Q3 2022 Rush Enterprises Inc Earnings Call
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Good day, and thank you for standing by.
Welcome to the Rush enterprises incorporated.
Third quarter 2022 earnings result.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Lord Please go ahead.
Well good morning, and welcome to our third quarter of 2022 earnings release Conference call.
Call today, or Mike, Mike Roberts, Chief Operating Officer, Steve Keller, Chief Financial Officer, J, 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 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 of $90.4 million or $1.59 cents per diluted share. We are ploughed glare excuse me, we're proud to declare a cash dividend of 21 cents per common share.
We're pleased with our results in the third quarter, 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 of Canada limited.
And the aftermarket parts service and body shop revenues were 622.1 million up $34, 4% year over year and absorption ratio was 136.2%.
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.
While part supplies. So if I could strengths are still impacting the industry, we were getting to see parts supply catch up to the needs of the market in.
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 soft what's the industry typically experiences through the winter months.
Turning to truck sales, we some 4200, new class a drugs accounting for 6%. So U S classes at U S class, a market and 1.4% of the Canadian class a truck 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 up 13.7% from 2021 and Canadian class a retail sales to be up to 30150 up 7.2% from 20 to label, we expect production remain.
Wrote him it was it would cost them 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 3200 23 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 market segments, particularly vocational food and beverage customers.
A C D research forecasts 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 11000 twenty-five years down 16.6%.
As we look ahead, we expect the production of class 47 drugs to improve slightly in our resolve little line with the industry in 2022.
Are you just drunk sales reached 1700 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 used threatened values can't continue their decline for the remainder of the year and into 2023.
[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 Gleason rental revenues, increasing 37.1% year over year.
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 we're 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 are still significant demand for new commercial vehicles and aftermarket parts and service, which we expect will continue through the year.
With our ongoing focus on discipline expense management and executing our strategic initiatives. We believe our financial results will remain strong for the foreseeable future.
I was always I would like to thank our employees for their outstanding work this quarter 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 and a roster.
Please.
Our first question comes with Jamie quaint.
Excuse me Cook from Clinton.
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You're lying or something.
[noise] Jamie Jamie.
Sorry, you cut out here.
My email I'm, sorry about that hate good morning, Nice choir, I guess right.
Questions first and then we'll go over.
Caller I D E a inventory anyhow, you're trying to regain.
Inventory levels can you just give them collar on how much we get into quite a while laughs.
Impact on you know margins ethical point cause like how to think about normal margins and that you know.
Trucks and then my second question I was impressed with you know the growth in the parking lot service again, I mean, all all year. It's been it's been fairly in practice can you talk about market person you know market share and I mean, you know the Macroenvironment can't continue to deteriorate, how do you think about the possibility to growl.
You know I'm Gonna <unk>.
Knocked down Karen 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 most craziest quarters I've ever seen for use drug values right and I compliment our people for taking very good and the advantage of that right. If you look back Oh, we had corners ravaging 18, 19% margin right well as always 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 diabetes into it you know we determined actually midway through the last quarter, but really you can start until this cortland, hey values. Obviously, it started dropping and we had I haven't always has actually gotten up to as large as 2400 units by.
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 to look up margins we were 1.6%.
So if.
If you look at the effect.
What that was on the company if you go back and compare it to say just 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.
That will be that would 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 quarter Ah. So I'm kind of proud of it to be honest with you when.
When you really look at it where we're at so we're in a position I think going forward. You know we've I've told you for 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 been through the bottom right I do believe that for sure and from an inventory 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. He got it all cleaned up inside.
That gore, but it was you know what we did the five quarters before was the right thing to do but she's just one use drugs property drops really fast right I mean, where do you typically look at us values going down to one and a half 2% a month they've been running six to seven per cent right.
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 anonymous.
Yeah, Yeah yeah.
Okay that sounds good thank you.
Yeah, you bet you want me to answer the parts of service I think [laughter] so yeah.
You bet so.
Parts and service perspective, obviously, we've added outstanding here you know regular absorbed some rates at the same time, while even you know bringing in their stores that probably don't.
Formed with the levels of some of the other stores, we got right. So I mean, I'm kind of I'm very proud of that it's something that you know there's some runway and there we think because we really integrating these other stores. We just got in August . We just finished putting the Canadian operations on our S. A T. A business systems right. We'd just finished.
May with the Soviet 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 of all that and by the way it can be a little bit of a detriment to confront side that first 60 90 days of business system changes can be tough on them. So I would think.
Providence that was inside of all what happened to it as you go but as we look into a forward.
Oh 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 you can.
Look through it but I would tell you, we probably a high single digits for sure and the other one was some inflationary activity that was out there looking forward to next year you.
You know, we we think with the first day I'm guessing now I do believe we will see 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 as he is a labour about but I forget citizen 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.
It looks like it hasn't been inflation high singles low Devils.
So don't hang around the 10 person behind me is that what that's what we're looking for that's based upon society inflation right, but if it.
Laughs and continues to run rapid like it did this last year that number could go up but I expect it takes sure somewhere to.
Hi in single 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.
You can see the numbers, but you are always doing that so I think you know.
[noise] continued investment over the last 10 12 years, you can see it in the numbers Jamie he's 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 been.
Okay. Thank you I appreciate the help.
You bet.
Thank you one moment, while we put half of 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 Hello.
My mom and I mean, the next person up on the stage.
Entering your line or something yeah, I I'm not on mute can you hear me, yes, we deny again, Andrew Okay, sorry about that yeah. Just a question you know look as I said our earnings estimate I think when we started the air.
It was like four something and it looks like you're going to print well over six so how should we think about it just sort of normalized earnings power of.
Rush and.
And if I look at just generally at the multiples provided distributors people sort of.
Only thing across the board, where it peeked 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% pass high this year than I expected to sort of try.
To recalibrate, how to think about Russia's earnings power going forward in the long run thanks.
You know I'm not wanted to go much out on a limb Andrew but here you go obviously, we are in an industry that does have a little cyclicality like this old country, let's do it right.
So as I look back and I try to look at troughs.
And Steven I sat here getting.
After a little bit here, but I look back at 16.
Split adjusted we that was across to me, we may 75 cents.
In 2020.
When they do books.
We believe that we could probably when I say frog get somewhere down with Luke drug sales in around 202 10.
We believe we can you know double what 2020 was how's that for a drop 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 liked to think theirs.
No more to be at you know more to do more to return.
Especially when you look at new acquisitions and things going on with it just being integrate engine.
You know and those are some of the Tailwinds and I still believed.
Some of the big Tailwinds in the organization are still on the atmosphere side.
You know they just got bought by trade on a year ago.
Pack up there's always gonna be a terrible enforced, but I think you know.
Hey, John stuff you know they are investments.
Tell you to flow out into the future for those dealerships and from the Federal perspective, we will always continue to do an X outstanding job I think we're going to pay to rebuild so long without guards commitment there so with both of our Oems commitment or commitment how.
How we manage what we do the things that you can see in the numbers now that are you know.
Neither was driving a little bit Crazy, if you me and I realize I'm getting a peek multiple.
Barely a multiple but we're getting pretty [laughter] hit the safer I guess treated like that now but that gives you a little Colorado. When you say normalized I don't want to lose anything normal in this industry. Okay.
There's not much normal anywhere, but there are peaks in a row you know there are trials and that should give you or I think we can.
Mcgarry D, 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.
Then what you're looking for.
No I'm in I'm in I think it's it's useful so like sort of $4 plus the trough seems like the new.
Being a 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.
Lance across the U S.
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 verticals right. Because obviously you have exposure to the energy of this one can 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.
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.
Some are stronger than others, I mean, California celebration is still very strong I would've thought it would've slowed down a little.
But 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 while 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 is like it was years ago, when oil and gas for 15% of our business. It may have gone from three to four and a half.
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.
Look at 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 they act.
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 rough customer.
And we can service you in 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 we.
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 or sell product work through them down the road. So I know as I got off base a little from your question, but I think it's important to understand that but really and 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 that'll be on the rare side.
But you know it's still swelling in Texas, 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 it as I tell people is the 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 geographic perspective.
And you know what.
And well in the future and.
We continue to believe in.
Believing 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 keeps putting in money.
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 it up.
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're that assisted headed guy as far as the growth rate skill.
From a going backwards Andrew this is just a stab at it.
I guess, if we got into you know over three medium ruse, you know little or big already mental size. Our auto though you know people are funny cause I've only listened to go out of us talk 5% 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 yeah, 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.
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.
That's that whenever you have the other side of the coin to pull to try to mitigate the effect of that and you know that's how we typically manage through this.
That's how we manage.
It's a short time and go back to 2021 go over the head I mean, we shut it down there in the suburbs and then when it took back off in the fall.
We took advantage of being able to mitigate expenses and then grow back with the market, even though I shot back up so you know it.
You May remember, our starting 0.2 is a lot higher than 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 taller mountain than we ever have also so you know I know I'm bouncing around our real rambling here, but it's 5% six seven somewhere like that I would think.
On the top line.
But you know we don't see that now.
I'm not projecting that.
But I'm not naive enough to know the general economy ended up rather than everything at the end of the day. So you know something like that could happen and then of course, which are best to manage through about voting. Some other levers we've got.
That's it thanks, so much really appreciate your expense of answers.
You bet. Thank you Sir.
And Kim.
If you as a reminder, 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 a quick question on.
Parts and service do you have with the organic growth number wise and a quarter and then Rusty I'd love to get your thoughts on that acting class eight number for 2023.
Okay.
The the same store parts and service growth rate. If that's what you mean by organic dress them is 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.
You're welcome.
Yep.
And as far as a C th number [laughter] I think they really got three numbers if he had skinny [laughter].
[laughter], a big lock in a middle or I I think what he prances to 232, that's out there right now you know and I know 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 going to 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 higher interest rates to Bay I think that's going to definitely dampened that sector.
So you know went being I'm going to go with that 25 to 30 range would be my I don't I don't believe in I think now I do think it'll be more front loaded.
Okay.
So I I do believe that it will be more front loaded because I didn't think you know what the feds are doing will have to take hold 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.
I wanted to ask about the fourth quarter, and just said Caden since E. P. As he gave after you and the moving pieces an expectation for truck sales spent anything on G N a or or anything else sequentially, we should be mindful I'm moving into the fourth corner.
No I I I would look for G&A to flatten out a little bit sequentially.
No.
When I take that view of it you know will be off a little bit in parts and service because you're working days you got holidays whenever they can deal with it right. That's just normal.
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 you know silver quarter, a little bit less given the if you were working days it will be dealing with that's just sees it out.
As far as the per day average years right now they remain solid okay.
They have continued.
In the last few months to contain a slightly grow go up I don't expect them to go up they normally typically don't during the winter normally you'll see a little saucer name and a few of US working days, so that really would be the only negative that I see in queue for.
Look at it as just a few minutes working days holidays, but we deal with it every year.
And but that can you know soft and a little bit of the of what the returns are but it's still you look at the numbers that were printing and they're still pretty solid [laughter].
Got it and last question I I, just wanted to ask about capital deployment, and where you're seeing the best opportunities today, and then maybe hanging onto that Steve interest expand point out.
Get them out in the corner curious why we should you know thinking about going forward.
Right you know could it get capital you know, 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 of F. C F.
To shareholders and we have consistently raised our dividends average and right now he is 21 cents and 84 cents a year when I went to school rankings around I don't know 170 518, just ride under two per cent return from a dividend perspective, we approve Ah you know last year at $100 million repurchase we spent a.
8 million.
Repurchasing stock.
You know I 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.
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 might change, but we have consistently bought stock back we'd do that either one of those changing over the next 12 months.
Numbers can be very but we will continue to return dividends like.
We have not going backwards and continue to buy skybet, especially with the opportunities to be opportunistic when we do it's Ah.
I'm feeling very undervalued.
Steve branch of interest expenses, 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 up because we 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.
Stay 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 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 turn down our inventory levels will will soft and and I guess, we got one more rate increase coming up 50 to 75 days two months.
You see it by Christmas So.
That's what's driving interesting.
Got it and then I'll go to.
Yeah. The other thing to remember is you know as 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 we had the full effect of that inside of the third quarter too. So.
Borden understand that also.
Thanks, I appreciate the time it.
You bet.
Yeah.
Thank you I have a 19 alcohol tend to call them 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 sometime in February before we talk every one 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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