Operator: Thank you. Our next question comes from the line of Chad Dillard with Bernstein. Please go ahead.
Chad Dillard: Hi. Good morning, guys. So my first question is compared to the last cycle. Can you just talk about how much structural uplift in Parts margins do you think you’ve seen?
Preston Feight: Sure. I think that I would point towards, again, the way I just talked about the scenario and the last question is — the Parts team has done an excellent job of creating value for the customers. So it’s not just providing parts. It’s about having the right parts in the right locations, our 18 PDCs located throughout the world, make it easier to have parts available to our customers next day and even same day in many cases. They’re also using tools like MDI, managed dealer inventory, so that we work closely with the dealers to make sure that they — that we know what parts they need, and that’s really supportive to the business. And I think that the connected vehicle status is also helping us as well. So those things all help the Parts business.
We see the powertrain business, the engine business being a good contributor to the Parts growth. And as we look forward into the future and think about the electric vehicle world, that will also be likely accretive to our business and parts. So we feel like there’s a great future for us.
Chad Dillard: That’s helpful. And then second question, how should we think about PFS profitability for the balance of the year? And do you think the environment is strong enough for you to maintain the current run rate of loss provisions?
Harrie Schippers: Yes. Like we said PACCAR Financial is having an excellent year. Used truck gains are a little less than what they were a quarter ago or a year ago. But the portfolio is larger with the growing number of trucks in the portfolio and the higher value per truck in the portfolio. In addition, we see a strong portfolio performance with continued low credit losses, low past dues. So we expect the finance company to continue seeing good quarters as we progress during the year.
Chad Dillard: Great. Thank you.
Operator: Our next question comes from the line of Rob Wertheimer with Melius Research. Please go ahead.
Rob Wertheimer: Hi, thank you. My question is on supply chain as you, kind of, exit on Q. Industry volumes seem to have improved markedly. You guys obviously had extraordinary And so I’m curious, is supplying disruption, direct costs from shipping, et cetera. back to normal? Is there still more improvement to be had there? And how would that, if at all, impact your decision on pricing?
Preston Feight: Sure. We’ve worked really closely with the supplier partners we have over the past couple of years, and I give them a lot of credit for what they’ve been able to accomplish in a dynamic world environment. But it’s not finished yet. We still do see some constraints in supplier deliveries, and we keep working through those, and they kind of act some ways is the throttle on our build right now, but generally improving circumstances, and we look forward to that even improving further throughout the year.
Rob Wertheimer: Okay, perfect. Thank you. If I ask one other one, when you look at your raised outlook and I guess competitors have done the same. So you guys are seeing definitely strong demand — and yet there’s fears of recession and slowdown out there. Are you seeing any material mix shift within your orders, say, to construction with project activity versus sleeper cab or would you say it’s kind of strong throughout? And I’ll stop there. Thank you.
Preston Feight: I think you’re right on it. I think that what we’ve seen is strong demand through all parts of the market. But if there’s a trimming in the truckload area, then I would say that’s fully offset by the robust vocational markets that we see.
Rob Wertheimer: Great. Thank you.
Preston Feight: You bet.
Operator: Thank you. Our next question comes from the line of Steve Volkmann with Jefferies. Please go ahead.
Steve Volkmann: Great. Good morning, everybody. Thank you for taking the question. I’m wondering if we can go back to the gross margin, and I just want to try to understand some of the drivers because if you have a slightly higher production in the second quarter versus the first, but your gross margin is down, call it, 100 basis points or maybe a little less. I’m just curious what would drive that gross margin down lower sequentially?
Preston Feight: Well, in the first quarter, I just mentioned the supply base has not fully improved. So there still are costs and things that we experienced in terms of deliveries. In fact, in the first quarter, there were some trucks that we didn’t finish delivering. So we had better absorption in the first quarter than we might see in the second quarter, which contributes a little bit. And I don’t know if there’s anything you’d add, Harrie to that, but…
Harrie Schippers: And I would say the trucks production and deliveries increasing to 51,000 to 54,000 trucks will grow a little faster than Parts. So we would see a little bit of an unfavorable truck versus parts mix which is why we get to that 18% to 19% excellent margin for the second quarter.
Steve Volkmann: Yes, still very high, but just wanted to understand the moving parts. And then maybe, Preston, you mentioned this, but supply chain, I guess, we assume that will continue to improve as the year progresses. So if that’s the case, would you imagine given the demand environment, would you imagine that you would be able to continue to increase kind of quarterly production rates in the second half as well?
Preston Feight: Well, continue to improve might not be huge changes in production output. So we’ll have to see what that looks like, Steve. We’re always looking to build those trucks, especially with the backlog we have.
Steve Volkmann: Understood. Thank you, guys.
Preston Feight: You bet and have a good day.
Operator: Our next question comes from the line of David Raso with Evercore ISI. Please go ahead.
