PACCAR(US:PCAR)2025-05-01 20:05PART I. FINANCIAL INFORMATION Financial Statements PACCAR reported Q1 2025 net sales and revenues of $7.44 billion and net income of $505.1 million, a significant decrease from Q1 2024, primarily due to lower truck sales and a $350 million pre-tax charge for European civil litigation Q1 2025 vs Q1 2024 Consolidated Statement of Comprehensive Income Highlights | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales and Revenues | $6,913.7 | $8,235.0 | -16.0% | | Total Income Before Income Taxes | $643.1 | $1,534.5 | -58.1% | | Net Income | $505.1 | $1,195.3 | -57.7% | | Diluted EPS | $0.96 | $2.27 | -57.7% | Consolidated Balance Sheet Highlights | Metric | March 31, 2025 (in millions) | Dec 31, 2024 (in millions) | | :--- | :--- | :--- | | Total Assets | $42,724.7 | $43,418.9 | | Cash and cash equivalents | $5,517.7 | $7,060.8 | | Total Stockholders' Equity | $18,022.1 | $17,506.9 | Q1 2025 vs Q1 2024 Consolidated Statement of Cash Flows Highlights | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $910.3 | $1,469.0 | | Net Cash Used in Investing Activities | ($392.6) | ($526.1) | | Net Cash Used in Financing Activities | ($2,134.7) | ($1,880.0) | | Net Decrease in Cash and Cash Equivalents | ($1,543.1) | ($987.2) | Note A - Basis of Presentation The financial statements are prepared under GAAP for interim reporting, with a key development being the formation of a U.S. battery manufacturing joint venture, Amplify Cell Technologies, accounted for using the equity method - PACCAR formed a battery manufacturing joint venture, Amplify Cell Technologies, with a 30% interest, accounted for using the equity method22 - PACCAR contributed $44.7 million to the joint venture in Q1 2025, with a maximum required contribution of $830.0 million, and the equity method investment was valued at $237.6 million as of March 31, 202522 Note B – Sales and Revenues This note details the disaggregation of revenues, with Truck sales forming the largest component, followed by Parts sales, and Financial Services revenues primarily from interest income on loans and leases Truck, Parts and Other Revenues by Source (in millions) | Source | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Truck Sales | $4,971.7 | $6,304.7 | | Parts Sales | $1,637.6 | $1,625.6 | | Total Truck, Parts and Other | $6,913.7 | $8,235.0 | Financial Services Lease Revenues by Type (in millions) | Lease Type | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Finance lease revenues | $88.2 | $82.6 | | Operating lease revenues | $150.8 | $174.9 | | Total lease revenues | $239.0 | $257.5 | - The company's total commitment to acquire trucks at a guaranteed value for contracts accounted for as a sale was $572.8 million at March 31, 202531 Note E - Finance and Other Receivables Total net finance and other receivables increased to $19.61 billion at March 31, 2025, from $19.31 billion at year-end 2024, with the allowance for credit losses stable at $144.6 million Allowance for Credit Losses Activity (in millions) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Balance at January 1 | $145.2 | $133.0 | | Provision for losses | $18.3 | $16.1 | | Charge-offs | ($23.3) | ($10.8) | | Recoveries | $2.3 | $2.2 | | Balance at March 31 | $144.6 | $139.3 | - The balance of repossessed inventory increased to $107.8 million at March 31, 2025, from $80.9 million at December 31, 2024, primarily due to one large fleet customer in the U.S78 Note F - Product Support Liabilities This note covers warranty reserves and deferred revenues from extended service contracts, with warranty reserves increasing slightly to $622.4 million and deferred revenues growing to $1.34 billion in Q1 2025 Changes in Product Support Liabilities (in millions) | Liability Type | Balance at Jan 1, 2025 | Balance at Mar 31, 2025 | Balance at Mar 31, 2024 | | :--- | :--- | :--- | :--- | | Warranty Reserves | $606.1 | $622.4 | $763.4 | | Deferred Revenues on Extended Warranties & R&M | $1,302.2 | $1,343.5 | $1,253.6 | Note I - Segment Information PACCAR operates in three segments: Truck, Parts, and Financial Services, with the Truck segment's income before tax falling sharply and the 'Other' segment reporting a significant loss due to a $350.0 million charge for European civil litigation Segment Income Before Income Taxes (in millions) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Truck | $364.9 | $881.6 | | Parts | $426.5 | $455.8 | | Other | ($353.2) | ($2.3) | | Truck, Parts and Other | $438.2 | $1,335.1 | | Financial Services | $121.1 | $113.9 | - The 'Other' segment includes a $350.0 million pre-tax charge related to civil litigation in Europe (EC-related claims) in the first quarter of 202594 Note M – Commitments and Contingencies This note details ongoing legal proceedings, most notably the EC-related claims, for which the company recorded an additional pre-tax charge of $350.0 million in Q1 2025 due to higher anticipated settlement costs - Due to higher settlement costs for EC-related claims, the Company recorded an additional pre-tax charge of $350.0 million ($264.5 million after-tax) in Q1 2025128 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 15% YoY revenue decline to lower truck deliveries and a $350 million pre-tax charge for European litigation, while providing a cautious outlook for 2025 truck sales and planning significant investments in new technologies Outlook The company projects lower heavy-duty truck sales for 2025 in key markets, forecasts a 2-4% increase in Parts sales, and plans significant capital and R&D investments focusing on new powertrains, connected services, and a battery joint venture 2025 Truck Industry Sales Outlook | Region | 2025 Projected Sales | 2024 Sales | | :--- | :--- | :--- | | U.S. & Canada (Heavy-duty) | 235,000 - 265,000 units | 268,100 units | | Europe (>16-tonne) | 270,000 - 300,000 units | 316,100 units | | South America (Heavy-duty) | 100,000 - 110,000 units | 119,000 units | - PACCAR Parts sales are expected to increase 2-4% in 2025 compared to 2024136 - Planned 2025 investments include $700-$800 million in capital expenditures and $450-$480 million in R&D, plus a total project investment of $600-$900 million in the Amplify Cell Technologies battery joint venture139203 Results of Operations The Truck segment's income before tax plummeted 59% YoY due to decreased deliveries and lower price realization, while the Parts segment saw record revenue but a 6% income decline, and Financial Services income grew 6% due to portfolio growth New Truck Deliveries by Region (Units) | Region | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | U.S. and Canada | 22,200 | 29,500 | (25)% | | Europe | 10,400 | 11,600 | (10)% | | Other | 7,500 | 7,000 | 7% | | Total Units | 40,100 | 48,100 | (17)% | - Truck segment income before tax decreased 59% to $364.9 million, primarily due to lower truck unit deliveries and lower price realization in the U.S., Canada, and Europe151152 - Parts segment income before tax decreased 6% to $426.5 million, with gross margin falling to 30.7% from 32.5% YoY due to higher material and warehouse costs160164 - Financial Services income before tax increased 6% to $121.1 million, driven by higher finance margins from a larger loan and lease portfolio166170 Liquidity and Capital Resources The company's cash and marketable securities decreased by $1.5 billion to $8.34 billion, primarily due to $1.75 billion in dividend payments, while cash from operations decreased to $910.3 million, yet strong liquidity is maintained with $4.93 billion in unused credit lines - Total cash and marketable securities stood at $8.34 billion at March 31, 2025, a decrease of $1.50 billion from December 31, 2024194 - Cash provided by operations decreased to $910.3 million in Q1 2025 from $1,469.0 million in Q1 2024, mainly due to lower net income195 - The company paid $1.75 billion in dividends during Q1 2025197 - As of March 31, 2025, the company had $4.93 billion unused out of $5.52 billion in total credit line arrangements199 Reconciliation of GAAP to Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP measures by adjusting for the $350.0 million pre-tax EC-related claims charge, resulting in an adjusted net income of $769.6 million for Q1 2025 Q1 2025 GAAP to Non-GAAP Reconciliation (in millions, except per share) | Metric | GAAP | Adjustment (EC-related claims) | Non-GAAP | | :--- | :--- | :--- | :--- | | Net Income | $505.1 | $264.5 | $769.6 | | Diluted EPS | $0.96 | $0.50 | $1.46 | | After-tax Return on Revenues | 6.8% | 3.5% | 10.3% | - The adjustment for EC-related claims relates to a pre-tax charge of $350.0 million ($264.5 million after-tax) recorded in Q1 2025214 Quantitative and Qualitative Disclosures About Market Risk The company states there were no material changes in its market risk during the first quarter of 2025 and refers to its 2024 Annual Report on Form 10-K for further information - There were no material changes in the Company's market risk during the three months ended March 31, 2025218 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period, with no material changes to internal controls over financial reporting occurring during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025219 - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting220 PART II. OTHER INFORMATION Legal Proceedings This section refers to Note M, "Commitments and Contingencies," for information on litigation matters, primarily discussing the EC-related claims and the additional $350 million charge taken in Q1 2025 - Information on legal proceedings is incorporated by reference from Note M – "Commitments and Contingencies"223 Risk Factors The company states there have been no material changes to its risk factors during the first quarter of 2025 and refers to the 2024 Annual Report on Form 10-K for a full description - There have been no material changes in the Company's risk factors during the three months ended March 31, 2025224 Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company reported no unregistered sales of equity securities and no share repurchases during Q1 2025 under its $500 million plan, with $110.0 million repurchased to date - No repurchases were made under the company's stock repurchase plan during the first three months of 2025226 - As of March 31, 2025, the Company has repurchased a cumulative $110.0 million of shares under its $500.0 million authorization from 2018226