Rush Enterprises Inc (RUSHA) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Rush Enterprises first quarter 2012 earnings results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. (Operator Instructions).

As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Marvin Rush, Chairman. Please go ahead.

Welcome to our first quarter earnings release conference call. On the call with me today are Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and CFO; Derrek Weaver, Senior Vice President and General Counsel; and Jay Haselwood, Vice President and Controller.

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 risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements.

Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2011, and in our other filings with the SEC.

I'll give you an update for the first quarter. We were pleased to announce that the Company's gross revenues totaled $777 million, a 74% increase from revenues in the first quarter of 2011. Net income for the quarter was $15.9 million or $0.40 per diluted share.

Aftermarket services accounted for 61% of the Company's total gross profits in the first quarter and reached a new record quarterly high of $197 million. This resulted in a quarterly absorption rate of 117%. Our aftermarket growth continues to be fueled by service needs of aging vehicles, along with our ability to develop and deliver service solutions not typically offered by [truck leaders] in the past.

Rush Class 8 new truck deliveries increased by 104% compared to first quarter 2011, and significantly outpaced the market, which only increased by 48%. This is due to strong demand in the entry section, replacement truck deliveries to large fleets, increased stock truck sales and delivery of natural gas trucks to several large refuse fleets.

Class 4 through 7 truck deliveries also increased by 92% over the same period in 2011. Our medium-duty growth is mainly the result of acquisitions in 2011 in Georgia, Florida, and California. Our first quarter light-duty sales also increased over last year as a result of the Ford acquisitions in 2011.

We expect -- that's the industry outlook. We expect the US Class 8 retail sales to -- will reach about 200,000 units, driven mainly by continued activity in the energy section and replacement truck portions just for fleets.

Industry analysts expect Class 4 through 7 retail sales to reach 160,000 units. We expect parts and service and body shop sales to remain strong through 2012.

I continue to be proud of the progress the Company has made in moving forward with our growth strategies. Our performance this quarter is more evidence that our efforts to become a solutions provider are working. I sincerely appreciate the contributions of all our employees in helping achieve another successful quarter.

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

(Operator Instructions). Andrew Obin from Bank of America.

Good morning. It's actually (inaudible) for Andrew. I was wondering if you guys could comment on your visibility on the oil and gas markets for the remainder of the year, and how this would affect your parking services business, especially if there is going to be any weak (technical difficulty) in the oil and gas business.

Well, I think if you look at the weakening, most of the weakening you might see on the sales side more than you would on the service side. We expect it to remain fairly strong. Where we've been -- relative to where we have been, flat with where we have been to the second quarter and only in partially into the third quarter.

We are still looking from a sales perspective out further into the third and fourth quarter. But I know from a service perspective, especially -- like I talked about before, you got it up and divide it up into gas and oil. And we have tried to keep close track of which of these shale plays, which ones are going to or have been affected.

Some have been affected, no question, in this country. But we have done a good job, I think, of making sure that our workforce is targeted towards the areas that are least affected by just the dry gas slowdown obviously, with the price of natural gas. So, from a parts and service perspective, we still feel real good about where we are this year and going forward.

Also could you comment on the used truck pricing trends you are seeing?

Used truck pricing. It's flattened. I don't see any dip in it. You know, maybe our average sales price is up slightly, but that sometimes is indicative of mix and not necessarily just used truck (technical difficulty).

You are -- when you start talking about used trucks, the most important thing is the supply side and understanding what was sold maybe 3 to 5 years past. And when you go back and you go to (technical difficulty) markets in 2008, 2009, and 2010, especially 2009 and 2010. So we would expect valuations to remain (technical difficulty) for the next year or so.

Peter Chang from Credit Suisse.

Good morning, gentlemen, and congrats on another good quarter. A quick question; the read, your current read, Rusty, on April orders thus far -- I mean, you are usually one of the best at calling a trend in the truck cycle. So, what are you seeing right now in April orders and your thoughts currently on what happened in March?

Well, we seem to have had a slight pause, I guess might be one way to describe it, in the last couple of months. I mean, I know what -- expectations were maybe in March around the 25,000 range and they came in at 20,000. And we have been off maybe 2500 in February from what expectations were, and similar number in that in January. So I know there is a little bit of concern out there.

Is the cycle -- is that going to play against the whole cycle? No. Is it accelerating as much as everybody wanted it to? Is the spike what we are historically used to seeing? Maybe not. To me it is just a pause in where we're at, and I am not going to get into projecting April for you. Okay?

I had to try.

So, Peter, you are asking the -- however, I don't mind looking out and telling you that I think to -- I would tell you that we are still tracking towards about a 200,000 Class 8 US retail sales. Order intake sometimes can be overvalued, should I say.

If you look at the last -- let's look at our fourth quarter and first quarter. If you look at registrations, registrations are about 100,000 which puts you at a 200,000 Class 8 US market. Okay? And that is where, as I said in the release, that is where I think we are going to be. I am not going to get caught up from one month to the next month.

Now, if we start seeing numbers that come in -- in the -- for two to three months that come in between 10,000 and 15,000, yes, we might have a problem in the cycle. But I don't see -- all I think this is, is a pause. And all it does in my mind is elongate the cycle. We still have about the oldest aged equipment on the road that we have ever had. So I mean, there are just so many positives that are out there.

You have got to remember it is an election year. Okay? There's some -- there is an election year; there are some driver issues out there with the new rules put on a lot of these companies. There's a few fuel -- higher fuel prices we have had.

We are hoping that's going to come down. You know, all of these things that have put a little dampening on the last couple of months of order intake. But I would expect it to straighten itself out and track towards about a 200,000 Class 8 US retail sales.

I am not going to get totally caught up in every month's order intake. But I know we are probably going to continue down to the 200,000 number.

Fair enough. And I guess for my follow-up, a follow-on to the first question -- or the first questioner's question. As far as the energy markets, if they were to fall, let's say for the full year by 5%, sounds like Q3, Q4 might be a little bit softer in sales, what kind of impact would that have on the aftermarket? Would aftermarket sales -- I mean the (multiple speakers)

It could have some impact, because obviously you know we do internal work. But the offset to that is the diversification we have throughout the organization. I have got some other sectors that I think are going to be stronger the last half of the year. Whether it be on the refuse side -- even though we are just getting small drops of construction business, I expect that to continue to get stronger.

We have got a few projects we are looking at out there for the last half of the year. You know, our crane business is still strong. Our towing business is doing well.

So I think the diversification from a market segment plus a geographic segment -- I mean we still -- even with the great performance of the organization in the last year or so, we still haven't had much help from the coastlines or Arizona or a lot from Colorado. So, those are still upsides for the organization as we go forward. And I think I just placed our whole model and that -- if we do have some softening, I expect those areas to be -- I know those areas are going to better than they did in the past year. I feel good about that.

So if there is some softening in certain market segments, our diversification, I say again -- the market segments and geography should guide us through that very nicely.

Great. That is helpful. And one more from me. The aftermarket sales were much higher this quarter than what I was expecting. How do you expect those to trend? Should it be the normal seasonal?

I expect them to be flattish with where we are now to slightly up. But don't get -- you have got to remember, we put -- there was a lot of acquisitions came on last year. So I think you finally saw the full effect of it in the first quarter.

So, we had a mild winter. So there were a few things that -- we had a great first quarter. I don't expect them to go down. Don't take that wrong. But flattish to slightly up would be what I would say.

I wouldn't look for the spikes that we had last year, but we were rolling in a lot of acquisitions, getting a lot of stores up to speed. And we have still got some work to do with some of those stores. But at the same time, we are not -- don't have as many acquisitions rolling in currently as we had last year, over the last two years.

I'd like to get that changed, but obviously working on that. But at the moment we just don't have them rolling in. So I hope that answers your question.

That's great. Thank you very much, Rusty.

Neil Frohnapple from Northcoast Research.

Good morning. Congrats on a good quarter.

Thanks.

Can you provide a ballpark on how many Class 8 deliveries were impacted by the brake issue in the first quarter, and if most of these will be delivered in the second quarter and be a tailwind to deliveries?

When we talked at the last earnings call in the middle of February, it looked like we would have more of an impact. But it basically was nil, if you want to know the truth. It was very minimal for us.

By the end of March, we had caught everything up. And we actually -- our deliveries came in higher than I had anticipated for the first quarter. But sometimes timing on these orders -- it is hard to time it to the exact day that you get stuff delivered sometimes. So to answer your brake question, nil, negligible, because we caught back up by the end of March.

They did a great job, I think, a better job than I anticipated in getting it fixed and us getting the trucks delivered, too, at the same time. And then also we had some timing of some orders that came in a little earlier than I expected. I didn't expect to have as many orders, to be honest with you, as we did have.

So, you know, as I look forward into Q2 you probably -- if somebody is going to say, well, guide me there, I am going to guide you flat. Okay? From a (multiple speakers) perspective.

It would not -- given where we are at, because maybe a few orders from Q2 hopped into Q1. But I would guide you flat with continued strong parts and service. And I feel good about where we're at, from an overall perspective. I really do.

Okay. What was the same-store absorption rate in the quarter and the same-store growth rate for parts service and body shop revenue?

Okay, let me -- give me a second here. What you got, Steve?

[117.3] for the absorption rate.

For same-store? Same-store growth in parts and service. Same-store.

Same-store, 21%.

21%. And then find one maybe for Steve here. Do you anticipate a step up or step down in G&A in Q2? Or is Q1 a good run rate to think of for the rest of the year?

We should get a step down. We have a few seasonal items that hit in Q1. We have equity comp that spikes up. We have some payroll taxes and matching items and benefits that kick in, in Q1, that taper out throughout the year.

So I would say in Q2, you could probably back it down $2 million to $3 million off of what you saw in Q1 run rate. And it should be in that ballpark, you know, assuming similar sales levels.

All right. Great. Thanks a lot guys.

Tim Denoyer from Wolfe Trahan.

Good morning. Got a question, just going back to that 2Q guidance. We stayed basically flat from 1Q from a heavy truck sales perspective or from sort of an overall perspective with parts and service up a little. Can you give us a little more color?

As Steve mentioned, we are looking for some trailing off and some G&A. The first quarter, as I have mentioned in the fourth quarter release, as I'd mentioned the prior year before in the fourth quarter release, the first quarter is always the heaviest G&A quarter as items get picked up from taxes, et cetera, et cetera.

But from a perspective of looking for Class 8 deliveries to be flattish, but maybe pick up some in medium, and used is to be seen. You know your used -- hopefully used will be as strong as it has been, so with a slight uptick in parts and service with some trailing G&A. How's that? Declining G&A.

And then another sort of unrelated question in terms of -- you mentioned construction; you are starting to see a little bit of activity. Can you (multiple speakers) --

-- get carried away.

Well, what I wanted to sort of put it in perspective is what percentage of your business is construction-related today, and what was it five years ago -- if you can put that in perspective for us.

That is probably a little -- I mean I would just be giving you a swag here. I mean this would be nothing more than a swag. You know, when you start talking about we -- I remember selling those in '06. I sold well over 1000 mixer trucks. I won't sell 100 this year. I mean, those are the only kind of additives I can give you and I have got a lot broader base than I do now. How is that?

In fact, the more I think about it, I'd probably sell 1400 in 2006. Okay? I won't sell maybe 100 this year. (multiple speakers) So, does that give you some type of perspective? And I may sell more if it picks up later in the year.

I shouldn't say I didn't sell 100 last year. I probably may sell a couple hundred this year, you know, would be a thought; but maybe more. You know, you don't know -- we are early in that cycle, so you can't tell when the acceleration rate really comes.

Yes, is there any sort of color you can give us on the average age of the mix of fleet out there relative to -- obviously we know truck (multiple speakers)

Well, that would be nice if I knew that. But all I can tell you is I know it is extremely old. I know some companies that have been working towards moving equipment to other parts of the world where there's more business. Obviously haven't done that over the last couple, three years where they can take -- make better utilization of it, but they can't -- been able to in North America.

So -- but I can tell you this. We haven't sold any since 2006. So, for getting the negligible few that have been sold, so you can take it from there. Obviously getting aged, because you go back through the average age, you haven't been getting anything on the front side. And every year it keeps getting -- even what we have keeps getting older and they have dispersed them. I know quite a few that have gone to other parts of the world, especially Central and South America.

So when we do get a ramp up, as deep as the trough has been, as deep as the -- this is -- this I can tell you from being around a while. As deep as the trough has been, then you are going to see a spike that looks in the other direction when it does come back.

Yes. And in the -- I guess to put this in perspective just a little bit more, your store count is up a lot since that, say, if we call it 1400 in '06. Has the mix of stores, in terms of the acquisitions that you've made, has that changed in construction-heavy markets or not -- or otherwise?

Wow. That depends on which part of the country is growing. I mean that is a tough question. You know, I would tell you Atlanta would be a good market when it's picked up. I would have to -- that is a very difficult, difficult question to answer.

Yes. Don't worry. That's probably a little bit too esoteric.

That is a little bit cerebral. You tell me where the growth is going to be and I will tell you if I am going to be strong in it okay?

(laughter) sounds good. Thank you very much, Rusty.

Bill Armstrong from CL King and Associates.

Good morning, Rusty. There is a bill floating around the House of Representatives proposing to eliminate the 12% federal excise tax on trucks. Do you have any comments on that? Is that something you are following and do you think it has any realistic chance? And if so, what sort of impact might that have on your business?

You know, I would love to see that happen. But at the same time, I have seen it tried numerous times in the last couple of decades. And there has not been much appetite. Congress has never had much appetite before.

It would have my full support, but the possibilities of it truly getting through would be a difficult, difficult thing, I think. Because what it does is -- you are going to have to -- obviously if you take a tax way, you have got to figure out a way to replace that income from the government's perspective and it will go on the gas tax side. So I don't know if that is beneficial or not. You'd have to tell me.

But I've seen it tried numerous times in the past over last couple of decades, and it has never gotten anywhere. We haven't gotten any traction.

Got it. Okay. And you hear anything from PACCAR or any of your other manufacturers about this explosion in Germany that is causing a shortage of this resin for brake lines and other components? (multiple speakers)

I have not myself. I apologize. I have not had much talk with the -- I don't see much impact on us currently.

Fair enough. Thank you.

Brad Delco from Stephens.

Morning, Rusty. You always do a good job of giving us an overview of the business, and you have given some anecdotes. I guess expectations or results are a lot better than what people had modeled and expected, particularly on the parts and service side.

What, when you look at your business, would you pick at and say we didn't do a good job managing this, or we could have improved that? What -- anything in particular that sticks out in first quarter or things you think will change going forward?

Oh boy. That is what I tell these 4000 people, okay. (laughter). That is my job you all pay me to do. Obviously we will always work with what we call quality of earnings, and what that means -- that is an internal measurement. It is something I am not going to get into with you folks. But it's an internal measurement of the amount of gross profit that we create and grow, and the percentage we keep of that.

In this business when people always say, well, you are going to get this run up and you ought to have this huge leveragability. But this is a hands-on business. We sell parts. We deliver parts. We turn wrenches. We fix trucks. We do all sorts -- so there is an expense side that goes with it.

So one thing we monitor more than anything else in the organization is our quality of earnings. And sometimes, in the second and third year, you always get good quality of earnings in the first year. So -- but in the second or third year as it accelerates, your expenses accelerate higher.

So our management of our quality of earnings, from an internal perspective, and I am probably talking more than I should, is something that we are going to be working extremely hard on this year, on the expense side, to make sure that you cannot continue -- you know, the acceleration rates we had the last two years, 25% plus, is top parts and service same store is just huge. You are not going to get that type of acceleration. We told you all that this year over the whole year.

You had [nice] in the first quarter, but really we had big acceleration in the second quarter of last year. So those comps are going to get tougher. So, our management of that side of the business is going to be something that I watch closely and our entire management team watches closely throughout the organization to make sure we do a fine job of it going forward. I guess there's something for you.

Got you. So I guess -- so is it more on the gross profit margin side or is it more on the --

Expense side.

(multiple speakers) SG&A.

Right. It is managing the G&A side. I always tell the guys, if you create a dollar in gross profit I will allow you to spend $0.50 of it. But you know, we are not going to spend it all. You can't -- people say this isn't -- you know, there is a cost involved with doing everything, as I said.

This is a manual business when you get down to it, its grassroots. And we just have to make sure to not get sloppy. And that is always, at this stage of the cycle, when you go back through and if we look back through the numbers, it is what you have to manage; again, just getting sloppy from an execution perspective. So, obviously we are on top of it and we'll do our best to do a good job for you guys.

Appreciate that color. And then this may be -- Steve, this may be for you, but is there any way to quantify the impact of West Texas, I guess from a truck sales or parts and service revenue side or SG&A side, so we can see how that impacted on the quarter?

We kind of gave you the same store back in -- I can tell you on a G&A perspective part of the increase from -- not just West Texas, but we had the California acquisition with a couple million dollars that came from those stores. And I can tell you same-store truck sales were 2600 units on the Class 8 side, and that is mostly what they do in West Texas versus what we reported of 2738.

Got you. And then -- but no integration cost, nothing that you look to improve on with that acquisition going forward or, you know, incremental leverage points from that acquisition?

The West Texas was pretty well run. They were running high absorption rates. They're in a part of Texas that is pretty on fire in the energy sector. So that one wasn't as much of a fixer-upper as other acquisitions we had done in the past.

Obviously we are always looking to improve maybe on the truck sales side. But that one doesn't have as much leverage to it, perhaps, as some of these others we had acquired in the past year-and-a-half or two.

Got you. And then, if you don't mind, one quick last one. Rusty, you made a comment about I guess used truck values flattening out. Did you see that in the first quarter? I guess what I'm sort of getting at is, if you are buying used equipment and selling it, what does that mean for used truck margins that were pretty high in the first quarter?

Used truck margins should be solid. Obviously used truck margins in the first quarter were up over fourth quarter. Sequentially I think they were a 8.3% or 8.5% and they went up to 10% in the first quarter of the year. So I don't look for that to be a margin problem. (multiple speakers) valuations.

You know, we are managing tight. We are managing our inventory extremely tightly -- extremely tight. And it is always going to run something like -- when we are in the middle of a cycle, you'll typically see between 8% and 10%.

You know, I need that two-point variance. That is just the way it works. Depending on if you have maybe a large mix of wholesale in one quarter, you know what I'm saying? So sometimes that is mix issue that will drive at those 2 points, you know, move it around between 8% and 10%.

But that is where we have been pretty steady, maybe even over 10% at times the last year or so. And I just feel good that we'll be solid there. And we look forward to maintaining truck margins also with where we are at.

And I don't -- you know, I think one thing about truck sales, talk about new truck sales, and I'll just add a little bit, is our stock truck sales have been better than anticipated, you know. They -- we have had some nice stock truck sales. Now, we may to go to market a little different than we did six or seven years ago with how we go to sell stock trucks.

But (technical difficulty) of how we hit a lot of different market segments, but our stock truck sales have been good. Adequate financing -- and we have been able to find. Not like it is at peak market, but a whole lot better than it was a year or two ago. A couple of new small players have come into the marketplace from a financing perspective. So, that is a good thing and I expect that to continue as we go forward.

I don't look for -- look for financing to continue to get better. Financing options, credit -- credit criteria as far as from what you can get bought by a finance company. So that has loosened up somewhat, a little, and I look for that to continue. So those are good things, I think, as we look forward.

All right, well, I appreciate that color. And thanks for the time.

You bet. My pleasure.

John Barnes from RBC Capital.

Good morning, guys, nice quarter. Just on the same discussion around used trucks, are you having to source used trucks from different channels that maybe normal, just given how tight the market has been?

We have actually been -- we have had a couple of nice trade packages that we have taken. So we are always sourcing, John. Don't get that wrong. I have got buyers out there and we are always sourcing, but I don't think any more than we have done in the last year and a half.

This has been an issue for a while now, really for us for over the last year. So I feel comfortable. We are in the -- I think we have got around 1200 to 1300 used trucks in inventory, and I feel comfortable with that number.

Okay.

And that includes heavy and medium. So it's probably 800/400, something like that, a little more medium than I am used to. But we have got a little better in using the medium to the used market to make a little more margins. We have grown our medium duty presence.

Is there any particular type of used equipment that you just can't get your hands on that is causing you to miss out on sales?

No, I wouldn't say -- I haven't heard that. I'm sure if you went to some of our individual stores they are going to tell you, oh, I can't get this or I can't get that. You know getting the non-sleeper product has always typically been an issue, simply because those markets get hotter in some of our areas, some of the vocational stuff.

Especially back to the oil and gas; a shortage of non-sleeper trucks to sell into those sectors has been an issue, I'm sure. You can go ask any used truck manager and he doesn't have enough inventory. That is just the nature of the beast. I get paid to management now -- manage that, and I tell you we are okay on inventory.

Sourcing it is nothing out of the norm. And we -- when I said flattening earlier, I wasn't trying to say there's a bad. But we have had huge run-up in valuations over the last two years. And there comes a point where -- but we are past the point of where new truck prices have accelerated like they did after the 2010 emissions, so there was a catch up between valuations of used and the price of the new.

So, as I said earlier, supply side should not change. I mentioned that earlier in the call. Given there was 97,000 US retail registrations in 2009, there was 110,000 US retail registrations in 2010 and that tells you what [supply value is]. So valuations should remain strong for the next few years, foreseeable future.

And if I -- going back to parts and service, the growth there -- are you starting to see a material uptick in the ticket size in your service bays? Or are you -- is it just the age of the fleet is now requiring a broader amount of equipment to be more heavily maintained? Or is it some combination of the two?

I am going to have to shoot from the hip on that one. If you want to call me off-line or call Steve off-line, we'll be happy to get you average ticket price. I don't have it in front of me right now. But I will tell you it is more of just a broad brush.

I don't think you are going to see average ticket price go up that much. I know it accelerated in the last couple of years, but we should be pretty flattened out into that right now. It's just something I will have to get you the information on.

I think, you know, the most key thing is numbers. The age of the equipment is still roughly the same as what it has been as we are -- like I said, the last two quarters what registered (inaudible) I think the last quarter was [47,700 for] US retail registration and there was a little over 50,000 I think in the fourth quarter.

So -- but that is still only keeping us (technical difficulty) at [6.7, 6.6] year average in fleet age. So I don't see a lot of change in parts and service. And I just can't tell you about that. I don't have that ticket information for you here in front of me.

All right. No problem. Then just last question; can you talk a little bit about the trend you are seeing thus far this year in terms of fleet buyers versus, say, I guess single operators, owner-operator buyers in the first quarter? Have you seen any difference as a result of, say, bonus depreciation rolled off, similar to the fleet purchasing that was done last year versus this year? Have you seen any of that?

I think there's no question. We have seen some of that. There was a little softening, the first quarter.

I think that could be one of the reasons -- some of the something in the order intake that I don't think we booked as many fleets. I know we didn't. I know I have got a couple of big ones that I haven't even booked for the year that'll probably roll into the last half of the year.

But that wasn't totally about -- driven by tax. I think some of the medium-duty stuff might have been softened early because of tax. But right now, we are seeing orders possibly pick up and get back in the norm.

Like I said, I look for medium-duty deliveries to be stronger in the second quarter, because I think if they couldn't get it in the fourth, they may have stopped and didn't take as much. And we were off in deliveries in medium in the first quarter. I don't have it in front of me. We were off a couple of hundred units overall with bus in the medium.

So, I expect that to accelerate in the second quarter because there was a push in the fourth, maybe a little bit to get some in because of tax. Then there is a breather. And then here we go again, get back to the more normal flow in the second quarter on the medium side of the business. So that is what I could tell you.

Okay. Again, nice quarter. Thanks for your time.

(multiple speakers) more issues. There's a spike in fuel prices we had back in February and whatever, and March; the driver shortage, obviously. I mean those guys are having issues with drivers out there. There is no -- we went for a couple of years didn't hear a lot about it, but I hear about it a lot right now. A lot. And maybe some people bought the trucks that they took last year.

It was a big fourth quarter in deliveries because of tax and whatever. Those are -- some of those trucks had to be seated, and because of the driver issue they couldn't get them seated quick enough, so wait a minute; I don't want to take as many. So they are ordering, their order thought process in the first quarter was maybe off a little bit. So even though -- I expect it to be fine by year-end. These are just different little anecdotes.

All right, thanks for your time, Rusty.

You bet, John. Take care.

Robert Kosowsky from Sidoti & Co.

Good morning. I was wondering if you could talk about the distribution of new truck sales or new truck unit sales throughout the year, because the -- is one half potentially going to be stronger than the second half because the industry orders and production are looking to take a step down? And do you have any production -- or any perspective on your market share? Because it looks like it was running pretty high in the quarter.

Well, yes, it was pretty high. I don't want that margin share. I don't -- as we've said keep it around 5%.

You know, I think we ran better than that in the first quarter. We were -- I want to say 5% to 6%, I think, something like that in the first quarter of the year. But I would not want you to model around that. I would want you to model around the 5% number.

It can move back and forth from 5.1%, 5 -- something like that in the fourth quarter. It is 5.6% now. So, but model around the 5% number when you start talking about the organization. And I wouldn't look -- I would not -- I wouldn't be giving up on the second half of the year by any stretch. So that comment is not around that.

As I said earlier, there may have been a pause in orders. But I know we still have some business we are working on. You know, our quote activity is pretty strong right now.

So -- and there's still 6 months of build for me to sell into out there, okay? There's plenty of opportunities to sell product and plenty of products to be built by manufacturers to sell into and (technical difficulty) getting that done.

And numbers to be similar delivery numbers to what you have seen, I am hoping in the first quarter throughout the rest of the year. So if we can do that, work on our parts and service, even slight growth in parts and service going forward. And then get -- you know, work on our G&A, and some of the stores -- when that is on a same-store basis, and some of the stores that weren't here all last year come on with better results, we can -- you all can figure it out from there.

But I don't want to get carried away with where we're at. We are just in the -- we are in that middle, low -- early middle part of the cycle. In my mind we are in the third, fourth inning of the cycle. We feel extremely good about it. We have got a lot of things still to come on from different market segments. So that is where we are at.

That's helpful. And then just are there any kind of commentary on the revenue per truck? The way I calculate it, it looks like it took a big step up in the fourth quarter and another step up here in the first quarter (technical difficulty) what kind of mix is going on there?

A lot of that has to do with mix. We sold -- I think we had a higher mix of vehicles that had bodies on them, cranes, et cetera, like that involve. When you start putting on cranes that cost as much as the truck does, it can skew your mix pretty good because you are still just marked for one unit, and you got it. So a lot of that is mix.

I think truck pricing in the first quarter was probably -- a lot of those were trucks that were bought in the fourth quarter and delivered into the first. So the truck part of it may be up 1% or 2%, but not what you are seeing from an average price. That is more of a mix issue.

Okay, so there is like maybe abnormally strong mix here in the first quarter. You might take a step back down to the average-ish. Alright, that is helpful and good luck with the balance of the year.

Okay. Thank you.

Art Hatfield from Raymond James.

I want to go back to your comments about market share a little bit. Obviously people have done the math, and look at what you did in the first quarter and extrapolate that out for the rest of the year. And you get a higher number. And I know you are more comfortable where you have been historically.

But can we start thinking maybe in the not-too-distant future that, due to what you've been able to do over the last several years with acquisitions, and really the (inaudible) business and that you guys have been able to make over the years that you should start being more comfortable with a higher level of market share within the industry?

Well, hey buddy, a year and a half ago I was 3.5% to 4%. So we are giving you a lot right there already, right?

Yes.

So let's don't get too carried away. We were 3.5% to 4%. We are comfortable with 5%. From our own personal, you heard me talk earlier in the call that I possibly expect deliveries into the energy sector to be a little softer in the -- especially in the fourth, half -- the last half of the third and the fourth quarter, the way I see them right now.

So I expect to pick up some more fleet business, too, to offset that; some larger -- some other stuff that we are working on, and possibly some other areas. I said our stock truck sales had been inching forward, up probably over last year. At this time for the fourth quarter we were probably up about 10%, 15%. And we are going into a good, strong part of the year for those type of sales. So those are offsetting things there, so you are not going to get me to move it. So (multiple speakers)

That's fair. That is very helpful color. I have just got one other question because all of my other questions have been answered.

But just to kind of thinking -- is anything with regards to -- as maybe natural gas vehicles start to grow and become a bigger part of the market, anything that you would have to do in your parts and service business that would maybe increase the kind of expenses within that? Any maybe upfront capital that you may have to do or anything that would change the kind of profit/loss dynamic of that business?

No. I mean the capital -- the amount that's invested is more than returned. It's not that. It is not as much as you would think.

We would return very quickly; I mean a capitalized item, so, from an expense perspective it would be fairly negligible. You are not talking about millions and millions of dollars investment (inaudible). And the revenue that I would produce immediately would way more than offset anything like that

Good deal. That is all I have got. Thanks for the time.

Jeff Muhlenkamp from Muhlenkamp and Company.

I wondered what you could tell me about how the sales of natural gas powered vehicles is going and who is interested in buying those things?

Well, obviously the strongest market is the refuse market, for very obvious reasons. But we have seen some other people that are maybe servicing some of the gas fields buying trucks, a few municipalities we are looking at have looked at some natural gas stuff.

But of course municipals right now are having trouble with capital. So that is the biggest restraint on there. They have got a lot of interest, but the capital restraint is tough on them at this moment in time.

So those -- and a few -- the over-the-road customer with the LNG, we have got -- there are some new products that will be coming out early next year that I think will truly show -- give you a real opportunity at some other markets. With some of the products that are coming out, from Cummins perspective and I think from Navistar's perspective over the next year, will get us a whole lot better read of the natural gas going forward into more -- into broader market segments, if that makes any sense.

Because we have -- you know, getting a 12-liter engine out there is going to be extremely important. That is basically a 12-liter affordable engine with torque and power that we can sellout -- that we can sell into that marketplace is something I am looking forward to, at a price point that makes sense.

Okay. And are you getting any feedback from the customers whether they are happy about it, disappointed about it, don't like the price, that kind of thing?

No one likes the price, right? You ever seen a customer yet that liked the price? So -- but as far as the markets that people are using, they are happy with them because (technical difficulty) those are more -- that is more CNG than LNG stuff. So it makes sense, if you follow me.

So we will -- but we'll see. I am waiting on some more products that are coming forward. Look, natural gas should be a great thing for this country and a great thing for this industry from my mind and my perspective.

Now acceptance is going to take -- the continued growth on infrastructure, the continued investment in R&D into product, but from a supply perspective there's -- from the way I read it, if you look at the country and the supply of natural gas, there is no reason as a country, as I have said before, we shouldn't continue to push this forward.

Thank you.

Chaz Jones from Wunderlich.

Good morning, guys. I wanted to get back to that product diversification focus and how you had said that the acquisition environment had kind of slowed a little bit of the truck side. I think it was in the last call and the valuations were moving up. But it would seem that the construction equipment market has kind of lagged in the recovery, and was just curious if that was still an area of focus for you guys to reenter.

Well, of course it is. I can't say that there is anything imminent or anything that we have got right now on our plate that we are looking at, but you bet. We are always open, as we have said in the past, to wanting to get back in the [seed] business since we exited about a year and a half ago.

But, you know, until -- as long as you've got housing where it's at -- and there's a lot of people that still aren't doing as well as they should, because housing is still the biggest driver of construction equipment. But we don't have anything on the plate on our plate right at this moment.

You know, but we have been focused -- we're focused. We bought well over 20 something truck deals in the last two years. So that has taken most of our time because we felt that was the best use of our capital and expertise inside the organization to do that. And we still believe that we want to grow, buy some more truck deals.

And we are still looking. And I can't say that we are not working on a few, not that I am going to talk about any of them coming to fruition, but obviously we'll continue to work on them. And but -- when we see -- we will -- we are going to -- if I see any deal comes along, obviously we would be interested in looking at it if (multiple speakers) it makes sense for us.

Got it. That is all I had. Thanks. Nice quarter.

Thank you.

(Operator instruction). Brad Delco from Stephens.

I apologize. Just wanted to follow up with one more thing, and it was actually acquisition-related, so Chaz may have covered it. But when you are out looking at these deals, and it sounds like you said the activity looks like it has picked up, how do you look at acquisition multiples maybe relative to where you are trading at on those same multiples? I guess my point is is that -- do you view your stock as being undervalued? And how does that change your perspective in terms of potentially buying your stock versus making the acquisitions?

I am really not going to get in as much to pricing, but in a simple statement, obviously I am going to pay less than what I get paid, you know. I am going to buy less than my multiples. Every deal is different, and it has to make sense for the seller and the buyer.

But obviously I do believe, no question, are you going to get me to say we're undervalued? Yes. You look at the performance of the organization last year, you look at where you folks have us this year, and I look at the price of the stock, I look at our history since we went public on June 7 of 1996 and how we performed throughout all cycles. Yes, are we undervalued? You better believe we are undervalued.

So -- but from an acquisition perspective, I don't want to get into too many details. But I would let our track record speak for itself. We do know how to buy stores. (multiple speakers) I'm just not going to get that much into that detail.

And then maybe one follow-up. I mean, to me, the pushback as to why you wouldn't buy your stock is because of liquidity. And then that brings up kind of a second question. At any point do you feel like going back to PACCAR and addressing the A and B class share structure, and is that even on the plate?

That is something that is not for this phone call to discuss, to be honest with you. That is between me and my manufacturer, and I would never want to discuss that in the open public forum.

Got you. All right, well, appreciate the time.

I'm showing no further questions at this time. I will now to the call back over to Management for further remarks.

We appreciate everyone's participation and we look forward to talking to you with second quarter results in July. So, thank you all very much. We appreciate it.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect and have a wonderful day.