PACCAR (PCAR) Q2 FY26 earnings call: guidance and Q&A

What drove the stronger-than-expected Q2 gross margin?

Higher truck volume, benefits from local-for-local production (including tariff benefits), and strong cost controls/favorable price-vs-cost contributed to the stronger Q2 gross margin.

“Probably one of the things is volume of trucks was higher. And then most significantly, I think our local-for-local production is benefiting PACCAR. I also think that the team did a fantastic job in cost [ controls ] or price [ versus ] cost was favorable for us, even more than we thought it would be.”

asked by Stephen Volkmann · answered by R. Feight

Was there any tariff refund benefit contributing to the strong cost improvement, and can it be quantified?

The strong performance was largely due to net price-cost benefit, operating effectiveness, and good warranty performance. There was a net tariff benefit, but it was not quantified, and the tariff position is expected to be similar in Q3.

“I think if you look at that performance, it was largely driven from a net price cost benefit. And the biggest part of that was really the team's operating effectiveness and good warranty performance by the team, efficiencies to the local-for-local, but we did have a net tariff benefit.”

asked by Jerry Revich · answered by R. Feight

Why is the Q3 gross margin guide flattish sequentially despite higher deliveries, and are there cost headwinds?

The flattish margin is due to the ratio mix of trucks to parts (higher truck volume impacts overall mix) and a shift in truck build mix towards more fleet trucks (which are slightly less occasional/higher margin). Profit is still expected to increase with higher build rates.

“There's a couple of things that factor. One you're fully aware of, right, which is that as truck increases, it has a ratio mix to parts and that increase has an impact. So that's why that's around 14.5%. And there also happens to be in the third quarter where probably the mix of our actual trucks we're building is shifting a little bit. So maybe a little less occasional, a little bit more fleet trucks that we're building.”

asked by Tami Zakaria · answered by R. Feight

How does the EPA's proposed nonconformance fee (NCP) compare to the cost of a compliant engine, and how will this impact customer behavior in 2027?

The proposed NCP is estimated at $6,000-$7,000 per truck, which is lower than the likely cost of fully compliant 35-milligram engines (estimated at over $10,000). This allows customers to ease into new technology, creating a stronger 2027 market.

“But the way it's currently proposed is we would expect to see NCPs running at something like $6,000 to $7,000 range per truck. And as you noted, the cost of fully compliant 35-milligram engines would likely be higher than that.”

asked by Tami Zakaria · answered by R. Feight

Are customers buying due to pre-buy or genuine need, and how does the EPA shift affect 2027?

Customers are buying due to genuine need after deferring capital, driven by improved operating conditions and the fuel efficiency of new trucks. The EPA's approach smooths the pre-buy, leading to a strong and healthy market in 2027.

“I think part of what's happening is they've been in a tough operating conditions. Our customers may of [ them ] have been in [ tough ] operating conditions for a few years now. That meant they've been careful with capital. They've probably got trucks longer than they would have wanted to.”

asked by Robert Wertheimer · answered by R. Feight

What is the expected cadence for 4Q into 1Q 2027, and how to think about parts growth exiting 2026 into 2027?

The market is ramping up, with build slots selling out and carryover into 2027, which is expected to start strong and remain strong due to the EPA's approach. Parts growth will accelerate in H2 2026 due to increased truck utilization and will continue to be strong into 2027.

“I really see that the market is ramping up, we're certainly fall through the third quarter, mostly full for the year, probably like 90% full for the year, even as we're ramping up production at a rate that's as quick as is reasonable to do.”

asked by David Raso · answered by R. Feight