Rush Enterprises Inc (RUSHA) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Rush Enterprises Second Quarter 2011 Earnings Results Conference Call. (Operator Instructions) I would like to introduce our host for today, Mr. Marvin Rush, Chairman of the Board. Sir, please go ahead.

Good morning, and welcome to our Second Quarter Earnings Release Conference Call. On the call today are Rusty Rush, President and Chief Executive Officer, Steve Keller, CFO, Jay Haselwood, Controller of Rush Enterprises, and Derrek Weaver, our General Counsel.

Now, Steve Keller 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 risk 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, I'd like to give you an update on the second quarter of 2011. We are very pleased to announce that in the second quarter, the Company's revenues increased by 101% as compared to revenues reported for the second quarter of 2010. Revenues from all areas of the business were positively impacted by the age of the vehicles in operation combined with unprecedented activity in the energy sector.

As a result, we earned $0.32 per diluted share in the second quarter of 2011, compared to $0.15 in the second quarter of 2010. This performance has returned quarter earnings back to the levels that we last achieved in 2007. Our Parts and Service and Body Shop revenues were up 44% in the second quarter of 2011, compared to second quarter of 2010. This led to a new record-high quarterly absorption rate of 112.9%, compared to 104.3% during the same period of 2010.

Class 8 and medium-duty truck sales also increased, as deliveries of replacement trucks began. Class 8 truck unit sales increased by 190% during the second quarter 2011, compared to the same quarter last year -- our first significant increase since Class 8 industry orders began to rise in November, 2010.

Our medium-duty truck deliveries increased by 90% during the second quarter compared to the same quarter last year. Used truck pricing and sales remain strong, as we delivered 30% more units in the second quarter of 2011 than we did in the second quarter of 2010.

We continue to be very pleased with the progress being made in integrating our Navistar Division into the Company, and with the progress of our recently-acquired Ford franchises in Texas, Oklahoma, and Florida. The results achieved by these operations have positive impact on our overall performance, and contributed to our revenue growth this quarter.

Let's talk about the industry outlook. Industry experts currently estimate US Class 8 truck retail sales for 2011 to be approximately 180,000 units, up nearly 63% over 2010. Current industry projections are the US Class 4 through Class 7 vehicle retail sales in 2011 will be 150,000 units, up approximately 28% over 2010.

Due to the component supplier constraints, we expect Class 8 and medium-duty sales activity for the third quarter to remain relatively flat to the second quarter, and believe that the current industry forecast represents the upper end of the range of the US retail sales in 2011.

As Class 8 truck sales for 2011 continue to be forecasted to be at what is considered normal industry replacement needs, many older fleet trucks will remain in operation throughout the year, requiring continued maintenance and repair. Due to this and the strong activity in the energy section, we expect parts, service and body shop operations will continue at the strong levels as we are currently experiencing.

Based on our solid financial position, we will continue to pursue strategic growth initiatives, remaining committed to working with Navistar and Ford to explore opportunities that could be mutually-beneficial to both companies.

We are extremely proud of our performance this quarter. I want to thank the entire Rush Enterprises organization for their continued diligence in helping the Company achieve these major milestones. We have effectively managed through the most difficult downturn in our history, and continue to expand our network. We remain optimistic about our future prospects for the growth, and look forward to setting a new pace in the expected industry upturn.

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

(Operator Instructions) Our first question comes from the line of Todd Maiden, from RBC Capital Markets.

Hey, you guys, nice quarter. Looking at Class 8 sales going forward, are we at the type of market share in the US where you guys think you're closing in on that 6% range, which is almost where you were this quarter?

Well, that's just one quarter, Todd. I wouldn't use one quarter to guide -- you know, 5%, obviously, is where we're trying to head to, and above and beyond. But, we were a rather large percentage of the retail registrations, no doubt, in the second quarter. But, getting to 6%? Sure, that would be an ultimate goal, but at this moment I would consider 5% to be a number that's going to be more realistic going forward.

All right. Gross margins, I know they were impacted just as truck sales accounted for a larger percentage of revenue, but kind of looking at gross margins in the truck sales category. Looks like there was a step down, there. What's going on, there? Does that have anything to do with the acquisitions and the types of prices they're able to garner on equipment?

No, I don't believe I would attribute it to anything in particular. Obviously, there's a mix of business. A lot has to do with business mix when you look at -- Class 8 margins were actually sequentially slightly up. I mean, you really need to look sequential. Maybe not year-over-year, because the volumes are so much higher than they were last year. So, as I look at those numbers, they were -- overall, truck margins were up slightly from sequentially. Yes they were down year-over-year, but the volumes were so low last year, you had no real fleet business in there or anything like that. So, a lot of it has to do with mix.

Okay. And then, the Parts and Service expectations in the third quarter, is that pretty much flat revenue sequentially, is that what we're looking at?

Yes, I would say we're looking at pretty flat revenues as far as that, which we would be fairly pleased with, to be honest with you. We'd be very pleased with it. So, when you look at the growth, especially -- yes, there might be some slight upside as we continue to integrate the new operations that we have acquired over the last few months, and over the last six to nine months, but flat to slightly up would be what I would tell you.

All right. And then, last thing, you haven't given the average selling prices. I don't think you gave that in the prepared commentary. Do you have that by class of vehicle?

Sure. Class 8 was $127,176. Medium-duty was $70,847. Used -- and as you noticed, we had a new category, and that was light (multiple speakers) truck sales. And that has a lot to do with these Ford franchises we've taken on. The average on it was $32,651, and used was $40,981.

Okay, great. All right, thanks a lot, guys.

You bet.

Thank you, and our next question comes from the line of Brad Delco from Stephens.

First question, if you could, I guess I understand the commentary regarding kind of flat volumes on trucks next year due to supply, but I was wondering if anything's changed from the demand perspective, and if it hasn't, could this bode well for margins on truck in the back half of the year, given you may not necessarily need to be as aggressive with any incentives, if you will, on trucks?

Well, Brad, I would look for margins to be similar to where they're at right now. I wouldn't look for a big up, or a big down. You've got to remember, most of the back half of the year -- and that's what you're referring to -- is already booked. There are some slots left in the fourth quarter, but a lot of those fourth quarter slots would probably not get delivered until the first half of the first quarter of next year. So, you know, other than stock truck sales, most of our sold order business that would get delivered -- now, there could be some that could get delivered this year, but the majority of it is well-booked already.

So, we feel good about margins, and where they're at right now. They were, like I said, sequentially, Class 8 margins were slightly up over the first quarter, and we would look to try to maintain that and get some slight improvement. But again, mix of business, and I have to refer to that mix of business as still the biggest driver. And, typically, coming out of a downturn -- and this was definitely a downturn that was different than any other, because it lasted four years -- you know, your fleets are going to lead out of it. Your small- to medium-size operators as I noted in the press release, are the last to come out of it. So, looking forward to next year, yes, I think you'll probably hopefully see some margin increase next year, as the mix of business tends to shift a little higher percentage to the smaller customer.

Gotcha. But, you would say there's been no material drop-off in demand, given the dynamics in the industry and the age of the fleets?

No. You know, we're really just in a replacement cycle. Again, if you look at what is the accepted number of the US replacement number, whether -- say 200,000. Depends on who you talk to. I've heard 220,000, 210,000, I say 200,000. Well, we're not average that. As I've said in the deal, we're looking at probably 180,000 US retail registrations, and that's topside. We're going to have to average, I was looking at the numbers through June, we're going to have to average 17,800 registrations in the US per month, the last six months of the year, to get to 180,000. June was only 15,000 units.

So, I'd have to tell you, somewhere between 170,000 and 180,000 is probably going to be US retail registrations. So, I think that -- maybe some people were looking at, if you look at my last press release, I said 180,000 to 200,000. But, because of supplier constraints have hampered some OEM's, and some things, and getting trucks produced, it may lengthen or stretch out. I don't think it's going to dampen it or stop it, but it may stretch out this cycle that we're in right now, on the short term. Over the next say, six months, as the supply side, as the supply base catches up with demand.

And one quick question, I guess.

Sure, Brad.

If someone were to look at your results in a vacuum, it may appear that you guys are somewhat hitting on all cylinders. But, I imagine that's probably not the case based on your commentary, strength in the energy sector. Can you maybe give us a little bit more color on where things are, maybe towards the coastal areas of your business? Versus where they were mid-cycle, or prior peak cycles, and how much more those can improve?

Yes. Well, given the diversity of our geography, obviously stretching from coast to coast, mainly across the southern part of the United States, there is definitely a difference depending on which area of the country you're in. Starting on the east coast and working west, you know, if you start in the Florida region, there was no region more severely impacted in this last down-cycle than that part of the country. But, I will tell you this -- this is the first year in the last, after three consecutive really non-profitable years, '08, '09 and '10, that we are going to be positive in the state of Florida, and see a lot of good things. The acquisition of our Ford franchise over there, some real estate relocations and changes, along with just a better overall market, makes Florida a much more accretive region for us than what it has been. I see nothing but that continuing on, and a lot stronger, into '12 and '13. Just getting ramped up here in '11, and getting better, going better in '12 and '13.

You move to the center of the country, and obviously oil and gas as we said, the energy sector has been extremely strong and continues to be. And, we look for that to continue through 2012. I hate to look out past that when you're talking about energy. I've been around this all my life in this part of the country, so, but it is extremely strong and we like to feel we're doing a good job of servicing that customer base. Better than the competition, so we can take advantage of the market that's out there.

As you work across Colorado, Arizona, New Mexico, New Mexico's in pretty good shape. I would say Colorado, Arizona, you know -- there's some things that we could, and I'm speaking about my old business. I'm going to jump back to Georgia and Idaho and Utah in a minute, on the Navistar side, in a minute. But, there's still upside available definitely in Arizona and Colorado. Arizona's still having a tough time of it, as a big, strong, construction-based market. So, I look for the upside in '12 and '13 to be a lot better in those states.

In California, the same. California is still clawing its way back. Is it profitable? Yes. But, is it anywhere near what it could be? No.

You look across, then you go back over into Utah and Idaho. Doing pretty nicely. We're very pleased with the acquisition, and we've only had that a little over a year on the Navistar side. But, I think there's still plenty of upside up there to go. And then you go back to Atlanta. We're extremely excited about where we can, the state of Georgia, and where we go with our Navistar division over there. Maybe even further into other areas of the country.

So, I see a lot of upside when I look across, as I break it into its pieces like I just did for you. Yes, the energy sector's strong, but there's a lot of upside in other territories for us to continue to work on, which should bode well for earnings in '12 and '13 as we go forward, and beyond.

All right, well I took up a lot of your time. Thanks for it, and I'll get back in the queue.

No problem, thanks, Brad.

Thank you, sir. And our next question comes from the line of Peter Chang from Credit Suisse.

Hi, good morning guys, congratulations on a good quarter.

Thank you.

Thanks for taking my question. The first question I had was on your sales guidance of 180,000 Class 8 trucks in the US versus your previous guidance of 180,000 to 200,000. Can you give us a sense of how much of that reduction is due to the macro concerns, compared to supplier constraints on the Class 8 side?

Well, for us, I'm going to say it's more supplier constraints. I think given the duration, we've been taking in well over 20,000 orders since November of last year. So, you've got to believe that the ability, the backlogs, have been growing. So, to me, it becomes more of a supply-side issue. What that I hope does, is, does it have an effect on the peaks in '12 and '13? We'll see. I believe the supply base will pick up with the demand that's out there. I think it just dampens it a little bit here in '11. I don't look for the overall -- when I look at the -- I've said numerous times that '11, '12 and '13 remind me a lot of '04, '05, and '06. Now, is it going to get that same high peak number in '13 that it hit in '06? I don't know. But, the way things are playing out, it well could get closer than maybe I thought 90 days ago.

We're still not building any houses. This is a very slow recovery from a general economic perspective. We're not selling as many, our [SAR on] cars is still way down. Those markets are still to come back, and we're only selling really, replacement from over the road. And, we're not in the construction markets as I said, because of housing stuff. We're still down. So, if that continues to push out, that outside peak could be a lot more than what we have seen. But, the 180,000 and me cutting 180,000 to 200,000, was much more related to supplier constraints than anything else.

Great, thank you. That's good color. I just had a follow-up question on Todd's earlier question on the parts sales for the remainder of the year. I'm trying to reconcile that with your prepared remarks, or with the prepared remarks that old trucks due to these supply constraints will be forced to run longer. Shouldn't that mean we should see an acceleration in parts and service sales, as we move into Q3 and Q4, to keep these old trucks up to speed?

Well, think about it like this. I talked earlier about what is replacement. Well, if we do replace at say 17,800 and get to the 180,000, 17,800 annualizes makes the replacement number. So, you don't get much of an aging. You're keeping -- you understand what I'm saying? Because we're picking up from the front half of the year into the back half to get to the 180,000, but the back half of the year really doesn't run 180,000, it runs more like 200,000. You follow me?

Right.

So, I don't know that the age of the fleet will get that much older if we hit those type of delivery numbers in the back half of the year. So, you're going to be pretty much at an equilibrium compared to where you were in the front half of the year. So, we're starting to cut hairs, here. Business is good. Trying to quantify a 3% or 4% pickup in parts and service here or there is going to be a little difficult based on just that one [anecdote].

Fair enough. Thanks, Rusty. I'll get back in queue.

You bet, thanks.

Our next question comes from the line of Tim Denoyer from Wolfe Trahan.

Good morning.

Good morning, Tim.

A couple of quick questions. Can you give a little more color on the supply chain constraints? PACCAR's production was up about 35% in 2Q from 1Q, and Navistar is adding another shift in July, and Daimler said this morning that they're not seeing anything too major. I would guess that given the production rates that we've seen in 2Q, even if we kind of sustain at these rates, inventory rose a little bit in the industry in the second quarter. So, I'm just struggling to see what's slowing sales down in 3Q. Is there something that I'm not seeing in terms of the production that's gone down?

I didn't say anything about slowdown. I don't know where you're reading that. I said flat.

Okay, well, why isn't it up?

I'm sorry? Why isn't it up? There's still some supply-side constraints, and I think you know that, Tim. At the OEM level. Now, are those things going to get worked out? And I think they'll be worked out within the next 60 to 90 days? Yes. But, I'm on the tail of it. I'm delivering units. Some of these units take anywhere from 30 to 90 days to get delivered. They're not just all over the road vehicles. We've got strong sales in the energy sector, and things like that, which add a lot of up-fitting, which are obviously assisting parts and service, and things like that. So, I'm not looking for the unit deliveries to go down. Maybe they're slightly up, but it's a timing issue. A lot of this is timing. You're trying to cut hairs, here. Obviously, we had a big pickup from first to second quarter. If you think it's going to go like that second to third, well, you're wrong.

But, will it be flat, as I said? Sometimes, maybe I like to over-deliver. Maybe it could be slightly up. Let's watch the timing of it all. But, there are some supplier constraints out there, and anybody who says they're not, really don't have their finger on the pulse of what's really going on.

No, they're absolutely -- yes.

It's going to work itself out, okay? And it's going to work itself out over the rest of this year. I expect it all to pick back up, and I know, I talk to a few OEM's. I represent a few of them. That will get itself ironed out. But, I am a retail, I deliver retail. So, it's difficult for me to say the third quarter's going to jump 15% in deliveries. Could it be up slightly? Yes. But, it will be flat, at least.

Understood, fair enough. Another question on demand. Obviously, the early part of the cycle has been mostly large fleets. Can you expand a little bit more on what you're seeing from the small and mid-size fleets, and if they're really starting to buy in? And what your expectations are for next year in terms of do you think that they'll be a bigger share of the buy?

You better believe it. As you look at rate increases -- I know we started the year, people were saying -- most of the customer base is only get 4% rate increases. I think those rate increases are going to get better to 6% to 8%, from what I read and the people I talk to. So, as that creeps into the marketplace, that creates an opportunity. When no one else is adding and you're just replacing, that creates an opportunity for expansion for the smaller and mid-size guy.

I think watching rate, and watching the tightness of rate, is that happens, that opportunity is there, and historically -- I don't care what anyone says, historically it always shows up. It always shows up, and we're seeing it gradually gain traction as we're sitting here right now. Is it exploding? No. But you know, those steps, the gradual traction is being gained, and as these rate increases take effect, as contracts are let and you don't -- and if the economy will. If we don't, now obviously, let's step back and say the general economy always rides on top. That's always, it's a [50,000 foot], and it has to be in decent shape. But, if we get any GDP growth and you get no expansion at the truckload level, and I don't know of any -- I haven't talked to many truckload guys that agree on growing their fleet right now. That has to, to take care of that demand has to come from somewhere. And, typically, it comes from that small fleet or owner-operator type guy.

Is the owner-operator going to be as large as he was, historically? Probably not. Do I think he'll get back a heck of a lot better than he is right now? You bet. And that comes with [freight and] rate increases, and I think that's what we're in the middle of, and I think next year you'll see the smaller truck guy even continue to accelerate to get into the marketplace when he sees there's money there to be made.

Yes, very good. And then one last one, on CSA, can you put in context when you started seeing CSA, or if you have seen CSA be a material boost to the parts and service business, and at what point might that grandfather? I would guess that it was sort of late last year.

Yes, I mean, you're starting really this year. That's a tough one. Trying to quantify that when you're in a rising environment, when you're on this side of the cycle, versus the age of the fleet, versus other things that are going on. That's a tough one for me to dissect. I don't know that I can say -- CSA caused this much of the growth in our parts and service compared to the age of the fleet. I'm still going to tell you the age of the fleet, maybe CSA combined with it, have been together. But, I can't sit here, I don't have the tools available to me to dissect exactly how much parts and service business CSA is driving.

Okay. Is it fair to say that --?

You've got to believe --

Go ahead, sorry?

Okay, yes, like I said though, you've got to believe it's a positive at the end of the day. It's hard to quantify.

Yes. Yes, exactly. So, if we look at the second half, is it fair to say that the parts and service should be up a little, should get a little bit of a boost still from CSA?

You could. I mean, again, I'm not going to -- the only issue in the second half of the year compared to the first half of the year, is you do have two less working days. You run into holidays in the fourth quarter. So, that fourth quarter becomes a little bit more difficult with all the holidays and everything else, and when you're producing as I noted in the press release the kind of returns we are on a daily basis, that can have a significant impact to offset any slight pickup you get from the CSA. So, I look for things to be strong. How much stronger than where we're at right now given what's going on, I don't know. We might be able to do a little better, but I'm not going to sit here and say we're going to jump three points in absorption. I can't do that at this moment. Can we maintain? You bet I believe we can. You know, the proof of the pudding is coming, but in taking the back half and out the whole six month period, not a quarter-by-quarter, yes, I'm comfortable that we'll maintain where we're at right now, if not slightly improved. Our goal is to improve, but like I said, I'd rather over-deliver.

Very good, thanks, Rusty.

You bet.

Thank you, and our next question comes from the line of Andrew Obin from Bank of America Merrill Lynch.

Yes, good morning.

Good morning, Andrew.

Just to follow up on the OEM supply constraint, now that you expose to two major OEM's, is it just industry phenomena, or is it sort of what PACCAR identified on the call yesterday?

Well, I guess I have more exposure to PACCAR. We're growing on the Navistar side, and I can say on the PACCAR side, yes, there have been supplier constraints. Go ahead Andrew, I'm sorry.

But what about Navistar? I'm just asking, is it both, or is it just PACCAR?

From my perspective, it's a little weighted one direction. Maybe a little bit more. Navistar is experiencing supplier constraints, no doubt about it. I guess my exposure, because of the amount of storage I have on the PACCAR side, is a little greater and it seems maybe a little more to me here, today. But you know, it's an industry thing. I see it more affecting me right at this moment, given where my order bank is there, than I do on the other side.

Can we talk a little bit about SG&A [costs like] in the quarter? And, for sustainable SG&A since (multiple voices) --?

You've got it, Andrew. Listen, remember one thing. I take S, and I put it over here. S is directly tied to truck sales. I break G&A out of it, so we'll talk G&A, because that's -- typically, S is going to run roughly 30%, some 32% piece of whatever truck gross is, because that's just the way it works out.

Our G&A gross, let's go sequentially. Going back last year, because of all the acquisitions and everything else, becomes very difficult to do. So, I think it's probably easier to look at on a sequential basis. G&A sequentially was up about $12 million from first quarter to second quarter, which a little over half of that was related to acquisitions. The other half, or a little less than half, let's say, obviously when your parts and service revenues grow like they have, I've always told folks in my own simplistic way -- it's not like loaning money in a bank. It takes people to deliver parts, to sell parts, to mount equipment, to do this type of thing. So, it takes G&A costs, without for sure.

The majority of that was driven by that growth, that other $5.5 million or so, was driven by the cost of creating that extra gross profit in parts and service.

There was probably one non-reoccurring issue in the quarter that will not (inaudible) but as we look forward, which is what everybody's more concerned about, I would not expect G&A to run up the second half of the year. I would expect G&A to run flat over the six-month period, if not slightly down.

So, flat first six months versus the second six months, or flat sort of maintaining the run rate of second quarter?

No, no, second quarter. Because remember, that had all the acquisitions in for a full quarter. So, the strength of -- just like it takes second quarter and the second six months should run flat with the second quarter, possibly down over a six month period. We're going to work hard at that, but we've also got a lot of growth things going on, too. So, that's a balancing act at the same time. But I would not look -- you're not going to get that type of jump in G&A in the second half of the year that you had first quarter to second quarter, simply because of acquisitions. I'd love it if parts and service grew like it did from first to second, which it did from fourth to first, and on back, as I look back at the last year or so. But, gosh, that's asking for a whole lot out there right now. We hope to grow it some, but like I said, I'd rather over-deliver.

Terrific, thank you very much.

You bet, thank you, Andrew.

Thank you, and our next question comes from the line of Robert Kosowsky from Sidoti.

Hi, good morning guys, good quarter today.

Thanks, Robert.

Just wondering, how do you guys look at the sustainability on a longer term basis of the current parts and service run rate? I know there's a lot of wear and tear on the nation's fleet, and some higher energy activity in there that might be inflating it cyclically. Is that a fair statement, or kind of how do you look at it? And, I know that historically, you haven't seen too much of a drawdown in kind of a normalized economic environment.

No, like I said before, the energy sector is extremely active right now. Has it had a big effect? Sure, it has. But, am I starting to see other areas of the country that I think will come on over the next couple years? I believe the energy activity right now is sustainable. The way I've seen, the people I've spoken with, it will be sustainable through '12, hopefully at these levels.

Now, you know, there's no guarantees, but that's sort of the way we're managing around through '12. I go back to what I said earlier in the call, we're still not building any houses, really. If we could ever have some housing construction, and sell some more -- sell a few more cars, I do believe that's going to be the offset to when energy does slow down some, which it's going to do. We all know that. At one time. But right now, that activity is extremely strong. From folks I've talked to in the industry, sometimes that can be scary, I guess.

I feel comfortable saying it'll run through '12, and then I do believe by then we're going to get back to a stronger housing market and a stronger automotive market. And the only other two caveats that I would throw in there that have an effect on what we're seeing right now, as new truck sales are picking up, our warranty sales are increasing rapidly. Remember, warranty sales by 2010 had gone to almost hardly nothing, because you hadn't sold -- not nothing, but they'd gone way down, because we hadn't sold a lot of new trucks. So, you typically get a nice ramp-up in warranty, and given the mix of our business you've got to remember, that over 10%, probably 15% now if I look, or more, especially maybe non-direct bill to the unit -- but, over 15% of our business is internal business. And, that is directly created by the sale of a new truck, as we rig it up and prepare it for delivery into the vocational market, whichever it might be going into, whether it would be refuse, or construction, or oil and gas, or bulk, or crane division, or towing division, or any of those other areas. That creates incremental gross profit dollars, and as those industries increase, I'm very comfortable that that will more than offset what we might see if we do get a downturn in the energy sector. And, if it's fortunate we don't, then that becomes all incremental and I think everybody will be excited about that.

Okay thanks, that's helpful. And then, just curious what the status of the acquisition integrations is, and your thoughts on any near-term, bigger opportunities out there?

You know I'm not going to go -- on the latter, you know I'm not going to say a whole lot.

But, is it a still good environment, I guess out there, or are you still --?

You bet. You better believe it. I feel very good about the environment. I feel the opportunities that are there as I mentioned, this was mentioned in the earlier opening quotes about opportunities to grow in partnership with a couple OEM's are still there for us. We're very pleased with the acquisitions that we have taken on over the last year or so. We didn't close the Atlanta acquisition, but we closed the Utah-Idaho acquisition back March the 24th of 2010. So, I got a little over a year under our belt. We're pleased with where we're at. We continue to integrate. We continue to believe there's still upside.

If you take a look at that acquisition along with the Atlanta acquisition, with the stores over there, there's a lot of upside over there. The upside is a lot in parts and service, too, and it's how you attack a market, and it's using the Rush philosophy and mentality as to how you go about attacking a market. Our absorption number, if you really want me to tell you, if I hadn't done any acquisitions in the last year, you guys would be really excited. Our absorption number was 120% on a same-store basis.

So, the upside in the acquisitions speak for themselves. They took it to 113. I don't look at that as a negative, I view that as a positive. As we integrate our ways of management, our ways of going to market, into those stores, for ourselves, for the OEM's that we represent, I think that's extremely a strong positive going forward into the next couple years.

So, they're still being integrated, as you can tell by the variance in those two numbers. But, that's exciting stuff, and we look forward to future acquisitions wherever they make sense for the seller, ourselves, and the OEM that we're representing.

All right, cool. That's -- hopefully get to 120 soon.

Thank you.

Thank you very much.

(Operator Instructions) Our next question comes from the line of Bill Armstrong from CL King and Associates.

Good morning, Rusty. I want to clarify a comment you made a couple of questions back, and that is, the G&A component for the second half. You're looking to be flat to slightly down, versus the second quarter run rate?

That's correct.

Okay. Okay. In looking at the ramp-up of truck sales, as we're in a recovery mode now, I was wondering if you could maybe remind us of what the normal seasonality might be from quarter to quarter, so we know Q3 looks like it's going to be roughly flat with Q2. Would we expect to see maybe a little bit of a breather in Q4, and then as new orders come in for the new year, see it start to ramp up in the Spring? Or, do you think Q4 will start to increase, as well?

Well, to the best of my visibility at the moment, I am looking for it to stay around where it's at. As I said before, I could be slightly up in Q3, but that's a lot of timing. I know you're reflecting on your model changes, that happen typically in January, would have a dampening effect on Q4. But, I think also the positive for Q4 is, some of Q3's business due to supplier constraints may be pushed out into Q4.

So, I'm not looking for any big seasonal move based around the end of the year. Given those little anecdotes right there that I threw out, so you know, we're -- as I said, we're excited about where we're at with deliveries, and we're comfortable. We hope to be able to continue to meet the expectations of our shareholders and really of ourselves at the same time. We've positioned this thing, we like to believe, extremely well for this next run and this next cycle, and we're really only at replacement. We've got some good energy business going on, but we've got a lot of upside in other markets going forward in '12 and '13. And the base, how we've increased the size of the organization, when we started increasing it really last year, prior to the upside. We'd like to think we had a little bit of foresight to get out there ahead of the curve, and we'll continue to broaden the base of our business. We're pretty comfortable. Year-to-date we're 5.1% of the Class 8 US retail registrations, and our goals are beyond that as an organization. Just as our absorption goals.

I want to reflect back one thing, not on your question Bill, but I talk about the same-store absorption. Don't expect me to do that every quarter at 120, okay? That's nice to see, but just to give you an idea, that's the kind of thing that these things are capable of when they're hitting a lot of cylinders. But, we're going to continue to have growth. And by having growth, you don't manage off percentages. You manage off absolute dollars. So, the 113 is reflective of growth that's being put into the queue, per se, of Rush Enterprises domain, and now it's up to us to grow that on up. But, we're very excited about where we're at in this part of the cycle. I know I got off of answering your question, I wanted to touch on a couple other things, there to just give a better perspective of where we are.

As I said before, I think last time on the call, I said we're in the top of the third. Right now, we're in the bottom of the third, as far as I see, as far as how this thing's going to play out over the next couple-three years, because I do believe that we'll get the economy somewhat turned around. What's going on is nothing more than what everybody predicted. A slow, gradual climb out, a couple years ago. And that's what we're doing. Fortunately for our industry, I guess, we're still slowly gradually climbing, and I see a lot of upside in it over the next couple years. So.

Got it. And one last question on the energy sector, what types of vehicles are you seeing a lot of demand for? I assume it's in the vocational space, rather than the truck space?

It's both, really. But I mean yes, the vocational piece is the biggest piece, but it's both. There's a lot of stuff that has to be hauled, just with trucks, not with just jobsite type configurements. But, it's pretty much across the board. There's a lot of support that goes on around that, throughout these energy states and what we do. So, we are seeing it on a broader perspective than just on strictly vocational, but vocational is the biggest piece.

Is there any significant difference in the gross margin between the sale of a vocational vehicle versus a truck?

Well now yes, you're getting into way too much finite stuff for me. No. I mean, probably they're tough on me, tougher than a small guy, an owner-operator, the margins are probably less. It's more like selling to a fleet. When you sell to a larger vocational, it's like selling to a fleet. It's lower-margin business for me.

But you get --?

You had to keep that into account, but obviously, it creates more aftermarket opportunities from a parts and service perspective. So, you have to look at the life cycle of the truck and understand the true value to Rush Enterprises of where we get value, not necessarily at day one, but throughout the life of the vehicle.

Right, that's what I was going to get at. Because these vehicles take more of a pounding than a truck that's just running on a roadway, so there's more parts and service potential.

Sure. Oh, yes, sure there is, of course there is. It's a more severe service application. But let me tell you, the truck margins are nothing to take home about, but we want to support that customer base. That's the part of the country we're in, that's a business that's always been strong, been a big part of our (inaudible) whether it was up, or whether it was down, we always maintained our mobile truck fleets and things like that to support a customer. We understand that that's where it is for us. It's not on the truck sales side, it's in the support side downstream to make sure that things are being -- that wells are being drilled, and gas and oil are being pumped, and everything's being taken care of on that support side downstream. Not the truck on the front.

Got it, thanks very much.

Thank you, and our next question comes from the line of Chaz Jones from Morgan Keegan.

Hey, good morning guys, great quarter.

Thanks, Chaz.

Maybe if I could ask a quick question about [D&A], much like you went through the exercise on SG&A, just given the acquisitions. Is the number in the second quarter kind of reflective where you think D&A would kind of trend in the back half of the year?

The depreciation, is that what you're asking?

Right, the $4.5 million in the quarter. I know that's up about 23.5% year-over-year, and like I said, I just -- I was curious, is that more reflective of run rate going forward?

We have one event that we're still -- we're in the ninth inning of actually closing in on, and that's putting on our SAP software implementation into service, and when we do that, it'll probably be September time frame, most likely, is what it's looking like. And that will bump up that depreciation number by a couple hundred grand a month. Other than that, the run rate you saw in Q2 should hold itself throughout the second half of the year.

So, we could see that, I guess, moving towards $5 million by the end of the year? Is that fair?

That's right.

Okay.

Exactly, another $600,000 a quarter once it's in for a full quarter and we're running $4.5 million, so it'd be just over $5 million.

Okay, great. And then, with all the talk on the component shortages, and increases in raw material prices, maybe Rusty, do you have any type of expectation for what truck prices are going to do over the next couple years? I mean, it seems like over the last year, at least on the heavy-duty side, that things have flattened out after certainly accelerating dramatically over the last decade. But, it just seems like, you know, maybe there was a pause here, but they're poised to continue to move higher?

I think this whole country's poised to move higher with inflation, one of these days. So, the growth obviously in truck prices were a lot -- a lot of it was obviously given because of government regulations and EPA and stuff like that. Plus, the fact that the downturn did not, manufacturers had to absorb a lot of components, a lot of costs, a lot of material costs that they had to absorb. But they're trying to gain pass-through back on. I would have to tell you that truck prices, I see no way they don't continue to go up. At what rate, though, Chaz, boy, that's a tough one for me.

Sure.

Like anything, a lot has to do with supply and demand. I remember when prices, actually in 2009, may have gone down because as manufacturers took margin out, to eat a lot of those. You reflect back to come off of '06 where margin was there, they ate away at margin through '07, '08, and 2009. Into '10 they've gotten some back, not like the levels before, obviously you've seen earnings reports. But, it's going to be a lot to do, there's a lot of things out of my control. I would expect prices to go up. Without me sitting here and trying to go through a long dissertation, prices to go up 2% to 3% a year over the next couple years. Unless there's some huge general economic inflationary type effect on raw material costs, etc. We don't see that much out there in the way of government issues. You've got the issue in 2013 with fuel mileage, but I can't quantify that right now. I don't know what quantifies into cost, so.

But that would be on both the heavy-duty and medium-duty front?

Yes, that would be on both fronts.

Okay. And then the last thing, I know you're not getting into specifics on acquisitions, but you mentioned in the prepared remarks, obviously there's still this big focus on building out with Navistar and Ford. But, I just wanted to make sure that nothing had changed on the CE front?

No, currently we have nothing on the CE front. We always still have the desire, but we've been focused more as an organization. We've been absorbing quite a bit here compared to our typical is, you know, I don't like to buy a bunch of deals, just throw them in a basket, and shake them up and pour them out and see where they land. We like to operate deals, we always have since the last 15 years of being public, as we do acquisitions. And, we will continue to stick to our model. It's proven successful for us, but we are extremely excited and are focused on our growth with Navistar in particular, and Ford somewhat as we go forward. The partnership is working well. This is our partnership, had for decades, and it continues to with the other OEM, with PACCAR. So, but we're forward on the growth perspective with Navistar, and we're working closely, looking at opportunities where they might come up.

Okay, great. Thanks for taking my questions, guys.

Sure.

Thank you, sir, and our next question is a follow-up from the line of Tim Denoyer from Wolfe Trahan.

Yes, Tim?

On used truck margins specifically, wondering what you guys saw during the quarter in terms of the used truck market, and how prices trended? It'd still be up pretty strong year-over-year, but were you seeing acceleration through the quarter?

No, I hate to correct you again, Tim. That's twice, today. They're not up year-over-year. You must remember last year -- they're flat sequentially, which is 10.7%. I think we were 10%-something in the first quarter, last year in the second quarter we were over 14%. But you've got to remember, we were in an accelerating used truck environment, where prices were just accelerating through the roof in the second quarter of last year. We're happy with the margins that we have. If I could maintain through the whole cycle a 10%-plus margin on used, I'd be very pleased. Typically, they run 8% to 10% over the deal, over a long term. But, 10.7% we're very pleased with. But last year, they were extremely high, but that was because used truck values shot up the first quarter of the year, and we had old inventory that we traded for at the end of 2009, so we took advantage of it and made more margin.

Yes, I was referring to the used truck prices, not the margin being way up year-over-year in terms of --?

You said margins, there, okay. You're talking about prices?

Sorry.

What was last year in the -- I don't know what second quarter was in last year. It's not up that much.

About a grand a unit.

Yes, it's only up about a little over $1,000 a unit. And that could have something to do with mix, and I can't get that for you. I know it was like $39,878, it's $40,900-something this quarter, this second quarter. So, it's up about $1,100 a truck. What's that, 2.5%? So, that's not a lot. I mean, a little mix here or there can have a lot of change on that, have a big effect. So, in reality, it could be up more than what the truck shows the actual sales price, because it could have a lot to do with what we're selling, and I can't really get into that if there's more vocational, or later model, or newer model, newer used models, later used, or older used model trucks, I really don't have that information in front of me.

But just generally, is your sense that the used truck market is continuing to tighten, and maybe the inventory that you have on hand you might be able to get a little bit better margin out of going forward?

Like I said before, if I can maintain the 10%-something margin, I will be happy. It's been obviously reflective in the first quarter, and I may (inaudible) you go back to the fourth quarter (inaudible) similar to that, I don't have it in front of me right now. That big bump to that 14%, 15%, was just a one-time phenomenon. You can look back at used trucks, and I'll put you on a seven or eight year cycle, and one time in my life I'm going to look real smart, and it's going to be way high because I'm going to be selling off of old inventory, but that day will come again like it has always in this business, where it will drop 15% in value and we will struggle to get out of it, and that will happen at another time in our life. But this, we're at a normalized, what I would consider a normalized, high-end run rate, and would not expect it to change a lot.

All right, thanks again, Rusty.

You're welcome.

Thank you, and we have no further questions in the queue at this time.

Okay. Well, we appreciate everybody's participation today. We look forward to talking to them in October with our third quarter results, and other than that, thank you all very much.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a great day.