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Paccar Inc
Earnings Call Analysis
Q4-2023 Analysis
Paccar Inc
Embarking on a tale of triumph, PACCAR celebrates a historic year with annual revenues reaching $35.1 billion and net income soaring to $4.6 billion, decreeing an impressive after-tax return on revenue of 13.1%. This financial saga is fueled by landmark deliveries of vehicular innovations by DAF, Kenworth, and Peterbilt, coupled with unparalleled achievements in the parts division and robust financial services performance. PACCAR's commitment to excellence is further evidenced by its unyielding profitability, having realized net income for 85 consecutive years and never failing to pay a dividend since 1941. Remarkably, in 2023, dividends touched a new zenith at $4.24 per share, propelling the company's tradition of shareholder value creation.
The final quarter of 2023 saw PACCAR's revenues hitting $9 billion while net income shattered previous records at $1.42 billion, a staggering 54% leap from the prior year. PACCAR Parts shone brightly with fourth-quarter revenues of $1.61 billion and pretax profits of $432 million. Amidst the thunder of 51,000 truck deliveries, the company's foresight for the first quarter of 2024 anticipates a slight deceleration to about 48,000 trucks. The market predictions for the U.S., Canada, and Europe, despite showing some temperance compared to previous highs, remain infused with potential growth, enabling PACCAR to rev its engine for sustained success in the global market.
PACCAR's financial discipline manifested in gross margins of 19.3% for the year, with a commendable 19.4% in the fourth quarter. Looking ahead, the company steers towards continued strength with expected gross margins ranging from 18.5% to 19% for the first quarter of 2024. This projection stands on the foundation of robust truck deliveries and a thriving parts business. Moreover, the company boasts a return on invested capital of 38%, an enviable feat that solidifies its status as an industry frontrunner.
The parts division is projected to drive forward with significant momentum, thanks in part to strategic expansions in new PDCs, an enhanced connectivity offering in trucks, and a sterling dealer network. The anticipated growth rate for parts is between 4% to 8%, relative to an already record-setting previous year. PACCAR Financial complements this growth narrative with the expectations of maintaining strong performance across the subsequent quarters, anchored by a normalization in used truck prices.
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Good morning, and welcome to PACCAR's Fourth Quarter 2023 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. Ken Hastings, PACCAR's Director of Investor Relations. Mr. Hastings, please go ahead.
Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Ken Hastings, PACCAR's Director of Investor Relations. And joining me this morning are Preston Feight, Chief Executive Officer; Harrie Schippers, President and Chief Financial Officer; and Brice Poplawski, Vice President and Controller.
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, including general economic and competitive conditions that may affect expected results. For additional information, please see our SEC filings and the Investor Relations page of paccar.com.
I would now like to introduce Preston Feight.
Good morning. Harrie, Brice, Ken and I will update you on a record fourth quarter and full year 2023 results as well as other business highlights.
PACCAR's outstanding employees delivered the excellent results by providing our customers with the highest quality trucks and transportation solutions in the industry.
In 2023, PACCAR achieved annual revenues of $35.1 billion, net income of $4.6 billion and an after-tax return on revenue of 13.1%. All 3 were records.
PACCAR's strong financial performance benefited from record deliveries of DAF, Kenworth and Peterbilt's innovative trucks, record results in our parts division and strong financial services performance.
PACCAR shareholders and customers benefited from the $7.8 billion invested over the past 10 years in new products, world-class facilities and state-of-the-art technologies.
PACCAR achieved 85 consecutive years of net income and has paid a dividend every year since 1941. In 2023, PACCAR declared a record $4.24 per share in dividends, including an extra cash dividend of $3.20 per share.
PACCAR's fourth quarter revenues were $9 billion. Quarterly net income was a record $1.42 billion, which was 54% higher than the prior year. Fourth quarter net income included a $120 million tax provision release in Brazil.
PACCAR Parts achieved fourth quarter revenues of $1.61 billion and pretax profits of $432 million. In the fourth quarter of 2023, PACCAR delivered 51,000 trucks and for the first quarter of 2024, deliveries are forecast to be around 48,000.
Last year, U.S. and Canadian Class 8 truck retail sales were 297,000 units. Kenworth and Peterbilt's full year deliveries increased from 96,000 to 109,000. In 2024, the U.S. economy is projected to expand within the truck sector, the vocational less than truckload and medium-duty segments are experiencing strong demand and customers are benefiting from the superior performance of new Kenworth and Peterbilt truck models.
The 2024 U.S. and Canadian Class 8 truck market is forecast to be in a range of 260,000 to 300,000 vehicles.
European above 16-tonne truck registrations were 343,000 last year. DAF's 2023 European deliveries increased to a record 63,000 trucks. DAF's customers appreciate the industry-leading fuel efficiency and driver comfort of DAF's premium trucks. These trucks have a unique competitive advantage in the European market due to an innovative aerodynamic design that features the largest and most luxurious cab interior.
In 2024, the European economy is forecast to grow modestly. We expect the above 16-tonne truck registrations to be in the range of 260,000 to 300,000.
Last year, the South American above 16-tonne truck market was 110,000 vehicles and is expected to be similar this year.
In Brazil, DAF achieved a record 10.2% share, up from 6.9% last year. DAF Brazil makes a growing contribution to PACCAR's global success.
PACCAR full year truck parts and other gross margins were 19.3% and were 19.4% in the fourth quarter reflecting strong truck deliveries and excellent parts business. We estimate PACCAR's worldwide first quarter truck and parts gross margins to remain strong and be in the range of 18.5% to 19%.
2023 was another great year for PACCAR with many highlights, including revenue and net income records. PACCAR announced a joint venture to manufacture commercial vehicle batteries. DAF opened a new electric truck assembly plant and earned the Green Truck award as the most fuel-efficient truck in Europe.
PACCAR Parts celebrated its 50th anniversary and Kenworth celebrated its 100-year anniversary. We're looking forward to 2024 being another excellent year.
Harrie Schippers will now provide an update on PACCAR Parts, PACCAR Financial Services and other business highlights. Harrie?
Thank you, Preston. In 2023, PACCAR Parts set new records for revenues and profits. Annual revenues increased by 11% to $6.4 billion, and pretax profit increased by 18% to $1.7 billion. Parts gross margins climbed to 31.9%, up from 30.4% in the prior year. We estimate part sales to grow by 3% to 5% in the first quarter of this year compared to the record first quarter last year.
PACCAR Parts' excellent long-term growth reflects the benefits of investments that increase vehicle uptime and convenience for customers. PACCAR's aftermarket parts and connected services businesses provide strong profitability through all phases of the business cycle. PACCAR parts has 18 Parts Distribution Centers or PDCs worldwide and is expanding its global distribution network with the construction of a new PDC in Masbat Germany, which will open later this year.
PACCAR Financial Services achieved a fourth quarter pretax income of $113 million. Annual pretax income was $540 million and portfolio assets increased to $21 billion. The used truck market normalized in 2023. PACCAR continues to experience good sales volumes of its premium used trucks.
PACCAR Financial continues to perform well with low past use, the larger portfolio and excellent credit quality. Last year, PACCAR invested $698 million in capital projects and $411 million in research and development.
PACCAR's return on invested capital increased to an industry-leading 38%. In 2024, we're planning capital investments in the range of $700 million to $750 million, and R&D expenses in the range of $460 million to $500 million as we continue to invest in key technology and innovation projects.
These include next-generation clean conversion engines battery and hydrogen electric powertrains, advanced driver assistance systems and new connected vehicle services.
PACCAR is also investing in additional manufacturing capacity. To support future growth, including truck factory expansions at Teca Mexico and Kenworth Chillicothe, Ohio. A new engine remanufacturing facility in Columbus, Mississippi, and remissions battery cell factory joint venture.
We're excited about the new Peterbilt Model 589, which began production this month. PACCAR's independent Kenworth, Peterbilt and dove dealers continue to invest in their businesses, enhancing our industry-leading distribution network and making a significant contribution to PACCAR's long-term success.
PACCAR had an outstanding year in 2023 and this year it's off to a very good start. Thank you. We'd be pleased to answer your questions
[Operator Instructions] Our first question today is from Nicole DeBlase from Deutsche Bank Nicole.
Maybe just starting with the outlook for 1Q deliveries. Could you just talk a little bit about the implied sequential step down? Is that kind of across all regions. And then I guess is your expectation that 1Q is the high point of the year for build given that we started to see orders fall in December?
Well, let me take that one for the time being and say that I think what we see is strong global markets, right, Australia is doing really well. Mexico is doing really well. South America is doing really well. North America is steady at very high levels, and we've seen normalization in Europe, which is probably we said the market in 2024 is 260 to 300, which is 15% to 20% lower, and that's kind of what we see in our deliveries in Europe. .
As far as the slowdown in orders, I'm not sure I can recognize that in our major North American markets, we see good order intake and good visibility.
Okay. Got it. And then just from a pricing perspective, can you guys just talk a little bit about what you're seeing with respect to industry pricing and any expectations for what you guys should realize in price for 2024?
Thanks, Nicole. I mean I think what we have going on is -- and we've shared this many times, but it's worth repeating is, we have refreshed our entire product lineup in the last few years. We have really high-performing products that are delivering excellent results to the customers. And I think that the latest recognition of that is the Green Truck award in Europe, for the new DAF products that were awarded as the most fuel-efficient product in Europe as a result of that kind of performance of product, we're seeing good pricing realization for the trucks around the world for PACCAR. .
Our next question today is from Angel Castillo from Morgan Stanley.
So maybe just to dig in a little bit more on kind of the pricing dynamic. I was wondering if you could kind of expand that into more of a price cost and give a sense for how you're kind of thinking about decrementals and just underlying kind of margins for 2024 overall. I think you guided to 18.5% to 19% for the first quarter on gross margins. So maybe if you could again give a little bit more color on the full year and how we should see that progressing?
Yes. Well, first of all, thanks for the comment on the year. I think our team deserves an incredible amount of credit all around the world for the wonderful performance. And we see that continuing right now. On the price cost level standpoint, Angel, we think that we have good price against cost right now. We expect that to continue as we look forward. Obviously, there's a little bit of normalization in the market sizes. That's really the only thing we see going on, both Europe but Europe, as I mentioned already and North America in the single digits, 5% to 10% lower market size. But we expect see good markets and good price versus cost performance.
And as you know, we don't share information on the full year. We'll get to the quarter-by-quarter analysis of things as we get further into the year.
Understood. And maybe just switching over to parts a little bit. The 3% to 5% that you guided to for 2024. Just curious if you could break that down a little bit more into the pieces of what you're seeing in terms of price, volume kind of assumptions.
Yes, the increase was 3% to 5%. And so we see that mostly around the world. It compares to a record quarter -- first quarter last year. So at parts, we continue to see that strong performance also this year.
And for the full year, we're thinking parts would grow 4% to 8% compared to the record year last year. So -- and that also reflects favorable pricing and some cost increases.
Thank you. Our next question today is from Tami Zakaria from JPMorgan.
So my first question is, I think your outlook for Europe is weaker than the U.S. and Canada this year. So can you remind us how is the margin profile for your business in those 2 regions? Is it weaker Europe negative from a mix perspective, given the last couple of years of DAF model launches?
Well, I don't think I would characterize it as weaker, Tami. I think I would say that in 2023, Europe was 343,000 units, which was a very, very high year, in fact, a record year for us, right, by a lot. And I think if we estimate the market at a midpoint to be 280,000, that's a nice year. I think that what we see is, obviously, the normalization of sales in that range, but we still have these new products, which are providing great margins for us in the European theater.
Got it. So are the 2 regions similar in terms of margin profile? That's basically what I'm trying to understand.
Yes, more or less similar. I think Europe is a little softer, so you'd expect some effect from that in Europe. But also in Europe, the new DAF continues its premium position. And as a result, we get excellent margins on those trucks.
Our next question is from Chad Dillard from AllianceBernstein.
I was hoping you could unpack your gross margin guide of 18.5% to 19%. Maybe give some puts and takes of trucks versus parts. And then as you're thinking about like the full year, it sounds like parts are going to grow by mid-single digits. Should we expect gross margins in that business to continue that upward path?
Well, I think what we would -- in the unpack, I like your term, what I would share with you is the parts business continues to do really well. Last year was a record, as we mentioned or Harrie mentioned in his comments, and we expect them to have a fantastic year this year as well. So even in truck market sizes that may moderate a little bit, we see the parts business doing a fantastic job. And that's because of the expansion in new PDCs. It's because of the connectivity that we're providing in the trucks. It's because of our great dealer network. And I think all of the benefits we provide to our customers.
So I expect parts to continue to hum. And on the truck side, again, great new trucks are providing good margin performance. And obviously, doing a fantastic job for our customers. That's what we see out there. And that's contributing to the strong truck margins.
And just a second question, just on your SpinCo profitability. Just trying to think through the moving parts do you expect that profitability to grow. To what extent are you contemplating any buydowns or any additional reserves given just like the sale truck market?
We saw some more normalized used truck prices in the fourth quarter. And as a result, the good performance of PACCAR Financial at $113 million for the quarter. And if we now look at this year, we expect PACCAR Financial to continue that good performance also in the quarters of this year.
Our next question today is from David Raso from Evercore ISI.
Kind of looking beyond '24, the notion of a prebuy. I'm just curious, conversations you're having today now that we're in '24. On customers' thoughts of any pulling forward of, say, second half '26, '27 into next year. Anything at all about timing of orders to maybe reflect if we do see a prebuy in '25. Just trying to get a sense of how you're thinking about that concept moving forward.
Sure, sure. I mean let me start by saying that it's not just a truckload carrier market out there. And in the LTL, the medium duty and the vocational markets, we're seeing strong performance of the products and strong interest from the customers with good order intake.
I'd also say that from an overall PACCAR standpoint, as I mentioned, our global markets are doing quite well for us. but to dial in a little bit to your question, David, what I think is happening is the good operators, the ones that are thinking clearly about long term are continuing to buy trucks. And so they're looking to keep their fleet at a reasonable age and buying trucks and continuing that pattern.
And then they're managing that against the fact that contract rates and spot rates are lower than they were and trying to maintain that balance of fleet age with capital spending. And we think that's going to continue. We think that there's an emissions change in 2027 and that the sophisticated buyers are conscious of that and take that into consideration as they make their purchase plans. And that will have an increasing effect as we move forward.
But just to be clear on timing, do you think some of that desire to buy in front of that would show up in orders in '24 at all? Or is that a little premature?
I think it's fleet dependent. I think it depends on where they're at and what they're hauling, and I think how they're doing and how many trucks they need in their fleet. So I think generalizing that into '24 might be a little much, but the premise of your conversation or our conversation about does that feature into the -- later this year or next year or the year after? I think there's some truth in that. I think we see positive benefit from that.
Our next question today is from Jeff Kauffman from Vertical Research Partners.
Well, first of all, congratulations, fantastic year. .
Jeff, thank you for that. Our team appreciates it.
You guys crushed it. I want to ask about 2 kind of oddities if I can. I don't want to focus on the tail wagging the dog, but I think they're relevant questions. The first has to do with what's going on with electric vehicles right now. And it seemed like there was this big push for EV, and you're still seeing that in some of the lighter duty models, but a little bit of a pullback on the heavy side. but we are moving forward with the EV plant for batteries and we're moving forward with investment.
What is your feeling about the state of the EV market? And is this a surprise at all? Is it expected how should we be thinking about framing EV demand for commercial vehicles? .
Jeff, I think you nailed it. Actually, I think that there was maybe a lot of enthusiasm, maybe too much enthusiasm. I think it's something that is going to happen. It's going to happen gradually rather than rapidly. There's a lot of things that have to come along with it, energy and infrastructure from a PACCAR standpoint. It's been our approach all along. As we've shared with you over the years, is right. We'd start in the 10s, move to the hundreds, go to the thousands, that's the progression we're in. We continue to make prudent investments that will be timed to what we think the adoption rates are going to be. We felt in 2023 was the right time to make sure that looking into the future, we could begin the journey of creating our own batteries. So that we had the most cost-efficient, high-performing batteries when the time was right.
So I think as we talked about in the last call, building a battery cell factory in a joint venture manner will give us sufficient volume to supply our needs throughout the rest of the decade as we gradually adopt. And it puts PACCAR in a really good position to offer our customers the best products they can get when they're looking for EVs, and keep up with the regulatory and also take a thoughtful approach to the adoption.
And then the second one, I'm expecting kind of a no comment on this one, but I'm going to ask anyway. The last time we had a certain Republican President, there were some EPA mandates that ended up being canceled and rolled back and who knows what the future holds. But I think there's an industry think that there is a certainty about a massive 2026 prebuy. And I think everyone is kind of thinking about that. I know it was part of David Raso's question earlier.
Do you political people think there's any risk if there's a Republican victory, and we get a certain presidential candidate back that any of these EPA mandates might be at risk or card mandates might be at risk?
Jeff, I think you nailed it. We have no comment on that. That's all I can say for PACCAR. We feel really good about PACCAR either way.
Exactly. We're going to drive the road we see in front of us. I get it. .
Our next question today is from Jerry Revich from Goldman Sachs.
I'm wondering if you could just talk about the record gross margin performance you folks had in '23 was despite really significant supply chain disruptions continuing. Can you talk about just directionally where your labor hours per unit today versus their targets? And is there a potential for things like overhead expense, et cetera, to turn to be a tailwind on a year-over-year basis as surety of deliveries ramp up and maybe productivity ramps up?
Yes. It's a fun conversation to have with you. First of all, our hats off to the supply base. They've done a really good job of trying to work through the challenges. And I think as you note, things have become improved, maybe not perfect, but improved, which is good. We're used to that. .
And I think as we look at it, smoother factories are more efficient factories. And so as we look into '24, if we have a smoother supply provided to the factories, we will have benefits in that regard. So it could be a tailwind as you word it.
Very interesting. And another area where you folks have worked through even as you put up record margins is higher warranty costs because of higher per repair cost trends, can you talk about whether you expect to return to that 1.5% warranty accrual rate in '24? Or are there still things that you're working on in terms of per-unit repair costs or other moving pieces in the warranty provisions?
Well, I can say that we have a great group of analysts who understand our business well because I think that your question is salient, it is true. Like we've seen increasing truck complexity over the decades as an industry, with more electronics on them, that contributes to more opportunities. But we do think that the trucks are performing well and we'll be in that kind of normal range again.
Okay. Super. And lastly, on parts, really strong performance in the fourth quarter and the outlook for the first quarter is certainly higher than what we had in our model and what we're seeing for other companies.
Can you just touch on how you folks have managed the parts delivery time frame in the first quarter of '23 because I think for most companies, the first quarter is going to be a really tough comp that saw inventory stocking in the first quarter of '23. It doesn't sound like you folks have face that, but can you just spend a minute just addressing how you folks were able to avoid stocking in the first quarter of last year?
So you're spot on, Jerry. We've 3% to 5% growth this quarter compared to the record quarter last year, a nice performance. It effect really reflects all the fantastic things our parts team is doing. Focusing on technology that makes it easy to the buyer from us, the e-commerce technology, the MDI, where we manage the dealer's inventory, make sure the parts are available when needed. Our continuous investments in parts distribution centers. The strong performance of the PACCAR engine that provide us more proprietary part. So it just all adds up, and we've been seeing some nice trends on parts over the years as a result of these, and we expect those to continue into this year.
Our next question is from Steven Fisher from UBS.
Just as we think about 2024. How much visibility do you have on the truck outlook? Like how well are you booked into Q1 and Q2. I imagine Q1 is pretty solidly booked and maybe even Q2 at this point, but curious also about the second half. And what are your customers kind of telling you about later in the year?
Yes, as you know, Q1 is effectively full and Q2 is filling in very nicely. As we look out, there's obviously customers -- lots of customers by full year with spread delivery. So we see some growing backlog in the second half as well, and things feel pretty healthy.
Okay. Great. And then can you talk about the cost inflation that you're seeing, both on the direct and the indirect side. Is it safe to assume that, that maybe in line with the overall inflation in the economy, maybe you still have some puts and takes in various directions, but it kind of nets out to the overall level of inflation in the economy.
And then if that's the case, is the pricing strategy to sort of just cover those costs? Or do you have maybe some additional cost reduction programs aimed at sort of trying to preserve margins in 2024. I know you always have some efficiency things that you have going on, but I'm curious if this is a year to sort of step up the cost reductions if you're only able to cover inflation with your pricing.
You think inflationary we're experiencing is the same things as most people are with inflation as it's moderated some, and we do see inflationary costs. And obviously, we try to acknowledge that in our pricing, and we do focus on reducing cost on the product as a continuous thing we do. And our teams are fully focused on it, and I think we can do a good job on it this year. .
Our next question is from Tim Thein from Citigroup.
Just one for me, and it's just on the truck business and specifically on mix, and there was one asked earlier about geographic mix.
But I'm curious about from the standpoint of kind of product and customer from an environment where you're selling more straight trucks which is probably added in. But also medium duty and sleepers. If that -- those become a bigger percentage of the delivery relative to the sleepers, is there a -- is there much of a -- should we think about that as being accretive headwind to margin neutral? Any comment on that?
And then I guess just, I guess, part B of that is from a customer standpoint, if you have a dynamic where your larger carriers are representing more of the order board in '24. How too does that -- should we think about that presumably more of a headwind, but any way to kind of think about those two factors?
Tim. What I think is going on is we're seeing that over the last couple of years, we've probably been, as an industry not able to supply everyone the trucks they needed. And I think that there's a strong vocational market, a strong LTL market, a strong medium-duty market. So we're now kind of able to build those trucks, and we're seeing that as a different percentage and increased percentage in our backlog.
I wouldn't differentiate them in margin. They can both be good margin products for us. On a percentage basis, yes. And then I think that as far as the larger carriers and the impact of it, I think that it's really not that different than many years, right? It's not substantially different. So we don't see anything dramatically affecting our model. We've had some of the biggest carriers ordering a lot of trucks, and we've had some small carriers ordering trucks. But it's all kind of within the normal boundary.
Our next question today is from Matt Elkott from TD Cohen.
If I can go back to the order question, the demand question, it seems you guys continue to see stronger demand, stronger orders in North America than the industry orders we see on a monthly basis. Is this still primarily a function of your higher vocational mix? Or are you gaining tractions in other areas that were not super aware of?
We are the vocational market leader. So there is some benefit in that. And as I mentioned too, I think our teams have done a great job over the last several years developing a new product lineup, which is the newest in the industry, which is helpful to us and I think has given us good backlog. If you think about it at the fundamental level, we tied up in a lot of different things. But at the fundamental level, our goal is to build great trucks for our customers to provide them the lowest total cost of ownership. And when they do that, then they order the trucks. And we think we're doing that well. The products are performing well. They're the best in the industry, and that's contributing to our order visibility.
And just one follow-up question. As we look into a mild decline in production this year. Do you think you'll do more vertical integration of engines to kind of cut costs? Or is that something that is independent of the cycle?
Yes. With the -- we've built a record number of trucks last year. MX engines that is for North America, Europe worldwide, I would say. Yes, and the investments that we've been continuing to make in our engine manufacturing capacity. We -- that will help us to grow engine penetration in North America this year. That's a very good position to grow that percentage this year. .
Our next question is from Scott Group from Wolfe Research.
So you talked about used prices normalizing in Q4. I'm just curious your outlook for used prices from here, if you think we're bottoming yet or if you think there's further risk unused.
Harrie, do you have any thoughts on that? .
Used truck prices did come down in North America and Europe during the year. Now I think in the fourth quarter, North America came down low single digit. And we do see some stabilization happening at these levels. That's why we expect things to continue at a normal level that where used trucks are maybe at breakeven, that kind of level. That's a reasonable projection, I think.
The only thing I'll add is that volumes continue to be good in that space as well. So we watch both price and volume, and it seems like it's a it's a big change from what it was, but it's still not at a bad level.
It's more normal now.
Yes.
Okay. And then just more theoretical on this sort of record gross margin, price cost spread. I totally understand what you guys are saying with new products, but it also just strikes me that this is a pretty consolidated market. In an environment like we've seen in the last couple of years with heightened inflation, is it -- is it just that maybe you and others just got enlightened to the fact that you maybe had more pricing power than maybe you previously thought? Is that right? Is that what's happening? And ultimately, is that -- do you think that's sustainable? Is this ultimately just a new range of gross margin?
My view is that the team of PACCAR, people around the world, whether in the factories or the engineers or the controllers organizations over the last several years have done a fantastic job of building a really robust business. And it's lean, it's efficient and it produces great products for our customers. And I think that's the driving force between the margins that were generated as parts business. It's the truck business. That strength and focus of serving our customers and our shareholders are working really well. .
So in your mind, the high teens is the new sort of normal?
Well, what we shared with you is the first quarter we think is 18.5% to 19%. And -- that's pretty darn good.
Yes, for sure.
Our next question is from Michael Feniger from Bank of America.
Obviously, the pricing in 2023 was very impressive. I know you talked a little bit about the used market I'm curious when we look at the spread between your price increases for 2024 relative to what you're seeing in the used market with trade-in that spread widening? Just any commentary that you're seeing in the used market that kind of informs 2024? Because obviously, the used market was very strong. a few years ago. It seems like it's some cooling, but I'm just curious how we think about that spread between the new pricing they use and how to kind of think about that for 2024.
Well, I think what's -- maybe one of the things you could throw into your factors of consideration is the fact that in those high point markets where contract rates were at all-time high, spot rates were at all-time high. Some people got into the trucking business. and some of those people are getting out and that's contributing to the spread between new and used pricing. As you have some of the people exiting the market is normalizing the used truck pricing. So I think there is a bit of a larger differential between new and used, and I think that will reset itself over time.
And just to follow up. Another different customers in the transportation market who buy your trucks. You put up excellent truck deliveries in 2023 at a time where spot freight rates were actually falling. And now that we see spot freight rates potentially bottoming and maybe picking up through 2024, how do we kind of think about what happened in 2023 and how that might potentially play out in 2024 and how that kind of translates to demand for your trucks?
Well, what are the underlying contemplation should be that what's the economy doing? And as we noted in our commentary, we see economic growth in 2024, which we think as the most fundamental principles should be good for the truck market, especially as we continue through the year. And you put that economic growth against that spot rate bottoming that you talked about, and it should set us up for a good year in 2024.
Our next question is from Guillermo Herreira from Gabelli Funds.
So maybe more of a high-level one here than the ones we've been talking through so far. But -- you've been doing a great job generating cash and there's a sizable cash position on the balance sheet right now. I'm curious, aside from dividend payouts, how should we think about how you might deploy some of that cash?
And maybe just to get a little bit more specific here, could you provide us sort of any commentary on the M&A space and whether longer term, you might be considering inorganic growth as part of the growth story.
Sure thing. We're really pleased with how the company has performed financially. We have a strong history of dividend payouts of around 50% of net income. We continue to do that. We noted in our comments, record dividend payouts in 2023. We think our shareholders are happy with that approach. We'll continue to do that. We do have uses for cash. Obviously, we are doing this joint venture, which will be something we fund out of cash. PACCAR has got a long history of making strategic acquisitions when they make sense, and we continue to make those evaluations at all times. And having the cash gives us that flexibility to build an even more robust company as we move forward into the future. .
Our last question today is from Daniel Johansson from Pan Advisors. Daniel can you please check if you unmuted properly.
Can you hear me?
Yes, we can, Daniel.
Sorry, maybe this has already been discussed. And I guess the question is, has a lot of different levels to think about. But thinking about your cost per unit and how that has been going up a little bit here over the last few years? I mean, there's mix, there is more content per unit, et cetera, et cetera. But how to think about that going forward? And especially so given that you had pretty high capacity utilization last year.
Well, I think about costs in terms of -- there's the normal inflationary side of it. I think the other side of it to contemplate is we're building trucks that are more efficient than they ever have been for our customers. Sometimes that efficiency comes with higher purchase price, but as a percentage of their total operating costs, the purchase price is not significant compared to the fuel utilization. So it's beneficial to PACCAR in that way and beneficial to our customers to have high-performing products that are very efficient even if that drives up purchase price.
And then another element to that is, of course, regulatory. As you anticipate future regulatory changes, those typically come with added componentry to meet emission standards, which is also a factor in increasing cost and price. So those are some of the things that go into that cost equation for us. And we've seen price more than keep up with that.
And should we expect cost per unit to continue to go up, you think, even in a very good volume scenario?
I think they could. It depends on the inflationary state. It depends on the state of competition and whether there's more added content that has to be added to the trucks. .
Thank you. This is the end of the Q&A session. So I'd now like to hand back for any further or closing remarks.
We'd like to thank everyone for joining the call, and thank you, operator. .
Thank you, everyone, for joining today's call. You may now disconnect your lines, and have a lovely day.