帕卡 (PCAR) 2013 Q4 法說會逐字稿

Good morning and welcome to PACCAR's fourth-quarter 2013 earnings conference call.

(Operator Instructions)

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. 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, and joining me this morning are Mark Pigott, Chairman and Chief Executive Officer; Ron Armstrong, President; Bob Christensen, Chief Financial Officer and Executive Vice President; and Michael Barclay, Vice President, Controller.

As with prior conference calls, 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. It's a pleasure to share that, in 2013, PACCAR achieved record annual revenues and earned our third best annual net income. For the year, PACCAR reported record revenues of $17.1 billion. Net income was $1.170 billion, an increase of 5% versus a year ago. 2013 was PACCAR's 75th consecutive year of earning a net income.

Having been at the helm of this great company for each of the top 10 years for revenue and net income, I can say that each year has its own unique path. What is consistent is the quality and determination of our 22,000 employees who deliver industry-leading products and services to our customers every day.

PACCAR reported strong revenues and net income for the fourth quarter of 2013. PACCAR's fourth-quarter sales and Financial Services revenue were $4.6 billion, and quarterly net income was $334 million, an after-tax return on revenues of 7.3%. This was the best quarterly net income since the first quarter of 2007. Net income increased 32% compared to results generated in the fourth quarter last year.

Positive contribution of all the Company segments enables PACCAR to attain the highest operating margins in our industry and to deliver excellent shareholder returns, while investing during all phases of the business cycle. PACCAR declared cash dividends of $1.70 per share last year, an 8% increase compared to 2012. PACCAR's total return to shareholders was 34.9% last year, and stockholder equity at year end was a record $6.6 billion.

PACCAR delivered 36,400 trucks during the fourth quarter, a 3% increase versus the third quarter. The improvement reflects increased European truck deliveries as customers purchased trucks ahead of the January 1, 2014 implementation of the Euro 6 regulations.

PACCAR began production of many new vocational vehicles in the fourth quarter; he Peterbilt model 567, the Kenworth T8-80, and DAF CF and LF Euro 6 models. In addition, we began production of the new PACCAR MX-11 diesel engine for Europe. This engine is planned to be available in Kenworth and Peterbilt trucks in 2015. We expect to increase truck deliveries in the first quarter by 5%, compared to a year ago.

A major highlight during the fourth quarter was the start of production at DAF's new truck assembly plant in Brazil. This wonderful accomplishment was due to the efforts of many PACCAR employees worldwide. Truck production of the DAF facility is planned to gradually increase over the next 18 to 24 months. DAF has a long-term market share goal in Brazil of 20%. Brazil truck market above 6 tons was 149,000 vehicles last year and is expected to be at comparable levels this year.

Peterbilt and Kenworth achieved excellent market share of 28% in the US and Canadian heavy-duty truck market last year. Industry retail truck sales totaled 212,000 units. US and Canadian Class 8 industry truck retail sales are estimated to be in the range of 210,000 to 240,000 units this year, reflecting ongoing replacement demand and some expansion of the industry fleet.

For the full year, DAF achieved record market share of 16.2% in the above 16-ton European truck market, which totaled 240,000 units last year.

Looking at this year, we're encouraged by the improved GDP growth of the Eurozone, which should benefit the truck market. Excluding the effects of the pre-buy, which is estimated at 20,000 to 30,000 units, we anticipate that the European industry truck sales could be slightly higher this year.

Switching to parts, PACCAR parts business generated record quarterly revenues of $730 million, a 9% increase compared to $671 million in the same quarter of the prior year. PACCAR parts quarterly pretax income was $105 million, an increase of 12% compared to $94 million earned in the fourth quarter 2012. The excellent results were driven by strong freight tonnage, improved fleet utilization and the many innovative products and services offered by PACCAR parts. For the full year, PACCAR parts achieved record revenues of over $2.8 billion.

PACCAR Financial Services revenue were $300 million in the fourth quarter, compared to $298 million a year ago. PACCAR Financial's fourth-quarter pretax income was a record $90 million, compared to $79 million earned a year ago. The excellent results benefited from growth in asset balances and continuing strong portfolio performance. For the full year, PACCAR Financial Services earned record pretax income of $340 million. Many records last year.

PACCAR's capital spending of $350 million to $400 million this year is targeted at enhanced powertrain development and increased operating efficiency of our assembly facilities. R&D expenses are estimated to be in the range of $225 million to $275 million.

On a personal note, I'd like to say thanks to the excellent questions that you have generously asked on our quarterly calls during the last 17 years. It's an honor and a privilege to work at PACCAR, and I appreciate your interest in the Company as you tour our wonderful factories and meet our outstanding employees. Thank you.

Pleased to answer your questions.

(Operator Instructions)

Jamie Cook, Credit Suisse.

Congratulations, Mark. Just a couple questions -- just one, you talked about deliveries, I think, being up 5% in the first quarter. Can you talk about what you expect the mix is versus US versus Europe? And then I guess also any color you're seeing in order trends in Europe as we look to January, given the strong pre-buy that we had?

And then my last question -- how are you thinking about ability to improve margins in 2014 over 2013 given your retail sales forecast? Thanks.

Let's start with margins. We think margins for the first quarter will be comparable to about a year ago.

Is that on gross or operating?

Gross margins. And in terms of production, first-quarter versus fourth-quarter, probably be down about 10%, and most of that is in Europe. But as I say, year-on-year production will be up about 5% so we're pleased with that. And as the year goes on, we look for some steady improvement in the margin side.

All the Kenworth, Peterbilt, DAF are all doing a very good job and all the new products that we've been working on for the last three or four years seem to be met with very strong market reception. Customers like it. They are delivering all the attributes we wanted and I think when we look at things like record market share at DAF it's very positive signal for the Company.

Last question. How do you feel about your ability to pass through -- fully pass through the Euro 6 cost? Is that margin accretive, is it margin derivative --

I think we've been able to do it reasonably well and obviously that's our goal, and it's been our goal every year or two as we have new environmental regulations to comply with. So that's certainly something that I think we're becoming quite proficient at incorporating into our designs and working with our dealers to pass through most of that additional cost.

All right. Thanks. I'll get back in queue.

Thank you.

Stephen Volkmann, Jefferies.

Wondering if I can switch over to Brazil. I know you mentioned that you would see gradually improving production rates down there. I'm trying to maybe get a little bit sharper pencil on that.

Really what I'm trying to get at is, thinking about the impact on profitability in 2014. I assume it's a drag, as it was in 2013, but less of a drag, and I don't know as we end the year is that business breakeven or is that too optimistic?

The good news is we're doubling production in a week or so from one truck to two trucks a day. That's always positive.

Can you do that every day?

If you've got the magic wand, we'd be interested. So it's going well. Obviously, it's a multiple-year program as we gradually ramp up production, but we're encouraged in the early days and I think as we get towards the end of the year, certainly we hope to be at least breakeven at the facility. So I think your analysis is accurate.

Okay. Great.

And then, I guess just back on Europe for a second and then I'll pass it on. The registration data in Europe was huge in December -- much bigger than what your revenues might suggest. And I guess I'm trying to figure out just how this whole cadence worked.

Was there some inventory build that happened and then things got registered out of inventory in the fourth quarter? Or -- it doesn't look like your market share changed in any negative way. I think it was actually up a little bit. So --

Our market share is a record. In fact, we had very strong market share in the fourth quarter and in December for DAF over 17%. And so we're very, very pleased with that.

So did you sell a bunch out of inventory in the fourth quarter?

Well, the pre-buy started in the third quarter, and inventories increased at the end of the third and during the fourth. But as we got to the end of the fourth, a lot of those trucks started to be delivered to customers, registered. And so we finished very strongly.

I got it. And then, is there some delivery potential in the first quarter that's still Euro 5? Or was it a hard stop on January 1?

That's a good question. Really, as we look through this year we'll probably have about have about 20% of our production will be Euro 5, primarily for markets outside of Western Europe. So that will be ongoing for a number of years.

Okay. Thank you so much .

Andy Casey, Wells Fargo Securities.

Congratulations.

Thank you.

Couple questions, mostly, surprisingly, around Europe. Earlier in the week, different manufacturer talked about a difficult pricing environment. Are you seeing that?

No. I think the pricing environment is pretty steady. If anything it might be a little bit better. I'm not sure who you're talking about. We've increased shares.

Some of our competitors might have lost a little bit of share, which might have had some impact on them, but our products are very well received. We're having a lot of great truck shows. The dealers are excited about it and our goal is to continue to have the best products in the industry and gain a little bit of share every year. So pricing is -- it was reasonable.

Okay. It was a Scandinavian, soon-to-be German --

Oh, well.

And then, second, if memory serves the UK had an earlier stop in terms of Euro 6 transition, like September timeframe. We're now a few months past there. Have you seen any improvement in the demand given the economy's doing pretty well?

The economy they're talking about over 2% GDP growth, I think, for the UK this year, which would be very healthy. Yes, they have a slightly different program in the UK. As a result, we still are delivering some Euro 6 and Euro 5 vehicles in the UK. They seem to be very upbeat in the UK right now, which is encouraging. I know even on the car side they're going to be well over 2 million units for the car industry so --

Have you seen a greater uptick in the Euro 6 appetite in the UK than other regions?

Yes. I think the UK is always pretty forward-thinking in terms of embracing the products, so I think our share, once again, went up in the UK as a marketplace, and the dealers are have embraced all the new products. And as you know -- but everybody in all the regions that we operate, this is an every couple-of-year program. So I think the industry, the customers, the dealers have been through it in the last 10 years three times, so they know the drill.

Okay. And then, switching over to US and Canada, we've had, so far, kind of a muted cycle relative to the last two, and we've had some recent volatility in the orders -- two good months, one weak or relative month in between. How are you characterizing the cycle? Is it --

I think we are on a steadily improving pass. And a couple reasons for that -- first of all, in the fourth quarter, talking about US and Canada, the industry had a little over 70,000 orders, which is the best quarter since the first quarter 2006. So that's quite a few years ago. Second, as you've seen, but just a macroeconomic data, the US GDP growth in the fourth quarter was a little over 3%, which is good for all industries.

And finally, as we talk with our customers, and we just had our large dealer meetings, more and more fleets are saying, they feel good about it. Construction is going to be -- home construction starts over 1 million, 16 million car production estimated this year.

Now they're starting to say, let's start to replace our vehicles. We feel good about our own industry. We see our end customers are improving their business.

So I think a steadily improving path is positive. So we feel good about it.

Okay. Thank you very much.

Andrew Kaplowitz, Barclays.

Solid quarter. Mark, can you talk about your rest-of-world sales, or your other sales? Those sales have continued to weaken a little bit sequentially. Do you think you're at a bottom in those markets now and you should naturally start to grow again in 2014? And maybe you could parse out the regions for us, in what you're seeing in the different regions.

Okay. We'll look at rest of the world, or -- we look at them all as home markets. That's how we look at them. Russia continues to be a very strong growth story for us. And 3,900 units, primarily DAF, and some Kenworth trucks in there, adding new dealers, very excited about that market.

Taiwan, we're now the second-largest market share in the 16-ton market. That continues to grow. Mexico is down a little bit because of some, let's call it economic changes that they are implementing. But we think that starting to stabilize.

Columbia, which is a very strong market for us, where most of the last decade has declined because they finished some major infrastructure projects, I think that's now probably at a stable platform and hopefully that will improve . Australia actually is improving again. It's been pretty good through all the last decade.

So for us, we see that's a very important part of our business and probably we might be at the low point and look for some positive improvement there.

That's helpful, Mark. And maybe if I could tack on Parts -- for the year, you had about 6% growth but your fleet continues to get larger. You've talked about adding distribution centers. You've added them and we're going to see some growth here in the overall master market.

So can we see some acceleration in that business in 2014, and should we see some margin improvement still? It's been good margins, but it has been improving. Could we see that continue?

Yes. Very proud of the team at Parts, record total revenues, $2.8 billion. As you've indicated, they continue to grow. We're looking for some growth again this year of hopefully at least 5%.

We did add a number of the Parts distribution centers, our largest one in Eindhoven opened up about a year ago, and we continue to examine, do we need additional ones? We have a new PDC in Brazil connected with the factories that's starting its operations.

So, these Parts guys are always coming up with very innovative ideas. We have a record truck market out there in terms of number of vehicles and they're doing a very good job of growing the business into other businesses, whether it's competitive brands or bus business, trailer business, so it's a big driver for us. At least 5% growth this year.

Thanks, Mark. Appreciate it.

Ann Duignan, JPMorgan.

It's Mike Shlisky filling in for Anne. A two-part question here on Brazil. Can you share with us what market share retail sales you expect to get by the end of the year in 2014? And part two of that would be, would production -- would the share of factory shipments be above retail for 2014 given the ramp here?

Yes. Our share -- it's early days but 1% to 2% I think is a very reasonable target. And as soon as we get orders in, we build them, we shipped them, we sell them. It's a pretty quick process for us in Brazil.

Got it. Thanks so much.

You bet. Thanks to you. Our best to Anne.

Jerry Revich, Goldman Sachs.

Mark, congratulations. Bit of an improvement in market share and financial position since 1997, I think.

It's been a great company for 108 years, and it's a great company going forward.

I'm wondering -- and congratulations to Ron and Bob. I'm wondering, Ron, if you could just talk about what are the biggest priorities that you see for the business over the next three to five years? And obviously we're building out the business in Brazil, but I'm wondering if you could expand and talk about additional opportunities that you're evaluating?

Let me jump in on that. Probably that will be a great topic, probably when I'm not actually in the seat. So let's take that off-line.

All right. Fair enough. Mark, for the parts business can you talk about the trends that you're seeing in Europe? Obviously, everyone's focused on the pre-buy but the underlying freight volumes have actually been really positive over the past couple quarters. Are you seeing the same thing in your Parts business? And does that -- what does that mean for your expectations of production ramp over the course of the second quarter?

For Parts?

Sorry, for trucks. So if the Parts business is picking up steam, presumably we could see orders picking up for new trucks once we get through the overhang?

Yes. Let's just start with Parts. Parts in Europe has done a very good job and they've got some new infrastructure and new programs there. The dealers have completely embraced a lot of the new innovative programs that they've introduced. So we're encouraged with Parts and we think that will have some growth this year.

I think on the truck side, everybody, the whole industry, benefited from the pre-buy. I think a number of the manufacturers are back to production levels that they were at about a year ago. And as Europe gets a positive GDP, we expect to gradually increase production.

Mark, in terms of the Parts performance in the quarter was it stronger in Europe or North America? Can you give us some color?

It was pretty good all the way around. Yes. I think all the different areas made a good contribution.

And lastly, in the US, your tracking customers have had trouble pushing price increases, or at least as anticipated in 2013. I'm wondering if you could talk about what you're hearing from them about the pricing landscape for their business at this point as they set some of the their annual contracts in the spring?

I think basically the customers are doing well. Some of them have seen profits down from a year ago. Some have seen them up. But I think overall as the US and Canadian economies achieve some strong GDP growth, I think that will be good for our customers. I think they're optimistic.

They've been through some tough times, but over the last year or two or three, things are improving. So you're starting to see some pretty good results from a wide range of industries. Most of them have some sort of trucking impact in terms of deliveries or shipments or whatever else. So I think our customers are feeling pretty good.

Okay. Thank you.

Joel Tiss, Bank of Montreal.

Do you have your Seahawk garb on?

Yes. Of course. It's a shame you don't have the pleasure of Navistar competing in Europe. I'm sure they'd find a way to ship those 2005 engines out all the way until 2017.

I'm not sure. (laughter)

I wonder if, since you sound like you're being a little more generous than usual on trying to help us out, can you help us understand some of the mix implications for 2014? Because everyone's asking about margins. I think this would help to clear it up -- the growth rate of Parts relative to Europe relative to the US and what will all those pieces do for the mix?

Well, I think we are looking at 5% plus growth for Parts and we expect to see that both in North America and in Europe, so I don't know what else I can really add in terms of that. Kenworth, Peterbilt we're looking for steady growth in terms of increased production. DAF, we think we've covered in pretty much good detail and we continue to have some growth outside of Western Europe, so that's encouraging.

And to say we just launched a whole new range of vocational vehicles just in the last few months at Kenworth, Peterbilt and DAF, and I think the timing appears to be very good as, call it the construction markets different applications we're starting to see some improved economics. So we feel good about that also.

Is the faster Kenworth, Peterbilt growth relative to DAF good for margins?

Well, I think all of our truck groups have good margins. So we look to improve every one of our truck brands.

All right. It was worth a try. I guess your feet are still warm, so I want to ask is there a chance to use the balance sheet a little more aggressively? I

s there any updated thinking? Lots of companies have piled up the cash and they're looking at other ways to deploy it, and I know you've spent a lot of time building out engines and you're building out Brazil and the rest of the planet. Are there any other things on the horizon?

No. You know, we've had strong return to our shareholders. Very important platform for our Company for, let's say ,108 years. And that will continue to be a main driver for PACCAR.

And I think we've had steady growth in our quarterly dividend program. And when appropriate, we've had the special dividend.

And I think our cash position is pretty much in line with where it's been for a number of years. And yes, as you say we have invested a lot in many parts of the world. I think that will start to really generate some positive benefits for the Company over the next few years.

All right. Thank you.

Steven Fisher, UBS .

Just want to gauge your confidence in the 150,000 vehicle Brazil market forecast relative to your confidence in the growth of some of the other markets.

Last year, as you know, it was 149,000 vehicles, and we said it's going to be comparable. We are increasing our production rates, as I mentioned. Brazil certainly has been in the news in the last few months about different macroeconomic policies. In terms of the effect on us, probably not that much because we're really just growing our business right now.

People like the DAF products. Our dealers are investing and putting in new service locations throughout the country. Obviously we track what's going on at a macro level but we continue to invest in Brazil and we look at this as a 50- to 100-year program and we're excited about it.

More of your own company actions are going to be more impactful than what the overall market has been it sounds like?

Yes.

On the vocational side of the new products you launched, at what point would you have a view on the traction that those new products are gaining in the marketplace?

I think we're having already a positive view just in the last month or so. It's certainly very early days. Certainly on the dealer side and the customer side we're starting to get some orders and the product seems to be doing very, very well in meeting expectations of what our customers expect. A little bit wider cab and very fuel-efficient, very comfortable and it seems to be just what the customers have been looking for.

Okay. Thank you very much.

Rob Wertheimer, Vertical Research.

Congratulations, Mark. Just to expand on your comments earlier, you mentioned a bit of a broadening out recovery in the US. Construction across different types of machines has had some pretty mixed results.

What are your thoughts on whether you're actually starting to see more sustained improvement in the construction vocational bumps, all the different kinds of trucks serving the construction industry?

I think two major ones -- one would be home construction, the other one that has been in the news, obviously, is with natural gas. Looking at home construction, it's rebounding at a reasonable rate. Everything that goes into a house brought by truck -- a lot of trucks are in that business, whether it's steel, brick, glass, sofas, white goods, whatever.

So I think that is very encouraging on the natural gas exploration. I think it's been pretty stable to a little bit lower in the last year or two. But I think home construction, very, very strong.

And then on the cars, 16 million cars -- trucks play a very important part of that. And moving componentry to factories, completed goods from factories to dealerships, so we're encouraged by that also.

Okay. Let me ask you a different question. You had a little bit of a pulse on R&D with all the emissions and you did a seemingly very, very successful launch in the (inaudible) with the penetration (multiple speakers) and everything. So really, really successful. And then your R&D is coming down a little bit as a result.

Do you think this is sort of a temporary down and you've got a couple waves of investment to come as more -- there's a little bit less tightness of emission, there's always fuel economy, or do you think that -- or that was the pulse before and we're at a level at this point? Relative to (inaudible).

You're talking about the R&D expenditures?

Yes. That's right.

I think R&D -- we've had so many wonderful products and projects underway in the last five plus years. As we always do, we have a lot of programs going on right now. I think R&D might be a little bit lower this year than last year. As you say, we've concluded a lot of these programs. They're doing well and it made for a little bit lower for the next year or so, but still at a very steady rate.

Great. Thank you.

J.B. Groh, D.A. Davidson.

Congratulations on your semi-retirement.

Thank you.

I just had a question. You may have addressed this, but I apologize if you did. Can you give the penetration of the PACCAR engines in North America currently and what your goals are there?

We did in high 30% -- 37%, 38%, and our goal is to keep growing it. I think as we look at the entire industry the last year for North America, as we mentioned this in the last year or so, the 13-liter, which is the engine that we have -- and of course, we just introduced a new 11-liter for Europe, soon to be North America. The 13-liter is about 50% of the market and the 15-liter is about 50% so that seems to be holding very true and we think that the 13-liter will continue to grow. So we feel good about it and we've now manufactured over 50,000 engines at our Mississippi factory. And it's doing well. (Multiple speakers)

And maybe one for Bob, can you address what happened with that provision in Financial Services in the quarter? Is that just a true-up for the year? How did that work?

Really reflects just the timing of some recoveries on some previous charge-offs that we've had.

Okay. Thank you.

Seth Weber, RBC Capital Markets.

Congratulations.

Thank you.

Coming back to a question about your customers, fleet utilization is running very, very high. It's in the high 90% range. Do you have a view of what the upward limits of that is and you get the sense that your customers are pushing that higher relative to prior cycles?

Well, I think you're correct -- probably mid-'90%s, low- to mid-'90%s, sometimes it's a little hard to get an accurate number on fleet utilization. It's certainly higher than it's been because we've been through some challenging times. But starting a few years ago, I think fleets have focused on their improved fleet utilization. Obviously there is an upper limit. It's hard to get more than 100%. That's basic math.

And I think that's one of the positive drivers for our industry in terms of orders, and as I mentioned the fourth quarter was 70,000 units for the industry. That -- you get to mid-'90%s and for a customer to grow you've got to probably take on additional trucks. So that's another positive factor in our industry this year.

Okay. Maybe just separately, on the smaller fleet -- smaller customer, smaller fleet side, are you seeing anything with more available financing? Obviously PACCAR Financial, or just across the industry, we've been noticing any loosening up towards the smaller operators?

I think there is pretty good financing available out there. Certainly, we've got a great program with PACCAR Financial, and the we have our leasing arm, which is doing very well and achieving strong results.

And then we see a few more banks coming back into the business. As the economy improves, everybody wants to get back into it. So I think for the small to medium, the large fleets, there's certainly good availability for financing.

Okay. Thank you very much.

Adam Uhlman, Cleveland Research.

Congrats, Mark. Well deserved.

Thanks.

Bob, Ron, congrats as well.

Thank you.

Sticking with the engine team a bit, you sold 50,000 units in North America. Does is seem as if some of those are starting to come to the warranty -- out of warranty coverage? I'm just wondering if that is a bigger factor in 2014 than it was in 2013 for the Parts business.

No. It's a good question but I don't think it really has any impact. No. We're still probably a little ways away from the positive impact on Parts and service side of it. Still really growing our population of engines is the way I'd look at it.

Okay. Got it. And then, could you guys comment on the impact of currency to the quarter for revenue and earnings?

Yes.

Sure. The impact on earnings was about $12 million. And the impact on revenues was about $80 million.

Thank you very much.

Positive .

Ted Grace, Susquehanna . His question has been withdrawn. Jeff Kauffman, Buckingham Research.

I wanted to dive a little bit deeper into the currency question, Bob and Robin if I can. You said it was $12 million positive to earnings in the quarter. Could you differentiate that so your Euro exposure versus your Real exposure? And then talk about, given the big moves we've seen in the currency markets, particularly emerging markets, how could this impact 2014 just based on your outlook?

The impact on the quarter, that $12 million is a pretax number just to clarify.

Right.

And the impact was mostly from the movement of the Euro. And currently our revenue stream from Brazil is low enough that it's not going to have a big impact on us. The movements of the Real.

And then looking toward the year, you would say no real Real impact as you're ramping up Brazil?

Correct. Correct.

Okay. And then, I was just thinking about cash. You mentioned, Mark, that maybe this year is an off year for R&D, but normally relative your revenues the spending is a little higher. Is this more of a respite for a year and then the spending picks up a little? Or do you think this is a good run rate for R&D for you right now?

I think it's probably right now it's a reasonable run rate and then in a year or two you get into, call it early midlife updates on the vehicles. There's always engine work going on, and continue to look at enhancements to our facility, but I think reasonable run rate right now.

Okay. And final question -- I'm sure this is something you'll hit at the truck show in March. What are the one or two new products that excite you most as you head into 2014?

I think I mentioned earlier that the timing for Kenworth, Peterbilt and DAF to combine with our new vocational vehicles seems to be -- we have some great sales and marketing guys. I think they've really hit the time perfectly on these new products coming out.

Okay.

And the MX-11 I think that's going to be a big win for PACCAR for, once again, for all about truck guys around the world.

Okay. Well, congratulations. Best of luck and we'll see you in March. Thank you.

Tim Denoyer, KSA Capital.

I had a couple of quick cash flow questions for you. I'm wondering if you can help me understand the cash flow -- operating cash coming from the manufacturing operation.

I know you don't break it out that way, but if we look at the $2.4 billion of total operating cash flow, and take out the $300 million of finance income, $600 million of equipment depreciation, and it looks like you usually have about $200 million of residual value and deferred revenue. Are there any other big factors to consider when trying to get at the manufacturing operating cash flow?

Excellent question.

No. You've hit most of the main segments.

Okay. Great. And then one other cash flow question, I noticed that you didn't buy back any stock in 2013 after buying back about $500 million in 2011 and 2012. Can you talk about why not? Obviously still a very healthy cash position. Could you just --

We continue to evaluate it and we do have authorization as it makes sense to do it. Right now we've been investing in new products and engines and factories and distribution centers, but certainly, an ongoing strategic road for us.

Great. And if I could throw one more in, you talked about the success of your own, of your natural gas products. Can you talk about whether or not you would consider taking some of your PACCAR engines and using, and putting -- switching those over to natural gas?

Absolutely. Yes. We've got great engines and that's something that is always being evaluated.

Any timeframe?

No timeframe at this time.

Okay. Thanks very much.

Scott Group, Wolf Research.

So, Mark, you mentioned a couple times about the strong order momentum in fourth quarter. Can you give us a view on what you're expecting for first-quarter order momentum? Certainly the truckers are seeing tighter capacity and rates are starting to move up. Do you feel like there's any improving momentum on first-quarter orders?

And I know it's early, but the range of 210 to 240 for 2014 is kind of wide. Do have a view towards the upper or lower range at this point?

I think as we're here in the last day of January, I think we'll will stay with that range, but I think your analysis is correct and we look forward to updating you in a few months, and, you say we've got an important truck show coming up in probably about six weeks. We'll get a better flavor then, but it looks encouraging. I'll just put it that way.

Okay. And then just to follow-up on that last gas question, what price do you think nat gas needs to be for that to be a competitive option? Is it losing some competitiveness with gas at $5 right now?

Not gas at $5 --

That is a real excellent question. I think probably a little more time than we might have on this call. Because I think the price of natural gas, the price differential to diesel is just one component of that equation. The other ones that's certainly have been discussed and debated and reviewed and that is the infrastructure, the benefit and the effects of improving diesel engines.

The way we look at it is that we're very pleased to have a strong share of the natural gas market. It's still in that 1% to 2% range for the total industry as it grows. And we expect it will grow over time. We will look to grow our own business with it and so that's a broad, broad discussion that probably don't have time to do it right now.

Just one follow-up on that point, where do you see the spread right now and the cost of the truck for diesel versus nat gas, and is that starting to come yet?

One more time with that question?

The spread -- the difference between the cost of buying a diesel truck versus nat gas truck right now, and is that coming in?

Yes. I think that cost is declining as we are getting a little bit more volume of installing natural gas on to our trucks and our chassis and some of the suppliers are gearing up to improve the efficiency of making some of the componentry, so I think over time that spread will decline. Will decrease.

Okay. Thanks a lot, guys.

Brian Sponheimer, Gabelli and Company.

Question for you on -- from a directional perspective, I have seen you used prices on some of your trucks over the course of, let's say, the last nine -- three, six and nine months. Take it from there.

Used trucks are really, both in North American and Europe, our brands continue to maintain their strong position relative to the competition. And it's been really steady over the last year.

So I'd say a truck coming off a program in December -- would you have been getting the same price for that truck in December that, say, you would have gotten in April and May of this past year?

Yes. Yes we would.

All right. Thank you very much.

Tim Robinson, Susquehanna.

Just wondering if you could give us an update on the investments you're making in the enhanced powertrain development, and maybe give us a sense for the timetable?

We're working on the Super Truck project with the government and Cummins, and that's exciting. And we're looking at the whole, let's call it powertrain componentry and what we can do, either working with our suppliers, or working independently on continuing to enhance and make it more efficient so I think that's about all we really can talk about.

Got it. And then lastly, Parts. The margins were great all year and just looked like there was a bit of a tail off in 4Q. Just wondering is there seasonality in that business that we should be aware of ,or what drove the sequential decline there?

There's really not that much. I would say each quarter has its own season, but we look to ramp up each quarter depending on that season. So that really is not a factor.

I think there were just a lot of Parts business in the fourth quarter and I think they did a great job of handling it. So I don't think there's much to read into that.

Got it. Thank you very much .

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

I'd 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.