Rush Enterprises Inc (RUSHA) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Rush Enterprises, Inc. first quarter 2011 earnings results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator instructions). As reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Marvin Rush, Chairman of the Board. Sir, you may begin.

Welcome to our first-quarter earnings release conference call. On the call with me today are Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, CFO; Jay Haselwood, Controller of Rush Enterprises; and Derrek Weaver, our General Counsel. Now, Steve Keller would like to 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, 2010, and in our other filings with the Securities and Exchange Commission.

Now let's update you for 2011. The first quarter should be the toughest operating quarter of 2011. As we mentioned on our year-end earnings call in February, our Class 8 truck sales were expected to be down compared to the fourth quarter. Parts, service and body shop revenues were being adversely affected by severe weather at several of our other high-volume stores, and expenses were going to increase due to reinstatement of certain employee benefits, acquisition costs as well as certain other expenses that are traditionally higher in the first quarter.

As a result, we earned $0.19 per diluted share in the first quarter of 2011 compared to $0.24 in the fourth quarter of 2010 and $0.05 in the first quarter of 2010. Class 8 truck deliveries increased 39% during the first quarter of 2011 compared to the same quarter last year. And we are very encouraged by the improvement in Class 8 truck orders during the past five months.

Medium-duty deliveries increased by 51% during the first quarter compared to the same quarter last year. Used truck activity remained strong as we delivered 61% more units in the first quarter of 2011 than we did in the first quarter of 2010. Our parts, service and body shop revenues were up 43% in the first quarter of 2011 compared to the first quarter of 2010. The increase resulted in a first-quarter absorption rate of 109% compared to 97% during the same period of 2010. As previously announced, we completed two acquisitions in the Southeast this quarter, Heintzelman's Ford in Orlando, Florida; and Asbury Automotive Nalley Motor Trucks in metro Atlanta. While we expect these acquisitions to be accretive to earnings, we need to operate these dealerships for at least a full quarter before we can determine the full impact of these acquisitions will have on our operations.

Look at the industry outlook. Industry experts currently estimate US Class 8 retail sales for 2011 to be 179,000 units, up from nearly 63% from 2010. Current industry projects are for the US Class 4 through 7 vehicle retail sales in 2011 to be 134,500 units, up 14% over 2010. If orders continue at the current pace, we believe 2011 US truck sales could be in the range of 180,000 to 200,000 units as compared to 110,000 units in 2010 with deliveries increasing as early as the second quarter. As Class 8 truck sales for 2011 are forecasted to be at the low end of what is considered normal industry replacement needs, many older trucks will remain in operation throughout the year, requiring continued maintenance and repair. Due to this and strong activity in the energy [sector], we expect parts, service and body shop operation to remain solid for the remainder of 2011.

Industry experts are forecasting 2012 Class 8 truck sales to be 235,000 units, up 31% over 2011, and Class 4 through 7 truck sales to be up about 16%. We believe that if economic conditions continue to improve, activity will increase in automotive and capital goods manufacturing, as well as residential and commercial construction, which should result in strong truck sale markets in 2012-2013.

We are very proud of the Company's achievements this quarter. We are pleased with the performance in our back-end operation and encouraged to finally see signs of increasing new truck sales. Most importantly, we are glad to welcome many new employees into Rush Enterprises' organization from our newly acquired locations. Thanks to our employees, we remain a financially strong and profitable Company.

We are now prepared to answer any questions you may have.

(Operator instructions) John Barnes, RBC Capital Markets.

Could you talk a little bit about, with the completion of acquisitions now, where we should -- what do you think your market share will be on a go-forward basis? You have been in that 4% range when you were just solely a PACCAR/Peterbilt dealership. Now with the Navistar, moving into the Navistar product line, should we see that gravitate? Is it kind of 5.5% to 6%, or is it something higher than that longer-term?

Well, I think -- I appreciate the confidence in the 6%, John, but you might be getting ahead of yourself at the beginning there, going straight to 6%. You are looking for a 50% improvement right off the bat with a whole lot less basis to work with, still.

But obviously, we would love to get to 6%. But I would say, as we go forward, gradually by year end, I would like to be in the 5% range, would be in line with where we are looking. That's on the heavy side, you know. From a medium-duty perspective, given the strengths of the franchises that we have been acquiring, especially the Navistar strengths inside the medium-duty business, we would look for it to even accelerate a little, at a larger percentage of market as we go forward.

But currently, our goal would to hopefully be able to get to the 5% range by year end. That's not every quarter starting here in the second quarter, but that would be our goal for the year on the Class 8 side with our percentage in medium-duty accelerating a little faster.

Okay, all right. In terms of -- you've got, obviously -- several months now, we have had good order data. Clearly, the larger fleets are into their replacement cycle. Where would you say the retail channel is in terms of lagging behind the larger replacement -- the larger carrier replacement cycle that's going on? Are we a couple quarters away from seeing it catch up with maybe the order level we have seen out of the larger players, or do you still believe that the better year is 2012 and 2013 for your channel?

Well, I wouldn't say our channel. I look for -- from a retail perspective, I would look for it to gradually get better as the overall economy gets better. A lot of this is driven by replacement right now. The general -- more generalistic, to get the small guy back in the marketplace takes a little stronger economy. One other thing you need to reflect on, though, you just look at, first -- remember, we are on the end. We are at the tail of it. Okay?

If you look at retail, actual US retail deliveries in the first quarter, they were actually under ACT's projection. ACT had projected about 36,300, because you are talking about order intake. And they actually came in at about 32,300. So obviously, that's going to continue to accelerate as we get into the year.

2011 is still just right at replacement cycle and it's back-end loaded. So, John, yes, the retail side -- we expect ours to accelerate along with the market this year and continue in line or better going into 2012 and 2013.

Okay. And then, Rusty, could you just talk a little bit about what you're seeing from a used inventory perspective? I think the last quarter we talked about it a little bit, that it was tough to come by. And we've seen all of the larger players, truckload carriers that have reported thus far, are having really good success. Are you finding it difficult to come up with used capacity or used inventory at this point?

Well, it is a difficult scenario, obviously, given the short supply side as you look back three, four years back as to what was sold, and will probably even get tougher. But we have managed to keep up. If you look at our 1100-plus deliveries in the quarter, we have managed to keep up with a very strong market. I reflect back on last year; we delivered only 686 trucks in the first quarter, and this year we're just over 1100, 1107.

So we are maintaining inventory, but it is -- and prices are still firm. So from a used truck perspective, we are still encouraged by what we see out there. It's just difficult, as you mentioned, will be probably even more difficult to maintain inventories to meet the demand we see out there.

And then last question -- on the acquisitions that you completed in the quarter, how long does it take to get each of those locations on your system, on your processes, absorption rate, that type of thing? How long do you think it takes until they are running Rush-like type stores?

You know, given the way the acquisition, especially the Asbury acquisition, went down, it will probably take 90 to 180 days to get them fully integrated into the system. Obviously, the way that acquisition, the Asbury acquisition went down, we had to peel off one franchise while we kept what we prefer to have in the Atlanta market, the Navistar, the International dealerships, the Hino dealerships, the UD and the Isuzu franchises.

So -- you know, but we gradually meld them and get them into our system, get them acclimated with our new business system. Like I said, 90 to 180 days is probably a good time frame, probably in the middle of that point, some midpoint in there. But we are very comfortable, in fact, that it will be an accretive acquisition to us over the long-term, no question about that.

And the Heintzelman's Ford acquisition was a much smaller acquisition; you've got to understand that. But it flowed right in; it's more on the 90-day side.

Okay, very good. Nice quarter, guys. Thanks for your time.

Chase Becker, Credit Suisse.

I was hoping you could give some color on what you're seeing from the absorption ratio on some of these businesses that you are acquiring now, as well as some of acquisitions that you're potentially looking at.

Sure. Well, obviously, most of their absorptions are lower than ours, okay? They hindered our absorption rate by a couple of percentage points this last quarter. From a same-store basis, we were around 111%, so obviously they drug them down a couple points, even though they are not near as much volume as we have in our same-store.

But that is the upside that we are always looking to. That's the opportunities that we look for when we do an acquisition, to raise their levels of performance to our historical standards -- actually, our growing historical standards, which is something nice to talk about. So we look forward to -- we have a goal this year of being 110% absorbed with possibly some upside in there, and a lot of that will depend upon acquisitions. But from a same-store perspective, I am very, very comfortable with that number, and we will just have to see going forward.

But that does always give you room for improvement and room for absolute dollar improvement down the road, by bringing these acquisitions in and then getting up to our historical and growing historical standards.

Sure, that makes sense. And given diesel prices continuing to climb, are you seeing any increased appetite for 13-liter versus 15-liter relative to where we were three to six months ago, or is it pretty much same story?

Well, the 13-liter is a growing piece of the marketplace; there's just no question about that. Fuel prices -- I'm sure they are just going to help with that. But it was already trending in that direction, even when fuel prices were lower 180 -- six months ago, and it will continue to be a growing -- especially when you look at how distribution has changed. When you look at the average length of haul and how much it has declined for a lot of your public truckload carriers, the 13-liter becomes a much more viable option from that perspective. But obviously, fuel is only going to help that continue to move in that direction.

Last one for me -- any updates on getting back into construction?

No updates at this time.

All right, thanks.

Andrew Obin, Bank of America.

It's [Ben] (inaudible) from Merrill Lynch.

Good morning, Andrew.

Just a question on gross margin for parts business -- can you talk about what happened from Q4 to Q1 so the margin improved? And where can the margin go over the long-term relative to historical levels?

Well, that was -- if we're going to look at parts and service both, okay, parts margins were up actually better than service margins were. Service margins actually were slightly down. The blend was up, and the reason -- parts margins, we hope we are able to continue to grow those to more of our historical norms.

Service margins were off, I don't mind telling you, because you've got to understand a lot of what we got was incremental mobile type business. So the cost of that is a little -- because you are going out of shop and your cost factor is a little higher, but it is business that you wouldn't be capturing otherwise, that it's business that is not coming to your traditional shops.

So we are hoping -- our peak cycle is always -- peak to cycle blended that has been, what, 40% to 41%?

Right.

So our goal is to get back to that 40% number. And we were pleased that we inched those up in the first quarter, and we look forward to continuing that trend as we go forward.

Exactly. But do you think that, with all the changes that you're making, over the longer-term you can get back to historic run rates despite the change in the business mix and some change in business model?

We could get close to it, Andrew. I'm not going to tell you I'm going to hit the highest number we've ever hit, given the changes in little slight variations in the business model. But, we should be able to get right in that range. It's hard, when you start taking a half a point here and a half a point there, given the slight variations in the business model, but we are going to be close.

And I apologize if I missed it, but could you talk about customer -- you now have two brands, and both brands are sort of pushing their vertical model. Could you just talk as where you are in terms of customer acceptance with the vertical model and where we are in terms of initial performance of both PACCAR's new 13-liter engine and Navistar, any color that you could share with us additional to what you've said so far?

Right. Both, as you said, are pushing, obviously, the vertical model with proprietary engines. Acceptance from the customer level on both sides, on both technologies, as I continued to say throughout last year and I will continue here -- here we are on April of 2011 -- is good. I see no issues with either product. Both products are performing as expected with nothing more than the normal type slight issues that you have when you introduce a new product. It's nothing more than what I've seen for the last 35 years with new product (multiple speakers) [introductions].

So I'm very comfortable with both platforms. And over the long-term, we would hope that this would help from a margin perspective on the parts side of the house. But this is down the road, as things continue, a couple-three years down the road as product ages. So I think the manufacturer hopes for the same thing, and we will just continue down -- both of them will continue down their paths, I'm sure, successful, just as we have seen so far in their introductions.

(inaudible) thank you very much.

Thom Albrecht, BB&T.

A couple of things -- the questions have been sort of asked, but I want to ask them from a little different angle. Number one, in terms of the recovery that you were seeing, obviously, if you look at the orders it's easy to read that it's very broad-based. But I don't necessarily think that's the case yet. Can you talk about how broad-based the recovery feels to you, either by your traditional segments or even like within the truckload arena? Is it mostly -- just can you give us some color on that?

You're going to find that you are right on. If I was -- your comments are pretty right on. For us, we see it really in two sectors. We see it in the larger truckload, and we see it in the energy sector. And we do not see it in the construction sector. We still feel very confident in the refuse side; it's pretty solid, but it's not there all the way. I would call it in the mid-level range, where we expect it to go. But the energy sector is extremely strong, and the truckload side has been fairly strong from our perspective.

And you've got to understand, it's a lot of geographic, too. The center of the country is extremely strong, driven by energy and more of your public truckload carriers being centered in this, being in the center of the country. So when you look towards the coastlines, the East and West coastlines, it's not as strong in those areas as it is towards the center of the country, and those sectors that I spoke about because we still have not -- our construction business is still not there. We are not building any homes yet. The automotive business, ticking up. I saw the SAAR the other day; it was up at about 13.4, I think I saw, for cars. So we are not back to historical, what we would consider norms. But the automotive side is trickling up, but the housing side is nowhere there yet. So that's a 2012 and 2013 play, which we believe will -- we believe our geographic diversity bodes well to catch all those different sectors whenever they take a --

Right, right, okay, thank you for that color. And then a different question as well -- we know there's a relative shortage of late model, low mileage, good equipment. What my question is, does that hinder your ability to drive new truck sales? Or is it just one of those things that it's going to help your new truck sales because nobody has that many used trucks anyway, your ability to cut deals is no worse than anybody else?

No, I don't see that it has any real factor on new truck sales. The only -- the factor it would have that, given the cost of product (multiple speakers) (inaudible) the cost of product over the last 10 years, which is really astronomical, if you look from my perspective, if you look at historical accelerations in pricing. But it has been driven by government regulation, obviously.

When someone is looking for a used product, a lower-mile product that they can substitute to not have to pay that larger cap cost, it's not available. So you would have to say, that might have a slight impact on driving new truck sales up even further. But overall, it has really no effect on our go-to-market and our ability to trade or our ability just to sell to a -- you know, a customer.

Okay, that's all I had, thank you, guys.

Brad Delco, Stephens, Inc.

First question -- the strength in the parts and services is very impressive. And I think with the impact of weather that you had mentioned -- is there any way to quantify what kind of impact that had in the quarter?

Well, I guess I would qualify it this way to you. If I take February, which was the down month, it was tough. February was under January and under March. Most of the impact was during the first two weeks of February. A couple of cents, roughly, of impact. I normally don't like to get into talking about EPS, but a couple cents would be my flavor on it, would be my take on it.

If you look at same-store, though, if you're talking about same-store parts and service, revenue was up 29%, and I think margin was up around 33%. So that was our widening margins; that's year-over-year. So that was nice to see.

But a couple pennies, to answer your question, from the first couple of weeks of February, because it was well under January, which is not typical, given the shortage of working days in February, which tends to drive up your average per-day. But we didn't see that this February, given the weather.

There's one thing I know everyone is looking around and trying to -- something I usually don't do -- trying to model around where we are going. And it's difficult in an accelerating environment, sometimes, to look forward as you're modeling. But I would say that, as I look out and I look at the consensus of estimates that are out there over the next quarters, next couple of quarters, I would say they are in line with what we see -- with accelerating truck deliveries supported by consistent if not a little better absorption rates that we have seen during the first quarter. So we feel good about where we are at.

As I spoke last time on the last call, I was asked to compare this, I think Chaz did, with Morgan Keegan -- about a baseball game, you know. And to me, as I look out into 2011, 2012 and 2013 -- I don't like getting ahead of ourselves, but to me we are in the top of the third; we've got a good start to the game.

So we feel we are very comfortable with where we're at right now and just want to continue to execute as we always have in the cycles that we have dealt with in the last 15 years of being public.

I appreciate the color, Rusty. Next question, I guess, and this is, I think, a tough one for all of us, trying to layer in now, with a full quarter impact of the acquisitions coming in in the second quarter, how we think about the expense side of things? And should we think about the acquisitions being immediately accretive to earnings, or how do we think about that, layering that into -- ?

I don't want to layer them in from an immediate perspective. Okay? I would -- as I mentioned earlier, give us six months. You've got to remember how the acquisition, the big acquisition in Atlanta, went down. And as we worked through that and get them accustomed to our systems and accustomed to the way we do things and try to show -- get them in there -- but as far as long-term accretiveness, no question. I didn't purchase this thing not to be accretive over the long haul. But I would not try to layer them into the next couple of quarters too much. I would look at them as more of a 2012 and 2013 play with maybe a late 2011 play in helping us out.

Thanks, guys, for the time.

Chaz Jones, Morgan Keegan.

Rusty, I wanted to ask about parts and service. I know that in the prepared remarks, you kind of talked about the expectation for that to be solid through the end of the year, and certainly the last three quarters, we have seen 30% year-over-year growth in that revenue number.

That comp is going to get tough.

Yes, I guess that was my point is, obviously, comps are going to start getting tougher. But is the market still as such that high-teens growth is something that, at least over the medium term could be sustainable with the acquisitions?

That's -- if you are including acquisitions?

Right.

There's no question, and I wouldn't be afraid of going low-teens on same-store, okay, for sure. I am -- yes, no question that, over the medium term, as you said, over the medium term, the next quarter or two. It will continue, the comps will continue to get tougher, obviously, as we get into later in the year. Just as they accelerated, you can look at the rate of acceleration last year from an absolute dollar perspective. But I do believe, over the medium term, that we can still have growth in our parts and service. As I look at the start of the second quarter here in April, we are continuing to have growth in our parts and services business even on a same-store basis.

I guess the tougher comps are really starting to kick in more so in the second half of the year.

No question, no question. That's why you will have the growth levels you are looking for in the second quarter, but it will continue to get tougher quarter after quarter. If it doesn't, we are all going to be pleasantly surprised.

Right. One quick question -- I think I know the answer to it but just thought I'd throw it out there quickly. Are you still not really seeing any type of impact related to Japan from a supplier side?

No. I was with a lot of manufacturers here just last week at the ATD, the American Truck Dealers convention. So I had time to meet with their top level of senior management. And there are possibilities of some, but they seem to be pretty well prepared, and we seem to be in pretty good shape. Now, over the long-term? You know, for the medium term --

Right.

-- as long as things get straightened out, we will be okay. I don't want to look out too far, but we feel pretty good about our supply side, especially when you talk about our UD franchise -- I mean, our Isuzu, our Hino and our UD franchises, which faced a major impact from that.

But we are comfortable that we are okay and that we can see over the medium term. As long as things get back up -- actually, I was pleasantly surprised as to how well they were prepared for it; I don't want to say that, but that they were able to manage their way through this currently.

So you are pretty comfortable now, but if there were to be an impact, it would be more related to the medium-duty side of the business?

Oh, no question. Obviously, our Class 8 business is basically all centered here in the United States; there's not that -- it affects the automotive; it's the car business that gets affected. You've got to understand, you've got so many strong car manufacturers out of Asia. You don't really have heavy duty truck manufacturers in Asia. And also, given the complexity of a car from an electronics perspective, that also tends to have a more severe impact on the automotive side and not the truck side.

Okay, and then -- if you don't have these numbers, I can get them off-line; I just was curious. If you could break out quickly the revenue numbers for heavy-duty, medium duty and used?

Revenue, let's see, total revenue --

Heavy-duty is $173 million.

-- $173 million. Medium was [56 954] and used was [46 403].

All right, guys, nice quarter.

Brian Sponheimer, Gabelli & Co.

All my questions have been answered. Nice quarter.

Thank you, Brian; you made that easy.

Robert Kosowsky, Sidoti & Co.

I just wanted to talk about the shape of the up cycle over the next few years. Like how urgent is demand right now from some of the trucking fleets? And do you think you might have a situation where some of the OEs could restrain production and extend the cycle a little bit longer, given that there is no hard and fast deadline like we had last time?

Given the depressed markets we have been through the last four years, I don't see anyone -- you know, that is not the way I typically see this country operate, at least in my lifetime. Manufacturers will tend to try to get everything they can, as fast as they can, and let the future fall where it may because there is always one that will try that, and when one does, everyone follows suit.

If I'm going to look forward and say, okay, what would constrain the absolute growth of the economy, economic-driven growth on the truck sales side, it would have to be on the supply side, from the sub-supply level from your second- and third-tier suppliers. That's really the only thing I can see that would cause the strain.

You look out there right now, and there's some issues on the supply side -- tires, for example; tires are an extremely difficult item for manufacturers to deal with right now. They're having a very difficult time just getting enough tires to put on trucks as they're coming off-line. It's to the last minute of getting the trailer unloaded and getting the tires on right now.

So you will see those issues pop up probably from the supply side in certain areas as we go forward. But no; to your basic question, I haven't seen that in my 50-something years in this business -- or 35 years in this business and 52 years of life. So no, sir.

So there's no reason to think you can't get the same like peak level like you had last time?

Well, let's don't say that markets will be as strong as they were last time. I'm not here to say we are going to have 290,000 Class 8 US retail deliveries like we had in 2006. But do I feel comfortable about mid-2's? Yes. We may not hit 290,000, though, because there was -- you obviously had a government impact with what was going on, with the -- and remember one thing. We are really down to four manufacturers. You've got Volvo/Mack, you've got Freightliner, Western Star and you've got PACCAR, obviously, who we represent, and International, who we represent, so -- PACCAR with Peterbilt and Kenworth. So I don't -- I'm not here to tell you it's 290,000. But I am comfortable that by 2013 there will be some more growth when we -- housing construction and automotive gets back more in line, which I do anticipate.

You know, because we are just running -- I promise this year's number is basically a replacement cycle number. It still doesn't have any growth built into it. So that's why we look forward to 2012 and 2013, still. And I'm pretty comfortable that those markets will revolve to -- as what everyone expects as we go forward.

Okay. And have you noticed any pricing pressure or increased cost on the part side? I know we heard some of that from Genuine Parts in their NAPA business on the passenger side last week or so. Just wondering what you have seen for inflation and pricing.

Yes, we are going to get some inflation down the road. I don't know that we've seen it all yet, but we all know it's coming. Okay? All you've got to do is look at the commodity pricing that's going on out there, and then you get into with the up-cycle of sales, obviously from the OE perspective, from the manufacturing perspective, starting to take up a lot more of the available parts that are there. We will definitely get inflation.

So that's -- we -- we will -- I'm not a general economist, and I'm not here to sit here and prognosticate what exactly that's going to be, what the number is going to be. But I am comfortable with stating the fact -- I think we all understand that there will be inflation as we go forward over the next couple years.

Okay, and then final question, on SG&A, just the ramp from the fourth quarter to the first quarter -- I was wondering if you can give us a little bit more clarity about what the $4 million or so increase was.

There was a few things. As we mentioned in our last call, we reinstated our 401(k) program. We added back some other things that we obviously had to take out, take away, during the downturn in the last couple years to positively -- be earnings positive, no matter what the year, whether it was 2008, 2009 or 2010 or wherever we were in the cycle.

Same-store, we were up about 5.6%, and that's reflected in that. And then just the growth of the business -- you've got to understand that our pay plans, even for all our parts and service employees, are a variable pay plan. And that's one of the nice things, we believe, in the way we manage our business, that even -- whether we are on the upside of a cycle, yes, some of your costs are going to go up. But, when you're on the downside, your costs are going to go down. So it's reflective, becomes more reflective of your business and allows you to manage your business better. And that's what, hopefully, we keep our fair percentage and have nice absorption rates.

But yes, we are able to remain fluid no matter where we are at in the cycle.

All right, thanks, that's really helpful, and enjoy the ramp, guys.

Bill Armstrong, CL King & Associates.

The other day, PACCAR expressed some concerns about supply issues. I was wondering if you were seeing any constraints on the new truck side, particularly on the PACCAR -- these are on trucks or parts.

Well, so far we haven't really seen it in the parts arena. As we go forward, obviously order banks are out, or extended from where they were, say, six months ago. Six months ago, you could order a truck and get it in four weeks. Okay? Currently, I would tell you lead times are out into July, I think is about where I would put them at this moment.

So -- but the ramp builds that are being ramped up at all OEMs, and so as they try to keep up with demand that we've seen from the order intake side. So they are -- I know they are fighting some tough issues. I was with a lot of those guys, as I said, at the ATD last week. But so far, I think most OEMs, and PACCAR included, are managing to get through the sub-supplier -- when I say that, their second- and third-tier suppliers. They might have some parts weaknesses, but I think I would say that they are all over it, managing that and looking forward.

Now, will they have some issues? I'm sure they probably will. But I'm very confident that the OEMs that we represent are professionals in their business and will work their way through those issues.

Were there any -- I think you might have mentioned there were some acquisition costs in the first quarter, I guess with the Nalley acquisition. Could you quantify that for us?

Well, I think I sort of quantified that when I gave that number earlier, about a couple cents. That was that and the weather related. Okay? It's hard, it was really hard, all of that is still coming in. But just -- because from a personal perspective I had 50 people over there out of my other stores, at least, or more than that helping support the transition for these folks and setting them up and getting them ready. So, sometimes those are very difficult costs because I'm going to pay them whether they are there or they are working helping me produce revenue at another store.

So just take it in that range that that couple cents was weather-related and also acquisition.

Got it, okay. In your 10-K, where you say you've got the -- you're expecting maybe 7300 to 7700 Class 8 sales this year, I assume that does not include Nalley because that K came out before you finalized that deal. Is that correct?

That is correct. But as you look at the Nalley acquisition, remember, not every acquisition is the same. They are very strong in medium-duty and probably not -- and we are going to help build their heavy-duty presence. Okay? They've always had a better medium-duty presence with certain manufacturers.

We are excited about the opportunities we have not just on heavy, as I said, but also on the medium-duty, representing International and Navistar in the Atlanta marketplace. We are extremely excited from a heavy- and a medium duty perspective, representing International and the other brands that we do represent there. So we believe there's a lot of upside for us to execute better the International brand in the Atlanta marketplace, and we look forward to doing that.

Finally, out of your medium duty truck sales during the quarter, how many were buses?

Oh, the bus number -- let me pull it here. 104.

Great, thank you.

And I would tell you this. From a bus perspective, we are excited in the Georgia area. We represent IC Bus over in Georgia, and I would look for our bus deliveries, given that and where we are at in Texas and also in Utah -- but from the IC perspective we are excited about representing the International brand in Georgia and expect to do extremely well over there with that.

Okay, great, thanks.

You will see that going up in the future.

(Operator instructions) Basili Alukos, Morningstar.

One housekeeping question -- could you repeat what the new heavy-duty truck revenue number was, $173 million? Was that right?

No, no, no, no. It was -- yes, $173 million, $173 million.

Okay, so I did hear it right. And then just a question on your absorption rate. Obviously, it improved nicely and it's above where you are at. Can you talk about whether or not that was more a byproduct of cutting costs or just getting a higher margin on some of the parts and maybe service stuff (multiple speakers) --

Well, it's not higher-margin, it's more revenue-driven. I want to get too far ahead of ourselves, but March was an extremely good month. But it was all revenue-driven with a slight improvement in margins, okay? But mainly revenue-driven. I'm not even going to go into March's absorption number because March was a great month after we had a very, very rough February. But we are excited of hitting those goals that I talked about earlier, and with upside in them, not downside, in the numbers I spoke about earlier from an absorption perspective.

Makes sense. I guess what I'm trying to do is -- granted, you've had more acquisitions if you include the Navistar one, and you are having a few more. I'm just trying to get a sense of your run rate of overhead costs in today's environment relative to where it was during the last peak. I don't believe you actually break out the overhead costs, but if I take your gross profit margin and back into it, it looks like maybe $210 million for an annualized run rate. Does that seem reasonable? Is that something that, as business picks up, that might get -- how does that change?

I'll tell you what. I probably -- we are not going to get into that right here. We'd probably take that -- if you want to have an off-line call with us, we'd be happy to. I don't have that here right in front of me at this time, so if you would like to give Steve a call or myself, give Steve a call afterwards.

Why don't we expand just a little bit right now. The first quarter of this year, we acquired the Ford franchise and we acquired Nalley the last two weeks of March. Right? So if you look at the G&A run rate right now in the first quarter, that's going to give you a pretty stable, except for those two acquisitions.

Obviously, the S component of the SG&A is going to vary with truck sales, right?

Right.

That's pretty understandable to model. So the G&A model -- really, all you've got to look at is where we are today and then factor in a couple of those stores that are acquisition-oriented. And we will be probably putting some of that information from a pro forma perspective into our first quarter Q on the Nalley acquisition, so that will give you a much better picture of what a go-forward run rate on G&A alone would look like.

Okay, and we can take offline, thanks.

Chaz Jones, Morgan Keegan.

Just a quick follow-up -- Rusty, I wanted to ask you, I guess, A, what do you see as the biggest risk to the truck sales recovery? And, B, as we look out to 2012-2013, do you think it's possible to simultaneously have $150 oil and 250,000 truck sales? I don't think we've ever been in that situation before.

Yes, you know, that's a good question. What is the true -- everybody is really running from this $100-plus oil. If you go back years and look at where oil was 20 years ago, it hasn't -- in my mind, I mean, it goes up and down. And I think it's more politically driven at times than it is understanding truly why oil runs at what it does.

But I tell you, Chaz, I don't know if you can hit 250,000. But if you've got $150 a barrel oil, given where we are located geographically in a lot of areas, we have a lot of upside in that, too. Okay? It's not all downside for us. So you've got to remember that, given the strength we have in Texas, Oklahoma and some of the other Rockies states, Rocky Mountains states. So that can be a good and a bad thing, depending on which customer I'm talking to, okay?

Do you think that's the biggest risk to the recovery at this point?

No, I don't think oil is the biggest risk. I think it's more the general economy. I think it's getting home building back where it belongs. Okay? Nothing drives the freight business like building homes. We've still got a difficult road to hoe from that perspective. So, to me, it's just the overall general economy.

I don't think we're going to get off of the numbers we're looking at right now, too much. If US retail is only 180,000, say, I put a little bit of upside in my numbers this time, you know; I said 180,000 to 190,000 instead of the 179,000 I have been talking about. Just thinking we could have some more acceleration toward the end of the year. Also looking at the tax advantages that are out there to purchase at the year end.

But, even if we have some dampening of overall in 2012 and 2013, I still look for them to be pretty strong, solid years. Even if housing doesn't get back to where it is, oil, like I said, for us is good and bad, given where our geographic footprint -- so I don't know if I've firmly answered your question.

No, that's real helpful.

It gives you a little -- trying to just color it for you from Rush's perspective there.

Thank you, I am showing no further questions at this time, sir.

Okay, well, we appreciate everyone's participation this morning and look forward to talking to you after the end of the second quarter. Thank you all very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all now disconnect. Thank you and have a nice day.