Q1 2020 Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Rush Enterprises Inc. reports first quarter 2020 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press star didn't zero on your Touchtone telephone as a reminder, this conference call. This being recorded I would now like to turn the conference over to your host Mr., Rusty Rush, Chairman CEO and president.
Good morning, welcome to our first quarter 2020 earnings release conference call on the Golden age or Martin Mcglynn Roberts, Chief Operating Officer, Steve Gellert, Chief Financial Officer, Derrek Weaver Executive Vice President, Jay Hazelwood, Vice President and control and Michael Goldstein, Vice President General Counsel and corporate Secretary now Steve will say a few words regarding forward looking.
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Certain statements we make today are considered forward looking statements.
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Right.
'cause restatements risk and uncertainties actual results may differ materially from those expressed.
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Factors that could cause actual results to differ materially.
Yes.
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We're not limit to what was discussed in our annual report.
Hey for to geared at December 31st.
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Our other filings.
As indicated in our news release, we achieved quarterly revenues 1.3 billion net income of 23.5.
Or 62 cents per diluted share. We also declared a cash dividend 13 cents per common share.
In the aftermarket already reports service and body shop revenues were 428 million down 2.4% over 2019, our absorption ratio was 114.3. This decline in our aftermarket revenues can be attributed to the softness in the market and a significant decline in the energy sector.
Regarding drug sales, we sold 3078, new class eight trucks down 13.5% than the first quarter 2019, our truck sales accounted for 6.3% or the total U S class eight market.
This is the result, when industrywide slowdown in class a drugs sales, although refuse construction of stock wrote sales remain relatively healthy or.
Our used truck sales decreased 15.3% year over year. A result in January and February were down slightly from the same time 2019, what did we experienced a much more significant the Carolina used truck sales due to go with 19 endemic in March.
Medium duty our class four through seven new truck sales were 3200, 64 units up 24.9% year over year accounted for 6% of U.S. market. These solid results were primarily the result of activity from grocery in foodservice customers. In addition to stop sock sales across the country.
In most areas of a bit of our business. The cobot 19 endemic had limited impact on our financial results in the first quarter. However, this does not reflect significant impact. We believe the spending then we'll have our company going forward, we're continuing continuously monitoring the impacts of cobot 19 on the economy in our industry and we're taking appropriate.
Steps to preserve our financial stability during this president.
Rush truck centers are classified as essential businesses and it remain fully operational across our dealership, but well some hours of operation had been modified.
We are complying with all CDC guidelines, and federal and state and local orders to protect the health or safety well employees customers and the public.
Thank you the aftermarket airports to watch Jane has remained largely uninterrupted today, but we did increase our ports inventories to support an extra 30 days of demand.
The investments we made in our strategic initiatives over the past few years in particular technologies, such as online imports or web based communication, what was well to support social distancing badges and capture sales in this tough operating environment were 2400 service bays and 500 mobile service units, we're prepared as ever.
And our customers with expedited service in a safe environment, maybe where customers have reduced their operations and it just as it too soon to tell when their businesses will fully real.
We expect cobot 19 robotic go over 90 embedded there will negatively impact our aftermarket results in the second quarter.
All our drug manufacturers have temporarily suspended at least some of their global production facilities.
Causing uncertainty about the availability of new truck inventory.
HCT research recently adjusted its glass U S class eight retail for sales forecast or 127500 units in 2020, a 54.8% decline over 2019.
Representatives are actively reaching out to customers and prospects to explore every possible sales Robertson.
Many customers are delaying purchases due to uncertainty uncertainty about the economic impacts of the better them.
We expect the go one nice thing, but I never to have significant impact on new class eight truck sales in the second core.
Regarding class four through seven drug sales HCT brief work searches work as the U.S. retail sales to be 147500 units in 2020, 44.8% decrease compared to 2019.
We anticipate the medium any sales will also be negatively impact.
As those sales generally track with the overall economy, we're taking aggressive approach to write downs to new and used vehicles and believe our inventories are positioned well to meet market demand.
In the first quarter, we suspended our stock repurchase program and renewed a 100 million dollar line of credit.
Hi, reduce my salary about 25% members of my executive team and reduce their salaries by 10% and our board of directors reduce their cash would annual cash for diner by 10%.
We're also reducing expenses and delay other expenses and delaying capital expenditure.
Well, we're doing everything we can to address the challenges we're facing there will undoubtedly be an significant negative impact on our business or the cobot 19, Benetton that said, our employees and I take pride in being an essential business and supporting our customers through this difficult time.
It's important that I, thank them for their unwavering commitment to our company, our customers and the keeping themselves and those around them safe and healthy.
With that I'll take your questions.
Ladies and gentlemen, if you have a question at this time. Please press the Star then the number one key on your Touchtone telephone.
If your question has been answered or you wish familiar stuff from the Q. Please press the pound key.
Your first question comes from the line of Jamie Cook with Credit Suisse.
Hi, Good morning, and I Hope you guys, there a wealthy sorry, well unhealthy at south it sounds like everyone's doing.
Oh, I'm, sorry about that anyway, good to hear your voice Rusty and Steve I guess, just my first question, obviously, Toby didn't really impacted the March quarter can you talk about trends you're seeing in April both on the truck sales side as well is the the aftermarket side, you know and and how you think aftermarket will hold up this year.
You know just just with you know cobot 19 in your strategy to increase your aftermarket business and then I guess last last question. You know what do you think is a reasonable time for the always to get back up and running you know in terms of production I think you know Packer said, they hope to be up and running by the end of the second quarter I mean, how do you think production ramps.
I guess in the second or third quarter. If you have any insight. Thank you.
Sure well I'm will take even worse or real quick.
As far as you know from the manufacturer perspective, it's you know it's different for all of them.
Okay. Because you know I don't want to you know I don't want to get into their plans exactly that said I expect you know in APAC car side, I expect them to be up and running your first part of might you know I think that's their intentions.
A lot has to do with supply chain I'll be honest with you I think both manufacturers are prepared to get up and running but there's you know the sub suppliers and I think there's some issues across the board you know with Mexico and some other places that folks are working through I think that's probably the biggest issues that they have right now besides obviously smaller order boards. Okay. So.
So when they do come back I would expect range to be down you know build rates to be down, but that's indicative no different than we would expect normally in this type of time as part of the cycle, but I would say within the next week two weeks.
You know you'll have them up and running.
And I believe you know and how how that goes forward I'm going to tell you you know we saw what the orders worth in the March I don't anticipate much difference in April. So you know will I think it's gonna it's going be hand to hand, you know is gonna be hand to mouth and and how we want to look at it going forward, it's really hard to project.
[laughter] need if you look at.
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I mean, yeah, 127, five but that's 104000 run rate in the last three months <unk> retail. So you know that's the lowest run rate since O nine it's lower than in 97, no. Non it was 110 U.S. retail and.
2010, so you know and I, so I'm in while I'm in line with them I guess would be my answer.
Back to your other question, Oh, we wonder where we.
Well I'm not going to get out and that's passed the further pest and second quarter and what I'm living right now to be honest with you.
As the truck sales are going to be less.
Across the board.
Oh from a class eight perspective, you know the factory shutdowns six weeks you know its or stops I remember the tail Oh that does you got that gap you got to make up for now well with that being said we have stuff that was in process delivery. It is being delivered but there will be that gap no question because that was being so it's hard for me to give you an answer it will be down.
I'm still trying to get my arms around how far down because they have started back to work. You know you asked me. One question. You asked my question two weeks ago would probably be differential than it is now because I thought we were gonna be back to work centered factories and then he has been put all that all the factories couldn't you know everybody's given one two we typically a couple of weeks and then we look at it may give another week.
For two and that's what we've gone through three times. So that has a direct direct impact on what we're going to deliver right. So you know because they're not build anything on my my in process delivery starts running out that I've got in the pipeline because we always have that because we are that we are that retail guy on the and so obviously down it's hard for me to give a number.
Now for Q2, it really really has once they get up and running I can see the flow and how many of their building and what we're getting about backlog I'll be able to give more down yes significant now it's not going be cutting a half or anything, but it's going to be down you know I would've expected to be down significantly.
In Q2, just based on the factories or you know not being a production now most important thing parts and service right.
Oh, yes.
When I look back when we first when we looked at it when all is starting taken place I.
I decided we had to margins right I took margins split in two months, okay. Because over the back half of March there was a front end. They werent same up but it has you know it gradually it wasn't it didn't steeply rob but its gradually decrease.
You know and.
You asked me a week ago I might have something a little different then this week.
But I would tell you right now and I am hoping.
That we're finding a bottom, but I haven't I can't answer that for sure because how long you know what it out but am I looking at one week or three weeks of stability right Oh I'm looking for a couple more weeks I feel I pretty stable from last week. This week I mean, we're talking about you know I'm just I've given you what I'm feeling here feel pretty stable from week to week.
Parts and service wise, but if I'm going to tell you.
Give you a range of what it's all from the Q1 quarter.
Oh I'm going to tell you a daily run rate from Q1.
It's somewhere in a range you somewhere between 11 and 14% something like that.
All from Q1 run rates right now in parts and service I hope its bottom.
What I call me in couple of weeks for you Nick what they're not day, what to think about getting those Mike and I'll be happy to give anybody updates as we go along but no I can't call me, but obviously, yes, that's where I think we're at Okay. I think right now and I'm, hoping that what I've seen but I don't there's no guarantees right. Because this is in I'll get into my description. This thing is working.
Way through the system remember that construction, we're still going on that it mean, new projects are being let you know all retail shut down. So you you got different market segments doing different things, where retail maybe started doing come back as things start opening back up other segments may be going down that we're still running so it's I'm gonna have to really I know I'm, giving you.
Brought answer here would really that's backs you know it's different market segments are doing different things I expect something to start coming out of it as we open back up that's like some others to start declining.
So I've got.
Okay. Thanks, Thanks for your I hope it insights and stay healthy.
Thank you.
Your next question comes from the line of Justin long with Stephens.
Thanks, and good morning, guys.
Good morning, So one of the dad shift gears, a little bit said DNA and I was wondering if you could provide an update on how you're thinking about the cuts we can see going forward as you react to this downturn and maybe a little bit of color on when those cuts should start to kick in.
Well, they're going to start kicking in in this quarter, okay without a doubt, but we're in the process though.
Of of doing.
So as we were looking at them as I said businesses.
We had already made some prior as you know like in November we done some stuff earlier, but that was preparing for a normal market for this normal cyclical you know so the cycle stuff we deal with.
We're in the midst of them right now.
I've got some goals from a gene I mean, DNA was all about a point over last year in the first quarter. Okay lets you know saved.
The sound like a lot, but it's a you know when you consider the normal inflationary pieces that we had last year et cetera et cetera.
Personnel basis down from where it was a year ago. When it will continue probably too we will probably have some more reductions around there just given them the overall market.
To give you a little color you know I'm, hoping to a range it.
If the million adds 50 million, maybe in Q2 out of GE in a little less somewhere between let me range that to say 12 to 15.
A DNA out of Q2 from Q1.
And when we will pimping to do maybe a little bit more but some of that's going to roll and will all be effective. Its you know it's hard to get it all effective in Q2, but we will be extremely diligent and managing to the market as we always have.
And.
I'm comfortable will will be managed that we won't be able to make all the lost revenue up there's no question about that okay. I can't take all that meet all the boat that being said we've shown in past cycles, we do know how to manage through it.
And even.
Even though it no nine [laughter].
Flip back on that we manage through it remained profitable every quarter and you know I'm, hoping we're able to do something along those lines is just hit me tell me a number is very difficult in this environment I'm, just going our past performances and we will do everything.
Reasonably right to to manage to the market that we're dealt with but it's a it's really moving guys. It moves it moves about we measure daily right. You know I, just because I see a little stability for the first three days this week.
Does it mean that it's stabilized, but just stable over the last week. So I'm I'm open, but we'll just we'll keep managing and but those numbers on your gene a comment I'm sure I'm pretty comfortable with those and we'll attempt to get more.
Okay that that helps and then.
Maybe to follow up on customer mix I know, you've got a lot of vocational exposure on the new truck side, but how are you thinking about your exposure to small and medium size fleets that are likely to be and some pretty significant financial distress in the downturn at their away that help us think through that risk as it relates to.
Both new truck sales and your parts and service business.
Yeah, I mean, you know that obviously, there's going to get hurt works right. They don't have the big gone drugs you know the call you know the large contracts of the a dedicated towards many drugs could dedicated all those things like that.
It's going to be more market segment driven.
I think as much as anything you know, but over the road. There's no question those guys are probably going to suffer here over the over the next quarter or so.
We're still seeing business I think one of the one of the things I'm, hoping is that by the factories.
Being down.
That our stock truck sales will.
Fill some of that right. So we can you know use our inventories to fill in there.
But there's no question the small guys gonna get hurt worse than the big over the road guys. You know we checked regularly across the board with every even with our largest customers NR smaller we I mean, we're in contact on a weekly the weekly basis with because we have a backlog it's not just all big fleets. It is small your small customers too.
And so far you know with a few minor exceptions, it seems to be holding together fairly well no. That's the backlog you know what were the intake is gonna be the issue right now and I think everybody's you know so little bit of a whole pattern.
From an intake perspective until they get their arms around you know is everything starts opening back up and things start moving a you know in a more or normally fat and a more normal fashion.
But there's no question, a little Guy will get hurt worse.
Fortunately, we do our business was small customers, but we also have a lot of large customers. So I'm, hoping that that will help us no go typically in a in a down market like this we take share or would you can go back to 16 go back to 16 and go back anytime we take share typically our market share agency with you know up in the.
First quarter and I would hope it continues to be.
Across the latter back after this year, so I feel good about that the parts and service business.
So basically the same answer you know those guys are going to me the guys. It take it harder.
And you know you do get people just people just spend what they need not what they want right now and that's what we're seeing a lot about going on when you look at average size it tickets et cetera.
You know you look at how many tickets are done every day, which also look at average size and obviously, we're seeing somewhat impact.
From what people are buying because they're buying what they need that with the war.
Okay that helps and then maybe just a last one for Steve obviously, the energy market, it's just rolled over substantially recently.
How much energy exposure at left in your parts and service business. When you look at the first quarter.
Oh, probably certainly less than 5%, probably 3% to 4% of the volumes from there.
Okay, Great I'll leave it at that I think.
One of the things is good about that if you remember the company four years ago, we had like 15%. Okay. So even the results we posted in the first quarter, it's got three or 4% of energy. So I'm proud of the organization for the ship and the you know.
And how we've diversified our customer base across where we used to be three or four years ago.
Definitely that's a good point and thanks again for the time.
You bet.
Your next question comes from the line of Joel Tiss from BMO.
Hi, guys hasn't gone.
Oh, well in pretty good job all things given that.
Yeah exactly.
I wonder if there's any way to kind of characterize your customers you know not not not your customers that the truck manufacturers there, they're rush to get back up and running really just to fill the backlogs that have already out there versus.
Versus production rates as we go into the second half like you know adjusting production for for what the future order.
Run rate is gonna be <unk>, you know what I mean.
Well I mean, I know, we will do what they always do they'll make those adjustments as they go forward I mean, it was almost 7000 units in April class eight it's like April wasn't there.
And medium wasn't anything either so.
You know and now I'm excuse me I mean March I mean, a problem in March but now we're in April and I know you know not much has changed when it comes to from an order intake perspective, whereas you know its its way all so I'm sure when they come back to work. There's no question the build rates will be done I I'm not going to.
Get into what their build rates will be that's their business. Okay. I mean, I mean, no I know with or I know what their goals are but that's for them to talk about not for me to talk about because that's internal information that there's so it'll be good sit down I have to believe given the size of the market.
You know most people are going to be down from them peaks and got to be down 50% or something I would believe you got some backlog you know, but I'm not but again, that's gonna be there's to get them. I mean, I would expect you know from peak builds so be significantly I think.
When you look at what retail sales are going to be.
You can you quantify that to what they were building back when what are you fill sales were 277 or whatever they were last year, you can probably back into a number.
Yeah, because it seemed a little curious why there until such a rush to get back to work.
And then Steve can you talk a little bit about if there's any balance sheet impact being more aggressive on on the truck.
On a used truck write downs.
Uh huh.
Balance sheet impact not necessarily what we're trying to do is kind of.
Regarding the tough used truck market I mean, what's going on we expect volumes to be solved in Q2 and these things.
Certainly don't appreciate so trying to strike a balance between what was already tough market.
I'll give it away, but when the market picks up on price.
Right way to move them. So we felt it was necessary to.
No we always have reserves that's it that's a continuous process here in the margins. We reports you have those reserves and I didn't know what we're communicating is that we went over.
Over and above our normal reserve matrix and policies because of the situation. We're in so we hope that we can get back to our normal 8% to 10% margins, but we can't tell you that we right now we may have a couple of quarters in this no lower than average run rate they were 5.7%.
Correct.
In Q1, which are you historically.
And no that's going to unfold as nice as we see what happens in next few quarters that we're we're trying to avoid and stay ahead of the curve on that.
We could have some more you know mid single digit margin <unk> marching orders.
At this year and full but there's no there's no real balance sheet.
No.
Thank you.
But our balance sheet as Steve mentioned, we feel good about you know.
Well double reserve, how about that given the environment okay.
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Oh, thank you.
You bet.
And again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone.
If your question has been answered all you wish to move yourself from the Q. Please press the pound ki.
Your next question comes from the line of Andrew Obin with Bank of America.
Hi, good morning.
Good morning, Mr. Rob.
Hi, how are you doing I'm anatel Jojo why some people might want to go to work, but maybe it's a different discussion.
Yes. So question there is that there isn't it or something.
So just a question just want to clarify for parts and services. The way you report them you did say that oil in Dallas is now 3% to 4%.
You know is at the same for parts and services as well as parts and service is still more overweight oil and gas.
I think.
I would say truck sales [laughter] easily said parts and service both times I thought but anyway drugs.
Yeah I just saw this business, which has more profitable that's what I.
Trying to figure out okay, the service business well.
You know we it is [laughter] typically were weighted both sides, you know mips balance between parts and service, but right now at 3% to 4% I mean, I don't forget it going up a good thing is you know it's like a let's leave it on the floor when you're that load since I don't recall that have been hurt yourself. So.
When you're the only three to four so you know he has not far zero, that's what I'm, saying so.
I think you know Andrew I live in to tell you it's that low and you know you yeah I kept they get it declined as far as it good for the last four quarters and it just [laughter] declined more and more and we've got a little bit of activity, but again it that's in three to four and that was in the first quarter I'm not sure where it is and this quarter it could be two to three.
For probably closer to two I would guess given given that a lot of money. The other day, one I paid me to take a bunch of barrels of oil. So [laughter] you know I I, just don't see much downside to it and where were lower at right now be honest with you.
That makes a lot of sounds I could you just maybe give us color. Because you know you are the largest tried distributor in the country, you're touching a lot of geographies.
Touching a lot of industries could you just take us around the country and give us what differences you see a around the country a and also what industries stand out to you both.
In terms of positive and negative thank you very much.
Okay.
Well, that's a big question.
Oh, Thank you around the gun I guess, we'll start eastern go West as my son comes up Florida.
Then decent okay wouldn't call. It I'm just gonna rank them in area. You know just tell you you know roughly Florida has been if you look at compared everywhere else. It's been holding is holding his own fairly well you know there's a lot of infrastructure building a lot of stuff going on in Florida. Prior all this so you know with everything was going with the increase and then.
Well, we're moving actually from your stay down in Florida, right, because a lot of that going on there was a lot of building and construction going on there maybe they like the work and don't like paying taxes.
That that's well come out of Texas soon.
Let me [laughter] sway with where we run the state.
But oh.
Those are pretty good there as you move up and.
I don't want to go and they say in Atlanta Little tougher a in the Big City, there just a little tougher a big medium duty town. Okay. So a lot of stuff you know not moving with all these you know everything to shut down you going up in the North Carolina and stuff.
Decent.
No not not I would say Atlanta more you know structural hit harder than you know, the North Carolina, Ohio pretty tough.
Pretty tough up in Ohio, right, now, Indiana, Holden indecent, Indianapolis, Holden pretty decent Chicago area.
You know.
Pretty hard hit but you know.
Maybe not as you know he I I'm going to is a lot like Atlanta now I'm just giving you brought description was asking me, Texas depends on where you're at you know in the Houston area, we're holding in holding in Okay that was holding in okay. I mean were oh, but relatively to everybody else now maybe since other.
Obviously west, Texas in the Permian Basin, South, Texas hit pretty hard no probably going to Mexico and oil so on the hit a little bit more difficult there you know Colorado.
Decent you know, but I would put in and not hit the artist.
Not hitting its hard to say of West, Texas, South Texas.
California, you know Holden pretty holding fairly well in spite of everything I'll be honest, we I mean, it's we've seen the it's out there, but it held on a little longer before it even with imports is even with those issues, where our business is really well the burden where diversified out there really is so and Arizona no I'm not as bad as.
They have you know in Atlanta, Phoenix is as bad as and Atlanta, Chicago or something like that so there you go Oh, what was the rest of your question or just the same no. This is fantastic.
Very valuable together with real time, because I know you guys have some of the best systems in the industry.
Just the same thing, but maybe which industries stand out in terms of strength or weakness as you see them.
Brand markets now.
I mean.
HM.
A lot of <unk>.
Constructions held in there I'm concerned about it.
Because it's projects that were already left right.
You know refuse is held in there there's a lot of garbage lot of people staying at home. So there's a lot of garbage being made out there right now you know when you look at municipal.
We're making the bus business with Navistar, we also us Bluebird stuff and state of Texas bus business in a single what school bus business.
It extremely our schools are you know schools arms [laughter], they're not in municipal all cities are shutting down.
Other than road contracts and things like that you don't have much going on municipality why because their sales back revenues about you know and that's what they depend upon so municipal been hit really hard.
Obviously, I don't it's going to oil and gas you understand that Oh, the construction markets held him I'm concerned about it you know because it's the projects that were already on the board and I I do believe that pipeline is shrinking up so I know what is youve young find the stats on it. So that's why you know we're all anxious once we've got.
You know as healthy as we can be answers dark easing ourselves back getting ourselves Lexus I'm trying to get back to some obviously.
But that's where I'm at Andrew.
Thanks, So much trustee good luck.
Okay.
I'm showing no further questions at this time I would now like to turn the conference back to Rusty Rush.
Folks we appreciate your participation. This morning, we look forward to talking to everybody in July I wish everybody you know the best of health as we all love well you know do the right things I mean I'm big on the right thing we've been doing the right things here at rush as best we can while providing an essential business basically as I tell my people. We are the backbone of this economy in the.
Drug business, and but we're doing our best while maintaining all of a proper doing all the proper things, but were there for you I can promise that doing our job. Thank you very much well seasoned talked in July.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day. He may all disconnect.
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