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Paccar Inc (PCAR) Q2 2019 Earnings Call Transcript

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Paccar Inc (NASDAQ: PCAR)
Q2 2019 Earnings Call
Jul 23, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to PACCAR's Second Quarter 2019 Earnings Conference Call.

[Operator Instructions] I would now like to introduce Mr. Ken Hastings, PACCAR's Director of Investor Relations, Mr. Hastings. Please go ahead.

Ken Hastings -- Director of Investor Relations

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 Michael Barkley, Senior 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 in the Investor Relations page of paccar.com. I would now like to introduce Preston Feight.

Preston Feight -- Chief Executive Officer

Good morning. Harrie Schippers, Michael Barkley and I will update you on PACCAR's excellent second quarter results and business highlights. First and foremost, I'm very proud of our exceptional employees who are passionate about providing our customers the highest quality, highest performing trucks and services in the world. I also want to thank those analysts who participated in our Investor Conference in New York in May.

The PACCAR team appreciated the opportunity to provide an update on our business. PACCAR achieved record quarterly sales and financial services revenues of $6.6 billion, and excellent net income of $620 million resulting in a 9.3% after-tax return on revenues. PACCAR parts generated record revenues of over $1 billion and record pre-tax profits of $211 million. Parts revenues increased 6% and profits grew 8% compared to the second quarter of last year. PACCAR achieved robust truck parts and other gross margins of 14.8%, driven by record truck deliveries, aftermarket parts demand and strong operational performance. PACCAR delivered a record 52,300 trucks during the second quarter, 13% higher than the second quarter of last year. This reflects increased build in North America, partially offset by lower build in Europe. The U.S. and Canadian Class 8 industry backlog remains high. Kenworth and Peterbilt's 2019 production schedules are substantially full with customers ordering trucks for delivery in the first half of next year. In Europe, DAF has achieved an excellent year-to-date market share of 16.7% and the DAF XF was honored as the Fleet Truck of the Year in the U.K.

PACCAR continues to provide excellent annual operating margins, resulting in strong operating cash flow for distribution to shareholders and for reinvestment in future growth. PACCAR declared second quarter dividends of $0.32 per share and first half dividends of $0.64 per share. First half dividends were 21% higher than dividends declared in the same period last year. The Company has delivered annual dividends in the range of 45% to 55% of net income for many years and has paid a dividend every year since 1941. PACCAR has increased its quarterly dividend an average of 11% per year during the last 20 years. We repurchased 345,000 shares of stock during the second quarter with a $484 million remaining in the current Board of Directors authorization. PACCAR is investing in future growth with capital expenditures of $675 million to $725 million and R&D expenses of $320 million to $340 million this year. These investments will fund enhanced aerodynamic truck models, integrated powertrains, zero emissions electric and hydrogen fuel cell technologies, advanced driver assistance systems and truck connectivity.

We're also enhancing our manufacturing and distribution facilities at the Kenworth Chillicothe, Ohio truck factory. We added a new robotic cab build cell and are constructing a new state-of-the-art paint facility, which will lower operating costs, enhance quality and increase capacity. To meet increased customer demand for the popular PACCAR MX engine, we are adding machining and assembly equipment in the Columbus, Mississippi engine plant. We recently opened two global software R&D centers, one in Kirkland, Washington and one in Eindhoven, The Netherlands. These centers will accelerate the development of embedded vehicle software and PACCAR connected vehicle solutions for our customers. In the third quarter, truck deliveries will be higher in North America due to higher build rates and lower in Europe reflecting the normal three weeks summer shutdown. Global deliveries will be 5% to 7% higher than the third quarter of last year. We forecast third quarter gross margins for truck, parts and other to remain strong and be in a range of 14.5% to 15%. 2019 will be another outstanding year for the Company. Harrie Schippers will now provide an update on truck markets, PACCAR Parts and PACCAR Financial Services.

Harrie Schippers -- President and Chief Financial Officer

Thanks. Preston. The U.S. economy is in good shape, helped by a strong truck markets, growing wages and increased business investment. Freight tonnage has grown a healthy 4.4% year-to-date. We've raised our estimate of U.S. and Canadian Class 8 truck industry retail sales to a range of 300,000 to 320,000 vehicles this year. We're in a period of robust customer demand demonstrated by the historically high backlog, truck production levels and retail sales. The U.S. and Canada Class 8 backlog was 188,000 trucks at the end of June. Kenworth and Peterbilt's backlog represented 36% of the industry, we are raising our European above 16-ton market projection to a range of 300,000 to 320,000 vehicles this year. The European economies are growing at a lower rate than last year. PACCAR delivered record first half net income of $1.25 billion.

PACCAR Parts achieved record first half revenues of $2.30 billion and record pre-tax profits of $418 million. PACCAR has steadily increased its truck and engine market share over the years, resulting in a greater number of PACCAR trucks and engines in operation. This large and growing Kenworth, Peterbilt and DAF truck Park has driven 8% annual PACCAR parts revenue growth over the last 15 years.

This generates consistent high margin profitability in all phases of the business cycle. We continue to invest in the parts business with new parts distribution centers under construction in Las Vegas, Nevada and Ponta Grossa, Brasil. We expect part sales to grow 5% to 7% for the full year 2019. PACCAR Financial Services earned second quarter pre-tax income of $18 million, 11% higher than the second quarter last year. The PACCAR Financial portfolio performed well. This year, PACCAR Financial will open used truck centers in Prague, Czech Republic, and Denton, Texas to support solid customer demand for DAF, Peterbilt, and Kenworth trucks.

One of PACCAR's greatest assets does not appear on the balance sheet, I'm referring to the independent financially strong Kenworth, Peterbilt, and DAF dealers who operate more than 2,200 sales, service, and TRP store locations worldwide. Our dealers reflect the industry-leading quality and premium truck brand image of Kenworth, Peterbilt, and DAF trucks. We are proud of our global dealer network. They are the best in the industry.

Thank you, we would be pleased to answer your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Stephen Volkmann with Jefferies. Your line is now open.

Stephen Volkmann -- Jefferies -- Analyst

Hi, good morning, everybody.

Harrie Schippers -- President and Chief Financial Officer

Good morning.

Stephen Volkmann -- Jefferies -- Analyst

Harrie, I wonder if I could get you to make a few more comments about some of your kind of end market visibility and what I'm thinking about is obviously, you said, you're sort of taking orders for the first half of 2020. But of course, the overall order rate has come down quite a bit and I'm curious just kind of what you're hearing from customers and seeing in your order trends relative to demand in 2020. Do you think things tick up again as we get into the fall selling season, or are you hearing kind of caution because freight rates have come down, just kind of a, some thoughts about the quality of the 2020 order.

Harrie Schippers -- President and Chief Financial Officer

So if you look at the backlog for North America, today, we're in really good shape and like Preston said, we're increasing build rates in North America. Europe, the backlog is very normal and our production levels are in line with the orders in the backlog in the market as we see it today.

Stephen Volkmann -- Jefferies -- Analyst

Okay, so do you have any kind of preliminary thoughts about what 2020 might look like. Obviously, the market is sort of primed for a big decline.

Harrie Schippers -- President and Chief Financial Officer

We typically comment on 2020, once we get -- get closer to it so that's probably something for the next call.

Stephen Volkmann -- Jefferies -- Analyst

All right. I figured, it might be worth a try. Can I sneak one more in on just kind of what you're seeing relative to pricing in the new truck environment ?

Preston Feight -- Chief Executive Officer

Yeah, we look at the pricing realization in trucks in the second quarter. We saw, I will say, couple of percent price realization largely offset by cost and so that's kind of imbalance with each other.

Stephen Volkmann -- Jefferies -- Analyst

Okay, great, thank you very much.

Operator

Our next question comes from Andy Casey with Wells Fargo Securities. Your line is now open.

Andrew Casey -- Wells Fargo Securities -- Analyst

Thanks a lot, good morning as well.

Preston Feight -- Chief Executive Officer

Good morning.

Andrew Casey -- Wells Fargo Securities -- Analyst

I have a question on the shipments. It went up about 1.5% in Q2 from Q1. It's a little different than the outlook on the short-term that you gave last quarter 2% to 4% was the entire difference between actual and predicted driven by Europe. And if so, I guess to piggyback on Steve's question, can you describe what your European order intake may be was compared to last year. And then also some color around the overall market development.

Preston Feight -- Chief Executive Officer

Yeah, so just look at the start of the highest level of it, we did see growth in North America this year and that was as we said offset a little bit by what we experienced in Europe. We have really good balance in Europe right now between our order intake and our build rate. So we've got that set up really well, and in fact if you look at the first half market share results, we had 16.7% which is above last year's record 16.6%, so that's set up very nicely for us right now and we kind of see that order intake is as I said, matching into what we are -- what we are doing with build right now.

Andrew Casey -- Wells Fargo Securities -- Analyst

Okay, thank you and then on the, just specifically looking at the Truck segment margin and it pretty much seem to be in line with what you were looking for. But flattish, up -- maybe 10 basis points year-over-year and then down from Q1, despite higher revenue in both cases. Can you -- can you elaborate, now that the quarter is done in terms of what some of the headwinds might have been that limited the segment's ability to realize maybe some better margin leverage on that revenue growth.

Preston Feight -- Chief Executive Officer

Sure, I think if you look at, if you start within say -- it was 14.8% in the overall, gross margin feels very strong. So when we look at it from a year-over-year standpoint, truck has been able to hold on to that. And I think, the reason it doesn't see significant movement up is because it's already operating in a very high level. So we're at a very efficient point in the -- in the gross margins and then, I think, if you just talked about it a little bit from a -- from a sequential standpoint, the only difference between Q1 and Q2 has to do with really the customer mix that's happened between quarter one and quarter two.

Andrew Casey -- Wells Fargo Securities -- Analyst

Okay, thank you very much.

Operator

Our next question comes from Joel Tiss with BMO. Your line is now open.

Joel Tiss -- BMO -- Analyst

Hey guys, how is it going?

Preston Feight -- Chief Executive Officer

Really good. How is it going for you?

Joel Tiss -- BMO -- Analyst

All right, I wondered just to try to -- to be Steve for a second here. Can you talk about the second half production instead of just third quarter and the -- the production schedules and just sort of give us a little bit of an idea. So maybe, we can have a small window into the fourth quarter.

Preston Feight -- Chief Executive Officer

Well, we, if I try to talk about in terms of second half. We have again North America going up in the second half and then Europe, we think is stable, where we've got it right now. So we feel like those are balanced for what we would expect to see through the second half.

Joel Tiss -- BMO -- Analyst

Okay, and then beyond the customer mix, it sounded like in North America, but maybe, I'm reading too much into that. Is there any -- any negative margin. The incremental margins at 10%. You've been kind of running 12% or 13%, is there any -- because Latin America was so strong, is that a factor in there or not at all?

Preston Feight -- Chief Executive Officer

Latin America is a small percentage of the business still, so it really didn't have that much weighting factor to us. I mean, there's a little bit of benefit to it, but there's not a lot.

Joel Tiss -- BMO -- Analyst

Okay and then just last, the receivables, up 30%, is there any color you can add to that ?

Preston Feight -- Chief Executive Officer

Actually about increasing in the [Phonetic]

Joel Tiss -- BMO -- Analyst

Why is that so high?

Preston Feight -- Chief Executive Officer

Increasing in the build rates has been the primary driver of that.

Joel Tiss -- BMO -- Analyst

Okay, so it just seems like it's up a lot more than builds. Okay, thank you very much.

Harrie Schippers -- President and Chief Financial Officer

You're welcome .

Preston Feight -- Chief Executive Officer

You bet.

Operator

Our next question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.

Jerry Revich -- Goldman Sachs -- Analyst

Yes, hi, good morning and good afternoon, everyone.

Preston Feight -- Chief Executive Officer

Good morning, good afternoon.

Jerry Revich -- Goldman Sachs -- Analyst

I'm wondering if you could expand on your comments on the European production adjustment that you took in the quarter to match incoming order rates, when was that production adjustment take place. And as we think about the third quarter, normal seasonality would have production down 5% to 10% sequentially for you in Europe, so are we on -- at the right production point entering the third quarter, where we should see that normal seasonality or is production coming down sequentially, more than that normal 5% to 10% rate?

Preston Feight -- Chief Executive Officer

So the adjustments we made were just in the second quarter and again those -- they happen throughout the second quarter and they still delivered us this excellent market share that we saw. From the third quarter, looking forward, we do have a normal summer shutdown which is a two week summer shutdown so there is an overall effect in the market, but from a daily build rate standpoint, we're in a good position.

Jerry Revich -- Goldman Sachs -- Analyst

Okay. And in North America, we obviously know that you folks are built to order in when marketing FLEX, we typically see production adjustments from you folks. First, so when you folks are raising build rates sequentially 3Q versus 2Q that implies that you've had a full backlog scrub and you're comfortable with the level of dealer inventories, can you just confirm that point and that the expected deliveries for 3Q have firm customer specification to them as opposed to what are some typical dealer specs?

Preston Feight -- Chief Executive Officer

I think you did a a really nice job of characterizing it. Actually, we do to a backlog scrub and make sure that we have clean orders in there and we do build to order and as we've looked through that and we see that there is still very strong order backlog. Harrie said that we have 36% of the backlog for the industry is ours and so we want to make sure that we get the truck to the customers. They need the trucks to run their businesses and so we're in the manner of building as quickly as we can for them.

Jerry Revich -- Goldman Sachs -- Analyst

And in terms of the level of dealer inventories, can you just calibrate us out of the industry statistics that we have, you mentioned a backlog worth 36% of the backlog. What about out of inventories?

Preston Feight -- Chief Executive Officer

If you think of the inventory numbers against dealer [Phonetic] at 2.8 months and for a PACCAR in North America, it's 2.3 [Phonetic]. So we have our inventory in very good position with our dealers.

Jerry Revich -- Goldman Sachs -- Analyst

Okay, all right, thank you.

Operator

Our next question comes from the line of Ann Duignan with JP Morgan. Your line is now open.

Ann Duignan -- JP Morgan -- Analyst

Hi, everybody. I'd like to circle back to Europe, I mean registrations year-to-date are up closer to 10% and your deliveries are basically flat, maybe up slightly year-to-date, can you talk about the discrepancy. Have we seen a pull forward of registrations ahead of the mid-year tachograph requirement or is there anything unusual going on in the marketplace versus -- what -- how you are choosing to deliver?

Preston Feight -- Chief Executive Officer

I think, you actually nailed it, Ann. I think that remote tachograph is probably the biggest impact on what's pulled forward the -- pull forward the orders from -- in front of June 15 and so that's what we saw, we still expect the market in the 300,000 to 320,000 truck range and we should be able to have really excellent market share and with our build rates from the first half and second half for that.

Ann Duignan -- JP Morgan -- Analyst

And just as a follow-up to that, again, on Europe, given the announcement today and the new leadership in the U.K. Does that phrase or reaccelerate the concerns around Brexit and the impact that that could have on freight and just the whole industry as we get closer to the end of the year or what -- what are you hearing over there in terms of now, it sounds like it's a little bit more definitive?

Preston Feight -- Chief Executive Officer

Yeah, so one of the nice things for us is we are the market leader in the U.K. We do a great job all around Europe and our share is up in Europe and up in the U.K. also specifically. So as we look at what might happen with Brexit, we have a great advantage in that we do manufacturer all our truck models for the U.K., in the U.K. So I don't know, what the outcomes will be. But PACCAR is really well positioned with our manufacturing base in Europe to take advantage of it either way, it goes.

Ann Duignan -- JP Morgan -- Analyst

I meant more broadly what impact it might have on just freight and the whole European economy. Any comments on that?

Preston Feight -- Chief Executive Officer

Yeah, I don't think, we know that answer any better than anybody else. I would say that we've been pleasantly surprised with how the U.K. has performed in the first half of the year, there's been strong customer demand in the first half and that's been great.

Ann Duignan -- JP Morgan -- Analyst

Okay, thank you. I'll get back in line. Appreciate it.

Preston Feight -- Chief Executive Officer

Thanks, Ann.

Operator

Our next question comes from David Leiker with Baird. Your line is now open.

David Leiker -- Baird -- Analyst

Good morning, everyone.

Preston Feight -- Chief Executive Officer

Good morning.

David Leiker -- Baird -- Analyst

I wanted to talk about this kind of triangle effect between orders, backlog, inventories, you can throw cancels in there and what we're going through here in North America is while the order rates have fallen, the backlogs have remained elevated and I'm not sure, we've ever gone through a period of falling orders, where backlogs remain elevated and wondering if that might change a little bit of the economics of the earnings you might see as these lower order rates flow through the numbers?

Preston Feight -- Chief Executive Officer

I think, you know, one of the things you have to keep in mind is the bigger, the bigger picture of what happened last year and we had 458,000 industry orders last year. So that's a big number, and it takes a while for that to normalize through things, but it's not going to have any effect on our financial performance. We've got great financial performance and our dealers are doing really well and our customers love the trucks and so those things continue to work well and the results will be solid.

David Leiker -- Baird -- Analyst

Okay. And then just, I'm going to pick on Europe also, any particular markets or areas over there that you feel more worried than others. I mean, a lot of those -- a lot of your customers from those markets are exporting out of Europe into other parts of the world as well?

Preston Feight -- Chief Executive Officer

I think that Europe has done really well this year for us. I mean, obviously we have the market range of 300,000 to 320,000 trucks and us gaining share. So this would be the fourth year in a row above 300,000 if it stays like this and that's a fantastic market size and the DAF team, all the employees, the team, the dealers are doing a great job of growing the business. I think, the customers love the trucks and the fuel economy is outstanding and it's working really well.

David Leiker -- Baird -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from Steven Fisher with UBS. Your line is now open .

Steven Fisher -- UBS -- Analyst

Thanks, good afternoon and good morning.

Preston Feight -- Chief Executive Officer

Afternoon and good morning.

Steven Fisher -- UBS -- Analyst

How do the orders that you guys have taken for 2020 compare to the level of what you typically take in at this time of the year for the following year, I assume, it's got to be much higher and if that's, so I guess why are our cust -- this is, I guess going back to Steve Volkmann's question, why are customers rushing to place orders if freight fundamentals are softening?

Preston Feight -- Chief Executive Officer

Well, I would say, it this way. As I'd say, we -- we probably just get to the first part of your question. We do see order intake for 2020 higher, than we might typically see it that's in large part because in a different market, you might see that there is a lot more activities surrounded about filling 3Q and 4Q of the current year, year-end but since that's substantially full, there is interest in 2020. And so that's kind of just, I think where, people's energies go to.

Steven Fisher -- UBS -- Analyst

But with freight fundamentals softening, why wouldn't they just wait it out a little bit to see how the rest of the year is going to go?

Preston Feight -- Chief Executive Officer

I think some people do but freight fundamentals are really mix, right, we have a great economy in North America. GDP growth is occurring, I think, through May, ATA truck tonnage was up 4.4% so there is not like things are going badly, and we spend a lot of time as our team with our employees and our dealers talking to customers and customers are doing a good job. You see the truck companies earnings reports and they're coming out really strong in a lot of cases. So there is -- there is lot of reason for optimism too.

Steven Fisher -- UBS -- Analyst

Got it and then you said that the cost to offset price in the quarter, it sounded like price, you said was up a couple of percent, which may be down 1% or so from the first quarter and I would have expected cost to be coming down. So I guess, why was the pricing growth moderating and should we be expecting that that costs are actually coming down going forward here?

Preston Feight -- Chief Executive Officer

You wanted to offer any color.

Michael T. Barkley -- Senior Vice President and Controller

It's Mike. Preston just said, it's mostly customer mix that pricing was in line with the cost increases more or less.

Steven Fisher -- UBS -- Analyst

And what was that customer mix difference between Q2 and Q1?

Preston Feight -- Chief Executive Officer

So the customer difference is in the first quarter, a lot of dealers will have stock trucks on their lots and those are -- in terms of small quantity buys and then we get to a more distributed look at customer mix in the second quarter. So there is still the stock orders but then there's just a low to large-sized customer orders come in.

Steven Fisher -- UBS -- Analyst

Terrific, thanks, guys.

Preston Feight -- Chief Executive Officer

You bet.

Operator

Our next question comes from Seth Weber with RBC Capital Markets. Your line is now open.

Seth Weber -- RBC Capital Markets -- Analyst

Hey, good morning, everybody. I just wanted to go back, I think your guidance for the parts revenue growth for this year, you moderated the top end. I think, you're now seeing 5% to 7%. It was previously 5% to 8%. Is there anything you would call out there that is causing the -- just sort of the moderation. Thanks.

Preston Feight -- Chief Executive Officer

Yeah, sure. The parts business is really doing fantastic. It continues to perform at a high level, take the opportunity to say this. We look at where our investments are going in that business in the new distribution centers in Ponta Grossa, Brasil and Las Vegas and the way the team is moving through their initiatives of things like e-commerce and TRP growth is really fantastic. The only reason for any adjustment is really a currency effect that we pushed into the 5% to 7%.

Harrie Schippers -- President and Chief Financial Officer

Yeah, it's the revenues in Europe in euros that translates into a fewer dollars, when we do the translation.

Seth Weber -- RBC Capital Markets -- Analyst

Got it. That's helpful. Thank you. And then maybe just a quick follow-up on. The FinCo margin actually came down sequentially. Is there anything that you would call out there and is that sort of the run rate we should think of going forward? Thank you.

Preston Feight -- Chief Executive Officer

I don't think so -- I don't think, it's . When we look at new business generation, it's actually up quarter-over-quarter. So it's more about portfolio that I think you're talking about, and but the team is doing really good, if you looked at their earnings per quarter, it went up to $80 million and ended [Phonetic] at $164 million in the first half and it's just doing fantastic.

Seth Weber -- RBC Capital Markets -- Analyst

Okay, thank you very much, guys.

Operator

Our next question comes from Ross Gilardi with Bank of America. Your line is now open.

Ross Gilardi -- Bank of America -- Analyst

Thanks guys. I was just wondering, what are you seeing in the Mexican truck market and what would you do if some of the trade tensions that that started to rematerialize a couple of months ago came back and do you think, your overall footprint in North America given your relative lack of exposure to Mexican production is behind any of the order share strength that you've seen.

In other words, are customers, perhaps ordering more from PACCAR, just because there's greater surety -- surety supply given some of your competitors being relatively more exposed to Mexican production. Any thoughts there?

Preston Feight -- Chief Executive Officer

Yeah, I think, the team in -- the team in Mexico is just doing a really good job down there. We have great trucks. Obviously, the newest trucks we've introduced, the latest generation are fantastically well received by the customers and so their share was exceptionally good and if you look at there was an emissions change that happened in the middle of the year, so there was a strong buy ahead of that. But even since then order intake is -- has been positive and doing quite well.

So I don't -- I don't think, it's really affected by where people think, we're going to build the trucks and we obviously can build trucks in Mexico for Mexico. We can make our domestic U.S. and Canadian production in local markets. So I think, we just have a great manufacturing footprint that works well. And I don't -- I don't think there's anything about trade tensions affecting that. I think, it's more about great trucks and people.

Ross Gilardi -- Bank of America -- Analyst

And I guess that's the point. Most of what you produce in Mexico is for the Mexican market, correct. And if you did see tariffs, all of a sudden actually come back and put into place. Do you feel like you have sufficient capacity in the U.S. market to just relocate some of that production in a very short-term basis.

Preston Feight -- Chief Executive Officer

Yeah, we do have that capability.

Ross Gilardi -- Bank of America -- Analyst

Okay and then I think you made a comment about adding engine capacity in Mississippi, if I heard it right. And I wonder, if you could talk a little bit more about that, are you seeing share shift more toward the MX engine with the trucks that you're selling ?

Preston Feight -- Chief Executive Officer

The MX engine, MX- 11 and MX-13 engines are doing really well. They're providing. I think the -- just outstanding fuel economy in the market space. People had time to get used of them obviously now. And we are seeing strong demand from our customers for those engines for their lightweight and high performance. So we've increased our capacity in Columbus, and just recently finished that capacity increase at the end of the second quarter and going to be able to build some more engines for our customers in the second half.

Ross Gilardi -- Bank of America -- Analyst

Can you say it, roughly, how much you've increased capacity in Columbus ?

Preston Feight -- Chief Executive Officer

It's been meaningful, but it's, you know 10% to 20% kind of numbers.

Ross Gilardi -- Bank of America -- Analyst

Got it, OK . Thank you and just lastly on Brasil, maybe you could comment there. I mean, you've had obviously a pretty explosive growth over the last couple of years, remind us where you are on market share and I think from the beginning, the target was to get to 10% in five years to six years. As you continue to get closer to that number, do you start to grow more in line with the Brasilian market in the next couple of years?

Preston Feight -- Chief Executive Officer

Well, you know the trucks, the DAF trucks in Brasil are working very, very well for our customers. I was down there just couple of months ago and the dealers and customers are really excited with the performance they get, reliability and durability and fuel economy that they're providing in Brasil. So that's enabling our continued growth. The year-over-year standpoint, market share is up just a bit and it will continue to grow -- continue to make investments in Brasil. Parts business is doing really well down there, in the middle of building a new distribution center in Ponta Grossa, 160,000 square foot distribution center in Ponta Grossa which will support the business growth and the market overall is improving in Brasil. So really feeling good about the efforts our team has made down there. The results they are bringing, success with the dealers now and just how the business is going to continue forward.

Ross Gilardi -- Bank of America -- Analyst

Thank you.

Preston Feight -- Chief Executive Officer

You bet.

Operator

Our next question comes from the line of Jamie Cook with Credit Suisse. Your line is now open.

Jamie Cook -- Credit Suisse -- Analyst

Hello. I guess just a question, specifically, what is your visibility in 2020 this quarter relative to last quarter? I'm just trying to understand if it's increased into what degree. And then my second quarter -- second question is, assuming industry forecasts are correct, next year. I'm just, if you can walk us through whether -- is there anything we should consider with regards to decrementals relative to previous cycles in the sense that one, I would assume the parts business obviously helps your, your margins. You have the content on the MX engine. At the same time, one could argue you're more vertically integrated in R&D, cost should be structurally higher. So if there is anything you could help us out with and then one, is the -- are the -- should decrementals be meaningfully different in Europe versus the U.S.? Thanks.

Preston Feight -- Chief Executive Officer

Sure, there is a lot of questions in there. I'll make sure if I can get them right for you. From a 2020 order intake. I think that we're seeing, as I said earlier, a higher percentage than we do typically. We have great visibility that means comparatively to normal times for 2020, a decline to kind of really talk about a specific value there. But it feels positive compared to previous years. From a effect of what 2020's overall market is going to be, I think as Harrie said and we would all say, it's a little bit early to be talking about what the full market size is going to be in 2020 and from an effect on detrimental margin or margins or incremental margins as they may end up being, I'd say that we see that -- we keep our operating costs really low and I think that means there's relatively minor shifts in the decremental or incremental margins and continue to provide great value to our -- to the margin -- then the overall margin stays high.

Jamie Cook -- Credit Suisse -- Analyst

Okay. But no, no meaningful difference relative to previous downturns. I mean, is there any structural reason why decrementals would be better or just. I mean, if you're right on the top line in incrementals that's a different question but are decrementals...

Preston Feight -- Chief Executive Officer

No I don't think so. No meaningful shift.

Jamie Cook -- Credit Suisse -- Analyst

Okay, thank you.

Preston Feight -- Chief Executive Officer

You bet.

Operator

Our next question comes from Courtney Yakavonis with Morgan Stanley, your line is now open.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Hi, thanks. Thanks for the question. Just going back to Andy's question on your production this quarter, I think you had originally forecasted that all the increase would be from North America, kind of looks like it was pretty evenly split between North America and other. So was your North America production in line with your expectations and we discussed Europe, kind of that one -- but just wanted to confirm that.

Preston Feight -- Chief Executive Officer

Yeah, our North American production was in line with expectations. I think the only place where there was any slight -- slight change was in Europe, where we just made sure, we got our build rates adjusted to the market, so that's the overall effect.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Okay, got you. And then just on the CapEx raise, just wanted to make sure, is this similar to last quarter, where it's a lot of projects getting done faster, or moving more quickly than expected or are there any new projects that we should be thinking about ?

Preston Feight -- Chief Executive Officer

Sure we -- it's really fun. I mean, we're making these great investments in the future for the Company and so that's why you're seeing the CapEx changes, but we have just some fantastic opportunities that are really in terms of our capacity and quality in our factories. Our distribution centers for parts and used trucks and then maybe most importantly for the long-term benefit is the investments in new products that we're creating and so we just have a lot of programs going on and they are successfully moving along and we think, it's really building a bright future for us.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Okay, got you. And then just finally in South America , I think you slightly reduced your industry guidance. They are -- just wanted to confirm that and maybe how it compares, I think last quarter, you had guided to Brasil at 65,000 to 75,000, just want to understand those dynamics of play there.

Harrie Schippers -- President and Chief Financial Officer

I think, the guidance for Brasil is the same as what we did last time , I think, for total South America, the range might have dropped 5,000 [Phonetic] so from a -- I think we are nowat...

Preston Feight -- Chief Executive Officer

100,000 to 110,000 for South America in total.

Harrie Schippers -- President and Chief Financial Officer

Yeah. But it's outside Brasil.

Preston Feight -- Chief Executive Officer

Brasil is still guiding at 70,000 as a midpoint, 65,000 to 75,000. South America at 100,000 to 110,000.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Perfect, great, thank you.

Preston Feight -- Chief Executive Officer

You bet.

Operator

Our next question comes from Jeff Kauffman with Loop Capital Markets, your line is now open.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Thank you very much. Good morning, everyone.

Preston Feight -- Chief Executive Officer

Hey, good morning.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Thank you. A lot of my questions have been answered at this point, just a couple of nits. You mentioned that you are seeing orders for 2020 at this point. Yet we do know there are some aspects of the trucking market see in pain, particularly on the pricing side, to your point not so much the volumes. Have you seen any change on the specs that customers are asking for 2020 versus 2019?

Preston Feight -- Chief Executive Officer

No, it's a nice question. But I think that really the customers are always looking for the most fuel-efficient, lowest operating cost trucks that they can find. And that's the beauty about being PACCAR as we provide that to our customers. We have these passionate team of people, do a great job of making sure that the trucks we develop and sell, are really at the best and most efficient vehicles for our customers. And so I think that's what they're always looking at, we're always talking to the customers about to make sure the spec stayed lined up that way but there hasn't been any fundamental shift.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Okay and then just one last nit. I did notice the tax rate was up a little bit sequentially from the first quarter, that could be just randomness. But I'm wondering, might that have to do with maybe more profitability being driven out of North America. What should I be thinking in terms of tax rate for the full year?

Preston Feight -- Chief Executive Officer

Yeah, I think you hit it on the head there. It's a income mix of North America tax rates including states are a little bit higher than Europe and so that affected the quarter.

Jeff Kauffman -- Loop Capital Markets -- Analyst

Okay, all right, that's all I have. All the questions have been asked already, congratulations and thank you.

Harrie Schippers -- President and Chief Financial Officer

Great, thank you. Right.

Preston Feight -- Chief Executive Officer

Thanks a lot.

Operator

Our next question comes from Joe O'Dea with Vertical Research. Your line is now open.

Joe O'Dea -- Vertical Research -- Analyst

Hi, with the North America build rate going up in 3Q, I think historically, it's not uncommon to then see it come down in 4Q, but that's usually with Europe going up and so I'm just curious with some of what's going on in Europe right now. Should we expect that -- that your current plans at this point or that -- that increase in the build rate in North America for 3Q is something that that you would maintain in 4Q?

Preston Feight -- Chief Executive Officer

Yeah, we have a strong backlog. As we said is substantially full for the second half and so we don't see any reason not to think the build rate stays roughly where it is for the fourth quarter in the U.S. and Canada.

Harrie Schippers -- President and Chief Financial Officer

But you're right that the fourth quarter in the U.S. and Canada will have more holidays than the third quarter, and Europe is just the opposite. Yeah.

Preston Feight -- Chief Executive Officer

So daily build rates, it doesn't change necessarily -- but overall...

Joe O'Dea -- Vertical Research -- Analyst

Yes. Just a question on the daily build rate so. And then from your comments around months of inventory -- industry at 2.8 months, you are at 2.3, I think historically the industry average is in the low 2 [Phonetic]. So I'm just curious, historically, where you average as we think about sort of through cycle targets.

Preston Feight -- Chief Executive Officer

This is within our normal band and it's kind of a healthy space to be.

Joe O'Dea -- Vertical Research -- Analyst

Perfect and then just one on the 2020 orders you're taking, how does that pricing compared to 2019?

Preston Feight -- Chief Executive Officer

That just depends on the customer but the pricing is fairly consistent right now.

Joe O'Dea -- Vertical Research -- Analyst

Got it. Thanks very much.

Preston Feight -- Chief Executive Officer

You bet.

Operator

Our next question comes from Neil Frohnapple with Buckingham Research. Your line is now open.

Neil Frohnapple -- Buckingham Research -- Analyst

Hi, good morning.

Preston Feight -- Chief Executive Officer

Hi, good morning.

Neil Frohnapple -- Buckingham Research -- Analyst

Is inventory at your used truck centers starting to rise at all and any thoughts on the used truck market in North America and Europe, both from a demand and pricing standpoint?

Preston Feight -- Chief Executive Officer

Yeah, I think if you look at the used trucks, maybe the pricing has moderated a bit from where it was in Q1 but one of the nice things about being part of PACCAR is our trucks do command a 10% to 15% premium in the market and as we've watched our market share grow over the past several years, we've invested in creating a great used truck capability -- selling capability. So that's why we've got this new facility -- used truck facility we're building in Denton, Texas. A few years ago, we did one in Los Angeles. In Europe, we're creating one in Prague in the Czech Republic as well, and then adding on capacity, we have a fantastic dealer network that does a good job of managing used trucks and distributing used trucks to customers. So between our premium position and our capability, we feel like we're in a good space.

Neil Frohnapple -- Buckingham Research -- Analyst

Okay. And as a follow-up on that if used truck prices were to continue to moderate, what's the the time lag as far as when that will start impacting the FinCo profitability, I think, it usually runs through that interest in other line, is that a couple of quarter lag or any thoughts there?

Preston Feight -- Chief Executive Officer

Yeah, I don't think we kind of recalibrated into which quarter it would have an impact on and obviously would depend on the amount of effect and it depends a lot on the percent of retail versus wholesale and our team is doing a really good job of selling a lot of used trucks in a retail position. So there's too many mix effects in there to really characterize it.

Neil Frohnapple -- Buckingham Research -- Analyst

Okay and then just one final one on the medium-duty market here in North America, any notable changes to the outlook we are seeing from customers, market share etc. Thank you.

Preston Feight -- Chief Executive Officer

Yeah, sure. Thanks for the questions. Now, the market size seems consistent to what we've said previously, and 100,000 units plus or minus and then the business is doing really well. I think that our trucks are performing well in space and our market share will be roughly in the same range.

Neil Frohnapple -- Buckingham Research -- Analyst

Great, thanks so much.

Preston Feight -- Chief Executive Officer

You bet.

Operator

[Operator Instructions] Our next question comes from Robert Wertheimer with Melius. Your line is now open.

Robert Wertheimer -- Melius -- Analyst

Thank you and good morning, everybody.

Preston Feight -- Chief Executive Officer

Good morning.

Robert Wertheimer -- Melius -- Analyst

My question is pretty simple. I wonder if you could just remind us of the mechanics on orders for next year. Is the order book open for all models and configuration and then is pricing established or people sort of just taken a bet on it and is that the same as every year, this year?

Preston Feight -- Chief Executive Officer

So I would say that the order book is open for all trucks and all models and we love taking orders for trucks, it's something we enjoy a lot. And when I think about it in terms of the pricing being established, in the deals that we're discussing right now, those end up being with the customers and they end up being focused around what we've done previously and what their spec is and what we're doing. So those end up being worked through in almost individually.

Robert Wertheimer -- Melius -- Analyst

Okay, perfect, that's it, thanks.

Preston Feight -- Chief Executive Officer

You bet.

Operator

Our next question comes from Scott Group with Wolfe Research. Your line is now open.

Robert Salmon -- Wolfe Research -- Analyst

Hey, good morning, guys. It's Rob on for Scott.

Preston Feight -- Chief Executive Officer

Good morning, Rob.

Robert Salmon -- Wolfe Research -- Analyst

A quick clarification question with regard to the build rate, am I hearing you right that you guys are basically planning on maintaining the third quarter level of production in the fourth quarter or is there some increase you're implying there in the back half guidance?

Preston Feight -- Chief Executive Officer

I think the firm space is the third quarter going up and then we watch with the fourth quarter as we substantially are full. We'll watch what the fourth quarter does, but I don't expect to see any significant shifts.

Robert Salmon -- Wolfe Research -- Analyst

That's helpful. In your preliminary comments about the order book and the strength looking out to next year, where you guys intimating that we could see revenue actually be up next year?

Preston Feight -- Chief Executive Officer

I don't think, we intimated next year.

Robert Salmon -- Wolfe Research -- Analyst

Okay. And then a -- just a couple of quick questions with regard to the used truck market. You said, you saw it soften up a little bit, could you describe it if you're seeing that in one specific channel i.e. kind of small fleets or kind of the owner operator end of the marketplace and what sort of increase on a year-over-year basis, you're seeing from a price realization currently would be helpful as well.

Preston Feight -- Chief Executive Officer

I think it's, we think about it in terms of the PACCAR products Kenworth and Peterbilt, North America DAF and where just they command a premium. So it's a relative positioning to the competition they are doing really well. And then I think from a -- as I said earlier, I think a lot of effect has to do with how many trucks are coming back in and what percent you retail those trucks at and we've been able to grow our retail percentage, especially in North America, which has brought us good results. So as far as the overall trends of the market. I think, those vagaries are difficult to plan forward too. But we'll watch them. We have a great team that's managing that business really well.

Robert Salmon -- Wolfe Research -- Analyst

That's helpful. Final one, which I guess kind of relates to the FinCo, is we saw a slight uptick in the provision for losses on receivables, obviously still at a low level, and that was a sequential uptick still nicely improved on a year-over-year basis. What's driving that, is that just some of the small carriers, you're seeing a little bit of softening in terms of their -- their receivables or is this ?

Harrie Schippers -- President and Chief Financial Officer

Most of that is due to the larger portfolio. But past due remain -- past dues remain really low, credit losses remain low. The portfolio is managed really well. So we've got lot of good customers that make money with their trucks and pay their bills on time.

Robert Salmon -- Wolfe Research -- Analyst

Really helpful. I appreciate the time, guys.

Preston Feight -- Chief Executive Officer

Yeah, you bet. Have a good day.

Operator

Our next question comes from David Raso with Evercore. Your line is now open.

David Raso -- Evercore ISI -- Analyst

Thank you. Quick question. North America, I know you slice at U.S., Canada, how you give deliveries. But in your commentary about your backlog. Can you just help us a bit with your U.S., Canada or you want to define it as North America. Your backlog year-over-year as we sit today. Just some sense of the year-over-year in that position?

Preston Feight -- Chief Executive Officer

Well it's up substantially year-over-year from a normal cycle. Obviously, that's moderated from what happened in 2018's, 358,000 truck order intake or 458,000 truck order intake. So it's, if you look at it on a pure sequential year-over-year. It's probably down, but it's down from a level that was not sustainable. So high and so compared to normal levels, it's still very high and very strong -- 73,000 trucks in a backlog and doing really well.

David Raso -- Evercore ISI -- Analyst

Yeah, I mean, look. I mean, clearly the industry is down, I mean the data we most all use, it's down about 17% year-over-year. I'm just trying to get a feel is your backlog down less than the industry [Speech Overlap].

Preston Feight -- Chief Executive Officer

Well I think, the best way to think about that David, is to think about that percentage of backlog that Harrie talked about earlier, the 36% of the industry backlog, which is, you know, if you call us a 30% market share and 36% of industry backlog, means we have very healthy backlog relative to our market share.

David Raso -- Evercore ISI -- Analyst

Yeah, if we were just trying to figure out how much of that goes into 2020. How much is helping the fourth quarter? If the fourth quarter builds. Just have the normal seasonal less build days but the daily rate stays the same, I would argue that's probably a little better than people are thinking. I'm just trying to get a feel, while that helps the fourth quarter. What does it mean about 2020? But you're still speaking pretty constructively about your orders into 2020. So just trying to put the Mosaic here together, but. But again, your backlog is doing better than the industry given the the share gain obviously implied in that backlog versus the the industry totals.

Preston Feight -- Chief Executive Officer

Yeah, I think you're characterizing it really well. David, I think that's...

David Raso -- Evercore ISI -- Analyst

Okay.

Preston Feight -- Chief Executive Officer

Exactly right. [Indecipherable] to that and we'll watch what 2020 does as it gets closer to us.

David Raso -- Evercore ISI -- Analyst

Very helpful, thank you, guys.

Preston Feight -- Chief Executive Officer

You bet.

Operator

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

Ken Hastings -- Director of Investor Relations

Yes, we'd like to thank everyone for joining the call and thank you, operator.

Preston Feight -- Chief Executive Officer

Thanks everyone, have a great day.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Ken Hastings -- Director of Investor Relations

Preston Feight -- Chief Executive Officer

Harrie Schippers -- President and Chief Financial Officer

Michael T. Barkley -- Senior Vice President and Controller

Stephen Volkmann -- Jefferies -- Analyst

Andrew Casey -- Wells Fargo Securities -- Analyst

Joel Tiss -- BMO -- Analyst

Jerry Revich -- Goldman Sachs -- Analyst

Ann Duignan -- JP Morgan -- Analyst

David Leiker -- Baird -- Analyst

Steven Fisher -- UBS -- Analyst

Seth Weber -- RBC Capital Markets -- Analyst

Ross Gilardi -- Bank of America -- Analyst

Jamie Cook -- Credit Suisse -- Analyst

Courtney Yakavonis -- Morgan Stanley -- Analyst

Jeff Kauffman -- Loop Capital Markets -- Analyst

Joe O'Dea -- Vertical Research -- Analyst

Neil Frohnapple -- Buckingham Research -- Analyst

Robert Wertheimer -- Melius -- Analyst

Robert Salmon -- Wolfe Research -- Analyst

David Raso -- Evercore ISI -- Analyst

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