Good morning, and welcome to PACCAR's Second Quarter 2026 Earnings Conference Call. All lines will be in listen-only mode.

My name is Ken Hastings, PACCAR's Director of Investor Relations, and joining me this morning are Preston Feight, Chief Executive Officer, Kevin Baney, President, and Brice Poplawski, Senior Vice President and Chief Financial Officer. 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 and the Investor Relations page of paccar.com. I would now like to introduce Preston Feight.

Hey, 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. In 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 the 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, and 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 future.

Kevin will now provide an update on PACCAR Parts, Financial Services, and other business highlights. Kevin?

Thank you, Preston. PACCAR Parts achieved record second quarter revenues of $1.75 billion and good profits, $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 that 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 mg NOx engines.

Next year, customers will be able to buy the current generation of engines with an associated non-conformance fee. This will be beneficial for customers as it will ensure 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 to $750 million and R&D expenditures in the range of $450 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, 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.

Thank you. Good morning, everyone.

Hi, Steve.

Morning.

I'm wondering if we can dive in on the gross margin. I think this quarter came in a bit stronger than you had expected.

What are the moving parts that would explain that?

Sure, there's a couple things. Thanks for the question.

Probably one of the things is volume of trucks was higher. Then most significantly, I think our local-for-local production is benefiting PACCAR.

I also think that the team did a fantastic job in cost control, our price versus cost was favorable for us even more than we thought it would be, so that was also positive. Those are the biggest majorities of what influenced it.

As I said, local-for-local production provides some tariff benefits to us.

Great. What are you seeing in the market relative to pricing?

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, which gives you some opportunity?

I think what's happening in the general market is our customers are starting to experience better operating conditions for themselves. Spot rates are up, I don't know, 20%, contract rates are up 6.5%, we're seeing favorability for how they're operating their businesses.

I think the driver pool has become a little bit more constrained, which is helping them realize operating benefits. I think we all share in that together.

We've seen some favorability in terms of how we're able to price trucks as we look forward.

Great. Thank you, guys.

You bet. Have a great day, Steve.

Yes, hi. Good morning, good afternoon, everybody.

The profit per truck performance was especially strong in the quarter. I'm wondering, was there any IEEPA refund benefit or anything along those lines that contributed to the really strong cost improvement?

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 for the local-for-local. We did have a net tariff benefit.

We had some tariffs, we have to pay, of course, with the raw materials stuff, and then we had some offset tariffs. The bigger part of it was really operating strength.

Thank you for the color. Is it possible just to quantify the refunds that you saw in the quarter, just to put a finer point on the run-rate profit per truck?

No, we didn't put that out, and we think that it'll remain strong. We think that the tariff position we had in the second quarter will look similar to the third quarter.

That's really great to hear. Then, what we had been hearing until the EPA's new ruling was that you folks for 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 just update, is that still happening considering the more phased approach to the EPA 27 rollout?

I think the EPA's 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 fully validated products out into the marketplace.

It's 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 pre-buy, but they kind of smoothed it, and I think it creates a stronger position for 2027 to be a good market for the industry.

I think that's kind of how we experience in that. If it's 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.

Hey, good morning. Congrats on excellent results.

Two questions. The first one is on the gross margin guide for the third quarter.

It seems like you're expecting somewhat sequentially flat-ish gross margin despite deliveries being higher and North America probably being a higher mix given the shutdowns in Europe. What underpins that margin guide?

Why wouldn't margin be better sequentially? Is there any cost headwind you're expecting in the third quarter that you didn't have in the second quarter?

Great question, Tami. Thanks for asking.

There's a couple things that factor. One you're fully aware of, right, which is that as truck increases, it has a ratio mix to parts, and that increase has an impact, so that's why it's around 14.5%.

There also happens to be in the third quarter the mix of our actual trucks we're building is shifting a little bit. Maybe a little less vocational, a little bit more fleet trucks that we're building.

If we put those two things together, then we stay with the strong margin. The nice thing is with the higher build, we see profit increasing in the quarter and continuing to strengthen through the year.

Got it. That is helpful.

Then my second question is on the NOx-compliant engines. If I remember correctly, you expected that to be call it $8 to $10k more expensive than a non-compliant one.

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's how you interpreted it.

If so, how could that impact your customer behavior next year when the EPA NOx regulation goes into effect?

Tami, thanks for the second question. Good question.

I think a lot of information came out just as recently as July 9th on that when the EPA made the announcement. It's still preliminary.

It's a notice of proposed rulemaking, there's still a comment period that we're in, things could even change from here. We'll have to see what that looks like.

We probably won't get a final answer till much later in the year. The way it's currently proposed is we would expect to see NCPs running at something like $6,000 to $7,000 range per truck.

As you noted, the cost of fully compliant 35 mg engines would likely be higher than that. 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 that customers had enough time with them.

That was a big portion of what happened here. 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.

Great.

Thank you. Preston, you just touched on this, I think maybe Kevin did earlier, but the EPA shift or proposed rule may benefit 2027 a bit.

My question is a bit of a soft one, but when you talk to customers now, are people pre-buying or do they just need trucks? There's a couple things that maybe tighten up fleet dynamics, and so I'm curious about, maybe it's a soft question, but what people are buying for.

Then into '27, those comments are around a continued pre-buy or more just that people have confidence in the engine and aren't shying away from it? Thank you.

Sure. Good question.

Good to think through that a little bit. I think part of what's happening is our customers might have even been in a tough operating condition for a few years now.

That meant they've been careful with capital. They've probably kept trucks longer than they would have wanted to.

You can see that especially as a pronounced first half of this year, where it really showed up in 105,000 trucks of retail. I think that now what's happening is they're trying to get back into their normal operating models.

The trucks we're building today are the most fuel-efficient trucks we've ever built, they're very helpful to the customers to operate them. The driver environment's the best it's ever been.

The engines are performing the best they've ever performed. We have a great product lineup out there, and I think that since they have the operating capital to use, they'd like to be using those trucks.

Since they're just starting to do that, it seems like it's going to ramp through the second half, like I said, probably 145,000 retail second half, and then I think we should expect a very healthy market in '27.

Thank you. 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 '27? I'll stop there.

Thanks.

No, actually, I think that 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'll get the experience with our products and the quality of product we're able to introduce in a more gradual way versus it being step-changed. The fine level, if we look at the shape of the curve for the fines, for most manufacturers, I think maybe all manufacturers, as it's currently written, the fine's going to be in that $6,000 to $7,000 range if they choose to offer today's products.

That kind of levels it out also.

Thank

you. Bet.

Hi, thank you. Your comments about '27, can you take us through your thoughts right now when you're speaking to your suppliers about the cadence 4Q into 1Q?

Then a second question on the parts business, can you help us get a little more comfort with the parts growth exiting '26? Obviously the back half of the year has to step up a little bit.

I'm just trying to think that through and not to give '27 parts guidance, but just how to think about that growth rate exiting '26 as we think about '27. Thank you.

Thanks, David. I'll take the first one, and 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're certainly full through the third quarter, mostly full for the year, probably 90% full for the year even as we're ramping up production at a rate that's as quick as is reasonable to do. That's kind of limiting the market size a little bit right now.

We will sell out of build slots probably in the next month or two here. As we're out of build slots, then I think there'll be carryover into 2027.

Then I think because of the way the EPA implemented this approach, it'll allow people to have the product they want next year, which I think they'll be in a good operating condition, and so it'll help the cadence of the year next year start strong and probably be strong through the year.

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, feel pretty good about the support we're getting at the elevated build levels. 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's come out, utilization's increased, freight rates have increased. We're seeing customers buying more parts now.

A good indicator is that the larger customers are buying through our Fleet Services program, have seen an 8% increase quarter-over-quarter. 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're confident with the parts growth.

Thank you.

Hey, good afternoon, guys.

Hey, Chad.

A question for you on EPA 27. The non-compliance is about $6,000 to $7,000.

If you did comply with 35 mg, it's plus $10,000. Assuming the EPA rules hold, how does that change your product strategy?

Will you stick with the 200 mg product and just pass that extra cost onto customers, or are you sticking with going as planned with the 35 mg product?

Great question. We are planning on selling the current product to our customers.

That's the engagement we've had with many, many customers is that that's their preferred approach is to ease into this thing. Both for our excellent PACCAR engines and our partner's engines, Cummins, the plan is to begin 2026 selling those engines and then getting our customers experience with the 35 mg engines as the year progresses.

As you noted, if the numbers stay where they are, and at $6,000 to $7,000, there's still an advantage for them in taking the current product. That's kind of how we think the year shapes up, which is, I think, favorable for the industry.

I think it's a great approach for the industry.

Great. Second question just coming back to tariffs.

Just to be clear, the IEEPA refunds, was there anything in 2Q or through the rest of the year? Then secondly, assuming the rules stay where they are today, how do we think about the year-on-year comps as you're trying to think through the bridge to 2027 for tariffs?

I think that the tariff situation has become a little bit more clear, Chad, in that the 232 is durable. There doesn't seem to be any real challenge to that.

I think it is favorable for PACCAR in that I've been in all our factories just in the last month, and I just can't 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's supportive to the approach of the administration of building local-for-local. Great job on that.

That gives us a stable tariff operating environment, I think. Looking at that, and yeah, there's a little bit of IEEPA benefit in two, but that'll carry forward in three, and the bigger effect of tariffs really ends up being the 232 as you look forward into the next year.

Great. Thank you.

Great.

Great. Thank you.

I was hoping just if we could hone in on margins a little bit maybe as we get into 2027. You sound a little bit more confident in volumes and then easing into the new truck platform, I guess, in 2027 new engine platform, and I'm just curious how you're thinking about margin ramifications maybe as you start with selling 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 impacts as you do that.

I think that the NCPs that will be out there are fees that will be paid not to the manufacturer, they'll be paid to the government, so that's a straight pass-through for us. That's how we would look at that, it really shouldn't have any effect on margin.

We're not going to try to make a profit on those penalties. That's just a pass-through.

We think the strength of the market will be good for PACCAR and that 2027 should do great. We think that again the allowance to sell the current model of your products throughout next year, which is a distinct possibility of what we'll do with an introduction in 2027, feels really good.

Feels like it's the right approach and should be positive, Kyle.

Got it. Then also on parts, it sounds like maybe some of the larger fleet customers contributing more to the parts demand this year, just curious as you see the over-the-road market come back and maybe a recovery become more broad-based and see more demand pick up from small and mid-sized fleets, just how to think about parts margins maybe as that mix within the customer base shifts a little bit?

I would imagine maybe small, mid-sized fleets, they'd be buying more TRP parts, which I think come at a lower margin, just how to think about that.

Kyle, the reference to the Fleet Services was a good indicator for the large fleets, but we're also seeing the increase in the small to mid-size as well, and it's just a reflection of the utilization picking up across the industry, so that's good. We're also seeing an increase in our TRP part sales as well, I think those are all strong indicators of improved part sales.

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. I think we had talked earlier calls about the focus on service only, required maintenance, and as the truck side improves, I think we'll just see all indications improve on the part side as well.

Helpful. Thank you.

Great.

Hi. Good morning 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, but I think you implied every region should be up.

What's driving that? Within the 42,000 deliveries in the third quarter, what are you expecting for U.S.

and Canada? 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, correct me if I'm wrong.

Then I guess my second question on the third quarter margins, you mentioned mix, like a little more fleet, a little less vocational. Can you just help us understand what you're seeing across TL, LTL, and vocational in terms of the order book, and is fleet being higher just a function of demand improving there, or is there something more negative happening on the vocational side?

Thanks. I know there was a lot in there.

Wow, Jamie, that was a lot. Let me try to work from the back of it to the front.

You're right, there is some mix shift, and it's not about really anything other than the fleets and the truckload carriers increasing their demand in the months we're in now and looking forward. That's probably the biggest thing that's affecting the margin there.

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 didn't even deliver in the U.S. That's probably a difference in the U.S.

that we saw just from some supplier constraints that we're starting to experience as the market ramps up. We think those will come through in the quarter, and we do expect healthy delivery improvement in the U.S.

markets. Then we had good European performance.

The team did a great job there in the quarter. 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. They all came together well, and we think that will continue.

Thank you.

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'm good.

Thanks.

All right. Take care, Jamie.

Thanks. Good morning.

Just on the U.S.-Canada retail outlook, sounds like you're 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 the 230 or the 270 end?

I think that we left it that way, but it's really calling a midpoint at 250. I think the question still centers out around inventory and what happens with inventory and that, because I think we have a great understanding of what build's going to be, and now it's just what happens with inventory.

Makes sense. Then, not sure if I missed it, but on the parts side, relative to that new 3% to 5% range for the year, Q3, are we thinking that it'll sort of be at the low end of that 3% to 5% or somewhere in between?

Anything specific if I missed it on Q3 guide for parts?

We didn't provide Q3 guide, but what I'll add is that we did see sequential growth in the Q2 as we went through the quarter. That's why I just called it the 3% to 5% for the second half, and we'll see growth continue throughout the back half of the year.

I don't think we think it's at the low side of that range. I think we think it's more towards the high side of that range.

Terrific. Thank you.

Hi, good afternoon. Thanks for taking my question.

Preston, I just wanted to go back to the discussion around the EPA 27. I think the 2027 dynamic for unit sales makes sense, but specifically to the ability to use credits to sell or to offset some of the NCPs, just curious, why wouldn't 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?

Angel, I don't 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's engines are qualified.

What we see is if the engines are qualified at today's level, then the penalties are going to be in that $6,000 to $7,000 range for kind of everybody. Of course, people make their own choices on what they want to do with credits or not credits, but they have to have credits to be able to do that.

That kind of levels that playing field out as well. In terms of pricing, as we've always said, we price for the value of the trucks, and the products we're bringing to market will provide great operating value for our customers.

Great. Thank you.

You bet. Thank you.

There are no further questions at this time. I would now like to turn the call back over to Mr.

Preston Feight for closing remarks. We would like to thank everyone for joining the call, and thank you for your continued interest in PACCAR.

Have a great day. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.

You may now disconnect.