帕卡 (PCAR) 2009 Q3 法說會逐字稿

Good morning, and welcome to PACCAR's third quarter 2009 earnings conference call. All lines will be in a listen-only mode until the question and answer session. (Operator Instructions) I would now like to introduce Mr. Robin Easton, PACCAR's Treasurer.

Mr. Easton, please go ahead.

Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Robin Easton,Treasurer of PACCAR. Joining me this morning are Mark Pigott, Chairman and Chief Executive Officer, Ron Armstrong, Senior Vice President, and Michael Barclay, Vice President and Controller.

As with prior conference call, if there are members of the media participating, we request that they participate in a listen-only mode. Certain information presented today will be forward-looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results. I would now like to introduce Mark Pigott.

Good morning. PACCAR today announced improved third quarter revenues of $2 billion and net income of $13 million. These encouraging results reflect the continued impact of a recessionary economy on freight shipments and truck purchases.

I'm very proud of our 15,000 employees who have delivered positive net income to our shareholders and customers in very challenging business conditions. PACCAR is dedicated to delivering exceptional quality products and services, outstanding shareholder returns, and environmental leadership. PACCAR has proactively addressed the cyclical nature of the business by aligning operating expenses, capital expenditures, and research and development with current market conditions. SG&A expenses for the first nine months of 2009 have been reduced by $117 million, or 32% from 2008 levels.

Turning to the market, the US and Canadian truck markets have been in a recession for three years, but now seem to be improving slightly. Industry new orders of Class A trucks have increased in each of the last four months. Industry retail sales this year are expected to be 100,000 to 110,000 units.

Looking ahead to 2010, we estimate that industry retail sales in the US and Canada will be 110,000 to 140,000 units, which could be a 10% to 40% improvement on this year. European truck markets will be up 170,000 to 180,000 units this year. The economic recovery in Europe is lagging behind North America in most industries. In the truck industry, we see truck sales in Europe for 2010 are estimated to be 150,000 to 180,000 units, comparable to 1992. The good news -- DAF achieved record market share of 14.9% in the first nine months of this year. That's the highest market share they have had in their over 75-year history.

Overall, I am pleased to report that PACCAR is one of the few global companies in the automotive sector to earn a profit this year. While profits have been lower than we would have liked, net income is positive. We have achieved excellent operating cash flow of $1.2 billion over the last four quarters, and we have a strong balance sheet reflected in our AA- credit rating. PACCAR's excellent liquidity with a healthy cash balance of $2 billion and syndicated bank lines of $3 billion. During the year, PACCAR has raised over $1 billion in medium term notes and is well positioned for the remainder of this year and 2010. Importantly, shareholder equity has increased and we continue to invest in new products, facilities, and efficiency enhancements.

PACCAR financial services pretax income was $18 million in the third quarter of 2009 compared to $45.5 million earned in the third quarter last year. A smaller portfolio, higher borrowing costs, and credit losses impacted the profitability. The good news is that the provision for credit losses in the third quarter was $26.6 million compared to $29.1 million in the second quarter. Pretax profit in the third quarter was $2.5 million higher than the second quarter. Additionally, accounts 30-plus days past due represented 4.4% of the portfolio at the end of the third quarter compared to 4.7% at the end of the second quarter.

We have been encouraged by the continued stabilization of used truck prices in the US and Canada, as well as used truck pricing in some European markets. Kenworth, Peterbilt and DAF Trucks are extending their retail and resale leadership position due to their clearly defined quality advantages. Speaking of quality, PACCAR's intense focus on customer satisfaction has resulted in Kenworth trucks earning the J.D. Power customer satisfaction awards in all segments of the Class A industry this year. PACCAR has earned 30 J.D. Power awards in the last 11 years, five times that of our closest competitor -- a remarkable achievement. In addition, Peterbilt has earned the medium duty J.D. Power award in 2009. Our customers worldwide are the real winners.

While conditions remain challenging in the industry, our customers are benefiting from stable diesel prices, low driver turnover, and a slight increase in freight tonnage during the third quarter. Our 1900 Kenworth, Peterbilt, and DAF dealer locations are leading the commercial vehicle industry in customer service. They have invested in their facilities and operating efficiency and have prudently managed their balance sheets to profitably grow business when the markets recover. Inventories of new trucks at PACCAR dealers are low, which is good. And as I've shared with you earlier this year DAF dealer, new truck inventory continues to improve, declining another 15% in the third quarter, which equates to approximately EUR100 million lower wholesale receivables.

In summary, PACCAR has invested $3.5 billion in the last decade to enhance its operating efficiency, develop new products, strengthen its dealer network, and become an industry leader in information technology. Our manufacturing facilities and distribution centers are achieving record quality and productivity, which positions the Company for strong performance as the industry returns to a normal vehicle replacement cycle.

Thank you. I look forward to your questions.

(Operator Instructions) Your first question comes from the line of Meredith Taylor of Barclays Capital.

Hi, good morning.

Good morning, Meredith.

I'm hoping you can talk a little bit about your expectations for how growth margins can trend over the next several quarters. And maybe just to set the stage, if you can talk about the modest decline you saw in gross margins sequentially in the truck business. I realize that aftermarket was a lower percentage of total sales, but, if I apply the same parts gross margins that we saw in the second quarter, it doesn't account for all the difference.

Were there some factors with respect to regional mix, factory utilization, or pricing that impacted the second quarter to third quarter move in gross margins and then if you could talk about how that rolls forward, that's great. Thank you.

Great question. Gross margins, are made up of many different groups within the Company. Europe, between the third and second quarter continued to have a challenging time and throughout the entire industry. In fact, I would say throughout most industries in Europe, so that definitely had an impact. Going forward as the economy improves, we would expect that our gross margins would improve also, and I think nothing unusual in any aspect of the business, except our team doing a good job of working through a very difficult recession.

Okay. And then, maybe if you can talk a little bit more about the outlook for 2010 in Europe. Specifically if you can give us some color around the scenario that would define the low end of the 150,000 to 180,000 range. We seem to be hearing from some of your peers that the end market demand at least feels like things are bouncing alone the bottom, although a recovery may be sometime off. How should we be thinking about the low end of your scenario and maybe some likelihood that you assign to the low end versus the high end?

Good question. Well, we look at it as a range. We tend to be more on the conservative side than some of our competitors and we certainly would like it to be at the top end of that range. Europe is working through its own recession and has its own challenges versus the North American economies -- similar, but different. And a split now between a Northern European recovery -- maybe a little bit sooner than a Southern European -- and I think we're just -- as we look out for the next 14 months to 15 months, we're just trying to give a realistic, conservative range, but as you pointed out, we would always like to be at the upper end of that range. And that's the way the economies bear out.

Okay. Thanks so much.

Thank you.

Your next question comes from the line of Jamie Cook of Credit Suisse.

Hi, good morning. Or good afternoon, I guess, depending on where you are.

Excellent analysis in your first paragraph.

Couple of questions. One, on PACCAR finance, I was encouraged by again this quarter we saw some sequential improvement. It seems like the US and Canada has made the most progress. Can you just talk about Europe -- when you see that market, that market bottoming. And then my follow-up question would be -- you gave an outlook for the US, you gave it for central and Western Europe, but what are you seeing in the rest of world, which are probably driven more by emerging markets, we're hearing signs emerging markets, their economies continue to improve, so I'm just wondering how we should think about that in 2010, or what your customers are telling you.

Okay, are you talking about Asia?

Just in -- anything that would be in your rest of world bucket.

Oh, okay. Ron, why don't we talk about the finance company?

On the finance company, we have seen, as Mark mentioned, some gradual improvement in our past-dues, which I think is reflective of our overall portfolio performance. Losses in our European portfolio peaked in the second quarter with a slight improvement in the third quarter. So still very challenging, but the trends are good.

And picking up on the second part of your question, we look at South America, seems to be doing reasonably well. I think a number of the competitors have commented on that. Australia's strong. We're increasing build rates there. Asia, the strongest economies in the world, particularly China and to some extent, India. Those markets are good. We don't have that much interface. We do sell some and to some of the countries, but like all of our competitors, it's a limited market, but certainly the Asian markets are by far the strongest.

And then two, sorry, quick follow-up questions. How do we think about -- I don't think you mentioned in your prepared remarks -- production in Q4 versus Q3. And then you said dealer inventories -- DAF dealer inventories were down 15% sequentially. How should we think about that in the fourth quarter?

In the fourth quarter for DAF inventory --.

For DAF dealers.

We continue to see a steady progress on reducing the inventory. They are down now several year low or comparable to a couple years ago, so that's very healthy and very encouraging for our dealers. And as far as if you go forward, instead of selling out of dealers stock, they will be placing orders on the factory. That will take some time. But over the next year, we see a positive step that way. And--

Then the last production for the total Company?

-- inventories we're in very good shape.

Production for Q4 versus Q3?

I think in North America, it should be some improvement. Orders are coming in. As I mentioned, throughout the industry we're seeing month on month increase for the last several months. Some of that may be slightly impacted because of the 2010 emissions. But I think just generally the economy I think is getting a little bit better. In Europe, I think the production will be comparable to down versus the third quarter. So, Europe's about six months to 12 months behind North America throughout many, many industries in terms of recovery.

Okay. Do you think North America and Europe offset one another so we're about flat or still slightly down?

I think at this time to be conservative, I'd say they are comparable in terms of offsetting, but we'll obviously know more as time goes on.

Thank you. I appreciate the color.

Thank you. Good questions.

Your next question comes from the line of Andy Casey of Wells Fargo.

Good morning, Andy.

Good morning, Mark. Good morning, everybody. Quick question on a detail point on the $4.2 million restructuring. What line item does that get attributed to?

That's in the cost of sales line.

Okay, thank you. And then on a broader level, you talked about the used truck pricing stabilizing in North America and then most of Europe. Can you talk about what you're seeing in terms of new truck pricing trends, just on an industry level. Are those coming down, or are they still fairly aggressive?

I think used truck pricing in the US and Canada -- or new truck pricing in the US and Canada is improving slightly. In Europe, I would say it's probably pretty steady what it's been for the last three to six months.

Okay, and then when we look at some of the profitability metrics for you guys in the quarter and then some of your loose peers, it seems like there's been a benefit related to input costs. I know volumes are depressed, but did you notice any of that during the quarter?

When you say input costs, what, what are you thinking about?

Oh, as an example, the material used to make your trucks. Not so much --.

So, what you're saying is we seem to be doing a little bit better than the competitors outweigh, is that what we're getting at here?

No, no, no, it's just been a trend. You always do better than your competitors.

Thank you.

There's been a trend through this earnings season where input costs have benefited as people work through higher cost inventory and-- .

And lower commodity pricing?

Yes.

Okay, yes, good question. Certainly the commodities have come down from their bubble of a year or so ago, which was probably unrealistic and it's certainly benefited the commodity companies, but the rest of any industry that view that commodity saw their cost go up. So that's been some benefit. It certainly has not recaptured where we think it should be compared to four or five years ago -- whether it's petroleum or aluminum or copper or precious metals. We may not ever see those days, but there's been some improvement.

I would just like to take one point in terms of the pricing and the used truck values. I think it really comes down to quality. That's really where we're focused on. And we always have been. And whether it's the J.D. Powers or just the market price on used trucks and the used truck lot, that's the main differentiator is -- PACCAR's focus on quality.

Okay.

That has an impact too.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Joel Tiss of Buckingham Research.

Good morning, Joel.

How's it going?

We're making progress.

Of course. And can you talk at all about what's happening to the rates on your leasing book? Are they rising, flat, falling -- just a sense?

I think overall market rates are down, so the rate that we charge our customers are down somewhat over the year, but our margins, we continue to get good competitive margins. We're there for our customers and our dealers.

The big swing in the wholesale receivables, is that you just shrinking your financing book in line with the changes in the industry?

It's primarily, as Mark mentioned, the 15% reduction in dealer inventories in Europe that we saw and we've seen that decrease each of the prior quarters this year.

Do you have a number on how many used trucks are parked out there, something that can point us maybe to the relative change in the last two quarters?

The used trucks?

Yes, the idle trucks.

I think it's going down. We don't have a number. We obviously talk with our customers about that on a regular basis and there's many -- of course you've seen many of our customers have reported reasonable earnings over the last month or so and as we talk to them, there are just fewer and fewer new trucks parked and the used trucks with the prices stabilizing are coming into service, so I think that's not -- that's actually in pretty good shape.

Yes, okay. I heard it was as high as 150 to 170 and it sounds like it's down more close to that 120.

Well, I think it is down. Obviously used truck pricing is a function of how much inventory is available and as you reduce the inventory, the pricing tends to stabilize and then of course you have the factor of new truck pricing that bears into it. So I think used trucks are in reasonable position.

Thank you very much.

Good, thanks, Joel.

Your next question comes from the line of JB Groh of DA Davidson.

Good morning, JB.

Good morning, guys. I was a little off on my model on SG&A and I had to hop on a little late. Maybe you could give some color as to why that went up sequentially. Is there something in there that I'm missing? I heard the restructuring was in cost of sales. So what was the swing factors there relative to Q2?

The SG&A?

Your selling and administrative expenses of $87.4 million versus $79.2 million last quarter.

There's a couple factors. One, our second quarter benefited from trend accrual through [ups] that we made and the third quarter also has a little bit of -- while exchange rates are down compared to prior year, they're up sequentially from the second quarter, so it's a bit of an exchange rate movement there as well.

Okay. So it's a little bit of a Q2 impact and a little bit of Q3 impact.

Pretty comparable really.

Right, okay. Maybe, Mark, you could talk about -- maybe the timing isn't perfect for this kind of thing, but your acquisition thoughts currently and thoughts about cash deployment.

That's a great question, something that obviously we spend a lot of time reviewing. PACCAR, as you are intimating, is in very good financial shape and we are strategically reviewing opportunities, have nothing to report, and -- but are in good position to see if there are some business opportunities we should take advantage of, in addition to continuing to invest in our current divisions, which continue to improve their efficiency and quality. So we're in good shape and are reviewing opportunities.

Okay, thank you.

Thank you.

Your next question comes from the line of Henry Kirn of UBS.

Good morning, Henry.

Hi, question on the 2010 engine. Is it possible to give a little color around the incremental pricing there and maybe any preliminary thoughts on the demand for it.

Well, I think the pricing has been out in the public for at least half a year and that's $8,000 to $10,000 increase in pricing for 2010 engines. 2010 engines are ready to -- ready to go. They are in good shape and obviously our customers and our industry work through a emission enhancement about every three years. I think it was our fourth or fifth one in the last dozen years. And I think as the history's shown us, the engines perform well. They deliver good performance. Customers get used to it, and it really becomes a nonfactor after a while. So I'm sure this one will play out along a similar vein.

I guess the question -- this is the customers in North America first chance to buy one of your engines, so have you--

Well, that would be a special treat. Our engines are performing well and 50-year history and we've got tens of millions of miles of evaluation and testing and we're looking forward to having those engines in Kenworth and Peterbilts next year.

And are there any more benefits from the plant closures in the next few quarters, or is that now behind us?

When you say benefits from the closures--

Financial benefits?

Right, the one-time benefit from the healthcare program at the one plant in the quarter.

Yes, that's a one-off.

Okay. That's helpful. Thanks a lot.

Thank you, good questions.

Your next question comes from the line of Adam Uhlman of Cleveland Research.

Good morning, Adam.

Hi, good morning. I was wondering if we could -- just a follow up on that last question, if we could talk a little bit about the Madison plant. What was the capacity there, or maybe another way to look at it, what percent of your total domestic volume did that represent? And then could you put that into context into what your view is of the long-term market? Doesn't look like you changed your forecast of replacement demand of 225,000 to 250,000 units. That either implies that you think you can make up the volume at your other Peterbilt plants or something else is unfolding there, so could you talk through that?

It's a great question. I think the answer is in your question. That is we will make it up at our other facilities, which through the last, well, decade or more, we continue to invest in, as we invest in all of our facilities. And without really increasing the footprint, we have enhanced the capacity by between 50% and 100%. And so it's a very difficult decision obviously to close any factory, it has a real impact on our business colleagues, and that's a very sad time. It was a necessary decision.

But in terms of capacity and our customers and our dealers, actually I think there will be some benefits, so if we have sufficient capacity to meet a strong in a boom market and of course there's always a benefit of running more product through one or two factories versus two or three factories. I think we're in very good shape.

What do you think your capacity is at the other facility today. Does the 50% to 100% increase that prior investments helped you get, does that help you meet next cycled peak?

Absolutely. Yes, it does. Yes.

Okay, and then just a second question here. Could you talk about how you're planning your inventories for the remainder of the year, and as we go into next year. Because it sounds as if one of your competitors is stockpiling some engines to build a cost advantage for next year. Wondering how you're positioning the Company for that.

And then also, PACCAR's going to need some of the 13-liter engines over from Europe and there's some longer lead times with that product. So I wonder if you have to take on more engine inventory to support demand for next year.

Good, good questions. Well, in terms of the way the industry typically approaches these emission changes, there's a transition time of about one quarter or perhaps slightly more. I think PACCAR has shown through almost every one of these transitions that we typically are the first Company to transition completely to the new EPA emission regulations and we think that's what excellent companies do and we obviously are an excellent Company. So I can't really comment on what the competitors do. Sometimes they are looking for any advantage they can get and -- but, we're taking on some inventory, but I think like the rest of the industry, we'll transition through in the first quarter.

Great, thanks.

Thank you.

Your next question comes from the line of Steve Volkmann of Jefferies.

Good morning, Steve.

Hi good morning. Just a quick follow up on the finished goods inventory that you and your dealers have. Would you expect the reduction in that to be running its course through this year and then be done as we get into next year, or would you be expecting further reductions this year?

That's a good question. I think North America, Europe, a little bit different. In North America, our Kenworth and Peterbilt dealers are in excellent position. Their inventory is quite low, so we would expect as the economy improves they would increase their inventory in line with strong markets that we've experienced many, many times.

In Europe, which is six months to 12 months behind North America, as we indicated, we expect the inventory to continue to decrease, but as it stabilizes -- middle of next year -- we would think that inventory would actually increase at our dealers. They would be in very good position there in Europe.

So sounds like for the full 2010, you could actually be producing a little bit above retail demand as some of this restocking occurs. Is that the right read?

That -- we've seen some of that in the past. Looks really, this is a difficult, challenging recession, which we've managed through very well. That would be an optimistic scenario. So I would say let's see how that unfolds.

Fair enough, thanks. And then do you have orders yet for your 2010 engine-driven trucks, or is it all still for year end?

It's primarily year end. We have many customers who are looking forward to the PACCAR engine.

But no orders yet.

Not at this time. It's just transitioning through. People are -- some are starting to put a few in for the first quarter. The normal transition.

Great. Thanks very much.

Thank you.

Your next question comes from the line of Andrew Obin of Banc of America - Merrill Lynch.

Good morning, Andrew.

Good morning. Just a question, follow-up on question on the engines. Given what's happening in the economy, and I understand that you've left your forecast unchanged. Are you in any way adjusting your thinking as to when the North American engine plant is coming online and how long you are going to source engines from Europe? And also how does FX figure in your considerations?

I think it's pretty much in line with what we've been discussing over the last couple of years. The factory itself, the building is complete and we've got a very good team there and we will start bringing those engines in from Europe, as always was our plan -- next year -- and transition into machining and assembling them as time progresses. And I think we're in very, very good shape and as the factory gets going, we would certainly enjoy having you and your colleagues come down for a tour. We can show you the kind of investment that PACCAR is making.

But no changing in your thinking on the time line?

No, I think it's in line with what we've talked about in the last year or two.

Thank you very much.

Thank you.

Your next question comes from the line of Kristine Kubacki of Avondale Partners.

Good morning, Kristine.

Good morning. I was a little surprised on your comments on new truck pricing. These are maybe some comments that you made last quarter and then what we've been hearing out of some of the bigger fleets recently. Can you talk a little bit about the mix in the US and the trend toward fleet sales. Obviously with the owner/operator and the smaller fleet having access to credit and less capitalized, how do you see your target end market in 2010? Is it more focused on the fleets? What does that do to margins and how do we think about that going forward?

You know, that's a good question. I think it's -- 10, 20 years ago, the owner/operator and the smaller companies were certainly a major portion of our business. But I would say for the last decade, they have been a very small part as owner/operators tend to align themselves with larger fleets. Many benefit whether it's fuel price or healthcare or the availability of getting freight loads.

So I think in terms of our customers, there's been really not that much of a change for quite a few years. I think your question's a good one and I think it's a little bit of a -- let's call it an older take -- that some people still associate with PACCAR. But our customers are -- run the gamut from one truck to many thousands of trucks, and certainly the majority of the customers are mid and large size fleets nowadays and that's who we sell to.

Fair enough. I was wondering, if you did comment or -- can you talk a little bit about where you are in the certification -- in the EPA process for your 2010 engine?

We're right in line. We're in great shape.

So you don't expect any delays?

No, we don't.

Okay, very good. Thank you.

Good questions, thank you.

Your next question comes from the line of Jerry Revich from Goldman Sachs.

Good morning.

Good morning and good afternoon. Mark, I'm wondering if we can discuss bookings in Europe. We are seeing book to build recover in north of one for your competitors, I guess based on their share gain comments that you made and we're seeing in the industry data. Is it fair to say that your bookings are better than that?

Explain your terminology. I want to make sure. Sounds kind of fancy. What do you actually mean?

So orders divided by shipments, just total units. So total unit orders divided by total unit shipments.

Yes, I -- no, our orders and shipments are very much in line and have been for probably a few quarters. If you're thinking -- a year or two ago, probably working through a backlog, as many people were -- that backlog has aligned itself with the order intake. So it's a pretty stable. I think we're gaining share because people love DAF products in Europe and we've got a strong dealer network and that's all a good thing.

And from a production standpoint, we're seeing your competitors increasing production. Obviously they have had a bigger inventory overhang than you have had, but are you increasing production as well now that you've got the inventory situation closer to being ironed out -- talking sequentially obviously and not year-over-year.

Right, right. I'm not sure our competitors are increasing their build. We know our competitors pretty well, but whatever they say we'll go with. I think almost everybody in the industry is keeping build pretty constant.

Yes, I guess I was referring to [Fisconia] but maybe some of the others are moving in different direction. On the orders for the North America market, it sounds like you're seeing a bit of a recovery there. We have one of your competitors looking at -- in the third quarter, orders being literally up three times what they were in the second quarter. Is that the magnitude of recovery that you're seeing as well?

We're seeing improved orders, as we mentioned for Kenworth and Peterbilt, which is good. It's been in a recession for three years and the team has done a fantastic job. Hopefully we're starting to see the economy improving and we'll benefit from that.

And I think Kenworth and Peterbilt share has increased in the last quarter or so. I don't know what the competitors are talking about. Sounds like we're trying to catch some kind of good news going.

Thank you very much.

Thank you.

Your next question comes from the line of Patrick Nolan of Deutsche Bank.

Good morning, Patrick.

Good morning. Most of my questions have been answered, so I have a rather quick follow-up.

Sure.

So if the volumes play out like you're thinking next year, you've done a really good job of controlling the R&D this year, as well as the CapEx. If the volumes play out the way you're thinking next year, where do you see both of those items going?

Well, that's a good question. In our press release, we just had a very simple one-line note saying we would look to increase CapEx and R&D as the economy recovers. Obviously our industry has spent a lot of investment on getting ready for 2010 engines so that tends to decrease and as it decreases, we would look at increasing the amount that we're investing on new product development and continuing to enhance our factory productivity. So the economy improves. There are certainly many wonderful projects that will deliver results throughout our Company and to our shareholders that we are eager to embark on.

Is the CapEx for the new engine plant in North America, is all the tooling in place as well or is there going to be a CapEx associated with that to begin production as well.

There will be some CapEx associated with that as well for the tooling.

And what should I think about the tax rate in the fourth quarter? It seems to be pretty volatile lately.

Well, it is pretty volatile because it reflects their -- our country mix and when you're at these levels of profitability, you get many changes. You could expect the full year rate to be 24%, 25%, so we would expect the fourth quarter rate to be up a bit.

Okay, great. Thank you very much.

Good questions. Thank you.

Your next question comes from the line of Ann Duignan of JPMorgan.

Good morning, Ann.

Hi, guys. How are you doing?

Good. Thank you.

I want to step back to the topic you discussed a little bit earlier -- and that is your mix of business hasn't really changed that much. However, you have lost a pretty significant amount of market share -- if I look at September '09 year to date, your market share is about 23.4% and a year ago September year to date '08 it was about 25.7%.

I wouldn't say that's significant. It's almost less than one point.

I know how you guys usually measure to two -- or three decimal points.

We measure net income and quality performance, Ann. That's what we measure.

Yes, but how can you explain the difference between no change in mix and your competitor Navistar has gained significant market share? Just curious how you reconcile both of those.

Well, I can't really comment. I know that many of our competitors sell at losses and drive for market share. That's not our focus -- never has been in 105 years. We pride ourselves on best return to our shareholders, quality products, quality people, great dealers, and that's our focus. And I'd say our market share is essentially flat with last year. And as I mentioned in Europe, it's up -- it has been going up over the last 10 years. So that's all we can say.

Okay, and just back to the 13-liter engine coming over from Europe, when will your first truck with that engine ship?

As soon as it ships, we'll tell you. We're looking middle of next year.

Middle of next year. Okay. Most of my other questions have been answered. Thanks.

Thank you, Ann.

(Operator Instructions) Your next question comes from the line of David Leiker of Robert W. Baird.

Good morning, David.

Good morning. I just want a clarification here. If we look all the way back to I think it was the first question. Sequentially revenues are up pretty meaningfully with the profits -- gross profit numbers about the same. I think your comment was just the European, the performance in the European market, is that correct? Just clarification on that.

I think we were talking about margins early on. Is that what you're indicating?

Yes, your gross profit is up sequentially, while your revenue is up about $150 million.

Yes, okay.

Q3 versus Q2.

All right.

And I think you're comment was that that was due to Europe, or is there something else there? At work there?

I think that's fair. Europe had an impact.

Okay, and as we look forward here into Q4 versus Q3, is there anything on the cost side or the profit side that you would think would be different excluding volume? Are there any pluses or minuses we should be aware of as we look at Q4.

I think there are probably pluses and minuses as we look at Q4, as we've indicated with some of the questions. There's an increase in volume in the US and Canada.

Right.

As the economy recovers a little bit, and typically that has some benefit on the margin side.

Right.

Whereas Europe, six months to 12 months behind North America continues to fight through the market, probably comparable to where the US and Canada was a year ago.

Okay. And then the thought here on the US, with the used truck pricing better. Is your sense that that's starting to drive some better capacity utilization, that these upticks in orders we're seeing are end market demand doing better? As opposed to more pre-buy? What's your sense on that?

Are you talking about general freight for the industry?

And then this uptick that we've seen in orders here in Q4, if that's really end market demand driving it, more than pre-buy on the 2010 engines.

Well, it's probably a bit of both. A bit of both.

Yes, I think in general, the general economy, we're still in a recession. Unemployment continues to grow throughout our country. Car production's at a 20-year low. Housing starts are at a 50-year low. So, that's the real world.

I know we get excited about what politicians, economists and TV people say, but in the real world, it's -- there are plenty of challenges out there. So there's some freight, maybe a little bit more freight moving and the freight companies, our customers have done an excellent job of managing through it. They are getting probably a little bit better utilization of their fleet, which is healthy, but it's still plenty of challenges out there.

Okay, great. Thank you.

Thank you.

There are no other questions in the queue at this time. Are there any additional remarks from the Company?

I would just like to thank everyone for their excellent questions. Thank you, operator.

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