Rush Enterprises Inc (RUSHA) 2024 Q1 法說會逐字稿

Good day and thank you for standing by, and welcome to the Rush Enterprises first quarter 2024 earnings results call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Rusty Rush, Chairman, CEO, and President. Please go ahead.

Good morning, and welcome to our first quarter 2021 earnings release. Call on the call are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Haselwood, Vice President and Controller; and Mike Goldstone, Senior Vice President, General Counsel and Corporate Secretary.

Now, Steve will say a few words regarding forward-looking state.

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, 2023, and in our other filings with the Securities and Exchange Commission.

As indicated in our news release, we achieved first quarter revenues of $1.9 billion and net income of $71.6 million or $0.88 per diluted share. We're proud to declare a cash dividend of $0.17 per common share. Class 8 new truck production has caught up with market demand, and that, along with other economic factors, led to a decline in our Class 8 new truck sales in the first quarter, freight recession and elevated interest rates are negatively impacting over-the-road customers, both small carriers and large fleets.

We are pleased to significantly outpace the industry in Class 4-7 truck sales, and we achieved year-over-year growth in used truck sales, which were the bright spots in a challenging quarter in the aftermarket, our parts service and body shop revenues were $649.2 million, flat compared to the first quarter of 2023, and our absorption ratio was 130.1%.

Our results were consistent with the industry, which is experiencing slowing aftermarket demand driven by the depressed freight market. We did, however, see some healthy aftermarket demand from the public sector, refuse and medium-duty leasing customers.

That along with our commitment to support large national fleets and diversifying our customer base helped us somewhat offset the challenging industry conditions we faced in the first quarter. As we look forward, we believe average of our market demand in the second quarter will be fairly consistent with the first quarter, though we expect some seasonal uptick as we enter the summer months.

We anticipate the current freight recession will continue to impact aftermarket demand, but we remain committed to executing on our strategic aftermarket initiative. We believe that our second quarter aftermarket performance will align with our first quarter results.

Turning to new truck sales, we sold 3,494 for Class 8 trucks, accounting for 6% of the total US Class 8 market and 1.4% of the Canadian market. As expected, economic pressures such as high interest rates and low freight volumes along with production levels, both new Class 8 trucks catching up with pent-up demand led to a 13% decline in US retail sales in the first quarter.

While most of the decline in Class 8 truck sales was attributable to the over-the-road carrier is worth noting that we experienced healthy demand for vocational customers, and we expect this to be a good year for occasional truck sales.

ACT Research forecasts, US Class 8 retail sales were 228,000 units in 2024, down 16% compared to 2023. Due to the timing of deliveries of certain to certain of our large customers and due to our diverse customer base that includes strong support vocational markets, we believe our second quarter truck sales will improve compared to the first quarter.

However, we expect the current freight recession to doomsday, causing Class 8 truck sales to decrease in the second half of 2024 compared to the first half of 2020. That said, there is plenty of time for us to sell trucks into the second half of the year. And our sales teams are well positioned to take advantage of every opportunity, but they help us navigate through these difficult market conditions.

Our Class 4-7 new truck sales reached 3,331 units in the first quarter or 5.4% in the US market, and 2.7% of the Canadian market. New medium-duty truck supply is less constrained than it has been recently and lead times have decreased.

Though deliveries continue to be somewhat delayed by issues with body benefit with steady widespread demand from our customer base and our focus on supporting large national accounts. We are proud of our strong Class 4-7 results this quarter. ACT Research forecasts US Class 4-7 retail sales be 262,000 units in 2024, up 3.7% from 2023.

As we look ahead, we will continue to monitor concerns regarding customer consumer spending and high interest rates and their potential impact on Class 4-7 demand. Currently, we believe Class 4-7 commercial vehicle sales will improve in the second quarter compared to the first quarter and remain strong for the remainder of the year.

Our used truck sales reached 1,818 units in the first quarter, up 8% compared to 2023. We continued to experience weak demand and depressed values for used trucks, largely due to low freight volumes and high interest rates. Even with those difficult conditions, great execution on our used truck inventory and sales strategy allowed us to achieve strong results in the first quarter.

As we look forward, the rate of decline in used truck values are slowing, but we believe it may continue to decline somewhat. But with our strategically diverse product mix.

We expect our second quarter used truck sales to be similar to our first quarter results. Looking ahead, we are closely monitoring economic issues and the current freight recession impacting over the road curves, which we expect will continue for at least the next several months. We believe that the second half of the year will be to with respect to new Class 8 truck sales, but we also believe that demand should remain solid for new Class 4-7 commercial vehicles.

When it comes to the aftermarket, challenging operating conditions will likely continue, but we should experience some seasonal lift in the warmer months. To help offset the challenges facing our industry, we are taking action to reduce expenses throughout our organization.

With these expense management measures, along with our diverse customer mix and our focus on supporting large national fleets, we are confident that we can successfully navigate to navigate this difficult market cycle through the second quarter and the remainder of 2024.

It is very important that I express my gratitude to our employees for their hard work for and for continuing to provide superior service to our customers while staying focused on our long-term goals.

With that, I'll take the questions.

(Operator Instructions) Justin Long, Stephens.

Thanks and good morning.

Well, good morning, Justin.

Maybe I'll start with one on the expense side of the equation because Rusty, I know you mentioned some cost initiatives that are going to be kicking in. Any sense you can give us for the timing and magnitude of those expense reductions and how we should think about those flowing through SG&A in the next two, three quarters?

Well, the timing of it, they will happen, obviously, flowing through the second quarter adjustment to take full effect. I would imagine by the time we get to the first part when we get into Q3 and Q4. As I've said, we feel pretty good about where we're going into Q2 as we expect better truck sales across-the-board timing, but we do expect decreased truck sales right now in the second half.

But you're not as far as giving. That's the one thing I always tell by looking at our absorption rate, right, that gives you a good gauge of where you're at. As I said, when you look at Q1, we were off about six points compared to last year assortment, and that's with flat with flat gross profit, right?

So you can probably gauge that was caused by some expense creep that got a little out of line considering the gross profit from parts and service flat in that zone, which we're not used to for a while, but we've been doing a heck of a job. He asked me fighting it all. So that's one good thing is we have two levers, right?

You've got the growth rather than absorbed and you've got expenses. So we will we will we will manage the expenses to where we're at currently and where we believe that the gross profit side is going to go is flattened out. So we've tried to get some of that back of that absorption rate that six points. we'll try to get somewhere around half of that back to you when we withdrew maybe a little more.

We'll see how it all falls out, but it's just normal, what you do, like we're cyclical businesses, there's nothing new or not something this company is not pretty experienced at managing. And the good part is, we run a whole lot higher absorption rate go up more parts and service business than we ever have.

So we feel we feel good about being able to do the right property and manage through. That's the good part of what we've done over the last decade and shifting, it's shifting the earnings of the company or they used to be reps. So reliant upon truck sales to the parts and service side where you can manage the expense side of it along with it.

Not necessarily dollar for dollar, but because that's the way it works. You still got inflation and things that you have to deal with and you've got services that you have to provide for customers. So there's a balancing act and what you did, but it does give you a levered. I think we've proven in the past. We know how to do that and we'll do it prudently like we have done this and according to the market.

Got it. That all makes sense. And maybe to follow up on parts and service. So you talked about your expectations for the second quarter, but any updated thoughts on the back half of this year. Do you think it's possible for parts and service to start seeing a little bit of growth on a year over year basis or given the environment for truck sales, could that be a challenge?

Well, obviously, the environment for truck sales, really, it's not just truck sales into our customer base. Right. You would you would you look at your US up. I'm extremely proud of the them, but it has started. The organization have been around a while. Should we also it's the fact that I haven't seen a two year freight recession that I can remember for a decade, okay.

And we truly are dealing with a two year rate process. While we have a diversified earnings streams and parts of service, something we're very proud of. We talk about all the different markets. We manage a dozen different market segments, and that's the good thing that we were because we were so reliant on just the Over the Road business, the large customer, the small fleet.

I mean our unassigned accounts, we call it, which is the small guys and they're down again, continue to be down double digits from last year, 12%. Actually, so, but to answer your question, you I believe we can get some growth in the second half. Now from which sector, I'm not exactly sure. But the good thing is we attack all different market segments, okay, that's how we go to market. We don't just go to market again, tagging one just trucks.

We look at each market segment. We have assigned to resign from the top of the corporation to the store level. We have people assigned to different segments. So do I believe there's room for some well, low single to small, mid single digit growth in the back half.

Yes, we're not looking at any kind of double digit growth this year. But I do believe, given our approach to the market that I'm telling you is, I would say, more sophisticated than most with our systems and such that we have the opportunity to grow some of the back half of the year. I really do believe that.

So I mean, without getting too much into proprietary stuff and you've got to believe and hope so hopefully that along with some better expense management as we get into it will allow us Cielo to maintain levels similar. So where we were last year from an absorption perspective, I don't know that we'll be all the way there because you do have inflationary pressures that gives you on the expense side.

But there are market segments. I mean, I could tell you right now year-over-year like oil and gas was down in Q1, you go what, well it was. It was a little softer on the small customer was a little soft, but we were up say in revenues we were up in the public sector. We were a little off, but Jose would have been drawn into every market segment.

We have our arms wrapped around the tightly prior promise, and we are putting more resources are focusing where we do believe that there are opportunities to grow in those certain market segments.

So to answer your question, I know I'm long winded as always, but I'll be happy to answer your questions this more. But yes, nothing. Nothing. We're not talking about big double digit growth, but we're talking about growth, we do believe it's possible.

Okay. That's good to hear. And I guess I'll just ask one more question to your point about the freight down cycle lasting for two years now, I think it's lasted longer than everybody anticipated. Has that changed your view at all on the trough earnings and free cash flow potential of the business this year?

Well, yes, you would reflect on something I threw out there a couple of years ago, that would be trough range and the answer is no way. Okay, that's not happening. I guess I'm more confident in that than I ever have been. When I look at the organization right now, and how we're going to market.

So I put that out there a couple years ago, but now I'm extremely confident in those in those in that in that statement more dominant now than when I made it.

Then Nelson, what I think people be things full out the way everybody believes it will in 2026, that should be the big earnings of the organization based upon projections. Now it remains a challenging economy to move and change. But again, based upon all the information we have with all the new EPA guidelines covenant will first of '27, et cetera.

We were very confident in both the trough, which I look '24 bores. Nothing more than what I've told you the last couple of years I've had I've told you '24 was going to be the you had a great '22 and '23 and a good '24. But all.

I mean, as always, we're going to be was 13% of drug sales so far with 20% in the month of March, okay. But Q1 was of 13%. I know, ACT's at 16% this one time I'm going to say it's probably going to be a little more off than that, but I do believe there's going to be a large pre-buy in '25 and '26.

It's just difficult for folks go look at all the public hearings that they have on all the over the road trucks, truckload now LTL's I was still doing extremely well, whatever the other last year and certainly where they have got dynamics are in the distribution business, but look at what's going on out there.

Everybody suffer. So I'm Netherlands, whilst extremely proud of what we've done and more confident than ever that we will handle both that. And the free cash flow side will still be extremely strong this year without question in my mind that we're not strong as last year, but it will be extremely strong when you look at historicals, for sure.

Okay. That's a great way to wrap it up. I appreciate the time.

(Operator Instructions) Andrew Obin, Bank of America.

Yes, the star one, one thing is confusing, Rusty. Sorry. So question, can you talk about your confidence given the weakness in over-the-road freight? What's your confidence of actually sort of being able to manage your inventory into the second quarter. And you said that you sort of have confidence in your used truck, but maybe a little granularity why you're so confident given the weakness in the market. Thank you.

You bet. We'll go back to the personnel we press. I must say we are in the verge inverted order evidence. I'm going to have used first why we took down our used inventory, we just traditionally carried by 40% over a year ago. We took it down that much like we've traditionally had probably had closer 2,500 units.

We carry somewhere around 1,500 units because when you got into that just very accelerated declining environment, the use was hit over the last two years.

You had to be turning fast. So your turns accelerate from what maybe they had been historically. So by doing that, we've been able to really mitigate any losses that we might be at have had been taking in some of our used truck inventory because our turns were accelerated. And with that, what it has allowed us to do is take advantage of opportunities that are out there right.

So we've been able to take advantage of other opportunities because we don't have an inflated used truck inventory. We keep it at a level and we turn it fast. And so are used, are you going to use core as we probably now say, ever had, but we had his strong, extremely strong used quarter, which is quite unusual, not necessarily volume or but no, just turning it fast has allowed us to maintain a higher margin.

So because we're not getting caught with used trucks that are decelerating valuations quicker than what historical norms are when it comes to medium duty and the medium duty, I can look at the order board feel good about we solid where I'm not going to say we're all sold out.

But unlike the heavy side, we're in Wave further along to selling up because in some ways in our medium-duty side, we're still have some allocation points involved on medium duty because remember, medium duty, when we had that huge markets in '22 and '23, medium-duty got to especially in '22, the manufacturers that build medium and heavy shifted towards the heavy side because they made more margin.

So medium-duty still has some pent-up demand. And along with, consumer spending is remaining extremely strong. The last couple of years that has a lot to do with driving medium-duty sales, okay.

So when you put it all together, we feel really good about where medium-duty is at for the year. As I said, we had a good first quarter second quarter. Finally, stronger is going to be stronger than Q2. And I believe that in a moment, there's fluctuations by quarter. Sometimes people get so caught up quarters, but I would expect our second half to be I would like now believing it will be just as strong as our first half based upon looking at the backlog and where we're at with medium duty.

Now heavy duty, Well, heavy duty, timing has a lot to do with sometimes especially at least in the first half of the year where it was in the first half of the year. I have a large inventory write-down. You were looking at my inventory or oh, my gosh, you're going to buy restaurants a year, but understand that the vast majority of that is sold. And so what's happening is we're in the process of delivering a lot of that right now into Q2.

So we do believe that to Q2, for sure, we will deliver more Class 8 trucks or just no question about the steps on the ground already we're already almost through April, pretty solid as to where we're going to be in Q2. Now we look into Q3 and Q4 further Finisar and you better believe it is the backlog, you better believe, but you don't want we're not eradication anymore.

You want a truck, I can start what at eight weeks or so. So it's not like, I can still start a truck in the back half of Q2 didn't deliver to you in Q3 and Q4. So we feel pretty good about I do believe will be softer. There's no question of online. I believe the second half will be less Class 8 deliveries in the first half. Might I said Q2 more than Q1, the second half less than the first half. But given the diversification of our market, look, it's all most all your big carriers already place all their all their orders for this year near.

The little guys, we're still way oversupplied in trucks out there and just look at our drag race, look at spot rates and tell you what's going on. So that market is going to be tough. But given our diversification into the vocations that we sell into, we're going to be extremely strong and refuse that's booked out are in the one that I'm going to have more construction.

Now we do have some supply issues from a one-time issue manufacturer we're dealing with and some other things on the vocational side, but we still have the opportunity to sell into that. And there are still there's still some private carriers out there that are looking at purchases, right? Not from higher, but private stuff that we will we can sell into.

Okay. So the year's not done. I'll put our sales team out there. I challenge anybody and we're going to be out there. We will be looking for business and there's going to be some If not, it's just not going to be what it has been until this freight recession clears itself up. Everybody's got to remember, it's still over half the market is the owner market in some of them have new LTL in good shape, but all those are pretty well placed.

There's one or two books malls out there we're working on. But most of that business so in the second half is going to be tougher. But I believe that we end up the year when you look at our total market, we will be in a lot better shape when you look at our '24 compared to what the US retail market went down in '24, given our diversification. There's just some timing stuff, but I do expect that as we get into the fourth quarter, you will start to see it.

Let's not get too shortsighted here when we are going to have good we're going to produce when it comes to the company. I promise you just like I answered a minute ago to adjust it as solid as ever about where we're at. But when we get into that last quarter, people will really start. I do believe you're going to see the order intake go up. And I do believe you're going to see '25 and '26.

As, we've just finished pass and the last greenhouse gas law just three weeks ago, and they're pretty strenuous that are out there that folks are going to have to start focusing on right now that a lot of our own business, their focus on their own business currently, but they're going to have to focus on their fleets and the makeup of their fleets and having to deal with all the new technology and the inflationary price increases to meet the demands that are going to be put on January 1, '27.

So I would expect that those markets well, regardless the market will understand they're going to have to invest not the small carriers so much, but the larger, regardless of where they are, in their own business, hopefully the freight recession will be clearing up by the back half of this year. Some of them are have been watching.

Everybody kick the can for a year about when freight was going to pick back up. So I'm not going to be the economist here and tell you when, but I know it's got to carry around sometime the further we go the closer we get to the end of it. You got to believe But did you tie that up with the '27 EPA laws you're going to start to get?

I do believe '25 and '26 will still be the kind of years that everybody's been predicting because look, engine prices are going to go up [20,000] and plus dollars diesel. And for when we get into '27, you're going to have demands and you have to do this much electric this much of that. So people are going to be a little nervous and fearful of that. So I do believe that we'll guide '25 and '26 to be super solid motors deal '24, as I said, given the diversification not comfortable would be backwards in the first half.

Yes, but what and we've still got that tried to make it a little more patient. And so, I rambled on for a while, but I'm trying to give you a larger look at what I what we see in front of us for the next 2.5 years.

Sure. And just looking at the ACT forecasts, which you reference, what are you seeing a puts and takes with ACT forecasts? What do you think is potential upside to the numbers? And what do you think is potential source of the downside to the numbers?

Well, I don't see the upside this year. Okay. If I mean, if you take the US first quarter retail multiply by four, you're going to get them [228] number. They got out growth. So I don't see a lot of I see anything I see a little bit of downside in this year, but I do believe that there will be upside in the '25 and '26.

II just believe, especially as people it comes into focus, what this really is, remember car ordering within implementation of car in California already at January 1, of this year. But the effects of it I've not been seeing because we're still delivering stuff that was bought in late '23 and everybody really accelerated their purchases.

So you really won't see the real effect of that till you get into the last part of this year. I think as people see that I think they're going to get really nervous around the rest of the country, as to what the new EPA rules are going to mean from a cost perspective. I have concerns no disrespect to anybody about performance and the aftertreatment side of it.

I've watched us do with after-treatment issues in the last decades. Every time we roll out something new, we do have issues and I think people will be concerned about performance around that. So I don't see it for us is diversification.

That's why I'm confident that we'll end up the year at a better rate than what the overall Class 8 sales arts would just because the diversification of our customer base and I believe '25 and '26, and we are still going to be great years as people get their heads around what the true costs are going to be. When you get to '27, I think we'll be back. I do believe we'll be back on allegations sometime later in '25 probably.

Thank you very much, Rusty.

You bet. All right, operator. Well, I guess I'll be the operator to today. Do we have anymore questions? I see no more questions on the board. So, I get a second job for the day. With that, I look forward to speaking to everybody sometime in late mid-to-late July with our second quarter results. Everyone have a great day. Thank you.