Rush Enterprises Inc (RUSHB) 2008 Q1 法說會逐字稿

Welcome to the Rush Enterprises, Inc. first-quarter 2008 earnings conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Marvin Rush, Chairman of the Board. Please go ahead, sir.

Good morning and welcome to our first-quarter 2008 earnings release conference call. On the call with me today are Rusty Rush, Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Vice President and CFO; [Jay Hazelwood], Controller of Rush Enterprises; and Derrek Weaver, Chief Compliance Officer.

Now Steve Keller would like to 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 our annual report on Form 10-K for the year ended December 31, 2007, and in our other filings with the Securities and Exchange Commission.

Now we would like to give you an update on our progress. Let's talk about the first-quarter results. In the first quarter, the Company's revenues totaled $404 million, a 24% decrease from revenues of $531 million reported for the same period last year. Net income for the quarter was $9.7 million or $0.25 per diluted share, compared to $13 million or $0.34 per diluted share in last year's first quarter.

Let's talk about the business segments. The Truck Segment, our Truck Segment recorded revenues of $377 million in the first quarter of '08 compared to $505 million in the first quarter of '07. The Company delivered 1266 new heavy-duty trucks in the first quarter of 2008, compared to 2030 heavy-duty trucks in the same period of '07.

Revenue for Class 8 truck sales decreased $88 million or 37% to $152 million in the first quarter of '08, compared to $240 million in '07. In the first quarter of '08, 972 medium-duty trucks were sold versus 1439 new medium duty trucks in the same quarter last year. Revenue from the medium-duty trucks sales decreased $21 million or 28% to $55 million in the first quarter of '08, from $76 million in '07.

The Company delivered 900 used trucks in the first quarter of '08, compared to 1077 in the same period of '07. Revenue for used truck sales decreased to $11 million or 20% from $43 million in the first quarter of '08 -- I'm sorry, I said that wrong -- $243 million in the first quarter of '08 from $54 million in '07.

Parts, service, and bodyshop sales decreased 1% to $109 million in the first quarter of '08, compared to $110 million in '07. Gross profit margins on back-end sales remained flat, relatively flat at 43% in the first quarter of '08.

Let's talk about the Construction Equipment business. The Construction Equipment Segment recorded revenues of $22 million in the first quarter of '08, compared to $21 million in the first quarter of '07. New and used construction equipment sales revenue increased 1% to $16.9 million in the first quarter of '08, compared to $16.7 million in the first quarter of '07.

Construction equipment parts, service, and bodyshop sales increased approximately 16% to $5.2 million in the first quarter of '08 from $4.5 million first quarter of '07.

Our absorption rate, we remain focused on increasing our absorption rate. Our absorption rate increased to 104.9 during the first quarter of '08, from 101.7 during the first quarter of '07. This strength in our absorption rate was primarily driven by the expense reductions implemented during the first quarter. Our goal is to achieve an annual absorption rate of 105% in '08, which is consistent with '07, despite the decrease in Class 8 truck margins.

Let's talk about the industry outlook. As expected, the impact of the Class 8 and medium-duty truck market downturn that was originally forecast to recover in late '07 has continued through the first quarter of '08. We believe that the current freight and capacity environment coupled with record high fuel prices and tightening credit will cause Class 8 and medium-duty truck deliveries to remain soft through the remainder of 2008.

Recently A.C.T. Research has lowered their estimate of 2008 U.S. Class 8 truck deliveries to approximately 140,000 units, a 10% decline over the already depressed 2008 -- 2007 Class 8 truck market. Currently, A.C.T. is forecasting retail sales of medium-duty trucks in the U.S. to be down approximately 12% in '08 compared to '07. However, we believe sales of medium-duty trucks in the U.S. will decline approximately 20% to 25% in the '08.

Currently, we do not believe there will be a significant recovery in truck sales until the first quarter of '09. However, we continue to believe that 2009 will be a strong year for Class 8 truck deliveries given replacement cycles of vehicles purchased in 2004 to 2006, and impending 2010 emissions regulations.

In recent months, we have experienced increased interest in alternative fuel vehicles. Greater availability of alternative fuel vehicles in the commercial truck market, coupled with rising diesel prices and tax credits, have made such vehicles a viable alternative for some customers. Alternative fuel vehicles are significantly more expensive than their diesel counterpart. However, the Energy Act of 2005 provides tax credit for certain qualified alternative fuel vehicles that significantly closes the gap -- price gap to the customer.

When a qualified alternative new vehicle is sold to tax-exempt entities, such as municipality or a (inaudible) or a school district, the selling dealer may apply for a tax credit, and at that dealer's discretion pass through some portion of the credit to the customer. A tax credit from the IRS is treated as a reduction in income tax expense, while the amount the dealer gives the tax-exempt entity is recorded as additional selling expense.

Through the first quarter, we have not applied for any alternative fuel vehicle tax credits. However, in the future these transactions will increase our SG&A expense and reduce our effective tax rate, and in turn reduce our federal income tax expense.

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

(OPERATOR INSTRUCTIONS) Peter Nesvold, Bear Stearns.

First, just a quick housecleaning item. What was the pricing by different products?

Pricing -- you want to talk about Class 8 average sales price?

Exactly, yes, so we can just factor it into the model.

Sure, average sales price was $120,289 on Class 8 new. On medium, it was $56,756, and used was $47,323.

Great, that's helpful. Maybe we can ask a little but -- construction equipment here which is usually kind of an afterthought in the model, but really pretty surprised that you came in flat year-over-year given you guys -- that dealership I believe is down in Houston, which I would think is really benefiting from continued rises in oil prices. So what's going on with the construction equipment dealership that you see? Do you think it remains flat year-over-year or was there something -- one-time issue about some softness here in the quarter?

Yes, Peter, this is Marty. Let's talk about the different segments that affect that store. You've got oil and gas, which is obviously a big piece of growth right now. You've got nonresidential construction, and then you've got residential construction. The market in total right now for the first quarter, not -- that would be just our calendar first quarter -- is down about 8%. It was up pretty good last year, and that 8% decline is really a mix issue between residential construction and nonresidential.

The pipeline business is still strong. I would say it's relatively constant with what it was a year ago. Nonresidential construction is holding its own. However, the residential construction is down significantly. The housing starts and applications for housing in Houston are down very substantially.

So the reality is any revenue growth that we experience out of that store, we've forecasted very modest revenue growth out of that store because the housing construction piece is a big piece of our sales model. So our growth in the first quarter, actually, we are pretty pleased with, given the (technical difficulty) on the market.

Yes. I guess no one is immune, I guess, to the housing downturn. You know, I guess next question would be on just what is going on with the LTLs and the TLs right now. So we saw some pretty weak reports out yesterday at [Conway] and Warner coming out of the Mid America Truck Show; not too surprising with fuel and freight seeming to take a double-dip downturn here. What are your conversations like with fleets these days? Is that do you think the reason why we saw these orders slow down in the last two months? Do we need to see either freight rebound or oil stabilize before we see any meaningful firming of Class 8 demand?

Peter, I think you're hitting it pretty much on the head. Obviously, there still is a capacity issue out there. At the same time -- and I can speak pretty clearly to it -- I have been with a lot of customers here over the last week, especially. I do see freight tonnage, the gap between freight tonnage and capacity closing, okay. It is headed in the right direction.

I would tell you most of the issues are not necessarily due to a lack of freight tonnage, a lack of work. It is a lack of margin pressure. You've got margin pressure on all sides, I would think, from all -- if you're a customer, you can't get -- it's still excess capacity. That gap is closing, so you can't get any pricing. You've got operating pressure that's just been totally exasperated by this fuel -- the fuel diesel prices over the last 120 days. And then the overall cost of equipment has risen dramatically, so your cap costs have been up dramatically over the last couple of years. So there really isn't any piece -- there's nothing really good in any of that from a customer base, but I would tell you that the capacity issue, I think capacity will continue. That gap between it and freight tonnage is closing.

We've seen the worst of that and we're headed in the right direction. So I look for some rebounds in some of our customers' businesses later this year, but it is not anything that is going to be dramatic you are going to see in the second quarter. I do not believe that. Plus, it is still very unclear as far as technology when you look the 2010 emissions as to where you're going to have choices in technology. And I think right now, everybody is still not really focused on purchasing so much as operating in this very difficult environment we're in.

Rusty, if I can kind of play that back then, it sounds like your view is that the demand environment for freight, there is no lack of work.

Overall. Now, I mean, there will be pockets here and there, no question, but I think there is demand there, yes. I do believe there's still -- there is freight to haul. It may not be as quality of freight as what you could've picked up and driven some margin into a year or two ago, but there is freight to haul.

So there is freight to haul and you're seeing that excess capacity is gradually leaving the truckload industry, and that we get to a more reasonable balance maybe towards the end of 2008.

No question.

So that supports the rate environment, firming of rate environment, and then there's more money, revenue CapEx dollars to spend in '09 (multiple speakers).

That's exactly -- and your outlook isn't quite so hazy. Right now, it is pretty foggy. It's hard to get a -- I believe this is all going on, but from a customer's base, from our customer base I do believe it is a very hazy outlook at the moment. But I do believe we're headed in the right direction. There's no question in my mind we will be headed in the right direction. We're in the bottom.

When you look at our deliveries, I'm going to tell you they're not going to go up substantially. You're not going to see anything like that as we go out into the next two quarters, Peter, but I do believe we're in the trough right now. So there's only one way in my mind to go from here later this year, not right away, but that's really what I see.

Two other quick questions. Where are you on inventories right now? Because when I look at Class 8 inventories, they're sort of back down to the 10-year average for the industry, although much higher than we normally would see at other troughs. When I look at medium-duty, it is at nosebleed levels. I mean, it's just massively too high for the industry. So for you, specifically, where do you think you are in your whole inventory cycle right now? Do you have to continue to work stuff down, or do you think you're going to have to start to restock at some point this year?

I think really we are pretty much stocked accordingly where we need to be for what we see the market being. I will tell you this, when you look at Class 8 from the small guy, the owner-operator in the small, small fleet, those sales are off dramatically from last summer, no question. So I am comfortable that -- our inventory levels are down, but we're going into more of the selling season at the same time, so there's a balance in there. You want to be prepared if you do get some uptick, which we typically do once we come out of the wintertime.

You get an uptick as you go into later spring and into the summer. Those are historically our best -- and into third quarter. Those are historically our best months for Class 8 stock sales, so I am comfortable really with where we are at the moment. I would tell you if it was based on just first-quarter sales, Peter, I'd want to be lower. But understanding the seasonality and where we hope we're headed into a little better sales in those areas, we should be stocked accordingly.

Last quick one. Any view yet on the 2010 pricing, 2010-compliant trucks?

No. Peter, I will talk with you off-line about it, but I don't really want to get into all of that right now. I don't have a strong enough view for me to sit here and air it at the moment. I have thoughts, but I really don't want to see -- I don't have a strong enough view to sit here on the call.

Okay, thanks, Rusty.

John Barnes, BB&T Capital Markets.

Good morning, guys. Rusty, any of the weakness that you saw in the first quarter, with either new Class 8 used or medium, did any of that come as a shock? You were kind of in line with my numbers, so I don't think so, but was there any weakness in there that surprised you at all?

No, not really. I tried -- the last call we had here a couple months ago, I tried to say that I was below-market expectations. And I think most other people have lowered their numbers more in line with what I thought was going to be the way the year was going to play out. So I don't -- I would have -- I thought we would deliver maybe a few more units, but it is just a tough, tough environment. I knew it was going to be substantially down.

Maybe I missed it by -- I thought we delivered 50 to 75 more units, but we're getting real -- we are parting hairs now. But we are in the trough, but I do not see it over the next couple of quarters any dramatic rise in truck deliveries. I just don't see it. It is not out there. You don't hear of a lot of production increases, do you, at the manufacturing level?

No, no.

So that would -- forget whether we had four months running at 20,000 units in order intake. More indicative, I think much more indicative is the production levels, and I think we all can see where they are at.

Well, let me ask you that on the production side. Freightliners announced that they are going to lay off 1500 people out of their North Carolina facility. Does that impact what the magnitude of a pre-buy could be if they are not -- if they're cutting back and are not going to be prepared for a sudden surge in demand?

John, don't worry. They can ramp up quick enough.

Okay, all right. So it doesn't necessarily translate into market share for PACCAR and then for you?

I'm sorry, what was that question?

What I'm saying is if Freightliner is scaling back and is not prepared to meet demand, or let's say demand kind of shot up in third and fourth quarter this year with some kind of pre-buy, do you think PACCAR and, therefore, your company takes market share as a result?

That's pretty strong conjecture, but I have all the confidence in the world in my manufacturer being able to adjust to whatever the market conditions are. And I'm sure the competition will probably do the same. I call that -- they can adjust pretty quickly now. Their models are much more nimble than they were historically when you go back 10 or 20 years and how to work their workforce.

We have heard from a couple of the truckers that have reported so far declining gains on sale of used equipment and that type of thing. In terms of your average selling price, was there any surprise in that or is it again just given the market about where you expected it to be?

No, I mean you have to look at it. Our average sales price I think last year was about $49,825 in the first quarter, and it is $47,323 right now. Obviously, there is some pressure on used. We are seeing some pressure on used. I know one thing, though, we are safe on all our used values and trade commitments. I feel confident on where our inventory is at and our commitments looking out. I don't have a lot of long-term commitments.

Am I still trading with customers and operating my business the way I have to? You better believe it. At the same time, we have been cautious in our approach to long-term commitments on used valuations, and we will continue to take that approach as we go forward. Because we had some -- last year with the sales of trucks overseas, it allowed the market to absorb more here in the U.S. because they took more of the -- overseas will take more cookie-cutter trucks, should I say, one way to term it, which took some pressure off of pricing and allowed -- we had a fairly good used year.

In fact, we ended up for the year at gross profit. We were up in used. But -- now that is not the case in the first quarter. There has been deterioration in pricing, which has also had some deterioration in our margin in the first quarter, but we are comfortable we'll navigate through it, unfortunately, which is something we'll have to deal with.

Okay, given that you had a pre-buy a couple years ago, there has been a little less activity in the last say, 18 months, the fleets are starting to get a little bit of age on them; do you see your parts and service business maybe growing at a faster incremental rate than you had originally planned or -- and especially if they try to stretch out a little longer if this economy remains a little lackluster? Do you see that momentum kind of growing a little bit faster than you had originally thought, or is it kind of still on line the same kind of growth?

Down the road, you might see that. Right now, you have to understand what happens in one of these cycles. It becomes a battle of survival, not just for us but for our customer base. Our parts sales -- you're going to see service sales possibly pick up and have some increase, but as far as like parts sales, you don't replace it, you fix it. You go take it off an excess truck and put it on there. I mean, when you get in these types of environments, that is the reaction of a lot of the customers, and understood. But long-term, that is a short piece of the cycle.

Now, down -- now if we were not to get the pickup and '09 didn't turn out the way we -- in '09, yes, I would say you could be right on with those comments. Here in '08, you must remember that we had the youngest fleet ever when we started this, so it is not like we extended it that far out at the moment.

Everybody still had plenty of new product they put on board in late '06 and early '07, as the spillover from the '06 pre-buy went into the fleet. So we are not there yet. I know there's not much down the road yet. Those comments that you make could be -- you could attribute more of a credence to those comments.

All right, last question. Just anytime you get an environment like we are in right now, people start to think a little bit more realistic about valuations on their businesses. Have you seen your pipeline on potential acquisition targets on any of your businesses improve at all, or is there a little bit more product out there to show from an acquisition standpoint?

As you know, we announced we will be closing -- our plans are to buy the Charlotte -- two stores in Charlotte, the Charlotte Peterbilt store and also a separate Charlotte Navistar store, which we are excited about both. Also, a Hino and Isuzu franchises come with those. So I really don't have anything else, John.

Activity, yes, there is some activity and I've got some other stuff going, but that is something I'm not going to comment on at the time. So the longer this stretches out, though, again those comments are much more valid. You will definitely see probably more opportunities. Pricing, well, that's an issue you deal with on each individual deal, though.

But the opportunity should -- if this stretches out longer than anticipated, if we run -- I think it is going to run through the whole year, as I said, especially from the retail side. You might get some pickup in production in fourth quarter if things come to pass, but remember, we are on the end of the food chain. So we are the one -- there is always a lag between production and retail delivery because of preparing the truck for whatever market segment it's going into.

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

Jamie Cook, Credit Suisse.

It is actually Peter Chang for Jamie. In regards to your 2008 truck delivery outlook, the new 140,000 guidance relative to the 145,000 to 155,000 from last quarter, how does that impact your expected about 6500 heavy-duty deliveries for 2008?

It definitely has probably a little impact on it. As we continue to take that number down, it is only going to have a negative impact on us, you know, as our vision -- as our view of the future gets clearer all the time. 6500 could be high. It is backloaded. It's very -- that definitely could be a little substantial, but I'm not into -- it is pretty simple if you take 1266, that is an annual run rate of a little over 5000. So there definitely has to be some type of pickup in the overall -- in the deliveries later this year. But it is -- the closer we get to it, we are already halfway through April, you still don't see that.

So that is what I said earlier. It's still very hazy out there, so that number could be off. But I guess most importantly, remember that whatever that market is, you can probably take about 4.25% of U.S. deliveries, and that can vary, and say that is going to be Rush's piece of it, okay? We usually run -- I can get little wider, broader with 4% to 4.55, but take 4.25%.

So if you're at 140,000, you can see that is slightly around 6000, slightly under 6000 units would probably be the best way to look at it. Because if those numbers come down, no doubt as the overall U.S. retail deliveries come down and projections for that, no doubt that has an effect on our numbers. We are going to get our share of it, rest assured, but at the same time, the market is what the market is.

On the medium-duty side, why the divergence I guess from the industry data? Is it just the overall economic environment that you guys are seeing right now to the down 20% to 25%?

Well, I think if you look at -- you really have to dive into it. The projections that were put out here a couple weeks ago for first quarter were off already by other people. That 12% put out by A.C.T., they missed some numbers on it already. It was really off for Class 5 through 7, was off 20% first quarter already. I looked out at the comps. The comps do go down later in the year in '07. I looked at the quarterly comps, but they don't go down as dramatically as I think they do. I think you're still going to see somewhere -- 25 might be a little high, but in my mind there's no question there is going to probably be a 20% decline in Class 4 or 5 through 7, however you want to look at it. We break it.

I sometimes take Class 4 and set it here, and then I look at Class 5 through 7 and look at them in two components. But in Class 5 through 7, I definitely believe there will probably be a 20% decline in deliveries. Just my gut feel, you know. I've talked before that I don't think small-business is making as much money as people really believe, and we saw that in the purchasing that was done late in the fourth quarter, that they didn't make it in '07. And I know if they didn't make it in '07, they are sure not going to do anything above what '07 was in '08.

All right, thanks for the color, guys.

There will be deterioration in those numbers.

Thanks a lot, guys.

Chaz Jones, Morgan Keegan.

Rusty, did you mention -- sorry if I missed this -- did you say you still expect the Charlotte acquisition to close in the second quarter?

Yes, I mean, don't look for any impact one way or the other. That is not going to have any effect on us. But yes, I am looking forward to close two weeks from this coming Monday, if you want to get exact.

Okay, great. Then I know you guys have been spending some time and kind of rationalizing the overhead here with business trends. Is there any way you could be more specific on what you guys are doing to kind of keep costs in check?

We are managing, okay? We are doing what you guys pay us to do. We are managing; we're setting expectations and then we are executing on them, based on the markets we see in front of us. I think, obviously, we spent the first week of January -- I was -- I had talked to a few of you all -- you analysts sometime in December. And the first two weeks of January, we spent eight days solid on the telephone, myself, five folks from my senior staff. And we went through with every regional manager and every -- and worked through business plans of what we felt we had to model to the market.

We had to make some market adjustments, and as you could tell in the release in my comments, I am very, very proud of my people because the key piece was not to let it affect customer service. I visited a lot of customers in the last week or so, and I can tell you not one issue came up with our organization in customer service. So as strained as that makes it on my people, they have executed. They've done an outstanding job so far, and I know they are in for the long pull to do whatever the market dictates we have to do.

Okay, then moving on to maybe just circle back around to used equipment, a lot of discussion obviously floating around out here about how tighter credit, record high fuel prices, throwing the kitchen sink is going to lead to this rash of carrier failures over the next several quarters. If that were to take place and we saw a lot of carriers go out of business, could you give us kind of your thoughts on what that would mean for the used equipment market?

Well, obviously, it could have -- we will have to flush that through the used system still, right? So we could definitely have -- a lot is going to have to do with keeping a strong global market overseas. It hurts the small guys, obviously. I don't think you're going to see a lot of large, big carriers go out. I think their balance sheets are substantial enough and their management of their business are strong enough.

The small guys, it is just hurting. It will affect their profits, the big guys' profits, more than it will affect their going out. That is not going to happen, I don't believe, but the small guy gets hurt and he doesn't have that balance sheet. He doesn't have that backbone behind him to take all of these hits, and so delinquencies are continuing to rise as we sit here right now with the small guys. So they are going to continue to get hurt.

In reality, we have talked for quite a few years that the owner-operator and the small guy has become the variable component inside a large -- the true owner-operator definition, I said five years ago and many times, is not what it was 15 years ago. He is basically the variable price component inside a large fleet.

Delinquencies are going to get hurt -- are going to continue to rise. We will have to absorb that repossessed equipment and used equipment, but over time I don't believe -- it is something we can absorb a lot easier, say, than what we did in 2000 and 2002. 2000, 2002 was even more of a perfect storm than what we're going through right now. We just had -- we had an excess pre-buy at the same time that freight turned down, and we're just dealing with it now. That is what we've been dealing with in '07 and are continuing to deal with in '08.

We don't -- I am confident that we're at the bottom overall as to what purchases are going to be, where from our perspective our sales are going to be, should I say, from our perspective.

Just to follow up to that, you kind of answered it there at the end. I guess you don't foresee as bad as it is a scenario developing that the use equipment market could get as bad as it was back in '01 or 2002.

No, I don't see that type of -- I definitely do not see that type of -- do I see it getting softer still, a little bit softer? Sure. I can see some more softness, but I don't see 30% to 40% declines in values either, which is what we saw back then, you know.

Right. Okay, guys. Great quarter, thanks.

Because we have -- as I mentioned earlier, you have got some international markets that we did not have at that time that helps dampen some of the hits that we take as equipment comes back in, this used equipment comes back into the marketplace, whether by repossession or by trade.

Any other comments?

Milan Gupta, Southpoint Capital.

Just had another question on the parts and service. You mentioned how service -- you guys should maybe expect to hold steady and the parts might get -- move around a little bit. Do you guys still expect to penetrate the parts and service side of your dealer base, certain dealers that might not have focused on that as much being able to drive that as part of their sales?

Don't get caught up just in the first quarter, because parts sales were off. But what you have to review and look at is remember this; in our model 10% of the gross profit from parts and service are driven out of the sale of new equipment, new truck sales, both Class 8 and medium. You take a 700, 800 truck hit in the new side from Q1 of '07, and you're off 450 or so in medium.

So you've got to make that up. Those are basically headwinds of the delivery of those vehicles. You've got to make that up before you ever get any growth in that piece. Plus as I said, right now, from a parts sales perspective especially, it is fix it, not replace it. That is the mentality the customer base has in this type of environment. So do I expect -- if you look at it on a more long-term perspective, oh yes, we are going to keep capturing more market share. It is just that I think ours is indicative of pretty much what is going on all the time.

Don't think we're not on the attack. We are every day that we wake up and we come into the office, and my people are that way. We're just managing through a difficult time. At the same time, we're still going to attack it. We will get back to double-digit growth rates, trust me on that one.

It is just we're operating in this environment, and that is the good thing about an absorption number is you can attack both two sides, the numerator and the denominator. And we're managing like we're supposed to through this environment, yet we are on the attack and looking to do what we can do. It is just the part sales are very difficult in this type of environment. I have been through it many times, so we understand it.

That really helpful, thanks. To follow up on that, you mentioned the denominator. The G&A side, you guys mentioned I think last quarter that you expect the fixed G&A portion to be flat to down as you look out to '08. Is that still a realistic expectation?

Yes, I think it's pretty realistic. I am very comfortable with the fixed G&A, is in line with what I said. So we are actually down quarter to quarter. You have to stick first quarter to first quarter. Do not get caught up. Make sure, because the seasonality inside this business, both from a sales usually and from an expense side, stick quarter to quarter. As I said in the release -- I could even tell you I had a conference call with all my people last Friday congratulating them and thanking them for their fine management and execution during the first quarter, but I reminded them nothing is changing immediately for us.

So we will just managing and executing through the difficult times we are in, and I think -- I'm very proud of the first quarter because of the truck sales, which we have no control over the total truck market. We're going to get our percentage. But how we manage and how we execute and how we spent the last seven years since the last downturn, changing the earnings streams, changing the model of this company so we are able to better weather and soften the cyclicality of truck sales and not be a class -- totally thought of as a Class 8 truck sales organization.

And that's -- I am very proud of what we have done so far, but don't look for anything to change over the next quarter or two. It's not going to get any better, I don't believe, for the foreseeable future right now. But we are prepared that when it does get better, the Company will be in line to take -- more than take its share of advantage of a blossoming truck sales market in the future.

That's very helpful. Great quarter and best of luck.

(OPERATOR INSTRUCTIONS) Peter Nesvold, Bear Stearns.

So there was some news out of Hino maybe a week or two ago that they are closing down one of their facilities. I think it is one of two facilities. They are saying they're going to maintain the same amount of production capacity, so they're not reducing capacity, but I don't know what else they would really say other than -- you know.

Let's assume the worst and let's assume that Hino stops growing in North America from here. What do you do? Because certainly a lot of your absorption ratio improvement has been some from growth in the medium-duty segment. I perceive a lot of that coming out of Hino. Do you continue to buy Hino franchises even if Hino as a brand stops growing, or would you start looking at a different horse to start to ride?

No, I think first off, you've got to remember that is not the whole course of our medium-duty plan. Remember, we represent many manufacturers in the medium-duty business. As I said prior, you add the price point. You have to -- and we represent them all well, I do believe, also. But you have to hit because we cannot get, say, a Hino franchise in every area we are in. I cannot get an Isuzu franchise in every area I am in.

I think it is just more or less they reacted to the market size. Remember that other plant came online just last fall, okay; what wonderful timing, right? So their long-term plans, I would tell you this. Let's go back to the early '60s. Remember Toyota when they first got here in the late '50s and early '60s, they are not going to change from their plan just like the company that owns the majority of share of Hino is not going to change from their long-term goals.

They may react to a marketplace that they're not -- I don't think they're quite used to the cyclicality maybe of the truck market compared to the car business, but they will learn it and they will stay the course, and that is not a concern. Again, they are not -- remember, we represent numerous brands in the medium-duty business, and it is hitting those price points. We represent a lot of Hino. We represent a lot of Isuzu, GM; Peterbilt, of course, always. We've got Peterbilt at all our locations except for a couple standalones, which we don't have many of.

So we are excited. Hino represents roughly -- I was just -- they were pulling me a number here, about 22% of our medium-duty sales. So I am not worried in the least.

Okay, thanks for the time.

It appears there are no further questions at this time. Mr. Rush, I would like to turn the conference back over to you for any additional or closing remarks.

Thank you for listening. If you've got any further questions, you can call us at any time. Have a great day.

We thank you very much and as I said, look forward to hearing from you in the future. We will report any other news. Thank you.

That does conclude today's conference. Thank you for your participation. You may now disconnect.