Rush Enterprises Inc (RUSHA) 2014 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Rush Enterprises Inc. fourth quarter year end 2014 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 introduce your host for today's conference, Mr. Rusty Rush, Chairman, CEO and President. Sir, you may begin.

Good morning, much and welcome to our fourth quarter and year end 2014 earnings release conference call. On our call today are Marty Naegelin, Executive Vice President, Steve Keller, Senior Vice President and Chief Financial Officer, Jay Haselwood, Vice President and Controller, and Derrek Weaver, our Senior Vice President, General Counsel, and Secretary. Now Steve will say a few words regarding forward-looking statements.

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include 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 annual report on Form 10-K for the year ended December 31, 2013 and in our other filings with the Securities and Exchange Commission.

2014 was our year of integration and execution. This led to a record-setting performance, including annual revenues, net income, Class four through eight new and used truck sales and after market revenues, lease and rental revenues, and absorption ratio. As you have read in the news release, our net income for the year was $80 million, or $1.96 per diluted share, on gross revenues of $4.7 billion. These result as net of a reduction of $2.1 million of net income or [$0.05] per diluted share related to the impairment of the company's aircraft. For the fourth quarter net income was $24.6 million, or $0.60 per diluted share, on gross revenues of $1.3 billion.

In the aftermarket, we realized the full impact of previously completed acquisitions, continued strong demand for repair and maintenance of aged vehicles, and incremental work driven by recorded new and used truck sales. Our aftermarket revenues reached a record $1.3 billion this year, contributing to an annual absorption ratio of 117.8%. Our fourth quarter absorption ratio was 119.3%.

We continue to grow our aftermarket solutions in 2014. We expanded our Rush Care rapid parts call centers, added natural gas service, remained on target to launch our momentum fuel technologies and natural gas fuel system, and are progressing on initiatives using telematics and a communication system that will help improve customer uptime, vehicle utilization, and driver schedule.

Moving on to truck sales. In 2014 our Class eight retail sales reached 15,833 units, significantly outpacing the US market and accounting for 7.1% of the US market share. Large fleets continue to replace aging equipment, and stock truck sales to small and mid-sized fleets continue to be strong. Our Class four through seven sales were up 17.5% and accounted for 4.9% US market share. Our ability to offer diverse range of medium duty products and a large inventory of ready to roll equipment continued to drive our strong sales performance.

Our Rush Truck Centers dealership network has grown to 112 locations in 20 states. This week we completed an acquisition of Effingham Truck Sales, adding two international dealerships in Effingham and Mount Vernon, Illinois and commercial lease and rental operation in Effingham. Late last year we acquired assets of North Florida Truck Parts Inc., and we're now operating as a full service Peterbilt dealership in Lake City, Florida. We also added new locations in Texas and Florida. This month we will relocate to a newly-constructed facility in Cleveland, Ohio and continue to invest in facility renovations and new constructions to expand our service capacity.

Looking to 2015, ACT Research forecast Class eight US retail sales to reach 263,500 units, up 17.6% over 2014, and US Class four through seven retail sales to reach 206,500 units up, 3.4% over last year. We expect demand for Class eight trucks will remain strong, as fleets upgrade equipment and activity in construction continues, but expect expansion will be moderated by the ongoing driver shortage. We also expect Class four through seven new truck sales to remain strong.

We continue to monitor oil, the price of oil, and its impact on activity in the energy sector. We are already seeing signs of softening in this part of our business, but do not expect to know the full impact many in this the spring. We believe lower fuel prices, though, will have a positive impact on some customers, the overall community, and consumer spending which should help offset some decrease in our energy sector business. As in past years, we expect general and administrative expenses to be sequentially higher in the first quarter of 2015 due to the employee equity compensation, benefits, payroll taxes, and acquisition costs.

Finally, I want to thank all of our employees and congratulate them on helping the company achieve another record-setting performance. With that I'll take any questions.

Thank you. (Operator Instructions). Our first question comes from the Andrew Obin of Bank of America Merrill Lynch. Your line is now opened.

Hi, good morning.

Good morning, Andrew.

just a question as a first a good question. As I think about your SG&A, it keeps coming below our forecast. It's very impressive. Can you talk about how is the system integration going, and what should we think about it going forward relative to history?

Well typically, seasonally if you look back on it historically, Q4 is our best G&A quarter. You've got to divide into S and G&A. So to answer that question, I think our G&A was good in the fourth quarter and I always say, and as I said earlier in my comments, the first quarter is usually the toughest quarter, okay, just because of how things kick back in. So this was nothing out of the norm from my perspective. As far as -- what was the back half of the question?

Oh, just how much should I think about it relative to history?

We should have our SAP integration rolled by March, finished rolled out. I would expect the training cost and everything to continue through the first six months of the year, but we should be fully rolled out to all the stores. We have one more big one going on in March. So by spring, we'll have it all complete. So going forward, the whole company will be on one business system.

Okay. And just a follow-up question. We're hearing a lot about energy folks asking for discounts, and your service business been a huge profit grinder for the company over the past several years. So how should we think, without telling us that this data is competitive, but how should we think about gross margin and your service business going into the second half of the year? What should we think about it?

Well, Andrew, there's no question that that is typical -- being from Texas originally for the 56 years of my life, I've been around the energy sector quite a bit so I've seen these cycles numerous times. That is typical. Discounts are typical at this timeline, at this timeframe, when you see oil prices drive down like they have the last six months. So yes, we're seeing it like I'm sure other companies are seeing it as everyone's trying to get it -- obviously compressed before you don't even use the equipment or purchase equipment whatever whether it's rental or service that we're providing, whatever. This is a typical of this time in the cycle.

At I look at the oil business and I said in my comments, obviously is this a part of what you do? You bet it is. The energy sector is important to us -- but it's not everything in what we do. If I look at the oil business and we're right in the middle of it right now. So as I said, I think it will be spring before I really know the full impact to the company. We're monitoring it on a daily basis obviously. At that time from a -- if you look at it from an EPS perspective or something like that or from that perspective, it could be as much as 20%, up as much as 20%, but I'm not ready to say that at this time and could be full of it. But I believe it could be an overall impact from a yearly perspective.

Now that being said, the offset to that is that the diversification of the organization, okay? And we still expect to deliver nor trucks and in 2015 than we did in 2014. We still expect our parts and service business to grow, even outside of that. But we've got some great things going on with the investment that will come on track, the back half of the year with our Momentum Fuel thing which really is a 2016 if we want to know it but we're really excited about that. Our customer interface that we've really focused on the last six months, and we've got a lot of good things going on from that perspective.

So obviously it's just one sector that we serve, right? Is it an important sector? Of course but construction will be better this year. The fleet business will be better this year. So from a company perspective, that's right now how I view oil and gas and its effect on the organization.

So did I hear right 20% number? I'm sorry, is that 20% hit to earnings from energy offset by other stuff, sorry?

Yes, I didn't say it was totally offset. It could be more, it could be less offset. I don't know this early in the year. But when it all unfolds, okay, this may not be in Q1 or just Q2 but as it unfolds throughout the year and this is just an estimate, remember this is my estimate. There's no -- I don't have other than doing this for maybe 35 years, that's what I'm going off of and what I'm seeing. We take some of those assets. Just because some of those assets come out of the oilfield does not mean they're not redeployed in other areas, right?

Right.

But there's a transitionary period. In my guess, that's probably on the -- you know me, I'm going to be pretty conservative with you, so but that would be it. That's exactly what I said.

But at the same time I try to show the other positive side. You have to be -- you've got to stare at the face and be factual, that's the only other way I've ever done things. That's what it is. We're prepared to do everything we can to offset that in other ways and I like to think we've done that historically in our past and our history.

Thank you very much.

You bet.

Thank you. Our next question comes from Jamie Cook of Credit Suisse. Your line is now opened.

Hi, good morning. And nice quarter.

Thanks, Jamie.

I guess a couple of questions. One, you just spoke to Andrew and the potential 20% headwind but Rusty can you just give us color in what you've seen in January and February in terms of your customers? Have there been any orders that they were talking about that have been pushed out just the conversations that you're having with them and how you're deriving the 20%? And I recognize it's an estimate.

And then I guess just my second question -- in terms of more quantification on your offsets, how do we think about the contribution of the Navistar acquisitions in 2015 versus 2014 and have you made more traction there? You talked about SAP being done mainly in the first half of the year. Does that mean, when we think about your costs in the back half of the year, should be down a certain percent? 3M, again, I'm just trying to get clarification of the offsets.

I'll try to give you a little better flavor, Jamie.

Thank you.

First off let's go to your first part of your question. That was, what have I seen in January and the first couple weeks of February? Just what you would expect. Softening of orders, of course. Okay. There's no question when it comes to a truck sales perspective, they're definitely going to be off. Okay? There's no question, the oil and gas sector of trucks is going to be off. You can't run from it. It's just the way it is.

At the same time, the most -- the part I worry about more than anything else is what does it mean to the back ends of my business, right? It's as critical to the back end, it's more critical to the back ends of our business than it is the sales side is. So that's what we monitor very closely. We're seeing some softening, not like the order side, and that's the part that I really won't know until the spring, okay? I won't truly understand it all until we get into -- I mean we understand it. I don't mean we're naive, but truly understand the actual impact as it continues to unfold on a week-by-week or day-by-day basis. So as we redeploy those assets, all the mobile stuff we do. We do a lot of that and we do a lot in our rig-up shops.

But we have other business too. We're not just in oil and gas. You would think we were just an oil and gas company if you watched the stock the last couple months. So it seems to me it's already in there. But at the same time it will continue to unfold. Have I seen some softening on the service side? Yes. Just in the last couple weeks but it's not like it's a 50% hit to it or anything like that. Maybe a 5 to 10% softening, okay?

Okay.

Now where does that bottom at? I'm not quite sure, right? Where does that go to? I'm not quite sure. We're right in the middle of it so I'm not where that stops at. Where does the rig count bottom out at? With oil prices starting to come back, will we get some type of stability in it? I mean I have my own -- everybody's got a theory right now, right? Everybody's got an oil and gas theory on where's pricing going to be. Where is it going to be now? Where is it going to be in 12 months? I have my own. I don't know if anybody wants to hear it.

I do.

I'm not an oil company. I'm just Rusty, right? I think you're going to continue to see it bounce around where it is the next six months and if it's not $70 bucks, 12 to 13 months from now, or better, I would be very, very surprised. I just believe we're going to continue to grow inventories and then I think that -- a lot has to do with demand. It's global demand has a lot to do with this. Obviously that was the big driver last year with the one -- we have supply but the big -- we went into the year last year expecting growth in oil of 1.45 million barrels a day in January and ended up being only 650,000 barrel barrels of day of growth of consumption because of Europe and Japan and all of this other.

There's a lot to do with global demand but if you get some decent global demand and we have got to always understand about fracking wells. Fracking wells run off 30% to 50% after one year. If you stop drilling them, it's pretty easy to see if you stop drilling, production's going to go down, right?

I don't believe this is a three or four-year deal. That's just my say. I don't think you're going to get back to $120 here or there, but I think you could get back to some stable prices a year or so from now. We should maintain activity. How do people approach that? Do they go back in and do they drill as fast and hard as they were? I'm not sure about all that. I think you're going to see some stability somewhat arise in the price 12 months from now.

That's just my take on it because I think -- and a lot has to do with demand. I can't -- I not positive about global demand. But if global demand is decent, better than what it was as we get into the back half of 2015 and we get into 2016 and some of these other global economies maybe recover a little, since we're that one island in the world right now that's doing well, then I would say demand being up and it just makes sense to me. And that's just my opinion of it.

And I guess one clarification. I mean on my last question which I trust, I know that you and your management team will do a good job controlling the things you can control, costs and stuff like that if the markets get weaker, but the flip side is the stuff you can't control. So can you talk about the Navistar acquisitions and Navistar's had a harder time sort of gaining the traction in market share that they would have hoped by now. Can you talk about the conversations you're having with your customers? Do you expect that to improve in 2015?

And then my last question is how much of a -- when you think about the freight liners and the Volvos and everyone else talking about vertical integration of the drive train and engine and the transmission, do you think that's a disadvantage for Rush? Can you talk about that's as big of a deal as some of your --

Well, I think there's -- let's talk about Navistar first.

Okay.

All right? We've bottomed with Navistar. If you look at my backlog now, it continually going up. Our backlog this year was better than it was when I talked to you guys back in October, okay?

Okay.

So if that's any indication of it, it's better. Is it still a difficult row to hoe, you bets it. Nothing to do with the product currently. The product currently is a good product. They've got some great stuff going on. They are a finally able to do some work with the truck, okay. All they did the last five years go back to 2009 was the EGR mess and everything else, so all the resources -- 80% of R&D resources were dedicated to that. Now we're focused back on the truck. We've become a truck company again and not an engine company, okay?

I'm comfortable that Troy Clark and his team have done a good job, they have. It's just tough headwinds or should I say tail winds, however you want to look at the 70,000 EGR engines that are out there. But it's just the facts, okay? It's the facts. But every day that goes by we continue to work with customers.

The product that's out there, those used trucks, if they've got all the campaigns done and they're properly slotted in the right jobs, the trucks work. But the perception sometimes is 80% of reality. The beat-down over the last few years over the EGR engines is tough to overcome. We are working diligently to try to get the valuations on those used trucks back into the marketplace. I'm personally working very hard, biweekly conference calls with those folks about programs and products because that's been the toughest thing really to overcome is how to how to handle that problem.

As I was saying in my typical language, at least the only good thing I can tell you that every day it goes by you it gets a little further in the rearview mirror and appreciates another couple dollars on somebody's balance sheet and get hopefully gets closer to market value. That's the biggest hurdle. That's the biggest hurdle that we've had to have with that one.

I know it's getting better every day. Yes, there's upside in the Navistar division. There's no question about that. Where it is exactly, I've not pinpointed yet. We're still integrating those stores. I just bought a couple more this week, closed on Monday. There's a constant integration of different cultures and different stuff and it takes years sometimes, two, three, four years to get them into your processes and your way of doing business and the Rush way of doing things. So that's all upside.

To quantify that into dollar and cents, I'm not going to do that here today but I know it's upside. I think historically you've known us for years, we've always got broad upside to the business over time. That's one thing I'm proud of our organization and our people, not me necessarily, but the folks we have that are able to do that. So that I know has upside in it. What was the back half of you were question?

Vertical integration, disadvantage, the transmission, everyone's making --

You know what? I see good and bad. That's not a path that Navistar can go down. I think that will be a path more in line with Volvo, Freightliner, Paccar, obviously partnering with Eaton, etc. That's important. That's going to be important integration, and will continue to be important as we drive towards ten miles a gallon which everybody wants to see sometime in the next decade, right, from a truck perspective. If they can get there.

So I think it's important. Do I think it's a total game changer and take someone out of the game? No. I do not. I do not at all. Because I think there are partnerships out there with suppliers that such as an Eaton or people like that that you can form that can be just as -- just as good in the marketplace from a product perspective.

okay. All right. Thank you. I'll go back in queue.

You're welcome, thank you.

Thank you. Our next question comes from Brad Delco of Stephens. Your line is now opened.

Good morning, Rusty.

Good morning, brad.

Rusty, I'm going to spare you a question about oil and gas.

Oh, come one. I figured that was going to be the whole morning. Like I said earlier, Brad, I feel like I've traded like an oil and gas company recently so I might as well answer oil and goes questions.

If you insist, let me try to ask a question that may have a positive spin to it then.

I'm positive. I feel good about the organization, if you can't tell. These are the kind of times you live for, man.

Let the numbers speak for themselves.

I always do.

So Rusty, if I'm correct, you've been servicing a lot of this oil and gas business with the growth in your mobile techs, which I think has per your prior comments changed a little bit of the margin profile of the parts and service business. Could you think about that trend reversing if you see less assets deployed in that mobile service technician arena? Meaning would that ultimately be accretive to your parts and service margin?

That's tough to say, Brad. It's not always been just that. A lot of what's going on is the integration of all the Navistar stores too. A lot more non-proprietary stuff. It's a different customer base. It's not just been oil and gas. I'm not going to sit here and tell you that margins are going to go up. No, you're not going to get me from a parts and service perspective, because we did have a lot of service that were some costs involved. I don't anticipate margins going up on that business, no, to answer you.

Does it mean -- I do anticipate parts and service growth but I don't anticipate which hopefully will maintain margins. Even in spite of everything going on, I hope to have parts and service growth picked up in other areas of the country, okay. But maybe not in the oil and gas stores. There's no question about that but I don't see any incremental margin necessarily outside of our 36% to 37% typical range.

Got you. That's good color and maybe just a quick follow-up. So you announced I guess you said there were two stores in Illinois on the International side that you just purchased, closed Monday.

Yes, sir.

I was under the impression that you were going to hold off on some acquisitions until we had sort of the completion of the ERP system, sort of in sight. I guess at this point, if you're making these acquisitions, are they just immediately rolling onto the new system? Or has that prevented you from being more aggressive or acquisitions and can we expect that to pick up once we get through with this?

Let's back up 12 months, okay? It was time to integrate and execute after 35 new stories in 2013, okay? That was first and foremost what growth is. Secondly, yes. We wanted to get the system rolled out at the same time. The system will be rolled out in March. We just made the determination two stores weren't that big a deal. We left them only their old -- we left them on the CarMac system which is what we have used prior in our organization. So we understand the system. We will roll them on at a later date, later spring or early summer onto the SAP system. So I guess when we're completed in March, we won't be completed in March because I'll have these two stores, but two stores wasn't that big a deal to handle.

So it was -- that was. After this if we do any other acquisitions, this will be the last acquisition that doesn't go directly to SAP. But you got to remember, though, the acquisition we did last year when we bought all Chicago and Indianapolis, we left them on theirs and we rolled them in the back half of the, late Q3 and into Q4. So this will be the last acquisition that doesn't go direct to SAP. From now everything will go direct to our normal business system but two stores we figured because of CarMac we're used to handling CarMac, it wasn't that big a deal for us.

Got you, but just to clarify. You're sort of back out in the market and you're looking and the fact that you haven't completely rolled out the ERP system isn't holding you back?

No. Timing in life is everything. There's a lot of trucks being sold. A lot of smart truck dealers, just go ask them right now. Okay?

Got you. Rusty, I appreciate the time and the color.

You're welcome.

Thank you, sir.

You bet.

Thank you. Our next question comes from Neil Frohnapple of Longbow Research. Your line is now open.

Hi guys. Congrats on a great quarter.

Thank you, Neil, I appreciate. It.

Rusty, how are you thinking about parts and service business, same store revenue growth in 2015 for the overall company? I know you've talked about not really knowing about the headwinds on the oil and gas side until the spring. But do you think you guys will still -- historically I think you've done mid to high single-digit-type revenue growth within part and service. How should we be thinking about that in 2015?

That'd be our goal, high single would be a goal. Realistically, mid-single might be more realistic. We would hope we would still be able to in spite the oil and gas headwinds that we face in certain parts of the country. So that's where we're at. I would target mid, target the middle right now because I still got to -- as I said and you said also, you've heard, I don't understand the full effects of it yet because we will and understand it better over the next two to three months and then we'll see how much good we are at executing in other parts of the country and trying to pick some of that back up in the stores that are affected most by it. And so go mid. Normally I would tell you I would want you to do a little higher but right now, I would just say, stick in the 5%, 6% range.

That's really helpful. Thank you. Given the robust market share of 8.1% in the quarter on the Class eight side you guys experienced, can you help us we should be thinking about deliveries in Q1 also considering the softness in oil and gas.

I'm going to tell you this. This is not really a reflection of oil and gas. The fourth quarter wasn't dominated and deliveries by oil and gas. We had a lot of fleet business in the fourth quarter, okay? We had a lot of fleets, small and large mid-sized fleets and other. First quarter deliveries are going to be off the fourth quarter. While I say the overall year I project will be above where we were in, there's no question I'm not going to deliver 5000 Class eights. It's probably going to be closer to that [4something] number, in that range. We would see deliveries down sequentially but up year-over-year but down sequentially year-over-year big but down sequentially in the Q1. But I think look for the whole year to be more. So if that makes any sense.

It's timing a lot of times. Some of the large fleets get a lot of trucks at yearend, mid-sized fleets especially, everybody making sure on their tax deal, things like that. So Q1, looking, as I look at some of the stuff that's coming, it's mainly more loaded into Q2 and Q3 and that's just timing when people want their trucks, want the product. Sometimes wintertime is it not always the best time. In fact if you look at Axe numbers they're expecting it to be down close to 5% Q4 to Q1 sequentially so we might be a little more than that from a delivery perspective but that's how I see it.

All right. That's helpful. And then just one last one maybe for Steve. Do you guys have the gross margin breakdown by truck in the quarter between heavy, medium, light, and used?

Yes, the heavy was 6.6%. Medium was 5.5%. Light duty was 4.9%. And the used was 6.2%.

Got you. All right. Thanks a lot. I'm pass it on. Thank you, guys.

You're welcome, thank you.

Thank you. Our next question, comes from Bill Armstrong of CL King and Associates. Your line is now opened.

Good morning, gentlemen. So on parts and service gross margin within the Navistar dealerships, I know they've kind of been less than the company average. What's the outlook for improving both parts and service penetration as well as margins in those acquired dealerships?

Okay, well, one of the reasons you see the margin is that they are more heavily weighted to parts. Remember, it's a blend, right? Service obviously creates better margins than parts, and we sell more parts. And the blend makes it different than it is on the Peterbilt side of the house. That's one of the telling things.

We see a lot of good upside. You look at us opening a new store in Cleveland. We're 2.5 times the bays. Some much these stores that I bought, okay, do not have, they're not facilities -- I got facilities a lot larger than that in -- that facility anybody's in Cleveland go drive by it. I know Neil's up there. He told me, it is the nicest dealership in Cleveland. All of a sudden, we have put 2.5 times the amount of bays. So hopefully we can drive more service.

That's what the investment piece is all about. We've got one going on in Cincinnati. We'll still have the old building, we don't have an old building in Cleveland. In Cincinnati we're going to keep the building we're in up with we have everything and we're putting another 50,000 square feet or so down. And it's only 30something thousand there so we're almost I am tripling the size of our capacity there. But that will come on later in the year. These things take time.

But that's what we're really focused on, and then getting into the mobile business. Getting bigger in the mobile businesses as we are in our Peterbilt stories. I can go to certain areas of the country where there is no oil and gas where our mobile business is growing great. California we're doing a good job. Florida last year especially did a great job on the mobile side. So as we bring these practices into play, we can drive more service, okay, to match the parts side of the house. So that really is where our focus.

And then also it's the parts business. It's going after that all makes business, all that non-proprietary all makes business, bringing that -- and we're doing that across the whole company. That's not just at the Navistar side. We're going to be better at that. That's one of the things I'm as excited about as anything is the parts business and how we continue to learn how to do a better job in the all makes business. Because when you think about it, say I always tell people, think about this. We're probably if you get into our territories, we're probably about 10% parts. We don't sell 90% of the parts in our area. Now some of them we can't sell because they may be a Freightliner part or they may be a Volvo proprietary part, but there's a lot of open runway there for us to do a better job. And that's also not just on the sales side but on the acquisition side of it as we continue to grow our private label brand. So we've got a lot of -- there's a lot of things that we're working on.

And as we're working on systems, I'm not going to get into it all of it we're working on customer touch points and how much we keep people up and running. Remember, we're a service company. We're not just a truck sales company. That's what we're really about. That's what drives our sales. Our service drives our sales, always has, always will. And how we are with customers and how we, people know if they do business with us, we can keep them up and running better than any other dealership group in the company.

Manufacturers try do it all but it's very hard for them to corral 80, 100, 200 different dealers and make them all walk down the same path. It's pretty easy to tell my folks to walk down the same path. So as we continue to branch out and look at systems and using technology to interface with our customers at a faster, higher, better rate and keep them running no matter what market segment they're in. I don't care if they're construction, refuse, over the road. Those are the things that we've been focused on. I've mentioned them in the last couple calls and we're pouring lots of resources into that.

And I know I give a long winded as always but you get me a little excited about it but I'm very excited about that piece of the business and how people want to -- get more people to want to do business with us because it makes sense for them. And that's the focus, and that's what those dots on the map are all about. And I'm tying them all together.

Right. And with the energy sector, that was pretty clear how that would affect truck sales. But I imagine it might be a little more muted or you show more gradual decline in farts and service just because -- parts and service because you're still servicing vehicles that are out there in the field.

That's correct. The truck sale thing is the first thing to go. The CapEx budget is the first thing that's cut, right?

Yes.

I realize we're not going to -- but don't think -- if I'm going to look at it and tell you if our truck sales last year Class eight, this is a swag like I've always told you, probably 10, 12% of our truck sales were tied to the oil and gas. But it's very difficult sometimes to get your arms around that number. When it comes to the big guys, it's easy to see but sometimes it's those tentacles. It's not the guy, it's not the second tier guys. It's that third and fourth tier guys that are tied to it. But I'm going to tell you somewhat on the high side 15% and I don't believe it's that high. That's a conservative number of our truck sales were tied to oil and gas.

The service side does take longer and the service side, listen, it's not going to zero on the service side, okay? That's not going to happen before they're not going to completely shut down drilling wells, okay? It's just, where does it land?

And we've spent a lot of time modeling around here on what different incremental stuff and I'm not going to get into it during this call. That's for us to do. We run this company. But what it means when the service is off this or off this and what it means in truck sales or off this, that's where my comments come from. They come from a little bit of factual, not just guessing, trust me, as to what it means. But it's just estimating where does it end and then where does it pick back up again? That's, I guess that's what I got to say.

Got it. Thanks. Appreciate that. Just a quick question for Steve. Do you have the fourth quarter same store sales for Class eight and for parts and service revenue?

Yes. One second. Fourth quarter, you asked for?

Yes.

Percentage wise, same store sales on the back ends were up 17%.

Wow! And how about are to Class eight unit sales?

Just Class eight. Same store sales on the Class eight side were up about 1600 units.

Okay, great, thank you very much.

Thank you. Our next question comes from Art Hatfield of Raymond James. Your line is now opened.

Hey, morning everyone. Hey, Rusty, if I recall correctly, you said in 2014 that SAP implementation would be about a $0.10 headwind through the year. Did that come in as expected? And then to follow up on that, kind of how much of that do you think you recapture in 2015 once implementation is done?

Well, yes, that's roughly about right, Artie, that's what it cost us. That should continue through the first half of the year because I've still got, we roll out late March and you don't just shut it off immediately. You've got training them and stuff that goes on when you put it on. You have to teach them how it use it. The first half of the year that will continue at that run rate.

The thing, though, to keep in mind, remember, I'm still spending money on Momentum. I've got Momentum that's going to accelerate a little bit and comes me a few cents. I would look for it to cost me $0.04 to $0.05 over the next six months or so as I continue to invest before I get to market. We'll be showing our prototypes and stuff with the ACT Natural Gas Conference in Dallas in May. We're on time with that and we expect to be in market and we have always said June. But really we're talking back half of the year and then you have to build up with those technologies. We are very excited about that.

So I don't know that you're going to see a huge pickup there just because SAP is all rolled out. Especially not in the first half. You might get a little bit in the back half of the year. By that time we will be going to market with Momentum but it will be a gradual growth. You don't immediately walk out and sell.

Speaking to Momentum, does the lower oil prices change your outlook on how that may roll out? I know you've been conservative in your thought process early on.

No. Long term, Artie. Short term? Sure, you can say short term but a good part is I'm not rolled out yet. The oil prices are down. I'm counting on oil prices coming back up.

But over the long term, let me go back to my comments as they've been all along. Natural gas does not replace diesel, period. Remember that. Does natural gas have a place in the market? You bet it does. There are certainly market segments where it totally makes sense and it's not just refuse. There's a lot of beverage hauling and a lot of construction and mixer trucks and things like that, municipal businesses where things make sense.

I still am on track. I don't believe that oil prices are going to remain at $50 a barreled in 2017, 2018. I just don't see that happening myself. And even if it did, there's still a marketplace for it. But I still believe that by 2018 that natural gas has a chance to be around the 10% mark of the trucks being sold, as infrastructure continues to get built out and I think by 2021, it could be 15%. I don't see it going to 50% or something like that. But it does have a place and we're still just as excited about it as I was day one. I am. Because it's a long-term play.

And I think we're going to be the best at what we do. Do you know why? Because service. Everything we do is about service. And so I do believe that our service abilities will continue to shine even in this market like they are doing in any market we get into, with all the touch points that we have and we'll continue to grow our touch points that we have on the map. That's what differentiates us on the truck side and that's what will differentiate us on this on a long-term perspective.

I still think when we get out to the 2016, I count on it being a nice contributor to the organization. And I would very surprised -- I could be wrong, but I would be very surprised if I'm wrong.

Thank you for that. Hey, quick question. I haven't heard that you addressed this and maybe you have and I just missed it. D&A in Q4, big sequential uptick from where it's been. Can you talk about that number and what -- is that the right number now going forward?

Artie, the impairment charge for the airplane was $3.4 million pretax. And that number on the income statement was in D&A line item. So if you back that out and use what's remaining, that would be the run rate to look at.

And why was there an impairment charge on the aircraft?

We manage our aircraft by lots of different factors, right? We were looking at a possible trade. There's times when you should trade these things. And in that process, it came to our attention that it wasn't worth current market value. So the accounting rule is part of what you write it down and that's what we did.

Thank you for that.

Really quick, Artie, that was nothing out of historical. We dont wrap our used planes, we have at it for 20 years to get around all these location and all these manufacturers and conferences you guys have and it was typically every five to seven years but we took a look at it and said, "Oop, we have a problem," and so we handled it.

You ended up keeping the aircraft, though?

Currently but I would expect -- because for maintenance reasons and whatever, we've had these things for 20 plus years and for reasons that make sense, we typically trade every five to seven years and trust me, I trade for one used just a little upgrade on another used one.

On the balance sheet, there's an asset held for sale thats a new asset, and that's the plane.

Got it.

Clearly we'll be looking to trade that.

Okay. That squares away a couple questions for me.

The other thing I want to ask you about, Rusty is parts and service. And look, you've addressed the issue of the oil and gas market and I know you're not fully knowledgeable on where that may go. But the other aspect too that I guess could be a potential headwind is the fact that you seeing so many new Class eight trucks being sold and the replacement cycle may reduce some maintenance needs on some of the older vehicles you see roll through your shops.

Can you talk about if you're seeing any of that in your business? And if you combine -- and again, I understand you don't fully know the impact of oil and gas yet. But do those two things combined get you concerned that maybe you can't grow parts and service in 2015?

No. I will tell you that oil and gas would be the bigger headwind. I'm not so worried about, we historically -- I've been through many upticks in truck sales cycles. Never gone backwards once. The only time we ever went backward in parts and service in 2009, and I don't have to explain 2009 to anybody. So I would expect us -- the biggest headwind is oil and gas. The vehicle sales, remember probably 10% to 15% of our parts and service business is derived from from the outfitting of not just the oil and gas business but other industries where you put stuff on trucks and get them ready, things like that. And then of course what happens is your warranty -- if you do have an offset, typically your warranty you may shift a little bit more warranty sales than -- the warranty sales go down, excuse me, I'm sorry. Typically but actually they go up because you've got more new trucks there that are under warranty. Where your warranty sales go down is when the age of the fleet goes up, if you understand what I'm saying.

Yes, yes.

We've always -- that's never been a problem in the past.

Is there a big difference in warranty margins versus kind of out of warranty margins?

No. They're probably as good and the best thing is you get your money, right?

Yes.

They got to pay you. Maybe a little bit different hourly stuff without getting into all the details. But no, the answer is no.

And getting the last question from me, you talked a little bit about gave some thoughts on where Class eight vehicle sales could be for you in Q1. But for the year, I think you alluded to the fact that you do expect to grow Class eight vehicle sales despite what you see with oil and gas. Did I hear you correctly?

It may not grow -- look, ACT is just like I am.

Right.

Their growth may be showing a little bit higher than mine for the year. But I do expect right now, now remember, I say this --

I understand things change.

Remember all. Q3, Q4, not even all Q2's all booked. But you're in touch your customers, you understand their plans and based upon all the budgets and business plan the guys have been working on with the field guys to the corporate through field. They're in touch with what's going on. So yes, the answer is yes. Maybe not to the same growth as what ACT has been but I beat them every year so one of these years I might have to lose a few percent but as long as I grow, I guess I'm okay.

After 2014's growth, you're excused for one year.

I appreciate that, Artie.

Thanks, that's all I got today.

You're welcome.

Thank you. Our next question comes from the Joel Tiss of BMO Capital Markets. Your line is now opened.

Hey, I made it. How is it going, guys?

Good morning, Mr. Tiss.

I saw your plane impairment was from bringing some rogue analyst or something on the flight and he puked all over the place or something?

You have peace always got something insightful for me.

Can you give us a little help on all this discrepancies? We're seeing a whole bunch of other truck makers and components suppliers have reported and given us their 2015 forecast. And they are all over the place. And so can you just give us a little bit of a sense like Navistar's looking for 2% growth, Paccar's at 10% and then everyone's looking for flat, medium duty except for Allison is looking for -35%. Anything you can help us with there?

Well, I'm going to tell you that -- let's see, who's closer to right every year? Let's go back and look historically. I like to at this point that I'm usually pretty right on what I think. Not always. Not pounding my chest or anything here. I think some people are more -- first off, some people are more conservatives. Some people are, given their position in the marketplace, and some people are giving where they're at from a product perspective and what they're dealing with. Minus 35 on medium, I don't know who they're talking to. Because that's not -- by the way when I said our first quarter deliveries would be off on Class eight, I didn't tell you our first quarter deliveries are going to be up in medium, okay? I don't see that.

And I'm speaking -- I'm speaking strictly speaking the US. I'm not sure, you gave me all those numbers so I'm taking that these are US numbers that you're giving me. That's what I speak about. I don't know that. I don't have all of those in the top of my head here. But I can guarantee you our medium business is not going to be down 35%. It's going to be up this year, judging by early indications. As I said, I can't guarantee the back half of everything but judging by early indications and what customers are saying.

Because remember the medium duty business and I'll get over to the others in a minute, they touch more of the general economy. They're not the over the road guys. Yes, they're the leasing companies and it's the general economy. So when the country's doing well, which the country's doing pretty well right now, that means the money is flowing down and people can go afford to buy product and that's what we're seeing a lot of on our medium duty side. I wouldn't be surprised if our medium deliveries, I said to the others, they're going to be up 10% to 20% maybe first half, first quarter. That's not what I'm seeing from our Rush personal perspective.

Secondly I mean Navistar has the tailwind of the engines, as I spoke to you. It has nothing to do with the product. Theirs is 2% because we've got headwinds still trying to deal with those old EGR engines and rising valuations in the used marketplace. And we're work very long hard to get those evaluations up and change perception into what we believe is reality that there shouldn't be the big hit that they're seeing. If we get that done, I would expect that market will be growing better in the back half of the year. That's my thoughts. I would think their upside is more in the back half of the year.

Paccar like myself are usually pretty conservative in our approach and what we give out. If it grows, ACT's got it growing what, 17%, 20%, something like this year. That's probably best case. I don't see, flat in the first half or down a little bit excuse me in the first quarter actually. Down a little sequentially from Q4 when I was looking at the numbers this morning. I'm just running around.

My numbers are what I believe. I believe we'll be um and maybe not as much up on Class eight deliveries as we are in medium duty by the end of the year.

What's the disconnect between very strong orders and what looks like still kind of flattish pricing on the new trucks?

Well, everybody wants to sell everything they can, right? And increase production. So that comes to a discipline, right? That means there's got to be discipline between manufacturers and holding prices and not raising production. And I realize -- I'm talking about end, I think production levels will go up some and I think customers are just -- somebody -- not everybody is asking for the same increase. I think the dynamics are pretty unique out there right now. And I realize I realize when you're talking about margins, folks' margins from a manufacturing perspective haven't hit what people expect. But I just think there's somewhere in that lies in there, in that area right there.

Strategy. Okay. And can you maybe you or Steve, are we in the integration process? Because I think someone asked sort of around the edges before too. It sounds like you've gotten more comfortable making acquisitions again. Are we kind of 70% of the way through or is that a lot more to wring out?

Other than the two stores I bought this week that we bought this week, we'll be completely done at the end of March, okay? Now that doesn't mean I still won't send it money through the second quarter because I have to finish up with all the training and everything else. This should be the last acquisition we did this week that we will ever go to some other system, stay with the CarMac and not bring on to SAP.

But I'm more trying to get at the benefits, like the flow, profit benefits.

I hear you there. That might be a 12-month curve sometimes. And even more than that. Remember we've just started rolling in the fourth quarter, we've just started rolling out our dashboards.

Okay, remember, a system is nothing more than a highway and information. It's how you take that information and utilize it to the best in your business. We have just started rolling out to our mid-level managers dashboards. Every key metric can be, not every but 90% of the key metrics they need to see are right in front of them every morning when they walk in. There's no drilldown. There's drilldown capabilities but you don't have to go through layer and layer and layer to find out information about your customer.

Then it's a training exercise. This is a couple-year process. It's not just an add water and stir deal. But it's ongoing right now because once you get the system rolling out, like I said, we just started rolling out the dashboards in Q4. And we're continuing to roll them out now where they'll have dashboards for people to operate off of that gives them information that I'm going to tell you no other system provides anyone in the truck business like ours will. That they can go and understand the customer touch, understand real-time information where it's not historical, as it has been in this industry.

Remember we're a pretty antiquated industry, so historically the business systems that were operated were always big look-backs. You're always looking back last month figuring out your customer and this and that and the other. Ours is going to be this real-time part. And then it's up to us to realize that to create more revenue for the organization.

I know I'm not going you a six-weeks and or two-months and but it's a continual evolution of integration. So that should be another driver that continues to drive our parts and service business.

Remember, driving your parts and service business to growth every year except for 2009 is not easy, guys. It is not easy, okay? So you have to continually invest. I go back eleven years ago, we went out and we were selling 300 medium duty trucks this year. We will sell 10,000 this year. But we have been doing it year after year. I do I understand all of that medium business exactly contributed to absorption? No, I don't. Do I know exactly what this is going to contribute to growth and absorption as we go forward? No, I don't.

But I do know this. Do I understand what mobile contributed with all of its pieces and facets and different stuff? No, I don't. Do I understand what telematics and systems that we're going to be rolling out in customer interface? I don't understand each one individually, but I know that consistent effort, consistent investment on our part -- and if you don't know the organization, go back and look at it -- has always been there, and those are the things that will always we'll always continue to do. And those are things that are going to continue to set us apart. That's all I can tell you, man.

Okay. Thank you very much. I appreciate it.

Thank you. Our next question comes from Tim Robinson of Susquehanna. Your line is now opened.

Good morning, guys, thanks for taking my questions. Nice quarter.

Thank you.

Rusty, I just wanted to get you were view on how you see the current truck cycle playing out. I know the general view heading into the fall was that the market would be less cyclical than prior cycles. But given the strong orders in the fall, and everybody raising their 2015 numbers, are you worried that that's really a pull forward from 2016/2017?

I believe 2016 will be less than 2015, no question. But think about it like this. I think it's going to drop under 200,000 or go down to 210,000? No I don't. I still believe there will be now pent up demand and enough growth, I'm in line with 235,000, 240,000 number, somewhere in there. Man, that would be the best year we've had since 2006. Okay?

When you start looking out into 2017, I think there's a lot of economic things you have to look at to truly understand where we'll be at. I don't know if I can get out that far for you right now. I do believe -- but I also believe -- trying to -- you mentioned the order intake, right? We go three months in a row, October, November, December. We top 40,000 units. Then you say, "Well, it's going to stop. It's going to stop." Then we hit 35,000 units last month. That's right. And we hit 35,000 in January. Wow! and you look at it.

I'm not sure if that's -- I'm told that some people account -- started accounting for them differently than they can in the past. I'm going to leave it that. So when there used to be an accounting for them for 12-month periods, they now account for every order they get. So if they've got a two-year deal, they just book it all in there. I'm not sure if that's right or not but I was told that.

And I think some of it with some people was some driven by some OEMs making sure that their dealers -- make sure that they had some slots out there. They may not be all sold. They'll sell into them. I understand how that works also. So they were good order months. I don't know if they were as good as what you really saw the numbers come out. That's just my opinion.

But I'm comfortable with 2016 maybe off 25,000 units or so. I think the economy will continue to foster that. I think this will be enough pent up demand. I think that across the general sector I think that -- I think I personally think we're going to, by that time we're going to see -- remember what's the difference deliver the trucking? Housing, right? I think housing is going to continue to get better, personal opinion, for the next couple three years. So I think housing starts which will help shall continue to help dramatically help that continue to grow.

Got it. And then could you just talk about your outlook for the different vocational markets in 2015?

Construction up, no question. Obviously I think I've touched on oil and gas enough.

Sure.

When I look at vocational, medium duty is it lot a lot of vocational businesses, right? Whether it's landscaping, whether it's refrigeratable units, whether it's -- it's a lot of different things thing without me going into. A lot of box trucks. A lot of different, too, the kind of trucks that you sell -- I look for that it continue to be strong, as I said, from that perspective.

Refuse, for us, should continue to be pretty strong, as strong as it has been if not better. I think our penetration into many different refuse companies has grown grammatically over the last year not just tied to a few. I think the product and quality of our low cab forward product from Paccar from Peterbilt has improved and I think we will continue to work on that. I think that along with our fuel systems that we will be coming out with will help to continue us to grow in that market. So other than oil and gas, I don't really see any downside in the vocational business in the next 12 to 18, 24 months.

Got it. And just last question, are you seeing a material change in customer acceptance of the Nav ProStar with the 13 liter engines?

We've seen -- we've had good results. The headwinds of the old trucks, man. The headwinds are the used trucks. The product is not the issue. The product, the streamlining of the organization, Troy and the team have done a good job with. Both my Class eight manufacturers have done a great job in their markets. There's no question about that. The Peterbilt guys have done a great job with theirs. They're faced with a whole different task obviously, but given where they started a couple years ago, they're doing as good a job as you could. There was no secret sauce again to figuring that out. It's the used truck headwind is the biggest issue they deal with. I think the acceptance of the 13 liter engine from customers have my people have talked to and told me about has, been just to answer your question, has been good with the SCR obviously with the SCR configuration. It's just the old staff.

Got. Thanks a lot for your time, guys.

You're welcome.

Thank you. And our final questions could Kristine Kubacki for an Avondale Partners. Your line is now opened.

Thank you for squeaking me in there. You talked a little bit about it in last question. I want to ask you a two-part question. One on the used truck side. So broader picture. Can you talk about what's going on there in the used truck side? And obviously are you worried about that we're going to see a significant amount of supply coming on in 2015?

And then secondly, you talked about the residual value challenges with the Navistar out there. Is there any risk to you? I know obviously we're seeing Navistar take a significant amount of those on their balance sheet, but is there any risk there? And then you talked about getting those residual values up. Exactly how is that possible?

I will let's take the overall market and then I'll dive back into the Navistar piece.

Of course, used -- people are always, what's the used market going to do? As long as economic conditions are decent, it's pretty easy to figure out. Let's look back four years ago and see what we sold, right? You can't recreate used trucks, okay? Used trucks were created in the past. And then the other is demand issue, right? So it has to do with the economy, what's going on right now.

Two issues. You already know what your supply side is. What's the demand issue? Where are we at from a demand perspective? As we look back and we look at a truck built in 2011, it's as four-year-old truck which we'll say is a typical over the road trade cycle term now. If I remember correctly, that year was around 173,000 units. So no questions, 173,000, 198,000, 186,000 as I reflect in my memory, the last few years and then this year.

I will tell you that yes, supply is going to come up. But I do believe that through 2015, I don't see prices increase, okay. I don't see values -- I do believe there will be demand and I think values will stay -- now remember when I say that, that means that a truck comparative age-wise when I say 48-month old truck compared to a 48-month old truck, next month will be a 49 will stay pretty flat. Maybe a little bit of decrease. There could be a little bit of decrease but as long as we've got some decent overall economic conditions I expect demand to be pretty good.

2016 we'll have to see what 2016 brings us, and what the economy is like. It was 198,000 US retail that year so we will have to see if the economy's still good. We can still see the same stuff. It's when we get out about four years from now we will figure that one out. But that's not what we're worried about right at this moment.

Navistar, you asked how what do you do? If you look, I don't see a risk to us, no. I know how many MaxForce engines I have in my inventory. My inventory if you look, I can just tell you, you can go look at my used truck margins, they were down in Q4. We have made sure, as we do every quarter that our inventory was at the right price it should be. So that was a contributing factor to my margins being down, was making sure that our inventory was mark to market there. We do that -- that's my standard practice but obviously in Q4 we took an extremely hard look at it as we go into the next year. So I'm comfortable with the current inventory.

What we have to continue to do is build acceptance of that used product. That used product is not as bad -- when all the campaigns are done, when everything is done on the truck that should be done, put in, put with in the right warranties and build confidence back into it. That product can be sold and should not be valued at the values it's at now, that they're accepted in the marketplace right now. It's perception and the things that have happened of the past -- and there were realities too. But I think they figured out fixes that, when campaigned properly and done properly, that the product runs well and runs good. And the spread between the valuation of it and other products is way too big in my opinion.

So what do you do? You take it out and build confidence in it by putting warranties on it, doing that, making sure that putting good financial programs together so that it makes an inviting piece so you close the gap. It's not going -- it probably won't bring the values of other products. But there shouldn't be the gap there is now. So you go out and you approach it. You take it and put it in front of customers, and you stand behind it, and you get it in.

And that's what really -- and this is not an issue as I think we traced on their investor day that's going to go away in the next two months. This has probably still got two years to deal with. As I said the good part is it gets smaller every day. But you've got to go out and attack it and show confidence and I think thats what we're trying to do. We will partner with them in our Navistar stores and do the same thing.

One last question on the warranty period, then, does it come standardized or is it variable depending on who you're selling to?

It will be variable depending on mileage on trucks and things like that, and what used warranties -- they cost money but you want on to show you've charge that to the truck or however you work it out to show that there is confidence in the product, right? And that's extremely important. But it also has to meet what the market value is and right now it's going to -- it's a multi-pronged approach. I've had quite a few conference calls with those folks and Lyle recently about that, and I'm very open about it and we have to do that. We have to get back market share. We have to -- they have to get back the share and find the rightful place in the market, and in spite of these headwinds. And that's the biggest headwind as I have and said over and over to deal with. There's no question in my mind.

The product they have is a good product. And so it's just the headwinds of the overhang of the EGR engines. That's what it is. So you've got to get the gap is too large in my opinion between what it's valued on the wholesale market right now and what it should be valued at. Should it be a gap? Yes but it shouldn't be as large as it is. That's why the values that they were originally depreciated at do not match what markets are. So we have to get that value up. At the same time those balance sheets they come down every day, right? Everything continues to continue to depreciate. You're not building them anymore. Hopefully you will narrow that gap and eventually get to where you can help customers trade into new vehicles, build up confidence in the secondary market, and it all comes together.

Okay. Thank you very much for you were time. I appreciate it.

You're welcome.

Thank you and at this time I'm not showing any further questions. I would like to turn the call back to management for any closing comments.

No specific closing comments. We look forward to talking to everyone in April and I'm sure we will be happy to talk to everybody again. Thank you all very much.

Thank you, sir. Ladies and gentlemen, thank you for participating in today's conference. This does complete today's program and you may all disconnect. Everyone have a wonderful day.