Q3 2020 Rush Enterprises Inc Earnings Call
Ladies and gentlemen, because the operator todays conference is scheduled to begin shortly please continue to standby and thank you for your patients maybe think gentlemen teaches the operator todays conference is scheduled to begin shortly it's convenient to sound bite and thank you for your beach area.
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Good morning, ladies and gentlemen, and welcome to Rush Enterprises incorporated results third quarter to 2020 earnings results call. At this time all participants are you nobody can 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 then zero on your Touchtone telephone as you're in mind. During this conference call may be recorded I would now like to turn the conference over to your host today Mr. Rusty Rush, Chairman CEO and President Jerry the floor is yours.
Good morning, and welcome to our third quarter 2020 earnings release conference call on the call today are Mike Mcroberts, Chief Operating Officer, Steve Keller, Chief Financial Officer, Derrek Weaver Executive Vice President, Jay Hazelwood, Vice President Controller, and Michael Goldberg, Vice President General Counsel and corporate Secretary now Steve will say a few words regarding board.
These statements.
Certain statements we will make today are considered forward looking statements as defined in the private Securities Litigation Reform Act of 1995, because these statements include risks and uncertainties actual results may differ materially from those expressed or implied by such forward looking statements important factors that could cause actual results to differ materially from those expressed or implied by such forward look.
These statements include but are not limited to those discussed in our annual report on form 10-K for the year ended December 30, Onest 2019, and our other filings with the Securities and Exchange Commission.
As indicated in our news release, we achieved quarterly revenues 1.18 billion net income of 34 million or 60 cents per diluted share. We delivered a cash dividend of 14 cents per common share and as previously announced we declared a three for two stock split or in the quarter.
The go 19 pandemic along with the previously anticipated industry downturn continue to have a direct direct result in our financial results in the third quarter. However, when compared to second quarter 2020, we experienced a notable increase in revenues primarily from increase in product sales and increased profitability due to our previously implemented expense reduction mode.
We remain focused on monitoring and COVID-19 its effect on the economy in our industry and we're cautiously optimistic that we're not only rightsized to support our customers, but that the economic recovery will continue going to our operations and the aftermarket or annual parts service and body shop revenues.
The 400 million absorption ratio was 119.4, while our revenues declined year over year. They did improved 6% when compared to the second quarter of 2020. This was due to increased aftermarket activity in August and September, especially from refuse construction an over the road truck load.
Looking ahead, uncertainties remain about the pandemic and overall strength of the economy.
Energy sector is still much slower than normal and likely will not improve significantly for some time that said, though we expect some typical seasonal decline through the winter, we believe that the gradual recovery of the aftermarket business will continue.
In truck sales, we sold 2500, 84 class eight new trucks, which accounted for 5% of the total U.S. class eight market.
Through the pandemic and an industry wide downturn slowdown in class eight truck sales our results were down significantly year over year as we expected. However, our new good class eight truck sales did improved 38% when compared to the second quarter of 2020, and our used truck sales increased 16% compared to the same time for government.
Government stimulus famous issued earlier this year combined with state Reopenings bolstered consumer spending in the third quarter with strength in freight and spot market rigs throughout the country. As a result, we experienced an improvement in quoting and sales activity from new drugs, primarily from over the road customers further the availability of new drugs.
Well off the production line was limited due to Manry manufacturing shutdowns earlier in the year. This resulted in an increased demand for stock truck and used truck sales and improve used truck values, which is consistent with what the industry expert HCC research adjusted as class eight retail sales forecast to $186300.
This in 2020, a significant increase from earlier estimates we are encouraged by our third quarter truck sales results, but we expect go in 19 and uncertainties about our economic recovery. The continued impact classic new truck sales for the foreseeable future. We believe our class eight new truck sales in the fourth quarter will be consistent though with evercore.
Our results and our U.S commercial vehicles sales will also remain solid our.
Our class four through seven new truck sales were 2900 41 units are going for 4.8% in the U.S. market. These results were up 26% over the second quarter, primarily due to increased activity from landscaping residential construction and other small businesses HCT research is forecasting U.S. class four through seven retail sales to be 206.
Staying thousand 100 units in 2000 to one another significant increase from earlier estimates, although we expect medium duty truck sales will continue to be directly impacted by the and uncertainties around the pandemic and the economy in general we believe our class four through seven truck sales the fourth quarter remain on pace with our third quarter results.
I am truly grateful to our dedicated employees for focus on what's important protecting the health and safety of themselves and those around them, while serving our customers and helping our country to recover from the challenging times with that I'll take your questions.
[noise]. Thank you, Sir ladies and gentlemen, if you have questions. At this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered you may be sure to remove yourself from the queue piece breast as far as the pound key thank you.
We have our first question from the line of Mr., Justin long from Stephens. Your line is open.
Thanks, Good morning, and congrats on the quarter.
Hi, Thanks, Justin.
Maybe to start with DNA continue to see some pretty positive trends on that front in the third quarter, how should we be thinking about DNA in the fourth quarter and then looking into next year, assuming that 18 number it is right on truck sales.
What kind of DNA would we see in that environment.
Alright, DNA, yet well me I'm very proud of is the reduction in DNA that we've been able to accomplish so far this year of course, that's always the question right what does it look like going forward.
From a Q4 perspective I'm going to tell you when to be relatively flat you know we have to eat into some holidays, which you have a few less because you have a feeling whichever the less working days that offset that so I would tell you probably relatively flat with Q3, we are seeing some gradual increases in some of the expenses as our parts and service business has.
It's picked up as I've told you we've got some goals going forward.
How much we're going to retain as gross profit continues to grow we.
We will try to spend less than what we have historically and I'm I'm very confident that we're going to be able to do that and especially conference with all our folks and I think everybody's got their heads wrapped provided pretty good as we come out of this where we've been with what looks like a pretty good run going ahead of US here. We believe once we get through this pandemic it all things settle down that from an industry.
Perspective that we're going to do a better job of managing these expenses in that where we're taking them down to as we go forward understanding though it does take a little extra expenses more gross profit right. We sell parts, we turn wrenches, we do always things roll. It that's how we make money, but looking out into next year.
Oh I would tell you you know our goal is to be somewhere in that 35, where it goes.
Profit dollar we produce in parts and service three somewhere like 35% of that we will probably spend the rest hopefully dropping to the bottom line, but as a basis. You know we're using I would tell you to look at Q2, not Q3, because we're already seeing we're already starting to increase some stuff.
But.
I still believe we'll be close to flat maybe slightly up in the fourth quarter, we'll just have to wait and see I pans out there will be a big rise for sure.
But you know that is the goal. So using you know so Q2 is your baseline not Q3 from an expense perspective.
That would be as we grow gross profit off the Q2 level with the expenses from there.
Back in gross profit remember, we're not talking about trucks are we talking about parts and service so I'm.
So I'm not talking about drugs and you know our split is essence DNA and we look at it we manage it separately because as is always you know.
Well component tied to truck sales and Gionee. The overall cost of running the business. So I hope.
No because it gives you some flavor on it.
Hi, guys, Thanks, and parts and service it sounds like things really picked up in August and September have you seen that strength continue into October and any thoughts on parts and service.
GAAP line performance in the fourth quarter versus what you just saw in the third.
Well, yeah, I don't know that we're going to increase a lot you look at it we look at it as a working days a lot in the fourth quarter is the shortest working day quarter of the year right. You've got really three less now we work on Saturdays and stuff, we measured by how many Monday through Friday, you've got you've got three less working days in Q4, so I'm going to believe that.
We will be slightly off because you know three less work 62 days versus 65, so I'm going to believe we'll be slightly all but I do expect to maintain at least the average per day, where we're at it's always a little bit wintertime as always.
November December January and February not always my favorite months from a parts and service perspective Uh Huh.
Holidays are nice, but they're not exactly good sometimes for our business so but.
But that said I do believe we'll maintain some years, we go backwards, a little bit and <unk> gross profit per day average, but don't expect that to happen, but you just have less working so slightly down from the gross profit perspective, but not not dramatically you know we picked up.
It was it was interesting that we went from like April May June July we're all very similar we saw it would drop obviously as I told you last call March was [laughter]. It's a 30 month year. There were two margins, but once we grew up in April and stay flat, but we started to see the increases come back in August and parts more dramatically some.
In service to be honest.
But you know I think it's sustainable and I think that once we get through the wintertime I think you'll see it start growing it again, okay I really believe that.
Okay, Great I'll leave it at that congrats again on the quarter.
You bet. So we're we're excited about what we're doing.
Thank you we have our next question from the line of Jamie Cook from Credit Suisse. Your line is open.
Oh, sorry, Hi, Good morning, Hope you guys are well nice quarter I guess, just you know first question Rusty the margins on you know on the on the on the truck side, where were fairly good in the quarter up from where you were in the second quarter. So can you just talk broadly about trends.
Yeah, Hi, I expect that to progress in trends, you're seeing in terms of you know.
You know ordering from the Big fleet guys versus more of the vocational markets, where potentially people. You know are slightly more concerned about going forward just as there's concerns on like state Muni budgets and stuff like that and then I. Just guess my second question on if you could just to say for more within your parts and service business. The margins were a little lower this quarter.
Relative to where they've been trending any any view on out or just color on what you're seeing parts. First is service. Please in terms of mix within that segment. Thank you.
Okay.
Around truck sales I would tell you that you know you new truck sales class eight were slightly up I think used margins were dramatically up even though they make up a lot less sales that were used margins were almost day when the sixes last quarter and they were 12 and that was enough to do okay.
Okay. That's what really you know has had some effect.
I have some effect, we were up slightly I think five tenths and knew from Q2 Bucks and class eight new.
Really used truck margins were up because you know you got to remember the used truck market took the hit right in March boom, you lose 10, 12% not everything right. So you rightsize your inventories we always do.
You know as you finished Q2, and then you roll into Q3 and here comes the market right. So market picks back up values go up and Fortunately, we captured some of it right.
You know you're marking to market on used all the time, because that's a moving target. So we got the good side of it. This time were 6%. The Q2 was down from our typical 8% to 10% because you had to go ahead and nobody was buying anything for a while and then when everything pick back up because you know it's one image.
When inventory started to move both common stock imports on the new side and on the used side. So you know that was that help truck margins right there from a parts and service perspective.
We parts more than doubled the growth service, okay in the <unk> in the quarter, so and remember parts or a lot less margin.
Service parts run say in the 28% range is burying his bounces, but but service typically 60 vile. So it's sort of a mix issue right. There I would expect.
What you saw I think is going to be for all for combined copy and parts and service margins.
Don't expect service is going to start accelerating backup you know keep more in line with the parts growth.
As we go forward like I said a room to Justin.
Sure that will pick up a lot per day here in Q4, but staying where we're at and maybe picking up slightly on a per day basis is better than we usually do in November December January and February it's just the way. It works. So you know.
But the big difference the reason for the overall margins being blended margins being down it was basically a mix issue to be honest with parts you know growing at a much higher rate than service in the quarter.
Okay, and then just a follow up you know on you talked about why the margins were better on the truck side, but can you tell how concerned are you about sort of or what you're seeing specifically on vocational trends and just concerns out there with state municipal budgets I'm just trying to understand your your viewpoint on that yeah.
Yeah, I guess I don't I don't have vocational totally to government. Okay. I mean, I look at it in a broader perspective, when you still see you know residential construction still strong and waste water is we're at today.
It took me I just barely got here for the call between a rock and started to go wrong.
I had to go right three different ways. This morning to get here.
You couldn't believe remedy trucks I try to get around all in aggregate and stuff. This morning, but no you see.
We still believe that the vocational side will ask.
Outside of the oil and gas, Okay, and I understand where commercial buildings that but you know residential construction and barbers. We're at is still pretty strong and.
We're still you know when it comes to customers that are in that type of construction housing construction.
You know the road construction stuff like that we're still seeing I think that there's still bit all our money spent around those areas now sustainability folks you know I'm not.
I I don't know what I can do a sustainable I got a six month window I don't it's hard for me right now in this environment I I challenge anyone I mean, everybody put stuff out there, but to give me a 12 to 18 month outlook low and certainly as we've got right now, but you know I feel decently bless it the margins you saw in the quarter.
Other than used I don't think that's 12 sustainable still.
Still be solid not six warrant.
More in line with our typical eight to 10.
I would look at the truck margins to remain where they are at to be honest.
Okay, Great. That's helpful. Thanks, again see well you. Thank you Jamie.
Good to hear from you.
And we have our next question from Andrew Obin from Bank of America. Your line is open.
Hi, good morning.
Good morning, Mr Road.
So a couple of questions. So how should we think about right.
Rush in an upturn because you know you do have.
Specific brands, you know peterbilt and Navistar the big ones.
I guess international.
Peter Bill.
Behave in terms of market share right, it's sort of does not behave like the rest of the market and then you have your own very industry specific exposure relative to the industry. So how should we think about your market share relative to the industry.
An upturn over the next let's say 12 to 24 months.
Are they going to be any big differences.
No I don't believe so Andrew I mean, when you look back you know I will tell you. This I would hope that our market share from class eight trough in Q3 that 5% is the bottom we have historically been you know.
Hi Fi was still you know low sixes in that range, depending on you know what the volume is and I would anticipate.
You know that I would anticipate that we will.
Don't think Peter was market share is going to fall I look back at what they were in 2019, a big eared. It was solid with solid on historical terms and Navistars market share I believe will continue to grow you know as they go forward. So I feel pretty good about where my class eight Oems are and I would look for us to run and maintain you know where we historically have been.
Probably the biggest headwind for us to be honest with you I think I think we're capturing new customers, but folks we used to sell all the gas trucks I feel like.
I feel like we're that's one of the reasons I'm so proud of the threat.
We've been having is because you know we've done that without ogone.
And we couldn't have done that four or five years ago. So the the organization has done a very nice job.
You know when you look at our exposure, Oklahoma, Texas, Colorado, New Mexico lots of oil and gas places right and we've had to do all this with huge declines.
And those areas sort.
Sort of reinvent ourselves around.
Around it and I'll, let the results speak for themselves.
Guess, what Alan Yes, what I was referring to and maybe we can take it offline, but I always thought you have more exposure to vocational and so you know at the peak of the cycle, one large fleets come and that's when you sort of lose some market share is just structurally and particularly peterbilt would.
But that's what I was referring to specifically, but I think if you look historically you could have been right Andrew back years ago. What if you look at the last uptick no disrespect in 18 and 19. They grew market share okay, and those were big market over the road years too. So you know they broaden their customer base and from our.
Perspective that was started back in the game. Okay. So we feel very good I'm not worried about the size of the market. That's getting our share just answer I wish I wish I had oil and gas that do a whole lot better than one second but it don't but we're picking up more over the road business than we historically have so I can model here in line was a city airport cost effectively.
That would be correct I'm buying into their numbers right now I mean like I said, it's hard to look at 18 months or 15 months to me, but you know I feel pretty solid about activity that we're seeing right now and you know stuff that we're booking.
Most.
Much better than you know weve seen a little obviously during the pandemic would even right prior to the pandemic, we were not didn't seem to be getting the order intake that I've seen over the last 45 60 days.
And just a follow up question Rusty you've done in the past, but could you just walk us through some of your key geography is in terms of and just walk us through you know what are you seeing in terms of economic activity by key geography. Thank you.
Sure.
Oh look at the coastal start on the hands. Both ends both are strong.
Surprisingly, California.
As with everything going on in California has been pretty strong, especially from a parts and service perspective.
From an over the road and Florida, Florida, while it took a dip you know we were going to be a lot of Orlando stores with Mickey World, What Mickey mouse close for a while and all the other stuff there, but it is with the growth in Florida, driven by growth in population and construction.
You know.
It's been you know good.
Good and also Florida has always been a lot of car haulers, where you see what the automotive business is done right. So they've had varying factors is pick Florida.
As I work my way around the country of you know we've hit we've hit some you know from a truck sales is different right in my view any drug sales or parts and service perspective.
Pretty solid.
You know, Virginia, North Carolina pretty solid, Ohio truck order intake was good.
Illinois coming around.
You know if you look for negative is we're still we're still suffering.
Say in some of those areas, Arizona strong too by the way I would of course, I would tell you, Arizona, California, Florida being the strongest.
But were still suffering and summers are oil and gas related.
Not doing as well as we look out in West Texas.
You know into.
New Mexico, Colorado, So so [laughter].
Picking up better than what we were last year from a return perspective up in the mountain West in Utah.
In Idaho, So you know I mean.
I was just running around the map it I'm looking at the map over here on my side.
And I will say.
It is broad based but those would be the ones that stand out.
So much and congratulations to you and your team on all the hard work and great results.
Thank you we appreciate governments.
As I said, it's a print and I'm pretty proud of.
Thank you once again and if he would like to ask a question you May Press Star one on your Touchtone telephone. Your next question comes from the line of Joel Tiss from BMO. Your line is open.
Yes.
Get off mute [laughter].
Thanks for your question.
[laughter].
Yes, well.
Oh, it's around you continued your line is open.
Yeah, I think we have to move on we have a two more questions you have.
We have a question from the line of Sean Kim from Gabelli funds. Your line is open.
Hey, good morning, guys, I'm, not job and hopefully I suffice here.
I just had a quick question for you guys [laughter] had a quick question for you guys wanted to follow up on the Big News from Friday, Obviously, you guys are having here the pavement, but really wanted to get your thoughts on the Navistar trade announcement. When you think the final documents to be signed that anything else I can shed some light on on that combination and how that impacts you guys launch.
Sure.
Well you know as far as the closure of the deal I'm not totally in the middle of all that I would expect I would imagine that they've already done you know been pretty far along the path from a due diligence perspective, they bounce that prior remember so I would expect that.
You know they'll get a document signed here right.
So and then I would imagine working through the FCC and things like that sometimes close sometime in the spring or I would think you know like late winter spring would be.
It would be my guess, but that's that's something they would have today I'm just conjecture on my part what do I think about it I think is great.
I think its great long term.
You know it brings brings a global strong global partner.
When you talk about freight Scania as being a partner to leverage also.
From a new product perspective, going forward, especially with the amount of.
Money is going to pay with all this new technology, you know the greenway with new technology over the next decade or plus as we free.
As we transition.
The transition is going to happen, sometimes I'd say, it's not going to be as fast as people say what that transition will happen and that takes a lot of money. So they have the ability to leverage off the you know the global efforts of break on that just a standalone. So from my perspective, that's a win win big.
For both organizations, obviously, you know most of them are tradeoffs.
In the north.
[noise] North American brands.
Coming to this country starting from scratch.
So.
I feel good about it.
Decided about it I think it's.
Needed to happen no disrespect to the open that store, but for me.
Long term.
[noise] patient.
It's a good product.
That's correct right I look forward, that's not something as an AD server, but remember they have already been.
They've already had LP agent agreements.
Cut cost and things like that already has joined forces ocaliva.
So [noise].
I think unlike a normal acquisition or well okay.
[noise] G.
<unk>.
Oh, that's all been started prior to this I mean this is just the conclude.
Conclude going nation.
But the way it was supposed to work.
Great got bought a piece of four years ago.
Got it appreciate the color. Thanks, Rusty congrats again on the quarter.
Thank you very much.
Thank you I think we have the line of Joel Tiss from BMO. Your line is.
Okay, and then can you hear me now.
Oh got it making sure you're awake, Joe that's all we're in full.
Okay.
Well. The first question is the most important one rough must be how did you manage with a 25% salary cut I think everybody knows you're kinda paycheck to paycheck.
Yeah, well actually I know I've still got no way [laughter] I've still given I still haven't taken mine, we did bring back by the way. This is a question. We did bring back all by October we started bringing back some of it was in Q3 and that's part of where you would have a little bit of expense creep is as we reinstate the only thing we have.
Reinstated is my paycheck, and our floral one game, but all the normal reduction things that we did those things will be reinstated is when you know I play.
Plan is as we continue to get more clarity how people one day, maybe to get my money back not back just get started back because my creditors are seriously. After me Joe you're right, Joe We're making sure he has enough money it tequila and food that's all I get.
Good food allowance that's it.
Oh, that's good.
And and everyone's kind of dancing around and I just wondered what do you think like on a three to five year basis that your navistar dealerships are going to be a lot more profitable.
With with what's going on with with trade or it's too early to tell or it that it's not going to matter.
No you better believe it matters because I still the returns are not anywhere you know whether that where I'd like all right I don't have to go back to the history, the last decade or so.
So those returns have not gotten or are they getting better you better believe it okay.
For two reasons, one you know the growth of the organization Navistars, you know getting back on solid footing for getting great Don and you know our internal you know our internal cost taken after we got through hold them Act force and then our internal from a personnel perspective and for many.
Other perspectives, just get our arms around it so when you add that together they throw trade on the mix you better believe it still what I believe is one of the biggest growth pieces. The organization right I believe as you know we don't have the 55 years of being a peterbilt lever like.
Like we do with you know without star. So that's only going to get better with Craig on guidance, that's only going to help I guess that they can stay in the ballgame from what we've always done technology stuff not be having to worry about you know capex budgets quite as tight as they probably had to have been so the investments that will be made in product and people.
And the whole thing across the board can be nothing but a win and we're still we're still on a third anything around these things and we're getting better every month.
Well, we were now than where we were a few years ago. So yeah.
That's got a lot of runway on it my mind, you better believe it.
And then with all the disruption in the market. That's the last one for me all the disruption in the market are you finding more acquisitions or is that something you're likely to get back into that or there's too much work to do internally to drive profitability.
I'd like to find some but unlike me they all spelled P. P. P. Okay. So.
[noise] that propped up everybody is in the markets come back strong member was it was such a sharp steep decline and then rose back up with what happened with the freight markets. You know is freight is rocketed back up because everybody was buying whole goods with all the money they got so.
You know so everybody is.
You didn't see if you told me what was I didnt really foresee exactly that happening back and saying, maybe Jim you know, but that's exactly what happened it was such a steep drop and then to come back from a transportation perspective, because you had to fill the shelf backup bergenfield human doors. Many had filled sales back up so you know you seen.
It was fraced when doing or whatever the miles being run. So you know I. Unfortunately, I have there haven't been much you know M&A, but don't think were not always look and some will show up somewhere I'm sure somewhere down the line.
All right. Thank you very much.
You bet.
Thank you once again, if you would like to ask a question can be press star one on your Touchtone telephone.
Okay.
Speakers I'm not showing any further questions at this time I would like to turn the conference back to Mr., Rusty Rush, Chairman CEO and president.
Well this will be the last time I speak for everyone.
Once we get through an election, and then the holidays and everything else and I'm I don't worry about the first with the election, but from our perspective I wish each and every one of you know all the best and with your families. It's been a long year for everyone. So please make sure to enjoying sales of moments that with your families throughout the holidays other than that we will see you and talk to you in February. Thank you very much.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now disconnect.
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