Rush Enterprises Inc (RUSHB) 2005 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the quarter 1 2005 Rush Enterprises Incorporated earnings call. My name is Beverly and I will be your coordinator today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session at the end of the conference. If at any time during the call you require assistance, (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Marvin Rush, Chairman and CEO for Rush Enterprises.

Good morning, folks. Welcome to our first quarter earnings release conference call. On the call today are Rusty Rush, President and COO; Marty Naegelin, Senior Vice President and CFO; John Hiltabiddle, Controller for Rush Enterprises; Steve Keller (ph), Director of Finance; Dale Hazelwood (ph), Controller for Rush Enterprises Equipment Centers: Derrek Weaver, Chief Compliance Officer and Vice President of Legal Affairs.

Now Marty Naegelin 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. The factors that could cause our 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, 2004 and our other filings with the Securities and Exchange Commission.

Now we would like to give you an update on our progress. Our first quarter results demonstrates the momentum that our businesses has achieved. Revenues for the first quarter increased 74.9%, up to $402 million versus $229.9 million last year. Net income for the quarter was 7.7 million or $0.31 per diluted share compared to 2.2 million or $0.14 per diluted share in last year's first quarter. As these numbers demonstrate, the trend of increasing demand for Heavy-Duty Trucks continued in the first quarter.

Let's talk about first quarter business segment results. The Company's truck segment reported revenues of 388.5 million in the first quarter of 2005, compared to 217.7 million in the first quarter of 2004. Rush delivered 2185 new Heavy-Duty Trucks during the first quarter of 2005, compared to 999 new heavy-duty trucks in the same quarter of 2004. As a result, revenue for Heavy-Duty Truck sales was approximately 226.1 million in the first quarter of '05, compared to approximately 103.2 million in the first quarter of '04.

As a result of our increased focus in sales efforts in the medium-duty truck arena, in the first quarter of '05 our sales of medium-duty trucks nearly doubled to 624 units from 327 units in the first quarter of '04. Revenues generated from medium-duty truck sales increased to 32.9 million in the first quarter of '05 from 16.6 million during the first quarter of '04.

To further penetrate the medium-duty market we plan to add new franchises that complement our existing Peterbilt medium-duty line. Several Rush Truck Centers already offer medium-duty trucks manufactured by UD, Nissan, and GMC, Hino, or Isuzu, which are supported with parts and service operations. Our current projections call for sales of medium-duty trucks to become a greater part of our business with our goal to sell 2500 new medium-duty units in 2005.

Rush delivered 980 used trucks during the first quarter of '05, compared to 775 trucks in the same quarter of '04. As a result, revenue from used truck sales was approximately 39 million in the first quarter of '05, compared to approximately 25 million in the first quarter of '04.

Truck segment parts, service body shop sales increased 23.8% from 63.4 million in the first quarter of '04 to 78.5 million in the first quarter of '05. The Company's absorption rate increased from 90.2% in the first quarter of 2004 to 96.4% in the first quarter of '05. The Company's same-store absorption rate was 99.3% during the first quarter of '05. The absorption rate is calculated by dividing the gross profit from parts, service, and body shop departments by the overhead or nonselling expenses of all the dealership's departments including the new and used truck departments.

Let's talk about the Construction Equipment business. The Company's Construction Equipment segment reported revenues of 11.3 million in the first quarter of '05, compared to 10.5 million in the first quarter of '04. New and used construction equipment unit sales revenues increased to 8 million from 7.5 million in the same period of '04.

Parts, service, and body shop sales increased 18.5% from 2.7 million in the first quarter of '04 to 3.2 million in the first quarter of '05.

On February 15, our Board of Directors named Derrek Weaver as Rush's Chief Compliance Officer and Vice President of Legal Affairs to oversee all legal matters including corporate compliance and governance matters, acquisitions, and dispute resolutions. I look for the second quarter of 2005 we anticipate continued success as demand for new trucks outpace supply. Manufacturing component suppliers forecast U.S. heavy-duty sales of nearly 255,000 units in '05. And it appears customers would purchase more heavy-duty trucks if the industry could produce more.

Beyond the good news in the industry, Rush will continue its efforts toward successful integration of the dealership we acquired from ATS as well expansion and upgrades for some of our Rush Truck Centers. We continue to strengthen our geographic footprint and add to our competitive strength through our geography of performance plan to enhance overall results, sell more heavy- and medium-duty trucks, increase our marketshare, and improve our margins.

We are now prepared to answer any questions you may have. Operator, please review the procedure.

(OPERATOR INSTRUCTIONS) John McGinty (ph).

Good morning, gentlemen. Hell of a quarter. First question is can you take a swing at what ATS added of revenue net? Just give us some help of how much of the gains were on a same-store or organic basis versus what the ATS contribution was in the quarter?

John, we could take a swing at it, but that would be a little difficult -- not difficult to answer -- but you have to look at the whole offering and how much of the offering was used toward the purchase of ATS, what we put into the balance sheet, and figure it out. I can tell you though that we are very pleased with the ATS acquisition and it is performing just as expected, if not better.

How about just the top line? In other words, your revenues were up 75% to 402 million. What was ATS of that?

I guess the best guidance I can give you is when we did the ATS acquisition, we told you it was roughly 30% of our revenues and I would say that it's probably pretty roughly right in there as to where it was of the original revenues -- from a same-store basis prior to it. And it's right in line with those numbers.

Second question, one of the most impressive numbers I think was that the gross margin on your aftermarket business with up to 39.8, which is back where it was -- above where it was in '03. And one of the things you had talked about was last year your gross margin on the aftermarket business was hurt by -- you had a bunch of garbage bodies coming through and also you were emphasizing nonproprietary parts, which swelled the top line but obviously hurt the margin. Is the margin up as much as it is because of the higher absorption? Is it up because ATS had higher margins in aftermarkets? Why the jump and is it sustainable?

No. I would tell you it is because of ATS. There's twofold reasons really, John. If you go back to the first of last summer last year we went out and revamped all our parts and service sales programs, pay programs. And that was to drive more margin into the incremental sales we were picking up. We're starting to see the results of that and we also had nice increases at the service level, which obviously carries a higher blended margin than the parts sales do. And so you combine those and I believe you see the results of that and while we're still maintaining good top line growth at the same time.

Is the margin in this neighborhood, just under 40%, 39.8 and so on, is that a sustainable margin for the year or is there something that causes that to be a little bit higher than normal?

No, I would tell you that will be sustainable for the year, give or take a half point. Mix comes into play there obviously.

And final question and I will get back queue, given -- first of all, is -- how badly is availability hurting you and as we go normally seasonally it looks like your first quarter was one of the lower quarters and then you have built historically. Can you talk to us about what the seasonality should be this year given the orders and the availability issues?

Obviously, John, we had a very nice increase first quarter over first quarter. As far as giving you what our revenue -- what we will deliver for the year, as we said, we plan delivering somewhere probably upwards close to 3000 medium-duty. I'm going to try to give you a little guidance on that side. And on the heavy-duty side, remember we moved our goal up to 10,000 units this year and given the production that is available right now, remember manufacturers still have yet to increase their build substantially and I don't look for any increase until possibly midsummer due to a secondary -- second and third tier supplier issues. So we still feel that with what we have coming this year that those goals are definitely attainable.

Okay, I'll get back in queue. Thank you.

Andy Obin (ph) with Merrill Lynch.

Obviously this was a very good quarter but can I ask you a question on the gross margin for heavy truck sales? It is down year-over-year from what I understand if I'm doing my math correctly and I'm just wondering given your comments about the strength of the market and low availability of new product -- I'm just wondering, can you get the pricing up versus a year ago? Are we going to see year-over-year gross margin improvements in this part of the business going forward? Or has the mix shifted to more fleets and this sort of impairs the margin for the rest of the year? How should I be thinking about it?

Andrew, let me answer that. I'm going to give you a bit. If you look at the -- don't look at just this first quarter of '04, look at the whole year of '04. We were actually up over the whole year of '04. The first quarter of last year -- and actually this year at the absolute store level, we were up at the absolute store level from a margin perspective -- roughly 0.09 point.

But when you have depending on the mix of business and how rebates and things like that mix into it, that changes it at the end of the day. But if you look at the whole year of last year, we were up -- the first quarter was up over the whole year of '04 by roughly 0.03 points. So I would tell you the first quarter of last year was a mix issue from what customers, where the rebates, how everything flowed in that quarter but it leveled out over the whole year and we were very much in line with where we were over the whole year. And yes, I do believe there is a little margin increase or we can sustain where we are at or possibly have a little increase in margin as we go forward.

You mean margin versus the first-quarter or year-over-year?

Year-over-year not first quarter.

The second question I have and maybe it is a very simple question and I am missing something, where did you guys get in your trucks? I sort of track you guys relative to industry production levels and Peterbilt production levels and it seems that while new product availability is an issue for the industry, you guys seem to be able to get your hands on the trucks. The second part of this question is there any pull forward of demand into the first quarter?

No. I saw no pull forward in demand and I would tell you we're getting roughly the same percentage of build we've gotten from Peterbilt over the past 12 to 18 months.

Okay and finally just the last comment, looking at the industry data, there was slow down in net orders and I was just wondering what are you seeing from your customers? Are they seeing a) what are you seeing is causing the slowdown and b) what are your customers telling you about their plans for the remainder of the year?

I would tell you the slow down was because of pricing increases as manufacturers and customers try to find that medium. But I will tell you that I do believe order intake will probably be up again in April. I am thinking over March if not April, probably back in May. But demand is still there. We are still quoting plenty of business out there in spite of fuel prices and other things that are going on. Demand has not slowed down. It was a matter of finding that pricing line. As we had to put these inflationary -- we had a lot of commodity price increases last year that are having to be passed, and as the trucking community accepts that, I expect order intake to continue strong.

So for your customers, you're not seeing any decision -- changes in decision-making related to economic slowdown?

No sir, I am not.

Thank you.

(OPERATOR INSTRUCTIONS) Joe Lermer (ph) from Loomis Sayles.

My question is regarding accounts receivable and inventories which are up roughly 50% from the end of the year. With the ATS acquisition, can you give us an idea whether those levels at the end of Q1 are sort of normalized or did anything happen with ATS that the growth in these account receivable and inventories are either higher or lower than expected? So I am looking from a going forward perspective what should we expect as future cash demands on those two lines?

Joe, this is Marty. From an inventory standpoint remember that whatever we inventory, we floor plan from a cash flow perspective. Okay? The receivables obviously as business increases are receivables will increase. The receivable balance that you see at the end of March is as you would expect a snapshot and picture of time and it really is indicative of what the industry has done in growth perspectives as well as us adding on ATS.

So the answer to your question if I can get to the bottom line is, it is a combination of both. You've got an industry growing that is building inventories slightly and building receivables slightly and then you've got the addition of ATS. The question you asked is where are we going from here more so than anything else I believe? And the answer to that is you're going to be roughly on inventory about where you are now, maybe slightly more as we get into the peak seasonality of the year.

On our receivables, that is a misnomer because those receivables are paid off in a day or two or three days from a contract in transit. So it all depends on the ebbs and flows of when a truck deal goes out the door. So I don't get too terribly concerned about the receivable perspective.

Okay, great. Thanks.

Sir, there are no additional questions at this time.

Thank you very much. We look forward to talking to you at a later date. Give us a call if you got a problem or any questions. Thank you very much. Goodbye.

Thank you for your participation in today's conference call. This concludes your presentation. You may now disconnect. Good day.