Q4 2021 Rush Enterprises Inc Earnings Call
[music].
Yeah.
Alright.
Good day, and thank you for standing by and welcome to the Rush Enterprises, Inc. Reports fourth quarter and year end 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. Please be advised that this call is being recorded.
Any further assistance. Please press star Zero I would now like to hand, the conference over to your host today, Mr. Rusty Rush, Chairman and CEO and President you may begin.
Good morning, welcome to our fourth quarter and year end 2021 earnings release Conference call.
Call today are Mike Mcgaugh, Chief operating Officer, Steve Keller, Chief Financial Officer, Derrek Weaver Executive Vice President, Jay Hazelwood, Vice President Controller, and Michael Goldstone, Vice President General Counsel corporate Secretary now.
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.
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, we achieved annual revenues of $5 1 billion and net income of $241 4 million or $4, 17% per diluted share in the fourth quarter. We achieved revenues of $1 3 billion and net income of 68 6 million or $1 18 per diluted share we have.
Proud to declare a cash dividend of 19 four gallons per year.
Throughout the year healthy consumer spending and overall overall strong economy led to increased demand for new commercial drugs and aftermarket services.
That said component supply chain issues negatively impacted the production capability of drug manufacturers and aftermarket parts component suppliers as well as our drug and aftermarket sales in 2021.
Demand for trucks and parts and services remain strong.
Revenue from our large fleet.
We may remain committed to our strategic initiatives and are diligently managing expenses, which contributed to our outstanding financial results. This year.
Through our network of restaurants that are substantially in 2021. In addition to adding three new locations in Arizona, California, and Illinois, we entered into the world.
<unk> acquisition in company history, and 117 full service dealerships and other locations from the summit drug group and.
In January of 2000, and when they do we closed our agreement with covenants electrical wire to a 50% interest and momentum fuel technologies. All of these changes reflect our commitment to strengthening.
Nancy not only of our network, but also our products and services, we offer to our customers.
Looking ahead supply constraints will likely continue to impact the industry through mid 2022, but we expect the lv demand for new drugs.
Well as aftermarket margins in service.
Due to the country's continued economic recovery.
We believe our continued focus on marketing initiatives and expense management.
Along with network growth will contribute to increased revenue and profitability in 2022.
And the AG market, our annual Bosch service and body shop revenues were $1 8 billion up 12, 1% and our annual absorption rate was 129, 8%.
When an approximate 150 service technicians to our workforce.
'twenty, one and we remain committed and focused on our strategic initiatives, including our express services mobile service and contract maintenance.
Considering that there are fewer working days in the fourth quarter, we were particularly pleased with our fourth quarter aftermarket revenue.
It was essentially flat to the third quarter.
We expect supply constraints will continue to do the middle of the year, but we believe the demand for aftermarket parts and services will remain.
And we continue to add to our workforce.
But our existing strategies that are new locations. We believe our 2020 due results will outperform the industry.
Turning to truck sales.
One we sold 11000.
Class a drugs guidance, 9% total U S class eight market.
The nationwide economic recovery led to strong demand for new class a drugs with limited new drug production impacted our deliveries throughout the year and.
<unk> consumer spending remains healthy and we experienced an increase in sales as the year ended.
So we're a big waste a positive drug sales results in the first quarter.
<unk> research forecasts U S class eight retail sales to be 247500 units and Duane Duane.
Of eight 9% from wanting we want.
While we expect we will continue to feel the effects of production capacities.
And for new drug sales remained strong.
Our recent acquisitions and strong backlog.
And believe our class eight truck sales will outpace the industry this year.
Our class four through seven new drug sales what are you seeing 1485 units of third quarter guidance of one 2% of the U S market.
Although demand remains strong.
<unk> got away.
Goodbye actually was limited and some manufacturers focus increasingly heavy duty production more of the medium duty to manufacturers were not able to increase production to <unk> level.
<unk> researched glass four through seven retail sales.
<unk> 3700 <unk>.
Yes.
When you do a five 6% for more than 21.
As we look ahead, we believe demand will be healthy.
Production rates on Folgers.
We will likely continue.
Our board as a result.
We will grow at a pace similar to the expected growth.
Our used truck sales reached 7000, Violet and what does that mean or just wondering why it was up one 7% year over year.
Used truck demand.
And values remained strong.
Due to production limitations of new class eight trucks and strong spot rates across the country.
Good morning, when they do we expect you to Atlanta remains.
The values may begin to normalize in the second half of the year.
One we made significant strides in developing strong expense management processes achieved record high products paid off all of our remaining real estate.
The restructure of our lease and rental fleet debt to allow us to take advantage of our strong free cash flow conveyed the majority the majority of the purchase price of our acquisitions in gas.
We are proud that our approach helped us keep our balance sheet.
We continue to return value to our shareholders through our earnings growth quarterly dividends.
Stock repurchase plan.
While expense management will remain a focus on winning winning two due to normal seasonal increases and employee benefits payroll taxes.
Equity grants, we expect our general and administrative expenses to be sequentially higher in the first quarter of what can we do compared to the fourth quarter of 2021.
As always I want to thank our employees for their outstanding work in 2021 for providing superior service to our customers and remaining committed to our long term growth goals, especially given the continuing challenges of the COVID-19 pandemic.
It is important that I.
Emphasized that our record net income and EPS results could not have been achieved without their dedicated work and focus.
With that I'll take your questions and also others.
My voice is even worse than usual today, so bear with me.
<unk> always got a heavy voice is it a little bit laryngitis right now that I feel great. So if youll take we'll take questions now.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
Keith Please standby will compile the Q&A roster.
And our first question comes from Jamie Cook from Credit Suisse. Your line is now open.
Hi, good morning, Congrats on a good quarter and Rusty you sound great.
A couple.
Couple of questions.
<unk> one.
Understanding energies a small part of your business at this point just given the rebound in prices can you talk about if youre seeing any sort of signs of life that could be a potential positive for 2022.
Then my second question relates to what Youre seeing on the pricing front.
On the new truck side, and the market share opportunity with some of tank cars that big product launches this year, both on medium and heavy.
You bet. Thanks, Jamie when it comes to oil and gas we are seeing some.
From a parts of roads on a service perspective, okay.
It has picked up it is gradual though.
Thank the speakers.
While my Board I, just finished a board meeting.
And one one gentleman and ridiculous pretty knowledgeable about it and we both agreed that.
But what we've seen past.
The.
Actions.
The country really.
All businesses are different right.
Much more disciplined approach.
But it is coming back slowly slowly we're going to well over here are doing really well and I was actually drive a due south Texas yesterday, the last couple of days too.
He was able to see something in the Eagle Ford a little bit.
Something I hadn't seen in a long time so.
That's a positive there is no question for me to sit here and tell you it's going to make this huge difference in our results I can't say that I don't.
People are going to be much more disciplined, especially on their capex approach.
We have really not seen anything.
But I can attribute.
Miniscule stuff, but what I do.
<unk> truck sales force.
Two what we've seen so far just on the service side, that's not to say that won't go but.
Everybody is very disciplined.
You don't have all this money being thrown at it that you typically see.
It's both it's both the historical what was assumed for decades I don't think that's going to be the approach.
But theres no question that there could be maybe something download downstream I don't see anything outside of service right now.
As far as you asked about what was that Jason but.
Two questions for you.
What youre seeing on the pricing front and then I just wanted to go I feel like the market share opportunity for us with some of the new product launches.
No well no question manufacturers all manufacturers are catching up to the supply chain increases inflationary pressure, so that is going to be pass through.
No question to the end user.
It took a little while during the year.
All manufacturers at different surcharges went about it differently, but really and truly we have.
May go up a little bit differently, but everybody.
Daryl is trying to catch up to those price increases and especially because.
You had such a disruption in the supply chain.
That even put more pricing more cost.
And on the supply side.
With overall normal inflationary.
We saw going on the inflationary pressures that we had so they are catching up so there is no question in pricing.
It's going to go up or is that going to continue to go up I think you'll see some discipline.
Rob manufacturers are out getting too far out not wanting to get caught up but maybe in the last year when youre, having to bring in surcharges and things like that <unk> got <unk> got a customer base is what in pricing for two to three years out and you've got manufacturers said wait a minute.
And if they do we'll be caveat to protect themselves.
It was across the board for what.
They saw happened to them last year right. So.
But I do expect that will be back to more normalized margins themselves and thats across the board.
And then the last question the market share opportunity for rush with some product launches.
We are not using our historical era.
Areas of responsibility.
We have but on the acquisition side understanding the summit.
<unk>.
Anderson Big Fleet, Godfrey I would call. It when you look at Missouri, and Kansas, Arkansas. There are many over the road fleets probably more base. There then on all the other 20 states we're in.
From an over the road fleet perspective, the problem Jamie.
As allocation.
The problem for us will be we're pretty much on allegations, we know what we're going to sell.
I think in 'twenty, two and it's possible that could continue into 2023, which will hamper our ability to go out and conquest.
Other new business right.
We've had to deal all manufacturers of that to gel certain customers.
Thus far what's ex okay. Well. This is all you get is why.
So.
That's going to put a little bit of a damper I feel good about our allocation numbers.
Got caught a little bit last year that we were pretty much back half loaded and then we had all of the blag vein.
Constraints. So we didn't get product that we expected to get I expected to deliver a whole lot more drugs.
Looking at the results we had in 2020 was pretty outstanding when you think that we were back half loaded and then we couldn't get it because main backers couldnt produce so.
I think we're going to there's no question, we're going to take we're going to go up we're going to take some share I would expect us to be acd's was slightly they are under 10%.
I would expect us with our acquisition again.
So we're <unk>.
<unk> <unk> is that maybe something on the <unk>.
<unk> 15 days and our deliveries but were.
We're limited because there's always gave yet right. So that's all you can give us all you can get.
So.
The average you're a little bit to go out and conquest.
But I do expect our market share should go up above.
With the acquisition and I think even.
B is still back half loaded, but more evenly distributed.
From a Russia perspective across the whole year I do expect us to deliver more drugs for sure.
Have a better than a four 9% of the glass a market with that question.
Okay.
You save your voice for someone else, Thanks, and hope you feel better.
I don't know if anybody wants it.
Thank you.
And our next question comes from Justin long from Stephens.
Your line is now open.
Good morning.
So I wanted to ask about the summit acquisition, obviously, a big deal that just closed any way you can help us think about the impact youre expecting from that acquisition in 2022 and maybe <unk>.
After having a look under the hood, how youre thinking about the opportunity there to integrate the business and improve the business.
Let's talk about that we'll talk about.
Remember, we just finished our first month of January with the acquisition so.
While you're doing due diligence you do everything but until your new one quick described but when do you.
Getting the <unk> engine.
And then drive the day, we've got it right.
They've got a great group of people that we're excited about what we've seen in the first month.
At the same then there is a drag visionary brute understanding when we closed the deal on the 13th of December .
Typically historically, we switch.
Everybody over our SAP business system, which we believe is the best out there. We believe we have more <unk> than anybody when it comes to that which allows us to achieve the results, we do especially on the box on the service side.
We did not switch there.
It would've been a very large undertaking that would've been very disruptive to the business.
That said, we are going to just switch them packed with Axa group on March one and half the group on May one okay.
Okay, but then there is nothing else than the <unk>.
Acclimation period, right they have to get acclimated to using businesses.
<unk> a lot of duals, but can be a little complex. So that transition can take people a little bit a little what so.
So those are all exciting thing so we're very pleased with what we've seen so far.
We will continue to.
Rolled that into our culture, they had a great culture, but obviously, where the purchases. So they will roll in to be in a rush rush envoy reservoirs, but that doesn't add.
<unk>.
We believe there is.
A lot of good upside for us.
With all those large fleets from a national account perspective, not necessarily like drugs, but more around the parts and service side than anything else. We believe there is opportunities, we're adding a lot of technicians because their network.
As we've looked at.
<unk> mobiles earnings possibilities.
But these things are not going to happen just day one.
Without a doubt in our mind upside to that but that's going to that's going to roll in over a year, one and year two.
In year, three as you roll through it but.
I couldnt be more pleased with the acquisition I feel stronger now about little more medium long term upside.
But I did want to make the deal again back in July August .
So, but those are those are timing things, but trust.
I'd, just say look at our historical results and what we do.
But as we've got a great group of people to work with Greg territories. It just like I said before at a pace above and around right in the middle of all of our networks and it just strengthens our approach to customers like.
Im all about differentiating ourselves from everybody else in our map is our biggest differentiator outside of our people. So we're excited about that.
I mean as I said.
The numbers.
Obviously be up.
You're drilling in parts and service and sales so I'm going to tell you adding them into ours.
<unk>.
Things like that maybe a little better, but again, where our allegation from a truck sales perspective.
He is limited in that way, but the big upside for me in that acquisition as our opportunities in March service.
We've got good facilities.
I mean, I believe we can grow the technician base, 50% a year or so.
Honestly, so bring mobile they don't have mobile.
They'll do some of those other things again.
And then put in some of our R&D initiatives.
Service connect your barge director all of the different names in the things that we do express services things like that.
There's a lot of upside, but it's not an add water and stir allow us to operate.
The accretive don't you worry.
But we've just got to get it done.
Understood.
You talked about tuck sale expectations. This year when you think about the parts and service business. What are your expectations for growth in 2022, I guess, both organically and then once you layer in summit.
I had told you.
High singles, maybe add a little bit more.
Okay.
Based upon some inflationary pressures.
From us same.
Same store perspective, so we're looking at high teens.
Both on the sales side and on the parts and services with summit integrated in.
Similar growth rates, but more opportunities.
Overtime on the barge and servers that there is no question, but I will say it again that we've got some opportunities.
Like I said, you're talking about literally we just Greg.
And we haven't driven a mile yet really which is rolled out of the target from what rolled off the driveway. So but those will be what I would tell you now maybe a little bit more upside in it but <unk> got a little bit more and get rolling and get our stuff in there but.
That's basically what I can say and as I said, we run it for January and Everything's.
Just like as opposed to be in lots and lots of opportunities.
Thanks, and last question for me just looking at the first quarter I know there are a lot of moving pieces with summit getting layered in I think you mentioned earlier.
<unk> would be up sequentially any way to help us think about kind of EPS from <unk> to <unk> and what you're expecting maybe put some numbers around that G&A increase.
Okay. When you start hitting on EPS.
Yeah.
Go back historically.
The business is solid business is great business is good.
As in Q1, we will look back all of that is our softest quarter.
We layer in more G&A evolving equity golf golf racks as that.
<unk> in Q1, and then we level out so.
G&A SG&A rate I expect sales to be up so as we will be up.
Okay, and G&A will be about.
With summit and there is going to be a little murky.
Hey.
But I do expect strong results.
You can look back at last year first quarter were 79 cents and then roll up from there so I expected.
Davidson.
And business is solid we are on allocation again.
But that so that we are and what first quarter.
Deliveries were last year.
But.
But theyre not building any at a higher rate this year than they were in Q1 last year. So.
Steve.
Yes.
But we're almost 3000 units okay last year in Q1.
Compared to this year's fourth quarter at 24% to 20 filings.
So we were down 454 inch that'd be trucks.
From Q1 to Q4.
I would expect I'm.
Im not sure we can get to the same Q1 right now we Mike we probably can be somewhere back up but it won't be over truck deliveries right. So because of the allocation, but I do expect the rest of the year.
Deliveries will should be better once we get into Q2 Q3 and Q4.
Because I don't believe we're going to have the supply chain constraints.
It will be so there still are some I hear about them right.
No question, but I don't think that there'll be as pronounced as what they were especially in Q3.
We are the retail delivery.
A lot of jobs were lagging 60 to 90 days on production rates as we put bodies to do this do that and deliver vehicles.
So.
I have no I'm, giving a long winded.
Rambling answer here, but I am trying to gauge.
Obviously, well I should say the same store, we will deliver more because of summit.
My bad.
But on a same store basis.
No I don't know, but we will get to 3000 units in 2000 1999, we were less.
But.
But we will deliver more for sure but with summit.
In Q1.
Alright, thank you to ramp up from there as the year goes on.
Got it thanks I'll pass it on congrats on the quarter.
You bet. Thank you.
In Q.
And that is star one if you would like to ask the question and our next question comes from Andrew <unk> from Bank of America. Your line is now open.
Hey, Rusty how are you.
Violence.
Yeah.
And deal but.
Yes, no I would say you sound almost presidential that's how I would just sizes now.
Sure.
Okay.
What.
What number what number of precedent were going with it.
Yes.
So can we never buy let's say, let's leave politics aside in this morning.
The question I have for you.
Given all the inflation rate clearly the execution has been.
The differentiating factor for you.
Results given all the inflationary pressures right when we talked to you guys. It seems that.
The way you are writing company differently the cycle right.
We're committed to no cost creep.
And that cycle sort of keeping control over cost over the next couple of years, you've changed I think internal compensation metrics you change communication internally right. So the question I had given all the inflationary pressures that we are seeing in the market. How do you manage or how do you pivot your strategy on containing the cost.
While being able to grow in this environment, we were short of labor sort of components and clearly costs are growing up thank you.
Great question Andrew.
Don't think that had been at the forefront of my mind recently okay.
Can't run.
From inflation.
Again, one from wage pressure.
And we are getting that like everybody else. It is real okay.
But if youre getting it and you should be getting it on the revenue side right.
So it's just demand.
Back to what we talked about.
Have you told me six months ago, when we were communicating.
Look what I was going to manage G&A.
I, probably hadn't raised G&A G&A is going to go up next year.
Can't run and hide from it.
At the same time I can manage the spread okay, and what I get from a revenue perspective.
And what my G&A and graces they should go hand in hand, except my job is to manage the things we talked about Andrew is to manage that expense piece.
Around but I'm getting it on the revenue side, but to keep that percentage difference and.
And that's what we're about.
Again run from higher fuel costs I can't remember him from higher labor costs were affected like everybody else.
Zane them it becomes just red again.
It is not allowing to make making sure you're getting it on the other side too and then keeping that spread where it needs to be.
Diligence.
Youre going to spend some money, but again, how much she has been and that's what it's about.
Is that revenue or how much of that gross profit is really what we're talking about that you did you create.
How much do you keep I can't change, where I mean, you can't change the world.
And again manage that spread and that's what we're focused on is managing that script volume we're getting it over here on this.
I'm getting at here I am going to begin at over here on the sales side.
I've said it three that was already at that spread in that management of it and we believe some of the deals that we.
We put in place some of the disciplines that our folks similar.
There was another greater than.
That's a terrible.
But nothing but theres, a better easier than dealing with the original set of COVID-19 in the business going back up and manage through it.
The things you had to do and that Youre not going to do.
Give them away.
Believe we're capable of doing that we've communicated that proof of the woods in the east and so I guess, we will see over the next year or two right.
We will get around the room in vivo.
Responsibility.
In your mind, but.
Buy in on our ability to keep that spread where it needs to be regardless of what call again control inflation, but again controlling the spread.
All I can do.
Thank you and the other question I have when we do our channel checks there's a debate.
About the impact of <unk>.
Higher interest rates and the expectation of higher interest rates on the underlying economy.
<unk> been around for a while.
You touched a lot of industries a lot of geographies first can you just tell us what you're seeing in the broader economy and second could you share your thoughts with US based on the conversations you've had with customers about the potential impact of higher interest rates on just underlying economy, not the truck cycle, which is the underlying economy as I said because.
Clearly youre now touch very very broad swaths of the economy. Thank you sure.
You bet, but right now.
It's all been more talk.
Has not critical.
Toward critical down.
But it has not.
Got into there, but everybody is because there is a concern.
About rates.
Increases, but business is still extremely strong.
And the balance sheets a lot of these companies are in pretty good shape, where we will have an effect will be on the smaller folks medium to small guidance.
That don't have as strong a balance sheets.
How it works.
Over the last in first out.
When you've got a screen.
<unk> is up like the smaller and medium size guys over the last in first out.
And some of the stuff.
Haven't really seen that anybody's decision processes yet.
But if you would only.
Got it.
Three years old will be 64 April been through enough of this.
Again, you isolate invasive you can't run from it.
Higher rates will start to squeeze off.
Some of those other smaller <unk>.
Folks because they can't lever up there off.
All of their balance sheet, because they don't have it and they are rely on and are leveraging ourselves up obviously that will affect.
The their abilities.
Grow into.
Does it make money going forward your leverage so.
I don't look for this to be any.
Different.
People talk about it I haven't seen anything slow down decisions right now, but you would anticipate given historical that they will go.
But I haven't seen anybody.
Right.
We have begun.
But I haven't heard anyone speaking slowing down.
Based upon rates and I'm talking about but these people have one blackhawk do larger have big balance sheets, okay, So, but I haven't heard it from the field yet.
You would anticipate that to go when the real rate increases to get in there which are directly then obviously now.
Thanks.
A couple of points is not going to blow it up it's going to take more than that to slow it down.
We will start to close others out of the genome.
Goes up for full points.
At the end, it's a borrowing at the end, but again.
Yes, Hello, thinking about broader economy, what you're sort of seeing from your customers in Florida.
Southern California.
You think sort of the initial reaction to interest rates should be muted other than as you said sort of small and medium truck fleets is that how I should be thinking about it.
I think so.
That's just my opinion.
Got it.
Two years, Ed, but because business is still so strong now if it starts slowing people's business is naturally going to.
Of that growth.
That will slow down peoples purchases without question, but for now there is a.
A little room in there I think too.
Pay a little bit more interest and a lot of people got strong balance sheets.
However, it will be the small medium guy was levered, a little more a little deal at first but.
Margins are so good.
Even with inflation and everybody is getting pretty good easily.
The road still look at all the rates that people are getting what's been driving inflation, but right now.
I don't see it.
Having much effect at the moment.
Could have an effect will start going up substantial <unk> there is not going to slow I don't think.
Sure.
The overall economy at the moment, just because the demand is so strong still.
After all the money we put in the economy the last couple of years.
It is still out there you still got demand.
Rusty in my 25 years, you're one of the smartest sharpens guys that Madden despite sounding presidential I would take your advice over 45 46. So thanks.
Thank you Andrew I don't know if Theyre just served but I appreciate the guide words.
And thank you and I'm showing no further questions I would now like to turn the call back over to Rusty rush for closing remarks.
Well, we appreciate you taking the time this morning to listen to our fourth quarter results and year end results. We look forward to talking to you sooner.
I'll be speaking to you about the middle of April with our first quarter results and hopefully youll be.
Thank you very much bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Sure.
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