PACCAR Inc. (NASDAQ:PCAR) Q1 2015 Earnings Conference Call - Final Transcript

Apr 21, 2015 • 11:00 am ET

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PACCAR Inc. (NASDAQ:PCAR) Q1 2015 Earnings Conference Call - Final Transcript

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Q & A
Operator
operator

(Operator Instructions) Andy Casey, Wells Fargo.

Analyst
Andrew Casey

Just a quick question Ron on whether you guys have seen any improvement in the outlook for pricing whether it would be Q2 or second-half specifically in North America?

Executive
Ronald Armstrong

I just say pricing is very stable. Customers recognize the value of the Peterbilt, Kenworth and DAF products around the world. Markets are always competitive and we have a great product to offer. And so I think that the pricing at this point is very stable.

Analyst
Andrew Casey

And then the comment about the 5% to 7% sequential production increase. Is part of that more days in the quarter, or are you able specifically in North America to increase production by utilizing some of your other production sites as opposed to the two primary ones for Class 8?

Executive
Ronald Armstrong

I would say, most of it is higher daily production rates with maybe a day or two extra.

Operator
operator

Andrew Kaplowitz, Barclays.

Analyst
Andrew Kaplowitz

So incremental margin appear to take a meaningful jump this quarter and gross margin was well ahead of your previous guidance of 100 basis points to 150 basis points of year-over-year improvement. So can you talk about what ended up being better than your expectations? It does look like some of that is strong parts margin, and maybe your distribution center is ramping up there significantly, I don't know or are you starting to get better absorption and pricing in Europe?

Executive
Ronald Armstrong

I think your observation about parts is right on point, several things there. One was favorable mix of the products that were sold, the operating leverage of our cost structure, and we did see some benefits from the lower oil price and the effect on our delivery costs from our parts business. So those factors played a role, and then just the -- a more stable build rate in the operating efficiencies that come with operating at a stable level.

Analyst
Andrew Kaplowitz

And then Ron, you said the gross margin would be about 50 basis points better for the year, but after being better than expectations in 1Q, what could that margin improvement look like for the year?

Executive
Ronald Armstrong

I would think that for the year we look at something that would be comparable to first quarter levels.

Operator
operator

Ann Duignan, JPMorgan.

Analyst
Ann Duignan

Can you comment on your -- what you mentioned about some fleet expansion out there, whether that's part of a trend you are beginning to see, we hear a lot about driver shortage, et cetera, et cetera. And then comment on if we continue to see some fleet expansion, could that have a negative impact on your parts business, as we go forward, more new trucks, fewer parts and services?

Executive
Ronald Armstrong

I think the parts business is well positioned. The trucks that are there are operating at over 90% utilization, which is really a peak level. So I don't see any tapering off from whether it's that those are new trucks or older trucks. I think the parts business will continue to benefit from strong freight markets not only in North