Rush Enterprises Inc (RUSHA) 2011 Q3 法說會逐字稿

Good morning. My name is Philip, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rush Enterprises, Incorporated, third quarter 2011 earnings release conference call. (Operator Instructions.) Thank you. I would now like to turn the call over to the Chairman of the Board, Mr. Marvin Rush. Sir, please go ahead.

Good morning and welcome to our third quarter earnings release conference call. On the call today are Rusty Rush, President and Chief Executive Officer; Steve Keller, CFO; Jay Haselwood, Controller; 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.

As update to third quarter of 2011, we are very pleased to announce the Company's revenues in the third quarter increased by 72% as compared to revenues reported in the third quarter of 2010. This increase is largely the result of continued aging of commercial vehicles in operation and strong activity in the energy section. As a result, we earned $0.41 per diluted share in the third quarter of 2011, the highest quarterly pretax income in the Company's history.

Our parts, service, and body shop revenues were up 34% in the third quarter of 2011 compared to the third quarter of 2010. This is the second consecutive quarter that the Company achieved record high revenues in parts, service, and body shop operations. This led to a new record high quarterly absorption rate of 116%, the third quarterly record for absorption rate in the past year.

Class 8 truck sales continued to improve this quarter, sustaining the increase that took place during the second quarter, and up 93% compared to the same quarter last year. Medium-duty commercial vehicle sales increased 120% compared to the third quarter of last year but continued to be impacted by supply issues faced by several medium-duty truck manufacturers. Used truck pricing and sales remained strong.

In the third quarter, the Company entered into definitive purchase agreements to acquire certain assets of West Texas Peterbilt, which has five locations in West Texas, and Peck Road Ford in Whittier, California. Both acquisitions are scheduled to close in the fourth quarter.

We continue to see performance improvements from our Navistar Division, which has now become a solid contributor of the Company's overall profitability. We believe this division represents a significant opportunity to enlarge our dealership network, and we remain committed to growing with Navistar.

Talk about the industry outlook. As vehicles in service continue to age, we expect parts, service, and body shop activity to continue at current levels, and are actively hiring technicians to serve this growing area of our business. At our current absorption rate, the Company is well positioned for increased profits as truck demand returns to more normalized levels. We expect US Class 8 retail sales to remain on pace to reach approximately 165,000 to 170,000 units by year end of 2011, which remains below historical replacement levels, while medium-duty truck sales could increase as supply issues are resolved.

Industry experts currently forecast Class 8 US retail sales to be 214,000 units, and Class 4 through 7 US retail sales to be 163,000 units for 2012. We believe we are in the beginning of a multiyear improving truck market, as current sales levels of both Class 8 and medium-duty trucks have been below historical replacement levels for the last five years.

When setting a vision for this Company more than 45 years ago, I never imagined that we could diversify our operations in a manner that would allow us to achieve this level of profitability in a below-average Class 8 truck sales market. We remain extremely proud of our entire workforce and congratulate them on helping the Company continue to achieve outstanding financial results.

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

(Operator Instructions.) Neil Frohnapple.

Good morning. Congrats on a good quarter, guys. Rusty, you know the industry estimate for Class 8 truck sales in 2012 of 214,000 -- what are you thoughts on how achievable this forecast is, and what are you planning for at this point?

Well, I put a lot of thought to that myself. It seems to be an ever-moving target here recently. But I do feel good. It was a little difficult here late in the summer, when everything else was macroeconomic issues that everybody was focused on. But if you look at our industry in particular, and after five years -- five years -- of under normalized markets of the past, you've got to feel good that that number's fairly solid.

I might be a hair more conservative, but I think if you know me, by nature, I usually am. But I think 200,000 is a good number, if you're really looking. But that's the way I feel right now. I just got back last week from ATA, a lot of activity out there, and I see certain sectors of our business that are still strong and look to remain strong in 2012, and other sectors that I look to pick up as we go forward.

So I gave you a longer answer than just a straight number, but I figured that's what you'd like. But I feel good about the 200,000 truck number.

Okay. And will the component supplier constraints push any deliveries into 2012 that would have otherwise been delivered this year, particularly on the heavy-duty side?

We had some that got pushed out, but not a lot, not a lot. Maybe it shifted in quarters, but I would tell you, if you look at the second, third -- and obviously, we haven't finished the fourth quarter, but we're in the midst of it right now -- there may have been some moving around in those quarters. But as far as pushing out into '12, no, I believe we'll be all caught up and everything will be on track into 2012. We're prepared to handle a much larger market than we anticipate coming.

Great. And then one last one, if I can. What was the same-store absorption rate in the quarter, and how are the Lake City and Asbury locations progressing on this metric at this point?

Okay, same store was relatively flat, I do believe, year over year. Let me look at these real numbers real quick. And the Asbury acquisition is, the Utah and Idaho acquisition had a very nice quarter, absorption-wise. And we are improving from the Asbury acquisition. It is not up to Company standards yet, but it has made progress since the second quarter. And we look for some of the changes that we have made as we take our philosophy, our mentality, and our go-to-market strategies and continue to integrate them into the acquisition, we look for it to continue down that path and are very excited about the Atlanta market and where we're at, and really excited about where we're headed.

All right, great. Thanks a lot, guys. Have good luck next quarter.

Brad Delco.

Rusty, I noticed a little change of tune in your press release yesterday, and I think you pointed out some good things. I guess, could talk a little bit about the shift to more of a service provider versus what you've historically been known as, as a Class 8 truck dealer? And how sustainable this is and how comfortable you feel with this type of business model going forward relative to maybe what you were operating five to ten years ago?

Obviously, you can tell by the press release that I'm very excited about where we're at and really excited about where we're going, as we have transformed the Company over the last decade into becoming, as I say, the premier solutions provider to the industry.

And when I say "industry," I talk about it in different segments, and that's how we approach it. Basically, you ask, "What can we do? How can we drive efficiencies into your business?" This is how we approach the customer. And it's not just, "This is the truck. This is the price." That's not what we're about, and it's not where we saw the market headed 10 years ago. And we've driven ourselves to be that.

And we believe that the results for the organization, given an even under-normalized Class 8 truck market, show that we are right on with what our approach to business, and that we are driving efficiencies to our customers, and we are providing, making a less expensive way for them to do business from an overall perspective.

It's not just the price of a truck. It's a matter of uptime, it's a matter of service pricing, parts pricing -- the whole package. You go to a customer and you tell him, "What can I do? How can I be a better partner and save you money?" And it's about all those different factors inside of that question, and we feel we are on the right track. We feel that we have continued to try to differentiate ourselves, whether it be a medium-duty customer, whether it be a bus customer, whether it be any other market segment. We're going to get into market segments -- whether it be construction, oil and gas, crane, refuse, towing, we have experts from the parts, service, and sales side to support those businesses.

And so we feel we're even more confident in our approach and our strategy, and I tried to relay that message in this press release. And I think folks need to step back and take a look at the organization, and you will see the changes. And if you can't step back ten years or five years, and look at today and look at where we are from a market perspective and look at the performance of the organization and look at the acceptance of the customer base of our model, then I don't know what else to say. So we just feel good. I hope that answers your question.

Yes, I appreciate all the color there. And I guess along the same tune, I understand this being a below-normal replacement on trucks. Where do you think we are on that service front, though? Is this a little abnormally strong because of all the oil and gas? And I know you're announcing investment for additional lease space in the service segment.

I think sometimes -- you know, I've had a lot of questions recently about the energy sector. And I sometimes worry why people are always looking for something that's wrong when there's something that's right out there. Is oil and gas bigger than it traditionally is now in our business? Sure. But you've got to step back and look at footprint of the Company. Oil and gas is always a big piece of our organization. It always has been and it always will be when you look at the footprint of the organization. Is it accelerated right now? Sure, over what it has been in the past. So the question then becomes, "How sustainable is that?"

I look at this as more of a lot of gas play going on right here. And it's not just the drilling of wells, it's not just that, because people get concerned, natural gas price. It's the infrastructure building, and especially in the Eagle Ford shale play that's going on throughout Texas, the play up in north Texas and throughout Arkansas that we support. And the plays across this country. We support our customer base across this country. It doesn't necessarily have to be in our territories from a service perspective.

But at the same time, I'm going to get back and say -- again, that goes back to the question, your first question -- is to how we support and how we've changed our business model. But yes, it's a larger play right now. There's no question. There's no denying that. But at the same time, it looks fairly sustainable from this perspective, at least.

You've got people out there saying -- I was born and raised in Texas, so I'm not going to get up and tell you it never ends, it lasts forever, because it doesn't. But at least for the next couple of years, the best I can tell, and the people I talk to, but that's the sustainability, given it's not your typical oil and gas play.

Now, the other counter to that is I have no construction business. Mixer sales have been off the last three years 80-plus percent in this country. And you say, "Well, they're not working them." I'm telling you they haven't bought any since 2006. So I expect that piece of the business to be stronger in 2012. Even with still depressed housing, I still expect that piece to be better because of the age of the equipment that's out there.

So I could go into some other sectors that are like that, too, that will offset any downturn that we might have in oil and gas. And if oil and gas continues strong and you add some pickup in those areas, and I think truck load is going to continue to be strong, I look at the maintenance costs, for example, of some of our customers. Go read the earnings reports. Their maintenance costs are up. It's pure and simple.

So the replacement cycle must continue, and we haven't even gotten in any growth. So I could sit here, and I'm not going to go on, but obviously, I could talk -- you know me, I'll talk a while about the things that I see out there. So regardless of what percentage -- people say, "What percentage?" I'm not going to get into percentages. Is it up? Yes, it's up. Are there offsets to it that we're not getting plays on right now? You better believe there are. So if it sustains at these levels and you pick up in these other markets, I'll just let the results prove themselves out in the future.

Thanks, Rusty. And I guess one quick housekeeping item. Steve, how many working days were there in the third quarter and how many will there be in the fourth quarter?

64 in Q3 and 62 in Q4.

Okay. Thanks, guys, for the time. Congrats again.

You know, Brad, that does have some effect on our absorption parts and service. But parts and service remains strong as we sit here today, and we look for it to continue that way.

Thanks, Rusty.

Bill Armstrong.

Rusty, I want to talk about this West Texas Peterbilt acquisition that's pending. Does Peterbilt have any objections that you know of, or right of first refusal here?

They've approved it and I'll just leave it that, I guess.

Okay.

Peterbilt has approved it, so we're going to close, I think, December the 5th, I think -- 4th, excuse me. We've got a December 4th closing date targeted and comfortable that it will -- I mean, at the end of the day, no disrespect, but we surrounded those stores 360 degrees, so it was hard to look out and not see us around there anywhere, so it really made sense for both of us, I think. So it just made sense.

That was my next question, because you've got, obviously, a huge presence in Texas. I wasn't even sure if there were any left out there that weren't part of your chain. But would you keep all five of these dealerships open, or are you looking to maybe fold some of them into existing dealerships?

Oh, no, never would I fold them into existing dealerships. It's open territory. It's new territory. It's a profitable organization. It's a well-run organization. No, we're excited about how the West Texas Peterbilt folks are doing, so no. I would just look to expand upon what they've done in the past.

Got it, okay. And then just a housekeeping question also. How many buses did you sell during the quarter?

Actually, bus sales were off this quarter. We sold 250 in this quarter -- 253, excuse me.

253. Okay, anything to call out there in terms of -- you said they were off. Any concerns there or any special circumstance?

It's as much a timing issue as anything. I wouldn't look for that to be a trend as we go forward. We're working on bus deals as we speak, setting the tone for next year. So I realize everybody's worried about governmental spending, but bus sales should remain strong. We look for them to remain good next year. I don't know if they're going to be way up next year, but we look for them to be good.

Okay, great. Thank you.

Andrew Obin.

Just a couple of questions in terms of the margin, if you could comment on what impact the new truck sale margin improving on a sequential basis, and also for parts and service margin declining on a sequential basis. What are the business trends driving these changes in margin? Thank you.

Okay, Andrew. On the truck sales, you've got to look at mix. It's mainly driven by mix. Stock truck sales were actually up -- something I'm sure everyone would like to hear -- roughly 40% for the quarter, sequentially. So as you know, those have always historically been higher margin. Everything else maintains historical margins, but stock truck sales were up 150 units or so. But that does have a slight effect on that when you get an increase in stock truck sales.

From a parts and service margin, let me check here, Andrew. Oh, okay, you're looking at consolidated numbers, which includes our tire businesses and other things like that. If you want to strip just the truck stores out, Andrew, they were flat quarter to quarter.

Okay, just so I understand, what are the underlying business trends? So just explain to me, so, A, what kind of customer do you now see that are buying stock trucks, and what kind of mix shifts are you seeing on the parts business? Sorry.

No problem. From a stock truck perspective, it's split, I would tell you, from the traditional purchaser. The over-the-road, that is still depressed slightly, but rising. And then into some more vocational. We have changed. Like a lot of things I talked about earlier, our approach to business has changed, and our mix of stock trucks has changed over the past. And we try to stock units for specific market needs, where historically we would just stock trucks basically for over-the-road customers -- you know, big sleepers, that type of truck. So we have changed up a lot of the mix of our business, whether it be for more vocational type trucks, non-sleeper type trucks, whether it be for oil and gas or many other vocations. There are vocational trucks for refuse markets that we keep in inventory, and into other markets.

So we have changed our approach as we have seen the market change and evolve over the last years. So I like to think that some of our market approach has had something to do with that, also, and not just sticking to the old standard way of going to market.

So from -- what was the second question?

Oh, the second question, so what kind of business are you getting more of that -- just, from outside, it seems that parts business has declined.

You say the parts business has declined, Andrew? I don't --

Well, the margin declined. It's only slightly, but it's just that's a huge -- there's so much operating leverage there. That's what I meant. It's just off a point, that's all I'm saying.

I don't know that -- parts margins, if you want to jump back a couple to three years, have taken a hit. Our mix margins hasn't, as we have shifted to more service than parts. And we typically just report parts and service together. And we're right at our standard level, 39.8%, I think, or so, from a truck store perspective in parts and service margins, which is right in line with where we typically are. I always tell folks 38% to 40%, roughly.

I'll follow up offline. Great quarter.

Why don't you call -- if you want more color on it, Andrew, follow it up later with another call, and we'll try to dive a little deeper. Are we selling into more non-proprietary parts? Sure we are. Because of these specialized markets that we're going on, these parts are not necessarily proprietary when you're rigging up and rebuilding and putting bodies and things on like that. Yes, that may move your mix a little, which can cause a slight margin shift in the first --

That's what I was referring to.

Right. It can cause a slight shift in your parts margins, but by going to market that way, Andrew, we're creating more service labor. So that more than offsets the decline in parts margin because of the increased service mix. Does that make sense?

Yes. Thanks a lot.

Tim Denoyer.

If I could ask you a couple of questions on the oil and gas piece. I certainly recognize that you've got a lot of different service offerings at this point, but that seems to be the most exciting one right now. Could you give us any color on just the percentages within the new truck sales or within parts and service, and how some of that -- I'm having a little bit of trouble just understanding, when you're, you've been getting into some of this assembly operation, is it going into the new truck sales, or is it going into parts and service? Is it a little bit of both?

It goes to parts and service. It goes to parts and service. Breaking it out, I think we've said before, Tim, our system is very difficult for us to break out parts and service, from a perspective of market segment. Can I sit here and swag at you? Sure I can. As I spoke earlier -- but again, I'm going to go back and say -- everybody's so concerned, I hear this concern, though -- remember, historically I would tell you, I was looking back at the energy sector. And as I look back at the last 30 years, three-quarters of those years were good oil and gas years. So everybody remembers a bad year here or a bad year there, but they tend to forget the average years that you have inside of that sector.

Now, I would tell you, probably typically, energy drives 15% to 20% of our business, and now is it driving 25% to 30%? Maybe so. But as I said before, the offsets in the other markets as we go forward, we're seeing increased markets on the West Coast. Our East Coast operations in Florida are doing better. Again, not as well as the energy states, but they are improving, and we're excited, given the age of the equipment in some of those states, as to where they're going to be in the future.

So energy, yes, is up. No question, it's undeniably up. But I look for it to be sustainable through 2012 at the minimum, given the conversations that I've had with customers. And we have a lot of growing business inside the waste markets coming next year. I look forward to that market being up next year, along with the construction market being up again next year.

Yes, no, I certainly see that that's exciting, yes. Just a couple of other questions on more of the truckload sector. What do you hear in terms of what's happening with truckload pricing these days? It seems like bought is a little bit more in line with contract rates, but it still seems pretty strong. And are you hearing anything in terms of enforcement of the CSA regulations? Is that going up, and is that driving any parts and service business there?

I think enforcement is going up. That's a hard one, right? I'm better doing the energy question than that. But I did see at ATA -- you were at ATA, Tim -- and you got to speak to a few of the folks that were there. And I believe enforcement is increasing. I can't quantify what that means.

The biggest quantifier was actually what I mentioned earlier, is look at maintenance costs. People that are trading in trucks with 600,000-plus miles are spending maintenance money on engines. Engines are out of the warranties, and that's what typically will drive maintenance costs in those numbers. And that's what you see going on, and that's why I believe the truck load side -- and then tied into the fact that, hey, this is the first year we had some decent rate increases for our customers out there. The solid ones definitely showed rate increases year over year and do believe they're sustainable.

When I check channels, September and October, everybody was all worried in July and August, and September and October seem to be in line seasonally and fairly strong, good months. And I'm not going to say it's a rocket ship -- I mean, they seem to be in line, and everybody seems pretty comfortable with where they're at, having trucks and loads filled and everything else out there. And they look forward to increased rate increases when we get into next year, which will breed a secondary market.

If we get another round, a year of solid rate increases, I think that breeds the middle market, and that's where you might get some type of growth or some expansion in the size of the fleet. The size of the fleet hasn't expanded over the last couple of years. We all know that, after getting hit so hard. So when I look at all these different facets, I feel good about that sector, too, for next year.

Yes. And I've heard the same thing. And one last one. This might be a little bit of a lightning rod, but in terms of the new engines, can you talk about, are any of them causing any significant issues, and is that helping out in terms of parts and service?

No. No, not at all. I think all engines are -- I'm comfortable with both platforms that we support, or rather both OEMs' platforms. And obviously, we sell our Cummins engines in the PACCAR product, too, but I'm comfortable with all three platforms that I see in front of me, and I think they're all performing. Do all three of them, at times when you introduce a new product, have some issues? Yes. But as anybody -- somebody show me catastrophic issues out there. When a product has been out there now for quite a while, and there's no catastrophic issues that we've had to deal with. Typical introductory engines for all three suppliers have been what I've seen over the last year and a half.

Very good. Thanks very much.

Brian Sponheimer.

If I can, I just want to drill down a little bit more on just how sales have been with Navistar and with your Navistar dealers on a sequential basis. Just with the idea that with the engines performing as expected, are you getting the sense that maybe some potential buyers who had been waiting to vet the engine are starting to come to your dealerships more, and potentially, as we look into the fourth quarter, you may see a bigger pickup in share for your Navistar dealership groups?

First off, I haven't owned Asbury for six months, so it's a little difficult to get comps on that for me. I can't speak to historical. I can speak, I heard we got a nice order there last week, a Class 8 order over there last week, which was nice to hear, on a target customer.

The engine has performed, there's no question about that. Navistar's engines, as I said, all the platforms have performed. And Navistar's engine, I was out visiting customers in Utah about a month and a half ago, and I heard nothing but good reviews from a fuel mileage perspective, from a performance perspective. So I'm very comfortable.

And we are on -- right now I could tell you we're on some good business, so it's like staked in, so when you see activity level is good, then you've got to feel good about the market's acceptance of the product. That's typical with anything, and I think we're seeing that on all fronts, but I know we're definitely seeing it out in the Utah and Idaho area. And we're excited about that.

And we've restaffed our whole sales organization in the Atlanta area, and very comfortable -- from a management perspective, we're very comfortable with some of the key people we've put over there and some of the drivers, and very excited about what we'll do with that market as we go forward.

So it's hard. I know I'm not giving you exact, but I can tell you, I've been doing this for 30-plus years, and I'm very confident in the product that we're supporting in those areas, just like I am in everything, and very confident that we will be able to execute and hopefully take market share in the areas that we're representing the product there.

Okay, that's actually very helpful. Thank you. I just want to talk about the used truck market and pricing. At this point, given the maintenance costs and given where used truck pricing has gone with the quality of vehicles that can be sold, do you think we've topped out here on the used truck side as far as prices are concerned?

Actually? No. There's a couple things. We all know that new truck pricing continues. After the big jump of 2010-compliant engines, you continue to see new truck pricing probably raise on a more historical standard in line with raw material costs, et cetera, and labor costs, going forward. But used trucks, remember, there's a supply side problem here. We are just, remember the 2010's that were built in '09, we're really not even trading or just starting to look at as we go into '12, maybe for some customers, depending on their business model and miles and things like that. We sold 97,000 of them -- 97,000. In 2011, we sold 110,000. I'm sorry -- excuse me -- in 2010 we sold 110,000.

There is not going to be a supply of trucks. You don't just add water and stir and create used trucks. So there's a direct relationship to past industry, past sales figures, and I don't see how we're going, with new truck prices, I don't see them coming down. So given those, the two big drivers, I don't see how used truck values come down.

Couldn't that potentially push more new sales, given an older truck and a lack of trade-in supply and potentially if you have a fleet, say, "Let's buy new."

Very clever deduction. No problem. You're exactly right. With no used out there, someone that's a typical used truck buyer may be forced into buying new, because the price, as you mentioned, as I've told you, will continue to rise to where it doesn't -- it will reach equilibrium. Do you follow me? But there won't be any out there, too. You won't find, okay, "I need this type of truck with this type of miles for this type of application." Well, there's just not going to be any, period, so yes. There's no question that that could happen. Again, a big driver, we think, going forward. There's so many positive points that I can look at, especially, not for just a short run here, but a nice three or four years.

Bringing down next year's numbers, ATT brought them down from 243 or whatever to 214. There's nothing wrong with that. That just looks for a more stabilized mix four to five years, and maybe not the spikes that we've seen that have been driven by a lot of government regulation from EPA compliance in the last decade. And you might see that spike out there in 2017 when we get there. I think the '13 stuff, from what I know, and I'm not the right person to answer, we'll work through that. But who knows when we get out to 2017 with all the new regulations that are going to be in place?

Look forward to seeing you next week at your conference.

We'll see you on Monday. Thank you very much.

Chaz Jones.

Hey, good morning, guys. Nice quarter. I guess, Rusty, I just wanted to focus a little bit on the fourth quarter. I know, obviously, parts and service revenue and gross margins are typically down in the fourth quarter sequentially, just a little bit. But just maybe the combination of accelerated depreciation, tax incentives and, as you mentioned in the release, the medium-duty suppliers being resolved, are we in a situation where if those things play out, that truck sales could be up sequentially in the fourth quarter?

I don't know that they're going to be sequentially truck sales. I think they're going to maintain around the levels they've been. We might get a little uptick. The supply side, on the medium-duty sector, especially from our Japanese brands, have been difficult, to say the least. It goes back to, obviously, to the earthquakes and stuff from earlier in the year, the tsunami. It's been very difficult, and it continues.

I'm worried that I think we're going to get an uptick in some deliveries, but I don't know if it's all going to get sold into this year. That's going to be the problem, because those all have to be bodied up. Remember, they're just trucks; they're not tractors. So that stuff has to be bodied up, and it's just been a very difficult issue to deal with -- that plus it's been difficult, I think, for some of our OEMs from over in that part of the world to deal with the yen and everything else that's going on besides the issues that they had to deal with there.

And those are big players for us in our medium-duty markets, but I still think we're going to have a nice quarter. Truck sales-wise, I'd look for it to sequentially be right in line with where we were. Hopefully, we'll see that tax, we'll see that push there in November and December. Call me in the middle of December, and I might give you some more color on it. We'll see.

Do you think that there's any type of pull forward in demand related to that, and that sets you up for potentially a weak first quarter?

No, I don't see that to be that big of an issue. Look, the first quarter typically is a little softer, looking back historically. So I would think nothing outside of historicals. The first quarter tends to be a very expensive quarter as all taxes kick in and everything else. There's a lot of things that happen in the first quarter. But from a sales perspective, there might be some slight, but that's typical. There's nothing outside of more historical, seasonal things that you've seen inside our model in the past.

You said something about margins, too, and I don't know about fourth quarter margins being down. Maybe --

Well, no, what I guess I was getting at is typically, there's a little bit of a sequential down-tick on the parts and service side in margin.

From a sales perspective, yes, but you've got a couple less working days.

Right, no, exactly.

Right. You said margins, though, and I just wanted to correct you on that. Sales-wise, sure, you've got a couple less working days, you've got holidays you're dealing with. Typically, a lot of your over-the-road folks, people shut down a little for holidays. So, yes, you've got the seasonal part that I see, which you just deal with, that we've dealt with for years. But at the same time, we plan on managing our expenses extremely strong in the fourth quarter. And hopefully, we'll offset some of that.

The next question was just on the expense side. I know you mentioned on the release that you're doing some hiring in the shops to support the service growth. But mainly I was curious, with sales more than doubling over the last two years just for the overall organization, have you had to come back and layer any kind of incremental G&A back in?

Oh, of course, Chaz. Of course. Given our business model, you've got to understand, it still takes support people, too, not just salespeople. So whether it's warehouse men to stock more parts, drivers to deliver -- all that type of -- more equipment to support it. It's just not commissionable sales sizes that supports the parts and service operation.

When you're moving that kind of volume through, it's not like loaning money. It's parts and it's service, so it takes people. And there is definitely an increase. G&A costs are up for this year. But as you know, I've always represented they're going to be up. It's our job to maintain and keep our fair share of that as we go forward. And that's what absorption does. You're looking at a record absorption rate.

So obviously, have we had cost increases? Of course. But at the same time, have we grown gross profits a lot faster than we have grown expenses? Yes. And that's what this model's all about, and that's what -- you know, that's why I put in there, as we go to market, you can expect more when you come to our place. We're going to give you more. We're going to take care of you. And that's been our approach and will continue to be, as we're going to be a service solutions provider. And sometimes that costs a little money. But you know what? I can make it more efficient for my customers to do business, cheaper for my customers, save them money, and at the same time, we can still make money.

Okay, no, that's a helpful discussion there. Two other quick ones. D&A up 42%. Obviously, I know there's been a lot of acquisition activity and that sort of thing, but maybe it's a question for Steve. Is $6 million a short-term good run rate there for D&A?

D&A? Yes, we put the SAG system in service in the month of August, and that's going to increase the D&A run to the tune of about $230,000 a month over and above what it was, say, in Q2. But this run rate is near where it should be, moving forward.

Okay. And then the last one. Actually, I'll back up.

Hey, Chaz. Let me add one more thing. We may have mentioned it in the release. We are moving our Winter Garden store in the Orlando area to a new location, and that was a leased facility. And also in the third quarter, we had some D&A write-off related to that, which was a one-time pop. So there was a little extra in Q3 that won't repeat in Q4. So if you look back at Q2 and you add about $230,000 a month, that would be your normal run rate.

Okay, okay. I think that's all I had. Anything different on the tax rate? I know it's been a little different here and there, but any change in assumptions? Is that just related to entering new states or new markets or something along those lines?

Yes, it's a state issue. You can expect the run rate in Q4 in line with Q3. And then, probably next year it will be roughly 38.5% or so.

Okay. All right, I think that's all I had, guys. Thanks for your time.

Robert Kosowsky.

I was wondering, it looks like parts and service is up nearly double over the past couple of years. And I know you guys did some acquisitions along the way. Could you maybe give us a sense of what same-store sales parts and service are up over, say, even just last year or the last two years, preferably?

Sure. Same-store sales. Let me get that sheet out here for you. Well, same store's up 22.5%, I think, year over year, quarter to quarter. That's third quarter of last year versus third quarter of this year. And percent, 22.5% with a 24.9% gross profit increase.

Okay. Any idea what the 2010/2009 comp looked like?

I don't have that. We'll have to get it for you offline.

Okay. And then was the increase in heavy-duty truck revenue per truck largely due to the stock units? How do you see this trend, or this metric, evolving over the next year?

In reality, we were pretty flat. We were only up 4% in revenue from a truck sales perspective, of course, sequentially, quarter to quarter, if I'm not mistaken. Right, Steve? Yes, it was 4% we were up.

Are you talking about the average sale price per unit, Robert, or what are you referring to?

Yes, that's basically what I'm doing, just trying to get the heavy-duty truck revenue and dividing it by the trucks you sold.

You've got to remember when we sell that, that will be a sales mix issue, because we have bodies on some of these trucks which filter into the new truck revenue, which will affect the average sale price of a truck.

Typically, I think we're up about $4,000 quarter to quarter sequentially, a little over $4,000. We're up about 4.4% in truck sales, so that's pretty much an offset, and there's your answer right there. You get real close after that.

Okay, thank you very much.

You bet. Again, that's hard for you to figure out, but that is a mix, depending on which of the market segments that we serve, it goes into.

Okay. Actually, one last question. Could you maybe talk about the -- it looks like inventory's up by about $70 million or $72 million from last quarter. Can you just talk about your thoughts of holding trucks on the lot and how you see it going forward?

I think that has more to do with trucks that are in process of delivery. Most of them are. Actual stocking levels were relatively flat sequentially. So that would just mean that we've got more trucks in the process of delivery. Some of the markets that we may be serving into, we may have to hold them longer. Because certain markets may take 20 days to get the truck ready, and some may take three months. So again, it's a mix issue as much as anything, and hopefully, a little more volume down the road. But that's in process, stuff that's in process of delivery, so down the road.

Thank you very much, and good luck with the fourth quarter.

Peter Chang.

Hey, Rusty, you guys have done a good job of making your business more diversified. And given your progressive model, I guess, what are your views on what kind of peak and trough EPS figures are possible now, given that parts and service sales are a bigger portion and that you've increased your market share efforts?

Peter, Peter, you know that I'm not going to give you EPS guidance. I realize you've just assumed, believe there at CSFB with us, but I appreciate, I know you've been around the Company a while and appreciate and respect it. But I'm not going to give you direct EPS guidance.

I would tell you to take the model that we have tried to explain, and I think you're fairly -- well, I know you are -- you're competent on understanding our model and the change in our model. And layer it over larger markets, and with the other components that we give you to work with, I believe you'll be able to extrapolate out of that -- I hope so -- where we might be going.

But I would like to believe that the models will exceed prior peaks, how's that? Okay, the business organization inside whatever size the market is, and it gets into mix and stuff, too. But just in a broad term, I would expect us to be able to execute with a higher return than we have historically. And I know most or a lot of the stuff that you all follow are industrials. But I am very sold, as you can tell by the press release and my comments today, as to where we are as an organization.

I am not a manufacturer, I am not a typical dealer, we are not a typical dealer. We go to market, we have built a model that we believe will successfully sustain our growth into the future, and I think our customers will support that. And so, as you look at the organization, I hope you take a different view than maybe folks have historically taken of the organization. And that's the point I've tried to impress and will continue to try to impress, that we have a much more diversified earnings stream, with the focus of the organization shifted to the service side of the business, while still executing and maintaining our sales ability to be a top performer from that side of the business also, always realizing that the sale of product eventually drives the downstream of parts and service.

I think one of the things that gets lost is that it's hard for us -- our business systems sometimes have limited us in really diving deeper from trying to explain to you all, what has eight years of medium-duty truck sales into our markets meant to this organization? It's directly reflected in the absorption number. Can I quantify this, five points or seven points, or what it is? No.

But I can tell you that the efforts of the way we go to market and the change in the organization is directly reflected in the shift of the earnings of the organization, which we believe will sustain it quite nicely much better than an historical dealer or much better than we have historically done through the peaks -- well, through the troughs -- and obviously, execute better in the peaks of the markets that we believe will be coming over the next few years.

As I said, I think this may be stretched out for longer, given the numbers coming down but still being solid numbers. And the results of 2011, I think, clearly will show the change in our organization, given an under-normalized Class 8 truck market and under what people would consider the normal Class 4 through 7 market, yet the performance of the Company, I think, will speak for itself. And we look forward to even expanding and doing a better job for our shareholders going forward.

All right. I think it's fair to say that the volatility of your earnings stream has decreased, probably, fairly dramatically as well. I know you guys don't want to provide too much financial guidance on these deals that have yet to close, but I don't know if you could talk about, do you know what their absorption rates are, how you're going to finance them? Or maybe if you could even put them in context, like are we thinking about something as big as Asbury here or the assets of Asbury, or something more along the lines of Lake City?

It's a total different business than Lake City, and it's a total different business than Asbury. That's the fun part, I think sometimes, of these acquisitions, is folding them in and what you learn about them as you actually do fold them into your organization and how they fit.

They're a very well-run organization. You've got to remember, those aren't the largest markets in the world. They fit nicely with our markets, especially in the energy sector when you think of those. And also going across, that's a big service, across Amarillo and across those areas from an over-the-road truckload perspective. I think they'll support nicely a lot of our customer base.

But look for it to be accretive. But it's not going to dramatically drive earnings. But will it be accretive? You better believe it will. We try not to make too many bad deals. Peck Road, we're looking forward to bringing it onboard and working with it. It's another Ford store, and I think we can raise the level of its performance. We're going to invest in people and in facilities. We're extremely excited that it is going to be more accretive, maybe down the road.

Again, but it's one of those singles. I talk about sometimes you don't hit home runs or triples or doubles all the time. Sometimes you hit singles; sometimes you hit bunt singles. But at the end of the day, it all adds up to a winning performance. And that's what we're about, so both of them are going to fit in nicely.

Great. Fair enough. And I guess the last thing, the restructure -- or the relocation, excuse me, not restructuring -- of several of your sites, is that going to drive a material increase in G&A in the fourth quarter or whenever these are relocated?

I don't think it's going to be that material. Does it drive some costs? You better believe it. It's going to drive margin, too. So our job, hopefully, will be to raise the absorption rate for you again, and you'll see it reflected in that. How's that? Okay? You know, that's what it's all about.

The one thing about it, though, and I don't worry, the higher you get the absorption rate, the tougher that next point is. It's like climbing a mountain. Every step you go, the altitude gets higher and the air gets thinner. So going from 116% to 117% is more difficult than going from 100% to 101%. But don't worry; we're still very focused on raising that absorption rate.

We had set a goal in the past of -- I remember, gosh, I go back to 2003 or '4, we said we were going to be 100% absorbed, 2003. We blew past that, and then we said we were going to be 110%, and it looks like we're going to accomplish that this year. So I guess we'll try to do things in five-point increments, and we'll set a 115% goal the third quarter. Obviously, we hit that goal, but you've got to remember, the second and third quarter are always usually -- well, the fourth quarter shouldn't be bad. But typically, your best absorption quarter is the first typically being the worst.

So I just credit the people in the organization, our employees, for sticking through the tough downturn. We fought it out. We stayed profitable. We tried to follow through on all our commitments to our shareholders and our customers, first and foremost. And we feel we're in a great position, poised to continue to take care of our customers at a higher level than our competition and perform for our shareholders going forward.

Well, congratulations on the quarter, guys. Thanks a lot.

Thom Albrecht.

Hey, guys, congratulations. I'll keep this brief.

No problem. I've got all day.

Okay, two questions. Someone asked about the same-store performance on the absorption ratio. You said it was about flat. You don't have the year-over-year numbers?

No, I'm going to step back a little bit, Thom. Absorption rate year over year at same store is right at 119%. I was a little off, but we pulled that number out. I thought it was closer to 116%. It was 119%. Year over year, it's up 10 points, from 109% to 119%.

Okay, that's helpful. And then how many Navistar trucks did you sell in the quarter?

Let me pull that out. From a heavy side or a medium side? I'll tell you what it was. I'll tell you what, Thom. That's one of the exciting things -- nowhere near what we're going to sell, okay?

Right.

As we've just got into Atlanta. I don't even count Atlanta, to be honest with you, because we're just getting our model in place there and the investments that we've made in facilities and stuff since we got there to change. Steve's pulling the numbers for me. Class 8 was only a couple of hundred units. So I know that's going to get a lot bigger, because I see some of the activities that are going on out there right now. Because we really inherited nothing in Atlanta. I'll be honest.

Right. So what would be the total of Navistar, like 320 or something?

Hang on. We're working on it right now, Thom. Medium-duty was around 467.

Okay, and then 200 or so heavy-duty.

Right. Those are rough numbers, Thom. If you want to get offline, I'll get the exact breakout for you.

No, I'm just trying to get a ballpark sense.

I'm more focused, to be honest with you, on where we're headed. Like I said, I've made a few sales calls on that. I try to get out and make a few sales calls on both sides of the house and both divisions. And that one, obviously, given I like to say it was a nice group in Atlanta, but we felt there was a lot of room for upside, and we're working hard at it right now. And so that's exciting.

Absolutely. I know you gave some color on fourth quarter thoughts, et cetera, but I wanted to be just a hair more specific, because in a lot of fourth quarters, as you've described very well, the medium-duty market buying decision is often tax-driven. And if the business has had a good year, the accountant may say, "Okay, go ahead and buy two more medium-duty trucks," or whatever. Do you have any insight into that specific market and that phenomena as opposed to the entire truck market?

Insight is, I'm waiting for it. I've said all year that I expected it. The problem was, the problem is, let's go back to everything that happened right around the time I released the last time, as we worked our way through the deficit. We had all the --

You mean the fun of July?

Yes, the fun in July and August and the macro concerns around globally that seemed to just have such dramatic -- I mean, dramatic -- effect on the marketplace, and driving this volatility that -- you've heard me talk, Thom. I think I've spoken to you. The disconnect, the disconnect that I see from what's going on with the customers that I deal with from a commercial perspective and the industry-specific perspective, I'm looking a little flabbergasted about it sometimes.

And I've spoken to a lot of different folks, and I think we talked. We looked at some of the anecdotes in September. You would have though that you would have seen dramatic downturns in September after your July and August. But it was truck tonnage up for the 21st month in a row, spending on different levels and stuff. Nothing took a dramatic hit that everything looked like it was going to as we were dealing with July, August and September.

And I hope that what's going on, that this is sustainable. I know what's going on over in Europe seems to be driving, but I don't see the effect at our level so bad, and the people that I talk with. It scares everybody for about 45 days, I'll tell you that, and then people get back to looking at their own business and say, "You know, it's not so bad." So I feel good about where we're at and where we're headed.

Okay. Well, that's helpful. That's all I had. Guys, thank you very much.

And there are no further questions at this time.

Okay. Well, we thank everyone for joining us on the call and look forward to talking to you in the first quarter with our fourth quarter results. Thank you.

And that does conclude today's conference call. Thank you for participating. You may now disconnect.