Q1 2021 Rush Enterprises Inc Earnings Call
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Okay.
Good day, and thank you for standing by and welcome to the Rush Enterprises, Inc. Reported first quarter 'twenty thought 2021 earnings results.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded if you require further assistance. Please press star Zero I would now like to hand, the conference over to your speaker, Mr. Rusty Rush Chairman.
E O N President. Please go ahead.
Good morning, and welcome to our first quarter of 2021 earnings release conference call on the Gulf Today are Mike Mcroberts, Chief operating Officer, Steve Keller Chief financial debt.
Eric Weaver Executive Vice President, Jay Hazelwood, Vice President Controller, and Michael Goldstone, 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. Our 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 31, 2020, and in our other filings with the Securities and Exchange Commission.
As indicated in our news release in the first quarter, we achieved revenue of $1 2 billion and net income of $45 3 million for 79 cents per diluted share.
We're also very proud to declare a cash dividend of <unk> 18 per common share. Our results were driven by the nationwide economic recovery and healthy activity from most market segments, we support.
Increases in parts and service activity and healthy demand for new class eight trucks and rising used truck values contributed to our strong quarter along with our continued focus on expense management, which helped us to significantly increase our net income compared to the first quarter of 2020.
As we look ahead sublicense rates will likely affect the availability of parts and new trucks in the next few quarters. However, we expect supply chain range to begin to subside late in the first third quarter like the third quarter and for demand for trucks and aftermarket services to remain strong throughout the year we book.
Our financial results will be strong in 2021 is the economic the economy continues to recover and business real businesses reopen throughout the country.
And the aftermarket in our first quarter parts service and body shop revenues reported $15 7 million absorption ratio was 122, 6% our aftermarket revenues decreased by two 9% compared to the first quarter 2020, but.
But we are seeing some pockets of strength, particularly when it comes to part sales and activity from refuse construction and public sector customers.
Service revenue is recovering at a slower place in parts, but we continue we've continued to add definition for our dealership network in the first quarter in anticipation of increased demand later in the year.
As we look ahead, we expect supply from scratch to impact.
Its availability in the industry for the next few quarters, but we are leveraging our nationwide inventory to lessen any impact that may have we continue to focus on expanding our technician workforce and service offerings, especially contract maintenance and preventive maintenance. We believe this will contribute to increasing aftermarket demand as they can.
National economy continues to recover through the rest of the year.
Turning to truck sales in the first quarter, we sold 20 909 non.
195, new class eight trucks guiding from five four percentage of total U S class eight market consumer spending in freight rates continue to be strong and coastal for men with widespread with particularly strong activity from over the road vocational and construction growth.
ACD research forecasts U S class eight retail sales were 249000 units for 2021 of 27, 2% for 2020.
While we expect the country's economic recovery to continue component manufacturer supply chain issues will limit the growth in class eight truck sales in the next two quarters. However, we do expect for supply constraints and from production to improve late in the third quarter and for industry remand remains strong and that the annual industry sales force.
Cash as of June.
Our class four through seven new truck sales reached 20 330 for 334 in the first quarter accounting for three 8% for the U S market.
Our decline was driven by weak demand from our leasing and rental customers and foodservice customers. In addition to production shutdowns from some other manufacturers, we represent and components supplier constraints affecting other manufacturers.
Research forecasts for U S class four seven retail sales reached 291500 units in 2020 one up.
Up eight 4% from 2020, we expect demand for medium duty vehicles to remains strong for us.
Annual class for two seven truck sales in 2021 to be relatively flat compared to 2020.
Our used truck sales reached 19 124 units from the first quarter.
23, 5% for the same time grid in 2020 demand for used trucks remained high in the first quarter due to new truck production to the strengths for other used truck values increased approximately 10% over the fourth quarter of 2020, we believe that demand and price. It may decrease somewhat as more new trucks or what.
But we were still remains strong this year for <unk>, we are confident the volume and pricing of our inventory will meet the needs of the market.
It is important for me to recognize are poised for growth, providing a superior service to our customers while remaining focused on protecting the health and safety of those around them. Their hard work has directly contributed to our strong start for the year with that I'll take your questions.
At this time, if you'd like to asking all your other question. Please press star followed by the number one on your channel. Thank you Todd that is star one to ask an audio question.
Your first question comes from Jamie Cook.
Hi, good morning, hope you're well.
A nice quarter I guess, a few questions Rusty first day margins in the fourth first quarter on on truck for $9 four per cent.
Was that used truck pricing.
Or make sense, if you can help me there.
George <unk> question relates to on the supply chain side, where the shortages outside of semi and I'm trying to balance how we think about the cadence of your sales as you are saying the second and third quarter will be impacted by supply chain, but you're also talking about market share gains for rush now I'm just trying to yeah.
So it's true.
So I guess why don't we start there. Thank you.
Sure No problem, yes, you hit it on the head.
From a margin perspective in the first quarter that was the largest highest used truck margin that I can ever remember that we've had right. So.
So decent volume.
Used truck margins I expect going forward. The use current margin will still remain high and maybe not quite that high supply side is probably the biggest issue I feel we've got a decent inventory supply of used trucks is across them.
Just across the whole basin is somewhat limited so obviously, they will supply and demand and that's what's driven price is up I mean, if you go back to Covid time, I mean, there are 30% to $30 35 per cent from last year April of a year ago. So we expect as I've said those still remain high.
You know it might be difficult to keep the volume right there, but that's what drove the margins to be that high for sure.
When you're talking about things outside of semiconductors.
Just a myriad of things Jamie one day it could be one day it could be wiring harnesses one day it could be clusters.
Cash clusters for seats I think it's.
It's just across the board with your tier two and tier three suppliers.
The manufacturers are managing as best they can but I think they keep getting hit with different you know different different issues with different suppliers. So.
When you add the.
Freeze in the stuff down you've got hurt for stuff coming out of Mexico.
And even just keeping up with it I think everybody ramping up and for all that Covid has been very difficult for tier two adheres for a suppliers not just on the semiconductor piece of the chip fees.
But you know.
From a parts perspective, when you look at our parts inventories, we've got more parts backlog right now that's one of the issues you run into it.
You can see the trickles not just from trucks it actually trickles from parts and service too. So you know I do believe that those things will iron themselves out as they typically do.
The chip piece could last longer from some stuff I read I'm not an expert on it but I would look for most everything else I think we are the worst part of it right now.
From what I can see here in April and May, but I do think that everybody has known about it here for a couple of months could see it coming back in February and I think youll see it.
Oh really.
They'll get it get better as we get later into the summer, which would be end of the third quarter, obviously and hopefully we'll catch up with it and it won't be an issue for all of that now the chip piece.
People say to last longer I'm, not the expert on it but.
That's what I see it from a book.
Basically from the other as far as market share gains.
If they are building less because of that or not as much we're going to get our share.
We're going to get our share of product and I do believe but I do believe our deliveries for the year is going to be more backend loaded given.
Given these issues that we're having right now we're going to sell drugs don't worry about that but I think any big gains, which I expect to add more units will be more.
In the three and for then Q2 I expect Q2 is still flat to slightly up from Q1 slightly not a lot was slightly up and a lot has to do with the shortages. Okay. I don't have my finger on the pulse of my finger on the pulse of which you never know how it's going to affect you from day to day or week to week or month to month, but I do.
To get cleared out I would expect to deliver quite a few more trucks in the back half of the year.
On the AG side and also in the medium side for sure.
Don't expect to.
Have the issues, we had where we had some big leasing deliveries last year in the first quarter.
And then we didn't have any this quarter.
And so and we also have issues with one OEM.
Much of our production right now till we get to a later in the year, so, but that's one of the reasons I think.
Memories overall will ramp up as we go through the year just not as dramatically here in Q2 as you would've expected given the shortages, but it will continue to ramp throughout the year.
Thank you I'll, let someone else get in queue.
Okay.
Your next question comes from Joel Yes.
I Wonder if you can do your presentation over again I couldn't understand you with your mask on.
Yeah.
Voice, Joe you know what.
So I wonder if you could talk a little bit about your ability to like structurally what's what you've done to change your cost structure and the ability to keep the costs below where they've been historically.
Well you learn a lot go Joe.
You learn a lot in 2020.
Understand that we're trying to take some of the lessons we've learned.
And take them forward with us in the future.
Doing more with less in the same that you know we will have.
If it continues to ramp at the pace. It is we will have some expense increase.
Parts and service.
Some things without thanks.
To do it turning wrenches picking up large delivering large stocking parts doing all the things you have to do but we have goals internally in the company that we're going to spend less as we grow than we have in the past.
We feel we've learned a lot and we will be able to do that.
Expenses will ramp.
But they're not going to ramp.
As steep as they have in past cycles. So we believe we can manage it that way.
And we put some controls in place I'm not going to get into those things at the same time, you've still got to be able to you're still going to be able to growth at <unk>, there's going to be at people day in day care of it so but it's just a balancing act and we like to believe it we've learned a lot last year.
During that process.
Having tighter controls and making sure more thorough decisions on investments and things that we make.
Those are all a part of it it's not just one other thing or something but it is it is aligned with only growing expenses, a certain amount depending on growth rates for the organization.
Is there anything like maybe not concrete maybe too strong of a word but anything you can share with US you know maybe like peak to peak.
Thank you know SG&A will be a 100 basis points lower or anything like that but we can just sort of like ballpark to think about.
Well.
Oh I can do that.
Giving us we have it internally.
Way I would express it to you I really haven't looked at it from your perspective.
Weighted internally to my folks, but it wouldn't make a lot of sense for you.
From an operating perspective, I haven't really extrapolate it to.
This meant EPS really remember Joe you got to strip.
Away from G&A cash is going to do with truck sales.
We're always going to be.
Volume driven by sales so sales grew up sales go down as well.
So that is the G&A piece that we're focused on.
We will spend less of every gross profit dollar that we've created but it can be but I don't want folks looking at it in a single quarter its not a core sales and different.
So for the year.
You know.
At different times of the year, Inc.
You spend more I would tell you you know will spin 40 per cent of the gross we create in Q2, probably from last year Q2 year over year I think in for Q2 year over year was a tough year that was the total quarter that was a terrible quarter of last year, so but.
We will spend less of every gross profit dollar and we have internal goals, but I'd, rather just keep them to myself right now.
Okay and then.
Operating numbers Gulf Joel.
Easy one for Steve and then I'll leave it for everyone else.
The share count rising and can you give us your estimate of the tax rate for the full year.
Yes, the share count Joel, especially when you're Comping back to two.
To 2020, it's a timing issue as much as anything we continue to repurchase shares. However, a bulk of the shares we repurchased in.
<unk>.
2020 happened in the first quarter when the stock debt, we were opportunistic and bought heavier than.
Since that time, we've continually repurchase but not at a very high level and the other big differences the way you calculate diluted shares.
At this time last year, our stock was trading in the low to mid Twenty's and now were trading in the whatever upper from 45 to 50 and our diluted shares outstanding when the stock price is higher has contributed to the share count increase that and options that were exercised last year during the last.
Last few quarters because of the stock rate went up so much so.
Exercises of options and the higher price drove more diluted shares.
Going forward it should flatten out because we expect to continue to repurchase shares.
And there'll be some exercise option.
Exercise of options that'll, probably offset that somewhat but it should be landing in this 57 or so per cent range and 57 million share range that you saw us post this quarter on the tax.
Again, the rate was low in Q1, it was 20% that probably that boosted Q1 earnings about.
Three to four cents over what they would normally be throughout the rest of the year. The rest of the year our tax rate will be in the 24 five per cent range.
Without getting into all the detail. That's also related to some permanent differences between book and tax income that are discrete to the first quarter, mainly again around.
Investing in and share Best Equity Award vesting.
And stock price, but for the rest of the quarter you need to forecast about 24, 5% for the tax rate for the rest of the year I'm sorry, each quarter.
Awesome. Thank you very much.
Yeah.
And again, if you'd like to ask a question. Please press star One your next question comes from Justin long.
Thanks, and good morning.
Our adjusted it sounds.
Was wondering rusty if you could give us a sense for how parts and service revenue trended on a month to month basis.
Throughout the quarter and maybe an update on April as well just because weather clearly impacted February so just wanted to get a better understanding of how the business was trending ex weather and then for the full year I think you'd talked about parts and service revenue approaching 2019 levels on the last earnings call.
Is that still up for your expectation.
Yeah, I think that's a fair expectation.
It has been ramping up starting with January except we did have a dip in February weather related but prior to the weather week everything was trending up into so what are you sort of jump over that week and it for ended up again in March and so far two thirds of the way through April is trending up over March so.
And as I said.
It's not dramatic but it is gradual it's going the right direction and we expect it to continue to.
Especially as we get into these warmer weather months.
You know as we get in these warmer weather months, where you tend to have a lot of other things that we know are conditions and things like air conditioners things like that.
But the break so we typically normally have arise just seasonality.
Just given during the summer months so yes.
We do believe that.
This trend will continue and especially you know.
With all of the miles are being put on trucks out there right now is a lot of miles being revenue so equipment.
They haven't been moving as much new equipment and so there's a lot of equipment being driven at work. So I don't see any reason why we wont continue moving forward and get some were really close to that 2019 level right. Remember we started we were a little bit off of last year, but really flat. If you just took out for.
Weather weak.
But that was off of the prior year, because it really COVID-19 have been really didnt take effect for the last two weeks of March last year. So in 19.
Ramped up all the way through September and then we have some some fall off.
In the last quarter of the year I expect it to go the other direction.
And continue that way throughout the year. This year. So we feel very good about debt was with good about the initiatives. We still got out there. It's not just happened for US. We believe we have directors direct correlation between the investments that we've made over the last for five years and the results that have carried interest through the COVID-19 here in the results for <unk>.
Even curious through this year and the growth that we'll see in this year and going forward. So we're excited about that and there are folks who are doing an outstanding job from the field.
Working.
And managing through that right now.
Yeah.
Great and.
What you said at the end was actually my next question on the parts and service initiatives I know last year with the pandemic. It was probably all hands on deck just dealing with the challenges of that can you just update us on where you sit in terms of implementing parts and service initiatives. What inning are we in in that process now.
We're hopefully reopening the economy.
Across the country should we expect to see more of a benefit from those initiatives in 2021 and 2022.
No question.
Without getting into specific customers.
I have specific customers in my mind debt.
We've been able to cash with those initiatives.
Even though with the labor even during the Covid here.
I was out this week myself and last week, we were doing presentations for folks that myself out there and there seem to be.
Thirst for some of the things that we can supply or we can give the market given the given the network. We've got the most expansive network out there and with the investments that we made in these initiatives.
To answer your question, we might be top of the force.
Do you want to ask what inning.
Through the first three but we're not even through the second quarter.
Of a baseball game, we're just getting into it I really really believe that and I think our numbers will bear that out going forward and I believe it will be over the next couple of years I think we've got an outstanding next couple of years given.
Regulations that will be coming into play in the truck business and with the growth in the economy that everybody expects to see over the next couple of years.
I think we're going to be in great shape with the investments we've made.
Moving forward and just.
I think customers are going to desire.
Things that we can provide that differentiate us from other folks.
Great I'll leave it at that congrats on the quarter.
Thanks.
And your next question comes from Andrew Open.
Hey, Ross day, how are you.
Very good which drove very good congrats.
Congratulations to you and the team on a great quarter.
It's more about the payment is made with thanks Sandra.
Just a question a lot of questions have been answered can you just talk a little bit more about the end markets.
The pace of recovery is per skiing.
And.
Maybe you can book geography, and tell us, which regions look stronger and which end markets look stronger.
Specific roles I would love to hear your views.
Historical non parts and services.
<unk> has been a big Oh meaningful components been debt for a while.
Any signs of life, there so sort of two part question.
Sure.
Well.
You said would be to go geographically the coasts are both doing well cash.
California's surprisingly more than other states it surprises me how well it's done.
Florida is doing outstanding, Texas, West, Texas, having a difficult time and I'll reference back not difficult. We're still still very successful just not to the levels that we were Oklahoma is going well.
Seeing as we move out through the <unk>.
Midwest is coming back a little slower, but it is coming back to Chicago in that area around in Illinois seems to be picking up our Ohio stores seem to be picking up also so well it may not all be in the same any okay, but they are as states reopen and get back to work, they're all we're seeing it across the board just probably the.
Post had been the strongest Florida, California.
It seemed that Dallas has done real well in the North Texas area. So those areas, maybe a little better than the others, but everyone every region seems to be picking up we don't have one it's really lagging just somewhere in different innings of theirs.
Pick it up.
End markets again, we're seeing true construction and refuse continues but the over the road business.
Greenway.
What was driving all these sales.
As the over the road market.
We're also it's pretty broad based construction and revenue for US has continued to do well.
I would tell you that you would ask for that Frac.
What.
It may be up slightly.
As we see consumption going up.
I realized we're gonna be zero carbon one day, but for now we're not going to get there today. So as we see that continued rise in oil consumption go up and it'll be interesting to watch the back half.
The year, we haven't seen it we're not forecasting any big rise.
Oh no.
A big jump in rigs and stuff like that working but it wouldn't surprise me. If this economy continues to heat up.
And the global economy follows.
What better because.
Assumption goes up it Wouldnt surprise me.
See that happen, but I don't notice this year, maybe next year in 'twenty two non here in 'twenty one but.
That's not in our numbers now the numbers Youre seeing thats, one thing that I'm. Most proud of as you look back in the organization five years ago and you compare it to know is how much we were driven so much by LNG.
And how little of our.
Our results are driven by oil and gas and how much more diversified than we are.
Across across the whole organization. So if it did it would just be bonuses.
I can tell you that we'd be very happy to take it if we could get some pick up in oil and gas, but so far we haven't seen it not projected and our future right now, but if it does happen is considered a bonus.
And just another question. So I think looking back you know even beyond a decade.
Your systems.
You know you sort of focus on software and things like telematics has always been sort of part of your secret sauce operations.
And sort of enabled you to take advantage of the scale that you have.
Spent a lot of talk about people accelerating their digital allow for it that's all.
For a out for it and that's part of Covid.
Can you just talk about you know how have your system.
Deborah during Covid and what lessons you've learned about sort of systems and power for that sort of driving the digital backbone of the organization going forward. Thank you.
You bet. There is no question, Andrew I mean.
Theres two different for you talked about data right and that goes back to our S&P system.
Painstaking to do.
Years ago, but with that data, we have taken that data and put it with.
And extrapolated that they've learned how to use it and turn it into revenue.
Whether it's through our our whole rush care for all of the programs and I'm not going to get into all of those on the call I'd be happy to.
But that would take a little bit.
While but are.
Our connectivity with customers showed well throughout the Covid time without that I'm not sure. We can produce I know we couldn't produce the results that we produce if we didn't have.
The tools that we have to connect with customers outside of touch right.
During this last year, we Wouldnt Bruce results.
<unk> connect service connect all these different things that we have and other things that we have underneath underneath the umbrella of rush here.
But I'm not going to go through all eight or nine of them here, while we're on this earnings call but.
You are correct when you say.
Those investments are shining and you can see in the numbers as an easy way for me to tell you is it's in the numbers <expletive>umes.
It's in the numbers of what we're doing currently and I'm very proud of the efforts of everyone in the organization over the last decade to.
Implement these tools and then to take those tools for non revenue right.
What we've seen happen and we're super excited about where we're going and we're working on other things like you didn't do right now other investments that's one other things when you're in a position where at.
Right now you can look at the balance sheet and we're consuming cash Nick organization has and the lack of debt we don't.
Debt outside of leasing and lease trucks.
For plans so the investments we're going to continue to make the investments to stay on top of it.
Try to stay on that leading edge not bleeding edge, leading edge of technology.
Going forward, hopefully will help for continuing to drive revenue.
Especially on the parts and service side of our business.
Congratulations thanks, a lot. Thank you Andrew.
And you do have a follow up question from Joel.
Yeah.
Everybody must be on vacation today.
[laughter].
On the last on the last call you mentioned that you think that this cycle could be more of a three year upturn and I Wonder if you could if you could update us on that and give us some reasons why you think that.
Well first of all by mix, though because let's go back to the carb regulations are going to take you can employ a 24 right.
I think youre going to see.
I was going to be some scrambling.
Around <unk>.
Firstly I think the regs are coming in too soon I don't think we're ready for the stringent rigs that theyre going to bring in I don't know how many states are tied up yes. It could be up to 15, if all of the space tag on that would be 30% from the market.
We have customers in those states that will be scrambling for.
<unk> trucks prior too because from what I understand.
<unk>, even diesel will go up a very large I don't have a hard number I've heard numbers anywhere between 12, and 20 plus thousand dollars okay.
On diesel engines to meet those restrictions and I don't think people know yet.
I think it's a little bit I think it's a little fast. Thank these regulations are being put in a little fast there should be more of them.
2027, like the EPA is that right now.
For sure that could all change we've had a change in obviously.
And government so let's see how that all goes but that was the number one thing they showed truck sales would be there the other book.
And then part of this year make it tempered a little bit with supply for us right sounds like a lot.
But.
But if the economy stays strong it's always the best driver is.
For drug sales in the economy, so if it stays strong.
And tied in with the 'twenty for regulations coming on with GARP et cetera.
Believe that work should be for the next two and a half years for.
Strong truck markets and I think I don't think I'm. The only one out there was projected net.
So there would be my answers for you Joe.
Okay.
And then any early any early things youre hearing about.
Navistar that would like for you to get ready.
Will they be more aggressive on parts or will they rebrand for auto.
I know that that will help the value of your franchise is anything early that you guys are picking up that you can.
Just your business strategy.
No I don't see anything right now this early I think thats sort of a wait and see I know we're excited about it I think for stability that range from a long current perspective the.
The ability to get for technology.
The breadth the global the global view, we will be able to.
Scale.
Add from a technology perspective will be great I don't have anything specific like parts or things like that this early there that'll be something that will play out I think.
As you know.
As I take over I don't see something earlier I do believe.
It had been collaborating for a couple of three years working on stuff anyway.
That's just only going to that has been accelerating behind the scenes and we're just excited.
That's a new ownership coming onboard and the ability it will give the navistar group to continue to force down the path that they've already been go ahead at NAV, but maybe even accelerating in the future.
Alright, great. Thank you so much.
You bet Joe.
Yes.
And there are no further questions at this time.
Alright, well, thank you, ladies and gentlemen, and we will speak to you in July with these second quarter results.
Yes.
That does conclude today's call you may now disconnect.
Okay.