PACCAR INC

PACCAR Inc is a multinational company operating in three principal industry segments: the Truck segment, which includes the design, manufacture and distribution of high-quality, light-, medium- and heavy-duty commercial trucks; the Parts segment, which includes the distribution of aftermarket parts for trucks and related commercial vehicles; and the Financial Services segment, which includes finance and leasing products and services provided to customers and dealers. The Company's trucks are marketed under the Kenworth, Peterbilt and DAF nameplates. In the U.S. and Canada, there are four principal competitors in the commercial truck market, while in Europe there are six principal competitors. The Company's share of the U.S. and Canadian Class 8 market was 29.9% ¹ of retail sales in 2025, and its medium-duty market share was 15.9% ². In Europe, DAF had a 13.5% ³ share of the European heavy-duty market and a 9.7% ⁴ share of the light/medium-duty market. These markets are highly competitive in price, quality and service.

PACCAR generates revenue through three segments: Truck (68% ⁵ of total 2025 net sales and revenues), Parts (24% ⁶ of total 2025 net sales and revenues), and Financial Services (8% ⁷ of total net sales and revenues and 51% ⁸ of total assets in 2025). The Truck segment sells substantially all trucks to independent dealers. The Parts segment distributes aftermarket parts to over 2,000 ⁹ Kenworth, Peterbilt and DAF dealers and more than 350 ¹⁰ TRP stores in 99 ¹¹ countries. The Financial Services segment operates in 26 ¹² countries and provides finance and leasing products principally related to PACCAR products. The Company's Financial Services segment records revenue on the sale of used trucks received in trade and RVG returns. The Company's finance receivables are classified as dealer wholesale, dealer retail and customer retail segments.

In 2025, worldwide net sales and revenues were $28.44 billion ¹³ compared to $33.66 billion ¹⁴ in 2024, primarily due to lower truck revenues, partially offset by higher parts and financial services revenues. Truck sales were $19.37 billion ¹⁵ in 2025 compared to $24.84 billion ¹⁶ in 2024 due to lower truck deliveries in all major markets. Parts sales were $6.87 billion ¹⁷ in 2025 compared to $6.67 billion ¹⁸ in 2024, reflecting higher sales in the U.S. and Canada and Europe. Financial Services revenues were $2.21 billion ¹⁹ in 2025 compared to $2.10 billion ²⁰ in 2024, primarily due to higher interest income driven by retail portfolio growth and higher portfolio yields. Net income was $2.38 billion ²¹ ($4.51 ²² per diluted share) in 2025 compared to $4.16 billion ²³ ($7.90 ²⁴ per diluted share) in 2024. Adjusted net income (non-GAAP), excluding a $264.5 million ²⁵ after-tax charge related to civil litigation in Europe, was $2.64 billion ²⁶ ($5.01 ²⁷ per diluted share). After-tax return on beginning equity (ROE) was 13.6% ²⁸ in 2025, which includes the $264.5 million ²⁹ after-tax charge. Excluding the after-tax charge, adjusted ROE (non-GAAP) was 15.1% ³⁰. This compares to an ROE of 26.2% ³¹ in 2024. Capital investments were $728.5 million ³² in 2025 compared to $795.8 million ³³ in 2024. Research and development (R&D) expenses were $445.5 million ³⁴ in 2025 compared to $452.9 million ³⁵ in 2024.

Truck industry heavy-duty retail sales in the U.S. and Canada in 2026 are expected to be 230,000 to 270,000 ³⁶ units compared to 232,800 ³⁷ in 2025. In Europe, the 2026 truck industry registrations for over 16-tonne vehicles are expected to be 280,000 to 320,000 ³⁸ units compared to 297,000 ³⁹ in 2025. In South America, heavy-duty truck industry registrations in 2026 are projected to be 100,000 to 110,000 ⁴⁰ compared to 115,000 ⁴¹ in 2025. In 2026, PACCAR Parts sales are expected to increase 4-8% ⁴² compared to 2025, depending on the economic conditions. In 2026, average earning assets are expected to be comparable to 2025. Capital investments in 2026 are expected to be $725 to $775 million ⁴³, and R&D is expected to be $450 to $500 million ⁴⁴.

PACCAR is investing in next generation clean diesel and alternative powertrains, integrated connected vehicle services, flexible manufacturing capabilities and autonomous and advanced driver assistance systems that create value for customers. The Company is embedding artificial intelligence across its business to drive innovation, profitable growth and enhanced performance for the Company's customers. In addition to the capital and R&D investments, the Company expects to continue investing in its U.S.-based battery joint venture, Amplify Cell Technologies. PACCAR, Cummins, Daimler Trucks and EVE Energy have partnered to produce state-of-the-art commercial vehicle batteries in a 21-gigawatt hour (GWh) ⁴⁵ factory in Marshall County, Mississippi. Along with its joint venture partners, the Company is reviewing the timing of investments as a result of changing market-adoption projections.

The Company's truck and parts products have been negatively affected since March 2025 by import tariffs imposed by the U.S. government and actions taken by other countries. While the Company has taken mitigating actions to reduce the impact, the ongoing impact from import tariffs on truck order intake and profit margins remains unfavorable. The Company's North American truck factories are optimally located to operate under the new Section 232 truck tariffs that began in November 2025. The Company's tariff exposure is minimized by producing trucks locally for the United States, Canada and Mexico. The Company manufactures its trucks for U.S. customers in its Ohio, Texas, and Washington state factories. The recent U.S. Environmental Protection Agency announcement reaffirmed the EPA27 NOx limit and could eliminate changes to extended warranty requirements and useful life requirements on new emissions systems. The Company's results could be impacted by changes in tariff policy, including the expected U.S. Supreme Court ruling on the International Emergency Economic Power Acts (IEEPA) tariffs, emissions regulations and improving freight fundamentals.

PACCAR's excellent long-term profits, strong balance sheet and consistent focus on quality have enabled the Company to invest $9.2 billion ⁴⁶ in new and expanded facilities, innovative products and new technologies during the past decade. Over the past decade, the Company's combined investments in worldwide capital projects and R&D totaled $9.10 billion ⁴⁷ 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. Kenworth constructed a 46,000 square-foot ⁴⁸ robotic chassis paint facility in Chillicothe, Ohio. PACCAR also completed a new $35 million ⁴⁹, 50,000 square-foot ⁵⁰ engine remanufacturing facility and is enhancing its existing engine factory in Columbus, Mississippi. PACCAR opened a new 180,000 square-foot ⁵¹ Parts Distribution Center (PDC) in Calgary, Canada, to enhance parts delivery to dealers and customers in the region.

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. The Company has line of credit arrangements of $5.64 billion ⁵², of which $5.28 billion ⁵³ were unused at December 31, 2025. Included in these arrangements are $4.00 billion ⁵⁴ of committed bank facilities, of which $1.50 billion ⁵⁵ expires in June 2026, $1.25 billion ⁵⁶ expires in June 2028 and $1.25 billion ⁵⁷ expires in June 2030. On December 4, 2018, PACCAR's Board of Directors approved the repurchase of up to $500.0 million ⁵⁸ of the Company's outstanding common stock without expiration. As of December 31, 2025, the Company has repurchased $128.4 million ⁵⁹ of shares under this plan. Cash dividends declared for 2025 were $2.72 ⁶⁰ per share and for 2024 were $4.17 ⁶¹ per share.

The used truck market has been improving, 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 and average earning assets would likely decline. The Company's Financial Services segment obtains funds for its operations from commercial paper, medium-term notes and bank debt. If the markets for commercial paper, medium-term notes and bank debt do not provide the necessary liquidity in the future, the Financial Services segment may experience increased costs or may have to limit its financing of retail and wholesale assets. This could result in a reduction of the number of vehicles the Company is able to produce and sell to customers.

The Company's business is highly sensitive to global and national economic conditions, and the yearly demand for commercial vehicles may increase or decrease more than overall gross domestic product in its principal markets of North America and Europe. The Company operates in a highly competitive environment, and financial results depend largely on the ability to develop, manufacture and market competitive products that profitably meet customer demand. The Company's products are exposed to variability in material and commodity costs, and commodity or component price increases, cost pressures due to inflation, significant shortages of component products and labor availability may adversely impact financial results. The Financial Services segment is exposed to credit risk, and at December 31, 2025, 30+ days past due accounts were 2.4% ⁶² of the retail loan and lease portfolio, up from 1.3% ⁶³ at December 31, 2024. The provision for losses on receivables increased to $124.5 million ⁶⁴ in 2025 from $75.6 million ⁶⁵ in 2024, and net charge-offs increased to $85.0 million ⁶⁶ from $53.5 million ⁶⁷. The Company's global operations are subject to extensive statutory and regulatory requirements governing greenhouse gas and non-greenhouse gas emissions, and the EU regulations have set CO2 emission reduction targets that require a significant portion of vehicles sold to be zero or near zero emission, with failure to meet these targets resulting in significant fines by the EU Commission.

Management's message emphasizes that PACCAR earned net income for the 87th ⁶⁸ consecutive year in 2025. The tone is one of resilience and strategic investment despite a challenging year, as highlighted by the 2025 Financial Highlights which note that worldwide net sales and revenues were $28.44 billion ⁶⁹ compared to $33.66 billion ⁷⁰ in 2024, and net income was $2.38 billion ⁷¹ ($4.51 ⁷² per diluted share) compared to $4.16 billion ⁷³ ($7.90 ⁷⁴ per diluted share) in 2024. Management's strategic priorities for the period ahead are centered on investing in next generation clean diesel and alternative powertrains, integrated connected vehicle services, flexible manufacturing capabilities, and autonomous and advanced driver assistance systems. The Company is also embedding artificial intelligence across its business to drive innovation, profitable growth and enhanced performance for customers. Specific forward-looking guidance includes expectations that truck industry heavy-duty retail sales in the U.S. and Canada in 2026 will be 230,000 to 270,000 ⁷⁵ units, European over 16-tonne registrations will be 280,000 to 320,000 ⁷⁶ units, and South American heavy-duty registrations will be 100,000 to 110,000 ⁷⁷ units. PACCAR Parts sales are expected to increase 4-8% ⁷⁸ compared to 2025. Capital investments in 2026 are expected to be $725 to $775 million ⁷⁹, and R&D is expected to be $450 to $500 million ⁸⁰.