PACCAR Inc Q1 2026 Earnings Call Transcript

PACCAR Inc (NASDAQ: PCAR) Q1 2026 Earnings Call dated Apr. 28, 2026

Presentation

Operator

Good morning, and welcome to PACCAR’s First Quarter 2026 Earnings Conference Call. All lines will be in a listen-only mode until the question-and-answer session. Today’s call is being recorded, and if anyone has an objection, they should disconnect at this time.

I would now like to introduce Mr Ken Hastings, Packer’s Director of Investor Relations. MR. Hastings, please go-ahead.

Ken Hastings — Director of Investor Relations

Good morning, and welcome, everyone. My name is Ken Hastings, Packer’s Director of Investor Relations. And joining me this morning are Preston Fight, Chief Executive Officer; Kevin, President; and Bryce, Senior Vice-President and Chief Financial Officer. As with prior conference calls, we ask that any members of the media on the line participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties that may affect expected results. For additional information, please see our SEC filings at the Investor Relations page of PACCAR. I would now like to introduce Pretts and Fight.

R. Preston Feight — Chief Executive Officer

Hey, thanks, Ken. Good morning, everyone. In the first-quarter, PACCAR’s outstanding employees did an excellent job providing our customers with the highest-quality trucks and transportation solutions in the industry. I really appreciate their hard work, their high-performance and dedication as we increased build rates in our factories all-around the world. PACCAR achieved revenues of $6.8 billion and net income of $605 million in the first-quarter. These results were generated by strong PACCAR Parts and financial services results as well as solid growth in the truck businesses.

PACCAR Parts achieved quarterly revenues of $1.7 billion and quarterly pre-tax income of $402 million. PACCAR Financial had a strong quarter, achieving pre-tax income of $116 million. Looking at this year’s US and Canadian truck market, we estimate it to be in a range of 230,000 to 270,000 units. The market is strengthening as driver and fleet capacity becomes limited and customers begin to realize higher freight rates. This is somewhat moderated by fuel and other operating cost volatility. In the first-quarter, Kemworth launched a new C580 heavy-duty vocational truck.

This large multi-axle model was introduced at the Con Expo trade show and is a unique super heavy-duty truck used in severe service applications around the world. We project the 2026 European above 16 ton market size to be in a range of 280,000 to 320,000. DOF’s premium aerodynamic trucks provide customers with the latest technology and best operating efficiency. As mentioned on the January earnings call, the DOF XF and XD Electric Vehicles won the international Truck of the Year 2026 honor. In the first-quarter, DOF extended its EV leadership by introducing new flagship XG and XG Plus electric vehicles.

In addition, the XF Electric earned another award, the 2026 eco-friendly Truck of the Year in Spain. This year’s South American above 16 -ton market where DOF trucks are desired by customers for their durability and advanced technology is expected to be in a range of 100,000 to 110,000 vehicles. In the first-quarter, PACCAR delivered 33,100 trucks and in the second-quarter, we’ll deliver an estimated 37,000 to 38,000 vehicles. Truck, parts and other gross margins increased from 12% to 13.1% in the first-quarter due to improved truck segment performance.

Second-quarter margins are forecast to expand to around 13.5% as global production volumes increase. We anticipate continued performance improvements in the second-half of the year as our customers benefit from our local for local manufacturing strategy, experience better operating conditions and purchase trucks in front of the coming 2027 submissions change. PACCAR’s exceptional range of trucks, compelling parts business, industry-leading financial services and advanced technology strategy position the company well for an excellent future.

Kevin will now provide an update on PACCAR Parts, financial services and other business highlights. Kevin?

Kevin Baney — President

Thanks, Preston. PACCAR Parts achieved first-quarter revenues of $1.7 billion and profits of $402 million. Gross margins were 29.6%. We estimate parts sales to grow by about 3% in the second-quarter and be in the range of 3% to 6% for the full-year. PACCAR Parts has 21 parts distribution centers worldwide and has plans to expand its global distribution network in TRP stores. As mentioned in our recent Analyst Day, we continue to see great opportunities for broad-based parts growth and look-forward to realizing that opportunity in partnership with our outstanding dealer network.

PACCAR Financial Services pre-tax income was a robust $116 million. The continued strong performance is a result of solid asset growth, improving margins and a used truck market that is beginning to strengthen. This year, we’re planning capital investments in the range of $725 million to $775 million and R&D expenses in the range of $450 million to $500 million as we continue to invest in key technology and innovation projects. These include advanced flexible manufacturing technologies, next-generation powertrains, PACAR’s autonomous vehicle platform and integrated connected vehicle services. We are excited for the growth PACCAR will experience in the coming quarters and years. We are now pleased to answer your questions.

Question & Answers

Operator

We will now begin the question-and-answer session. If you would like to ask a question, please press Star-1 to raise your hand. To withdraw your question, press Star-1 again. We ask that you pick-up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster your first question comes from the line of Michael Feinger of Bank of America. Your line is open. Please go-ahead.

Michael Feniger — Analyst, Bank Of America

Thanks, everyone. Just on the parts of guidance, maybe you guys can just unpack what did you see in the quarter? It feels like a slower start. I’d love if we could just start there of what you’re seeing in the parts side, how we’re looking so-far through Q2 and how we should think about that in the back-half with orders starting to pick-up and be better-than-expected.

Kevin Baney — President

Yeah, Michael, this is Kevin. I’ll start with the parts side. So with fleet consolidations and the higher fuel prices that’s impacted, let’s say, operating cost volatility, that’s resulted in the parts market remaining soft. And so as we see as customers start to get healthy, we’ll talk a little bit more about the truck market side, but as customers start to get healthy, we’ll see the parts market get healthier with that as well. And so just for the full-year guidance for the 3% to 6%, we see that accelerating through the rest of the year.

Michael Feniger — Analyst, Bank Of America

And just on the — my last question just on the gross margin, 13.5%, you know that the pickup versus in Q1. Just should we still think that gross margins sequentially walk-up through the year as build rates recover? Is there a pricing expectation that could also get better as well given your comments that the US markets continue to strengthen. Just kind of curious how we should think about as you build through the year and what number we might be exiting the year as we’re starting to see some strength in freight rates, even excluding fuel right now? Thank you.

R. Preston Feight — Chief Executive Officer

Hey, Michael. Thanks for the question. This is Preston. It’s good to talk to you. I think you talked about a few things in there that we’re seeing. As we do see the increasing volumes, I’m really pleased with how the factories have been able to again create this local for local manufacturing capability in America. We see the volumes increasing, as we said, to 37,000 38,000 in the second-quarter, that’s on the basis of build rates that we’ve already put in-place.

So teams have done a really good job of that. And we see some of that margin growth coming from that volume, partially offset a little bit by the price of energy, steel, aluminum, other raw-material pricing in there. So there is that. And I’m not quite sure customers have seen the full effect of tariffs yet, but we feel really good about the cadence throughout the year as the market and our customers get healthy and we see accelerating sequentially.

Hey Miriam, let’s go to the next question.

Operator

Your next question comes from the line of Jerry Revich of Wells Fargo. Your line is open. Please go-ahead.

Jerry Revich — Analyst, Wells Fargo

Yes, hi, good morning, everyone. Hey, Jerry. I’m wondering if we could just put — hi. I to just talk about the really strong profit per truck that you folks delivered in the quarter. So with lower parts contribution, you folks still exceeded the guidance ranges. So it looks like your profit per truck was up to about $5,300 from 2,900 last quarter. Can we just unpack that? How much of that was better cost execution versus mix and any other moving pieces as we think about the profile heading into the rest of the year?

R. Preston Feight — Chief Executive Officer

Yeah. Jerry, thanks for the comments. I appreciate them. They’re nice and nice well stated. We did have price-cost advantage in the quarter sequentially. And so we saw ourselves up over a percent in price-cost, which is good. I think the teams are doing a really good job of focusing on the market we’re in. So being price careful to see if we can make sure that we get our percentage of the market. In fact, we saw that in terms of our percentage of market build. So in the first-quarter, we built 31.8% of the market, which is very favorable and a good position to be in. And so we’re balancing that growth with price-cost favorability.

Jerry Revich — Analyst, Wells Fargo

Super. And then as we look at the backlog, how much more favorable is price-cost based on what’s in backlog versus what we saw in the first-quarter?

R. Preston Feight — Chief Executive Officer

Well, we think we’ll have favorability as we look-forward into the second-quarter. Obviously, we’re looking at our volumes going up appreciably. We’re really full through the second-quarter and we have good visibility into the third and the 4th-quarter.

Jerry Revich — Analyst, Wells Fargo

Okay, super. And just one last one, just to calibrate expectations around orders over the balance of the year. We’re hearing that there’s just limited number of build slots available that might hamper orders over the next couple of quarters versus underlying demand. Is that the case for your business? What proportion of your build slots are already spoken for the next 3/4?

R. Preston Feight — Chief Executive Officer

Yeah. Like I said, as we’re full in Q2, we’re a majority full in Q3 for not sure I recognize the commentary about people not having slots. That sounds more like a like a marketing scheme.

Jerry Revich — Analyst, Wells Fargo

Fair enough.

Operator

Thank you. Your next question comes from the line of Tammy Zakaria of JPMorgan. Your line is open. Please go-ahead.

Tami Zakaria — Analyst, JPMorgan

Hey, good morning. Thank you so much. My first question is on the simplified metal tariffs that went into effect in early-April. Does that change your view on what would be the tariff impact, especially for aftermarket parts versus the last-time you spoke or is it basically doesn’t — does it not change the tariff headwind that you expected?

R. Preston Feight — Chief Executive Officer

Hey, Tammy, it’s good to hear from you. It doesn’t really have a lot of impact for us because of the truck-specific 232 has specific offsets and it applies mostly to those materials. So there’s some moderate impact, but not significant.

Tami Zakaria — Analyst, JPMorgan

Same on the parts. Understood. That’s helpful. And just following-up on what Jerry was asking, maybe I wanted to ask it in a different way. So based on third-party data, orders have been very strong year-to-date. You kept your US-Canada outlook unchanged. Does this outlook include the year-to-date strength in orders, meaning, do you expect orders to moderate as we go through the year? And as we get close to the NOX timeline or is your view shaped by supply-chain rather than demand?

R. Preston Feight — Chief Executive Officer

I think our view is shaped by the fact that the first-quarter really didn’t have a high cadence to it. So if the first-quarter ran at something around or a little under $200,000, then in order for it to come to the midpoint at $250,000, there’s going to have to be already a rapid acceleration. And we have a great supply base, but they also need to be able to spin-up their operations. So the rate of increase quarter-over-quarter is what probably informs the total market size.

Tami Zakaria — Analyst, JPMorgan

Understood. Thank you.

R. Preston Feight — Chief Executive Officer

You’re welcome. Have a good day.

Operator

Your next question comes from the line of Rob Wertheimer of Melius. Your line is open. Please go-ahead.

Rob Wertheimer — Analyst, Melius

Thanks. Is there any visible impact of the war in the Middle-East on confidence or demand or orders in Europe?

R. Preston Feight — Chief Executive Officer

You know what we’ve seen is it take — I think there’s a really good word to use confidence in-demand, Rob. And I would say that confidence, yeah, I think people are paying attention to it and trying to discern what it might mean in the general economy, of course. I would say from a demand standpoint, we’ve seen less impact. We’ve seen continued good order intake throughout the last couple of months. So less of a show there.

Rob Wertheimer — Analyst, Melius

Perfect. Thank you. If I could just ask, I mean, I think we chatted about this once, but the rise of electric trucks in China has been very sharp and maybe for geopolitical reasons. Could you talk about your own experience? And do you see strong demand from customers? Is there a crossover on total cost of ownership yet on some science classes, models, whatever? And how do you see that shape at present? Thank you. I’ll stop there. You’ll let us look.

R. Preston Feight — Chief Executive Officer

Kevin, why don’t you share some thoughts?

Kevin Baney — President

Yeah. So Rob, you mentioned Europe. And so the geopolitical has had an impact on the fuel prices and the cost of diesel is a bigger percent of the operating cost for customers in Europe. So there’s been a lot more discussion about battery-electric trucks in Europe. And as we said, DOF just won international Truck of the year with DOF XF and XD Electric. They just expanded their product range. So in a really good position address the growing customer questions and demand about battery-electric trucks in Europe and we’re well-positioned against the competition. We’ve had a lot of competitors over-time and I think we’re really well-positioned with a great product-line.

R. Preston Feight — Chief Executive Officer

And what I would say, Kevin, I had a chance to drive that XD truck of the year. It’s amazing. It’s just a really wonderful truck to be in. So it’s going to be great for our customers and it just launched in the recent months. And if you look at the US market, it might inform a little bit differently. I think without subsidies, then doing widespread adoption is probably less likely. There can be markets where it makes sense, certainly in urban environments, there could be places where EVs make sense and we look-forward to — we just launched a couple of new medium-duty models for Kentworth and Peterbilt. So we have those regional delivery EVs, which is where the market makes the most sense in America.

Operator

Thank you. Your next question comes from the line of David Raso of Evercore ISI. Your line is open. Please go-ahead.

David Raso — Analyst, Evercore ISI

Hi, thank you. The question relates to trying to understand your operating leverage in the truck business, particularly. It looks like you can back into the gross margin for truck must-have been around 6.9 something like that in the first-quarter. So sequentially, the truck revenues went up $11 million, but your gross profit went up $73 million. And I’m just making sure we understand, was there anything in the first-quarter about reversal of old tariffs that you could take the benefit with? I know we already had Truck 232 already in, but just making sure that’s a clean — that kind of strength in gross profit growth on only $11 million of revenue. I mean, I appreciate US, Canada as a percent of the shipments was a lot bigger this quarter than last quarter. So maybe that’s part of it. But can you walk us through that gross margin improvement in truck on really no revenue increase?

R. Preston Feight — Chief Executive Officer

Yeah. And David, you always do such a good job with your numbers and you continue to do that is you kind of get it right is that we had somewhere above 7% for our truck margin and that came largely because the teams did a really good job selling these best-in-class products. And then the leverage we got off of the volume helped us as well. So the price-cost advantages contributed to that. Brice, anything you’d add to that?

Brice Poplawski — Chief Financial Officer and Senior Vice President

Yeah. We also had, I’ll Call-IT, favorable product mix selling more of the Kenworth and Peterbile brand at the year-end. They’re more in lower because of the holiday shutdown season and then, of course DOF at the end-of-the year usually has a few units that they’re getting done on their fleets that they hold in inventory. So a little bit of a favorable mix effect on where we’re selling the trucks as well helped us.

Ken Hastings — Director of Investor Relations

And we didn’t record any increase for IEPA — related.

R. Preston Feight — Chief Executive Officer

So summary of all that, David, to you is a very clean quarter, nothing to put or take-out of it.

David Raso — Analyst, Evercore ISI

Yeah, that then begs the question for the next quarter where your truck revenue could be up, Call-IT, $600 million, rough numbers. You would think then the gross margin impact could be a little more significant than going up only 40 bps at the company-level? And I apologize, I think maybe earlier you mentioned parts gross margin — margins for 2Q. I don’t think you call that anything particularly negative 4%, but maybe I didn’t hear it correctly. So again, I’m just trying to understand that impressive performance 4Q to 1Q, but then 1Q to 2Q seems a lot more muted despite this is the quarter you get a bigger revenue move.

R. Preston Feight — Chief Executive Officer

Yeah. Well, let’s see what the quarter is. We kind of gave you the 13.5% is our midpoint guidance for our margin look. We do see the volume being a good thing. I did mention earlier in the call, right, that our build percentage has increased in the market in North-America. So we’re 31.8% of a build percentage. And I also see that pricing remains competitive as our customers are just beginning to experience an acceleration in their end-markets. So there’s a competitive price point out there in the market that’s contributing also. And so those are kind of the key factors that inform the second-quarter.

Kevin Baney — President

Yeah, David, one other comment probably worth making, when we guided 3% growth in parts, obviously, the truck volume would be much greater than 3% going up by 7,000 trucks, 6,000 trucks. So you have a negative, if you want to Call-IT price-mix effect that also dampens the total margin percent.

David Raso — Analyst, Evercore ISI

No, I appreciate that. Okay. Thank you so much.

R. Preston Feight — Chief Executive Officer

Yeah. Have a great day, David.

Operator

Your next question comes from the line of Chad Dillard of Bernstein. Your line is open. Please go-ahead.

Chad Dillard — Analyst, Bernstein

Hey, good morning, guys. As you think about the pre-buy likely to hit later this year, what are your plans for the number of shifts or build slots? Maybe compare it to like where you are today or on a year-on-year basis? I guess like what I’m trying to get at is like how quickly could you ramp that up versus where you are today if you got a little bit more visibility into the durability of demand?

R. Preston Feight — Chief Executive Officer

We have great operations teams. I think they’ve demonstrated that not just in the past year, but over the decades and they continue to be able to move-up quickly. So I think it’s more about what the supply base and order board and how quick they have visibility to it. So it’s about a hiring cadence across the industry that we’re probably informed how quick it can go up, but I feel very confident in our team’s ability to add the people and the capacity we need to support the market in any market size.

Chad Dillard — Analyst, Bernstein

Got it. And can you talk about how industry pricing behavior has changed versus the start of the year? And are some of the non-domestic producers starting to price for tariffs?

R. Preston Feight — Chief Executive Officer

Well, I think you’d have to ask them the question of how they’re thinking about their pricing scheme. They’re better informed on that than we are. We do see a competitive market out there right now and we do see the fact that our customers, as I said, are just starting to see improvement, raw-material pricing is high. So there is still those things that are putting into it. But I think we’re at the beginning of what feels like an acceleration considering that the first-quarter build was just a 200 — just under 200,000 and last year was low. So if you think about the average market being 267,000 units, there’s going to be some replacement demand and there’s going to be some strengthening financial performance and those are both going to be good for us in the near and mid-term for the business.

Chad Dillard — Analyst, Bernstein

Great. Thanks. I’ll pass it on.

R. Preston Feight — Chief Executive Officer

You bet.

Operator

Your next question comes from the line of Steve Oakman of Jefferies. Your line is open. Please go-ahead.

Ken Hastings — Director of Investor Relations

We are not able to hear you, I wonder if you’re on-mute.

Steve Volkmann — Analyst, Jefferies

Yes, I was. I’m just figuring out this phone thing after a few — a few decades of use. Well, sorry about that. So I’ll start again. You guys are good at managing supply chains, probably the best at that. And we have a big ramp, I guess, in the second-half this year and we’re starting to hear some early signs that there might be some constraints in things like memory chips and sometimes — some people are even worried about aluminum supply. I’m just curious if there’s anything on your radar that you’re watching that could actually constrain us in this kind of second-half build that we’re all expecting?

R. Preston Feight — Chief Executive Officer

Yeah, great question, Steve. Thanks for jumping back-in and taking the time with it. I think the thing that informs right now in supply-chain is really how much energy-related exposure people have to the supply of materials and what that might do to their cost as one factor. And then the second, as I said previously is the hiring cadence of people and getting them trained up to speed in a sustainable manner for our — for our suppliers to be ready for the ramp-up and build?

Steve Volkmann — Analyst, Jefferies

Got it. Okay. So nothing specific yet standing out. And then maybe can you just comment, Preston, about the mix that you’re seeing relative to vocational versus over-the-road, I guess, maybe in terms of how the second-half is going to ramp-up?

R. Preston Feight — Chief Executive Officer

It’s been pretty uniform. We’ve seen over-the-road companies getting their recovery now with spot rates up double-digit and maybe even up to 20%. We’ve seen contract rates improving. So that’s helping our truckload carriers. The vocational market continues to be solid as well as the LTL. So we’re seeing orders coming in from kind of all sides as people want to make sure that they have their fleet in the right spot for the year and next year.

Steve Volkmann — Analyst, Jefferies

Great. Thank you.

R. Preston Feight — Chief Executive Officer

You bet. Have a great day.

Operator

Your next question comes from the line of Kyle of Citigroup. Your line is open. Please go-ahead.

Kyle Menges — Analyst, Citigroup

Thank you. I just wanted to go back to some of the comments you made on gross margin and it sounds like you’re expecting improvement really quarter-over-quarter as we move throughout the rest of the year. And just I understand volume is a big piece of that, but how are you thinking about pricing momentum and what are you seeing as we get to the second-quarter and into the second-half? And how do you — how are you thinking about price-cost as well for the rest of the year?

R. Preston Feight — Chief Executive Officer

Yeah. Well, I think the year is a long ways. What we typically think about for this discussion is really the next quarter. And I would say that we expect to have a price-cost favorability in the quarter. I think how that gets informed is again based upon what the market asked for and how raw-material pricing finishes up for us. So we’ll see — we’ll watch carefully how that raw-material pricing moves through the year. Obviously, there’s some volatility in the market in general and that will have a consequence, but we do expect to see favorability throughout the year?

Kyle Menges — Analyst, Citigroup

Helpful. And then we are getting pretty close now to the new EPA mandate. Just curious how the new engine is performing out in the market and if you guys think that it will be ready in time. Thank you.

R. Preston Feight — Chief Executive Officer

Yeah, Kyle, thanks for that question. I think team does a great job of having the right engines for our customers and so we are really pleased with the engine development programs that are ongoing right now, both for us and we’re watching how it’s going with Cummins. Obviously, he was a great partner for us. And we look-forward to seeing how the — how the implementation rolls through for everyone, but I feel great confidence in our teams and what we’ll deliver.

Kyle Menges — Analyst, Citigroup

Thank you.

R. Preston Feight — Chief Executive Officer

You bet.

Operator

Your next question comes from the line of Jamie Cook of Truist Securities. Your line is open. Please go-ahead.

Jamie Cook — Analyst, Truist Securities

Hi, good morning and congrats on a nice quarter. I guess my first question, Preston, if you could talk to as we think through the second-half of the year and I guess throughout the cycle, what the setup for PACCAR is in terms of incremental margins. I mean, last cycle, you delivered above-average incremental margins with a lot of the new product launches that came into the market. This cycle, we have the Section 232 benefit, market-share opportunity. I’m just wondering how you’ll balance the two, should we think of the normalized incremental margins of like 15% to 20% or above that? And then I guess my second question, can you just talk to sort of channel inventory where PAC are sitting versus its peers and whether its peers have made any progress on destocking some of the inflated inventory in the channel? Thank you.

R. Preston Feight — Chief Executive Officer

Yeah, let’s start with your inventory question, Jamie. I think if you look at our inventory, we feel like it’s in very good shape. That’s kind of around just under three months, 2.8 months and that compares to 2.2 months back-in December. So we’ve been able to get at least a little bit of inventory back into the market, which feels healthy. I think the industry overall has a higher percentage of inventory, I think over four months. So that’s kind of the lay of the land from an inventory standpoint. PACCAR feels like we’re in really good shape there.

Dealers have been able to get a few trucks on the lot and get ready to go. Obviously, inventory for us is affected by a higher percent vocational share. So people getting bodies put on trucks as an influencing factor there. And then if you just think back to the — your first question was on margin and how we see that developing. We see margin being favorable and we see that our build percentage at 31.8% in the first-quarter is good for our performance and good for our customers, really get trucks for us and being full in the second-quarter means that we feel-good about the position we’re in.

Jamie Cook — Analyst, Truist Securities

Thank you.

R. Preston Feight — Chief Executive Officer

You bet.

Operator

Your next question comes from the line of Steven Fisher of UBS. Your line is open. Please go-ahead.

Steven Fisher — Analyst, UBS

Thanks. Good morning. I just wanted to clarify your answer on the parts acceleration that you expect in the second-half. And you mentioned about clients are starting to get healthier. But I think you also mentioned about fuel having an impact in Q1. So I was hoping you could just give us a little more color on what you’re expecting that’s going to drive the acceleration. Do you still need to see freight rates continue to rise? Do you need to see fuel costs falling? Is it just more about getting more trucks on the road? Do you need freight shipments to be picking-up? Just curious kind of what will drive that acceleration?

Kevin Baney — President

Yeah, you said a lot there, but it’s a little bit of all of that, right? As we see the increase of the truck orders. So as more trucks are on the road and we see our customers’ business improve, we see that on the part side. I mentioned earlier the increased fuel and the operating cost volatility because customers still focus on required maintenance. And so they have delayed their optional parts versus purchases. So we see both the volume as well as the mix improving and that leads to the acceleration through the year. So we see as the truck market improves, we see the parts market follow that.

Steven Fisher — Analyst, UBS

Okay. That’s very helpful. And then I guess to what extent have you had any discussions with your customers about the first part of 2027 planning and really just trying to make sure I understand how you’re characterizing the expected pickup in the second-half of this year, whether it’s really a kind of a pre-buy or just a buy. I know it’s maybe a little bit early to talk about 2027, but I guess a pre-buy implies a pull-forward. So I guess it seems like it could be a relevant part of the discussion right now. Just curious how you would frame that.

R. Preston Feight — Chief Executive Officer

I like the way you framed it, Steve. I think the pre-buy versus buy, I think there’s a little bit of both going on, honestly. I think that there’s some buy going on because of the demand that the customers are getting healthy and want their fleet age to come back to where they want it. So that’s a bit of the buy-side. And I think on the pre-buy side, obviously, there’s a cost impact to a 35 milligram engine and I think they’re sensitive to that. And so I think there’s some of the people that are looking at putting orders in front of it. So both of those are influencing the year. Looking into 2027, I think we’ll see how the year fills out and what the full-year retail looks like and build looks like and that will probably give some information about what ’27 will look like.

Kevin Baney — President

Just to add is the combo of the buy versus pre-buys, the second-half of the year is pretty well-balanced in terms of the fill between the third and 4th-quarter. If it was more weighted to a pre-buy, we’d see that demand towards the higher in the end-of-the year, but we see a really nice balance in both third and 4th-quarter.

Steven Fisher — Analyst, UBS

Yeah that’s really helpful. Thank you.

Operator

Your next question comes from the line of Angel Castillo of Morgan Stanley. Your line is open. Please go-ahead.

Angel Castillo — Analyst, Morgan Stanley

Hi, good morning and thanks for taking my question. Maybe I’ve missed this, but I wanted to go back to the EPA dynamic. I guess, has the EPA actually formalized the low NOx emissions rule that I communicated, I guess, back at the end of last year? And does that have any bearing on the ability of the industry to ultimately launch and move forward with the — with these engines that meet the kind of latest Low Knox standard? And likewise, I guess, any implications on the customer’s ability, I guess move forward with any orders or potential pre-buy. Just curious if that’s where we’re at on that. And if we don’t have any formalized kind of releases there, I guess if you have any insights as to when we might be able to get that?

R. Preston Feight — Chief Executive Officer

Yeah. I think the formalized release that they’ve made, Angel, is that it will be a 35 milligram standard come 2027 that that’s the law and that’s the — there’s not any kind of modification expected to that in terms of it being a 35 milligram standard for new engines in 2027. And the parameters around that, I think are things that they will have to contemplate or are contemplating based on customer and market feedback?

Angel Castillo — Analyst, Morgan Stanley

Got it. And then I wanted to go back to maybe the margin discussion. Could you, I guess, just give us the shipments number that you are — deliveries guidance you provided for 2Q. Could you give that by region specifically how much you expect US and Canada versus Europe? And then if we could kind of revisit the 13.5% gross profit margins. I get you mentioned, I think a little bit more uplift from trucks maybe is a little bit of a mix drag on the overall and why you don’t see that kind of incremental step-change in 2Q versus 1Q. But I guess it wasn’t entirely clear to me if there’s any other drags beyond that keep it from being more of a material step-change for quarter-over-quarter just given the seasonality.

R. Preston Feight — Chief Executive Officer

Just take the question and saying that we expect in Q2 volumes are up around the world pretty much in every market. So we’ve had built rate increases everywhere. And so that’s what’s driving the total increase in volume. And I think we’ve kind of spent quite a bit of time already describing that 13.5% being volume-based improvement as well as slight price-cost with still pressure on pricing in the market as tariffs maybe haven’t been fully rolled through and also PAC are performing really well in terms of getting share of buildup.

Angel Castillo — Analyst, Morgan Stanley

Understood. Thank you.

R. Preston Feight — Chief Executive Officer

You bet.

Operator

Your next question comes from the line of Louis Merrick of PNB Paribas. Your line is open. Please go-ahead.

Lewis Merrick — Analyst, PNB Paribas

Yeah, good morning, everyone. Thank you for taking my questions. We’ve heard about customers potentially pushing back their delivery dates for trucks. I’m just wondering, are you seeing any evidence of this occurring?

R. Preston Feight — Chief Executive Officer

No, I don’t recognize that in our backlog. We have not seen any of that.

Lewis Merrick — Analyst, PNB Paribas

Okay. Crystal quick. And just quickly on the tariffs topic, can we get your latest understanding on when we could expect the previously-announced 3.75% NSRP credit to be applied.

R. Preston Feight — Chief Executive Officer

Well, it’s fairly well-defined for the truck side of the 232. And so now it’s about when we can apply for them and get them back and we would expect that to be in the not distant future.

Lewis Merrick — Analyst, PNB Paribas

Okay. Thank you very much.

R. Preston Feight — Chief Executive Officer

You bet. Have a great day.

Operator

Your next question comes from the line of Scott Group of Wolfe Research. Your line is open. Please go-ahead.

Scott Group — Analyst, Wolfe Research

Hey, thanks, good morning. So on that pre-buy versus buy sort of discussion from earlier, do you have a sense on the buy sort of part of it? How much of that is sort of growth fleet plans — fleet growth plans or just sort of pent-up replacement? And to the extent that there’s just more replacement, do you think as we start replacing more after aging the fleets, does that naturally pressure some of the parts growth?

R. Preston Feight — Chief Executive Officer

I think that what’s going on is that you kind of said the words in the buy-side of it. There’s this been a tough little run for some of our customers and now they have the opportunity hopefully where they’ll be — we’ll see better financial performance, which is enabling them to allocate capital to trucks. You know, keeping their fleet at a reasonable age is good for them. And it’s also good for them from an operating cost standpoint when they’re buying the Kenworth, Peterbilter DOF trucks, they’re getting a highly efficient truck into the fleet. So they’re taking out something that has lower fuel economy from past and now is the best fuel economy possible for them. So it’s a good operating performance benefit. But it’s kind of a tie of their financial performance and then the truck replacement cycle that they’re trying to keep up with.

Scott Group — Analyst, Wolfe Research

Okay. And then maybe just lastly, orders have doubled year-to-date versus what they were doing a year-ago and you’re still talking about a competitive pricing environment. Why do you think we’re not seeing a bigger or faster improvement in pricing?

R. Preston Feight — Chief Executive Officer

Well, I think that the orders are sometimes around multi-year things and there’s some projections on orders and I think orders isn’t the cleanest thing to measure. I think it’s probably a more clean measure to look at what’s happening in the industry through build. And if you look at build, that gives you a clean indicator of where things are. So the cleanest way to look it is build and retail. If you build it, you’ll retail it. Orders don’t necessarily for everyone come through the same way. But with a 31.8% of build-in Q1, we feel-good about the position. And we do still think that there are some orders left in the second-half to be had.

Scott Group — Analyst, Wolfe Research

That makes sense. Thank you guys.

R. Preston Feight — Chief Executive Officer

Great. Have a good day.

Operator

Your next question comes from the line of Steve Bolkmann of Jefferies. Your line is open. Please go-ahead.

Steve Volkmann — Analyst, Jefferies

Thank you. I figured it out this time. Just a quick follow-up. I wanted to hit that off. So just a quick follow-up. I know you guys give sort of average prices in the 10-Q. I’m just curious if you might have those available for truck and parts, if not, I’ll wait for the queue.

Brice Poplawski — Chief Financial Officer and Senior Vice President

For the first-quarter compared to the first-quarter last year, you’ll see price up 2% and you’ll see our cost, unfortunately is up higher than that. So that made our margins down on the truck segment. And then price on the parts side was up 6%.

R. Preston Feight — Chief Executive Officer

But I think if you look at sequentially, you’d see price was roughly flat, cost was down sequentially for truck more than 1% and sequentially for parts, price was up a couple of percent and cost was only up 1%.

Steve Volkmann — Analyst, Jefferies

Super. Thank you so much.

R. Preston Feight — Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Tim Thine of Raymond James. Your line is open. Please go-ahead.

Tim Thein — Analyst, Raymond James

Great. Thank you. Thank you. I’ll just start. First question is just on the customer mix within the backlog and how that may or may not be influencing the truck margins. And so I’m just thinking, Preston, on the on-highway side, at least in North-America, you’ve always skewed more towards the small and mid-sized fleets, perhaps not as much today as you once did years ago. But and that presumably that some of the and the fluctuations we’ve seen in diesel costs can sometimes hit those smaller carriers a bit harder. So I’m just curious if that’s — is that not the only factor, but essentially the punchline is, is there a mix view within how you’re filling the backlog between some of those large mega fleets versus your historical kind of bread-and-butter small fleet.

R. Preston Feight — Chief Executive Officer

Hey, Tim, I think that’s a — it’s an interesting concept gives me a little thought, but I don’t really think that it’s significant in terms of that. I think we’ve kind of got a broad mix of customers that are buying trucks right now. I agree with your thought that the fuel surcharges are maybe more cash impactful to the smaller customers, while they in fact everyone that may be more sensitive to it. But I don’t think it’s really informing what’s going on. I think it’s just that we’re seeing the beginning of a market recovery. We’re seeing things starting to improve for most all of our customers. They’re starting to get better rates, they’re starting to buy more trucks. And so I think it positions PACCAR well for the next coming period of time, right, for next quarter and beyond, for the year and beyond for a strengthening market and a strengthening performance.

Tim Thein — Analyst, Raymond James

Okay. Thanks,. Maybe another one relevant for this deep in the queue, but it relates to the lease and rental customers. Sometimes we think about them being — they can be a bit of like a canary in the coal mine when truckload markets inflect, you start to see a pull on lease and rental fleets. I’m just looking at — the lease fleet, I guess similar to what you would see in some of the big publicly-traded lease rental guys has been declining quite a bit over the past few years. I’m just curious if you’re starting to maybe see any change in terms of utilization or aspirations to maybe reverse that and start expanding the PAC lease fleet? Just anyways, just kind of what-if any clues you’re picking-up from that cohort of your customer-base.

Kevin Baney — President

Good. Yeah, we’re seeing a little bit of increase in the utilization, but also another indicator would be the used truck market. And we’re seeing price utilization and volume demand starting to strengthen as well. So I think between the beginnings of the increase on both of those factors is just another indication that we’re starting to see the market improve.

Operator

All right. Good stuff. Thank you. There are no other questions in the queue at this time. Are there any additional remarks from the company?

Ken Hastings — Director of Investor Relations

We’d like to thank everyone for joining the call and thank you, Miriam.

Operator

Ladies and gentlemen, this concludes Packer’s earnings call. Thank you for participating. You may now disconnect.