filings.toolsItem 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW:
PACCAR is a global technology company whose Truck segment includes the design and manufacture of high-quality light-, medium- and heavy-duty commercial trucks. In North America, trucks are sold under the Kenworth and Peterbilt nameplates, in Europe, under the DAF nameplate and in Australia and South America, under the Kenworth and DAF nameplates. The Parts segment includes the distribution of aftermarket parts for trucks and related commercial vehicles. The Company’s Financial Services segment derives its earnings primarily from financing or leasing PACCAR products in North America, Europe, Australia and South America. The Company’s Other business includes the manufacturing and marketing of industrial winches.
Third Quarter Financial Highlights:
Worldwide net sales and revenues were $8.24 billion in 2024 compared to $8.70 billion in 2023, primarily due to lower truck revenues, partially offset by higher parts and financial services revenues.
Truck revenues were $6.03 billion in 2024 compared to $6.64 billion in 2023, from lower revenues in Europe and the U.S. and Canada.
Parts sales were $1.66 billion in 2024 compared to $1.58 billion in 2023, reflecting higher sales in all markets.
Financial Services revenues were $536.1 million in 2024 compared to $464.1 million in 2023, primarily due to higher interest income driven by portfolio growth and higher portfolio yields.
Net income was $972.1 million ($1.85 per diluted share) in 2024 compared to $1.23 billion ($2.34 per diluted share) in 2023.
Capital investments were $183.8 million in 2024 compared to $174.5 million in 2023.
Research and development (R&D) expenses were $115.0 million in 2024 compared to $103.5 million in 2023.
First Nine Months Financial Highlights:
Worldwide net sales and revenues were $25.76 billion in 2024 compared to $26.05 billion in 2023, primarily due to lower truck revenues, partially offset by higher parts and financial services revenues.
Truck revenues were $19.15 billion in 2024, compared to $19.88 billion in 2023, from lower revenues in Europe mostly offset by all other markets.
Parts sales were $5.00 billion in 2024 compared to $4.80 billion in 2023, reflecting higher sales in all markets.
Financial Services revenues were $1.56 billion in 2024 compared to $1.33 billion in 2023, primarily due to higher interest income driven by portfolio growth and higher portfolio yields.
Net income was $3.29 billion ($6.25 per diluted share) in 2024 compared to $3.18 billion ($6.07 per diluted share) in 2023. In 2023, adjusted net income (non-GAAP), excluding a $446.4 million after-tax non-recurring charge related to civil litigation in Europe was $3.63 billion ($6.92 per diluted share). See Reconciliation of GAAP to Non-GAAP Financial Measures on page 50.
Capital investments were $567.7 million in 2024 compared to $486.5 million in 2023.
Research and development (R&D) expenses were $337.6 million in 2024 compared to $302.0 million in 2023.
PACCAR Parts opened its new 240,000 square-foot Parts Distribution Center (PDC) in Massbach, Germany. This PDC expedites parts delivery to dealers and customers in the region. PACCAR’s 20 PDCs support more than 2,000 DAF, Kenworth and Peterbilt dealer sales, parts and service locations, and over 300 TRP stores.
The PACCAR Financial Services (PFS) group of companies has operations covering four continents and 26 countries. The global breadth of PFS and its rigorous credit application process support a portfolio of loans and leases with total assets of $22.48 billion. PFS issued $3.25 billion in medium-term notes during the first nine months of 2024 to support new business volume and repay maturing debt.
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Truck Outlook
Truck industry heavy-duty retail sales in the U.S. and Canada in 2024 are expected to be 250,000 to 270,000 units compared to 297,000 in 2023. Estimates for the U.S. and Canada truck industry heavy-duty retail sales in 2025 are in the range of 250,000 to 280,000 units. In Europe, 2024 truck industry registrations for over 16-tonne vehicles are expected to be 290,000 to 310,000 units compared to 343,300 in 2023. The European truck registrations in the above 16-tonne truck market for 2025 are projected to be in a range of 270,000 to 300,000 units. In South America, heavy-duty truck industry registrations in 2024 are projected to be 110,000 to 120,000 units compared to 105,000 in 2023, and in a similar range for 2025.
Parts Outlook
In 2024, PACCAR Parts sales are expected to increase 3-5% compared to 2023, reflecting stable demand. In 2025, PACCAR Parts sales could increase 3-5% from 2024 levels, depending on the economic conditions.
Financial Services Outlook
In 2024, average earning assets are expected to increase 8-11% compared to 2023. The used truck market has normalized in North America, but remains soft in Europe, which is reflected in PFS’ quarterly results this year. If freight transportation conditions decline due to a weaker economy, then past due accounts, truck repossessions and credit losses would likely increase from the current levels and new business volume would likely decline. In 2025, average earning assets are expected to be comparable to 2024.
Capital Investments and R&D Outlook
PACCAR’s excellent long-term profits, strong balance sheet and consistent focus on quality have enabled the Company to invest $8.4 billion in new and expanded facilities, innovative products and new technologies during the past decade. Capital investments in 2024 are expected to be $760 to $800 million and R&D is expected to be $450 to $470 million. In 2025, capital investments are projected to be $700 to $800 million and R&D is expected to be $480 to $530 million. PACCAR is investing in additional global engine manufacturing capacity, and in the construction of a new engine remanufacturing facility that will be located in Columbus, Mississippi. Truck factory investments include the expansion at Kenworth Chillicothe, Ohio, PACCAR Mexico, and the DAF electric truck assembly plant in Eindhoven, Netherlands. The Company expects to invest $600 to $900 million in its battery joint venture, Amplify Cell Technologies, over the next few years.
See the Forward-Looking Statements section of Management’s Discussion and Analysis for factors that may affect these outlooks.
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RESULTS OF OPERATIONS:
The Company’s results of operations for the three and nine months ended September 30, 2024 and 2023 are presented below.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| ($ in millions, except per share amounts) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net sales and revenues: | ||||||||||||||||
| Truck | $ | 6,027.0 | $ | 6,636.4 | $ | 19,145.8 | $ | 19,877.7 | ||||||||
| Parts | 1,657.6 | 1,582.2 | 4,997.8 | 4,804.1 | ||||||||||||
| Other | 19.2 | 13.7 | 57.5 | 41.9 | ||||||||||||
| Truck, Parts and Other | 7,703.8 | 8,232.3 | 24,201.1 | 24,723.7 | ||||||||||||
| Financial Services | 536.1 | 464.1 | 1,555.2 | 1,327.1 | ||||||||||||
| $ | 8,239.9 | $ | 8,696.4 | $ | 25,756.3 | $ | 26,050.8 | |||||||||
| Income before income taxes: | ||||||||||||||||
| Truck | $ | 630.8 | $ | 960.9 | $ | 2,349.7 | $ | 2,803.5 | ||||||||
| Parts | 406.7 | 412.3 | 1,276.3 | 1,270.2 | ||||||||||||
| Other* | 3.6 | 1.6 | 4.0 | (616.6 | ) | |||||||||||
| Truck, Parts and Other | 1,041.1 | 1,374.8 | 3,630.0 | 3,457.1 | ||||||||||||
| Financial Services | 106.5 | 133.8 | 331.6 | 427.3 | ||||||||||||
| Investment income | 108.7 | 80.8 | 290.0 | 192.5 | ||||||||||||
| Income taxes | (284.2 | ) | (360.9 | ) | (961.6 | ) | (893.4 | ) | ||||||||
| Net income | $ | 972.1 | $ | 1,228.5 | $ | 3,290.0 | $ | 3,183.5 | ||||||||
| Diluted earnings per share | $ | 1.85 | $ | 2.34 | $ | 6.25 | $ | 6.07 | ||||||||
| After-tax return on revenues | 11.8 | % | 14.1 | % | 12.8 | % | 12.2 | % |
- In 2023, Other includes a $600.0 million non-recurring charge related to civil litigation in Europe (EC-related claims) in the first quarter 2023.
The following provides an analysis of the results of operations for the Company’s three reportable segments - Truck, Parts and Financial Services. Where possible, the Company has quantified the impact of factors identified in the following discussion and analysis. In cases where it is not possible to quantify the impact of factors, the Company lists them in estimated order of importance. Factors for which the Company is unable to specifically quantify the impact include market demand, fuel prices, freight tonnage and economic conditions affecting the Company’s results of operations.
2024 Compared to 2023:
Truck
The Company’s Truck segment accounted for 73% of revenues in the third quarter and 74% for first nine months of 2024, respectively, compared to 76% in both the third quarter and first nine months of 2023.
The Company’s new truck deliveries are summarized below:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||||||
| 2024 | 2023 | % CHANGE | 2024 | 2023 | % CHANGE | |||||||||||||||||||
| U.S. and Canada | 25,900 | 27,500 | (6 | ) | 84,100 | 81,000 | 4 | |||||||||||||||||
| Europe | 10,000 | 14,500 | (31 | ) | 33,100 | 48,300 | (31 | ) | ||||||||||||||||
| Mexico, South America, Australia and other | 9,000 | 8,100 | 11 | 24,200 | 23,800 | 2 | ||||||||||||||||||
| Total units | 44,900 | 50,100 | (10 | ) | 141,400 | 153,100 | (8 | ) |
Worldwide new truck deliveries decreased in the third quarter and first nine months of 2024 compared to the same periods of 2023, primarily due to lower deliveries in Europe.
Market share data discussed below is provided by third-party sources and is measured by either retail sales or registrations for the Company’s dealer network as a percentage of total retail sales or registrations depending on the geographic market. In the U.S. and Canada, market share is based on retail sales. In Europe, market share is based primarily on registrations.
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In the first nine months of 2024, industry retail sales in the heavy-duty market in the U.S. and Canada were 198,600 units compared to 225,200 units in the same period of 2023. The Company’s heavy-duty truck retail market share was 31.1% in the first nine months of 2024 compared to 28.4% in the first nine months of 2023. The medium-duty market was 80,800 units in the first nine months of 2024 compared to 78,400 units in the same period of 2023. The Company’s medium-duty market share was 17.2% in the first nine months of 2024 compared to 13.5% in the first nine months of 2023.
The over 16‑tonne truck market in Europe in the first nine months of 2024 was 239,800 units compared to 263,100 units in the first nine months of 2023. DAF over 16‑tonne market share was 14.0% in the first nine months of 2024 compared to 15.9% in the same period of 2023. The 6 to 16‑tonne market in the first nine months of 2024 was 38,900 units compared to 35,800 units in the same period of 2023. DAF market share in the 6 to 16-tonne market in the first nine months of 2024 was 9.1% compared to 9.0% in the same period of 2023.
The over 16-tonne truck market in Brasil in the first nine months of 2024 was 71,500 units compared to 59,500 units in the same period of 2023. DAF Brasil market share for the first nine months of 2024 was 10.0% compared to 9.9% in the same period in 2023.
The Company’s worldwide truck net sales and revenues are summarized below:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | % CHANGE | 2024 | 2023 | % CHANGE | ||||||||||||||||||
| Truck net sales and revenues: | ||||||||||||||||||||||||
| U.S. and Canada | $ | 3,669.3 | $ | 4,006.8 | (8 | ) | $ | 12,136.2 | $ | 11,715.0 | 4 | |||||||||||||
| Europe | 1,123.6 | 1,558.8 | (28 | ) | 3,699.3 | 5,155.7 | (28 | ) | ||||||||||||||||
| Mexico, South America, Australia and other | 1,234.1 | 1,070.8 | 15 | 3,310.3 | 3,007.0 | 10 | ||||||||||||||||||
| $ | 6,027.0 | $ | 6,636.4 | (9 | ) | $ | 19,145.8 | $ | 19,877.7 | (4 | ) | |||||||||||||
| Truck income before income taxes | $ | 630.8 | $ | 960.9 | (34 | ) | $ | 2,349.7 | $ | 2,803.5 | (16 | ) | ||||||||||||
| Pre-tax return on revenues | 10.5 | % | 14.5 | % | 12.3 | % | 14.1 | % |
The Company’s worldwide truck net sales and revenues in the third quarter decreased to $6.03 billion in 2024 from $6.64 billion in 2023, primarily due to lower truck unit deliveries in Europe and the U.S. and Canada. Revenues for the first nine months decreased to $19.15 billion in 2024 from $19.88 billion in 2023, primarily due to lower truck deliveries in Europe, partially offset by higher truck deliveries and average sales prices in the U.S. and Canada.
In the third quarter and first nine months of 2024, Truck segment income before taxes and pretax return on revenues decreased primarily due to lower truck unit deliveries in Europe. The decrease was partially offset by higher truck unit deliveries in Mexico, South America, Australia and other for the third quarter, and by higher truck unit deliveries in the U.S. and Canada for the first nine months of 2024, respectively.
The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between the three months ended September 30, 2024 and 2023 are as follows:
| NET | COST OF | |||||||||||
| SALES AND | SALES AND | GROSS | ||||||||||
| ($ in millions) | REVENUES | REVENUES | MARGIN | |||||||||
| Three Months Ended September 30, 2023 | $ | 6,636.4 | $ | 5,521.5 | $ | 1,114.9 | ||||||
| (Decrease) increase | ||||||||||||
| Truck sales volume | (578.2 | ) | (456.1 | ) | (122.1 | ) | ||||||
| Average truck sales prices | (29.5 | ) | (29.5 | ) | ||||||||
| Average material, labor and other direct costs | 174.5 | (174.5 | ) | |||||||||
| Factory overhead and other indirect costs | (14.3 | ) | 14.3 | |||||||||
| Extended warranties, operating leases and other | 17.7 | 33.1 | (15.4 | ) | ||||||||
| Currency translation | (19.4 | ) | (12.7 | ) | (6.7 | ) | ||||||
| Total decrease | (609.4 | ) | (275.5 | ) | (333.9 | ) | ||||||
| Three Months Ended September 30, 2024 | $ | 6,027.0 | $ | 5,246.0 | $ | 781.0 |
Truck sales volume decreased revenues by $578.2 million and costs by $456.1 million, primarily reflecting lower truck deliveries in Europe, the U.S. and Canada, partially offset by higher truck deliveries in Mexico, South America and Australia.
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Average truck sales prices were comparable and decreased $29.5 million.
Average truck costs increased $174.5 million, primarily reflecting higher raw material, labor and warranty costs.
Factory overhead and other indirect costs decreased $14.3 million, primarily due to lower repair and maintenance costs, factory supplies and depreciation.
Extended warranties, operating leases and other increased revenues by $17.7 million primarily due to higher volume of extended warranty and R&M contracts. The increase in extended warranty, operating leases and other cost of $33.1 million reflects higher costs from extended warranty, R&M contracts, and lower used truck results.
The currency translation effect on sales and cost of sales primarily reflects a decline in the value of the Brazilian real and Canadian dollar relative to the U.S. dollar, partially offset by the increase in the value of the euro relative to the U.S. dollar.
Truck gross margin was 13.0% in the third quarter of 2024 compared to 16.8% in the same period of 2023 due to the factors noted above.
The major factors for the Truck segment changes in net sales and revenues, cost of sales and revenues and gross margin between the nine months ended September 30, 2024 and 2023 are as follows:
| NET | COST OF | |||||||||||
| SALES AND | SALES AND | GROSS | ||||||||||
| ($ in millions) | REVENUES | REVENUES | MARGIN | |||||||||
| Nine Months Ended September 30, 2023 | $ | 19,877.7 | $ | 16,630.4 | $ | 3,247.3 | ||||||
| (Decrease) increase | ||||||||||||
| Truck sales volume | (950.8 | ) | (770.7 | ) | (180.1 | ) | ||||||
| Average truck sales prices | 194.2 | 194.2 | ||||||||||
| Average material, labor and other direct costs | 398.2 | (398.2 | ) | |||||||||
| Factory overhead and other indirect costs | 35.8 | (35.8 | ) | |||||||||
| Extended warranties, operating leases and other | 59.9 | 100.6 | (40.7 | ) | ||||||||
| Currency translation | (35.2 | ) | (37.7 | ) | 2.5 | |||||||
| Total decrease | (731.9 | ) | (273.8 | ) | (458.1 | ) | ||||||
| Nine Months Ended September 30, 2024 | $ | 19,145.8 | $ | 16,356.6 | $ | 2,789.2 |
Truck sales volume decreased revenues by $950.8 million and costs by $770.7 million, primarily reflecting lower truck deliveries in Europe, partially offset by higher truck deliveries in the U.S. and Canada.
Average truck sales prices increased by $194.2 million from modest price realization, primarily in the U.S. and Canada, Mexico and Australia.
Average truck costs increased by $398.2 million, primarily reflecting higher raw material and labor costs, partially offset by lower warranty costs.
Factory overhead and other indirect costs increased $35.8 million, primarily due to higher labor costs, partially offset by lower factory supplies and utilities costs.
Extended warranties, operating leases and other increased revenues by $59.9 million primarily due to higher volume of extended warranty, dealer support services and R&M contracts. The increase in extended warranty, operating leases and other cost of $100.6 million reflects higher costs from dealer support services, extended warranty, R&M contracts, and lower used truck results.
The currency translation effect on sales and cost of sales primarily reflects a decline in the value of the Brazilian real, Canadian dollar and the Australian dollar relative to the U.S. dollar, partially offset by the increase in value of the euro relative to the U.S. dollar.
Truck gross margin was 14.6% in the first nine months of 2024 compared to 16.3% in the same period of 2023 due to the factors noted above.
Truck selling, general and administrative (SG&A) expense decreased in the third quarter of 2024 to $61.9 million from $71.5 million in 2023, primarily due to lower salaries and related expenses and professional expenses. For the first nine months of 2024, Truck SG&A decreased to $183.3 million from $206.6 million in 2023, primarily due to lower professional expenses.
As a percentage of sales, Truck SG&A was 1.0% for both the third quarter and first nine months of 2024, compared to 1.1% and 1.0% in the third quarter and first nine months of 2023, respectively.
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Parts
The Company’s Parts segment accounted for 20% of revenues in the third quarter and first nine months of 2024, compared to 19% for both the third quarter and first nine months of 2023.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | % CHANGE | 2024 | 2023 | % CHANGE | ||||||||||||||||||
| Parts net sales and revenues: | ||||||||||||||||||||||||
| U.S. and Canada | $ | 1,129.2 | $ | 1,099.8 | 3 | $ | 3,419.1 | $ | 3,348.2 | 2 | ||||||||||||||
| Europe | 345.5 | 325.1 | 6 | 1,052.9 | 1,001.5 | 5 | ||||||||||||||||||
| Mexico, South America, Australia and other | 182.9 | 157.3 | 16 | 525.8 | 454.4 | 16 | ||||||||||||||||||
| $ | 1,657.6 | $ | 1,582.2 | 5 | $ | 4,997.8 | $ | 4,804.1 | 4 | |||||||||||||||
| Parts income before income taxes | $ | 406.7 | $ | 412.3 | (1 | ) | $ | 1,276.3 | $ | 1,270.2 | ||||||||||||||
| Pre-tax return on revenues | 24.5 | % | 26.1 | % | 25.5 | % | 26.4 | % |
The Company’s worldwide parts net sales and revenues for the third quarter increased to $1.66 billion in 2024 from $1.58 billion in 2023. For the first nine months, worldwide parts net sales and revenues increased to $5.00 billion in 2024 from $4.80 billion in 2023. The increase in both periods was primarily due to higher sales in all markets.
The major factors for the changes in Parts segment net sales and revenues, cost of sales and revenues and gross margin between the three months ended September 30, 2024 and 2023 are as follows:
| NET | COST OF | |||||||||||
| SALES AND | SALES AND | GROSS | ||||||||||
| ($ in millions) | REVENUES | REVENUES | MARGIN | |||||||||
| Three Months Ended September 30, 2023 | $ | 1,582.2 | $ | 1,083.1 | $ | 499.1 | ||||||
| Increase (decrease) | ||||||||||||
| Aftermarket parts volume | 26.7 | 29.5 | (2.8 | ) | ||||||||
| Average aftermarket parts sales prices | 45.4 | 45.4 | ||||||||||
| Average aftermarket parts direct costs | 40.6 | (40.6 | ) | |||||||||
| Warehouse and other indirect costs | 4.8 | (4.8 | ) | |||||||||
| Currency translation | 3.3 | 1.2 | 2.1 | |||||||||
| Total increase (decrease) | 75.4 | 76.1 | (.7 | ) | ||||||||
| Three Months Ended September 30, 2024 | $ | 1,657.6 | $ | 1,159.2 | $ | 498.4 |
Aftermarket parts sales volume increased by $26.7 million and related cost of sales increased by $29.5 million primarily reflecting higher sales volume in all markets except the U.S. and Canada.
Average aftermarket parts sales prices increased sales by $45.4 million, primarily due to price realization in Europe.
Average aftermarket parts direct costs increased $40.6 million due to higher material costs, primarily in the U.S. and Canada and Europe.
Warehouse and other indirect costs increased $4.8 million, primarily due to higher salaries and related expenses.
The currency translation effect on sales and cost of sales reflects an increase in the value of the euro relative to the U.S dollar, partially offset by a decrease in the value of the Brazilian real relative to the U.S. dollar.
Parts gross margins in the third quarter of 2024 decreased to 30.1% from 31.5% in the third quarter of 2023 due to the factors noted above.
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The major factors for the changes in Parts segment net sales and revenues, cost of sales and revenues and gross margin between the nine months ended September 30, 2024 and 2023 are as follows:
| NET | COST OF | |||||||||||
| SALES AND | SALES AND | GROSS | ||||||||||
| ($ in millions) | REVENUES | REVENUES | MARGIN | |||||||||
| Nine Months Ended September 30, 2023 | $ | 4,804.1 | $ | 3,278.4 | $ | 1,525.7 | ||||||
| Increase (decrease) | ||||||||||||
| Aftermarket parts volume | 55.8 | 44.9 | 10.9 | |||||||||
| Average aftermarket parts sales prices | 133.2 | 133.2 | ||||||||||
| Average aftermarket parts direct costs | 116.7 | (116.7 | ) | |||||||||
| Warehouse and other indirect costs | 11.1 | (11.1 | ) | |||||||||
| Currency translation | 4.7 | (.4 | ) | 5.1 | ||||||||
| Total increase | 193.7 | 172.3 | 21.4 | |||||||||
| Nine Months Ended September 30, 2024 | $ | 4,997.8 | $ | 3,450.7 | $ | 1,547.1 |
Aftermarket parts sales volume increased by $55.8 million and related cost of sales increased by $44.9 million, primarily reflecting higher sales volume in all markets except the U.S. and Canada.
Average aftermarket parts sales prices increased sales by $133.2 million, primarily due to price realization in Europe and the U.S. and Canada.
Average aftermarket parts direct costs increased $116.7 million due to higher material costs, primarily in the U.S. and Europe.
Warehouse and other indirect costs increased $11.1 million, primarily due to higher salaries and related expenses.
The currency translation effect on sales reflects an increase in the value of the euro relative to the U.S dollar partially offset by a decrease in the value of the Brazilian real, Canadian dollar and Australian dollar relative to the U.S. dollar.
Parts gross margins in the first nine months of 2024 decreased to 31.0% from 31.8% in the first nine months of 2023 due to the factors noted above.
Parts SG&A expense increased in the third quarter of 2024 to $62.5 million from $61.4 million in 2023, and for the first nine months, Parts SG&A increased to $186.4 million in 2024 from $178.6 million in 2023. The increase in both periods was primarily due to higher salaries and related expenses, partially offset by lower sales and marketing costs and professional fees.
As a percentage of sales, Parts SG&A was 3.8% and 3.7% in the third quarter and first nine months of 2024, respectively, compared to 3.9% and 3.7% in the third quarter and first nine months of 2023, respectively.
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Financial Services
The Company’s Financial Services segment accounted for 7% of revenues in the third quarter and 6% in the first nine months of 2024, compared to 5% in both the third quarter and first nine months of 2023.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | % CHANGE | 2024 | 2023 | % CHANGE | ||||||||||||||||||
| New loan and lease volume: | ||||||||||||||||||||||||
| U.S. and Canada | $ | 1,079.0 | $ | 1,032.7 | 4 | $ | 2,973.7 | $ | 2,699.6 | 10 | ||||||||||||||
| Europe | 336.7 | 368.6 | (9 | ) | 881.0 | 1,136.9 | (23 | ) | ||||||||||||||||
| Mexico, Australia, Brasil and other | 595.9 | 500.3 | 19 | 1,592.2 | 1,407.6 | 13 | ||||||||||||||||||
| $ | 2,011.6 | $ | 1,901.6 | 6 | $ | 5,446.9 | $ | 5,244.1 | 4 | |||||||||||||||
| New loan and lease volume by product: | ||||||||||||||||||||||||
| Loans and finance leases | $ | 1,811.1 | $ | 1,737.3 | 4 | $ | 4,794.0 | $ | 4,768.6 | 1 | ||||||||||||||
| Equipment on operating lease | 200.5 | 164.3 | 22 | 652.9 | 475.5 | 37 | ||||||||||||||||||
| $ | 2,011.6 | $ | 1,901.6 | 6 | $ | 5,446.9 | $ | 5,244.1 | 4 | |||||||||||||||
| New loan and lease unit volume: | ||||||||||||||||||||||||
| Loans and finance leases | 13,110 | 12,120 | 8 | 33,510 | 34,670 | (3 | ) | |||||||||||||||||
| Equipment on operating lease | 1,720 | 1,690 | 2 | 5,310 | 5,220 | 2 | ||||||||||||||||||
| 14,830 | 13,810 | 7 | 38,820 | 39,890 | (3 | ) | ||||||||||||||||||
| Average earning assets: | ||||||||||||||||||||||||
| U.S. and Canada | $ | 11,621.0 | $ | 9,644.9 | 20 | $ | 10,974.1 | $ | 9,268.7 | 18 | ||||||||||||||
| Europe | 4,084.0 | 4,445.6 | (8 | ) | 4,260.3 | 4,432.2 | (4 | ) | ||||||||||||||||
| Mexico, Australia, Brasil and other | 4,595.3 | 3,803.2 | 21 | 4,443.8 | 3,447.8 | 29 | ||||||||||||||||||
| $ | 20,300.3 | $ | 17,893.7 | 13 | $ | 19,678.2 | $ | 17,148.7 | 15 | |||||||||||||||
| Average earning assets by product: | ||||||||||||||||||||||||
| Loans and finance leases | $ | 13,908.0 | $ | 12,250.9 | 14 | $ | 13,568.5 | $ | 11,613.5 | 17 | ||||||||||||||
| Dealer wholesale financing | 4,225.2 | 3,148.6 | 34 | 3,903.4 | 2,933.6 | 33 | ||||||||||||||||||
| Equipment on lease and other | 2,167.1 | 2,494.2 | (13 | ) | 2,206.3 | 2,601.6 | (15 | ) | ||||||||||||||||
| $ | 20,300.3 | $ | 17,893.7 | 13 | $ | 19,678.2 | $ | 17,148.7 | 15 | |||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| U.S. and Canada | $ | 231.8 | $ | 190.6 | 22 | $ | 661.6 | $ | 559.9 | 18 | ||||||||||||||
| Europe | 146.0 | 138.2 | 6 | 430.9 | 413.2 | 4 | ||||||||||||||||||
| Mexico, Australia, Brasil and other | 158.3 | 135.3 | 17 | 462.7 | 354.0 | 31 | ||||||||||||||||||
| $ | 536.1 | $ | 464.1 | 16 | $ | 1,555.2 | $ | 1,327.1 | 17 | |||||||||||||||
| Revenues by product: | ||||||||||||||||||||||||
| Loans and finance leases | $ | 250.1 | $ | 205.0 | 22 | $ | 723.1 | $ | 547.0 | 32 | ||||||||||||||
| Dealer wholesale financing | 84.8 | 64.8 | 31 | 233.2 | 169.5 | 38 | ||||||||||||||||||
| Equipment on lease and other | 201.2 | 194.3 | 4 | 598.9 | 610.6 | (2 | ) | |||||||||||||||||
| $ | 536.1 | $ | 464.1 | 16 | $ | 1,555.2 | $ | 1,327.1 | 17 | |||||||||||||||
| Income before income taxes | $ | 106.5 | $ | 133.8 | (20 | ) | $ | 331.6 | $ | 427.3 | (22 | ) |
New loan and lease volume was $2.01 billion in the the third quarter of 2024 compared to $1.90 billion in the third quarter of 2023, and for the first nine months of 2024 was $5.45 billion compared to $5.24 billion in 2023. The increase in new loan and lease volume for both periods reflected higher finance market share of new PACCAR truck sales, primarily in the U.S. and Canada and Brasil. The increase in equipment on operating lease volume reflected higher market demand and a higher amount financed per truck in all major markets.
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In the third quarter of 2024, PFS finance market share of new PACCAR truck sales was 26.9% compared to 23.7% in the third quarter of 2023. In the first nine months of 2024, PFS finance market share of new PACCAR truck sales was 24.2% compared to 23.4% in the first nine months of 2023.
In the third quarter of 2024, PFS revenues increased to $536.1 million from $464.1 million in 2023. In the first nine months of 2024, PFS revenues increased to $1.56 billion from $1.33 billion in 2023. The increase in both periods was primarily driven by portfolio growth in all markets except Europe.
PFS income before income taxes decreased to $106.5 million in the third quarter of 2024 from $133.8 million in the third quarter of 2023. In the first nine months of 2024, PFS income before income taxes decreased to $331.6 million from $427.3 million in 2023. The decrease in both periods was primarily due to lower operating lease margins, reflecting lower results on returned lease assets, partially offset by higher finance margins from a higher asset portfolio.
Included in Financial Services, Other assets on the Company’s Consolidated Balance Sheets are used trucks held for sale, net of impairments, of $401.7 million at September 30, 2024 and $309.8 million at December 31, 2023. These trucks are primarily units returned from matured operating leases in the ordinary course of business, and also include trucks acquired from repossessions or through acquisitions of used trucks in trades related to new truck sales and trucks returned from residual value guarantees (RVGs).
The Company recognized losses on used trucks, excluding repossessions, of $13.0 million in the third quarter of 2024 compared to gains of $4.3 million in the third quarter of 2023, including $9.7 million of losses on multiple unit transactions in the third quarter of 2024 compared to $3.2 million in the third quarter of 2023. Used truck losses related to repossessions, which are recognized as credit losses, were $2.0 million for the third quarter of 2024 and not significant for the third quarter of 2023.
The Company recognized losses on used trucks, excluding repossessions, of $37.5 million in the first nine months of 2024, compared to gains of $51.2 million in the first nine months of 2023, including losses on multiple unit transactions of $27.7 million in the first nine months of 2024 compared to $4.2 million in the first nine months of 2023. Used truck losses related to repossessions, which are recognized as credit losses, were $8.0 million for the first nine months of 2024 and $2.4 million first nine months of 2023.
The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin for the three months ended September 30, 2024 and 2023 are outlined below:
| ($ in millions) | INTEREST AND FEES | INTEREST AND OTHER BORROWING EXPENSES | FINANCE MARGIN | |||||||||
| Three Months Ended September 30, 2023 | $ | 269.8 | $ | 138.5 | $ | 131.3 | ||||||
| Increase (decrease) | ||||||||||||
| Average finance receivables | 53.8 | 53.8 | ||||||||||
| Average debt balances | 30.9 | (30.9 | ) | |||||||||
| Yields | 20.0 | 20.0 | ||||||||||
| Borrowing rates | 23.4 | (23.4 | ) | |||||||||
| Currency translation and other | (8.7 | ) | (4.4 | ) | (4.3 | ) | ||||||
| Total increase | 65.1 | 49.9 | 15.2 | |||||||||
| Three Months Ended September 30, 2024 | $ | 334.9 | $ | 188.4 | $ | 146.5 |
Average finance receivables increased $2.86 billion (excluding foreign exchange effects), increasing interest and fees by $53.8 million in the third quarter of 2024, primarily due to higher average loan, finance lease and dealer wholesale balances.
Average debt balances increased $2.47 billion (excluding foreign exchange effects), increasing interest and other borrowing costs by $30.9 million in the third quarter of 2024, reflecting higher funding requirements for the portfolio from growth in loans, finance leases and dealer wholesale receivables.
Higher portfolio yields (7.4% in 2024 compared to 7.0% in 2023) increased interest and fees by $20.0 million. The higher portfolio yields were primarily due to higher market rates in all markets.
Higher borrowing rates (4.9% in 2024 compared to 4.2% in 2023) increased interest and other borrowing expenses by $23.4 million and were primarily due to higher debt market rates in all markets.
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The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the Brazilian real and Mexican peso.
The major factors for the changes in interest and fees, interest and other borrowing expenses and finance margin for the nine months ended September 30, 2024 and 2023 are outlined below:
| ($ in millions) | INTEREST AND FEES | INTEREST AND OTHER BORROWING EXPENSES | FINANCE MARGIN | |||||||||
| Nine Months Ended September 30, 2023 | $ | 716.5 | $ | 347.8 | $ | 368.7 | ||||||
| Increase (decrease) | ||||||||||||
| Average finance receivables | 163.8 | 163.8 | ||||||||||
| Average debt balances | 83.5 | (83.5 | ) | |||||||||
| Yields | 80.9 | 80.9 | ||||||||||
| Borrowing rates | 93.1 | (93.1 | ) | |||||||||
| Currency translation and other | (4.9 | ) | (3.5 | ) | (1.4 | ) | ||||||
| Total increase | 239.8 | 173.1 | 66.7 | |||||||||
| Nine Months Ended September 30, 2024 | $ | 956.3 | $ | 520.9 | $ | 435.4 |
Average finance receivables increased $2.99 billion (excluding foreign exchange effects), increasing interest and fees by $163.8 million in the first nine months of 2024, primarily due to higher average loan, finance lease and dealer wholesale balances.
Average debt balances increased $2.35 billion (excluding foreign exchange effects), increasing interest and other borrowing expenses by $83.5 million in the first nine months of 2024, reflecting higher funding requirements for the portfolio from growth in loans, finance leases and dealer wholesale receivables.
Higher portfolio yields (7.3% in 2024 compared to 6.6% in 2023) increased interest and fees by $80.9 million. The higher portfolio yields were primarily due to higher market rates in all markets.
Higher borrowing rates (4.7% in 2024 compared to 3.7% in 2023) increased interest and other borrowing expenses by $93.1 million and were primarily due to higher debt market rates in all markets.
The currency translation effects reflect a decrease in the value of foreign currencies relative to the U.S. dollar, primarily the Brazilian real.
The following table summarizes operating lease, rental and other revenues and depreciation and other expenses:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| ($ in millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Operating lease and rental revenues | $ | 168.4 | $ | 184.1 | $ | 513.4 | $ | 574.9 | ||||||||
| Used truck sales | 25.0 | 3.1 | 63.1 | 15.5 | ||||||||||||
| Insurance, franchise and other revenues | 7.8 | 7.1 | 22.4 | 20.2 | ||||||||||||
| Operating lease, rental and other revenues | $ | 201.2 | $ | 194.3 | $ | 598.9 | $ | 610.6 | ||||||||
| Depreciation of operating lease equipment | $ | 132.5 | $ | 122.2 | $ | 407.8 | $ | 363.0 | ||||||||
| Vehicle operating expenses | 16.4 | 20.0 | 51.0 | 44.2 | ||||||||||||
| Cost of used truck sales | 25.6 | 3.2 | 65.9 | 16.1 | ||||||||||||
| Insurance, franchise and other expenses | 2.1 | 1.5 | 5.8 | 3.7 | ||||||||||||
| Depreciation and other expenses | $ | 176.6 | $ | 146.9 | $ | 530.5 | $ | 427.0 |
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The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between the three months ended September 30, 2024 and 2023 are outlined below:
| ($ in millions) | OPERATING LEASE, RENTAL AND OTHER REVENUES | DEPRECIATION AND OTHER EXPENSES | LEASE MARGIN | |||||||||
| Three Months Ended September 30, 2023 | $ | 194.3 | $ | 146.9 | $ | 47.4 | ||||||
| Increase (decrease) | ||||||||||||
| Used truck sales | 21.7 | 22.0 | (.3 | ) | ||||||||
| Results on returned lease assets | 15.8 | (15.8 | ) | |||||||||
| Average operating lease assets | (31.9 | ) | (26.8 | ) | (5.1 | ) | ||||||
| Revenue and cost per asset | 19.3 | 18.4 | .9 | |||||||||
| Currency translation and other | (2.2 | ) | .3 | (2.5 | ) | |||||||
| Total increase (decrease) | 6.9 | 29.7 | (22.8 | ) | ||||||||
| Three Months Ended September 30, 2024 | $ | 201.2 | $ | 176.6 | $ | 24.6 |
Higher sales volume, partially offset by lower market prices of used trucks on trade, increased revenues by $21.7 million and related depreciation and other expenses by $22.0 million.
Results on returned lease assets increased depreciation and other expenses by $15.8 million, primarily due to losses on sale of returned lease units in 2024 (compared to gains in 2023) and impairment on existing used truck inventories in Europe as a result of lower used truck market values.
Average operating lease assets decreased $337.0 million (excluding foreign exchange effects), which decreased revenues by $31.9 million and related depreciation and other expenses by $26.8 million.
Revenue per asset increased $19.3 million primarily due to higher average truck values financed. Cost per asset increased $18.4 million due to higher depreciation and operating expenses, mainly in Europe.
The currency translation effects on Operating lease, rental and other revenues reflects a decrease in the value of foreign currencies relative to the U.S. dollar, primarily Mexican peso, partially offset by an increase in the euro.
The major factors for the changes in operating lease, rental and other revenues, depreciation and other expenses and lease margin between the nine months ended September 30, 2024 and 2023 are outlined below:
| ($ in millions) | OPERATING LEASE, RENTAL AND OTHER REVENUES | DEPRECIATION AND OTHER EXPENSES | LEASE MARGIN | |||||||||
| Nine Months Ended September 30, 2023 | $ | 610.6 | $ | 427.0 | $ | 183.6 | ||||||
| Increase (decrease) | ||||||||||||
| Used truck sales | 47.4 | 49.5 | (2.1 | ) | ||||||||
| Results on returned lease assets | 77.4 | (77.4 | ) | |||||||||
| Average operating lease assets | (118.9 | ) | (107.5 | ) | (11.4 | ) | ||||||
| Revenue and cost per asset | 56.0 | 79.9 | (23.9 | ) | ||||||||
| Currency translation and other | 3.8 | 4.2 | (.4 | ) | ||||||||
| Total (decrease) increase | (11.7 | ) | 103.5 | (115.2 | ) | |||||||
| Nine Months Ended September 30, 2024 | $ | 598.9 | $ | 530.5 | $ | 68.4 |
Higher sales volume, partially offset by lower market prices of used trucks on trade, increased revenues by $47.4 million and related depreciation and other expenses by $49.5 million.
Results on returned lease assets increased depreciation and other expenses by $77.4 million, primarily due to losses on sale of returned lease units in 2024 (compared to gains in 2023) and impairment on existing used truck inventories in Europe as a result of lower used truck market values.
Average operating lease assets decreased $398.1 million (excluding foreign exchange effects), which decreased revenues by $118.9 million and related depreciation and other expenses by $107.5 million.
Revenue per asset increased $56.0 million primarily due to higher average truck values financed. Cost per asset increased $79.9 million due to higher depreciation and operating expenses, mainly in Europe.
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The currency translation effects reflect an increase in the value of foreign currencies relative to the U.S. dollar, primarily the euro.
Financial Services SG&A for the third quarter of 2024 increased to $42.2 million from $38.7 million in the third quarter of 2023. For the first nine months, Financial Services SG&A increased to $122.0 million in 2024 from $110.9 million in 2023. The increase in both periods was primarily due to higher salaries and related expenses and higher professional fees.
As an annualized percentage of average earning assets, Financial Services SG&A was .8% for both the third quarter and first nine months of 2024, and .9% for the same periods in 2023.
The following table summarizes the provision for losses on receivables and net charge-offs:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2024 | September 30, 2024 | |||||||||||||||
| ($ in millions) | PROVISION FOR LOSSES ON RECEIVABLES | NET CHARGE- OFFS | PROVISION FOR LOSSES ON RECEIVABLES | NET CHARGE- OFFS | ||||||||||||
| U.S. and Canada | $ | 10.7 | $ | 5.5 | $ | 26.8 | $ | 15.8 | ||||||||
| Europe | 7.3 | 6.1 | 12.6 | 11.1 | ||||||||||||
| Mexico, Australia, Brasil and other | 4.4 | 1.8 | 10.8 | 5.8 | ||||||||||||
| $ | 22.4 | $ | 13.4 | $ | 50.2 | $ | 32.7 |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2023 | |||||||||||||||
| ($ in millions) | PROVISION FOR LOSSES ON RECEIVABLES | NET CHARGE- OFFS | PROVISION FOR LOSSES ON RECEIVABLES | NET CHARGE- OFFS | ||||||||||||
| U.S. and Canada | $ | .9 | $ | 1.1 | $ | 2.0 | $ | 3.0 | ||||||||
| Europe | .5 | .6 | 1.5 | 1.6 | ||||||||||||
| Mexico, Australia, Brasil and other | 4.8 | 3.7 | 10.6 | 7.0 | ||||||||||||
| $ | 6.2 | $ | 5.4 | $ | 14.1 | $ | 11.6 |
The provision for losses on receivables was $22.4 million in the third quarter of 2024 compared to $6.2 million in 2023, and in the first nine months, the provision for losses on receivables was $50.2 million in 2024 compared to $14.1 million in 2023. The increase in provision for losses in the third quarter and first nine months of 2024 compared to 2023 was primarily driven by portfolio growth, an increase in the Company’s 30+ past due accounts and higher charge-offs in the U.S. and Canada and Europe. The increased charge-offs in the third quarter of 2024 included one large fleet customer in the U.S. and one large fleet customer in Europe. The increased charge-offs in the first nine months of 2024 included three large fleet customers in the U.S. and the same large fleet customer in Europe. The higher charge-offs in both periods also reflected higher average loss severity in all markets from lower used truck market values.
The Company modifies loans and finance leases as a normal part of its Financial Services operations. The Company may modify loans and finance leases for commercial reasons or for credit reasons. Modifications for commercial reasons are changes to contract terms for customers that are not considered to be in financial difficulty. Insignificant delays are modifications extending terms up to three months for customers experiencing some short-term financial stress, but not considered to be in financial difficulty. Modifications for credit reasons are changes to contract terms for customers considered to be in financial difficulty. The Company’s modifications typically result in granting more time to pay the contractual amounts owed and charging a fee and interest for the term of the modification. When considering whether to modify customer accounts for credit reasons, the Company evaluates the creditworthiness of the customers and modifies those accounts that the Company considers likely to perform under the modified terms.
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The post-modification balances of accounts modified during the nine months ended September 30, 2024 and 2023 are summarized below:
| 2024 | 2023 | |||||||||||||||
| ($ in millions) | AMORTIZED COST BASIS | % OF TOTAL PORTFOLIO* | AMORTIZED COST BASIS | % OF TOTAL PORTFOLIO* | ||||||||||||
| Commercial | $ | 324.3 | 3.0 | % | $ | 134.5 | 1.4 | % | ||||||||
| Insignificant delay | 167.5 | 1.6 | % | 81.8 | .9 | % | ||||||||||
| Credit | 189.0 | 1.7 | % | 20.0 | .2 | % | ||||||||||
| $ | 680.8 | 6.3 | % | $ | 236.3 | 2.5 | % |
- Amortized cost basis immediately after modification as a percentage of ending retail portfolio, on an annualized basis.
Modification activity increased to $680.8 million in the first nine months of 2024 from $236.3 million in the same period of 2023. The increase in modifications for Commercial reasons primarily reflects higher volumes of refinancing, primarily in the U.S. The increase in both Insignificant delay modifications and Credit modifications reflect higher volumes of contract modifications in the U.S., Brasil and Europe.
The following table summarizes the Company’s 30+ days past due accounts:
| September 30 2024 | December 31 2023 | September 30 2023 | ||||||||||
| Percentage of retail loan and lease accounts 30+ days past due: | ||||||||||||
| U.S. and Canada | 1.1 | % | .8 | % | .4 | % | ||||||
| Europe | .9 | % | .5 | % | 1.4 | % | ||||||
| Mexico, Australia, Brasil and other | 1.6 | % | 1.9 | % | 1.5 | % | ||||||
| Worldwide | 1.2 | % | 1.0 | % | .8 | % |
Accounts 30+ days past due was 1.2% at September 30, 2024 compared to 1.0% at December 31, 2023 and .8% at September 30, 2023. The increased percentage of past due accounts as of September 30, 2024 compared to December 31, 2023 is primarily due to two large fleet customers in the U.S. and Canada and two large fleet customers in Europe, partially offset by decreases in past due accounts in Mexico and Australia. The Company continues to focus on maintaining low past due balances.
When the Company modifies a 30+ days past due account, the customer is then generally considered current under the revised contractual terms. The Company modified $18.5 million of accounts worldwide during the third quarter of 2024, $35.0 million during the fourth quarter of 2023 and $21.5 million during the third quarter of 2023 that were 30+ days past due and became current at the time of modification. Had these accounts not been modified and continued to not make payments, the pro forma percentage of retail loan and lease accounts 30+ days past due would have been as follows:
| September 30 2024 | December 31 2023 | September 30 2023 | ||||||||||
| Pro forma percentage of retail loan and lease accounts 30+ days past due: | ||||||||||||
| U.S. and Canada | 1.2 | % | .8 | % | .4 | % | ||||||
| Europe | .9 | % | 1.8 | % | 1.4 | % | ||||||
| Mexico, Australia, Brasil and other | 2.0 | % | 2.0 | % | 2.1 | % | ||||||
| Worldwide | 1.3 | % | 1.2 | % | .9 | % |
Modifications of accounts in prior quarters that were more than 30 days past due at the time of modification are included in past dues if they were not performing under the modified terms at September 30, 2024, December 31, 2023 and September 30, 2023. The effect on the allowance for credit losses from such modifications was not significant at September 30, 2024, December 31, 2023 and September 30, 2023.
The Company’s annualized pre-tax return on average assets for Financial Services was 1.9% in the third quarter of 2024 compared to 2.7% in the same period of 2023. For the first nine months of 2024, annualized pre-tax return on average assets was 2.1% compared to 3.1% in 2023. The lower returns primarily reflect lower operating lease margin from lower results on returned lease assets.
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Other
Other includes the winch business as well as sales, income and expenses not attributable to a reportable segment. Other also includes non-service cost components of pension expense and a portion of corporate expense. Other sales represent less than 1% of consolidated net sales and revenues for both the third quarter and first nine months of 2024 and 2023. Other SG&A increased to $19.9 million for the third quarter of 2024 from $10.7 million for the third quarter of 2023 and increased to $64.9 million for the first nine months of 2024 compared to $63.1 million for the same period of 2023. The increase in both periods was primarily due to higher salaries and related expenses.
For the third quarter of 2024, Other income before income taxes was $3.6 million compared to $1.6 million in 2023 primarily due to lower corporate expenses. For the first nine months of 2024, Other income before tax was $4.0 million compared to loss of $616.6 million in 2023, primarily due to the EC-related charge in the first quarter of 2023, which is discussed in Note M of the consolidated financial statements.
Investment income for the third quarter increased to $108.7 million in 2024 compared to $80.8 million in 2023. For the first nine months, investment income increased to $290.0 million in 2024 from $192.5 million in 2023. The increase in both periods is primarily driven higher investment balances as well as higher yields on investment due to higher market interest rates, primarily in the U.S. and Europe.
Income Taxes
The effective tax rate for the third quarter of 2024 was 22.6% compared to 22.7% for the third quarter of 2023. The effective tax rate for the first nine months of 2024 was 22.6% compared to 21.9% for the first nine months of 2023. Included in the first quarter of 2023 was the EC-related charge of $600.0 million, which lowered the effective tax rate. Excluding the EC charge and related tax benefits, the effective tax rate for the first nine months of 2023 was 22.4%.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| ($ in millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Domestic income before taxes | $ | 786.9 | $ | 1,026.5 | $ | 2,783.1 | $ | 2,858.0 | ||||||||
| Foreign income before taxes | 469.4 | 562.9 | 1,468.5 | 1,218.9 | ||||||||||||
| Total income before taxes | $ | 1,256.3 | $ | 1,589.4 | $ | 4,251.6 | $ | 4,076.9 | ||||||||
| Domestic pre-tax return on revenues | 16.9 | % | 21.4 | % | 18.8 | % | 20.1 | % | ||||||||
| Foreign pre-tax return on revenues | 13.1 | % | 14.4 | % | 13.4 | % | 10.3 | % | ||||||||
| Total pre-tax return on revenues | 15.2 | % | 18.3 | % | 16.5 | % | 15.6 | % |
For the third quarter and first nine months of 2024, domestic income before income taxes decreased primarily due to the lower Truck operation results. For the third quarter of 2024, foreign income before taxes decreased primarily due to lower Truck operation results in Europe. For the first nine months of 2024, foreign income before taxes increased as the first nine months of 2023 included the EC-related charge of $600.0 million which also reduced foreign pre-tax return on revenues in 2023. For the third quarter of 2024, total pre-tax return on revenues decreased reflecting lower returns in Truck and Parts operations. For the first nine months of 2024, total pre-tax return on revenues increased reflecting the EC-related charge in 2023.
LIQUIDITY AND CAPITAL RESOURCES:
| September 30 | December 31 | ||||||
| ($ in millions) | 2024 | 2023 | |||||
| Cash and cash equivalents | $ | 6,849.2 | $ | 7,181.7 | |||
| Marketable securities | 2,510.7 | 1,822.6 | |||||
| $ | 9,359.9 | $ | 9,004.3 |
The Company’s total cash and marketable securities at September 30, 2024 increased $355.6 million from the balances at December 31, 2023. Total cash and marketable securities are primarily intended to provide liquidity while preserving capital.
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The change in cash and cash equivalents is summarized below:
| ($ in millions) | |||||||
| Nine Months Ended September 30, | 2024 | 2023 | |||||
| Operating activities: | |||||||
| Net income | $ | 3,290.0 | $ | 3,183.5 | |||
| Net income items not affecting cash | 725.3 | 577.4 | |||||
| Changes in operating assets and liabilities, net | (820.1 | ) | (757.6 | ) | |||
| Net cash provided by operating activities | 3,195.2 | 3,003.3 | |||||
| Net cash used in investing activities | (2,755.3 | ) | (1,931.1 | ) | |||
| Net cash (used in) provided by financing activities | (766.4 | ) | 159.5 | ||||
| Effect of exchange rate changes on cash and cash equivalents | (6.0 | ) | (16.3 | ) | |||
| Net (decrease) increase in cash and cash equivalents | (332.5 | ) | 1,215.4 | ||||
| Cash and cash equivalents at beginning of period | 7,181.7 | 4,690.9 | |||||
| Cash and cash equivalents at end of period | $ | 6,849.2 | $ | 5,906.3 |
Operating activities: Cash provided by operations increased by $191.9 million to $3,195.2 million in the first nine months of 2024 from $3,003.3 million in 2023. The increased operating cash flow reflects higher net income by $106.5 million and $147.9 million higher cash provided from net income items not affecting cash, primarily deferred income taxes and the provision for losses on financial services receivables, partially offset by higher cash usage from net changes in operating assets and liabilities of $62.5 million. The net changes in operating assets and liabilities are mainly due to decreases in accruals of $1,059.4 million, including the EC-related charge and product support liabilities, partially offset by lower increases in trade and other receivables of $481.4 million, lower cash outflow for inventories of $363.7 million, and lower increases in wholesale receivables on new trucks of $169.4 million in the Financial Services segment.
Investing activities: Cash used in investing activities increased by $824.2 million to $2,755.3 million in the first nine months of 2024 from $1,931.1 million in 2023. The increase in net cash used in investing activities reflects increased purchases of marketable securities, net of proceeds from sales and maturities, of $505.4 million, increased acquisitions of equipment for operating leases of $235.5 million and cash contributed to the battery manufacturing joint venture, Amplify Cell Technologies, of $125.8 million.
Financing activities: Cash used in financing activities was $766.4 million for the first nine months of 2024, $925.9 million higher than the $159.5 million provided in 2023. The increase reflects higher cash dividends and lower net borrowing activity. In the first nine months of 2024, the Company paid $2.13 billion in dividends compared to $1.38 billion in 2023, due to a higher year-end dividend paid in January 2024. Cash provided by borrowing activities was $1.32 billion in 2024, $172.9 million lower than the cash provided by borrowing activities of $1.50 billion in 2023.
Credit Lines and Other
The Company has line of credit arrangements of $5.30 billion, of which $4.73 billion were unused at September 30, 2024. Included in these arrangements are $4.00 billion of committed bank facilities, of which $1.50 billion expires in June 2025, $1.25 billion expires in June 2027 and $1.25 billion expires in June 2029. The Company intends to extend or replace these credit facilities on or before expiration to maintain facilities of similar amounts and duration. These credit facilities are maintained primarily to provide backup liquidity for commercial paper borrowings and maturing medium-term notes. There were no borrowings under the committed bank facilities for the nine months ended September 30, 2024.
On December 4, 2018, PACCAR’s Board of Directors approved the repurchase of up to $500.0 million of the Company’s outstanding common stock. As of September 30, 2024, the Company has repurchased $110.0 million of shares under this plan. There were no repurchases made under this plan during the first nine months of 2024.
Truck, Parts and Other
The Company provides funding for working capital, capital expenditures, R&D, dividends, stock repurchases and other business initiatives and commitments primarily from cash provided by operations. Management expects this method of funding to continue in the future.
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Investments for manufacturing property, plant and equipment in the first nine months of 2024 were $562.8 million compared to $471.7 million for the same period of 2023. Over the past decade, the Company’s combined investments in worldwide capital projects and R&D totaled $8.27 billion and have significantly increased the operating capacity and efficiency of its facilities and enhanced the quality and operating efficiency of the Company’s premium products.
In 2024, total capital investments for PACCAR are expected to be $760 to $800 million and R&D is expected to be $450 to $470 million. In 2025, capital investments are expected to be $700 to $800 million and R&D is expected to be $480 to $530 million. The Company is increasing its investment in advanced new trucks and powertrains, enhanced manufacturing capabilities and capacity, and aftermarket distribution capabilities and capacity.
Financial Services
The Company funds its financial services activities primarily from collections on existing finance receivables and borrowings in the capital markets. The primary sources of borrowings in the capital markets are commercial paper and medium-term notes issued in the public markets and, to a lesser extent, bank loans.
In November 2021, the Company’s U.S. finance subsidiary, PACCAR Financial Corp. (PFC), filed a shelf registration under the Securities Act of 1933. The total amount of medium-term notes outstanding for PFC as of September 30, 2024 was $7.15 billion. The registration expires in November 2024 and does not limit the principal amount of debt securities that may be issued during that period. The Company intends to file a new shelf registration in November.
As of September 30, 2024, the Company’s European finance subsidiary, PACCAR Financial Europe, had €599.7 million available for issuance under a €2.50 billion medium-term note program listed on the Euro MTF Market of the Luxembourg Stock Exchange. This program has been renewed through the filing of a new listing, which expires in July 2025.
In August 2021, PACCAR Financial Mexico registered a 10.00 billion Mexican peso program with the Comision Nacional Bancaria y de Valores to issue medium-term notes and commercial paper. The registration expires in August 2026 and limits the amount of commercial paper (up to one year) to 5.00 billion Mexican pesos. At September 30, 2024, 4.07 billion Mexican pesos were available for issuance.
In August 2018, the Company’s Australian subsidiary, PACCAR Financial Pty. Ltd. (PFPL Australia), established a medium-term note program. The program does not limit the principal amount of debt securities that may be issued under the program. The total amount of medium-term notes outstanding for PFPL Australia as of September 30, 2024 was 700.0 million Australian dollars.
In May 2021, the Company’s Canadian subsidiary, PACCAR Financial Ltd. (PFL Canada), established a medium-term note program. The program does not limit the principal amount of debt securities that may be issued under the program. There were no borrowings under this program as of September 30, 2024.
The Company’s Brazilian subsidiary, Banco PACCAR S.A., established a lending program in December 2021 with the local development bank, Banco Nacional de Desenvolvimento Economico e Social (BNDES) for qualified customers to receive preferential conditions and generally market interest rates. The program is limited to 2.51 billion Brazilian reais and has 1.05 billion Brazilian reais outstanding as of September 30, 2024. The Brazilian subsidiary also established a Letra Financeira (LF) program in May 2024 and the program does not limit the principal amount of debt securities that may be issued under the program. A total of 500.0 million Brazilian reais medium-term notes were outstanding as of September 30, 2024.
The Company believes its cash balances and investments, collections on existing finance receivables, committed bank facilities and current investment-grade credit ratings of A+/A1 will continue to provide it with sufficient resources and access to capital markets at competitive interest rates and therefore contribute to the Company maintaining its liquidity and financial stability. In the event of a decrease in the Company’s credit ratings or a disruption in the financial markets, the Company may not be able to refinance its maturing debt in the financial markets. In such circumstances, the Company would be exposed to liquidity risk to the degree that the timing of debt maturities differs from the timing of receivable collections from customers. The Company believes its various sources of liquidity, including committed bank facilities, would continue to provide it with sufficient funding resources to service its maturing debt obligations.
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RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES:
This Form 10-Q includes “adjusted net income (non-GAAP)” and “adjusted net income per diluted share (non-GAAP)”, which are financial measures that are not in accordance with U.S. generally accepted accounting principles (“GAAP”), since they exclude a charge for EC-related claims. These measures differ from the most directly comparable measures calculated in accordance with GAAP and may not be comparable to similarly titled non-GAAP financial measures used by other companies.
Adjustment for the EC-related claims relates to a pre-tax charge of $600.0 million ($446.4 million after-tax) for estimable total costs recorded in Interest and other (income) expenses, net in the first quarter 2023.
Management utilizes these non-GAAP measures to evaluate the Company’s performance and believes these measures allow investors and management to evaluate operating trends by excluding a significant non-recurring charge that is not representative of underlying operating trends.
Reconciliations from the most directly comparable GAAP measures to adjusted net income (non-GAAP) and adjusted net income per diluted shares (non-GAAP) are as follows:
| Nine Months Ended | ||||
| ($ in millions, except per share amounts) | September 30, 2023 | |||
| Net income | $ | 3,183.5 | ||
| EC-related claims, net of taxes | 446.4 | |||
| Adjusted net income (non-GAAP) | $ | 3,629.9 | ||
| Per diluted share | ||||
| Net income | $ | 6.07 | ||
| EC-related claims, net of taxes | .85 | |||
| Adjusted net income (non-GAAP) | $ | 6.92 | ||
| After-tax return on revenues | 12.2 | % | ||
| EC-related claims, net of taxes | 1.7 | % | ||
| After-tax adjusted return on revenues (non-GAAP) * | 13.9 | % | ||
| * Calculated using adjusted net income. |
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FORWARD-LOOKING STATEMENTS:
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements relating to future results of operations or financial position and any other statement that does not relate to any historical or current fact. Such statements are based on currently available operating, financial and other information and are subject to risks and uncertainties that may affect actual results. Risks and uncertainties include, but are not limited to: a significant decline in industry sales; competitive pressures; reduced market share; reduced availability of or higher prices for fuel; increased safety, emissions, or other regulations or tariffs resulting in higher costs and/or sales restrictions; currency or commodity price fluctuations; lower used truck prices; insufficient or under-utilization of manufacturing capacity; supplier interruptions; insufficient liquidity in the capital markets; fluctuations in interest rates; changes in the levels of the Financial Services segment new business volume due to unit fluctuations in new PACCAR truck sales or reduced market shares; changes affecting the profitability of truck owners and operators; price changes impacting truck sales prices and residual values; insufficient supplier capacity or access to raw materials and components, including semiconductors; labor disruptions; shortages of commercial truck drivers; increased warranty costs; cybersecurity risks to the Company’s information technology systems; pandemics; climate-related risks; global conflicts; litigation, including European Commission (EC) settlement-related claims; or legislative and governmental regulations. A more detailed description of these and other risks is included under the headings Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023 and in Part II, Item 1, “Legal Proceedings” and Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.
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