Q4 2022 Rush Enterprises Inc Earnings Call
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Good day, and thank you for standing by what which of the Rush Enterprises reports fourth quarter and year end 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 the session you will need to press.
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Please be advised that today's conference is being recorded I would now like to.
And the conference over to your Speaker today Rusty Rush. Please go ahead.
Good morning, and welcome to our fourth quarter and year end 2022 earnings release Conference call.
And Mike Mcroberts, Chief operating Officer, Steve Keller, Chief Financial Officer, Jay Hazelwood, Vice President and controller, and Michael Goldstone, Vice President General Counsel and corporate Secretary.
Now Steve will say a few words regarding forward looking statements.
Certain statements we will make today are considered forward looking statements as defined in the private Securities Litigation Reform Act of 1995, because these statements include risks and uncertainties. Our actual results may differ materially from those expressed or implied by such forward looking statements important factors that could cause actual results to differ materially from those expressed or implied by such forward looking.
Statements include but are not limited to those discussed in our annual report on Form 10-K for the year ended December 31, 2021, and in our other filings with the Securities and Exchange Commission.
As indicated in our news release, we achieved annual revenues of $7 1 billion and net income was $391 million or $6.85 per diluted share the increase of 64% compared to 2021.
Included in the $6 85 per diluted share was 34 cents per share of earnings related to the sales momentum fuel technologies and the acquisition of restaurant centers, Canada.
Excluding these debt transactions earnings per share in 2022 would've been.
$6 51 per diluted share.
In the fourth quarter, we achieved revenues of $1 9 billion and net income of $98 million or $1 74 per diluted share.
We're also proud Thats correct cash dividend Jordan, one cents per common share and 20 in the fourth quarter.
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Got it backwards.
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In 2022 demand for new vehicles, and aftermarket parts and services was strong primarily due to supply constraints experienced over the last few years.
ROIC healthy economy, we can continue to invest in our strategic initiatives that are focused on maximizing vehicle uptime for all of our customers increased our large natural gas business expanded our technician workforce and diligently manage expenses to enhance profitability, we were especially pleased with the overall operational.
Houston and financial performance, considering the industry backdrop of truck and parts supply constraints as well as the extensive work required by our employees to integrate the summit and Tom and acquisitions.
In terms of network growth in 2022, we added new locations in Florida and Missouri.
We further expanded.
It gives me by adding an international truck franchise in Kansas. We also acquired an additional 30% for a total of 80% interest in Rush truck centers, Canada Ltd, and the operating results of RTC, Canada are now consolidated into our financial statements. In January 2022, we closed on our agreement with couples who is it.
Wired, a 50% interest and momentum fuel technologies now branded Cummins clean fuel technologies all of these changes to strengthen our network and enhance the offerings, we provide to our customers.
In the aftermarket our annual parts service and body shop revenues were $2 4 billion up 32, 3%.
Our annual absorption rate was 136.6, we added 190 service technicians to our network.
Standard our team of aftermarket sales representatives, allowing us to focus on strategic initiatives, including Express services mobile service and contract maintenance, while continuing to support large fleets and national accounts.
With normal seasonal softness Forex growth began to plateau in the fourth quarter, but service revenues remained strong due to the additional technicians in our workforce.
Parts availability remains somewhat choppy, but it has improved significantly and we believe demand for aftermarket parts and service in the first half of 'twenty three will align the second half of 2022.
As we continue to add technicians as well as aftermarket sales representatives, we believe our results from our aftermarket parts and service operations will remain strong in 2023.
Turning to truck sales in 2022, we sold 16778, new class eight trucks accounting for six 3% of the total U S class eight market.
Limited new truck production continued to impact the industry, but we experienced healthy widespread demand for new class eight trucks. Our results were further strengthened by our focus on national accounts and the timing of some large fleet transactions early in the year, which helped us gain significant market share. We ended the year strong with continued.
Healthy demand from over the road and vocational customers in the fourth quarter.
ACD research forecasts U S class eight retail sales to be 225000 units.
In 2023 down slightly from 2022, while we expect we will continue to feel the effects of truck allocation production has begun to normalize our backlog remains strong and we believe that our class eight truck sales will remain strong through at least the first half of 2023.
Our class four through seven new truck sales reached 11025 units in 2022 or four 6% of the U S market.
Though production remained limited throughout the year, we experienced healthy demand for most market segments, we support and were able to outpace the industry in 2023.
In the fourth quarter medium duty truck sales decline from their peak in the third quarter largely due to the timing of new truck availability from manufacturers.
Research forecast class four through seven retail sales to be 203 600 units in 2023.
<unk>, 5% from 2022.
We look at as we look ahead, we believe there will be continued pent up demand for medium duty trucks, especially from construction and leasing customers, but production constraints on medium duty trucks will likely continue.
We expect our class four to seven results to keep pace with the industry in the first half of 2023.
Our used truck sales reached 7019 units in 2022 down six seven year over year as 2022 began there was strong demand.
There was strong demand.
For either the supply or excuse me with limited supply.
For class eight trucks.
There's limited supply of new class eight trucks in the market. However, in the second and third quarters demand in values.
Client.
Significantly as more new trucks became available in the third quarter, we took swift action to minimize our used truck inventory to historically low levels in the fourth quarter low freight rates continue to cause weak demand and used truck values declined further looking.
Looking ahead.
Looking ahead, we expect used truck values to continue to decline and we plan to maintain our low inventory levels and continue as conditions begin to normalize.
Due to seasonal increases and employee benefits and payroll taxes, we expect our general and administrative administrative expenses to be sequentially higher in the first quarter of 2023 compared to the fourth quarter of 2022.
Before I turn the call over for questions I would like to take a special minute.
Okay. Thank all of our employees of Rush enterprises, not just for their outstanding work and unending dedication to our customers that led to our.
Record setting financial results this year, but for their efforts and execution of our strategic goals over the last five years.
You see 2022 with somewhat of a milestone year for our company in 2017, we developed a strategic plan that was heavily focused on expanding our market share and improving our quality of earnings and including aggressive financial goals of growing revenues 7 billion and pretax return on sales of <unk>.
5% by 2022 thanks.
Thanks to their outstanding work not only did we achieve revenue go and exceed our profitability goal. We were also were able to enhance our shareholder return programs through opportunistic share repurchases and by introducing a quarterly dividend that we have been able to consistently increase on an annual basis.
Our people have demonstrated their ability to execute on the company's strategic initiatives.
They are what time extremely.
Confident we'll be successful in achieving our strategic goals of $10 billion in revenue with a 6% pre tax return on sales by 2027.
Again to all of our employees. Thank you with.
With that I'll take your questions.
Yes.
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Months.
Our first question comes from the line of Justin Long from Stephens. Your line is open.
Thanks, Good morning, and congrats on the quarter.
Thank you Joseph.
Rusty I wanted to follow up on what you said about the first quarter, just because I know there can be some seasonality with G&A could you help us.
Quantifying the step up you're expecting in <unk> than anything else in terms of seasonality it sounds like from a truck fail in parts and service perspective.
You're expecting things to be pretty flattish sequentially moving into the first half of the year, but would love to just get your thoughts on first quarter.
Yes, the first quarter I will say this we will start with the expense question. Our first quarter is always having expenses compared to the fourth quarter. We have many more employee benefits equity up to stuff that we expected expense in the first quarter also all taxes restart up.
It happens every year to say right.
Without giving exact I think you can look back at historical years and see the step up in expenses in.
In Q1.
As compared to Q4.
From a overall business perspective.
Sequentially up say truck sales for example truck sales class eight truck sales.
The things you have to do with timing I would expect to sequentially, we will be a little softer than we were in Q4 at the same time, we'll probably be up year over year from Q1 of last year right because things ramped up throughout the year now that being said that doesn't mean it will stay at that level as we get into Q2, but a lot of it has to do.
With timing.
As I look at parts and service 46 day at 46 days and 47 days into.
End of the first quarter.
It has remained steady.
Actually February is looking getting back we look at it from a per day what.
What we do volumes per day.
Average and February looks steady as it goes from where we were in December .
Really October and December January all in a range. We've got a couple of points of each other and February seems to be getting a little slightly stronger which is what we typically anticipate as we get into March.
Our parts and service business.
Yes.
Restructuring comes up every year.
If I look out into the year for our parts and service perspective, we're looking for probably a high single digit growth from a same store basis. So we feel good about where it is we're not seeing anything that's showing any signs of weakening at the moment so that.
That being said, we will just continue to work throughout the year.
And then in the note itself.
And what I said the difference between this year and last year is last year, we render our hope we run a lot tighter allocation, we're under application steel, but we are dealing with a lot.
A lot more issues when it comes to parts availability, both from our perspective from a dealer perspective, but also from the OEM perspective right.
So.
Is that because I look at it going forward I think thats. That's obviously I think build rates are up you can tell by what was delivered in December I Havent seen what was delivered in January but I'm sure. It was extremely solid.
Retail deliveries of December or probably the strongest ever so but I don't have that visibility I had we were pretty much sold out at this time last year, while we're not sold out currently our backlog is extremely strong and fairly deep, but we are still selling trucks into the back half of the year right.
Feel really good about the first half the backend is evolving everyday that goes by I feel a little bit better.
Ill tell you that youre always trying to be.
Being conservative in your outlook, but as we get further and further end of the year, we'll be able to give you a little bit better guidance in the back half of the year.
And I guess building on that at some point I think it's reasonable to expect truck sales to come down whether thats. The back half of this year 2024 can you talk about your ability at rush to outperform the market whenever we do see that pull back let's say in 2024.
The market's down class eight truck sales for the industry are down 15%.
Russia as truck sales look like in that environment, given the market share opportunities you have.
Well.
I don't plan on going backwards that much in 'twenty four as we look out there I think you kind of dig in and look at our partnerships.
It's not just Raj even though.
Pretty good at what we do.
If you manufacture your OEM partners that you must look at when.
When you look at the heavy duty side.
I still have always told folks that I think navistar.
Probably the best <unk> in the organization.
Great tailwind right. If you look at their market share now and with the new ownership over the last year and a half per se as they get their.
Their feet on the ground.
And get moving forward with product and stuff.
Think that they will be a tailwind for us going forward as they gain market share.
When I look at the <unk> side.
I have been car T or Peter but 55 years, we have them.
But I have never been more bullish on their ability to increase share.
Always been at least in the last 10 years or so between 13 and App and 15%.
I believe this is one time that peterbilt has the opportunity when I look at their product lines and where they're at.
To increase their share by a point or so so that would be up to record highs historic recognize so both of my Oems on the heavy side I think have.
Good futures and drive them.
Increasing their market share right.
Go forward so it just <unk>.
<unk>.
The reason that.
We're going to participate with them as their market share increases so I hope that would come back some of the cyclicality of everybody's looking for 24 to be down of course, we could always talking about 25, and 26, probably be having two of the biggest years ever in history.
Getting through 'twenty four I think we've got some good things going with the partnerships, we have and also with our people and our realignment is going to market as one.
Using that whole network, not just selling drugs, but selling the Russian network, and we continue to get better and better at that and I am not going to get into all the specifics, but have many examples of where we've had some conquest accounts.
That's why it's not just the product so also that rush network.
And service a broader base than any other network in this country. So in our industry right. So I'd say it's.
We've been working very hard on the last couple of years and Thats to go to market is one that just as the truck sales organization, but it is just overall.
Commercial supplier of taking care of everyone right.
Okay, great. So when you look at the medium duty business I think.
I feel very good about that.
The last couple of years Hino hadn't been in the game.
We used to sell 500 to 2000.
It was a year well guess what they are back in the game again right. So we basically have zero sales for over a year 100, or so I mean very very little so.
That's a plus.
As they get back in the game here.
Switch to Cummins engine and other product.
Going forward on the medium duty side, there. So I mean I feel good about the Ford product.
The <unk> product line I really do feel good about our network again, so I can.
We're going to combat it.
Got plans for it I can't sit here and guarantee anything but I can I'll bet you this right now but.
We don't go backwards as far as the market does.
Very helpful and maybe one last one and this one is probably for Steve but anything you can share on free cash flow expectations for 2023.
This year we were.
I think if you look at the back of the release or free cash flow was about 375 million.
We're probably $3 to $3 50 this year.
This is where we think it will be right now the business continues to generate good cash and we don't see that changing.
Okay, Great I'll leave it there thanks for the time.
Okay.
Thank you.
Once again Thats star one one for questions one moment our next question.
Our next question comes from the line of Jamie Cook from Credit Suisse. Your line is open.
Hi, This is Anthony.
The telco on for Jamie. Thanks, So much for taking my question.
I wanted to ask.
Medium duty has a better growth outlook versus heavy duty this year.
What are you seeing from ollie's in terms of ramping medium duty production.
Does it have any mix implications on your margins if any.
Okay medium duty production is ramping up many meetings there is no question about it.
I've mentioned a minute ago.
He knows backup again right. We think we're out of the game for us really the last year or two but they are back in the game.
As they are integrated the covenants engineering their products I have seen medium duty build rates increased at.
Basically all medium beauty brands behalf, so that only bodes well, we look for our medium duty to be up substantially more than the market may say eight 5%.
For the total market, but I look for us on medium duty to be up more than that.
Given the things that I will start that I've seen.
Oh medium duty increases at all our Oems. So when it comes to build understanding immediately we got hit pretty hard because especially for the two suppliers that will start when we were under supply constraints.
Choices and heavier medium or heavy one app. Okay. Obviously, it's a bigger ticket item that probably makes a little more money sell those at that time, so but everybody is.
Supply shortage.
Getting taken.
Passing away getting more normalized still slipped a little bit there, but not as bad as it was by any stretch.
Medium duty is going to get more focus.
What was the second part of that was it about mix margin.
Yes.
Yes, I would tell you our margins while I think our volumes are going to be pretty good we'll probably have a little bit of margin compression.
Inflation.
I do believe we will slow down as we get into the year.
But at the same time, there has to be way above historical margins okay.
The possible some squeeze on margins as we work our way through the year, but again I'm not I don't want to give up on average we had typical onto itself.
Unfolding in front of us.
Today as I said, we go into the year end of the gear further we get more and more confidence in the back half of the year on the governance front app.
Getting a lot more confident in the back half of the years as the year unfolds. So slight margin compression at the same time still way way above historical margin.
Okay, great. Thank you and so yes.
Obviously, calling yet you feel better about the second half now versus before and you have really strong backlog and good visibility.
I was just wondering in terms of supply chain do you think it is.
The healing quicker than you would've thought a quarter ago.
And when do you think that truck production can fully normalized.
That would be great. Thanks.
Okay.
Well.
I think we're pretty close okay.
To normalized truck production there is still some room for a couple of tweaks I don't know every manufacturer every OEM, where they're at I do know the Oems.
<unk>.
I am well.
I would tell you supply has not been a lot of the questions has been around labor, Okay, theres been a lot of labor issues to deal with here, but.
We are pretty good about where they're at.
As you saw ICD pretty close with just a little bit short of couple of percent less than last year on class eight.
No.
Yeah.
I know you are I know, Jamie today isn't an analyst day I do believe for background, So Tyler asked breast and where it is.
But.
Anyhow.
I would tell you we're close.
Sure.
We're 90%, 85% to 90% recovered from the parts shortages that we dealt with it that's not to say, we just still don't have things that pop up for the manufacturer.
But you asked I felt now compared to where it's at about a year ago, all lot better didn't recover quicker in the back half of the year that I expected, yes. It did and I think you can tell that by the delivery numbers we're posting.
Okay. That's great. Thank you so much.
Youre welcome.
Thank you.
And im not showing any further questions in the queue I would now like to turn the conference back to Rusty for any closing remarks.
Well, we thank everybody for their participation and we will talk to you again in April I'm sure would hopefully great results again soon thank you bye bye.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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