Q3 2022 Rush Enterprises Inc Earnings Call
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[music].
Good day, and thank you for standing by.
Welcome to the Rush Enterprises incorporated reports third quarter 2022 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 this session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded I would now.
I'd like to turn the call over to Russ do you want <unk> CEO , President and chairman of the Board. Please go ahead.
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 he statements include risks and uncertainties are actual results may differ materially from those expressed or implied by such forward looking statements and.
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 discussing your annual report on Form 10-K for the year ended December 31st 2021, and and our other filings with the Securities and Exchange Commission.
As indicated our news release, we achieved third quarter revenues $1.86 billion net income with $90.4 million or $1.59 cents per diluted share. We are ploughed <unk> excuse me, we're proud to declare a cash dividend of 21 cents per common sure.
We were pleased with our results in the third Gore, which were largely driven by pent up demand for new commercial vehicles and continued strong demand for aftermarket parts and service.
New drug production remains limited due to component suppliers, but our class a new truck sales significantly outperformed the industry.
Ah results were also possibly impacted by 17 locations in the south and Midwest required in the fourth quarter of 2021, and 15 locations in Canada, where she was operating results are now included in our financials. There are additional investment and rush stroke centers in Canada limited.
And the aftermarket parts service and body shop revenues were 622.1 million up 34.4% year over here and are approaching ratio was $136 two per cent.
In the third quarter with strong widespread demand for most market segments, especially refuse leasing and energy.
Our growth was also driven by the addition of aftermarket sales professionals and service technician throughout our company, which allowed us to better support our customer base.
Especially large national fleets well.
What part supplies supply constraints are still impacting the industry, we were getting to see parts supply catch up to the needs of the market and.
In addition, we expect demand for repairs and maintenance to remain strong through the end of the year, but to be tempered by a few were working days in the fourth quarter and seasonal software. So the industry typically experiences through the winter months.
Regarding the drug sales with some 4200, new class a drugs accounting for 6%. So classy that's F U S class a market and 1.4% of the Canadian class a drug market.
While new drug production remains limited we continued to experience healthy demand for most market segments, including both over the road and location I'm good.
A C T research forecast class a U S sales to be 258600 units in 2022, a 13.7% from 2021 and Canadian class a retail sales to be up to 30115 up 7.2% from 22 anymore.
We expect crunk production remained wrote him it was it would cost and for our fourth quarter Glace commercial vehicles to be similar to what we achieved in the third quarter.
[noise], our class 427, new drug sales when he's 30 223 units in the third quarter accounting for 5.3% of the U S class 427 markets and 1.7 per cent of the class sponsors Canadian class five to seven market while production remain limited.
We saw a healthy demand for more variety of mortgage segments, particularly vocational food and beverage customers.
A C D research forecast U S class 427 retail sales to be 230975 years from 2022 down 7.5% from 2021 and Canadian medium duty retail sales to be 11025 minutes down 16.6%.
As we look ahead, we expect the production of class 47 drugs to improve slightly in our results will align with the industry in 2022.
Are you strung sales reached 1700, and 63 units of the third quarter up 8% over 2021.
Overall demand softened for classmate on highway used drugs due to an uptick in new truck production weak spot rates rising interest rates and high fuel prices, which continued to burden owner operators in small fleets.
As we expect use drug values that they can't continue their decline for the remainder of the year and inventory twenty-three.
[noise] twenty-three, we made the decision to minimize our youth drug inventory to historically low level. During the third quarter. We will continue to closely watched use drug values and manage our inventory levels to allow us to meet the needs of the market, while minimizing the negative effect of declining use drug values.
Our lease and rental operations continue to be a significant contributor to our company's overall profitability with third quarter lease and rental revenues, increasing 37.1% a year over here.
This growth is driven largely by a recent acquisitions as well as higher than normal rental utilization rates caused by the limited new truck production.
As we looked at the future weird carefully monitoring inflation interest rates fuel prices and other economic factors, which may impact consumer spending.
Our customers and our industry in general However, there's still some significant demand for new commercial vehicles and aftermarket parts and service, which we expect will continue through the year.
With our ongoing focus on disciplined expense management and execute any our strategic initiatives. We believe our financial results will remain straw for the foreseeable future.
I was always I would like to thank our employees for their outstanding work discord and for their continued commitment to our company's goals with that I'll take your card.
Thank you.
If you have a question. Please pass star one one on your telephone.
Stand by while we compiled the Q&A last year.
Please.
Our first question comes with Jamie quaint.
Excuse me Cook some clinic sleep.
You're lying or something.
[noise] Jamie Jamie.
Sorry, you cut out of.
<unk> my email I'm, sorry about that hate good morning, Nice clutter I guess, we're asking questions first and then we'll go over.
Color on the east inventory anyhow, you're trying to reduce inventory levels can you just give the caller on how much we get into choir, what's left.
Impact on you know margins ethical point Bacon like how to think about normal life margins and that.
You know you in your tracks and then my second question Attic impressed with you know the growth in the park and the service again I mean, all all year. It's been it's been currently in practice can you talk about market person you know market share and I mean, you know the Macroenvironment can continue to deteriorate how do you think about the possibility.
<unk> you know I'm all truck downturn. Thank you.
Sure.
What's wrong with you as well as you know the last five quarters, Jamie or I'll step back a minute and look back in history, where the.
The biggest and most of the craziest corners I've ever seen for use drug values right and I compliment our people for taking very good and an advantage of that right and if you look back Oh, we had corners ravaging 18, 19% margin right well as always with used you know that's gonna turn right well, we did what we did the right thing so.
If you look into this quarter and Diaby been to it you know we determined actually midway through the last quarter, but we really didn't get started until this call that he values. Obviously it started dropping and we had our inventories has actually gotten up to as large as 2400 units by the end of this quarter, we had cut our inventory to 1200 units and mark them to market.
So if you look at what we did we went from running you know we were down we weren't that high but if you look back when we had gotten that high and used truck up margins, we were 1.6% so.
If you look at the effect.
What that was on the company if you go back and compare it to say just to compare cute too.
It was 13 $14 million, so really if you strip out the one time gain and cute too from the Canadian acquisition that we had a book it.
Like a buck 75 and Q2.
Between US drug was 90 plus percent of the difference between two and three so but doing that I can tell you're going forward that we would start moving more towards more normalized margins I don't expect to run one per cent again and used truck margins, so understand that that cleanup.
The inventory, we got rid of it and making sure hope with our inventories mark to market not indoors continue the value of the beginning of the decline you know that will be it will be a little bit of a drag but I do not expect used truck [laughter] margins to hit one per cent against so all that was done inside of the core so I'm kind of proud of it to be honest with you.
When you really look at it and where we're at so we're in a position I think going forward. You know we've I've told you from years normalized margins on used or eight to 10 I don't know that we'll get eight to 10, but I would expect at least crawl back to six you know as we rights you know we've we've been through the bottom right I do believe that for sure.
And from an inventory of perspective, so I feel good about that that was all inside of this last quarter. So you know I, maybe maybe it gets closer to eight somewhere somewhere between 5678, but it's not going to be 1%. Okay. That's what we did this last quarter I got it all cleaned up inside of that Gore, but it was you know what we did to five court.
Before it was the right thing to do but she's just when you start to drop in and dropped for really fast right. I mean, where do you typically look at us values going down to one and a half two per cent of months they've been running six to seven per cent right.
And I believe we're still we're still continuing but we feel that we've got everything mark pretty good but what we've got left cut in half from where we had been.
Parts and service.
Yeah go ahead.
He was going to say that sounds good well. Thank you.
Yeah, you bet no do you want me to answer the parts of service I think so yeah.
You bet so.
Parts of the service perspective, obviously, we've added outstanding here you know regular absorption rates at the same time, well, even bringing in their stores that probably don't you know performed with the levels of some of the other stores. We got right. So you know I'm kind of I'm very proud of that it's something like you know, there's some runway and there we think is weird.
Really integrate with these other stores, we just got in August we just finished putting the Canadian operations on our S. A T. A business systems right with just finished in may with the summit acquisitions. So you know there's a learning curve inside of there for them. So I think there's a lot of runaway for us and all those new stores yet in spite.
All of that and by the way it can be a little bit of a detriment to confront side that for 60 90 days of business system changes can be tough on them. So I would tell you as president that was inside of all what happened to it as you go but as we look into a forward.
I look backwards a little bit you know we took sure but we also benefit from installation. So don't think for a minute that it was all just I was taking sure. It was a combination of both sometimes it's hard for me to discern how much was what you know.
Look through it but I would tell you, we probably a high single digits for sure and the other one was you know some inflationary activity and it was out there looking forward to next year you.
You know, we we think that the first day I'm guessing now I do believe will seat and continued inflationary pressures.
On the park side I know, we're seeing it on the labor side too because that's also embark war right away is he's a library book, but as it gets into some DNA questions. You know cause because we have to but I do believe that next year.
Will will not be quite as high cause I think inflation will subside, we still expect it takes sure.
So expect has an inflation high singles low doubles.
So don't hang around the 10th person behind is that what that's what we're looking for that's based upon subsiding inflation right, but if inflation continues to run rapid like it did this last year you know that number could go up but I expect it takes here somewhere in the mid to high.
[noise] digits, and then inflation will be on top of that that's that's what our goals you know that's the investments we continue to make an all our systems are [laughter] all the things we have going on at work. It's like right now I'm investing in a lot of stuff, we're not even see the numbers, but you're always doing that so I think you know our continued investment over the last 10 12.
You can see it in the numbers, Jamie you've only been around long enough and we will continue that and hopefully will continue to grow it Ah absorption legs and our returns just like we have them.
Okay. Thank you I appreciate the help.
You bet.
Thank you one moment, while we prepare for our next question.
The next question that we have is coming from Andrew open.
Bank of America. Please go ahead.
Good morning, Andrew.
[laughter].
Okay L O.
My mom and I mean, the next person up on on the stage.
Entering your line is open yeah, I I'm not on mute can you hear me.
Yes, we can I can Andrew Okay, sorry about that yeah, just a question.
You know look as I said, our earnings estimate I think when we started the year was like four something and it looks like you're gonna print well over six so how should we think about it just sort of normalized earnings power.
Rush and you know and if I look at just generally at the mountain suppose for a lot of distributors people sort of.
Clearly thing across the board, where at peak numbers, but you know what sort of a normalized number four rush through the cycle. These days given everything you've done.
And you know how I should we expect rush to make in a recession I'm not asking you to say when a recession is but as I said you know the numbers seem to be like 50 per cent pass high this year than I expected. This sort of tried to recalibrate how to think about Russia's earnings power going forward in the long run. Thanks.
You know I'm not wanting to go much out on a limb Andrew but here you go obviously, we are in an industry that does have a little cyclicality. It's like this whole country that's cause it right.
So as I look back and I tried to look at trials.
And see what I sat here to.
Getting out there a little bit here, but I look back 16.
Split adjusted we that was a crowd to me we made 75 cents.
In 2020.
We may two books.
We believe that we could probably when I say frog get somewhere down with nuke drug sales in around 202 10.
We believe we can you know double what 2020 was how's that for a draw. Okay. Now it goes Lauren that we'll figure it out from there, but I hope we're not there doesn't go lower than that most projections are not for it to go lower than that so obviously and we continue to do the things we're doing repeat back in 25.
26, I would like to think there's.
No more to be at you know more to do more to return.
Especially when you look at you know new acquisitions and things going on with it just being integrate engine.
You know those are some of the Tailwinds and I still believed.
Some of the big Tailwinds in the organization are still on the atmosphere side.
July and stuff you know their investments.
Telling you to flow out into the future for those dealerships and from the Peterbilt perspective, we will always continue into the next outstanding job I think we're going to pay to rebuild so long with baggers commitment there so with both of our Oems commitment or commitment how.
How we manage what we knew the things that you can see in the numbers now that are you know.
Driving a little bit Crazy, if you mean.
I'm getting a peek multiple.
Barely a multiple but we're getting peak [laughter] [laughter].
[laughter] I guess treated like that now but that gives you a little Colorado. When you say normalized I don't want to ruin anything normal in this industry. Okay.
There's not much normal anywhere, but you'd be there are there.
There are peaks and there are you know there are trials and that should give you or I think we can.
I don't know my guarantees, but I'm, usually pretty good at delivering where we think a trough around when you get down to the U S market around that number would be you know that.
What you're looking for.
Yeah, no I'm in I'm in I think it's it's useful for like sort of $4 plus at the trough seems like the new.
Then your number at least that's what I've heard second question. If you could you know the usual question that I ask you have very broad presence across the U S. You know.
Clearly you have found the best systems out there if you could just walk us through what you're seeing in different regions of the U S. And also what are you seeing by vertical right. Because obviously you have exposure to the energy of the filter Fedex you sell to truckers yourself. The contractors. So you have as good as anybody of you in the industry.
And you have a lot of experience. Thank you.
Thing there well as I said and you know geographically, it's still pretty strong almost never wear geographics I don't see one geographic spot getting really hit a summer stronger than others. I mean, California celebration is still very strong I would've thought it would've slowed down a little you know.
I mean, Florida is doing well, where we're doing well in the Midwest too I mean, it's pretty broad now when you get into segments and one Oh I expect to happen that my biggest segments would be refuse would be we got larger pick up and.
Oil and gas, but don't think for any minute now and it's like it was years ago. When all the gas with 15% of our business. It may have gone from three to four and a half you know when I look at parts and service, but it is up you know on the major accounts you know it is up more than everything else, our national account growth, which is really low.
What we do we do take care of all of our local and regional stuff that really nice job of it but the biggest growth we that.
On a consistent basis and what we believe will be the biggest growth wars going forward is for national accounts and that's because of our map you know we can differentiate ourselves off a map cause we got a map like no one else in our industry and regardless of what brand we represent you're still a rest customer and we can service you and.
Waves across the larger map and anybody else and so that is really the biggest strength in my mind is our people's our biggest strength, but at the same time that map there unless continuing to leverage and go to market as one you know.
We realigned all our revenue.
Creation about a year and a half ago and you know really put it all under one umbrella and that's how we that's really our focus and how we go to market Nowadays and you know we we have customers. If we don't sell trucks through that we do millions of dollars of business with in parts of service because of that mess and that list of customers continues to grow.
And then it just creates opportunities to sell product work through them down the road. So I know I got off base a little from your question, but I think it's important to understand that but really ended up you know.
The leasing segment is still strong it we we I do anticipate obviously a housing to slow down so, but you know with the rates with what's going on with rates, but that's that's coming at us and then it'll be on the rare side.
But you know, it's still strong and taxes. Okay. I can tell you that I live here, but you know there is going to be what the feds are doing will have an effect.
Eventually on what southern.
You know, it's going to as I.
There'll be watched a rattlesnake, so it'll have an effect somewhere downstream next year.
But we do believe we're well diversified and how we go from a market segment and hear graphic perspective.
And you know what it will do well.
Will do well in the future and.
We continue to believe in.
Believing in ourselves and how we're going to market and what we've got you know and and the girl things that I talked about.
Just a question just going back to the question on sort of trough. So how should we think about it and maybe you can give us an absolute number or however.
Should we think about the trough and parts and services right because it's such a driver of your earnings as a company you know how should we think about you know what kind of a decline can we seen parts and services in recession. Once again, if you could calibrate or just it keeps growing because he would keep putting in money and.
Wearing inflationary environment.
Well I don't think it'll ever go down as bad as I've seen it before giving the investments we've made in it but I'm not going to be naive enough.
To sit here and tell you that it couldn't slow down.
That that that's being a little bit too naive, especially you know in this high inflationary environment, how would that assist okay as far as growth rates skill.
From a going backwards Andrew this is just a stab.
I guess, if we got into you know over three medium ruse, you know like little or Big already mills as our auto though you know people are funny. So it's only listening to go out of US talk five per cent maybe.
You know I don't really see is going backwards much more than that and any for any case you know I don't think so you know we have normal seasonality like during the winter things slow down a little bit typically but as far as overall, you know single digits I don't see and remember we.
Had the level of expenses to poll right. That's what absorption means right as gross profit from parts and service over expenses. So you know.
That's that whenever you have that other side was going to pull to try to mitigate the effect of that and you know that's how we typically manage through this.
We took advantage of being able to mitigate expenses and then you know grow back with the market, even though it shot back up so you know if you remember.
Remember, our starting 0.2 is a lot higher than it we've never been running 136% absorption and that's with new acquisitions instead of running less than that so.
You know, we're starting at a whole lot higher [laughter] a whole lot dollar mountain than we ever have also so you know I know I'm bouncing around Marino rambling here, but it's five per cent six seven somewhere like that I can think.
On the top line.
But you know I don't we don't see that now I'm.
I'm not projecting that but I'm not naive enough to know the general economy ended up driving everything at the end of the day. So you know something like that could happen and then of course with our best to manage through it about posing some other levers we've got.
That's it thanks, so much really appreciate your extensive answers.
And Kim.
If you as a reminder, if you have a question. Please press star one line on your telephone.
One moment, while they get ready for the next question.
Now the next question is coming from Jan.
Fast that your line is open.
Good morning, Mr. Casting can you hear me.
Yes, I can hear you now okay, great I I wanted to start with the quaint question on parts and service do you have what the organic growth number wise in the corner and then Rusty I'd love to get your thoughts on that Act class eight number for 2023.
Okay.
The the same store parts and service growth rate. If that's what you mean by organic dress was 19.9% in the quarter. Obviously that has inflation ended up probably 14, 15% and and growth of five years or so percent. So that's the organic number I think is what you're asking for.
Yep.
And as far as a C th number [laughter] I think they really got three numbers if he had a skinny little.
<unk> [laughter], a big long [laughter] and her middle or I I think what he prances to 232. This out there right now you know and I am now and I'm you know some people I know I've seen some reports for you know keeping saying, it's gonna be flat with this year you know closer to 60 I have a problem with that.
I you know I think you're big fleets, you're gonna continue to buy.
I think your smaller to mid sized customers that or whoever it up.
That rely on you know good used truck values and borrowing money and they're gonna have a higher interest rates to bay I think that's gonna definitely dampened that sector.
So you know went being I'm going to go with that [laughter] twenty-five to 230 range would be mine I don't believe in I think now I do think it'll be more frontloaded.
Okay.
So I I do believe that it's more it will be more front loaded because I didn't think you know what the feds are doing will have to take old and have some effect on that small to mid sized buyers. We get back to you know as we get deeper into the year.
Okay got it and.
Wanted to ask about the fourth quarter, and just said Caden since E. P. As he gave a few of the moving pieces an expectation for truck failed spent.
Anything on G N, a or or or anything else [noise] sequentially, we should be mindful out moving into the fourth corner.
No I I I would look for G&A to flatten out a little bit sequentially.
When I take when I take that view of it.
Off a little bit in parts and service because you're working day, she got holidays whenever they can deal with it right. That's just normal that's just the way. It works you know a lot of companies halfway shut down Duane Christmas and new year's and that's no different than any other year. So.
Normally typically don't during the winter normally you'll you'll see a little softening and if.
Few of US working days, so that really would be the only negative that I see in queue for you know as I look at it as just few lives working days holidays, but we deal with it every year and but that can you know salt and a little bit of the of what the returns are but it's still you look at the number.
Or is that we're printing and they're still pretty solid [laughter].
Got it and last question I, just wanted to ask about capital deployment, and where you're seeing the best opportunities today, and then maybe tagging onto that Steve interest expand point out.
A good amount in the corner curious why we should you know thinking about going forward.
Right you know Covid kikatte, bringing that we've we've had a consistent shareholder return plan now for five years.
We said, we're going to return 35 40 per cent of free cash flow Bill C F.
88 million.
Repurchasing stock.
You know I don't think it's so cheap to me that's the best thing. We can do is buy more stock bad [laughter] to be honest with you from my perspective, and you know will be will be approving a new.
We will be approving I'm sure. So another repurchase we're discussing it with the board, but I mean will probably we've been consistent in that over the last few years, they're not what we spend may change, but we have consistently bought stock back we do not see either one of those changing over the next 12 months you know the numbers can be very but we will continue to return dividends.
Like we have not going backwards and continue by steinbeck, especially if we see opportunities to be opportunistic when we do it's Ah.
Very undervalued.
Steve Glanced interesting branches, three or 4 million ice tea, yeah sequentially were up 3 million from Q2, and it's it's a product of two things are for plan levels are because we've delivered a few more trucks in there we have more inventory on our balance sheet for a longer amount of time and and our four plan rates are variable. So interest expense that you see.
On the income statement is driven by four plan and interest on the lease and rental fleet and then to the extent we have excess cash we have the we have the ability to lower those lines inside the quarter and kind of hedge it and and keep a lid on it but you you should expect it to continue somewhere to current levels.
For the foreseeable future the only thing that will drag it down as if the truck market you know probably in 24 when it does turned down our inventory levels, we'll we'll soft and and I guess, we got one more rate increase coming up 50 to 75 base two months before I, let you stay by Christmas So.
That's what's driving Justin Yep.
Got it and then I'll go <unk>.
The other thing to remember is you know cause we know the labor market's been extremely tight. So you know we did have in the course, Oregon July 1st we you know we raised pay quite dramatically across the whole company like double Blessed what we usually do so that was gonna we had the full effect go back inside the third quarter too so.
Subordinate understand that also.
Thanks, I appreciate the time it.
Yeah.
Thank you have a nice and alcohol tend to call back over to management, So closing remarks.
Well I appreciate that well thank you everyone for listening today and participating.
I hope everyone has a happy holidays it'll be some time in February before we talk to everyone again, so wishing everyone a happy holidays and thank you very much we'll see you in February bye-bye.
This concludes today's conference. Thank you all for participating enjoy the rest of your day you may disconnect.
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