of the larger fleet customers contributing more to the parts demand this year. So just curious, as you see the over the road market come back and maybe a recovery become more broad based, and you see more demand pick up from small and midsized fleets? Just how to think about parts margins maybe as that mix within the customer base shifts a little bit? I mean, I would imagine maybe small, midsize fleets, they would be buying more TRP parts, which I think come at a lower margin. So just how to think about that.

Kevin D. Baney: Yeah, Kyle. So the reference to the fleet services was a good indicator for the large fleets, but we are also seeing the increase in the small to midsize as well, and it is just a reflection of the utilization picking up across the industry. So that is good. We are also seeing an increase in our TRP parts sales as well. So I think those are all strong indicators of improved parts sales. And then just on the margin side, we still have the newest truck platforms in the industry. With strong proprietary content, the engine business as well. And so I think talked earlier calls about the focus on service only required maintenance, and service side as well.

And as the truck side improves, I think we will just see all indications improve on the parts side. Helpful. Thank you.

Operator: Great. Your next question comes from the line of Jamie Lyn Cook from Truist Securities. Please go ahead.

Jamie Cook: Hi, good morning, thanks for your time, and congrats on a nice quarter. I guess my first question, the deliveries surprised to the upside relative to your guide, but U.S. and Canada was down, which I guess I was surprised by. I think you implied every region, so it should be up. So what is driving that? And within the 42,000 deliveries in the third quarter, what are you expecting for U.S. and Canada? And I guess, Preston, it sort of dovetails into the margins because the margins were very impressive with U.S. and Canada down. I always thought that was one of your more profitable regions, so correct me if I am wrong.

And then I guess my second question on the third quarter margins, you mentioned mix, like a little more fleet, a little less vocational. Could you just help us understand, you know, what you are seeing across TL, LTL, and vocational in terms of, like, the order book. And is fleet being higher just a function of demand improving there? Is there something know, more negative happening on the vocational side? Thanks. I know there is a lot in there.

R. Preston Feight: Wow, Jamie. That was that was a lot. Let me let me try to work from the back of it to the front. You are right. There is some mix shift, and it is it is not about really anything other than the fleets and the truckload carriers increasing their demand in the months we are in now and looking forward that is probably the biggest thing that is affecting the margin there.

And then from a build mix, standpoint, if I just take it more generically, I would say that we did have a few hundred trucks that we did not even deliver in the there is probably a difference in the U.S. that we saw just from some supplier constraints that we are starting to experience as the market ramps up. And so we think those will come through in the quarter, and we do expect healthy demand improvement or not even demand, but delivery improvement in the U.S. markets. Then we had good European performance. Team did a great job there in the quarter.

And so I think you put the strong U.S. performance, the increasing truck market in the U.S., the strong European performance. They were all factors in it. All came together well. And we think that will continue. Thank you. Yeah. You bet. If I missed something there, feel free to jump in on that because there was a lot. You did a great job. I am good. Thanks. Alright. Take care, Jamie.

Operator: Your next question comes from the line of Steven Fisher from UBS. Please go ahead.

Steven Fisher: Thanks. Good morning. Just on the U.S./Canada retail outlook, sounds like you are centering around 250,000 there. Just curious with half the year to go, just why not narrow the range at all? Are there still scenarios where you think you could reasonably say either 230,000 or the 270,000 end?

R. Preston Feight: You know, I think that we left it that way, but it is really calling a midpoint at 250,000. I think the question still centers out around inventory and what happens with inventory in. I think we have a great understanding of what build is going to be and now it is just what happens with inventory. Okay.

Steven Fisher: Makes sense. And then I am not sure if I missed it on the parts side relative to that new 3% to 5% range for the year. Q3, are we thinking that it will sort of be at the low end of that 3% to 5% or somewhere between? Anything specific by the way, if I missed it on Q3 guide? For parts?

Kevin D. Baney: Yeah. We did not provide Q3 guide, but what I will add is that we did see we did see sequential growth in Q2 as we went through the quarter. And so that is why I just called it the 3% to 5% for the second half, and we will we will see growth continue throughout the back half of the year.

R. Preston Feight: But I do not think we think it is at the low side of that range. I think we think it is at high side of that range. Okay. Terrific. Thank you.

Operator: Your next question comes from the line of Angel Castillo from Morgan Stanley. Please go ahead.

Angel Castillo: Hi. Good afternoon. Thanks for taking my question. Preston, I just wanted to go back to the discussion around the EPA 2027. I think the 2027 dynamic for unit sales makes sense. But some of the NCPs, specifically to the ability to use credits to sell or to offset Just curious, why would not that, I guess, create the ability for some competitors to ultimately sell the current engine at no incremental penalty? And then maybe to the extent that there is any implications of that, I guess, what are the impacts on potential for passing through price next year on the new engine or just competitive dynamics on price?

R. Preston Feight: Yeah, Angel. I do not tend to want to talk about what other competitors are going to do from their strategies. I can just kind of see what the public qualifications are out there, and I know where people to engines are qualified. And so what we see is if the engines are qualified at today's level, then the penalties are going in that $6,000 to $7,000 range for kind of everybody.

Operator: And, of course, people can-- Please hold. We are experiencing technical difficulties. Please stand by while we address the issue. Test, can you hear? Jade, can you hear us? David, can you hear us? We can hear you all. Yes. Thank you all for standing by. We will now resume the broadcast.

R. Preston Feight: So, Angel, if you are still there, I hope you could hear the answer. If not, let me know, we will come through it. Jade, why do not we go to the next question? And Angel can get back in queue if he wants to do that again.

Angel Castillo: Can you hear me? Yep. We got you. Hey, Ken. Yeah. Go ahead. Oh, perfect. Alright. Thank you. Yeah. I guess just maybe switching gears a little bit. Wanted to ask a separate one, a little bit bigger picture and more technology. I guess, I noticed one of your partners had launched, you know, a second generation hardware and driverless freight routes with a different OEM partner. So just wanted to get an update on how some of your partnerships with Aurora are progressing, how you see that evolving over time?

Just any kind of plans here to start kind of approving driverless operations or just what your strategic kind of approach here is going to be on some of those autonomous innovations.

R. Preston Feight: Yeah. PACCAR is developing its autonomous vehicle platform. We are really happy with the progress we are making in that. We have good partners in Aurora, Stack AV, Kodiak, and the others that we work with. So we feel good about the progress we are making on that. It is significant. We have no plans to take the driver out. At this point in time. Understood. Thank you.

Operator: Your next question comes from the line of Scott Group from Wolfe Research. Please go ahead.

Scott Group: Hey. Thanks. Afternoon. So all we keep hearing from truckers is a supply-driven cycle. Rates are going up a lot, but demand sort of stable, fewer drivers. Is that change the way you think about what an upcycle could look like in terms of where orders and builds can go? So are you hearing about fleet growth? Or do you think that is less likely now? And sort of supply-driven tightening?

R. Preston Feight: Yeah. Great question. I think that if you just look at it in general, while freight tonnage index is increasing only modestly, it is at a high level. So it is not as if there is not a lot of freight being hauled out there. And I think with the GDP growth that the U.S. is experiencing, that is positive because as we all know, over 70% of the freight is moved by trucks. So as the economy grows, the truck grows. And I think that the reshoring and local-for-local efforts that are happening in the industrial base right now are good for trucks and especially good for PACCAR.

So I think all of those things give us confidence in where the market should head in the coming year or two here. Okay.

Scott Group: And then just lastly, I have got one very short-term and then one longer-term. Mechanically, if someone placed an order that near-term was a prebuy for delivery in 2026. Like, are they able to now push that to 2027? Are you seeing that? And then maybe just my longer-term, like, thought, like, as we enter an up cycle, like, where do you think ultimately gross margins can get to relative to where they have been in prior cycles?

R. Preston Feight: I think what we think is that the there was many people thought that there would be a huge prebuy at the end of the year, and I think that what we kind of expect now is with the smart positioning that the EPA did, it will be just a continued improved cycle through the balance of the year. With a stronger 2027 and not much drop-off That feels pretty positive to me. And as far as the margins longer-term, I think, you know, we have done a good job of investing in the right products. So that our team has produced the best trucks that can be built. And I think we are building in the right locations.

So that is also positive for margin. And we feel good about the company's short, mid, and long term performance. Thank you. You bet.

Operator: At this time, there are no further questions in the queue. Are there any additional remarks from the company?

Ken Hastings: We would like to thank everyone for joining the call, and thank you, operator.

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

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