PACCAR INC — Call Transcript 2025

Good morning and welcome to PACCAR's Third Quarter 2025 earnings conference call. All lines will be in listen and learning mode until the question and answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. Now, I'd like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead. Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations, and joining me this morning are Preston Feight, Chief Executive Officer, Kevin Baney, Executive Vice President, and Brice Poplawski, 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 at the Investor Relations page at paccar.com. I would now like to introduce Preston Feight. Thank you, Ken. Good morning, everyone. Kevin, Brice, Ken, and I will update you on our good third quarter financial results and business highlights. I'd like to start by thanking our wonderful employees who deliver PACCAR's high-quality trucks and transportation solutions to our customers all around the world. I'm especially appreciative of their efforts in these dynamic market conditions. PACCAR delivered good revenues and net income in the third quarter of 2025. Peterbilt, Kenworth, and DAF Trucks contributed to the good results. PACCAR Parts and PACCAR Financial Services continued to deliver excellent performance and strong profits. PACCAR achieved revenues of $6.7 billion and net income of $590 million. PACCAR Parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $410 million. Parts revenue grew 4% in the quarter compared to the same period last year. PACCAR Financial also had a very good quarter, achieving pre-tax income of $126 million. We estimate this year's U.S. and Canadian Class eight market to be in a range of 238,000 - 245,000 trucks, and next year to be in a range of 230,000 - 270,000. Customer demand in the less than truckload and vocational segments is good. The truckload market continues to have uncertainty. Next year's U.S. and Canadian truck market could be higher than this year as we realize clarity around tariffs, emissions policy, and potential improvements in the freight market. In Europe, the DAF XF truck was honored as the Fleet Truck of the Year in the U.K. due to its best-in-class fuel efficiency and driver comfort. We project this year's European above 16-ton market to be in a range of 275,000 - 295,000 vehicles. The 2026 market is expected to be in the range of 270,000 - 300,000. We estimate this year's South American above 16-ton truck market to be in the range of 95,000 - 105,000 vehicles and in a similar range next year. PACCAR's premium trucks are performing well for customers in South America, especially in the important Brazilian market. PACCAR delivered 31,900 trucks during the third quarter and anticipates delivering around 32,000 in the fourth quarter. More production days in Europe will be offset by fewer production days due to normal holidays in North America. PACCAR's truck, parts, and other gross margins were 12.5% in the third quarter. Margins were affected by the August steel and aluminum tariff increases and the tariff costs on trucks that were built in the United States. Looking ahead, fourth quarter margins could be around 12% as tariffs peak in October. However, the new Section 232 tariffs on medium and heavy trucks that will become effective November 1st will be good for PACCAR's customers as it will reduce tariff costs and bring clarity to the market. PACCAR is proud to produce over 90% of its U.S.-sold trucks in Texas, Ohio, and Washington. We look forward to improving market conditions, tariff costs that will begin to reduce as we head towards the end of the year, and PACCAR's continued strong performance. Kevin Baney will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights. Kevin? Thank you, Preston. PACCAR Parts achieved gross margins of 29.5% and record third quarter revenue of $1.72 billion. Third quarter parts sales grew by a healthy 4% compared to the same period last year, with similar growth expected in the fourth quarter. PACCAR Parts continues to grow by investing in capacity and services. PACCAR Parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers. PACCAR Parts will open a new 180,000 sq ft parts distribution center in Calgary next year to bring faster delivery times to dealers and customers in the region. PACCAR will be opening a new engine remanufacturing center in Columbus, Mississippi, next year to provide our customers with high-quality rebuilt engines. PACCAR Financial Services' pre-tax income was a robust $126 million, 18% growth over the $107 million reported a year earlier. This reflects the high-quality portfolio in improving used truck results. PACCAR Financial operates 13 used truck centers around the world to support the sale of premium Kenworth, Peterbilt, and DAF used trucks. PACCAR is building another used truck center in Warsaw, Poland, which will open this year. PACCAR used trucks sell at a premium. Similar to PACCAR Parts, PACCAR Financial provides steady foundational profitability during all phases of the business cycle. This year's capital expenditures are projected to be between $750 million and $775 million, and research and development expenses will be $450 million - $465 million. Next year, we estimate the company will invest $725 million to $775 million in capital projects and $450 million to $500 million in research and development expenses. Key technology and innovation investments include next-generation clean diesel and alternative powertrains, advanced driver assistance systems, and integrated connected vehicle services. PACCAR is also investing in its truck and engine factories to support long-term growth as well as our customers' and dealers' success. PACCAR's industry-leading trucks, expanding parts business, best-in-class financial services, and advanced technology strategy position the company for an excellent future. We are pleased to answer your questions. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Rob Wertheimer with Melius Research. Your line is open. Please go ahead. Thank you. Good morning. I had a couple of questions around Section 232 tariffs. I guess that's no surprise, but I wonder if you're able to give any thoughts on whether it improves your competitive position or not, given production of some of your competitors, but then given, you know, perhaps they have exemptions. How does the rebate, how and when does the rebate flow through financials? Thank you. Hey, Rob. I kind of thought we might hear some questions around Section 232 tariffs. As you're aware, it came out Friday afternoon, late afternoon here, and we've been spending a lot of time with it. We said in the commentary that Section 232 tariffs will be good for our customers, for PACCAR's customers. It'll be good for the fact that we manufacture our trucks in Texas, Ohio, and Washington, and it should improve our competitive position as we look forward into next year. It will take a little bit of time for it to fully implement. As we shared, tariffs are really peaking for us in the fourth quarter, in October, the fourth quarter. As Section 232 tariffs implement November 1st, there's kind of a qualifying period for the components that are involved in it. It'll become gradually more and more effective throughout the quarter. Probably by the time we get to the first part of the year, we should have great stability around it. All feels very good and should help our competitive position. That's helpful. Thanks. How do you think about pricing? You know, there's been a lot of uncertainty. I don't think you immediately hit your customers with some of the tariff-led price increases. Now that there's clarity, do price increases start to offset that in the new year or any commentary around that? I'll stop. Thank you. As we think about it, we think about it as a competitive world out there, and we don't operate alone in it. We feel very good about the trucks that we're producing right now, the best trucks we've ever produced in our history, best fuel economy, best reliability, great engine performance. We're happy with how that's going. I think that our customers appreciate the stability in the market right now with how emissions haven't changed in a while. The trucks they're getting are moneymakers for them. As we kind of think about pricing through the year of next year, I think that there will be some opportunities for us as the year progresses. We said that the less than truckload market remains good. The vocational market remains good. I think the truckload sector has been in a tough spot for, gosh, 30 months plus. I think that they are using the equipment. That bodes well for the fact that they'll get back onto replacement cycles. As they get back onto replacement cycles, it's going to create demand in the market, which is obviously good for pricing. Thank you. You bet. We now turn to David Raso with Evercore ISI. Your line is open. Please go ahead, David, your line is open. I apologize. Thank you for the time. I was curious, underpinning the North American growth outlook, I was just curious, you mentioned last quarter about some bonus depreciation order potential. Just curious, what are you hearing from the customer base to underpin that growth? I know you mentioned replacement demand and so forth, but just curious the conversations that you're having when it comes to any sense of timing and when you think your orders will start to reflect the ability to grow in 2026. Hey, Brice, why don't you offer some comments just on how that looks, and then I'll come at that from a customer standpoint? Sure. Our price, we expect to continue to grow. We'll benefit from the effects of the tariff, of course, and our pricing competitiveness. We believe that the big beautiful bill, as we said in the third quarter, is going to provide incentives. We have programs around encouraging our customers to take advantage of that 100% bonus depreciation. We think that will help spur some demand here in the fourth quarter. Yeah, and then David, what we're getting from customers is it's very mixed from a customer standpoint, right? If your operating conditions are positive, like in the vocational market or the LTL market, I think you're looking to take advantage of that. Those are customers that are ordering for the fourth quarter. There's obviously in the truckload sector some people that are still finding challenges there, so they're less likely to take advantage of it now. I think there's this growing sense of the momentum has to pick up in terms of truck orders because 2026 will have, as the law is written right now, a 35 mg NOx standard. I think as trucks age, a 35 mg NOx standard is in front of them. Now they have clarity of tariffs. There's a lot of reasons for people to start to think about allocating their capital to truck purchases. I wanted to follow up on the NOx issue. We know where the current situation is, but obviously there's thought that it might be changed. Is there a deadline of some kind that you feel like the EPA has to communicate what exactly is happening for 2027 when it comes to your supply chain and so forth, just so we have a sense of timing? It was obviously the general assumption out there that they're not going to keep the current, you know, regulation going to 0.35. Yeah, I don't know how that assumption's been formed by people. From our standpoint, we approach this in saying we are prepared for the EPA’s 35 mg NOx standard. We've got our teams working great on it with some new products that are coming out in support of it. We're ready to go with it. That is the law, right? Our best approach is the law is the law until the law changes. As time passes, it makes it harder and harder to change the standard back to 200 mg. Could happen though, right? I think that we are very comfortable supporting a 200 mg standard as well because we have products that are available today that can support the 200 mg standard. We are all sensitive to the fact that as more time passes, it puts additional burden on the supply base. I think PACCAR has a great relationship with our suppliers and we could handle that change. If that's what's best for the industry, then we will align clearly with that. Lastly, the cadence of the clarification on the deliveries for the fourth quarter being roughly flat, any color you can provide geographically, sequentially would be great. Thank you. Yeah, I think we said in the commentary that the fourth quarter North America has more holidays in it. You can kind of think of North American holidays being taking away some of the volume. Europe is less holidays, so you kind of see a shift there into European volume for the fourth quarter. Somebody will ask this, but we're roughly 60% - 70% full in our order book for the fourth quarter. That kind of lets us indicate how the quarter's filling in. That's how we got to our similar quantities of deliveries for the fourth quarter. Thank you very much. You bet, David. Thanks for your commentaries. We now turn to Jeff Kauffman with Vertical Research Partners. Your line is open. Please go ahead. Thank you very much. I just want to focus on a follow-up, I guess, on Rob's question on Section 232 tariffs. I know everybody's still figuring this out, but in terms of the rebate amount, how is that going to compare when you're at full speed versus what you're costing out on the tariffs on parts and steel and aluminum? You mentioned that that's going to ramp up through the fourth quarter. I guess, is that more a rebate to the customer that lowers the price to the customer? Is that a rebate to the company? How do those economics flow? I mean, the way we can keep it in simple terms so we don't turn this into a primer on the Section 232 tariffs because it's really complicated. I would say that the Section 232 fact sheets out there are really good. I applaud Commerce and the White House for putting out a clear document that's helpful in articulating what the game plan is and why the game plan is useful. To keep it at the highest level, I would say that as parts qualify into Section 232 tariffs, that's when we expect we can apply the rebate to them. If parts are coming out of Mexico and it's deemed to be acceptable to be part of Section 232 tariffs, you let them know that it becomes acceptable or not acceptable. That's why you start to realize a reduced tariff cost as you head through the quarter. Obviously, the effective date is November 1st, but it'll take time for those parts to be qualified. That's why we indicated that it could take through till the first of the year to see the full benefit and impact of that. In the first part of that question, when this is fully ramped up, how will that approximately net against the incremental tariff costs you're facing? Yeah, it's going to bring it down. We haven't netted out a specific number. Obviously, it's going to be something that we started the tariff discussion saying, "Hey, we're in this together with our customers and our suppliers and our dealers." That'll be the same situation we face as we move forward. Hopefully, some benefit to everybody in terms of our dealers, our customers, PACCAR, our suppliers. Everybody should have kind of some positive momentum out of this. The quantification of it remains to be seen. All right. Congratulations and thank you. You bet. Thank you, Jeff. Our next question comes from Michael Feniger with Bank of America. Your line is open. Please go ahead. Yeah, thanks. Thanks, gentlemen, for taking my question. Preston, I know this has been getting a lot of attention on Section 232. Just to be clear, so we have some understanding, do you believe with the adjustments in the Section 232 implementation we saw, do you believe PACCAR now has a clear cost advantage as a U.S. manufacturer, or does this just even the playing field on the cost side with your peers when we saw there was a disadvantage, obviously early in the year? Does this just even it out, or do you feel like it gives you a clear cost advantage as a major U.S. manufacturer for the U.S. market? Michael, that's a great question. I appreciate you highlighting the fact that our team did a really good job for the past several months dealing with the cost disadvantage, an unintended cost disadvantage. The fact that our market share is 30.3% for Peterbilt and Kenworth right now is just a credit to the teams at those divisions and to the manufacturing teams and pretty much everybody in PACCAR that operated from that tough position. As we look forward, we, of course, don't know what our competitors' cost structure is. It's really hard to estimate that and probably should avoid doing so. What I would rather do is say that I think it helps PACCAR significantly, and that should be good for our customers and PACCAR. I think it gives us a competitive leg up from where we've been. Thank you, Preston. Just my second question to squeeze it in. There's been commentary on parts, that parts, there's been some deferrals there. I know you hit your, what you guys were forecasting at 4%. Just, you know, what are you seeing underlying on the parts side? Can parts margins, do you think, start to expand in 2026 on a year-over-year basis? What do we need to see in the market for us to kind of see that start to expand on a year-over-year and to get parts moving? I know the underlying market's been a bit challenging there. Yeah, Mike, this is Kevin. I'll take that one. Similar to truck, the parts business was definitely impacted by tariffs, as you know, as well as the overall soft truck market. Price did cover cost. When we look at the margin impact, it was really a mix shift. We saw that a shift in proprietary versus all makes and also a little bit of region impact by fewer days in Europe. I'll just reinforce, there's still tremendous opportunity for growth. The parts team did a great job providing parts and programs to provide excellent customer service during a soft market. Really nice job with the revenue growth. We continue to invest in distribution. Our dealers are continuing to invest in locations and service capacity. We see there's definitely opportunity for future growth. You know, everything Kevin said is just 100% right. You have the opportunity that Section 232 tariffs are also advantageous to components, so that'll help us in a price cost looking forward. Perfect. Thank you. We now turn to Angel Castillo with Morgan Stanley. Your line is open. Please go ahead. Hi, good morning. Thanks for taking my question. I was hoping we could just go back to the tariff discussion a little bit more. You had mentioned, I think, in 3Q that was a $75 million headwind. With tariff headwinds kind of peaking out here in October and the ramp up in the rebates, can you just quantify for us exactly how much of a tariff headwind you anticipate to be baked into the fourth quarter? As you look at the gross profit margin moving from 12.5% to 12%, is that entirely due to tariff ramp up or are there any other factors there that we should consider? I would think mostly about tariff ramp up. As we said, and you just articulated, right, October doesn't have any reduction. It's kind of a peak tariff for us in that first part of fourth quarter. We're still understanding what the cadence is going to be for how the tariffs feather off for us through the course of November, December. That's the single biggest impact right now. I think, you know, as we look at it, you go from a 75 third quarter, we saw that on-slate to increase in the fourth quarter. With the Section 232 tariffs, we see that coming down. By the time we get to the December timeframe, January timeframe, we'll start to see improvement, marked improvement we anticipate. That's very helpful. As we think about next year, I understand that EPA 27, there's still a lot of uncertainty around that. I guess in terms of your outlook for North America or for yours in Canada, are you assuming any kind of pre-buy still related to EPA 27 in that? We gave a 230 - 270 market, and the reason we gave that significant range is because I think there's some uncertainty in how quick the truckload sector recovers. Is it, you know, sometime in the first quarter to take a little bit? I think we also are anticipating that the 35 mg NOx standard is what's going to be there, and if it changes, that would obviously take away some pre-buy. That would put us more towards the 230, 240, 250 side of that category versus if the 35 mg standard stays in place, it's more like the 250, 260, 270, and maybe even higher. We kind of see that as being a significant factor in how the market shapes up next year, and we'll look forward to clarity when it happens. In the meantime, the clarity is 35 mg. Very helpful. Thank you. You bet. We now turn to Tim Thein with Raymond James. Your line is open. Please go ahead. Right. Thank you. Good morning. I was just following up on the comment earlier with respect to the parts business pricing covered variable costs. I perhaps missed it, but did you give a comment just with respect to pricing that you realized in the truck business in the third quarter, and then maybe your expectations for the fourth? Sure. For the third quarter compared to last year's third quarter, our pricing was down 1.3% and the costs were up 4.6% for a -5.9% there. Tariffs played a big role in that number. Sequentially, it was 1.6%. I think what we think is favorability should start to be achieved as we move forward. Got it. Okay. Preston, maybe just, you know, as I think about, you know, potential early indicators of maybe a bottoming, I think historically we would look at what the behavior and what the, you know, the lease and rental customers are doing and seeing in their business. You have a good lens into that just given the PACCAR Leasing. I'm just curious what you're seeing in that business with respect to utilization. You would agree that that could be an important thing to watch as a potential turning point. Thank you. Yeah, it's a good question. I think that utilization is a key factor. For PACCAR Leasing, it's healthy right now. I think that they're starting to see these places of opportunity, and we'll watch that closely along with all the other indicators, right? Certainly, as you well understand, there are many, many things that go into the make of a truck market. That's one of them, and utilization is healthy. Thanks for the time. Yeah, you bet. Have a good day. Our next question comes from Jamie Cook with Truist. Your line is open. Please go ahead. Hi, good morning. Two questions. One, Preston, can you just speak to, you know, since Section 232 has been announced, obviously, I'm sure you've had a lot of conversations with your customers. You know, what are they saying to you in terms of like potential incremental market share? I'm just wondering, as you think about your plants in Denton and Chillicothe, like just, you know, capacity you have or where market share could go until you'd have to think about your investment. I'm assuming you have a lot of runway for market share, but just sort of some thoughts there. I guess my second question, I mean, it sounds like you think the 12% gross margin in the fourth quarter, like that should be, you know, the trough for margins for PACCAR, or even assuming a flat market next year, just with the benefit from Section 232 and, you know, tariffs mitigating and potentially the market being flat to up next year. It sounds like, I don't want to put words in your mouth, but you can probably grow earnings next year. I'll let you chew on that and see if I can get any reaction out of you. Oh, Jamie, you're fun. Let's do the first question, which is, you said, do we think we can gain share and how do we think about capacity in our factories? One of the things I'm really pleased with our manufacturing team over the last couple of years is we've made these big investments into the factories so that we have capacity to handle what ends up happening as quarterly swings in build. We talk about full years, but things really happen over a couple of quarters of max build rates. We're aware of that. We've made the investments in paint facilities and automatic vehicles to move parts around inside the truck plants. Great work with our suppliers and their investments in the capacity that they have. We feel like we can gain share and we feel like we have the capacity to support gaining share in the coming timeframe. Mentioned it earlier in the call, right? We invested in products. We have the newest and best-performing products in the industry. We've invested in our operations teams. We have the best manufacturing capacities, highest quality products with plenty of capacity to handle share growth. I feel really well positioned as we head to next year. That does lead to your second question, I guess, of saying if 12% is the plus or minus now, what are you thinking next year is going to be? Or even the fourth quarter phasing. I would say, as we said, with tariffs peaking in October, we do think that the cadence through the quarter on a month-by-month basis will be positive trending. We anticipate that being true through next year, right? If the market was at a midpoint 250, we feel like that bodes well for our earnings growth and our margin growth. Very helpful. Thank you and congratulations. Thank you. Have a great day. Our next question comes from Tami Zakaria with JPMorgan. Your line is open. Please go ahead. Hi, good morning. Thank you so much. Apologies, but one more question on Section 232. It seems like the 3.75% value of the truck to offset tariffs extends through 2030, which gives some time to plan ahead. How are you thinking about your parts and component sourcing with that timeline in mind? Do you plan to expand footprint, bring stuff here in the U.S.? Any thoughts on how you're thinking about that 2030 timeline? I think that we feel very good about the supply base and how they've positioned right now. We do think that there'll probably be some reflection in the coming weeks for people to think about where their production setups are and where they're going to position themselves. I think it's a little bit too early to be commenting on what they're going to actually do in terms of where they might adjust capacity into the different markets since it's just a few days old. We are starting those conversations and look forward to working with our suppliers as we figure out where they're going to position component growth. Got it. If I could ask one more, I think you have this huge advantage of building over 90% of trucks here versus some of your peers, you know, they make elsewhere. This seems like a huge advantage. When you think about this offset and the pricing you've taken, is there any plan to give back any of this pricing as some of these tariff headwinds are offset in order to gain share for the long term? Is that sort of a strategy you might consider? Tammy, you're really smart and you ask great questions, and you can understand how we think about margin, price, market share, and it's not an either-or thing, right? You're always, as a company, trying to provide great trucks, great transportation solutions for your customer, and then be paid fairly for them. Nothing is different in the environment we're in today than that, right? We want to keep providing these great trucks and transportation solutions. As we do that, we think our customers are happy to pay us fairly for them. As cost goes down, that should bring some benefit to them, and that should bring some market share opportunity to us, we hope. Understood. Thank you. You're welcome. We now turn to Chad Dillard with Bernstein. Your line is open. Please go ahead. Good afternoon, guys. On an industry level, how are you thinking about the supply-demand balance of trucks actually in the fleet? How much excess capacity is out there? How long does it take to clear? Is this embedded in your 2026 industry outlook? That's a really interesting question. It's really hard to give you anything specific, Chad. If we think about it right now, there's sufficient capacity that's sitting out there in the industry right now at the current build rates. You can understand that clearly. The question really remains, how quickly does the market adjust? Where does it adjust from? When do people start to think that 35 mg is what's going to happen in the NOx standard? When do our customers in the truckload sector, which represent 40% of the market, start to feel some confidence that they're able to get rates? I think it's really hard to handicap what that's going to be, the timing for that. It's been a long, tough period for the truckload carriers. At some point, that equipment has to be replaced. I think they're starting to feel that need. I think there'll be some lift there. It'll probably start gradually, and then it'll accelerate as the year goes on and people define their needs. The capacity exists for us in our factories and with our suppliers who are working closely with them to make sure we can build the trucks our customers want. We think it could be a pretty good-looking 2026. Got it. On that same line, you're talking about how customers are keeping the trucks a little bit longer. Any early thoughts on the parts business as we think about 2026? How should we think about the growth profile for that business? Yeah, Chad, this is Kevin. We think about it the same way we have. The truck park has been at elevated levels over the years, and that creates tremendous growth opportunity for us. I already mentioned the continued investments we're making. The parts team is doing a great job providing tailored programs. We're leveraging AI to get smarter about providing our right part to the right place at the right time. We see next year as just a continuation of the great work the team's done. Yeah, if I could just add on top of that, the fact that the retail market in the U.S. is still negative is an overhang. At some point, that will turn. We're growing in a market that is negative, which is a really good tribute to our group and to PACCAR Parts. We think that provides a lot of opportunity for us in the next year. Great. Thank you. Thank you, Chad. Our next question comes from Kyle Menges with Citigroup. Your line is open. Please go ahead. Thanks for taking the question. I was hoping if you could just talk a little bit about demand you're seeing maybe just into the first half of next year and contextualizing that with your order book so far for the fourth quarter, 60% - 70% full. I guess how would that compare to a, you know, quote-unquote, "normal" fill rate at this point in the year for the fourth quarter and how that's informing your views of demand into the first half next year? It'd be helpful to hear your comments on inventory and any need for destocking. I think in particular in the vocational market, at least the industry data suggests inventories are really high. It would be helpful to hear your thoughts there on any need for destocking in that market. Thank you. Yeah, I think we feel like from an inventory standpoint, the industry is in a position where it's like four months of industry inventory. That's down from 4.2 months the last time we spoke in July. It's improving from an industry standpoint and from a Kenworth Peterbilt standpoint. We are at 2.8 months, which is a very healthy level for us. We feel quite good about that. It doesn't feel like we obviously have a high vocational share, market leaders in the vocational segment. That says we have more inventory getting bodies on it. 2.8 months for us feels really healthy, which kind of leads back to your first question about order intake and what's the market doing. We don't have an excess amount of inventory. We're 60% - 70% full. We'll head into what typically in late October, November, we get into capital allocation for the major truckload carriers, and we'll get a look at what their buying plans are for the year. Those discussions are always ongoing, but they really kind of begin to cement up in the fourth quarter. We look forward to having those conversations with them. I think that we'll see the first half start to fill in reasonably well now that we have clarity around tariffs as people get their hands around with the laws of 35 mg and appreciate that it really is a good time to buy trucks for them and probably the right time for them to buy trucks so they can keep their fleet age where they want it. Got it. Thank you. Just to follow up on an earlier question, it does sound like with Section 232 and the rebates that you'll see, it sounds like you might be passing some of those savings on to the customer. Curious how that might look. Is that simplistically just taking off the existing tariff surcharges, which I think were around $3,500 - $4,000 per truck in Class eight? Is it just kind of simplistically taking those surcharges off? How should we be thinking about that? What we've said before is the tariffs still peaked in October, and they're going to come down from there in a process through the fourth quarter. We are looking at that. I think that our intention is to get away from a tariff discussion with customers now that we have stability, and we can just integrate into pricing and discuss the price of these great trucks for the customer and get away from the tariff statement now that we have stability. That'll be helpful to everybody inside of our customers' base, to not have to think about what we had to, for instance, $3,500 - $4,000 of tariff surcharges. We can move away from that kind of discussion, just getting to truck pricing again since there's clarity and stability. Helpful. Thank you. You bet. As another reminder, if you'd like to ask a question, please press star one on your telephone keypad now. We now turn to Avi Jaroslawicz with UBS. Your line is open. Please go ahead. Hi. Thank you. I think you said the order books for Q4 are about 60% - 70% full. Is that pretty uniform by region, or are there any that are notably off of that point? Yeah, that's a great question. It is actually pretty uniform by region right now. We've seen the European market have strong order intake, and we're seeing that 67% full there as well as in North America. Okay. If I can follow that up, assuming that we don't hear anything new from the NOx rules, when are customers telling you that they might start pre-buying? Could that be in the first half, or is anybody saying that they would expect to do that in the first half, or would that really be more a second-half story? You know, I think they're buying decisions. These are really smart people, our customers, and they're thinking about all the inputs, not just the one. I think it has a heavy influence on them to contemplate the 35 mg and whether or not they need to think about pulling ahead. They're also looking at their fundamentals of freight and rates. They're looking at, is there stable in an operating environment, which the Commerce Department and the White House did a great job of providing for them now. I think all of those are their factors. I kind of think that they will start to really have a lot of interest here in the fourth quarter of what their 2026 buying plan is, and probably by the time we're in the first quarter, they're going to be needing to react to it if it stays at 35. Okay, appreciate it. Thank you. You bet. Have a good day. We now turn to Scott Group with Wolfe Research. Your line is open. Please go ahead. Hey, guys. This is Cole on for Scott. Just back to Section 232 a little bit. I heard earlier in the call you mentioned that pricing increased 1.6% sequentially in the quarter and that momentum should kind of continue. In the same breath, you're kind of talking to the fact that you want to help out your customer. Maybe help situate us there. Are the tariff surcharges effectively going to go away, but core pricing should continue to move higher? Just any way to help us wrap our head around that would be. Yeah, I think that, you know, it's a great question, actually. It's an interesting dynamic right now. Surcharges really only exist at moments of inflection where there's some unique factor sitting into there. Hence the reason for the surcharges that we had. That point of inflection is now passed and we have stability. It allows us to probably get rid of the tariff surcharge and go back to normal pricing discussions with our customers. Obviously, providing premium trucks and transportation solutions allows us to make sure that we have fair pricing to them, good for them, good for us. Obviously, as we see costs change, should be somewhat favorable. We both should benefit from it. We see that as a great opportunity for PACCAR and our customers to have a strong finish to the year and an even stronger 2026. Yep. Last quarter, you mentioned that 3Q gross margins would be, I think the math was roughly 14% excluding tariff costs. Is that a good way to think about 1Q as we hit run rate as rebates kind of offset some of the tariff costs, or is there any other way to think about how margins should build through 4Q and into 1Q when we hit run rate? Yeah, I think we actually said around 13%. What we've said is tariffs peaking in the fourth quarter, declining throughout the fourth quarter will allow us to see growth as we get into, say, the December timeframe and then continued improvement into the first quarter of 2026. Okay. Thanks, guys. I'll turn it back. Yeah, you bet. There are no other questions in the queue at this time. Are there any additional remarks from the company? I'd like to thank everyone for joining the call, and thank you. Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect.

Speaker 3: Good morning and welcome to PACCAR's Third Quarter 2025 earnings conference call. All lines will be in listen and learning mode until the question and answer session. Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. Now, I'd like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead. Good morning and welcome to PACCAR's Third Quarter 2025 earnings conference call. good morning and welcome to paccar's third quarter 2025 earnings conference call All lines will be in listen and learning mode until the question and answer session. all lines will be in listen and learning mode until the question and answer session Today's call is being recorded, and if anyone has an objection, they should disconnect at this time. today's call is being recorded and if anyone has an objection they should disconnect at this time Now, I'd like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations. now i'd like to introduce mr ken hastings paccar's director of investor relations Mr. Hastings, please go ahead. mr hastings please go ahead

Speaker 5: Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations, and joining me this morning are Preston Feight, Chief Executive Officer, Kevin Baney, Executive Vice President, and Brice Poplawski, 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 at the Investor Relations page at paccar.com. I would now like to introduce Preston Feight. Good morning. good morning We would like to welcome those listening by phone and those on the webcast. we would like to welcome those listening by phone and those on the webcast My name is Ken Hastings, PACCAR's Director of Investor Relations, and joining me this morning are Preston Feight, Chief Executive Officer, Kevin Baney, Executive Vice President, and Brice Poplawski, Chief Financial Officer. my name is ken hastings paccar's director of investor relations and joining me this morning are preston feight chief executive officer kevin baney executive vice president and brice poplawski 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. 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. 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 at the Investor Relations page at paccar.com. for additional information please see our sec filings at the investor relations page at paccar.com I would now like to introduce Preston Feight. i would now like to introduce preston feight

Speaker 10: Thank you, Ken. Good morning, everyone. Kevin, Brice, Ken, and I will update you on our good third quarter financial results and business highlights. I'd like to start by thanking our wonderful employees who deliver PACCAR's high-quality trucks and transportation solutions to our customers all around the world. I'm especially appreciative of their efforts in these dynamic market conditions. PACCAR delivered good revenues and net income in the third quarter of 2025. Peterbilt, Kenworth, and DAF Trucks contributed to the good results. PACCAR Parts and PACCAR Financial Services continued to deliver excellent performance and strong profits. PACCAR achieved revenues of $6.7 billion and net income of $590 million. PACCAR Parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $410 million. Parts revenue grew 4% in the quarter compared to the same period last year. Thank you, Ken. thank you ken Good morning, everyone. good morning everyone Kevin, Brice, Ken, and I will update you on our good third quarter financial results and business highlights. kevin brice ken and i will update you on our good third quarter financial results and business highlights I'd like to start by thanking our wonderful employees who deliver PACCAR's high-quality trucks and transportation solutions to our customers all around the world. i'd like to start by thanking our wonderful employees who deliver paccar's high-quality trucks and transportation solutions to our customers all around the world I'm especially appreciative of their efforts in these dynamic market conditions. i'm especially appreciative of their efforts in these dynamic market conditions PACCAR delivered good revenues and net income in the third quarter of 2025. paccar delivered good revenues and net income in the third quarter of 2025 Peterbilt, Kenworth, and DAF Trucks contributed to the good results. peterbilt kenworth and daf trucks contributed to the good results PACCAR Parts and PACCAR Financial Services continued to deliver excellent performance and strong profits. paccar parts and paccar financial services continued to deliver excellent performance and strong profits PACCAR achieved revenues of $6.7 billion and net income of $590 million. paccar achieved revenues of $6.7 billion and net income of $590 million PACCAR Parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $410 million. paccar parts achieved record quarterly revenues of $1.72 billion and excellent quarterly pre-tax income of $410 million Parts revenue grew 4% in the quarter compared to the same period last year. parts revenue grew 4% in the quarter compared to the same period last year PACCAR Financial also had a very good quarter, achieving pre-tax income of $126 million. We estimate this year's U.S. and Canadian Class eight market to be in a range of 238,000 - 245,000 trucks, and next year to be in a range of 230,000 - 270,000. Customer demand in the less than truckload and vocational segments is good. The truckload market continues to have uncertainty. Next year's U.S. and Canadian truck market could be higher than this year as we realize clarity around tariffs, emissions policy, and potential improvements in the freight market. In Europe, the DAF XF truck was honored as the Fleet Truck of the Year in the U.K. due to its best-in-class fuel efficiency and driver comfort. We project this year's European above 16-ton market to be in a range of 275,000 - 295,000 vehicles. PACCAR Financial also had a very good quarter, achieving pre-tax income of $126 million. paccar financial also had a very good quarter achieving pre-tax income of $126 million We estimate this year's U.S. and Canadian Class eight market to be in a range of 238,000 - 245,000 trucks, and next year to be in a range of 230,000 - 270,000. we estimate this year's u.s and canadian class eight market to be in a range of 238,000 - 245,000 trucks and next year to be in a range of 230,000 - 270,000 Customer demand in the less than truckload and vocational segments is good. customer demand in the less than truckload and vocational segments is good The truckload market continues to have uncertainty. the truckload market continues to have uncertainty Next year's U.S. and Canadian truck market could be higher than this year as we realize clarity around tariffs, emissions policy, and potential improvements in the freight market. next year's u.s and canadian truck market could be higher than this year as we realize clarity around tariffs emissions policy and potential improvements in the freight market In Europe, the DAF XF truck was honored as the Fleet Truck of the Year in the U.K. due to its best-in-class fuel efficiency and driver comfort. in europe the daf xf truck was honored as the fleet truck of the year in the u.k due to its best-in-class fuel efficiency and driver comfort We project this year's European above 16-ton market to be in a range of 275,000 - 295,000 vehicles. we project this year's european above 16-ton market to be in a range of 275,000 - 295,000 vehicles The 2026 market is expected to be in the range of 270,000 - 300,000. We estimate this year's South American above 16-ton truck market to be in the range of 95,000 - 105,000 vehicles and in a similar range next year. PACCAR's premium trucks are performing well for customers in South America, especially in the important Brazilian market. PACCAR delivered 31,900 trucks during the third quarter and anticipates delivering around 32,000 in the fourth quarter. More production days in Europe will be offset by fewer production days due to normal holidays in North America. PACCAR's truck, parts, and other gross margins were 12.5% in the third quarter. Margins were affected by the August steel and aluminum tariff increases and the tariff costs on trucks that were built in the United States. Looking ahead, fourth quarter margins could be around 12% as tariffs peak in October. The 2026 market is expected to be in the range of 270,000 - 300,000. the 2026 market is expected to be in the range of 270,000 - 300,000 We estimate this year's South American above 16-ton truck market to be in the range of 95,000 - 105,000 vehicles and in a similar range next year. we estimate this year's south american above 16-ton truck market to be in the range of 95,000 - 105,000 vehicles and in a similar range next year PACCAR's premium trucks are performing well for customers in South America, especially in the important Brazilian market. paccar's premium trucks are performing well for customers in south america especially in the important brazilian market PACCAR delivered 31,900 trucks during the third quarter and anticipates delivering around 32,000 in the fourth quarter. paccar delivered 31,900 trucks during the third quarter and anticipates delivering around 32,000 in the fourth quarter More production days in Europe will be offset by fewer production days due to normal holidays in North America. more production days in europe will be offset by fewer production days due to normal holidays in north america PACCAR's truck, parts, and other gross margins were 12.5% in the third quarter. paccar's truck parts and other gross margins were 12.5% in the third quarter Margins were affected by the August steel and aluminum tariff increases and the tariff costs on trucks that were built in the United States. margins were affected by the august steel and aluminum tariff increases and the tariff costs on trucks that were built in the united states Looking ahead, fourth quarter margins could be around 12% as tariffs peak in October. looking ahead fourth quarter margins could be around 12% as tariffs peak in october However, the new Section 232 tariffs on medium and heavy trucks that will become effective November 1st will be good for PACCAR's customers as it will reduce tariff costs and bring clarity to the market. PACCAR is proud to produce over 90% of its U.S.-sold trucks in Texas, Ohio, and Washington. We look forward to improving market conditions, tariff costs that will begin to reduce as we head towards the end of the year, and PACCAR's continued strong performance. Kevin Baney will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights. Kevin? However, the new Section 232 tariffs on medium and heavy trucks that will become effective November 1st will be good for PACCAR's customers as it will reduce tariff costs and bring clarity to the market. however the new section 232 tariffs on medium and heavy trucks that will become effective november 1st will be good for paccar's customers as it will reduce tariff costs and bring clarity to the market PACCAR is proud to produce over 90% of its U.S.-sold trucks in Texas, Ohio, and Washington. paccar is proud to produce over 90% of its u.s.-sold trucks in texas ohio and washington We look forward to improving market conditions, tariff costs that will begin to reduce as we head towards the end of the year, and PACCAR's continued strong performance. we look forward to improving market conditions tariff costs that will begin to reduce as we head towards the end of the year and paccar's continued strong performance Kevin Baney will now provide an update on PACCAR Parts, PACCAR Financial Services, and other business highlights. kevin baney will now provide an update on paccar parts paccar financial services and other business highlights Kevin? kevin

Speaker 13: Thank you, Preston. PACCAR Parts achieved gross margins of 29.5% and record third quarter revenue of $1.72 billion. Third quarter parts sales grew by a healthy 4% compared to the same period last year, with similar growth expected in the fourth quarter. PACCAR Parts continues to grow by investing in capacity and services. PACCAR Parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers. PACCAR Parts will open a new 180,000 sq ft parts distribution center in Calgary next year to bring faster delivery times to dealers and customers in the region. PACCAR will be opening a new engine remanufacturing center in Columbus, Mississippi, next year to provide our customers with high-quality rebuilt engines. PACCAR Financial Services' pre-tax income was a robust $126 million, 18% growth over the $107 million reported a year earlier. Thank you, Preston. thank you preston PACCAR Parts achieved gross margins of 29.5% and record third quarter revenue of $1.72 billion. paccar parts achieved gross margins of 29.5% and record third quarter revenue of $1.72 billion Third quarter parts sales grew by a healthy 4% compared to the same period last year, with similar growth expected in the fourth quarter. third quarter parts sales grew by a healthy 4% compared to the same period last year with similar growth expected in the fourth quarter PACCAR Parts continues to grow by investing in capacity and services. paccar parts continues to grow by investing in capacity and services PACCAR Parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers. paccar parts is focused on delivering the right part to the right place at the right time to provide industry-leading support for our customers PACCAR Parts will open a new 180,000 sq ft parts distribution center in Calgary next year to bring faster delivery times to dealers and customers in the region. paccar parts will open a new 180,000 sq ft parts distribution center in calgary next year to bring faster delivery times to dealers and customers in the region PACCAR will be opening a new engine remanufacturing center in Columbus, Mississippi, next year to provide our customers with high-quality rebuilt engines. paccar will be opening a new engine remanufacturing center in columbus mississippi next year to provide our customers with high-quality rebuilt engines PACCAR Financial Services' pre-tax income was a robust $126 million, 18% growth over the $107 million reported a year earlier. paccar financial services' pre-tax income was a robust $126 million 18% growth over the $107 million reported a year earlier This reflects the high-quality portfolio in improving used truck results. PACCAR Financial operates 13 used truck centers around the world to support the sale of premium Kenworth, Peterbilt, and DAF used trucks. PACCAR is building another used truck center in Warsaw, Poland, which will open this year. PACCAR used trucks sell at a premium. Similar to PACCAR Parts, PACCAR Financial provides steady foundational profitability during all phases of the business cycle. This year's capital expenditures are projected to be between $750 million and $775 million, and research and development expenses will be $450 million - $465 million. Next year, we estimate the company will invest $725 million to $775 million in capital projects and $450 million to $500 million in research and development expenses. Key technology and innovation investments include next-generation clean diesel and alternative powertrains, advanced driver assistance systems, and integrated connected vehicle services. This reflects the high-quality portfolio in improving used truck results. this reflects the high-quality portfolio in improving used truck results PACCAR Financial operates 13 used truck centers around the world to support the sale of premium Kenworth, Peterbilt, and DAF used trucks. paccar financial operates 13 used truck centers around the world to support the sale of premium kenworth peterbilt and daf used trucks PACCAR is building another used truck center in Warsaw, Poland, which will open this year. paccar is building another used truck center in warsaw poland which will open this year PACCAR used trucks sell at a premium. paccar used trucks sell at a premium Similar to PACCAR Parts, PACCAR Financial provides steady foundational profitability during all phases of the business cycle. similar to paccar parts paccar financial provides steady foundational profitability during all phases of the business cycle This year's capital expenditures are projected to be between $750 million and $775 million, and research and development expenses will be $450 million - $465 million. this year's capital expenditures are projected to be between $750 million and $775 million and research and development expenses will be $450 million - $465 million Next year, we estimate the company will invest $725 million to $775 million in capital projects and $450 million to $500 million in research and development expenses. next year we estimate the company will invest $725 million to $775 million in capital projects and $450 million to $500 million in research and development expenses Key technology and innovation investments include next-generation clean diesel and alternative powertrains, advanced driver assistance systems, and integrated connected vehicle services. key technology and innovation investments include next-generation clean diesel and alternative powertrains advanced driver assistance systems and integrated connected vehicle services PACCAR is also investing in its truck and engine factories to support long-term growth as well as our customers' and dealers' success. PACCAR's industry-leading trucks, expanding parts business, best-in-class financial services, and advanced technology strategy position the company for an excellent future. We are pleased to answer your questions. PACCAR is also investing in its truck and engine factories to support long-term growth as well as our customers' and dealers' success. paccar is also investing in its truck and engine factories to support long-term growth as well as our customers' and dealers' success PACCAR's industry-leading trucks, expanding parts business, best-in-class financial services, and advanced technology strategy position the company for an excellent future. paccar's industry-leading trucks expanding parts business best-in-class financial services and advanced technology strategy position the company for an excellent future We are pleased to answer your questions. we are pleased to answer your questions

Speaker 3: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Rob Wertheimer with Melius Research. Your line is open. Please go ahead. Thank you. thank you If you would like to ask a question, please press star followed by one on your telephone keypad. if you would like to ask a question please press star followed by one on your telephone keypad If you would like to withdraw your question, please press star followed by two. if you would like to withdraw your question please press star followed by two When preparing to ask your question, please ensure your device is unmuted locally. when preparing to ask your question please ensure your device is unmuted locally First question comes from Rob Wertheimer with Melius Research. first question comes from rob wertheimer with melius research Your line is open. your line is open Please go ahead. please go ahead

Speaker 14: Thank you. Good morning. I had a couple of questions around Section 232 tariffs. I guess that's no surprise, but I wonder if you're able to give any thoughts on whether it improves your competitive position or not, given production of some of your competitors, but then given, you know, perhaps they have exemptions. How does the rebate, how and when does the rebate flow through financials? Thank you. Thank you. thank you Good morning. good morning I had a couple of questions around Section 232 tariffs. i had a couple of questions around section 232 tariffs I guess that's no surprise, but I wonder if you're able to give any thoughts on whether it improves your competitive position or not, given production of some of your competitors, but then given, you know, perhaps they have exemptions. i guess that's no surprise but i wonder if you're able to give any thoughts on whether it improves your competitive position or not given production of some of your competitors but then given you know perhaps they have exemptions How does the rebate, how and when does the rebate flow through financials? how does the rebate how and when does the rebate flow through financials Thank you. thank you

Speaker 10: Hey, Rob. I kind of thought we might hear some questions around Section 232 tariffs. As you're aware, it came out Friday afternoon, late afternoon here, and we've been spending a lot of time with it. We said in the commentary that Section 232 tariffs will be good for our customers, for PACCAR's customers. It'll be good for the fact that we manufacture our trucks in Texas, Ohio, and Washington, and it should improve our competitive position as we look forward into next year. It will take a little bit of time for it to fully implement. As we shared, tariffs are really peaking for us in the fourth quarter, in October, the fourth quarter. As Section 232 tariffs implement November 1st, there's kind of a qualifying period for the components that are involved in it. It'll become gradually more and more effective throughout the quarter. Hey, Rob. hey rob I kind of thought we might hear some questions around Section 232 tariffs. i kind of thought we might hear some questions around section 232 tariffs As you're aware, it came out Friday afternoon, late afternoon here, and we've been spending a lot of time with it. as you're aware it came out friday afternoon late afternoon here and we've been spending a lot of time with it We said in the commentary that Section 232 tariffs will be good for our customers, for PACCAR's customers. we said in the commentary that section 232 tariffs will be good for our customers for paccar's customers It'll be good for the fact that we manufacture our trucks in Texas, Ohio, and Washington, and it should improve our competitive position as we look forward into next year. it'll be good for the fact that we manufacture our trucks in texas ohio and washington and it should improve our competitive position as we look forward into next year It will take a little bit of time for it to fully implement. it will take a little bit of time for it to fully implement As we shared, tariffs are really peaking for us in the fourth quarter, in October, the fourth quarter. as we shared tariffs are really peaking for us in the fourth quarter in october the fourth quarter As Section 232 tariffs implement November 1st, there's kind of a qualifying period for the components that are involved in it. as section 232 tariffs implement november 1st there's kind of a qualifying period for the components that are involved in it It'll become gradually more and more effective throughout the quarter. it'll become gradually more and more effective throughout the quarter Probably by the time we get to the first part of the year, we should have great stability around it. All feels very good and should help our competitive position. Probably by the time we get to the first part of the year, we should have great stability around it. probably by the time we get to the first part of the year we should have great stability around it All feels very good and should help our competitive position. all feels very good and should help our competitive position

Speaker 14: That's helpful. Thanks. How do you think about pricing? You know, there's been a lot of uncertainty. I don't think you immediately hit your customers with some of the tariff-led price increases. Now that there's clarity, do price increases start to offset that in the new year or any commentary around that? I'll stop. Thank you. That's helpful. that's helpful Thanks. thanks How do you think about pricing? how do you think about pricing You know, there's been a lot of uncertainty. you know there's been a lot of uncertainty I don't think you immediately hit your customers with some of the tariff-led price increases. i don't think you immediately hit your customers with some of the tariff-led price increases Now that there's clarity, do price increases start to offset that in the new year or any commentary around that? now that there's clarity do price increases start to offset that in the new year or any commentary around that I'll stop. i'll stop Thank you. thank you

Speaker 10: As we think about it, we think about it as a competitive world out there, and we don't operate alone in it. We feel very good about the trucks that we're producing right now, the best trucks we've ever produced in our history, best fuel economy, best reliability, great engine performance. We're happy with how that's going. I think that our customers appreciate the stability in the market right now with how emissions haven't changed in a while. The trucks they're getting are moneymakers for them. As we kind of think about pricing through the year of next year, I think that there will be some opportunities for us as the year progresses. We said that the less than truckload market remains good. The vocational market remains good. I think the truckload sector has been in a tough spot for, gosh, 30 months plus. As we think about it, we think about it as a competitive world out there, and we don't operate alone in it. as we think about it we think about it as a competitive world out there and we don't operate alone in it We feel very good about the trucks that we're producing right now, the best trucks we've ever produced in our history, best fuel economy, best reliability, great engine performance. we feel very good about the trucks that we're producing right now the best trucks we've ever produced in our history best fuel economy best reliability great engine performance We're happy with how that's going. we're happy with how that's going I think that our customers appreciate the stability in the market right now with how emissions haven't changed in a while. i think that our customers appreciate the stability in the market right now with how emissions haven't changed in a while The trucks they're getting are moneymakers for them. the trucks they're getting are moneymakers for them As we kind of think about pricing through the year of next year, I think that there will be some opportunities for us as the year progresses. as we kind of think about pricing through the year of next year i think that there will be some opportunities for us as the year progresses We said that the less than truckload market remains good. we said that the less than truckload market remains good The vocational market remains good. the vocational market remains good I think the truckload sector has been in a tough spot for, gosh, 30 months plus. i think the truckload sector has been in a tough spot for gosh 30 months plus I think that they are using the equipment. That bodes well for the fact that they'll get back onto replacement cycles. As they get back onto replacement cycles, it's going to create demand in the market, which is obviously good for pricing. I think that they are using the equipment. i think that they are using the equipment That bodes well for the fact that they'll get back onto replacement cycles. that bodes well for the fact that they'll get back onto replacement cycles As they get back onto replacement cycles, it's going to create demand in the market, which is obviously good for pricing. as they get back onto replacement cycles it's going to create demand in the market which is obviously good for pricing

Speaker 14: Thank you. Thank you. thank you

Speaker 10: You bet. You bet. you bet

Speaker 3: We now turn to David Raso with Evercore ISI. Your line is open. Please go ahead, David, your line is open. We now turn to David Raso with Evercore ISI. we now turn to david raso with evercore isi Your line is open. your line is open Please go ahead, David, your line is open. please go ahead david your line is open

Speaker 1: I apologize. Thank you for the time. I was curious, underpinning the North American growth outlook, I was just curious, you mentioned last quarter about some bonus depreciation order potential. Just curious, what are you hearing from the customer base to underpin that growth? I know you mentioned replacement demand and so forth, but just curious the conversations that you're having when it comes to any sense of timing and when you think your orders will start to reflect the ability to grow in 2026. I apologize. i apologize Thank you for the time. thank you for the time I was curious, underpinning the North American growth outlook, I was just curious, you mentioned last quarter about some bonus depreciation order potential. i was curious underpinning the north american growth outlook i was just curious you mentioned last quarter about some bonus depreciation order potential Just curious, what are you hearing from the customer base to underpin that growth? just curious what are you hearing from the customer base to underpin that growth I know you mentioned replacement demand and so forth, but just curious the conversations that you're having when it comes to any sense of timing and when you think your orders will start to reflect the ability to grow in 2026. i know you mentioned replacement demand and so forth but just curious the conversations that you're having when it comes to any sense of timing and when you think your orders will start to reflect the ability to grow in 2026

Speaker 10: Hey, Brice, why don't you offer some comments just on how that looks, and then I'll come at that from a customer standpoint? Hey, Brice, why don't you offer some comments just on how that looks, and then I'll come at that from a customer standpoint? hey brice why don't you offer some comments just on how that looks and then i'll come at that from a customer standpoint

Speaker 8: Sure. Our price, we expect to continue to grow. We'll benefit from the effects of the tariff, of course, and our pricing competitiveness. We believe that the big beautiful bill, as we said in the third quarter, is going to provide incentives. We have programs around encouraging our customers to take advantage of that 100% bonus depreciation. We think that will help spur some demand here in the fourth quarter. Sure. sure Our price, we expect to continue to grow. our price we expect to continue to grow We'll benefit from the effects of the tariff, of course, and our pricing competitiveness. we'll benefit from the effects of the tariff of course and our pricing competitiveness We believe that the big beautiful bill, as we said in the third quarter, is going to provide incentives. we believe that the big beautiful bill as we said in the third quarter is going to provide incentives We have programs around encouraging our customers to take advantage of that 100% bonus depreciation. we have programs around encouraging our customers to take advantage of that 100% bonus depreciation We think that will help spur some demand here in the fourth quarter. we think that will help spur some demand here in the fourth quarter

Speaker 10: Yeah, and then David, what we're getting from customers is it's very mixed from a customer standpoint, right? If your operating conditions are positive, like in the vocational market or the LTL market, I think you're looking to take advantage of that. Those are customers that are ordering for the fourth quarter. There's obviously in the truckload sector some people that are still finding challenges there, so they're less likely to take advantage of it now. I think there's this growing sense of the momentum has to pick up in terms of truck orders because 2026 will have, as the law is written right now, a 35 mg NOx standard. I think as trucks age, a 35 mg NOx standard is in front of them. Now they have clarity of tariffs. There's a lot of reasons for people to start to think about allocating their capital to truck purchases. Yeah, and then David, what we're getting from customers is it's very mixed from a customer standpoint, right? yeah and then david what we're getting from customers is it's very mixed from a customer standpoint right If your operating conditions are positive, like in the vocational market or the LTL market, I think you're looking to take advantage of that. if your operating conditions are positive like in the vocational market or the ltl market i think you're looking to take advantage of that Those are customers that are ordering for the fourth quarter. those are customers that are ordering for the fourth quarter There's obviously in the truckload sector some people that are still finding challenges there, so they're less likely to take advantage of it now. there's obviously in the truckload sector some people that are still finding challenges there so they're less likely to take advantage of it now I think there's this growing sense of the momentum has to pick up in terms of truck orders because 2026 will have, as the law is written right now, a 35 mg NOx standard. i think there's this growing sense of the momentum has to pick up in terms of truck orders because 2026 will have as the law is written right now a 35 mg nox standard I think as trucks age, a 35 mg NOx standard is in front of them. i think as trucks age a 35 mg nox standard is in front of them Now they have clarity of tariffs. now they have clarity of tariffs There's a lot of reasons for people to start to think about allocating their capital to truck purchases. there's a lot of reasons for people to start to think about allocating their capital to truck purchases

Speaker 1: I wanted to follow up on the NOx issue. We know where the current situation is, but obviously there's thought that it might be changed. Is there a deadline of some kind that you feel like the EPA has to communicate what exactly is happening for 2027 when it comes to your supply chain and so forth, just so we have a sense of timing? It was obviously the general assumption out there that they're not going to keep the current, you know, regulation going to 0.35. I wanted to follow up on the NOx issue. i wanted to follow up on the nox issue We know where the current situation is, but obviously there's thought that it might be changed. we know where the current situation is but obviously there's thought that it might be changed Is there a deadline of some kind that you feel like the EPA has to communicate what exactly is happening for 2027 when it comes to your supply chain and so forth, just so we have a sense of timing? is there a deadline of some kind that you feel like the epa has to communicate what exactly is happening for 2027 when it comes to your supply chain and so forth just so we have a sense of timing It was obviously the general assumption out there that they're not going to keep the current, you know, regulation going to 0.35. it was obviously the general assumption out there that they're not going to keep the current you know regulation going to 0.35

Speaker 10: Yeah, I don't know how that assumption's been formed by people. From our standpoint, we approach this in saying we are prepared for the EPA’s 35 mg NOx standard. We've got our teams working great on it with some new products that are coming out in support of it. We're ready to go with it. That is the law, right? Our best approach is the law is the law until the law changes. As time passes, it makes it harder and harder to change the standard back to 200 mg. Could happen though, right? I think that we are very comfortable supporting a 200 mg standard as well because we have products that are available today that can support the 200 mg standard. We are all sensitive to the fact that as more time passes, it puts additional burden on the supply base. Yeah, I don't know how that assumption's been formed by people. yeah i don't know how that assumption's been formed by people From our standpoint, we approach this in saying we are prepared for the EPA’s 35 mg NOx standard. from our standpoint we approach this in saying we are prepared for the epa’s 35 mg nox standard We've got our teams working great on it with some new products that are coming out in support of it. we've got our teams working great on it with some new products that are coming out in support of it We're ready to go with it. we're ready to go with it That is the law, right? that is the law right Our best approach is the law is the law until the law changes. our best approach is the law is the law until the law changes As time passes, it makes it harder and harder to change the standard back to 200 mg. as time passes it makes it harder and harder to change the standard back to 200 mg Could happen though, right? could happen though right I think that we are very comfortable supporting a 200 mg standard as well because we have products that are available today that can support the 200 mg standard. i think that we are very comfortable supporting a 200 mg standard as well because we have products that are available today that can support the 200 mg standard We are all sensitive to the fact that as more time passes, it puts additional burden on the supply base. we are all sensitive to the fact that as more time passes it puts additional burden on the supply base I think PACCAR has a great relationship with our suppliers and we could handle that change. If that's what's best for the industry, then we will align clearly with that. I think PACCAR has a great relationship with our suppliers and we could handle that change. i think paccar has a great relationship with our suppliers and we could handle that change If that's what's best for the industry, then we will align clearly with that. if that's what's best for the industry then we will align clearly with that

Speaker 1: Lastly, the cadence of the clarification on the deliveries for the fourth quarter being roughly flat, any color you can provide geographically, sequentially would be great. Thank you. Lastly, the cadence of the clarification on the deliveries for the fourth quarter being roughly flat, any color you can provide geographically, sequentially would be great. lastly the cadence of the clarification on the deliveries for the fourth quarter being roughly flat any color you can provide geographically sequentially would be great Thank you. thank you

Speaker 10: Yeah, I think we said in the commentary that the fourth quarter North America has more holidays in it. You can kind of think of North American holidays being taking away some of the volume. Europe is less holidays, so you kind of see a shift there into European volume for the fourth quarter. Somebody will ask this, but we're roughly 60% - 70% full in our order book for the fourth quarter. That kind of lets us indicate how the quarter's filling in. That's how we got to our similar quantities of deliveries for the fourth quarter. Yeah, I think we said in the commentary that the fourth quarter North America has more holidays in it. yeah i think we said in the commentary that the fourth quarter north america has more holidays in it You can kind of think of North American holidays being taking away some of the volume. you can kind of think of north american holidays being taking away some of the volume Europe is less holidays, so you kind of see a shift there into European volume for the fourth quarter. europe is less holidays so you kind of see a shift there into european volume for the fourth quarter Somebody will ask this, but we're roughly 60% - 70% full in our order book for the fourth quarter. somebody will ask this but we're roughly 60% - 70% full in our order book for the fourth quarter That kind of lets us indicate how the quarter's filling in. that kind of lets us indicate how the quarter's filling in That's how we got to our similar quantities of deliveries for the fourth quarter. that's how we got to our similar quantities of deliveries for the fourth quarter

Speaker 1: Thank you very much. Thank you very much. thank you very much

Speaker 10: You bet, David. Thanks for your commentaries. You bet, David. you bet david Thanks for your commentaries. thanks for your commentaries

Speaker 3: We now turn to Jeff Kauffman with Vertical Research Partners. Your line is open. Please go ahead. We now turn to Jeff Kauffman with Vertical Research Partners. we now turn to jeff kauffman with vertical research partners Your line is open. your line is open Please go ahead. please go ahead

Speaker 6: Thank you very much. I just want to focus on a follow-up, I guess, on Rob's question on Section 232 tariffs. I know everybody's still figuring this out, but in terms of the rebate amount, how is that going to compare when you're at full speed versus what you're costing out on the tariffs on parts and steel and aluminum? You mentioned that that's going to ramp up through the fourth quarter. I guess, is that more a rebate to the customer that lowers the price to the customer? Is that a rebate to the company? How do those economics flow? Thank you very much. thank you very much I just want to focus on a follow-up, I guess, on Rob's question on Section 232 tariffs. i just want to focus on a follow-up i guess on rob's question on section 232 tariffs I know everybody's still figuring this out, but in terms of the rebate amount, how is that going to compare when you're at full speed versus what you're costing out on the tariffs on parts and steel and aluminum? i know everybody's still figuring this out but in terms of the rebate amount how is that going to compare when you're at full speed versus what you're costing out on the tariffs on parts and steel and aluminum You mentioned that that's going to ramp up through the fourth quarter. you mentioned that that's going to ramp up through the fourth quarter I guess, is that more a rebate to the customer that lowers the price to the customer? i guess is that more a rebate to the customer that lowers the price to the customer Is that a rebate to the company? is that a rebate to the company How do those economics flow? how do those economics flow

Speaker 10: I mean, the way we can keep it in simple terms so we don't turn this into a primer on the Section 232 tariffs because it's really complicated. I would say that the Section 232 fact sheets out there are really good. I applaud Commerce and the White House for putting out a clear document that's helpful in articulating what the game plan is and why the game plan is useful. To keep it at the highest level, I would say that as parts qualify into Section 232 tariffs, that's when we expect we can apply the rebate to them. If parts are coming out of Mexico and it's deemed to be acceptable to be part of Section 232 tariffs, you let them know that it becomes acceptable or not acceptable. That's why you start to realize a reduced tariff cost as you head through the quarter. I mean, the way we can keep it in simple terms so we don't turn this into a primer on the Section 232 tariffs because it's really complicated. i mean the way we can keep it in simple terms so we don't turn this into a primer on the section 232 tariffs because it's really complicated I would say that the Section 232 fact sheets out there are really good. i would say that the section 232 fact sheets out there are really good I applaud Commerce and the White House for putting out a clear document that's helpful in articulating what the game plan is and why the game plan is useful. i applaud commerce and the white house for putting out a clear document that's helpful in articulating what the game plan is and why the game plan is useful To keep it at the highest level, I would say that as parts qualify into Section 232 tariffs, that's when we expect we can apply the rebate to them. to keep it at the highest level i would say that as parts qualify into section 232 tariffs that's when we expect we can apply the rebate to them If parts are coming out of Mexico and it's deemed to be acceptable to be part of Section 232 tariffs, you let them know that it becomes acceptable or not acceptable. if parts are coming out of mexico and it's deemed to be acceptable to be part of section 232 tariffs you let them know that it becomes acceptable or not acceptable That's why you start to realize a reduced tariff cost as you head through the quarter. that's why you start to realize a reduced tariff cost as you head through the quarter Obviously, the effective date is November 1st, but it'll take time for those parts to be qualified. That's why we indicated that it could take through till the first of the year to see the full benefit and impact of that. Obviously, the effective date is November 1st, but it'll take time for those parts to be qualified. obviously the effective date is november 1st but it'll take time for those parts to be qualified That's why we indicated that it could take through till the first of the year to see the full benefit and impact of that. that's why we indicated that it could take through till the first of the year to see the full benefit and impact of that

Speaker 6: In the first part of that question, when this is fully ramped up, how will that approximately net against the incremental tariff costs you're facing? In the first part of that question, when this is fully ramped up, how will that approximately net against the incremental tariff costs you're facing? in the first part of that question when this is fully ramped up how will that approximately net against the incremental tariff costs you're facing

Speaker 10: Yeah, it's going to bring it down. We haven't netted out a specific number. Obviously, it's going to be something that we started the tariff discussion saying, "Hey, we're in this together with our customers and our suppliers and our dealers." That'll be the same situation we face as we move forward. Hopefully, some benefit to everybody in terms of our dealers, our customers, PACCAR, our suppliers. Everybody should have kind of some positive momentum out of this. The quantification of it remains to be seen. Yeah, it's going to bring it down. yeah it's going to bring it down We haven't netted out a specific number. we haven't netted out a specific number Obviously, it's going to be something that we started the tariff discussion saying, "Hey, we're in this together with our customers and our suppliers and our dealers." That'll be the same situation we face as we move forward. obviously it's going to be something that we started the tariff discussion saying "hey we're in this together with our customers and our suppliers and our dealers." that'll be the same situation we face as we move forward Hopefully, some benefit to everybody in terms of our dealers, our customers, PACCAR, our suppliers. hopefully some benefit to everybody in terms of our dealers our customers paccar our suppliers Everybody should have kind of some positive momentum out of this. everybody should have kind of some positive momentum out of this The quantification of it remains to be seen. the quantification of it remains to be seen

Speaker 6: All right. Congratulations and thank you. All right. all right Congratulations and thank you. congratulations and thank you

Speaker 10: You bet. Thank you, Jeff. You bet. you bet Thank you, Jeff. thank you jeff

Speaker 3: Our next question comes from Michael Feniger with Bank of America. Your line is open. Please go ahead. Our next question comes from Michael Feniger with Bank of America. our next question comes from michael feniger with bank of america Your line is open. your line is open Please go ahead. please go ahead

Speaker 17: Yeah, thanks. Thanks, gentlemen, for taking my question. Preston, I know this has been getting a lot of attention on Section 232. Just to be clear, so we have some understanding, do you believe with the adjustments in the Section 232 implementation we saw, do you believe PACCAR now has a clear cost advantage as a U.S. manufacturer, or does this just even the playing field on the cost side with your peers when we saw there was a disadvantage, obviously early in the year? Does this just even it out, or do you feel like it gives you a clear cost advantage as a major U.S. manufacturer for the U.S. market? Yeah, thanks. yeah thanks Thanks, gentlemen, for taking my question. thanks gentlemen for taking my question Preston, I know this has been getting a lot of attention on Section 232. preston i know this has been getting a lot of attention on section 232 Just to be clear, so we have some understanding, do you believe with the adjustments in the Section 232 implementation we saw, do you believe PACCAR now has a clear cost advantage as a U.S. manufacturer, or does this just even the playing field on the cost side with your peers when we saw there was a disadvantage, obviously early in the year? just to be clear so we have some understanding do you believe with the adjustments in the section 232 implementation we saw do you believe paccar now has a clear cost advantage as a u.s manufacturer or does this just even the playing field on the cost side with your peers when we saw there was a disadvantage obviously early in the year Does this just even it out, or do you feel like it gives you a clear cost advantage as a major U.S. manufacturer for the U.S. market? does this just even it out or do you feel like it gives you a clear cost advantage as a major u.s manufacturer for the u.s market

Speaker 10: Michael, that's a great question. I appreciate you highlighting the fact that our team did a really good job for the past several months dealing with the cost disadvantage, an unintended cost disadvantage. The fact that our market share is 30.3% for Peterbilt and Kenworth right now is just a credit to the teams at those divisions and to the manufacturing teams and pretty much everybody in PACCAR that operated from that tough position. As we look forward, we, of course, don't know what our competitors' cost structure is. It's really hard to estimate that and probably should avoid doing so. What I would rather do is say that I think it helps PACCAR significantly, and that should be good for our customers and PACCAR. I think it gives us a competitive leg up from where we've been. Michael, that's a great question. michael that's a great question I appreciate you highlighting the fact that our team did a really good job for the past several months dealing with the cost disadvantage, an unintended cost disadvantage. i appreciate you highlighting the fact that our team did a really good job for the past several months dealing with the cost disadvantage an unintended cost disadvantage The fact that our market share is 30.3% for Peterbilt and Kenworth right now is just a credit to the teams at those divisions and to the manufacturing teams and pretty much everybody in PACCAR that operated from that tough position. the fact that our market share is 30.3% for peterbilt and kenworth right now is just a credit to the teams at those divisions and to the manufacturing teams and pretty much everybody in paccar that operated from that tough position As we look forward, we, of course, don't know what our competitors' cost structure is. as we look forward we of course don't know what our competitors' cost structure is It's really hard to estimate that and probably should avoid doing so. it's really hard to estimate that and probably should avoid doing so What I would rather do is say that I think it helps PACCAR significantly, and that should be good for our customers and PACCAR. what i would rather do is say that i think it helps paccar significantly and that should be good for our customers and paccar I think it gives us a competitive leg up from where we've been. i think it gives us a competitive leg up from where we've been

Speaker 17: Thank you, Preston. Just my second question to squeeze it in. There's been commentary on parts, that parts, there's been some deferrals there. I know you hit your, what you guys were forecasting at 4%. Just, you know, what are you seeing underlying on the parts side? Can parts margins, do you think, start to expand in 2026 on a year-over-year basis? What do we need to see in the market for us to kind of see that start to expand on a year-over-year and to get parts moving? I know the underlying market's been a bit challenging there. Thank you, Preston. thank you preston Just my second question to squeeze it in. just my second question to squeeze it in There's been commentary on parts, that parts, there's been some deferrals there. there's been commentary on parts that parts there's been some deferrals there I know you hit your, what you guys were forecasting at 4%. i know you hit your what you guys were forecasting at 4% Just, you know, what are you seeing underlying on the parts side? just you know what are you seeing underlying on the parts side Can parts margins, do you think, start to expand in 2026 on a year-over-year basis? can parts margins do you think start to expand in 2026 on a year-over-year basis What do we need to see in the market for us to kind of see that start to expand on a year-over-year and to get parts moving? what do we need to see in the market for us to kind of see that start to expand on a year-over-year and to get parts moving I know the underlying market's been a bit challenging there. i know the underlying market's been a bit challenging there

Speaker 13: Yeah, Mike, this is Kevin. I'll take that one. Similar to truck, the parts business was definitely impacted by tariffs, as you know, as well as the overall soft truck market. Price did cover cost. When we look at the margin impact, it was really a mix shift. We saw that a shift in proprietary versus all makes and also a little bit of region impact by fewer days in Europe. I'll just reinforce, there's still tremendous opportunity for growth. The parts team did a great job providing parts and programs to provide excellent customer service during a soft market. Really nice job with the revenue growth. We continue to invest in distribution. Our dealers are continuing to invest in locations and service capacity. We see there's definitely opportunity for future growth. Yeah, Mike, this is Kevin. yeah mike this is kevin I'll take that one. i'll take that one Similar to truck, the parts business was definitely impacted by tariffs, as you know, as well as the overall soft truck market. similar to truck the parts business was definitely impacted by tariffs as you know as well as the overall soft truck market Price did cover cost. price did cover cost When we look at the margin impact, it was really a mix shift. when we look at the margin impact it was really a mix shift We saw that a shift in proprietary versus all makes and also a little bit of region impact by fewer days in Europe. we saw that a shift in proprietary versus all makes and also a little bit of region impact by fewer days in europe I'll just reinforce, there's still tremendous opportunity for growth. i'll just reinforce there's still tremendous opportunity for growth The parts team did a great job providing parts and programs to provide excellent customer service during a soft market. the parts team did a great job providing parts and programs to provide excellent customer service during a soft market Really nice job with the revenue growth. really nice job with the revenue growth We continue to invest in distribution. we continue to invest in distribution Our dealers are continuing to invest in locations and service capacity. our dealers are continuing to invest in locations and service capacity We see there's definitely opportunity for future growth. we see there's definitely opportunity for future growth

Speaker 10: You know, everything Kevin said is just 100% right. You have the opportunity that Section 232 tariffs are also advantageous to components, so that'll help us in a price cost looking forward. You know, everything Kevin said is just 100% right. you know everything kevin said is just 100% right You have the opportunity that Section 232 tariffs are also advantageous to components, so that'll help us in a price cost looking forward. you have the opportunity that section 232 tariffs are also advantageous to components so that'll help us in a price cost looking forward

Speaker 17: Perfect. Thank you. Perfect. perfect Thank you. thank you

Speaker 3: We now turn to Angel Castillo with Morgan Stanley. Your line is open. Please go ahead. We now turn to Angel Castillo with Morgan Stanley. we now turn to angel castillo with morgan stanley Your line is open. your line is open Please go ahead. please go ahead

Speaker 9: Hi, good morning. Thanks for taking my question. I was hoping we could just go back to the tariff discussion a little bit more. You had mentioned, I think, in 3Q that was a $75 million headwind. With tariff headwinds kind of peaking out here in October and the ramp up in the rebates, can you just quantify for us exactly how much of a tariff headwind you anticipate to be baked into the fourth quarter? As you look at the gross profit margin moving from 12.5% to 12%, is that entirely due to tariff ramp up or are there any other factors there that we should consider? Hi, good morning. hi good morning Thanks for taking my question. thanks for taking my question I was hoping we could just go back to the tariff discussion a little bit more. i was hoping we could just go back to the tariff discussion a little bit more You had mentioned, I think, in 3Q that was a $75 million headwind. you had mentioned i think in 3q that was a $75 million headwind With tariff headwinds kind of peaking out here in October and the ramp up in the rebates, can you just quantify for us exactly how much of a tariff headwind you anticipate to be baked into the fourth quarter? with tariff headwinds kind of peaking out here in october and the ramp up in the rebates can you just quantify for us exactly how much of a tariff headwind you anticipate to be baked into the fourth quarter As you look at the gross profit margin moving from 12.5% to 12%, is that entirely due to tariff ramp up or are there any other factors there that we should consider? as you look at the gross profit margin moving from 12.5% to 12% is that entirely due to tariff ramp up or are there any other factors there that we should consider

Speaker 10: I would think mostly about tariff ramp up. As we said, and you just articulated, right, October doesn't have any reduction. It's kind of a peak tariff for us in that first part of fourth quarter. We're still understanding what the cadence is going to be for how the tariffs feather off for us through the course of November, December. That's the single biggest impact right now. I think, you know, as we look at it, you go from a 75 third quarter, we saw that on-slate to increase in the fourth quarter. With the Section 232 tariffs, we see that coming down. By the time we get to the December timeframe, January timeframe, we'll start to see improvement, marked improvement we anticipate. I would think mostly about tariff ramp up. i would think mostly about tariff ramp up As we said, and you just articulated, right, October doesn't have any reduction. as we said and you just articulated right october doesn't have any reduction It's kind of a peak tariff for us in that first part of fourth quarter. it's kind of a peak tariff for us in that first part of fourth quarter We're still understanding what the cadence is going to be for how the tariffs feather off for us through the course of November, December. we're still understanding what the cadence is going to be for how the tariffs feather off for us through the course of november december That's the single biggest impact right now. that's the single biggest impact right now I think, you know, as we look at it, you go from a 75 third quarter, we saw that on-slate to increase in the fourth quarter. With the Section 232 tariffs, we see that coming down. i think you know as we look at it you go from a 75 third quarter we saw that on-slate to increase in the fourth quarter. with the section 232 tariffs we see that coming down By the time we get to the December timeframe, January timeframe, we'll start to see improvement, marked improvement we anticipate. by the time we get to the december timeframe january timeframe we'll start to see improvement marked improvement we anticipate

Speaker 9: That's very helpful. As we think about next year, I understand that EPA 27, there's still a lot of uncertainty around that. I guess in terms of your outlook for North America or for yours in Canada, are you assuming any kind of pre-buy still related to EPA 27 in that? That's very helpful. that's very helpful As we think about next year, I understand that EPA 27 , there's still a lot of uncertainty around that. as we think about next year i understand that epa 27 there's still a lot of uncertainty around that I guess in terms of your outlook for North America or for yours in Canada, are you assuming any kind of pre-buy still related to EPA 27 in that? i guess in terms of your outlook for north america or for yours in canada are you assuming any kind of pre-buy still related to epa 27 in that

Speaker 10: We gave a 230 - 270 market, and the reason we gave that significant range is because I think there's some uncertainty in how quick the truckload sector recovers. Is it, you know, sometime in the first quarter to take a little bit? I think we also are anticipating that the 35 mg NOx standard is what's going to be there, and if it changes, that would obviously take away some pre-buy. That would put us more towards the 230, 240, 250 side of that category versus if the 35 mg standard stays in place, it's more like the 250, 260, 270, and maybe even higher. We kind of see that as being a significant factor in how the market shapes up next year, and we'll look forward to clarity when it happens. In the meantime, the clarity is 35 mg. We gave a 230 - 270 market, and the reason we gave that significant range is because I think there's some uncertainty in how quick the truckload sector recovers. we gave a 230 - 270 market and the reason we gave that significant range is because i think there's some uncertainty in how quick the truckload sector recovers Is it, you know, sometime in the first quarter to take a little bit? is it you know sometime in the first quarter to take a little bit I think we also are anticipating that the 35 mg NOx standard is what's going to be there, and if it changes, that would obviously take away some pre-buy. i think we also are anticipating that the 35 mg nox standard is what's going to be there and if it changes that would obviously take away some pre-buy That would put us more towards the 230, 240, 250 side of that category versus if the 35 mg standard stays in place, it's more like the 250, 260, 270, and maybe even higher. that would put us more towards the 230 240 250 side of that category versus if the 35 mg standard stays in place it's more like the 250 260 270 and maybe even higher We kind of see that as being a significant factor in how the market shapes up next year, and we'll look forward to clarity when it happens. we kind of see that as being a significant factor in how the market shapes up next year and we'll look forward to clarity when it happens In the meantime, the clarity is 35 mg. in the meantime the clarity is 35 mg

Speaker 9: Very helpful. Thank you. Very helpful. very helpful Thank you. thank you

Speaker 10: You bet. You bet. you bet

Speaker 3: We now turn to Tim Thein with Raymond James. Your line is open. Please go ahead. We now turn to Tim Thein with Raymond James. we now turn to tim thein with raymond james Your line is open. your line is open Please go ahead. please go ahead

Speaker 12: Right. Thank you. Good morning. I was just following up on the comment earlier with respect to the parts business pricing covered variable costs. I perhaps missed it, but did you give a comment just with respect to pricing that you realized in the truck business in the third quarter, and then maybe your expectations for the fourth? Right. right Thank you. thank you Good morning. good morning I was just following up on the comment earlier with respect to the parts business pricing covered variable costs. i was just following up on the comment earlier with respect to the parts business pricing covered variable costs I perhaps missed it, but did you give a comment just with respect to pricing that you realized in the truck business in the third quarter, and then maybe your expectations for the fourth? i perhaps missed it but did you give a comment just with respect to pricing that you realized in the truck business in the third quarter and then maybe your expectations for the fourth

Speaker 8: Sure. For the third quarter compared to last year's third quarter, our pricing was down 1.3% and the costs were up 4.6% for a -5.9% there. Tariffs played a big role in that number. Sure. sure For the third quarter compared to last year's third quarter, our pricing was down 1.3% and the costs were up 4.6% for a - 5.9% there. for the third quarter compared to last year's third quarter our pricing was down 1.3% and the costs were up 4.6% for a - 5.9% there Tariffs played a big role in that number. tariffs played a big role in that number

Speaker 10: Sequentially, it was 1.6%. I think what we think is favorability should start to be achieved as we move forward. Sequentially, it was 1.6%. sequentially it was 1.6% I think what we think is favorability should start to be achieved as we move forward. i think what we think is favorability should start to be achieved as we move forward

Speaker 12: Got it. Okay. Preston, maybe just, you know, as I think about, you know, potential early indicators of maybe a bottoming, I think historically we would look at what the behavior and what the, you know, the lease and rental customers are doing and seeing in their business. You have a good lens into that just given the PACCAR Leasing. I'm just curious what you're seeing in that business with respect to utilization. You would agree that that could be an important thing to watch as a potential turning point. Thank you. Got it. got it Okay. okay Preston, maybe just, you know, as I think about, you know, potential early indicators of maybe a bottoming, I think historically we would look at what the behavior and what the, you know, the lease and rental customers are doing and seeing in their business. preston maybe just you know as i think about you know potential early indicators of maybe a bottoming i think historically we would look at what the behavior and what the you know the lease and rental customers are doing and seeing in their business You have a good lens into that just given the PACCAR Leasing. you have a good lens into that just given the paccar leasing I'm just curious what you're seeing in that business with respect to utilization. i'm just curious what you're seeing in that business with respect to utilization You would agree that that could be an important thing to watch as a potential turning point. you would agree that that could be an important thing to watch as a potential turning point Thank you. thank you

Speaker 10: Yeah, it's a good question. I think that utilization is a key factor. For PACCAR Leasing, it's healthy right now. I think that they're starting to see these places of opportunity, and we'll watch that closely along with all the other indicators, right? Certainly, as you well understand, there are many, many things that go into the make of a truck market. That's one of them, and utilization is healthy. Yeah, it's a good question. yeah it's a good question I think that utilization is a key factor. i think that utilization is a key factor For PACCAR Leasing, it's healthy right now. for paccar leasing it's healthy right now I think that they're starting to see these places of opportunity, and we'll watch that closely along with all the other indicators, right? i think that they're starting to see these places of opportunity and we'll watch that closely along with all the other indicators right Certainly, as you well understand, there are many, many things that go into the make of a truck market. certainly as you well understand, there are many many things that go into the make of a truck market That's one of them, and utilization is healthy. that's one of them and utilization is healthy

Speaker 12: Thanks for the time. Thanks for the time. thanks for the time

Speaker 10: Yeah, you bet. Have a good day. Yeah, you bet. yeah you bet Have a good day. have a good day

Speaker 3: Our next question comes from Jamie Cook with Truist. Your line is open. Please go ahead. Our next question comes from Jamie Cook with Truist. our next question comes from jamie cook with truist Your line is open. your line is open Please go ahead. please go ahead

Speaker 2: Hi, good morning. Two questions. One, Preston, can you just speak to, you know, since Section 232 has been announced, obviously, I'm sure you've had a lot of conversations with your customers. You know, what are they saying to you in terms of like potential incremental market share? I'm just wondering, as you think about your plants in Denton and Chillicothe, like just, you know, capacity you have or where market share could go until you'd have to think about your investment. I'm assuming you have a lot of runway for market share, but just sort of some thoughts there. Hi, good morning. hi good morning Two questions. two questions One, Preston, can you just speak to, you know, since Section 232 has been announced, obviously, I'm sure you've had a lot of conversations with your customers. one preston can you just speak to you know since section 232 has been announced obviously i'm sure you've had a lot of conversations with your customers You know, what are they saying to you in terms of like potential incremental market share? you know what are they saying to you in terms of like potential incremental market share I'm just wondering, as you think about your plants in Denton and Chillicothe, like just, you know, capacity you have or where market share could go until you'd have to think about your investment. i'm just wondering as you think about your plants in denton and chillicothe like just you know capacity you have or where market share could go until you'd have to think about your investment I'm assuming you have a lot of runway for market share, but just sort of some thoughts there. i'm assuming you have a lot of runway for market share but just sort of some thoughts there I guess my second question, I mean, it sounds like you think the 12% gross margin in the fourth quarter, like that should be, you know, the trough for margins for PACCAR, or even assuming a flat market next year, just with the benefit from Section 232 and, you know, tariffs mitigating and potentially the market being flat to up next year. It sounds like, I don't want to put words in your mouth, but you can probably grow earnings next year. I'll let you chew on that and see if I can get any reaction out of you. I guess my second question, I mean, it sounds like you think the 12% gross margin in the fourth quarter, like that should be, you know, the trough for margins for PACCAR, or even assuming a flat market next year, just with the benefit from Section 232 and, you know, tariffs mitigating and potentially the market being flat to up next year. i guess my second question i mean it sounds like you think the 12% gross margin in the fourth quarter like that should be you know the trough for margins for paccar or even assuming a flat market next year just with the benefit from section 232 and you know tariffs mitigating and potentially the market being flat to up next year It sounds like, I don't want to put words in your mouth, but you can probably grow earnings next year. it sounds like i don't want to put words in your mouth but you can probably grow earnings next year I'll let you chew on that and see if I can get any reaction out of you. i'll let you chew on that and see if i can get any reaction out of you

Speaker 10: Oh, Jamie, you're fun. Let's do the first question, which is, you said, do we think we can gain share and how do we think about capacity in our factories? One of the things I'm really pleased with our manufacturing team over the last couple of years is we've made these big investments into the factories so that we have capacity to handle what ends up happening as quarterly swings in build. We talk about full years, but things really happen over a couple of quarters of max build rates. We're aware of that. We've made the investments in paint facilities and automatic vehicles to move parts around inside the truck plants. Great work with our suppliers and their investments in the capacity that they have. We feel like we can gain share and we feel like we have the capacity to support gaining share in the coming timeframe. Oh, Jamie, you're fun. oh jamie you're fun Let's do the first question, which is, you said, do we think we can gain share and how do we think about capacity in our factories? let's do the first question which is you said do we think we can gain share and how do we think about capacity in our factories One of the things I'm really pleased with our manufacturing team over the last couple of years is we've made these big investments into the factories so that we have capacity to handle what ends up happening as quarterly swings in build. one of the things i'm really pleased with our manufacturing team over the last couple of years is we've made these big investments into the factories so that we have capacity to handle what ends up happening as quarterly swings in build We talk about full years, but things really happen over a couple of quarters of max build rates. we talk about full years but things really happen over a couple of quarters of max build rates We're aware of that. we're aware of that We've made the investments in paint facilities and automatic vehicles to move parts around inside the truck plants. we've made the investments in paint facilities and automatic vehicles to move parts around inside the truck plants Great work with our suppliers and their investments in the capacity that they have. great work with our suppliers and their investments in the capacity that they have We feel like we can gain share and we feel like we have the capacity to support gaining share in the coming timeframe. we feel like we can gain share and we feel like we have the capacity to support gaining share in the coming timeframe Mentioned it earlier in the call, right? We invested in products. We have the newest and best-performing products in the industry. We've invested in our operations teams. We have the best manufacturing capacities, highest quality products with plenty of capacity to handle share growth. I feel really well positioned as we head to next year. That does lead to your second question, I guess, of saying if 12% is the plus or minus now, what are you thinking next year is going to be? Or even the fourth quarter phasing. I would say, as we said, with tariffs peaking in October, we do think that the cadence through the quarter on a month-by-month basis will be positive trending. We anticipate that being true through next year, right? If the market was at a midpoint 250, we feel like that bodes well for our earnings growth and our margin growth. Mentioned it earlier in the call, right? mentioned it earlier in the call right We invested in products. we invested in products We have the newest and best-performing products in the industry. we have the newest and best-performing products in the industry We've invested in our operations teams. we've invested in our operations teams We have the best manufacturing capacities, highest quality products with plenty of capacity to handle share growth. we have the best manufacturing capacities highest quality products with plenty of capacity to handle share growth I feel really well positioned as we head to next year. i feel really well positioned as we head to next year That does lead to your second question, I guess, of saying if 12% is the plus or minus now, what are you thinking next year is going to be? that does lead to your second question i guess of saying if 12% is the plus or minus now what are you thinking next year is going to be Or even the fourth quarter phasing. or even the fourth quarter phasing I would say, as we said, with tariffs peaking in October, we do think that the cadence through the quarter on a month-by-month basis will be positive trending. i would say as we said with tariffs peaking in october we do think that the cadence through the quarter on a month-by-month basis will be positive trending We anticipate that being true through next year, right? we anticipate that being true through next year right If the market was at a midpoint 250, we feel like that bodes well for our earnings growth and our margin growth. if the market was at a midpoint 250 we feel like that bodes well for our earnings growth and our margin growth

Speaker 2: Very helpful. Thank you and congratulations. Very helpful. very helpful Thank you and congratulations. thank you and congratulations

Speaker 10: Thank you. Have a great day. Thank you. thank you Have a great day. have a great day

Speaker 3: Our next question comes from Tami Zakaria with JPMorgan. Your line is open. Please go ahead. Our next question comes from Tami Zakaria with JP Morgan. our next question comes from tami zakaria with jp morgan Your line is open. your line is open Please go ahead. please go ahead

Speaker 4: Hi, good morning. Thank you so much. Apologies, but one more question on Section 232. It seems like the 3.75% value of the truck to offset tariffs extends through 2030, which gives some time to plan ahead. How are you thinking about your parts and component sourcing with that timeline in mind? Do you plan to expand footprint, bring stuff here in the U.S.? Any thoughts on how you're thinking about that 2030 timeline? Hi, good morning. hi good morning Thank you so much. thank you so much Apologies, but one more question on Section 232. apologies but one more question on section 232 It seems like the 3.75% value of the truck to offset tariffs extends through 2030, which gives some time to plan ahead. it seems like the 3.75% value of the truck to offset tariffs extends through 2030 which gives some time to plan ahead How are you thinking about your parts and component sourcing with that timeline in mind? how are you thinking about your parts and component sourcing with that timeline in mind Do you plan to expand footprint, bring stuff here in the U.S.? do you plan to expand footprint bring stuff here in the u.s Any thoughts on how you're thinking about that 2030 timeline? any thoughts on how you're thinking about that 2030 timeline

Speaker 10: I think that we feel very good about the supply base and how they've positioned right now. We do think that there'll probably be some reflection in the coming weeks for people to think about where their production setups are and where they're going to position themselves. I think it's a little bit too early to be commenting on what they're going to actually do in terms of where they might adjust capacity into the different markets since it's just a few days old. We are starting those conversations and look forward to working with our suppliers as we figure out where they're going to position component growth. I think that we feel very good about the supply base and how they've positioned right now. i think that we feel very good about the supply base and how they've positioned right now We do think that there'll probably be some reflection in the coming weeks for people to think about where their production setups are and where they're going to position themselves. we do think that there'll probably be some reflection in the coming weeks for people to think about where their production setups are and where they're going to position themselves I think it's a little bit too early to be commenting on what they're going to actually do in terms of where they might adjust capacity into the different markets since it's just a few days old. i think it's a little bit too early to be commenting on what they're going to actually do in terms of where they might adjust capacity into the different markets since it's just a few days old We are starting those conversations and look forward to working with our suppliers as we figure out where they're going to position component growth. we are starting those conversations and look forward to working with our suppliers as we figure out where they're going to position component growth

Speaker 4: Got it. If I could ask one more, I think you have this huge advantage of building over 90% of trucks here versus some of your peers, you know, they make elsewhere. This seems like a huge advantage. When you think about this offset and the pricing you've taken, is there any plan to give back any of this pricing as some of these tariff headwinds are offset in order to gain share for the long term? Is that sort of a strategy you might consider? Got it. got it If I could ask one more, I think you have this huge advantage of building over 90% of trucks here versus some of your peers, you know, they make elsewhere. if i could ask one more i think you have this huge advantage of building over 90% of trucks here versus some of your peers you know they make elsewhere This seems like a huge advantage. this seems like a huge advantage When you think about this offset and the pricing you've taken, is there any plan to give back any of this pricing as some of these tariff headwinds are offset in order to gain share for the long term? when you think about this offset and the pricing you've taken is there any plan to give back any of this pricing as some of these tariff headwinds are offset in order to gain share for the long term Is that sort of a strategy you might consider? is that sort of a strategy you might consider

Speaker 10: Tammy, you're really smart and you ask great questions, and you can understand how we think about margin, price, market share, and it's not an either-or thing, right? You're always, as a company, trying to provide great trucks, great transportation solutions for your customer, and then be paid fairly for them. Nothing is different in the environment we're in today than that, right? We want to keep providing these great trucks and transportation solutions. As we do that, we think our customers are happy to pay us fairly for them. As cost goes down, that should bring some benefit to them, and that should bring some market share opportunity to us, we hope. Tammy, you're really smart and you ask great questions, and you can understand how we think about margin, price, market share, and it's not an either-or thing, right? tammy you're really smart and you ask great questions and you can understand how we think about margin price market share and it's not an either-or thing right You're always, as a company, trying to provide great trucks, great transportation solutions for your customer, and then be paid fairly for them. you're always as a company trying to provide great trucks great transportation solutions for your customer and then be paid fairly for them Nothing is different in the environment we're in today than that, right? nothing is different in the environment we're in today than that right We want to keep providing these great trucks and transportation solutions. we want to keep providing these great trucks and transportation solutions As we do that, we think our customers are happy to pay us fairly for them. as we do that we think our customers are happy to pay us fairly for them As cost goes down, that should bring some benefit to them, and that should bring some market share opportunity to us, we hope. as cost goes down that should bring some benefit to them and that should bring some market share opportunity to us we hope

Speaker 4: Understood. Thank you. Understood. understood Thank you. thank you

Speaker 10: You're welcome. You're welcome. you're welcome

Speaker 3: We now turn to Chad Dillard with Bernstein. Your line is open. Please go ahead. We now turn to Chad Dillard with Bernstein. we now turn to chad dillard with bernstein Your line is open. your line is open Please go ahead. please go ahead

Speaker 16: Good afternoon, guys. On an industry level, how are you thinking about the supply-demand balance of trucks actually in the fleet? How much excess capacity is out there? How long does it take to clear? Is this embedded in your 2026 industry outlook? Good afternoon, guys. good afternoon guys On an industry level, how are you thinking about the supply-demand balance of trucks actually in the fleet? on an industry level how are you thinking about the supply-demand balance of trucks actually in the fleet How much excess capacity is out there? how much excess capacity is out there How long does it take to clear? how long does it take to clear Is this embedded in your 2026 industry outlook? is this embedded in your 2026 industry outlook

Speaker 10: That's a really interesting question. It's really hard to give you anything specific, Chad. If we think about it right now, there's sufficient capacity that's sitting out there in the industry right now at the current build rates. You can understand that clearly. The question really remains, how quickly does the market adjust? Where does it adjust from? When do people start to think that 35 mg is what's going to happen in the NOx standard? When do our customers in the truckload sector, which represent 40% of the market, start to feel some confidence that they're able to get rates? I think it's really hard to handicap what that's going to be, the timing for that. It's been a long, tough period for the truckload carriers. At some point, that equipment has to be replaced. I think they're starting to feel that need. That's a really interesting question. that's a really interesting question It's really hard to give you anything specific, Chad. it's really hard to give you anything specific chad If we think about it right now, there's sufficient capacity that's sitting out there in the industry right now at the current build rates. if we think about it right now there's sufficient capacity that's sitting out there in the industry right now at the current build rates You can understand that clearly. you can understand that clearly The question really remains, how quickly does the market adjust? the question really remains how quickly does the market adjust Where does it adjust from? where does it adjust from When do people start to think that 35 mg is what's going to happen in the NOx standard? when do people start to think that 35 mg is what's going to happen in the nox standard When do our customers in the truckload sector, which represent 40% of the market, start to feel some confidence that they're able to get rates? when do our customers in the truckload sector which represent 40% of the market start to feel some confidence that they're able to get rates I think it's really hard to handicap what that's going to be, the timing for that. i think it's really hard to handicap what that's going to be the timing for that It's been a long, tough period for the truckload carriers. it's been a long tough period for the truckload carriers At some point, that equipment has to be replaced. at some point that equipment has to be replaced I think they're starting to feel that need. i think they're starting to feel that need I think there'll be some lift there. It'll probably start gradually, and then it'll accelerate as the year goes on and people define their needs. The capacity exists for us in our factories and with our suppliers who are working closely with them to make sure we can build the trucks our customers want. We think it could be a pretty good-looking 2026. I think there'll be some lift there. i think there'll be some lift there It'll probably start gradually, and then it'll accelerate as the year goes on and people define their needs. it'll probably start gradually and then it'll accelerate as the year goes on and people define their needs The capacity exists for us in our factories and with our suppliers who are working closely with them to make sure we can build the trucks our customers want. the capacity exists for us in our factories and with our suppliers who are working closely with them to make sure we can build the trucks our customers want We think it could be a pretty good-looking 2026. we think it could be a pretty good-looking 2026

Speaker 16: Got it. On that same line, you're talking about how customers are keeping the trucks a little bit longer. Any early thoughts on the parts business as we think about 2026? How should we think about the growth profile for that business? Got it. got it On that same line, you're talking about how customers are keeping the trucks a little bit longer. on that same line you're talking about how customers are keeping the trucks a little bit longer Any early thoughts on the parts business as we think about 2026? any early thoughts on the parts business as we think about 2026 How should we think about the growth profile for that business? how should we think about the growth profile for that business

Speaker 13: Yeah, Chad, this is Kevin. We think about it the same way we have. The truck park has been at elevated levels over the years, and that creates tremendous growth opportunity for us. I already mentioned the continued investments we're making. The parts team is doing a great job providing tailored programs. We're leveraging AI to get smarter about providing our right part to the right place at the right time. We see next year as just a continuation of the great work the team's done. Yeah, Chad, this is Kevin. yeah chad this is kevin We think about it the same way we have. we think about it the same way we have The truck park has been at elevated levels over the years, and that creates tremendous growth opportunity for us. the truck park has been at elevated levels over the years and that creates tremendous growth opportunity for us I already mentioned the continued investments we're making. i already mentioned the continued investments we're making The parts team is doing a great job providing tailored programs. the parts team is doing a great job providing tailored programs We're leveraging AI to get smarter about providing our right part to the right place at the right time. we're leveraging ai to get smarter about providing our right part to the right place at the right time We see next year as just a continuation of the great work the team's done. we see next year as just a continuation of the great work the team's done

Speaker 8: Yeah, if I could just add on top of that, the fact that the retail market in the U.S. is still negative is an overhang. At some point, that will turn. We're growing in a market that is negative, which is a really good tribute to our group and to PACCAR Parts. We think that provides a lot of opportunity for us in the next year. Yeah, if I could just add on top of that, the fact that the retail market in the U.S. is still negative is an overhang. yeah if i could just add on top of that the fact that the retail market in the u.s is still negative is an overhang At some point, that will turn. at some point that will turn We're growing in a market that is negative, which is a really good tribute to our group and to PACCAR Parts. we're growing in a market that is negative which is a really good tribute to our group and to paccar parts We think that provides a lot of opportunity for us in the next year. we think that provides a lot of opportunity for us in the next year

Speaker 16: Great. Thank you. Great. great Thank you. thank you

Speaker 10: Thank you, Chad. Thank you, Chad. thank you chad

Speaker 3: Our next question comes from Kyle Menges with Citigroup. Your line is open. Please go ahead. Our next question comes from Kyle Menges with Citigroup. our next question comes from kyle menges with citigroup Your line is open. your line is open Please go ahead. please go ahead

Speaker 7: Thanks for taking the question. I was hoping if you could just talk a little bit about demand you're seeing maybe just into the first half of next year and contextualizing that with your order book so far for the fourth quarter, 60% - 70% full. I guess how would that compare to a, you know, quote-unquote, "normal" fill rate at this point in the year for the fourth quarter and how that's informing your views of demand into the first half next year? It'd be helpful to hear your comments on inventory and any need for destocking. I think in particular in the vocational market, at least the industry data suggests inventories are really high. It would be helpful to hear your thoughts there on any need for destocking in that market. Thank you. Thanks for taking the question. thanks for taking the question I was hoping if you could just talk a little bit about demand you're seeing maybe just into the first half of next year and contextualizing that with your order book so far for the fourth quarter, 60% - 70% full. i was hoping if you could just talk a little bit about demand you're seeing maybe just into the first half of next year and contextualizing that with your order book so far for the fourth quarter 60% - 70% full I guess how would that compare to a, you know, quote-unquote, "normal" fill rate at this point in the year for the fourth quarter and how that's informing your views of demand into the first half next year? i guess how would that compare to a you know quote-unquote "normal" fill rate at this point in the year for the fourth quarter and how that's informing your views of demand into the first half next year It'd be helpful to hear your comments on inventory and any need for destocking. it'd be helpful to hear your comments on inventory and any need for destocking I think in particular in the vocational market, at least the industry data suggests inventories are really high. i think in particular in the vocational market at least the industry data suggests inventories are really high It would be helpful to hear your thoughts there on any need for destocking in that market. it would be helpful to hear your thoughts there on any need for destocking in that market Thank you. thank you

Speaker 10: Yeah, I think we feel like from an inventory standpoint, the industry is in a position where it's like four months of industry inventory. That's down from 4.2 months the last time we spoke in July. It's improving from an industry standpoint and from a Kenworth Peterbilt standpoint. We are at 2.8 months, which is a very healthy level for us. We feel quite good about that. It doesn't feel like we obviously have a high vocational share, market leaders in the vocational segment. That says we have more inventory getting bodies on it. 2.8 months for us feels really healthy, which kind of leads back to your first question about order intake and what's the market doing. We don't have an excess amount of inventory. We're 60% - 70% full. Yeah, I think we feel like from an inventory standpoint, the industry is in a position where it's like four months of industry inventory. yeah i think we feel like from an inventory standpoint the industry is in a position where it's like four months of industry inventory That's down from 4.2 months the last time we spoke in July. that's down from 4.2 months the last time we spoke in july It's improving from an industry standpoint and from a Kenworth Peterbilt standpoint. it's improving from an industry standpoint and from a kenworth peterbilt standpoint We are at 2.8 months, which is a very healthy level for us. we are at 2.8 months which is a very healthy level for us We feel quite good about that. we feel quite good about that It doesn't feel like we obviously have a high vocational share, market leaders in the vocational segment. it doesn't feel like we obviously have a high vocational share market leaders in the vocational segment That says we have more inventory getting bodies on it. 2.8 months for us feels really healthy, which kind of leads back to your first question about order intake and what's the market doing. that says we have more inventory getting bodies on it 2.8 months for us feels really healthy which kind of leads back to your first question about order intake and what's the market doing We don't have an excess amount of inventory. we don't have an excess amount of inventory We're 60% - 70% full. we're 60% - 70% full We'll head into what typically in late October, November, we get into capital allocation for the major truckload carriers, and we'll get a look at what their buying plans are for the year. Those discussions are always ongoing, but they really kind of begin to cement up in the fourth quarter. We look forward to having those conversations with them. I think that we'll see the first half start to fill in reasonably well now that we have clarity around tariffs as people get their hands around with the laws of 35 mg and appreciate that it really is a good time to buy trucks for them and probably the right time for them to buy trucks so they can keep their fleet age where they want it. We'll head into what typically in late October, November, we get into capital allocation for the major truckload carriers, and we'll get a look at what their buying plans are for the year. we'll head into what typically in late october november we get into capital allocation for the major truckload carriers and we'll get a look at what their buying plans are for the year Those discussions are always ongoing, but they really kind of begin to cement up in the fourth quarter. those discussions are always ongoing but they really kind of begin to cement up in the fourth quarter We look forward to having those conversations with them. we look forward to having those conversations with them I think that we'll see the first half start to fill in reasonably well now that we have clarity around tariffs as people get their hands around with the laws of 35 mg and appreciate that it really is a good time to buy trucks for them and probably the right time for them to buy trucks so they can keep their fleet age where they want it. i think that we'll see the first half start to fill in reasonably well now that we have clarity around tariffs as people get their hands around with the laws of 35 mg and appreciate that it really is a good time to buy trucks for them and probably the right time for them to buy trucks so they can keep their fleet age where they want it

Speaker 7: Got it. Thank you. Got it. got it Thank you. thank you Just to follow up on an earlier question, it does sound like with Section 232 and the rebates that you'll see, it sounds like you might be passing some of those savings on to the customer. Curious how that might look. Is that simplistically just taking off the existing tariff surcharges, which I think were around $3,500 - $4,000 per truck in Class eight? Is it just kind of simplistically taking those surcharges off? How should we be thinking about that? Just to follow up on an earlier question, it does sound like with Section 232 and the rebates that you'll see, it sounds like you might be passing some of those savings on to the customer. just to follow up on an earlier question it does sound like with section 232 and the rebates that you'll see it sounds like you might be passing some of those savings on to the customer Curious how that might look. curious how that might look Is that simplistically just taking off the existing tariff surcharges, which I think were around $3,500 - $4,000 per truck in Class eight? is that simplistically just taking off the existing tariff surcharges which i think were around $3,500 - $4,000 per truck in class eight Is it just kind of simplistically taking those surcharges off? is it just kind of simplistically taking those surcharges off How should we be thinking about that? how should we be thinking about that

Speaker 10: What we've said before is the tariffs still peaked in October, and they're going to come down from there in a process through the fourth quarter. We are looking at that. What we've said before is the tariffs still peaked in October, and they're going to come down from there in a process through the fourth quarter. what we've said before is the tariffs still peaked in october and they're going to come down from there in a process through the fourth quarter We are looking at that. we are looking at that I think that our intention is to get away from a tariff discussion with customers now that we have stability, and we can just integrate into pricing and discuss the price of these great trucks for the customer and get away from the tariff statement now that we have stability. That'll be helpful to everybody inside of our customers' base, to not have to think about what we had to, for instance, $3,500 - $4,000 of tariff surcharges. We can move away from that kind of discussion, just getting to truck pricing again since there's clarity and stability. I think that our intention is to get away from a tariff discussion with customers now that we have stability, and we can just integrate into pricing and discuss the price of these great trucks for the customer and get away from the tariff statement now that we have stability. i think that our intention is to get away from a tariff discussion with customers now that we have stability and we can just integrate into pricing and discuss the price of these great trucks for the customer and get away from the tariff statement now that we have stability That'll be helpful to everybody inside of our customers' base, to not have to think about what we had to, for instance, $3,500 - $4,000 of tariff surcharges. that'll be helpful to everybody inside of our customers' base to not have to think about what we had to for instance $3,500 - $4,000 of tariff surcharges We can move away from that kind of discussion, just getting to truck pricing again since there's clarity and stability. we can move away from that kind of discussion just getting to truck pricing again since there's clarity and stability

Speaker 7: Helpful. Thank you. Helpful. helpful Thank you. thank you

Speaker 10: You bet. You bet. you bet

Speaker 3: As another reminder, if you'd like to ask a question, please press star one on your telephone keypad now. We now turn to Avi Jaroslawicz with UBS. Your line is open. Please go ahead. As another reminder, if you'd like to ask a question, please press star one on your telephone keypad now. as another reminder if you'd like to ask a question please press star one on your telephone keypad now We now turn to Avi Jaroslawicz with UBS. we now turn to avi jaroslawicz with ubs Your line is open. your line is open Please go ahead. please go ahead

Speaker 11: Hi. Thank you. I think you said the order books for Q4 are about 60% - 70% full. Is that pretty uniform by region, or are there any that are notably off of that point? Hi. hi Thank you. thank you I think you said the order books for Q4 are about 60% - 70% full. i think you said the order books for q4 are about 60% - 70% full Is that pretty uniform by region, or are there any that are notably off of that point? is that pretty uniform by region or are there any that are notably off of that point

Speaker 10: Yeah, that's a great question. It is actually pretty uniform by region right now. We've seen the European market have strong order intake, and we're seeing that 67% full there as well as in North America. Yeah, that's a great question. yeah that's a great question It is actually pretty uniform by region right now. it is actually pretty uniform by region right now We've seen the European market have strong order intake, and we're seeing that 67% full there as well as in North America. we've seen the european market have strong order intake and we're seeing that 67% full there as well as in north america

Speaker 11: Okay. If I can follow that up, assuming that we don't hear anything new from the NOx rules, when are customers telling you that they might start pre-buying? Could that be in the first half, or is anybody saying that they would expect to do that in the first half, or would that really be more a second-half story? Okay. okay If I can follow that up, assuming that we don't hear anything new from the NOx rules, when are customers telling you that they might start pre-buying? if i can follow that up assuming that we don't hear anything new from the nox rules when are customers telling you that they might start pre-buying Could that be in the first half, or is anybody saying that they would expect to do that in the first half, or would that really be more a second-half story? could that be in the first half or is anybody saying that they would expect to do that in the first half or would that really be more a second-half story

Speaker 10: You know, I think they're buying decisions. These are really smart people, our customers, and they're thinking about all the inputs, not just the one. I think it has a heavy influence on them to contemplate the 35 mg and whether or not they need to think about pulling ahead. They're also looking at their fundamentals of freight and rates. They're looking at, is there stable in an operating environment, which the Commerce Department and the White House did a great job of providing for them now. I think all of those are their factors. I kind of think that they will start to really have a lot of interest here in the fourth quarter of what their 2026 buying plan is, and probably by the time we're in the first quarter, they're going to be needing to react to it if it stays at 35. You know, I think they're buying decisions. you know i think they're buying decisions These are really smart people, our customers, and they're thinking about all the inputs, not just the one. these are really smart people our customers and they're thinking about all the inputs not just the one I think it has a heavy influence on them to contemplate the 35 mg and whether or not they need to think about pulling ahead. i think it has a heavy influence on them to contemplate the 35 mg and whether or not they need to think about pulling ahead They're also looking at their fundamentals of freight and rates. they're also looking at their fundamentals of freight and rates They're looking at, is there stable in an operating environment, which the Commerce Department and the White House did a great job of providing for them now. they're looking at is there stable in an operating environment which the commerce department and the white house did a great job of providing for them now I think all of those are their factors. i think all of those are their factors I kind of think that they will start to really have a lot of interest here in the fourth quarter of what their 2026 buying plan is, and probably by the time we're in the first quarter, they're going to be needing to react to it if it stays at 35. i kind of think that they will start to really have a lot of interest here in the fourth quarter of what their 2026 buying plan is and probably by the time we're in the first quarter they're going to be needing to react to it if it stays at 35

Speaker 11: Okay, appreciate it. Thank you. Okay, appreciate it. okay appreciate it Thank you. thank you

Speaker 10: You bet. Have a good day. You bet. you bet Have a good day. have a good day

Speaker 3: We now turn to Scott Group with Wolfe Research. Your line is open. Please go ahead. We now turn to Scott Group with Wolfe Research. we now turn to scott group with wolfe research Your line is open. your line is open Please go ahead. please go ahead Hey, guys. This is Cole on for Scott. Just back to Section 232 a little bit. I heard earlier in the call you mentioned that pricing increased 1.6% sequentially in the quarter and that momentum should kind of continue. In the same breath, you're kind of talking to the fact that you want to help out your customer. Maybe help situate us there. Are the tariff surcharges effectively going to go away, but core pricing should continue to move higher? Just any way to help us wrap our head around that would be. Hey, guys. hey guys This is Cole on for Scott. this is cole on for scott Just back to Section 232 a little bit. just back to section 232 a little bit I heard earlier in the call you mentioned that pricing increased 1.6% sequentially in the quarter and that momentum should kind of continue. i heard earlier in the call you mentioned that pricing increased 1.6% sequentially in the quarter and that momentum should kind of continue In the same breath, you're kind of talking to the fact that you want to help out your customer. in the same breath you're kind of talking to the fact that you want to help out your customer Maybe help situate us there. maybe help situate us there Are the tariff surcharges effectively going to go away, but core pricing should continue to move higher? are the tariff surcharges effectively going to go away but core pricing should continue to move higher Just any way to help us wrap our head around that would be. just any way to help us wrap our head around that would be

Speaker 10: Yeah, I think that, you know, it's a great question, actually. It's an interesting dynamic right now. Surcharges really only exist at moments of inflection where there's some unique factor sitting into there. Hence the reason for the surcharges that we had. That point of inflection is now passed and we have stability. Yeah, I think that, you know, it's a great question, actually. yeah i think that you know it's a great question actually It's an interesting dynamic right now. it's an interesting dynamic right now Surcharges really only exist at moments of inflection where there's some unique factor sitting into there. surcharges really only exist at moments of inflection where there's some unique factor sitting into there Hence the reason for the surcharges that we had. hence the reason for the surcharges that we had That point of inflection is now passed and we have stability. that point of inflection is now passed and we have stability It allows us to probably get rid of the tariff surcharge and go back to normal pricing discussions with our customers. Obviously, providing premium trucks and transportation solutions allows us to make sure that we have fair pricing to them, good for them, good for us. Obviously, as we see costs change, should be somewhat favorable. We both should benefit from it. We see that as a great opportunity for PACCAR and our customers to have a strong finish to the year and an even stronger 2026. It allows us to probably get rid of the tariff surcharge and go back to normal pricing discussions with our customers. it allows us to probably get rid of the tariff surcharge and go back to normal pricing discussions with our customers Obviously, providing premium trucks and transportation solutions allows us to make sure that we have fair pricing to them, good for them, good for us. obviously providing premium trucks and transportation solutions allows us to make sure that we have fair pricing to them good for them good for us Obviously, as we see costs change, should be somewhat favorable. obviously as we see costs change should be somewhat favorable We both should benefit from it. we both should benefit from it We see that as a great opportunity for PACCAR and our customers to have a strong finish to the year and an even stronger 2026. we see that as a great opportunity for paccar and our customers to have a strong finish to the year and an even stronger 2026 Yep. Last quarter, you mentioned that 3Q gross margins would be, I think the math was roughly 14% excluding tariff costs. Yep. yep Last quarter, you mentioned that 3Q gross margins would be, I think the math was roughly 14% excluding tariff costs. last quarter you mentioned that 3q gross margins would be i think the math was roughly 14% excluding tariff costs Is that a good way to think about 1Q as we hit run rate as rebates kind of offset some of the tariff costs, or is there any other way to think about how margins should build through 4Q and into 1Q when we hit run rate? Is that a good way to think about 1Q as we hit run rate as rebates kind of offset some of the tariff costs, or is there any other way to think about how margins should build through 4Q and into 1Q when we hit run rate? is that a good way to think about 1q as we hit run rate as rebates kind of offset some of the tariff costs or is there any other way to think about how margins should build through 4q and into 1q when we hit run rate Yeah, I think we actually said around 13%. What we've said is tariffs peaking in the fourth quarter, declining throughout the fourth quarter will allow us to see growth as we get into, say, the December timeframe and then continued improvement into the first quarter of 2026. Yeah, I think we actually said around 13%. yeah i think we actually said around 13% What we've said is tariffs peaking in the fourth quarter, declining throughout the fourth quarter will allow us to see growth as we get into, say, the December timeframe and then continued improvement into the first quarter of 2026. what we've said is tariffs peaking in the fourth quarter declining throughout the fourth quarter will allow us to see growth as we get into say the december timeframe and then continued improvement into the first quarter of 2026 Okay. Thanks, guys. I'll turn it back. Okay. okay Thanks, guys. thanks guys I'll turn it back. i'll turn it back Yeah, you bet. Yeah, you bet. yeah you bet

Speaker 3: There are no other questions in the queue at this time. Are there any additional remarks from the company? There are no other questions in the queue at this time. there are no other questions in the queue at this time Are there any additional remarks from the company? are there any additional remarks from the company

Speaker 10: I'd like to thank everyone for joining the call, and thank you. I'd like to thank everyone for joining the call, and thank you. i'd like to thank everyone for joining the call and thank you

Speaker 3: Ladies and gentlemen, this concludes PACCAR's earnings call. Thank you for participating. You may now disconnect. Ladies and gentlemen, this concludes PACCAR's earnings call. ladies and gentlemen this concludes paccar's earnings call Thank you for participating. thank you for participating You may now disconnect. you may now disconnect