Q4 2021 Rush Enterprises Inc Earnings Call
[music].
Yes.
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 will 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 on the call today are Mike Mcroberts, Chief Operating Officer, Steve Keller, Chief Financial Officer, Derrek Weaver Executive Vice President, Jay Hazelwood, Vice President Controller, and Michael Goldstone, Vice President General Counsel and corporate Secretary.
Now Steve will say a few words regarding forward looking statements.
The statements we will make today are considered forward looking statements as defined in the private Securities Litigation Reform Act of 1095.
As 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, we achieved annual revenues of $5 1 billion and net income of $241 4 million or $4, a 17% per diluted share in the fourth quarter. We achieved revenues of $1 3 billion net income of $68 $6 million or $1 18 per diluted share.
We are proud to declare a cash dividend of 19 four gallons per year.
The year healthy consumer spending and overall overall strong economy led to increased demand for new commercial drugs and aftermarket services.
Said kimono changed supply chain issues negatively impacted the production capability of drug manufacturers.
Aftermarket parts component suppliers as well as our drug and aftermarket sales in 2021.
And for trucks and parts and service.
Scroll, especially from our large bleakest.
We may remain committed to our strategic initiatives and are diligently managing expenses, which contributed to our outstanding financial results. This year.
We grew our network of restaurants that are substantially in 2021. In addition to adding three new locations in Arizona, California, and Illinois layered into the.
Our largest acquisition in company history, and wide 17 full service dealerships and other locations on the summit drug group.
In January of 2000, and when they do we closed our agreement with covenants electrical wire, a 50% interest and momentum fuel technologies. All of these changes reflect our commitment to strengthening.
The answer is not only 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.
We expect the healthy 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.
Along with network growth will contribute to increased revenue and profitability in 2022.
In the aftermarket our annual box service and body shop revenues were $1 8 billion.
<unk> one per share and our annual absorption rate was 129, 8%.
When an approximate 150 service technicians to our workforce in 2021, and we remain committed and focused on our strategic aftermarket initiatives, including our express services mobile service and gone right 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 through the middle of the year, but we believe the demand for aftermarket parts and services will remain.
And we'll continue to add technicians to our workforce.
Existing strategies, our new locations, we believe our 2022 results will outperform the industry.
Turning to truck sales according to 'twenty, one we sold 11000.
Class eight growth guidance of four 9% of the total U S class eight market.
The nationwide economic recovery led to strong demand for new class a drugs, but limited.
<unk> impacted our deliveries throughout the year and.
<unk> consumer spending remains healthy.
And an increase in sales as the year ended.
Sure good waste a positive drug sales results in the first quarter.
NPD research forecasts U S class eight retail sales to be 247500 units employed ranges of eight 9% from wanting we want.
While we expect we will continue to feel the effects of production capacity.
And for new drug sales remained strong.
Our recent acquisitions and strong backlog.
Believe our class eight truck sales will outpace the industry this year.
Our class four through seven new drug sales reached 10185 units third quarter guidance of one 2% of the U S market.
Although demand remains strong through the year.
<unk> got away.
Capacity was limited and some manufacturers focus increasingly heavy duty production more than medium duty to manufacturers were not able to increase production to <unk> level.
<unk> research workplace glass four through seven retail sales by 263700 <unk>.
I was wondering when you do a five 6% from <unk>.
As we look ahead, we believe demand will be healthy.
Production rates on four through seven will likely continue we expect our board as a result.
We will grow at a pace similar to the expected growth in the others.
Our used truck sales reached 7000 valor in ways that managers what are your way.
Up one 7% year over year.
Used truck demand and values remained strong largely due to production limitations of new class eight trucks.
Spot rates across the country.
Good morning, when we do we expect used to Atlanta remains.
The values may begin to normalize in the second half of the year.
Good morning, everyone.
Significant strides in developing strong expense management processes achieved record profits paid off all of our remaining real estate.
Structure of our lease and rental fleet debt to allow us to take advantage of our strong free cash flow and paid the majority the majority of the purchase price of our acquisitions of gas.
We are proud that our approach helped us keep our balance sheet and cash position.
We continue to return value to our shareholders through our earnings growth quarterly dividends and our stock repurchase plan.
While expense management will remain a focus and wondering when he too.
Due to the normal things.
Increases in employee benefits and payroll taxes.
Equity grants, we expect our general and administrative expenses to be sequentially higher in the first quarter of what 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.
<unk> committed to our long term growth.
Especially given the continuing challenges of the COVID-19 pandemic.
Is important.
I emphasize that <unk> recognized 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.
My voice is even worse than usual today so.
With me I've.
<unk> always got a heavy voice is it a little bit laryngitis right now that I feel great. So if youll take over we will take questions now.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to.
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.
Couple.
Couple of questions.
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 Pac ours that big product launches this year, both on medium and heavy.
You bet. Thanks, Sandy when it comes to oil and gas we are seeing.
So big up from a parts and service perspective, okay.
It has picked up it is gradual though.
The I was thinking.
While my Board I, just finished a board meeting.
And one one gentleman and ridiculous pretty knowledgeable about it and we both agreed that what we've seen past the need.
The reactions.
No.
Of the country really related to the oil business 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 against what was actually driving through south Texas yesterday.
Couple days too.
It 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.
Minuscule stuff, but.
<unk> truck sales force.
What we've seen so far just on the service side, that's not to say that won't go up.
But.
Everybody is very disciplined.
You don't have all this money being thrown at it that you typically see.
When he spoke and it's moving us towards what would have been 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 servers right now.
<unk>.
As far as you asked about what was the Jamison, but.
Two questions.
What youre seeing on the pricing front and then I just wanted to get at it seemed like the market share opportunity for us with some of the new product launches.
Well no question manufacturers all manufacturers are catching up to the supply chain increases inflationary pressure. So that is going to be vast group of western to the end user.
It took a little while during the year.
All manufacturers of different surcharges and went about it differently, but really and truly.
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 to the supply side.
With overall normal inflationary.
We saw going on the inflationary pressures that we had so they are catching up so theres no question pricing.
It's going to go up or is going to continue to go up I think youll see some discipline.
Rob manufacturers are out getting too far out not wanting to get caught up like they did 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 you've got manufacturers that wait a minute.
And if they do we'll be caveat to protect themselves.
It was across the board for what what.
They saw happened to them last year right. So.
But I do expect that way.
Two more normalized margins themselves and thats across the board.
And then the last question the market share opportunity for rush with some nine product launches.
We got we are not using our historical.
Areas of responsibility that we have.
Acquisition side understanding the stomach.
<unk>.
And then big fleet, Godfrey I would call it.
Look in Missouri, and Kansas, Arkansas, There are many over the road fleets Bobby Moore base. There then on all the other 20 states we're in.
From an over the road fleet perspective, the problem Jamie is allocation.
As you can see the prop.
And for US we're pretty much on allegation.
We know what we're going to sell.
I think in 'twenty two.
Possible that could continue into 2023, which will hamper our ability to go out and conquest other new business right.
We've let Judy all manufacturers of that to gel certain customers.
Thus far what's ex okay. Well. This is all you get is what.
So.
Put a little bit of a damper I feel good about our allocation.
We got caught a little bit last year that we were pretty much back half loaded and then we had always the blag vein trips.
Constraints, but we did get product that we expected to get I expected to deliver a whole lot more drugs.
Looking at the results we had in 2021, so that's pretty outstanding when you think that we were back half loaded and then we couldn't get it because main backers couldnt produce so.
<unk>.
I think we're going to have.
No question, we're going to take we're going to go up we're going to make some here I would expect us to be acd's slightly they are under Denver ship.
I would expect and as with our acquisition again.
So we're.
<unk>.
Or is that maybe something on the <unk>.
Vis a vis in days in our deliveries but were.
We're limited because theres always gave yet right. So that's all you can give us or you can get.
So.
And the average a little bit to go out and conquest.
But I do expect our market share should go up above obviously 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 class eight market with that question.
Okay.
But 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.
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 do due diligence you do everything but until you need to do 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 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 and 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 back to the Axa group on March one and half the group on main partners. Okay. But then there is something else and then you have the acclamation.
Acclimation period, right they have to get acclimated to using businesses.
That provides a lot of tools, but can be a little complex. So that transition can take people a little bit a little.
So those are all exciting things though.
Very pleased with what we've seen so far.
We will continue to.
Roll that into our culture, they had a great culture, but obviously where the purchases so they.
We'll roll them to be in a rush rush envoy reservoirs, but that doesn't start on.
<unk>.
We believe.
A lot of good upside for us.
With all of 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 to their network.
As we've looked at.
Lot of 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.
Three as you roll through it but.
Couldnt be more pleased with the acquisition I feel stronger now about little more medium long term upside.
I did want it made the deal again back in July August .
So, but those are those are timing things, but trust and look at it.
I would just say look at our historical results and watch what we do.
But because we've got a great group of people to work with great territories. It just like I said before our business above.
Around right in the middle of all of our networks and it just strengthens our approach to customers like them all.
<unk> 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.
Your dog 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, so you're just limited in that way, but the big upside for me in that acquisition as our opportunities in parts and service.
They've got this we've got good facilities.
Yes.
I believe we can grow the technician base, 50% a year or so.
Honestly, so bring mobile they don't have mobile.
Some of those other things again.
And then put in some of our <unk>.
The initiatives.
Service connect barged connector 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.
Be 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.
Yet.
Based upon some inflationary pressures.
From us.
Store perspective, so we're looking at high teens.
Both on the sales side and on the parts and service southern integrated in.
Similar growth rates, but more opportunities.
Overtime on the barges and servers that there is no question, but I will say it again that we've got some opportunities.
Like I said, we just Greg.
And we haven't driven a mile yet really we just rolled out a target of 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 tell you and as I said, we Brian for January and Everything's.
You 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 will you start hitting on EPS.
Ed.
Go back historically.
The business is solid business is great business is good understanding that Q2 will look back all of that is our softest quarter.
We layer in more G&A, we have all of the 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 it will be up.
Okay, and G&A will be about.
With summit in there, it's going to be a little murky.
Hey.
But I do expect strong results.
You can look back at last year, and I think first of all at <unk> 70.
79 cents and then roll up from there so I expected.
Data on their.
Business is solid we are on allegations of again remember that first quarter.
<unk> deliveries were last year.
But.
They werent, but theyre not building any at a higher rate this year, where they were in Q1 last year. So.
Steve.
Yes.
But we're almost 3000 units last year and Q1.
Compared to this year's fourth quarter at 24% to 20 filings isn't so.
We were down for 154 inch there'll be trucks.
From Q1 to Q4.
I would expect.
Sure we can get to that 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 rule should be better once we get into Q2 Q3 and Q4.
Because I don't believe we're going to have a supply chain constraints.
It'll be so there still are some I hear about them right.
No question.
Thank them there'll be as pronounced as what they were especially in Q3 number because we are the <unk>.
Retail delivery in a lot of jobs were lagging 60 to 90 days bond production rates as we put bodies to do this do that and deliver vehicles.
<unk>.
I have no I'm, giving a long winded.
Rambling answer here, but I am trying to gauge.
Obviously, you will I should say at the same store, we will deliver more because of some of it.
My bad.
But on a same store basis.
No I don't know if it will get to 3000 units for 29 90 like we were less.
But.
Over 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 Open.
Bank of America. Your line is now open.
Hey, Rusty how are you.
Violence and yields.
I hear you there.
Andy.
Yes no.
I'd say you sound almost presidential that's how I would describe us now.
All right.
Alright.
What.
What number what number of precedent were going with it.
Yes.
So we would never buy less thickness leave politics aside in this morning.
So the question I have for you.
Okay.
Given all the inflation rate clearly the execution has been the differentiating factor.
Your 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.
Since youre committed to no cost creep.
In this cycle right 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, where we're 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 run.
From inflation.
Again, one from wage pressure.
And we are getting that.
Re body else. It is real okay, but if you are getting it and you should be getting it on the revenue side.
So it's just demand.
Back to what we talked about.
Unit told me six months ago, when we were communicating.
When I looked at.
I was going to manage G&A.
I, probably hadn't raised G&A G&A is going to go up next year I can't run and hide from it.
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.
My job is to manage the things we talked about Andrew is to manage that expense piece of it.
Round, but I'm getting it on the revenues, but to keep that percentage difference.
And that's what we're about.
Have to do again run from higher fuel costs again that run from higher labor costs were affected like everybody else at the same time it becomes just red again.
It is not allowing them to make them and 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, it's how much he is fit.
What it's about how much of that revenue or how much of that gross profit.
Did you did you create.
How much do you keep I can't change, where I mean, you can't change the world around them, but again manage that spread and that's what we're focused on is managing that spread also we're getting it over here on this side.
I'm getting at here I'm going to begin that over here on the sales side.
I've said I believe that was already at that spread in that management of it and we believe some of the tools that we put in place some of the disciplines that our folks similar.
And then there was another greater than.
It's a terrible way to say it but nothing is a better easier than dealing with the original all sort 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 give them.
I believe we're capable of doing that.
<unk> mitigated that.
The woods in the east and so I guess, we will see over the next year or two right.
Going around the room, if you voted.
It's their responsibility is ultimately a mine.
But.
Buy in on our ability to keep that spread where it needs to be regardless of what I cant 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.
Great.
About the impact of higher interest rates and the expectation of higher interest rates on the underlying economy.
<unk> been around for a while.
You touch 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.
Underlying economy as I said, because clearly you are now touch very very broad swaths of the economy. Thank you sure.
You bet, but right now it.
It's all been more talk and has not critical.
Toward critical down.
But it has not.
Got into there, but everybody is because there is a concern.
About that rate.
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.
But don't have a strong 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 sized guys over the last in first out.
And some of the stuff.
Haven't really seen.
Anybody's decision processes yet.
But if you would only.
Gum and stands at 63 years old will be 64 April been through enough of this.
Yeah again, you isolate invasive you can't run from it.
Higher rates will start to squeeze off.
Some of those other smaller.
Folks because.
They can't lever up their liver.
All of their balance sheet, because they don't have it in there.
They rely on leveraging ourselves up obviously that will affect.
The their abilities.
Grow into.
We make money going forward your leverage so.
I don't look for this to be.
Different.
People talk about it I haven't seen anything slow down decisions right now, but you would anticipate.
Given historical that day will go.
But I haven't seen anybody.
I don't remember how about cuts with every customer.
We have begun.
But I haven't heard anyone speaking of slowing down.
Based upon rates and I'm talking about but these people have one but also the blackhawk.
<unk> have big balance sheets, okay, so, but I haven't heard from the field yet.
You would anticipate that to go when the real rate increases get in there which are directly again, obviously now.
But.
A couple of points is not going to blow it up.
More than that to slow it down.
We will start to close others out of the genome.
Goes up three or four points.
At the end, it's borrowing at the end, but again, so the broader thinking about broader economy, what youre 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 a few years.
Because business is still so small now if its starts slowing people's business is naturally going to.
Of that growth.
It will slowdown peoples purchases without question, but for now there is a.
Little room in there I think to play a little bit more interest and a lot of people.
Strong balance sheets.
However, it will be there.
Small medium dose levels, a little more a little deal at first but.
Margins are so good.
Even with inflation and everybody is getting pretty good.
The road is still in development rates that people are getting what's been driving inflation, but right now.
I don't see it.
Having much effect at the moment, but.
It could have an effect will start going up substantial <unk>. There is not going to slow I don't think.
So just the overall economy at the moment just because of the demand is so strong still.
All the money we put in the economy in the last couple of years.
It is still out there you still got demand.
In my 25 years, you're one of the smartest sharpens guys that Madden despite sounding presidential I would take your advice over 45 or 46. So thanks.
Yeah.
Thank you Andrew I don't know if Theyre just served but I appreciate the good words.
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 folks. We appreciate you taking the time this morning to listen to our fourth quarter results year end results, we look forward to talking to you sooner.
We will be bringing to amend the mineral April with our first quarter results and hopefully youll be.
Thank you very much we'll see that bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Sure.
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