Rush Enterprises Inc (RUSHB) 2007 Q4 法說會逐字稿

Welcome to the Rush Enterprises Inc.'s fourth quarter and year-end 2007 earning results conference call.

I would like to turn the conference over to Mr. Marvin Rush, Chairman of the Board. Please go ahead, sir.

Welcome to our 2007 fourth quarter and year-end earnings release conference call. On the call today are Rusty Rush, President and CEO; Marty Naegelin, Executive Vice President; Steve Keller, Vice President and CFO; Jay Hazelwood, Controller of Rush Enterprises; and Derrek Weaver, Chief Compliance Officer and the VP of Legal Affairs.

Now Steve Keller will say a few words regarding forward-looking statements.

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those in the 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, 2006 and in our other filings with the Securities and Exchange Commission.

Now we'd like to give you an update on our progress. Our fourth quarter results -- in the fourth quarter, the Company's gross revenues totaled [458 point five-tenths million], a 27% decrease from gross revenues of $632.1 million reported in the fourth quarter of December 31, '06. Net income was $12.3 million or $0.32 per diluted share during the fourth quarter of '07 compared to $15.9 million or $0.42 per diluted share in the fourth quarter of '06. We will talk about the business segment results.

The Truck segment -- the Company's Truck segment recorded revenues of $430 million in the fourth quarter of '07 compared to $608 million in the fourth quarter of '06. The Company delivered 1,511 new heavy-duty trucks during the fourth quarter of '07 compared to 3,293 new heavy-duty trucks during the fourth quarter of '06. Revenue from Class 8 truck sales decreased approximately 49% to $182 million in the fourth quarter of '07 from $358 million in the fourth quarter of '06. The Company delivered 1,199 new medium duty trucks during the fourth quarter of '07 compared to 1,508 medium duty trucks during the fourth quarter of '06. Revenue from medium duty truck sales decreased approximately 18% to $64 million in the fourth quarter of '07 from $78 million in '06.

The Company delivered 1,008 used trucks during the fourth quarter of '07 compared to 994 used trucks during the fourth quarter of '06. Revenue from used truck sales increased approximately 9% to $54 million in the fourth quarter of '07 from $49 million in the fourth quarter of '06. Parts, service, and body shop sales increased 7% to $111 million in the fourth quarter of '07 from $104 million in the fourth quarter of '06.

Talk about the Construction Equipment business -- the Construction Equipment segment recorded revenues of $24 million in the fourth quarter of '07, a 34% increase compared to the $18 million in the fourth quarter of '06. Construction equipment sales revenue increased 34% to $18.1 million in the fourth quarter of '06 from $13.5 million in the first -- '06. Construction equipment parts and service sales increased 35% to $5.6 million in the fourth quarter of '07 from $4.2 million in '06.

I am pleased to announce that Rush Enterprises demonstrated its ability to achieve results regardless of the market's cyclicality and significantly outperformed the industry in 2007. While the truck industry experienced a significant downturn in both U.S. medium duty and Class 8 truck sales, our earnings only decreased 12%. Rush Enterprises' 2007 earnings were the second-highest earnings in the Company's 42 year history. U.S. sales of Class 8 trucks were down 46% in '07, but our Class 8 deliveries were only down 39%. Our medium new truck sales were up 16.8% [over] '06, while the U.S. Class 4 through 7 trucks declined 10.5%.

We also experienced growth in key locational markets such as refuge, crane and construction equipment. I attribute our success in 2007 to our dedicated employees' ability to execute in a down market while remaining focused on growth opportunities.

Talk a little bit about the absorption rate. In 2007, our goal was to maintain our record high absorption rate of 105% achieved in '06. And I'm proud to report that we accomplished that goal. We achieved 9% increase in parts and service and body shop sales in spite of the sharp decline in the truck sales market. However, maintaining this high absorption rate is a constant challenge as the truck market continues to decline. Our fourth quarter absorption rate declined from 105.9% in '06 to 102% in '07. As a result, we recently took action to reduce overhead expenses to a level more reflective of our needs given the expected business activity in 2008.

Let's talk about the outlook in 2008. While the industry has predicted a robust 2008 market at one time, these predictions have been adjusted downward to reflect the slowing economic conditions and uncertainty regarding the methodology engine manufacturers will use to meet the EDA's 2010 emissions requirements. We believe the U.S. Class 8 truck deliveries will be approximately 145,000 to 155,000 units in '08, and will be weighted towards the second half of the year.

We continue to believe that normal customer trade cycles and price increases for engines that meet the 2010 emissions requirements will improve order intake during late '08 and throughout '09, but the magnitude of the U.S. 2009 truck market will be largely dictated by the economy. If the economic conditions in the U.S. improve, we believe 2009 will be the second-best year in the history of Class 8 deliveries.

All that being said, the good news is that our strategy and execution has proven that Rush Enterprises' ability to deliver strong financial results is not completely dependent on strong Class 8 truck sales -- or markets, excuse me. As we face the challenges of a continuing soft market in '08, I expect additional acquisition opportunities to arise. And I remain confident in our strategy and our people's ability to execute.

Now we'll open up for questions and answers.

(OPERATOR INSTRUCTIONS) Peter Nesvold, Bear, Stearns.

It sounds like you're bracing for U.S. retail Class 8 sales to be flat to down in '08 for the industry. Can you go through each of the major product areas, specifically for Rush? Class 8 sales for Rush, medium duty for Rush and used.

You want this on a -- just on an annualized basis?

Yes, annualized is good.

Basically I would tell you that as I look forward, I would see Class 8 sales next year backloaded with a rough number -- and this is looking out right now -- 6,500 would be the bottom number, okay? That would be the bottom. I would only say there'd be upside in that number.

As I look at medium duty sales, 5,200; somewhere in the 5,000 to 5,200 range. And again, backloaded also. So, that's what I see truck sales being.

As far as absorption rate, we will be able to maintain our absorption rate. As you know, there is a numerator and a denominator and we've affected the denominator here recently in the last 30 days or so. And we do still believe there will be growth going forward -- there's only upside, I believe, in the numbers. That's why we've come out and given you what we see. The numbers that we've spoken about or what we've written about or my father just spoke about.

So, used trucks sales, flat, year-over-year. Just slightly up would be my thoughts.

Okay. And then of the Class 8 medium duty numbers you gave there, anything from acquisitions baked into that already? Or would any acquisitions potentially offer you a little bit upside from those numbers?

Well, I guess I will go ahead and speak. We tentatively have signed an agreement here in the last week to acquire the Peterbilt -- two separate dealerships in Charlotte, North Carolina. Now, we still have due diligence to go through. But I'm pleased to announce that we've signed to buy a Peterbilt, Hino, Isuzu dealership, and also a Navistar dealership; owned by the same family in Charlotte, North Carolina.

So that would be the only acquisition. And those are not baked into the numbers that I gave you.

That would be your first Navistar dealership, right?

That is correct.

Is that an area of growth for you or was this kind of thrown into the deal?

Well, I would not really want to reflect on that at the moment. It was owned by one family. We're excited, they own two dealerships there locally. So obviously, it only made sense for them to sell both.

Okay. And just a couple of other housekeeping items. What was the estimated average price Class 8 medium duty used for the quarter?

Average price, let me look here on my sheet. For the quarter was -- Peter was -- did you want Class 8 or medium? I'm sorry.

Both. You can update the model.

Yes. Class 8 average was $120,000. Medium was $53,000 and used was $53,000 also.

And if you X out the sales commissions, what was the baseline SG&A?

You X out and we'll just call it G&A, Peter, if you X out the commissions, you take the X out of the equation. It was 3.7.

3.7. How much lower can that go?

Good question. I believe the first quarter will be reflective of the actions that we have taken to take that down. I really don't want to give you a hard number right at the moment, but it can go lower, to answer your question. No, we would -- you're talking about G&A, is that correct?

That's right.

G&A I hope we can maintain -- remain flat.

(Inaudible question - microphone inaccessible)

Yes, that was quarter-over-quarter. I gave you G&A fourth quarter over fourth quarter growth rate. And the fourth quarter of '06 to the fourth quarter of '07 was 3.7%. As we go forward, I would hope we could take it slightly down to flat.

Got you. Okay, I'll jump back in queue.

Jamie Cook, Credit Suisse.

I guess my first question -- back to your outlook, you've taken a look -- when you think about the 145,000 to 155,000 in deliveries you're forecasting, you're taking a little more draconian view than perhaps PACCAR has or even Cummins or CAT on the truck outlook. So, can you just help us I guess qualitatively when you're talking to your customers, just sort of what you're hearing out there?

And then the other thing I wanted you to talk about -- we keep hearing increasing data points, that '09 is not going to be what we thought it was. And this whole pre-buy ahead of 2010 just doesn't seem to be, I guess, stacking up. So any comment on where potentially 2009 could be at this point?

Well, as we look -- everyone has been very excited. We've had three months in a row of over 20,000 Class 8 orders. But you have to take the orders and break them into their pieces. We've been running with, what, 35% export orders in there? And also, the orders for the U.S. have been mainly backloaded into '08, okay? Not frontloaded. That's why I say the overall numbers at 145,000 to 155,000, that's coming off of 156,000 last year. So it's 5% down to flat, is our thoughts, being backloaded.

And I see that from a customer. Now I will tell you that activity level is picking up. But activity level historically transcends into orders. But the comments, we have customers that are talking about taking trucks but mainly loaded into the second half of the year. So we're excited. I believe in the numbers that I have put out there, that we have put out there. There's only upside in those numbers. I see nothing going underneath those numbers.

As far as 2009, I still remain excited about 2009. Yes, because I do believe you cannot continue through '08. If this continues as we believe through the first half to three quarters of '08, there will be demand for trucks. Housing cannot go lower in 2009, I believe, than what it will be in 2008. I look for housing -- what you've got to look at, our customer base has basically been in a recession, in recessionary mode for probably 16 to 18 months. When you look at what the biggest piece of our customer base is, and that is automotive and housing, which drives for '08 as much as anything. We're very fortunate that we made it through with our vocational business to be where we were, to outperform the market in deliveries in '07. And I would hope we'll be able to do that in '08.

But I do believe -- I believe there's only upside in 2009. I don't suspect it to reach the levels of 2006. I know that the numbers that ACT has put out are in the 315 range or so right at the moment. Which would still put it as the second largest Class 8 truck market out there. And I firmly believe that those are solid numbers in 2009. I believe our customer base will experience a rebound in the late third and fourth quarter of this year, which will lead to a rather robust 2009 from the Class 8 truck perspective.

All right. And then just a second question -- while I know you guys don't give specific EPS guidance, if I look at the Street, the Street is at 1.47 and given your forecast, it seems to me that EPS has to come either down versus 2007 to flat, given your forecast. But is there anything else besides -- I mean, you talked about the acquisition that could potentially help numbers -- anyway you can help us a little more on the cost cutting initiatives you initiated in the fourth quarter that could help or how we should look at construction and forestry? Just so -- if there's any --?

Let me break some of our ancillary businesses down for you. I look for our construction equipment market to remain strong. Similar '08 numbers to '07 numbers. I look for our leasing and rental operations to stabilize. We had an extremely tough margin year in our leasing and rental operations, but I look for 2008 to stabilize and be up in the second half of the year.

When you look at -- when you break the truck -- where we sell most -- our vocational market is down, I look for refuse to be extremely strong. We're much stronger in '08 than it was in '07. I look for our crane division to remain strong. I also, like I said, oil and gas -- oil and gas has peaked but it will remain strong. It may not remain at the same levels that it was in '07, but it still will remain strong relative to historical numbers.

Then you must hit the markets that are still going to remain soft. And that is the coastlines. You look at the Construction Equipment markets, construction markets on the coastlines from Florida and California, and they are pretty dismal at the moment. But I do not see them getting much worse than where they have been at. When you talk about housing starts -- I mean, let me reflect on what housing really means to the truck business.

You go back to 2005, we had about 2.1 million house starts -- home starts; 2006, 1.9 million. Last year I think we ended up with a 1.1 million range. 2008 has to be the bottom at around maybe 800,000 to 900,000 home starts. That is one of the reasons I still believe that we will have a very strong '09. Because I do expect home starts to rebound once we get into the latter half of '08 and go into '09.

And when you say, what do housing starts -- how do they relate to truck sales? One home basically means anywhere -- about 5.5 loads per house. So when you take that out of the overall freight economy, the overall freight, you can see the impact that it has. So we believe we're at the bottom of that. We will remain in that through the first half to three-quarters of this year. But I do see that rebounding for us as we go forward.

All right. As always, I appreciate the color. Thank you.

Chaz Jones, Morgan Keegan.

Hey, guys, nice quarter. I'm going to ask -- maybe you could give us a sense, Rusty, of how much inventory played a role into Rush being able to kind of outpace industry trends in 2007? And since I guess we don't have that phenomenon of really playing out in 2008, should you be more in line with what the industry does?

I would expect our deliveries to be slightly more in line with delivery. But we should still, I hope, outpace as we go forward. I have said I expect basically at a bottom of 145,000 and reflected on ours at 6,500. But again, I said that was the bottom.

I'm trying to give you conservative guidance because the second half of the year is still hazy. But I do believe we are at the trough. So we will perform above the market, above the sales market from an earnings perspective in the first half of the year. But we still will need a rebound to get where we need -- we still need Class 8 -- potentially need to deliver Class 8 trucks and medium duty trucks.

You've got to understand, the medium duty business, that was one of the things that was very obvious to me as I looked at the fourth quarter medium duty leverage. You see they are down significantly. That was reflective of what I think small-business America was at.

Historically, in Novembers/December -- small-business drives a lot of medium duty truck sales -- historically, we have a lot of tax related sales in the November/December timeframe. We did not see that, which tells me that small-business America did not make the money that they normally do. Normally the tax accountant will tell you, come November, you need to spend some money, take your three year assets and get your depreciation so your private business does not pay their taxes. That was not reflective in our numbers and not seen at the store level this year.

But again, I think we are at the trough and we're in the trough right now. And we're excited. Remember, our model is flexible. We are not a manufacturer. That is the same point I've been trying to make for the last five years and I think you've seen in the numbers in '07. I think you will see the numbers in '08. We have flexibility in our model. And we are not just a manufacturer. We have many -- we're a very diversified earnings stream. We're very focused on geographically being diversified in different market sectors.

So the results of '07, I believe the results you're going to see in '08 despite what I believe is going to be U.S. deliveries are going to be flat to slightly down and backloaded, I think will bear out the model of our model.

Do you expect seasonally that the first quarter is the trough then? Because I know (multiple speakers) --

From a delivery perspective?

Yes.

Yes, I do. I do expect the first quarter to be the trough from a delivery perspective. But we look to still let our model show through. I can't sit here and say we are going to be up. Of course not. But I think you will see that the performance of the organization will be solid and above what you would expect from a -- again, from a manufacturer.

And I may have missed this, I apologize. Did you give an outlook on the used equipment side?

Yes, I look for used to be flat, just slightly up.

Are you exporting any used equipment, Rusty?

Currently, not a lot. No, sir. Most of the trucks that are going overseas are not related to PACCAR items, I would say, basically because there is a certain price range that fits in certain different countries right at the moment.

Is that an area in the future that perhaps maybe makes sense into maybe allocating a little more effort?

Oh, yes. We are focused on that, trust me.

Okay. And then, lastly, and again I apologize if I missed this, I just got on the call a little late -- did you comment about parts and service? Obviously that's kind of continued to slow here just kind of on the outlook, on the growth rate?

Yes, we slowed in the fourth quarter. Obviously from a growth perspective. And the absorption was off a little bit. But on the absorption number, parts and service growth is key. But of course the absorption number managing that is the most important thing. We were off I believe on a same-store basis slightly over three points from a same-store perspective when you strip out new acquisitions in the fourth quarter. Not year-over-year; we maintained, just like I have always committed flat year-over-year, basically flat. Maybe half a point down on the total, but I would say, if we could stay within 1 to 2 points of the 105 in spite of the downturn in deliveries.

As we go forward, I believe we will continue to maintain where we are at. And when we do get the spike in truck sales that we do expect towards the latter part of the year, I think there is plenty of -- there will be plenty of room for growth in our absorption rate going into '09.

Okay and one last quick question -- maybe tax rate outlook, that was a little different in the fourth quarter?

Chad, this is Steve. There was some tax changes in Texas where we generate a lot of our margin and income. They switch from a franchise tax to a margin tax and a lot of that got cleaned up in the last half of the year; interpretations of the law and such. But we look for it to be about 37.5% or so going into '08. And that could be tweaked as year goes on, but that's -- yes, that be until the fourth quarter adjustment again, if anything. But I would expect it'd be in that 37% to 38% range.

Okay, great. Appreciate all the time, guys.

Gary Lenhoff, Ironwork Capital.

Thank you for taking my question. Rusty, can you help me out here? What was selling -- I'm sorry, what was G&A expense in the fourth quarter?

What was absolutely G&A, Steve? I don't have it in front of me.

It was $49 million to $50 million.

$50 million.

Okay and you expect that to be flat in '08 for the full year?

I expect the first half of the year -- the fourth -- I'm sorry?

Let me jump in here. This is Marty. I don't think you're going to take $50 million times 4 and say it's $200 million? No. That's not what we're --

No, no. I'm asking if it will be flat compared to 2007?

In total -- let's back up a minute. One of the difficult things to determine is for from a complete SEC perspective on your income statement is the effect of acquisitions. Now we just said we are going to go buy Charlotte. Right?

So if we close that, it's going to add G&A expense to the structure. What we are going to try to do obviously is manage a very flat organization the first half of '08. So I think our expectation in the first half of '08 would be G&A expense to run very similar to what it did in the second half of '07; maybe not exactly in the fourth quarter, because in the fourth quarter there are some nuances that affect our G&A numbers as history has indicated.

Then in the second half of '08, if the truck market picks up and your deliveries pick up and the business starts to rebound, by nature you're going to add some G&A expense. The exact level -- what we try to do is manage it to no more than an inflationary increase. So (multiple speakers) -- ballpark.

That's very helpful. Can you provide a little bit more detail? You took about $5 million out of G&A in Q4 compared to Q3. How did you do that? What did you take out?

We talked in our press release that we've started managing expenses in the fourth quarter, was we saw that the industry was declining. Right? Certain stores were quicker at it than other stores, quite honestly. There is a combination of certain stores starting their expense cuts pre-beginning of '08 in that number. That is part of that equation. And then as business activity declines seasonally in the fourth quarter, you'd understand, fourth quarter, first quarter are our seasonally slow quarters. And more specifically, November, December, January and February are traditionally our four slowest months, consecutive months. Right?

So naturally fourth quarter expenses are less in a G&A perspective than they are in the third quarter. A lot of your variable type expenses that are variable in G&A, we start eliminating in the fourth quarter as the business slows. Same thing with the second quarter. And then traditionally third and fourth quarter G&A expense will rise slightly.

Okay. Can you maybe help me out -- what was G&A expense in Q4 of last year -- of '06?

'06.

I'm just looking for how much you took out year-over-year.

I think it was relatively flat.

So it would be about $50 million in '06 as well?

That is right. Actually it was about 43.9 -- I mean 40 -- it was flat. It is close enough. It was relatively flat. Within a few hundred thousand dollars of being flat.

Okay. Rusty, can you comment a little bit on what you're seeing in the ability of some of the smaller independents to obtain financing -- to finance purchases, trucks? And talk a little bit about your loss experience in your leasing business or what you're seeing?

Well, that's obviously two separate questions. Obviously, financing has tightened. There is no question. Delinquency rates are up for the small and medium sized operator. We still have enough sources that we're really not having any problem getting in place. I would tell you slight tightening of credit standards but for a qualified buyer, they are still able to get financed without a question. Our losses are not in the finance because obviously, we are a third party, but we sell off to a third party provider -- the trucks that we place and that we finance for the small and medium size customer. Obviously we're not doing as much of that business, given the environment and the deliveries. You can see that there.

On the leasing side, again, you had excess capacity last year. And we've had to downsize our fleet. We normally don't go into just total leasing provision with everyone. But we believe we have gotten ourselves just about to what the market demands are from a leasing perspective. We've got around 2,400 units in our leasing division. And we are excited that we do have room from a P&L perspective to grow, from an earnings perspective, going into -- especially the second half of '08.

Last question. You outpaced the industry in terms of Class 8 to medium duty trucks sales for the year. But it looks like Q4 compared to the industry you didn't quite --?

We had a huge, huge fourth quarter of '06. I attribute it more to that than our execution. If you look, I believe you will see that our growth rates from '05 to '06 were higher than the industry. So nevertheless that led to '06 to '07 being slightly down.

Vic Dumar, Soundpost Partners.

I just wanted to get your thoughts on how you're thinking about -- basically how the first half versus the second half of the year will play out. I know you said around 150,000 Class 8 sales in the U.S. How are you thinking that breaks up (inaudible) and second half?

The first and second from a delivery perspective? I think if you look at the last 2 quarters we were at 30,000 or so and the third quarter in deliveries around 35,000 -- I believe that that's right, I don't have that number in front of me right now. And Q4 about 65. I would look at that to be in the 65,000 to 70,000 range in the front half and the back half would be somewhere in the 80,000 to 85,000 range.

And if the economy worsens and recessionary conditions get worse, are there risks to that number or do you see that has a bottom?

No, as I said earlier, I believe that is the bottom number. I have tried to be conservative with only upside in the numbers that I have given.

Tom Albrecht, Stephens, Inc.

Hey, Rusty and others. I wasn't real clear on what you were describing your same store sales to be on parts and services. You gave a lot of insight there but I kind of missed what you were saying, whether that was flat or up.

What do you want to -- quarter or do you want year?

Just really for the quarter.

Quarter same store sales were up 5%. Obviously our lowest growth quarter in a while but it reflective a lot of that -- remember, you have to look at all the deliveries we made. And that is same-store. And if you look at all the deliveries that we had, doubled the Class 8 deliveries, which as you know, if you look at our parts and service, 10% of our parts and service gross margins are derived from the delivery -- from internal work which is driven by truck sales.

Right, right. So your comment on a forward-looking basis, was that same store sales would remain positive or probably flat in the first part?

I believe in the first half of the year they will be similar to the fourth quarter. Because of the -- we have tried to undertake some cost initiatives. We believe we can maintain our absorption rate. Maybe with not as much top line growth, but by managing the denominator in the equation.

Sure. Marty, on the G&A component again. The one thing I didn't hear was you talked about the year-over-year and stuff. But was G&A in the September quarter of '07 about $50 million also? Or was that a little bit higher since the total of SG&A was over $60 million?

In the '07 timeframe it is about $55 million.

The market you have described, Rusty, as strong or solid. You said leasing and rental probably does better in the second half. Vocational, you were optimistic on. Crane remains strong. Oil and gas strong, but maybe off the peak. But there was one other market you mentioned in the beginning --.

I mentioned Construction Equipment; CE, not the truck business, but Construction Equipment is strong. The other market that I believe has a lot of growth in it is the refuse market for us. So we are excited about where we are from that perspective going into this year. There is definitely going to be upside in our refuse deliveries. Now how that translates into absolute numbers I really don't want to get into at the moment, but there is upside in that market.

And I believe the construction markets have bottomed out on the coastlines. Now I don't look for them to get any better in the next six months, but I do believe, going into the latter part of the year, I don't believe housing starts will be anything but up in '09 over '08. And we have sized ourselves to the markets we live in right down, and we look forward to those markets picking up on the coastlines and in the Arizona area back when you get into the latter half of '08 and into '09.

One of the challenges in selling to the over there road fleets is just getting them to talk right down. But your overall pricing per Class 8 trucks has remained pretty solid, impressive. If you're going to get them to talk and place orders, is price going to have to be more of an enticing element?

Well, of course. I would think that. You know how the supply and demand world works. We are no diffident than anything else.

Remember, there is a mix in our deal. You have got to understand that vocational trucks sometimes with bodies and things like that will drive different type pricing. And then we have -- if you are delivering less over the road trucks, they are obviously to large fleets, they are going to be priced cheaper. If there is less of those and a higher percentage of say stock sales, or a higher percentage of garbage trucks, or a higher percentage of mixer trucks involved, then the price will come up. So sometimes that price can be a little misleading. You have to dig into the mix of what is behind it.

Because there are so many different sectors that we sell into. The oilfields, etc, can be different. All those sectors have different averages. But we are not going to get out into breaking those averages into their -- breaking that down.

You mentioned too that November/December didn't have the tax-related sales in the medium duty market that you have often seen. How much of that, whether it be Class 8 or medium duty, also reflected perhaps a slow down in tax receipts at municipal and state government levels?

I did not see a lot of that. I think it was more driven by small business. We did not see companies walking in here the day after Thanksgiving and saying, hey, he has talked to his tax accountant -- this is just at the simplest store level. This is how it works. And he says, I have talked to my tax accountant. I need to spend this money in December. It is a 3 year asset and I need to take that depreciation, so I don't pay the taxes that I was going to. Because I think I have got to buy a vehicle in the next six to twelve months, I might as well take advantage of it now. We did not see that, which to me was indicative of what -- that money that was made at the small business, private level.

How is your bad debt performing? I would imagine for a business like yours, which has been a lagging indicator compared to what the truckers have experienced for over a year, that maybe there's going to be a lagging element on the bad debt?

Obviously, you do not recognize that we do not carry our receivable. So we don't have any issues with --. When it comes to the paper that we sell off on trucks sales and when it comes to the receivables, do not look for any contingent liabilities out there; there aren't many.

When you talk about the finance portfolio, obviously the finance portfolio that is out there it runs -- the delinquencies are running extremely strong on the coastlines. If you go from -- what we see, if you go from September to the 1st of January, delinquencies were up about 50% from an overall blended perspective, and even more -- not ours, now, this is not our paper. This is the paper we sell off. We have views of it to see what the delinquency rates are. And there is no question. And the coastlines are the hardest hit, no question. The East Coast and the West coastlines are hardest hit. So delinquency rates have risen quite a bit over the last three or four months.

But remember, that seasonally happens always anyway. The slowest times are during the winter months as you build up for -- we used in have a Christmas build up in the freight business, and there is still is, but not what we saw, as you know. Not what we historically saw five years ago. Things have changed. But delinquencies historically are higher in the months of January and February than they are at any time of the year. But they have risen a little above even the normal seasonal.

That has to do with -- you know. But it is nice to see freight tonnage starting to creep back up. Of course, the comps are much easier to creep back up. But I do believe that once we get to the second half of the year --. Remember, we are always the first in and the first out. The freight business is always the first one. As you well know, we started seeing it in October or so of '06, and it has been that way ever since. But I do believe that there will be a rebound when we get into the second half of the year. From my customers. My customer base will have a rebound in the second half of the year.

Rusty, you have mentioned, I don't remember the term, but basically the dialogue regarding trucks sales has picked up a little bit. How much of that dialogue is driven by carriers in particular? So set aside some of your niches, I am just talking about replacing trucks, and how much of that dialogue contains a lot of stuff free-by due to concerns about the '10 engine.

More about replacement at this moment. But remember, we are just in February of 2008 too. We have still go 23 months ago before we get to 2010. I think you have to look at -- people will be looking more towards that as we go out into the future. But we have still got to remember, look at the years of '04, '05, and '06. Most of those units still need to be replaced prior to 2010. That is why I believe that as this stretches out, the exciting part about 2009 is that you have condensed that replacement of those units into a smaller timeframe, which does mean you have larger sales in '09 and maybe people had brought those sales down basically worried because they don't think the technology will be that big of an issue. I'd tend to disagree with that.

But I do believe, as you condense the replacement cycle down into a smaller timeframe, if someone is going to replace in the first half of 2010 or in the year of 2010, you are going to see a large percentage of those trying to press to get them done before January 1 of 2010.

Lastly, I know you have never exactly admitted this, but it would seem like that your out-performance vis-a-vis the industry on Class 8 truck sales had to be driven in part, not just because you have a long term market share story, but because you had all those trucks, '07 models with '06 engines. And that you probably came back to the pack a little bit more in the fourth quarter. Is that an accurate read or not?

I guess you could say it is an accurate read. As I reflected earlier though, if you look from from '05 to '06 I think you will see that our deliveries exponentially jumped higher than what the market did. I don't have that in front of me, but (multiple speakers).

Right. They did.

So as you look at that, obviously we had a tougher comp from the fourth quarter of '06 is my answer.

I want to add something to that. All of that taken into consideration, it is business strategy that gets you there. Carrying those trucks into inventory was a design, not an accident.

Absolutely.

So how by hook or crook did you out-perform the market -- that is kind of what Rusty gets paid for. Right? I don't mean to --.

Well, that is right. You have got to think about the product that people are going to want.

And I think those numbers were very reflective in our second and our third quarter -- our first three quarter results, and even into our fourth quarter. Now that has pretty much run its tail and run on out. But now we are into -- I am excited. I will be honest, we are in the trough right now guys. And the only thing we have got to do in those numbers that I put are reflective of that. The only thing in those numbers is upside in my mind when I look at the macro numbers. I don't see it getting any worse.

Our customer base has basically been in a recession. I spoke to that last summer in conferences I did. It has basically been in a recession for the last 16 to 18 months. And I think if you look at their earnings reports you will see that. Except for certain -- now if you jump into the vocational market, that a the whole different deal. But I am just talking about more the over the road type customer.

[Lon Grouper with Southpoint Capital].

I apologize. I was on the call a little late. Did you just say on the medium duty side -- for the heavy duty side you guys said 0% to 5%, but what are you expect medium duty size to do next year?

We expect it to be slightly down. And remember, these are the conservative numbers I am putting out. I would say our deliveries, based on what we see right down -- I didn't give you a market number, but somewhere in the 5,000 to 5,200 range. But again, I believe there's only upside in those numbers. And that is outside of any acquisitions that might happen. So that would be a same-store type comparison number that I am giving you.

And I heard for the first half on parts and services sort of similar 5% same store sales. What does your best guess for the year look like?

I look for absorption rates to remain flat to down a point or so like I have said for the last --. We can weather and manage our absorption rates. I think as I spoke earlier on the call, the flexibility inside our model is -- I believe '07 and I believe '08 will continue to show the flexibility inside the model of our dealerships in how we have designed them. And it wasn't by accident. It has been by plan. As we have talked for the last six, seven years, we have remained focused on driving more flexibility into our earnings model by diversifying the earnings, and not just being a Class 8 trucks sales company.

I was just looking at the top line. I know you guys can manage the G&A component, but not the absorption rate, but just the parts and service.

I look for it to be similar, right now in the first half of the year, similar to the fourth quarter. We were up about 5%.

And beyond that similar --?

If trucks sales pick up, there will definitely be growth in the obstruction rate and larger growth in the parts and service side.

And I also believe as the fleets that we put out in '05 and '06 age, the vocational businesses that we have sold many, many trucks into, as those trucks that we sold in '05 and '06 start to age, the parts and service business on those vehicles will only exponentially grow as they age and get into their third and fourth year out there in the marketplace.

Lastly, you guys mentioned you bought something in Charlotte. Is it getting easier to buy dealers, particularly on the construction side, or the areas on the coast that you said are getting hurt right down?

I don't know if it will be easier. I don't think it is ever easier. Remember that a lot of people that had very strong years in '04, '05, and '06. A lot depends -- there are many, many things that go into some of these acquisitions, because these are private folks. And a lot has to do with succession and things like that and what their desires are. So it is possible, obviously. And obviously, we are always looking. But I really wouldn't want to comment any further than that.

(OPERATOR INSTRUCTIONS). Peter Nesvold, Bear, Stearns.

I think if you x out the industry, because you have been gaining some share [of] Peterbilt. You have been doing acquisitions. You have been growing your earnings faster than your specific trucks sales for the last year or so. And I think part of that has been because the absorption ratio has been going up. And as we look out into '08, it may be flat. May it is down a point. It is maybe a bit of a moving target.

If I aggregate the guidance you are giving on the volumes, I am looking at maybe your overall volumes being down roughly 5%, new Class 8 medium duty used. Are you able to grow your earnings with your trucks volumes down 5% and in a flat absorption ratio year?

I think you answered your own question with what you said, in my mind. I don't see that much growth in those numbers. No, sir. But again, as I said, I think there is upside in the last half of the year. I'm trying to be conservative in the guidance that I am giving from a delivery perspective. And I do not give earnings per share guidance, will not give earnings per share guidance. But I think you have seen the performance of the Company. You understand the flexibility of the model. And I will just leave it at that. I do believe that there are opportunities above and beyond some of the macro numbers that I gave you.

I am just not going to come right out there, and we have never done that historically. I tried to guide you with industry numbers, conservative industry numbers, of what our outlook is at this moment. Again though, remember, trucks are still readily available. I am still selling trucks in the first quarter of this year. Just because it is February 13 today, it does not mean that I can't get a truck and get it delivered by March 31 at this moment.

No, it is fair. I think -- I just want to make sure our own numbers aren't too far ahead of where you see than the year. And if there is upside in freight etc., that is so much the better.

Right. You are right. You are taking a view of the market -- as I have said, with those numbers there can't -- if they stay at those numbers that I put out there, it would be hard to see a lot of upside in it. But, if the numbers do rise in the latter part of the year, then it is very possible.

Gary Lenhoff, Ironworks Capital.

Can you give us an idea of what you expect CapEx to be in 2008, x acquisitions? And then maybe break it down by trucks and other capital projects?

X acquisitions?

Yes.

We expect -- in our CapEx numbers we have the leasing and rental business.

Can you break that out?

That is a cash neutral CapEx because we borrow against that dollar for dollar and have an offsetting revenue stream. But what you will see on a cash flow statement is about $40 million related to that is the estimate. We expect what we call maintenance CapEx, just to buy computers, furniture, and shop equipment and tools to be roughly $1 million a month.

And then the last bucket of CapEx for us we would call any kind of real estate or growth in our current SAP project. That is somewhat of a moving target. If we decide to do a new dealership or a remodel or add on service capacity than that number would probably range in the $15 million to $20 million range for '08.

And it appears we have no further questions in the queue. I would like to turn the conference back over to Mr. Rush for any additional or closing remarks.

We thank you all for listening to us. And if you have any questions, please give us a call. We look forward to talking to you again one of these days before long. Have a good day.

Thank you. That does conclude today's conference. We thank you for your participation. And you may disconnect at this time.