Rush Enterprises Inc (RUSHB) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Rush Enterprises fourth-quarter and year-end earnings results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, today's conference call is being recorded.

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

Welcome to our fourth-quarter earnings release conference call. On the call today are Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Vice President and CFO; Jay Haselwood, Controller of Rush Enterprises.

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 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, 2009 and in our other filings with the Securities and Exchange Commission.

Let's update you on 2010. We are very proud of the Company's financial performance in 2010 and are encouraged by the strong parts, service, and bodyshop operations and signs of increasing new truck orders.

During the spring of 2010, our parts and service and bodyshop began accelerating from the depressed levels that we experienced through 2009. Our parts and service and bodyshop revenues were up 24% in 2010 compared to 2009. This increase resulted in a fourth-quarter absorption rate of 110%, the highest quarterly absorption rate we have ever achieved and our annual absorption rate of 106%. We expect parts, service, and bodyshop operations to remain strong in 2011.

Our new Class 8 truck deliveries increased by 76% during the fourth quarter compared to the same quarter last year and 20% for the year compared to 2009. The strong quarterly increase, which is primarily attributed to the timing of truck deliveries, resulted in Rush attaining a 5.4% of US Class 8 truck market in the fourth quarter. We expect our market share to return to more historical levels of 4% to 4.5% during 2011.

Medium duty truck deliveries increased 32% during the fourth quarter compared to the same quarter and 11% for the year compared to 2009.

We formed our new Navistar Division with the Company after the completion of the acquisition of the assets of Lake City International. We are very pleased with the performance of our new international leaderships and more importantly are excited about the growth potential for this, our Navistar Division.

During the year, the Company sold the assets for the John Deere construction equipment business. We also acquired the assets of the Ford Isuzu dealership in Dallas and another Ford franchise in Oklahoma City.

Let's talk about the industry outlook. Industry experts currently estimate the US Class 8 truck retail sales to be 179,000 units in 2011, up nearly 63% over 2010. Current industry projections are for US Class 4 through 7 retail sales to be 128,300 units in 2011, up nearly 10% over 2010.

Retail sales in heavy-duty trucks are not expected to substantially increase until later in 2011, causing the new truck sales market to remain challenging throughout the first half of the year.

As Class 8 truck sales for 2011 are forecasted to be at the low end of what is considered normal industry replacement needs, many older truck fleets will remain in the operation throughout the year, requiring continuing maintenance and repairs. This should result in our annual parts and service and bodyshop revenues remaining consistent with levels reported in the second half of 2010.

We do expect recent inclement weather conditions in Texas and Oklahoma, restatement of employee benefit programs, and higher equity compensation costs to impact our first-quarter earnings as well. Industry experts are forecasting 2012 Class 8 truck sales to be 235,000 units, up 31% over 2011 and Class 4 through 7 sales to be up about 24%. We believe that if economic conditions continue to improve, activity will increase in automotive and capital goods manufacturing as well as residential and commercial construction, which should result in strong sales markets in 2012, 2013.

We are very proud of the Company's financial performance this year and are pleased to be entering 2011 with strong back-end operations and signs of increasing new truck sales. We are very optimistic about the possibilities of growth as we see signs of a market up cycle.

Thanks to our employees, we remain financially strong and a profitable Company. We are prepared now to answer any of your questions you may have.

(Operator Instructions) John Barnes, RBC Capital Markets.

Good morning, guys. Rusty, can you just walk us through -- you saw a nice improvement in Class 8 new truck sales during the quarter and yet your commentary in your press release was still talking about you believe that the big ramp up in retail sales is more like a 2012 event or late 2011 maybe.

Can you just kind of walk us through number one, what you are seeing from a mix right now between the fleets and truck sales on a retail level? And then why do you believe that there is that disconnect between maybe the fleets buying right now and the retail sales improving next year?

First, you've got to remember, John, we are on the retail end of it, so we're the last guy that touches the truck when it goes to market. When you look at production figures and order intake, which has been extremely strong in the last three months, I think you see that, but that should show up in the second and third quarter from our perspective if it continues.

When you look at our fourth-quarter market, I know you pointed out the fourth quarter in particular, we were 5.4% as we said of the overall Class 8 registrations, which is extremely strong. Now if you remember earlier in the year we were running only about 3.4 during the first half but if you blend the two, you get to our typical percentage of truck market, which is about 4.3 for the year. So we look for the ramp up to continue.

And if you look at ACT's numbers that are out there, they are out there at 179,000 in 2011. But if you look at the ramp up of it, the fourth quarter has got 44% more, 52,000 units in the fourth quarter of 2021 compared to -- projected 36,000 units in the first quarter. So it's going to be a continued ramp up.

I think the exciting thing is when you look at it in 2012 is you think about like we said 2011, really that's just replacement, on the lower end of replacement. But if we do get some housing starts in 2012 and automotive sales get more back to historical norms and you add some growth in the economy in 2012 and 2013, I will be honest, I am probably a little more bullish on the 2012 and 2013 numbers than some of the projections that are out there.

Okay, all right.

It's going to be a continued ramp up, as I said. Like I said, fourth-quarter projections are for 44% more trucks to be registered or rather 2011 projections are for the fourth quarter to register 44% more than the first quarter. So we are on the tail of the dog, so we are the last guy to get it registered and delivered to the customer.

Okay, and then can you talk a little bit about just where your used inventory is right now? I think in the third quarter, you commented that used inventory was tough to come by. Obviously you are seeing pretty good pricing for used equipment. Can you just talk about how that model or that piece of the business kind of looked in the fourth quarter and what you expect out of the used sales in 2011?

Sure, I would expect used sales to be we are hoping slightly up. I'll be honest, the supply side of that will be the biggest issue, but we managed to maintain supply level in the fourth quarter and actually right now in February with where we've been over the last six months from an inventory perspective, but we are having to be fairly aggressive in purchasing of trucks to maintain that level. Because, as you mentioned, the used truck market is good.

But as I mentioned, if you remember earlier in the year we had extremely high used truck margins when we came off the low valuation as valuations increased. If you look at our fourth-quarter margin, it is back to more historical standards -- I think around 9.5%, something like that, which is in line with our typical used, which is anywhere between 8% and 10%.

Okay, then lastly, the performance on the absorption side this quarter, obviously you have been talking about a goal of levels like this. Was there something unique in the fourth quarter that allowed you to get to there that may not be sustainable in '11 and allow you to maybe get to that goal of 110% in '11? Or what you saw with your absorption rate in the fourth quarter, is there something that's very transferable to '11? And you think you get closer to that goal as the year progresses?

On an annualized basis, I would tell you we should be above 2010 and 2011. Our goal is to get to 110%. Conservatively, I am going to tell you 108% is where I would look for the year. But again, that's going to be a ramp up. The first quarter, we had some very difficult weather and lost some working days and a lot of time in Oklahoma, and the Dallas North Texas, and we've got a lot of stores. We've got 10 stores located up in North Texas and Oklahoma. So we had some inclement weather the last -- in January and February, as you all well know.

So it was very difficult, but we are confident on an annual basis there was nothing unique in the fourth quarter that's not sustainable throughout 2011. And if I really look at absorption, I look back to the last cycle. When I say, look at it, I look at it in three-year cycles, '04, '05 and '06 and compare here now to what I believe will be '11, '12, and '13.

So I would compare the fourth-quarter 2010 to like the fourth quarter of 2003. And at that time we were coming off fourth-quarter -- the 2003 absorption level was 92%. So I am very excited starting at 106% going into this cycle and I hope I'm talking to you about raising the goals of the organization as we get further into this year and get a clearer view. But I'm very comfortable that we will be able to ramp up and hit 108%.

Now, it's not going to start that way. It will probably be a little less than that in the first quarter. But given some -- we have reinstated our 401(k) program. We've reinstated just some employee benefit stuff that we had to cut during the downturn and given that with the weather, we may be a little off in the fourth quarter and the first quarter, but that's nothing, not bothersome at all to me. Those are just one-time little events but where we are at and the performance we have had over the last half of this year I believe is over the long-term very sustainable and we should hopefully be able to grow on it.

That 108%, is set on a same-store basis or is that inclusive of the two big acquisitions that you've announced?

That would be either way. I would like to believe -- it same-store but I believe I would hope that we could -- looking forward do the acquisition that we are hoping to close here in the next 45 days, I would believe that that would be sustainable with that included also.

All right. Rusty, thanks for your time. Nice year. Good results. I appreciate your time.

Chase Becker, Credit Suisse.

Good morning, guys. I am wondering if you could talk a little bit more about the market share that you've seen in the last couple of quarters. You are kind of running above the range that you are quoting for next year and I was wondering is there some sort of timing issues that's going involved in there or what's driving that?

Yes, timing issues, Chase. You hit it right on the head. It was always about timing. You know, we had some orders, some bigger orders that might have delivered in the quarter as they got pushed through at the year end with the tax --.

You know, the tax credit could have some effect on that, too, as people were pushing to get stuff delivered into last year for tax purposes.

Okay, then just tying back on the absorption ratio and the margins in parts and service, your absorption is at an all-time high, but your margins are down year-over-year. I'm just wondering how I should think about profitability in that business going forward and in an environment where your absorption continues to trend higher?

I think our yearly -- again, when you look at those margins, there's a mix issue. If parts grows faster than service sometimes, that's going to take the blended margin which you see down.

And the other thing that is driving it is a lot of that growth, as we've spoken a lot about, is through our mobile maintenance, mobile service program, mobile technician program. All the mobile trucks that we have out there in the field working, and that is all incremental business which leads to a greater absorption but maybe dampening of margin because it is a little more costly to do. It produces a less net margin but it is incremental, which at the end of the day drives the absorption up and that's the biggest goal in the organization.

So as we go forward, I would look for margins on the back end to be very close to past where they were in different years in the cycle. We are typically in the 39% to 40% range. We were 38% in that quarter, but we had -- like I said parts, grew I think 5% more in the fourth quarter than service did. So parts margins are less than service margins. That makes the blend go down a little bit.

All right, it makes sense. Lastly for me, any updated thoughts on the timing of getting back involved in the construction business? Are there any interesting opportunities out there for you?

Nothing I want to talk about at this time. But I appreciate the question.

All right. Thanks, Rusty.

Andrew Obin, Bank of America Merrill Lynch.

Yes, good morning. Just to confirm, so as we do think about the used equipment -- I'm sorry, parts and service margins, so as you ramp up investment, we should see one or two point deterioration versus history just given that the nature of the business has changed somewhat. Is that fair?

I might give you 1% on that, Andrew, but we've got other things going always on behind the scenes in the procurement side in other areas to hopefully balance that out as we go forward. But I wouldn't look for -- I personally think we're going to get to historical numbers, but if you want to put a point in there, you can put one, but I wouldn't give you any more than that.

Sure, and can you comment on -- you are in a very unique position and being both Navistar dealer now and being a Peterbilt dealer, could you count -- could you sort of comment on what customers are saying on EGR versus SCR and how is the pricing EGR versus SCR versus outside engine supplier? How does that work in the industry right now? Thank you.

I want to answer your second question first and I'm not going to touch pricing, Andrew, okay? But as far as performance levels, I've spoken to numerous customers on both sides of the house in both divisions. I'm getting good reports on both sides of the house.

So I think I have always stated for the last two years that I believe both technologies would work and I can only say it as simply as that and I still feel the same way that I have felt for the last two years, that both customers -- that both sides of the house are comfortable with their engine decisions and the deployment of their engines and that they will both work out just fine.

Thank you very much.

Brad Delco, Stephens.

Good morning, guys. Good morning, Rusty. A question first -- we touched on parts and service, but I kind of understand the seasonal and the mix issues in the fourth quarter as it pertains to your margin. Where were you guys on utilization or how much excess capacity do you have in your service base as new truck sales come on line, you would expect more business or more revenues there. How much more capacity do you have?

From a capacity perspective, I think we are in great shape. You've got to remember it would be great if I could run these shops 24 hours a day. I'd love to have enough business and be able to supply them from a tech perspective. The technician side is obviously the toughest piece of that. But from a capacity perspective, most of our shops do not run 24 hours. Most of them run until 12 o'clock, 2 o'clock at night.

Now we have a big mobile program which takes care of our customer base outside of that in those off hours, but if we were able to staff them well enough and which if we had that kind of demand, I'm sure we would figure it out, so the capacity should not be an issue at all in trying to drive that absorption -- that absorption number up.

I didn't say this earlier because I don't want to get too ahead of myself, but I go back seven, eight years ago and our goal was to get to 100 and we made a goal to get to 110. I am looking very much looking forward to setting a goal hoping later this year inside the organization of getting to 115. I've talked with a couple conferences here.

But as I watch this evolve this early in the cycle to be in this good a position from an overall perspective, I am just excited about the opportunities we have going forward for the ways that we go to market, the ways we try to differentiate ourself in the marketplace. Their capacity should not be an issue at all.

You've got to remember we are constantly opening up and building -- we are building a much larger store in Ft. Worth right now. We opened up, we tripled the size of Oklahoma City this year and our capital investments have never stopped during the downturn or whatever. We have cut expenses but not our capital investments, because that's our future.

Got you. I guess I was sort of alluding to with the pickup in the mobile text, is that freeing up some room in the service space I guess for you to get more business?

No. That's incremental business. That's not taking business away from the shops, so that's why you see such a high absorption rate. Yes, the margins were off a little in the fourth quarter because mobile does give a little less margin. It just costs more to leave your shop and go out and take care of somebody. But at the same time, its business you wouldn't have.

So as someone asked earlier on the call, well, is that going to --? We are working. We are very cognizant that mobile provides a little less margin, but we are also very cognizant and focused on doing other things to make sure that we can keep our margins in line with historical numbers.

Got you, another question. You know, you talked about some of the benefits you may have gotten in the fourth quarter with tax purposes. Have you seen anything or have you quantified what you think the impact of the 100% bonus depreciation in '10 could do for maybe sales ramping a little bit faster than you thought?

I would say yes, it can only be good. If you want me to quantify that, that's going to be difficult. I'm not -- I think I might get a better look at it later in the year, especially as we get close to year-end, that's why when somebody asked earlier, I think it was John, about you are dampening the first half but you're pushing up, those are things people start thinking about taxes come the third and fourth quarter because they want to put it in play in November, December so they get that 100% depreciation. Yet they don't have the equipment. Possibly they didn't need it all year. That is the effect.

Now a lot of people need the equipment too so that is why I am just -- I am very bullish on the second half of the year and I'm not trying to dampen anything that's going on. I'm very comfortable with where the cycle is. It's where it's supposed to be. Everybody is always trying to get it moving too fast, but I on the retail end. I am the last guy. A lot of the work we do, you've got to remember 40%, 45% of my trucks or vocational. They might be in the shop 60 days getting rigged up, so that's why I push some of these numbers out from our delivery perspective.

I don't expect to deliver as many Class 8 trucks in the first quarter as I did in the fourth quarter but I expect to deliver a whole lot more trucks in line with the growth in the industry from the overall year for the whole year. So I hope that helps a little bit.

Yes, that's good color. I appreciate that. And then maybe a question for Steve, just some housekeeping items. How do we think about I guess tax rate and share count? And maybe interest, I know you guys have a new agreement with GE I think that you put out there so just wanted to focus on those items.

Our tax rate ought to be in line with historical levels once you strip out the alt fuel credits that kind of muddy the water. We should be in the 38 -- upper 30s, 38%, 39% blended tax rate going forward from a GAAP book perspective. The second part of your question, what was the three pieces? What was the second part of your question?

I guess, one would be on the interest expense side, I know you guys have a new agreement.

The interest expense, because we have a lend back feature that allowed us to offset some of that with interest income, as long as inventories are staying in the low 200, 200 to 250 level, we ought to be roughly the same as we have been in previous years because we're earning more on our excess cash. That also assumes that we don't go find a few more big deals and don't have the ability to lend that back.

So that's going to evolve as our inventory position changes and our cash position changes, but for the time being where we are at, even with the current acquisitions we're looking at, it ought to be fairly consistent with where we have been running the last few quarters.

I think just adding onto what Steve said, it's important to realize that yes, we knew that we had to negotiate a new deal and our costs were artificially low. We feel we still have a great deal but we increased our loan back provision to help offset -- if our cash position stays in decent shape. So -- which it will unless we go buy some more deals. So that's the offset to it so we do have somewhat of an offset to help dampen some of that extra interest cost.

Your last piece, Brad, share count, you know, our diluted shares for the quarter were 38.5. With the stock price where it's at, that's pretty much picking up all the option grants we have out there and then providing some dilutive effect of those, so it's going to start there this year. And obviously that gets driven by stock price because the dilutive effect will change as the stock price goes up or down.

But I would -- when I'm budgeting, I'm budgeting around 38.5 right now for the year.

I have taken up a lot of your time, guys. I appreciate it and congrats again on a great quarter.

Thanks. I look forward to seeing you soon.

Chaz Jones, Morgan Keegan.

Good morning, guys. Rusty, is there anything that is out there that could delay the Asbury acquisition?

Good question, Chaz. You know, our goal is to get that closed as soon as possible. As you know, the store -- let's be very frank about it. The stores are Peterbilt International and Navistar stores. As we have stated always, I do not want to own both Class A franchises in the same marketplaces. I don't believe that is a proper model to go to market and I have committed that to both of my manufacturers.

Now, given that, PACCAR -- Peterbilt has decided to exercise their right of first refusal. We are in the process of negotiating a split of the franchises and an allocation of price. And we are in those negotiations currently. Nothing makes me believe we won't get that all worked out. I'm comfortable that we will, but other than that, no, I see nothing else.

We're just in that at that moment of the process that they have exercised their right of first refusal. We will maintain the International and all the other franchises that are in the marketplace and that's in line, we've always committed to both OEMs and it's exactly what we anticipated when we signed the deal originally. And we are just trying to work through that process currently.

Okay, then just on the market share you talked about on the heavy-duty front, the 4%, 4.5% for the year, I guess the question there is is that inclusive of Lake City and Asbury or as Asbury comes on, we should expect a higher market share?

You know, we would think as Asbury comes on, yes, you should be on the higher end, maybe 4.5. Okay? Historically we have been 4.2, 4.1. We were 4.3 for the year, but we were more in the second half. Probably one of the reasons was because we had salt Lake City in there. They accounted for I think around 400 units, so that's what helped bring it to those 5% something numbers. Now, I'm just trying to be a little conservative with you, okay?

Because I know there's been quarters that even before Lake City and Asbury that you guys have been north of 4% in terms of market share just on Peterbilt.

Sure, we've had annual years that we have been -- when it comes to -- because our Peterbilt market share is strong. It's well above their national average. So -- and in the territories that we serve. So I'm looking at overall markets when I say we've had numerous years that we finished over 4. We've had some that were slightly under. Just a lot of the time that is timing and mix.

What I would hope is these other -- as we grow our international brand and working with them in the territories that we are in that we were excited about that we are able to take that market share. I am just trying to be a little conservative with you.

That's what I thought and obviously that's probably the best thing to do, but it seems like if you guys are outselling that as the market evolves, that could be a little bit higher.

You never know, Chas.

What about the medium duty side? And just kind of the same line of questioning, once those two acquisitions fully ramp-up, could the market share on the medium duty side approach more like a 3% market share?

No question. I think there's no question about that. When you look at the addition of the Isuzu franchises, Atlanta is a big medium duty market, okay? Then you're talking about the Ford acquisitions. Well, you go back and you look at the Dallas acquisition, we bought that out of bankruptcy. It was a broke deal. I'm spending $1 million cleaning up the facility right now and getting it in line and doing all these things. You haven't seen the effect. They are just being a drag right now.

The Oklahoma City deal, I just bought a franchise that had no salespeople or anybody else. I'm building a salesforce there. That was in the middle of summer, but it takes more than a few months to do that. Are they starting to add to it? Yes.

Then we go to this weekend. We are closing a great deal, a great Ford acquisition in Orlando this weekend, so all we are really doing though is you have to go back and I'm trying to replace the General Motors that I lost, but our relationship with Ford has grown and it's gone just as -- it couldn't have gone any better from my perspective. We just need to find a few more deals to buy would be my thought process.

So we are excited about that relationship. We're going to continue to invest in it. We're going to continue to invest in our Isuzu. We are going to continue to invest in our Hino relationship and we are also going to invest in our Navistar and our Peterbilt relationship from the medium duty perspective. Whatever areas we represent at, you've got to remember our International acquisitions, those guys dominate the medium duty market Class 6 and 7, right? And they've got the new Class 5 product going, so that's going to add to it.

So do we have potential for growth? Am I being conservative again? Probably so, but I don't want to get out ahead of the game because you just don't buy them and integrate them, especially some of them, and not all of them are as good as the one we are buying this weekend is a nice deal that's been around a long time in Orlando. But the other two that we bought earlier in the year weren't as good.

And of course, like I said, the International stuff, so do we have some upside in there? Probably so.

I guess to follow up on that, I know you're always looking for medium duty opportunities, but if you were to look at it as a baseball analogy, where are you at in the process as far as replacing GM? Is that 60 -- in the sixth inning, seventh-inning?

We are mid-game. We are -- we hadn't gotten to the seventh inning stretch yet by any stretch, but we are -- it wouldn't be a complete game if it rained yet because we haven't got four and a half, five innings in. So I'd tell you we are right about there, though.

Okay, that's helpful. Last thing I had quickly, Steve, do you have a breakout from a revenue standpoint for heavy-duty, medium duty, and used just from a housecleaning standpoint?

Yes, Class 8 revenue was 208,650,000. I'm rounding these numbers for you, Chas. Medium duty was 55,150,000 and used truck revenue was 41,500,000.

Thanks, guys. Good year.

I like your baseball analogy there, Chaz, thank you.

Bill Armstrong, CL King & Associates.

Good morning. I will add my congratulations to a great quarter. You cited some ACT projections for Class 8 going up about 63% this year, medium duty up only about 9%. I guess first, do you agree with those projections? Number two, why would medium duty's growth be so much less than heavy-duty?

Well, understanding the customer base, I guess, Bill. You've got to understand that the medium duty market typically is tied more to the general economy, so a lot of these small businesses are still not in the best of shape. They are still reeling a little bit from the recession.

So I would tell you I'm citing other people's numbers here, remember that. I would tell you you might be able to see if they get -- if the small business gets a little more profitable and you get into the back half of the year with the tax laws that we have in effect, you might see a little better than that performance. Okay? But typically they are a means to an end. They are not a revenue-producing item.

So it's a different customer, but as I cited, if small business America gets in a little bit better shape and a little more profitable and makes little money this year and they get to the back half of the year and they got to pay taxes, your liable to see some ramp-up there.

Okay, thanks for that color. As new truck sales ramp up, I imagine you're going to get a lot more warranty work. What are the margins on warranty work as far as parts and service compared with non-warranty? And what should we kind of be looking for from that perspective?

Warranty work is great. You are going to get your margins that you get that are posted as far as from a parts perspective. I hate to get into -- they are in line with our overall margins. There's no -- you are not having to go out and discount mobile service or something like that. It's in line with your normal shop work.

There's no -- there's not enough meaningful spread between them to really make a lot of difference, that's the way warranty is set up across this country and that's the way it's supposed to be managed. It's in line with our normal margins that we get inside of our shops.

So the best part is you know you're going to get paid, so that would be what I'd tell you about warranty. But yes, warranty will continue to ramp up with new engine emissions and stuff like that. Everything is working great, but you just naturally you have more warranty work that comes with new technologies. That's just the way it has worked for 40 or 50 years and will continue to be that way.

Got it, got it. Just two housekeeping questions. First, Class 8 sales were up about 76% in the quarter. What were same-store Class 8 sales growth? And then how many buses are included in the medium duty number?

Coming up, let's go start at the end. Buses, bus total was -- I'm sorry -- yes, it was 117 units in the bus total in the medium duty and as we work backwards, same-store Class 8 this year was 1494 compared to 956.

Versus --? Okay, thank you. All right.

Robert Kosowsky, Sidoti & Company.

Good morning, guys. I hope you're doing well. Just a question about the new and used truck sale gross margin. It seemed like that dipped sequentially and I was wondering what were some drivers to that?

Sequentially? If it did, it was so slight. Used is easy to explain. (multiple speakers)

Sorry, new and used, I think it went from 7.8 to 7.

That's right. That was sequential, but for the year it was in line. The year was 7.4, I think, which is a line. It was in line with what our typical historical numbers are, the way I look at it.

Now used of course came down because I told you that all year it was going to come down because the first and second quarters were extremely strong. You've got to remember the first and second quarters were extremely strong given the fact that we had the old inventory that we sold in a rising used car or used truck environment. So as values went up, we sold them at those new margins and we had them at old costs. That's why we had 14%, 16% used truck margins earlier in the year. Now they are back in line with historical.

Okay, thanks. And then -- (multiple speakers).

When you are looking at new trucks, one other thing real quick. A lot of times new trucks are driven by product mix. Depending on if I push some more fleet trucks in, we had some more higher deliveries this quarter, they might be a little lower margin businesses. I've broken out always -- it's a blended margin. We don't make that -- and that includes a lot of different things when you look at it.

So a lot of times it's mix issues. So it depends on where you are delivering the truck, how many owner operators you are delivering to, etc., etc. because really owner operators is the highest margin and he's the guy that still hadn't come back, really. Is he better? Yes. Will he ever be as large as he was in the past? I kind of doubt it, but our owner operator stock truck sales are up but not up dramatically.

So they are just -- they are easing up, but that's always -- that always happens during the midterm mid part of the cycle and we are not to that point yet.

Okay, that's helpful. Then also with the more expensive trucks now, are you looking at your gross profit dollars being constant and you might see a little bit of pressure on the margin standpoint just the way the math works?

That's not our goal and I will state it at that. I would say our goal is to keep margins in line with historical numbers. We are just going to have to continue to work towards that, but obviously the price of trucks you are exactly right, it's amazing. It's just amazing what the last decade did to the cost of a truck with all the government regulations that have been thrown at us. And going forward, there's going to be even more.

There is going to be -- you've got the new 2013, I think the greenhouse and the fuel mileage things coming on and stuff like that. I'm not sure how that's -- I really can't comment to that how that's going to have an effect on the cost of a truck, but anytime you get more government regulation, it's going to cost money.

Definitely understood. And then on the parts and service side, were you seeing many big engine overhauls during this year? Kind of what are some thoughts on that as the economy is improving?

Well, we are seeing some. There's some. I'm not going to -- I've read some reports where it seems like it's just all over, that everybody's reoverhauling engines and there are spot -- there are some markets we have that I believe are maybe doing some more based on maybe one particular customer deciding to do it. But I don't see it -- I don't see that be lasting.

I mean, we are going -- this industry always adapts to new technologies and new engines and it will continue. As we go forward, that will become less and less, I believe, of something of people wanting to do something like that even with the cost of a new truck, because the engine isn't the only component on a truck. The rest of the truck gets old, too, and maintenance costs continue to go up on the rest of the truck also.

So I don't believe that that's going to be a continuing thing. It's always -- it's the first response to new costs on new emissions and new technologies, but it wanes as you go forward.

Okay, that's helpful. And then with regards to the Asbury deal, was there one -- it seemed like that entire business itself was a little bit of a fixer-upper. Can you kind of talk about how long it might take to get to Rush margins? That also was there one area that was maybe more profitable in the Peterbilt versus International? I don't know if you can kind of talk about that.

Well, given where I am at in the negotiations, I'm not going to get into those kind of details. Okay? And as far as being -- I don't like, I don't term it a fixer-upper. I don't believe that. They're like everyone else. It was a tough environment in 2008 and 2009 and so I don't view it that way.

Do I think there is some upside in it? Of course, but with our management and the quality of our people and maybe some of the things that we can bring to the table, sure, I'm hoping there's upside. I always believe that in any deal we buy. This deal is no different than anyone else. But I'm not going to comment anymore about that because given where I am at in the deal right now.

Thank you. Good luck in 2011 and a really good job handling the downturn as well, so good job and good luck.

It sure is nice to be on this part of the cycle. I can tell you that.

(Operator Instructions) Neil Frohnapple, North Coast Research.

Good morning, guys. Rusty, what was the absorption ratio in the quarter on a same-store basis? Are the Lake City International dealerships almost up to par with the rest of the Company at this point?

First off, I haven't met you yet but I know you just picked up coverage and I look forward to meeting you. First off, the International stores are not up to the levels by any stretch of where we are at as an organization. What was the --? Okay, our same-store, I'm almost afraid to tell you -- 113. So obviously a little upside there, right? A little more -- we only had seven months. Just give us a little time.

You could look at them at 92, so we hope to be able to take -- given the volume of International trucks that are on the road, we hope to be able to bring little bit to that and be able to raise that in the future. So -- but I'm a bit conservative with you, okay?

All right, and are you guys getting any benefit yet from PACCAR Navistar vertically integrating on the heavy-duty engine side? (multiple speakers)

What was the question? How did you start the question?

Sure, are you guys getting any benefit yet from PACCAR Navistar vertically integrating on the heavy-duty engine side such as the warranty business? Or is this something that you really won't start seeing a pickup until a few years out?

The warranty business, I don't think it really matters whether it was back to the old days in 2007 of Cat and Cummins engines. You are going to pick up warranty with new technologies. It's no different. That's just the way it works.

Any time you bring new technology to the marketplace, there's going to be more warranty costs and you can probably find that in their balance sheets as they probably accrue more for it themselves no matter who the manufacturer is.

You know, as far from a real parts and service perspective, no, it's too early. It's just way too early because everything is still under warranty. As you do go forward, when you get to the replacement part of it, when you get to overhauling engines, when you get to fixing water pumps and doing all the things that you do with engines and they start putting a few hundred thousand miles on them, then we look forward hopefully to some increase in our parts margins. Right? As they become proprietary parts and not non-proprietary parts where you've got numerous representatives around town that can sell the same product. So you have a little more captive market transaction, but that's down the road.

Okay, I guess that's what I was getting at with regard to just higher retention over the lifecycle of a truck.

Over the lifecycle, but we are nowhere near that yet.

Got you. Okay, great. Congrats on a good quarter.

Brian Sponheimer, Gabelli & Co.

Good morning, Rusty. Good morning, Steve. All of my questions have been answered. Congratulations on a nice quarter.

Okay, that was easy. Thanks.

I am showing no further questions at this time.

Okay, well, we thank everybody for joining us on our fourth-quarter earnings call. We look forward to talking to you in April a little sooner than usual because this one is always a little later. So thank you all very much.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect and have wonderful day.