Q3 2020 Rush Enterprises Inc Earnings Call
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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 into <unk> Beach area.
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Good morning, ladies and gentlemen, and welcome to Rush Enterprises incorporated results third quarter.
Third parties 2020 earnings results call at this time all participants are you know we can only mode.
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 a reminder, 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.
Sorry, George.
Good morning, and welcome to our third quarter 2020 earnings release conference call on the call today are Martin Mackay Roberts, Chief Operating Officer, Steve Keller, Chief Financial Officer, Derrek Weaver Executive Vice President, Jay Hazelwood, Vice President and controller, Michael Goldberg, Vice President General Counsel and corporate Secretary now Steve will say a few words regarding forward.
Looking 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. Looking 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 over in the quarter. We go.
Go 19 pandemic along with the previously anticipated industry downturn continue to have a direct result of our financial results in the third quarter. However, when compared to second quarter 2020, we experienced a notable increase in revenues primarily from increased product sales and increased profitability due to our previously implemented expense reduction mode.
We remain focused on modernizing COVID-19, its effect on the economy and our industry and we're cautiously optimistic that we're not only rightsized to support our customers, but that the economic recovery right. We'll continue growing 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 looking.
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, we 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.
Sure the pandemic and an industry wide downturn slowdown in class eight truck sales 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 60% compared to the same time for it.
The stimulus plan was issued earlier this year combined with state Reopenings bolstered consumer spending in the third quarter with strength in freight and spot market rates throughout the country. As a result, we experienced an improvement in quoting and sales activity for me Brooks primarily from over the road customers further the availability of new drugs.
Off the production line was limited due to battery manufacturing shutdowns earlier in the year. This resulted in increased demand for stock truck and used truck sales and improve used truck values, which is consistent with what the industry experts.
Seifi research adjusted this class eight retail sales forecast to 186300 units from 2020, a significant increase from Murray restaurants, 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.
The foreseeable future, we believe our class eight new truck sales in the fourth quarter will be consistent though with our third quarter results and our U.S commercial vehicles sales will also remain solid.
Our class four through seven new truck sales were 2900 41 units accounting 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 216100 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 in 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 architect recover from Michelle Jones 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 of sorry, 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.
So 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 track sales what kind of DNA would we see an Adam.
Right.
All right, Yeah, 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 coupon.
From a Q4 perspective I'm going to tell you want to be relatively flat you know we have to eat into some holidays, which you have a few less beautiful jaffe less working days that offsets that so I would tell you probably relatively flat with Q3, we are seeing some gradual increases in salary 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 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 head wrapped around a pretty good as we come out of this.
That's 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.
Where we're taking them down to as we go forward understanding though it 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.
Gross 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 no we're already starting to increase some stuff.
But.
I still believe we'll be close to flat maybe slightly up in fourth quarter, we'll just have to wait and see I pans out Bill made a big rise for sure so but you know.
So you know that is the goal. So using you know so Q2 is your baseline not euphoric from an expense perspective, you know 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.
So I'm not talking about drugs and you know our split is SNG and aim we look at it we manage it separately because as is always you know.
Well component tied to truck sales and GE and age the overall cost of running the business. So I hope it.
Well 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 stream 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. When you look at it we look at it is working days a lot in the fourth quarter. EPS is shorter is working day quarter of the year right. You've got really three less now we work on Saturdays and stuff, what we measured by how many Monday to Friday forgot 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 worried you 62 days versus 65, so I'm going to believe we'll be slightly all but I do expect to maintain it at least the average per day, where we're at you know, it's always a little bit when.
Wintertime as always you know how it was November December January February not always my favorite months from a parts and service perspective holidays are nice, but they're not exactly good sometimes for our business so but that's.
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 work I guess was slightly down from a gross profit perspective, but not not dramatically you know we picked up.
It was worth 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 all last call March was [laughter]. It's a 13 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.
On the surface to be honest.
But you know I think it's sustainable and I think we'll but 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 corner.
You bet no. 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 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 expect that to progress in trends, you're seeing in terms of.
You know ordering from the Big fleet guys first is 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.
If you could just to save 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. The first is service. Please in terms of mix within that segment. Thank you.
You bet.
Around product sales I would tell you that you know you new truck sales class eight were slightly up I think used margins were dramatically, even though they make up a lot less sales that were used margins were almost say when the sixes last quarter and they were 12.
And that was enough to do.
Okay, that's what really you know.
In fact, we were up slightly I think five towns and knew from Q2, but a class eight new but really used truck margins were up because you know you got 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 as you finish 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 have to go would hit and nobody was buying anything for a while then when everything pick back up because you know its when inventories start.
Just when inventories started to move both common stock inventories on the new side and on the used side. So you know that was that helped truck margins right there from a parts and service perspective.
We need parts more than doubled the growth of service okay in the <unk> in the quarter, so and remember parts or a lot less margin.
Service parts run, saying, the 28% range is varying exists 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 fee and parts and service margins.
Don't you think service is going to start accelerating back up 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 rat 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 know 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, I guess, you know I look 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 growth and recent Lauder is we're at I can tell you.
[laughter] took me I just barely got here for the call between a rescue no upside to go right three different ways. This morning to get here. Let me three you couldn't believe remedy trucks I try to get around all in aggregate and stuff. This morning, but no you see you know we still believe that the vocational side will out.
Outside of oil and gas 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.
When it comes to customers that are in that type of construction housing construction.
You know road construction stuff like that we're still seeing I think that there's still been all our money spent around those areas now sustainability folks you know I'm not.
I I don't know what I can say, how 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 volume 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 best well sustainable still be solid not six.
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 be well you. Thank you Jamie.
Yeah.
And we have our next question from Andrew Obin from Bank of America. Your line is open.
Good morning.
Good morning, my throat.
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.
Yes 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 would tell you. This I would hope that our market share from class eight Croft and Q3 that that 5% is the bottom we have historically been you know Uh huh.
Hi Fi was still you know low sixes in that range, depending on you know what the volume is and I would anticipate.
Oh, you know that I would anticipate that we will <unk> I don't think Peter was market share is going to fall I look back at what they were in 2019, a big year and it was solid with solid or 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 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 we're that's one of the things I'm so proud of the Brent.
Since we've been having is because you know we've done that without O.G. 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 had to do all this with huge declines.
And those areas sort.
Sort of reinvent ourselves around it.
Around it and I'll, let the results speak for themselves.
Yes, yes.
Yeah, 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 will.
Storage. So 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.
Those were big marketing 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 answered 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 with 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 out 18 months 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 must you know much better than you know weve seen a little obviously during the pandemic would even right. Prior to the pandemic. You know we were not didn't seem to be getting the order intake that I've seen over the last 45 60 days.
Gotcha 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.
Look at the coastal start on the hands Bopis. Both are strong you know surprisingly, California as with everything going on California has been pretty strong, especially from a parts and service perspective.
From an over the road in Florida, Florida, while it took a dip you know we were we have a lot to Orlando stores, no right 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 has been.
Good and also you get a big 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.
You know Weve 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 big It is we're still we're still suffering.
Sales and 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 summarize their oil and gas related.
I'm not doing as well as we laid out in West Texas.
You know into.
New Mexico, and 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 guidance.
As I said, it's a print and I'm pretty proud of.
Thank you once again, if you 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.
Cut off mute [laughter].
Well actually I wasn't sure.
[laughter].
Yes, well.
Oh, it's around you continued your line is open.
I think we have to move on you had a two more questions Oh, we have a question.
We have a question from the line of Sean Kim from Gabelli funds. Your line is open.
Hey, good morning, guys, I'm, not George but hopefully I suffice here.
But you 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 have in here the pavement, but rusty 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 long.
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.
You know they'll get a document signed here or so.
So and then I would imagine working through the FCC and things like that sometimes close sometime in the spring or I wish.
You know like late winter spring that 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 is 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 off of.
Oh 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 transition.
The transition is going to happen, sometimes I'd say, it's not moving as fast as people say what that.
It will happen and that makes 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 likely to trade jobs.
The north.
North American brands.
Don't come into this country starting from scratch.
So.
I feel good about it.
So I did about it I guess.
Needed to happen.
Back to the open that store, but for me.
[noise] patient.
Organization, it's a good product.
That's correct.
I look forward, that's not something as an AD server, but remember they have already been there.
They've already had LP agent agreements.
Cut costs and things like that already has joined forces over the last.
So I think.
I think unlike a normal acquisition or well okay.
G.
Oh, that's all been started prior to this I mean this is just the conclude.
Conclude go 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 Uh huh.
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.
[laughter], 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 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 as we 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 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 does 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 there are they getting better you better believe it okay.
For two reasons one you know most of 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 Weve always said 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 or about where 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 because it was such a sharp steep decline and then rose back up with what happened with the freight markets. You know is freight is rocketing 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 in say May and June 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 build a shelf back good person to fill the inventories minions field sales back up so you know you seem.
Sprague's, when doing or whatever but the miles being run. So you know I. Unfortunately, I have there haven't been much you know M&A, but don't like we're 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.
Yes, 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 in with your families. It's been a long year for everyone. So please make sure to enjoying say at the moment so with your families throughout the holidays.
And 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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