Rush Enterprises Inc (RUSHB) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Rush Enterprises second-quarter 2013 earnings results conference call. At this time all lines 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. Rusty Rush, Chairman, CEO and President. Please begin.

Welcome to our second-quarter earnings release conference call. On the call today are Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and Chief Financial Officer; Jay Haselwood, VP and Controller; and Derrek Weaver, Senior Vice President, General Counsel and Secretary.

Now Steve 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 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, 2012, and in our other filings with the Securities and Exchange Commission.

Let me start by saying this was a tough quarter. As you have read in the news release, we earned $5.6 million or $0.14 per share this quarter, or $0.30 per share when you consider the one-time expense charge for the Chairman's retirement transition. Compounding this one-time charge is an increase in our G&A expenses over the first half of the year.

Given our accelerated pace of growth, we have made investments to put the resources and technology in place to leverage our growing network and keep us on track to successfully reach our long-term strategic goals. Despite the timing and its impact on earnings, we believe these are necessary investments.

We expected the truck sales market to be challenging, and it was. Activity in the energy sector remains slow. Some of our fleet customers are delaying truck purchases, and we are still being impacted by Navistar's engine transition. As a result, our Class 8 market share was only 4.4%, versus our goal to maintain a 5% level.

On top of that, our overall sales mix negatively impacted margins this quarter. Medium-duty truck sales were also relatively flat compared to the first quarter. Looking forward, we expect new Class 8 truck sales to be up only slightly in the third quarter, with truck purchases not accelerating as rapidly as we expected earlier this year.

We do believe that Navistar is on the right path with earnings in transition, and expect this will produce additional truck sales for our Navistar dealerships later in the year. We also believe our medium-duty truck sales will remain healthy, and are encouraged by the activity we have seen in some segments.

On a positive note, parts, service and body shop revenues remain strong, and our absorption rate is up from last quarter. We expect demand for maintenance and repair to continue, and we believe our growing network of service points and portfolio of aftermarket solutions are helping to drive success in this area.

Let's talk about growth. We completed an acquisition with Piedmont International in North Carolina. We have added Ford and Mitsubishi-Fuso franchises in Cincinnati, Ohio. We are announcing purchase agreements with two additional dealer groups -- Midwest Truck Sales in Kansas and Missouri, and TransAuthority in Virginia.

Including the Ohio locations we acquired in December of 2012, these acquisitions will add 18 service points to our network and expand our Navistar division. We are excited about the growth they represent for the Company, and we continue to evaluate opportunities with Navistar.

We are also investing in our existing markets. These new facilities, remodels, and renovations allow us to add service capacity and expand our capabilities.

Finally, I would like to thank all of our employees across the country for their efforts this quarter, and take the opportunity to welcome the employees of Piedmont International, Midwest Truck Sales and TransAuthority to the Rush organization.

I would also like to congratulate my father, Marvin Rush, on his retirement after a 48-year career with the Company as founder. He can certainly be proud of his accomplishments over the years. We wish him a long and happy retirement.

With that, I will take any questions.

(Operator Instructions) Chaz Jones, Wunderlich.

Thanks for taking my questions. The first thing, Rusty, I heard you say you expect Navistar maybe to begin to normalize later in the year. But could you maybe just give us a sense for where Navistar was in the quarter on the heavy-duty side?

Sure. As I mentioned last quarter, I think last quarter was only a total of 160 units, and I'm going off of memory here. I will look it up, but I think the second quarter only raised to 185, I believe. So obviously, not much change from first to second quarter.

Now we do expect that to start accelerating some in the third quarter and then continue to accelerate from there. As you know, they introduced -- their 13-liter engine just got introduced in the second quarter. So it, combined with their release of the 15-liter ISX in the first quarter, obviously -- it is just beginning to take good traction, obviously, and take hold.

That is one of the upsides as I have said all along, that we believe we will see as we go forward, especially into 2014 and 2015, as they get back to a more normalized historical market share.

Is that something that given the acquisition activity that you could see Navistar unit sales maybe double or triple from where they are out? I'm not talking about in the back half of the year but looking out to maybe 2014 and beyond.

Oh, no question. Obviously, given the number of dealerships we have and the ones that we are adding, and some of the markets that we are taking on; you know, the Ohio market is a great market. We look forward to the Virginia market; it is also a very nice market.

So along with the other markets in Atlanta and Utah and Idaho and North Carolina that we currently have, we definitely feel that we've bottomed out and we shouldn't see those kind of numbers. We should be going in only one direction from here.

Okay. Could you maybe talk about the used truck market? That seems to be a little bit more resilient than the heavy-duty new side of the business. What is the disconnect there?

Well, obviously, used truck markets are -- typically the biggest driver is supply and demand. If you look back to 2009 and 2010, you start talking about three and four-year-old pieces of equipment, those are the two worst years in 40 something years. So your supply side is obviously very low.

Manufacturers can build as many new trucks as the market demands, but your used is obviously limited by supply. So I would have to tell you that is one of the things we have seen, and we had a nice quarter in used. We expect that to continue for the foreseeable future over the next year or so anyway.

The last thing I had and I will get back in the queue is, I know you addressed SG&A a little bit in the quarter and the investments that you have been making. And I guess without getting into all the details of it, is that a good run rate moving forward? I know there is seasonality to that number quarter to quarter, but just kind of in terms of what we might be anticipating.

Sure, Chaz. As I have always said in the past, you sort of have to strip S from G&A, right? S is more variable, driven by truck sales. I would tell you that our G&A has peaked at where it is at, and we would look for it to slightly soften as we go through the rest of the year.

Again, though, S is driven — we would hope S might go up some, right; we'd sell a few more trucks. So that would be the goal there. Obviously, it is variable. But you've also got to look -- when you look into that number, you have to look at that same-store thing also. Obviously, we have had some acquisitions and continue to have acquisition. So understanding the G&A piece from a sequential basis, I would tell you that it has peaked at where it is at for now.

We have also -- we are in the middle, probably halfway through implementing our new business system. You've got to remember, we have doubled the size of the organization in the last 3.5 years, and we are very, very comfortable with where we are at. And we think the moves that we have made -- I have mentioned it in the last couple of conference calls, that I am making some strategic moves to be able to support this growth that we have seen, that we are in the middle of, and the growth that we anticipate going forward.

So sometimes -- I don't want to say the chicken and the egg, but the revenue will be obviously the revenue from some of these acquisitions that we are in the middle of doing, and hopefully some others that might be on the plate. As we see, there is no guarantees on any of that, but if they pan out; and that we have built a base, a baseline from the corporate perspective to support these acquisitions.

Brad Delco, Stephens.

Good morning, Rusty. Good morning, gentlemen. First, I do just want to just congratulate Marvin, a very successful career, and please pass my well wishes onto him.

Thank you, I will be happy to.

Rusty, want to just focus on the growth here, because clearly that is the big storyline, at least that I read through from this release. Three more acquisitions -- or two acquisitions and the announcement in Cincinnati.

Can you kind of give us where we are in terms of what you want to do with Navistar? I think it is 32 stores now. It sounds like there are some more things in the hopper, but where do you want to take that and how close are you, do you think, to accomplishing that growth goal?

Well, without getting too specific, Brad, obviously there are two parties in this. There is the OEM and ourselves. But we are very comfortable, I think the OEM is, with where we are at. We don't feel that we have reached an end. We are basically helping consolidate a pretty fragmented dealership organization and trying to add some capital to their dealership group on that side.

So we are in the middle of it in the areas that we want to be in, and we will continue to look for opportunities where it makes sense for us. It obviously has to make sense for the OEM, also. But we feel they are very comfortable with us and we are very comfortable with them, especially given the investments that we have made and the support we believe we have shown them here as they transition into this new engine strategy.

We have tried to partner with them to get through the tough moments they have been through the last couple years, and I am very comfortable. The organization is comfortable that they will get back on track.

Got you. I guess I'm kind of asking that in the context of I always think there is a tough balance with kind of very rapid growth. And it seems like there are some digestion sort of pains. And what I'm trying to understand is on the G&A side, how much of the cost on the G&A this quarter do you think were a function of not necessarily one-time callouts, but your employees traveling around and training these employees versus this being kind of your steady-state run rate overhead G&A cost?

Well, there is obviously a piece of that, but I'm not going to tell you that is the majority piece of it. Some of it is the infrastructure we have put in place. As I said earlier, we have doubled the size of the Company in the last 3.5 years. And sometimes some of the support that we need to do, especially when it comes to driving after the service markets that we are after, to support trying to tie this whole network together to differentiate ourselves and when we go to market, which I think has proved very successful for us in the past.

So it is hard to really give you an exact answer, but I'm not going to tell you it is the majority of it. Some of it is some infrastructure we have put in to be able to support an organization that is twice the size it was. It is as simple as that. And obviously, accelerate. I do expect as I said earlier that it has peaked, and you should see some softening as we go forward later in this year.

We always have some seasonality softening in the fourth quarter, but it should have peaked in the second and some slight softening from a G&A perspective in the third quarter, also.

Great. Then maybe one quick one for Steve. Any way you can break out the truck margins on heavy-duty, medium-duty, light-duty and used?

Heavy for the quarter was 6.7%, medium was 5%, light was 3.7%, used was 10.5%.

Okay, thanks guys, very much. Appreciate it. Thanks.

Jamie Cook, Credit Suisse.

A couple questions. One, Rusty, just interested in if you can provide more color on the outlook change, in the sense that you talked about some of the fleets delaying purchasing. Can you talk about was it related to a couple specific customers, or do you think it was more broad-based, in particular relative to PACCAR which had a more constructive outlook, I guess, yesterday?

The other thing I just wanted to ask, how much of this is timing too, because your market share was a little lower in the quarter? I understand it fluctuates and we shouldn't get worked up about it, but I am just wondering how much of it was a timing issue just as it relates to you building out Navistar as well, with them having now the ISX engine in the market and the 13 liter; that some of this could be time for you versus industry specific issues? Thanks.

Well, it was a handful. I am not going to say a couple. There was a handful of customers that we typically had anticipated purchasing that didn't purchase. And tie that in as I said with the decrease in the capital expenditures in the oil and gas sector, and I think that is the basic reason that we were under what I would like to have achieved. It is as simple as that. It is as simple as that.

And also compounding that is the Navistar issue, as you alluded to. So as we go forward, activity levels on those fronts as we can see the construction market starting to pick up, continuing to pick up but not at a rapid, rapid pace but just consistently picking up month to month.

We are seeing more activity in that, coupled with what we believe will be better capital expenditures in 2014 in the oil and gas sector, and also with Navistar getting back online and their engine transition being accepted in the marketplace. Obviously, our goals are a lot higher for truck sales next year.

You said my muted numbers. I thought PACCAR yesterday actually lowered their high-end number.

Well, they lowered the high end a little bit, but they were definitely more positive in their broader commentary about the US market. They did mention fleets deferring purchases, etc.

Well, maybe that was us specific, Jamie somewhat. But I don't think if you extrapolate Canada out of their number, the high end of the number was lower than say ACT's forecast currently, and their low-end number was way under that from a US retail. You know, if you can extrapolate Canada out of their number that I saw yesterday.

So I don't know how bullish that was myself compared to some other estimates that have been out there earlier in the year. I would say we are tracking maybe a little lower than the outlook, maybe 5% off of last year, and that is just my gut check on it this year off of last year when we are talking about US retail sales.

Okay.

I am comfortable that a lot of it was timing for us. I think over our 17 years since 1996 when we went public, I think we have been pretty right on with what we do. This just happened to be a quarter where we had some timing issues and some other things such as oil and gas capital expenditures.

Now I will say one thing about oil and gas -- our service business is still extremely strong, and I think that is reflected in the absorption numbers you are seeing. So it is just that I think some organizations in 2011 and 2012 might have outpaced their selves in capital expenditures, outpaced the needs in that, and I think we have had a little pause to catch some air and I think we are anticipating a better 2014 and 2015 as we go forward.

Okay, cool. Thanks. I will get back in queue.

Neil Frohnapple, Northcoast Research.

Rusty, can you comment on if the hours of service regulation is having any impact on your customers' purchasing decisions, and just any initial thoughts you can provide on the impact there?

Well, it is a little early, being it is only -- almost 30 days in place, the new regulations. I have heard both sides, so I am almost going to have to sit back and let it play out. I have listened to both sides from different customers as to how it affects truck purchases going forward. So I really am going to wait and just let it play out. They are probably more knowledgeable on it than I am.

I think customers are also going to wait and see how it plays out and how it affects purchases. I think we are just going to have to see. I hate to dodge your question, but I really don't have a definitive answer. And that's not my style to say something when I don't believe it or don't know. So the answer is I really don't know because I have heard two varying 180-degree point of views on that.

Okay, understood. A follow-up to Chaz's question on the Class 8 used truck market. Could you provide a little bit more granularity on what you are seeing with used truck prices? Based on your gross margin performance in the quarter, it would suggest that they are relatively stable or maybe even moving higher a bit. Can you just talk about what you are seeing in the market currently for Class 8 used truck prices?

Stable, maybe slightly -- excuse me one second, let me look. Obviously, our average price was up year over year. I'm trying to look sequentially here. It was up about $4,000 year over year. It was actually down, I apologize, but the margins obviously. But really it is hard to look at the revenue side of it because that can be a mix, depending on what type of product you are moving and how much your wholesale mixes in with your retail.

But obviously, the used truck market in our mind still remains strong. We have seen really no weakening across -- there may be a pocket here or there, but from an overall perspective it still remains stable. And again, that goes back to supply side. We don't anticipate that changing, at least for the next 12 months or so.

Great. Then just one last one. Could you just speak to share buybacks, any updates on the strategy there?

Well, we have been purchasing Rush B shares, as everyone is aware, but we are limited in the amount by regulations and law as to how much we can purchase. So we are purchasing what we can, given the regulations with what we deal with.

Great. Thanks very much, guys.

John Barnes, RBC Capital Markets.

Good morning, guys. Rusty, your comments about G&A. Just for clarification, you are saying that G&A has kind of topped out. You don't expect it to rise much more, but you also said some of the elevation in G&A is because of the acquisitions you have done.

Are you suggesting that G&A in same-store properties is going to decline enough to offset any increase in G&A as a result of the new acquisitions?

No. No, no, no, no, no. On a same -- when I'm speaking, I am speaking on a same-store basis, John. I wish I could say that, but that is really not feasible.

So on a same-store basis, we have seen them top out, but in terms of absolute corporate G&A, because of the acquisitions that number will still be going up a little bit.

Not corporate G&A, no. I think corporate G&A has topped out. The overall G&A when you look at the store levels, yes, it is going to continue to rise as we add acquisitions.

All right. I wanted to make sure I had the difference there on that, okay.

Obviously, if you have any other questions, more details, you are welcome to call Steve anytime after the call.

No worries. In terms of the used truck market, obviously great numbers there in the quarter. You have talked in prior calls that inventory has been a little bit tough to come by. Where do you stand in terms of used inventory at this point? Are you missing any opportunities because of maybe tight inventory on the used side?

No, I think you will see that because of the pickup in used sales, we have had pretty sufficient inventory. Obviously, we had accelerated used sales sequentially here in this quarter. So I would tell you our inventory levels have risen some, and we are comfortable with where we are at right now. But obviously, if we find opportunities to purchase what we think is good used inventory that we can sell, we are all over it.

Very good. And then, Steve, just one question on with the acquisitions you have done, I know from time to time you have had to do some things, expand the floor plan, a financing program and some things like that.

Where do you stand in terms of kind of capital structure today, your relationship with your lenders on the floor plan side? Are you looking to have to expand those relationships, given the size you are today, or do you have sufficient availability with your current partners there?

John, we just increased the floor plan effective July 11. We put out an 8-K, but it was quiet period, so we didn't talk to any of you guys. It was still with GE. It is with the same lender group. Everyone just increased their hold positions, and we were able to cut 20 basis points out of the deal and increase it from $600 million to $750 million.

That was in reaction to and anticipation of these acquisitions we have coming, so we are in good shape. That is a three-year deal that we have with those guys that we just renewed. So we are in good shape from a floor plan perspective.

We're trying to stay ahead of the game, John.

Rusty, just one last one. On the acquired -- on the new acquisitions, I know in the past you've bought some things where the absorption rate has not been as good as Rush's. You bought some things where it was a little bit better than Rush's. How would you stack up the new properties that you are buying in terms of absorption rate, and how quickly do you think it takes to kind of get it to where you want it corporate-wise?

Well, so far everything we have bought is not as good as our absorption rate. So from our perspective, that is opportunity. That is opportunity to get our strategies in place, bring more mobile service. Ohio is a good example of that. We have increased their mobile trucks, increased the amount of technicians we have operating in customer shops, manyfold already. But they didn't have a lot of that going on, okay? So we are doing a lot of that, especially because a lot of that absorption that we are going to get growth in takes investment.

We are just fixing to start a new store in Cincinnati. We are in the middle of purchasing land in Columbus right now to build a new store there, and we are actively looking in the Cleveland and Akron area currently, also. But you've got to remember, we just took those on in January and there is a little bit of a timetable there, 12 to 18 months to get all of that put together and done.

So we believe our opportunities or events, especially downstream, by putting our strategies in place, obviously getting proper-sized facilities for marketplaces. We thing they were very underfacilitized when it comes to facilities, given the size of those markets.

So those are great things that we look forward to that we have proven in the past we can be pretty successful with. Just give us a couple of years to get them running the Rush way.

Got you, very good. Rusty, thanks for the color today. I appreciate it.

You bet, my pleasure.

Art Hatfield, Raymond James.

Thanks. Hey, morning, Rusty. Just a couple things. Most of my questions have been answered, but just want a clarification. First on -- when you talk about your third-quarter expectations for Class 8 being flattish, are you talking sequentially or year over year?

Sequentially. I would look for -- as I say, slightly, slightly up. A lot of that has to do with timing.

Oh, yes; not a problem.

I don't want to get expectations out ahead given sometimes the timing because of the -- what it takes for us because of our heavy vocational mix.

Yes, not a problem. I just wanted to clarify. I know year-over-year versus sequential is only a couple hundred truck difference, but just wanted to see what you were saying.

On Navistar, when you say -- and you have addressed this a little bit, and you talked about where you have been at the last couple quarters with them. When you say things are going to obviously get better when things normalize, are you talking about -- when you say normalization are you saying Navistar getting their market share back up into the low to mid-20% type? Or is there something else for you specifically that you are thinking of when you say normalize?

No, I am talking more about Navistar. And I am not going to go to mid-20%s. I am going to say get back to high teens.

Okay, okay.

Let's just get back, which would be probably close to a 50% pickup over where they are currently. So that would be a very nice -- and I think we have more upside in that -- in fact, I know we have more upside in that in our deliveries. You can rest assured of that.

Because we are just -- obviously we are very excited about where we are at in Ohio, and we are just getting -- we took on a great, a good sales organization. And everybody, the whole Navistar Division has just been hammered by the strategy of the last couple years.

But we are very comfortable that the strategy that they have in place will get them back where they belong, whether that is 18% by year end, trying to grow to the low 20%s, in the mid-14% or something like that, that would be -- in that range. I would look at something like that, trying to get back up to the -- they could get back up to the 17%, 18%, something like that by year end hopefully. Or if not delivered by year end at least into the first quarter and then accelerating there to the low 20%s.

Got it. I don't know how to think about this for you and Navistar, but can you tell us what percentage of their dealer base you are?

Do you know, I really can't. You would have to ask them. I haven't -- that is hard to say.

They have a lot of dealers and a lot of (multiple speakers). But as far as percentage of their market, I don't have that number to give you. I will just tell you I think they are comfortable where we are at, and we are comfortable and believe there is still some room in there for growth.

Yes, fair enough, I am just trying to extrapolate market share. And they don't --

And maybe by the time of the next call I will try to get that for the next call with you.

That would be helpful. Then finally, just -- I want to get your thoughts on this. You had, obviously, in a -- it has been a tough market for truck sales. It has gotten a little better, but we are really not taking off.

And the expectations have been with the age of the fleets out there, there should be a pickup in truck sales. You have obviously had a downturn in the vocational side.

Your stock, though, this morning acts like maybe you are calling -- and I would say that the market is wrong on this -- but maybe you are calling for another downturn for the next few quarters. Can you talk about that a little bit? I am not hearing that from you. I am hearing that you are in a touch period but --

No, you're not hearing that from me. Somebody is misinterpreting what I am saying. I am telling you we bought them, okay?

That is what I hear.

We got hit with a few different things at one time. So that when you are looking at Class 8 deliveries we got hit with a couple -- three different things at one time. One, the Navistar Division is not operating where it should. I mean, I used to deliver more Class 8s when I only had Utah and Idaho. Okay?

Right.

Two years ago, if you really want to look back, before we had those other markets. I am not saying that at all.

We have some areas of the business that are pretty -- very strong. As I said, construction is picking up, our refuse business is good, our crane business is good. We are seeing some activity in some small to midsized fleets.

We just missed. We are just missing a couple, maybe a couple large fleet deals in there, some oil and gas business that we had in '11 and '12. But I anticipate we will get back some of it in '14.

I'm not going to say we will get it all back, but I am hoping and anticipating we will get some of it back in '14, after talking to some folks. Some time. I am not going to -- not exactly sure what quarter.

And I definitely know Navistar is going to -- we're going to do a whole lot better in the Navistar Division. The activity level has picked up, and I will be able to hopefully tell you that with deliveries each quarter as we move forward. We have bottomed out on that side.

Okay, and so -- okay, that's --

I am not looking for a depressed market. Don't read into me -- don't read that into anything I am saying. No.

Maybe -- I am still hoping and believing '14 will be better than '13. I have always thought '14 was going to be the best market.

Even -- but you are not going to see the accelerated peaks and valleys this decade that we saw the last decade. We had too much EPA government regulations that drove huge peaks and huge valleys, tied in with 2009 and the huge, the big recession we all went through.

And our growth I think you are going to see pretty stable, maybe up 10% to 15% to maybe 20% -- I don't even want to get out on that limb -- over the next couple years. But I don't think it is going to get -- I see this as a bottom, okay? I don't see it going down in '14 by any stretch. Okay?

This would be the baseline, and look for some growth over that.

Got it. That's very helpful, Rusty. Hey, thanks for your time this morning.

Andrew Obin, Bank of America Merrill Lynch.

Hi, this is good. I am still allowed to ask of questions, so that's good. How are you guys? Just a question.

Can you just described the process as to, in the quarter when did you guys figure that you have to put in these additional SG&A costs? And how do we know we are not going to have a similar surprise in the second half of the year? Just the decision process, internal planning.

And the second thing if you can touch on them, you sort of -- before you talked about some share buybacks. And I apologize if I missed it; but the business is doing really well, you are generating cash, stock is down. What is your thinking on share buybacks at this point? Thank you.

The share buyback piece we will continue to buy the B shares. We are limited in what we can buy on a daily basis based upon the trading history over the past weeks, prior to. That is just SEC regulations.

As far as the G&A, as I said I believe G&A peaked in the second quarter. But I go back, the last couple calls I have told people that we were going to make investments to support the growth that we had on the plate, on our plate.

It is not something that I -- some people may not have listened. But the infrastructure -- when you double the size of the organization in three and a half years, some of the corporate infrastructure has to grow so that you can effectively manage and run the business the way we're used to running the business. At the same time, with what we have done we have laid the ability to probably add on another 50% without any more additional.

So we have got a baseline to leverage off of as we go forward from a G&A corporate perspective, in our minds. And we do anticipate that there will be some slight softening, because we had a lot of activity -- we've still got a lot of activity -- but some slight softening in the third quarter.

And then typically seasonally if you look back, the fourth quarter is always our best G&A quarter. Okay? We always have seasonality that affects the fourth quarter and it's our lowest G&A quarter of the year. And we do anticipate that to be the case again this year.

But I guess what I am trying to understand is that it seems that -- I don't think directionally you are absolutely correct. I think you have telegraphed that you have to increase the spending. But I think the step-up in these spending all at once -- and I understand that we have peaked -- I am just -- when did you guys -- it seems that it's a decision to size out the organization, to add a lot of capability.

I am just trying to understand what was the thinking behind it? What was the process? And as I said, how do we know how comfortable you are with the fact that there is no other step-up, that it truly is a one-time step-up and the cost structure is in place?

Well, Andrew, I have to tell you that the Ohio acquisition was a large acquisition for us. Okay? You can see the step-up in spending in the first quarter and it continued to the second.

We do believe from a corporate G&A perspective that we have guided there now. We can handle more acquisitions, without increasing it.

But to properly manage them, we knew we were going along with these acquisitions the last couple years, doubling the size of the organization, and we had stretched it pretty thin from a support perspective, on all fronts, whether it be training or real estate departments or all these areas. We had to add some headcount to be able to effectively manage these as we have historically.

So we -- it was really -- you want a timeline? I knew in the fourth quarter last year, and I did mention that we were going to make investments.

You can go back and look at the transcripts. I mentioned it twice in the last two calls that we were going to continue to make some investments for the future, because we felt the acquisition opportunities were going to be there, as they are proving out, and still possibly more opportunities here. And we wanted to be effective in our management of these as we took them under our wing.

So I really don't know any other way to say it to you than I believe we are there. I don't look for -- you are not going to get a step up; we don't anticipate any step-ups from here the rest of this year.

So we are there. We would look for some slight softening, as I said. We seasonally always have some. Our fourth quarter is always our best G&A quarter, and we anticipate that to hold true again, as I said a minute ago.

So you're just going to have to know that we reached a point that we had to support different areas of the organization because of the size of it. I can -- look back a few years ago, we had 40 stores. We have got 80-something now. Okay? It just takes a little more oversight from a corporate perspective.

At the same time, it is not just about oversight. It is about managing so we can put our best practices, our strategies, our ability, take it to those stores, train those stores, do all the things necessary to get them up to running at the levels we expect, especially from a parts and service perspective.

That is where the majority of the effort goes into, is to continue to train technicians. We spent -- this last year I spent $3 million training technicians, and probably top more than that this year. I could go on and on into more digression and more minutiae but I don't think that's -- and I don't want to do that on this call.

But you're going to have to trust in the fact that we are there and anticipate some slight softening, better fourth quarter. And we have a base that we can leverage off of for further growth.

I really appreciate it. Thank you very much, Rusty.

Bill Armstrong, CL King & Associates.

Good morning, Rusty. Could you talk about the vocational versus nonvocational during the quarter, and what the outlook is there?

Well, we are seeing some pickups in the construction. The revenues remain strong. We are getting into that; we expect that to remain strong given our investment in the Rush revenues division over the last nine or 10 years and our focus into it.

Oil and gas? You know, I don't see -- we took from a capital expenditures (inaudible) our parts and service business remains extremely strong. But from a capital expenditure most of the organizations are pretty much where they need to be. They overbought a little bit, I think I would tell you, in '11 and '12.

And then when gas prices declined, everything moved in the oil patch out of the gas fields. If we could see some more -- if we could see gas prices -- but I don't anticipate that. I anticipate further oil development plays, no question, picking up that sector.

Our crane sector is still strong and the construction market is more reflected I think in our medium-duty sales. Okay? We are seeing a lot more activity currently in our medium-duty sales, which has more to do with your local smaller to mid-size guys that are involved in some of the homebuilding we're seeing going on in some of the areas that we are located at. So, I expect that to maintain and get better.

I am looking -- thinking oil and gas will get better sometime in 2000 -- back from a capital expenditure perspective. And I know, I am very confident, that the waste division, our waste division will remain strong.

We are just -- so I can't break the percentages out to you, but the biggest hit we took was in the oil and gas sector. But in spite of that -- and we got hit with a three-pronged sword, as I said. Navistar Division, we probably didn't get as many fleet deals as we anticipated, a handful. And tied in with oil and gas.

So if you look at it from a positive perspective, if we could hit on two out of three of those again and with the growth side of it, we would be sitting pretty right going forward, given the quality.

You step back and take this Company back 10 years ago. If we had had a downturn in truck sales like what we -- or not -- had a quarter like this from a truck sales perspective, you wouldn't see a $0.30 quarter, folks. It would've been a whole lot different.

But that said, that is what that 115% absorption rate will do for you.

Right. Along the lines of what you were saying with the oil and gas, your expansion and Navistar and into new states and new geographies, do you think over time that will reduce your reliance -- maybe reliance isn't the right word -- but the percentage of your business that goes to the oil and gas sector?

No question. No question. Navistar has a different business model a little bit in the markets that they serve, and we truly get that. I think if you look at some of our latest acquisitions, we have pretty much figured out where we believe we need to target, the areas we need to target, and where their strengths are.

And those are the areas we are going after, and it doesn't rely on oil and gas. It is much more of a freight truck, Midwestern freight truck, and also a very strong municipal, government and municipal, which we typically haven't been that strong in, in the Peterbilt division.

And also they have got a very strong, strong bus franchise. Okay? We are doing very nicely with their bus franchise in Ohio, in the Atlanta area this year. So they bring -- it is a different model, okay?

And I like to think that if you look at where we were targeted here over the last couple years, it shows where we believe that we can best do the best job for them and also get the best returns for us. So it obviously is a little bit different market, as I said. And we are adjusting our growth patterns in the Navistar Division to where we think it suits us best.

Right, okay. Then just as a follow-up, how many buses did you sell, speaking of buses during the quarter?

Okay, let's look and see here. I didn't even look this morning. Let me get it out for you. Hold on; Steve is getting it right now, Bill.

I will give it to you in one second here. He is getting it. How much?

141.

141, in the quarter; but we look for that to accelerate some here in the third quarter.

141, great. Okay, thanks, Rusty.

Brian Sponheimer, Gabelli & Company.

Hey, good morning, guys. So regarding these acquisitions that you are making, you are obviously looking across the table at someone who is selling a Navistar dealership. What do you think is getting these deals done or something else there? Price playing a role? Just talk about the multiples they [set] -- maybe you are paying versus where you may have paid in the past.

I don't want to -- I am not going to say I am paying depressed multiples. I am going to say I am paying what we feels basically a fair deal. I don't want to -- and I am not paying over. I am not overpaying, obviously, given what they have been through the last couple years.

But I just think the opportunities are there. I think they have maybe some succession issues, that some of the franchisees may have some succession issues as they age, as the ownership ages. So we have seen that come along.

And obviously if someone is looking to sell we are probably as good a buyer or the best buyer out there. And most folks know that we are there and we are active in the marketplace.

So we are -- there is really -- it just appears there has been some accelerated activity, okay? No one reason.

Maybe some folks are fatigued, but I don't -- I haven't really seen that. It has just been good activity is all I can tell you from that perspective, and we are comfortable.

Thank you. Just staying with Navistar, how are you seeing their own used truck prices hold up?

I'm sorry, say that again -- ask me again, Brian.

The International trucks versus the Peterbilt trucks, on the used pricing side, how are you seeing the pricing environment for the International brand?

Well, obviously, they are -- from a Navistar perspective they bottomed out. It was a tough -- it has been tough on the Navistar used side.

But you have to go back to what has been going on this year to pick, lift those prices up, to provide some lift in them. And that was to get out there with all these campaigns. I think everyone has seen the warranty accruals that Navistar has made and what they are doing to get out there and fix those engines.

There is roughly 80,000, 90,000 engines out there that had been under campaign, numerous campaigns, to get them running right. And I will tell you this, on the good -- the good side to that is we are seeing success with these campaigns.

We are having customers that are keeping their trucks up and running, where they were having large issues doing that in the past. So we look for Navistar -- from a Navistar used perspective, for that to rise as we go forward as credibility is built back into those engines that are out there and we overcome that stigma that has been out there.

From a Peterbilt perspective, theirs is firm where it has been. Navistar, of course, was going the other direction, but going down. But we believe now it should come back as we get fixes to these trucks and these engines and keep them up and running like they should be.

All right, terrific. Just -- hey, Steve, on the parts and service side, what was the comp-store number?

You talking about growth or you talking about absorption?

Growth. Just the sales growth in parts and service.

Same-store parts and service, if you are looking from Q2 of '12 it was 17.6%.

All right. And how much of that number roughly speaking was more of these Navistar campaigns?

I don't have the breakout of how much of total parts and service revenue is Navistar. Clearly the warranty piece on the Navistar side of the house is significantly greater than it is on the Peterbilt side. But I don't have an absolute number in dollars for you on what was generated by Navistar warranty.

Okay. All right. Thanks, guys.

Kristine Kubacki, Avondale Partners.

Good morning. Not to beat a dead horse, but I am just wondering a little bit about -- order trends on the Class 8 side have been pretty strong across the industry going back to October/November and have been really pretty stable. But the retail sales even across the industry have lagged.

You mentioned the fleets are -- have -- that outlook has weakened slightly. I guess I am just wondering if you could comment on the disconnect between the retail sales and the order levels.

And then we have seen tonnage has been pretty good, but obviously the rates I know these guys are getting is not as high as they would like to be. What is it going to take in your conversations with these fleets of -- what is going to get them off the fence?

As we noted the fleets have aged and these guys do need to replace. What is it going to take for them to start? What do they need to see for '14 to be a better year?

Right. Tip that over, right? Kristine, sometimes I wish I had that crystal ball to give you that exact answer.

I think I have got some customers that are replacing some. A couple of our larger -- a handful, as I said earlier, of our larger customers just postpone purchases. One driver shortage was mentioned a lot.

But you've got to also look at the miles. There is a few other things that -- the cost of equipment; the mileage is down on equipment over what it was six, seven, eight years ago; the quality of the product is better. So you combine all those things and people are holding on to their trucks longer than they used to.

It is not like it was 10, 15 years ago where -- the product is just better and the mileages are down, the length of hauls are down, and you don't have as many people that are running just totally across country, truckload coast-to-coast. It is more hub and spoke, more regionalized hauling; and so that feeds into the lower mileages. The hours of service feeds also into that.

So I know I am not giving you definitive answers, but it also has to do -- GDP has been -- we said five years ago it was going to be sticking around 2%, give or take, for five years. We said that in 2010, and I think truck deliveries are going to stay similar to that.

I will be quite honest. When you add all those factors together, as I said earlier, 10% to 15% pickup in deliveries -- I now after -- I might have thought different a year ago, that we might've seen something in the 240-ish range. But I don't know about US retail deliveries. I don't know that over the next bit that we don't see a peak of just 220 or something when we get a peak here in the next two years.

And costs continue to increase, so that -- and the cost of trucks has not come down by any stretch, even after we got through the last emissions. Costs have continued to slightly rise.

And as you said, to your point, rates, they haven't gotten the rate increases to even come close to offsetting the last decade of cost increases that we saw during the last decade. So people are just working their equipment longer, especially when they look at -- they are not -- their maintenance costs don't accelerate as fast as they used to 15 years ago because the product is better and the mileage is down and then the costs are much higher.

So I don't know that we see a 240 or 250 US retail, I really don't. But that was just maybe a more stable environment from that perspective going forward. And that, hence, gives us opportunities for further growth in our absorption rate as we go forward.

And we are continuing to drive that, and we will do our best in the truck sales side. We have always done a great job in the truck sales side. I have mentioned it three times already.

We just got hit with maybe a three-pronged deal here in the second quarter. That is all I can say.

But I am very comfortable that we will get back to our 5% market share or hopefully better as Navistar comes back over the next couple years. I am looking -- I want to one day tell you -- and I still don't count out getting 5% this year, by any stretch.

No guarantees, but last year we had a 5.6%; we will have a 4.4%, or 4.5% quarter. Sometimes it is just timing for us.

So that is where I -- and I know I can't tell you when it tips over. But I don't know that there is any huge -- I don't believe there is any huge cliff to where it just goes. I think you're looking at more steady purchases, with maybe a 10% to 15% kicker in it. That is all I can tell you.

That's helpful. Then just lastly on a different note, I was just wondering. I went to the ACT Expo and there was a lot of chatter, more than I expected, a lot of enthusiasm from the fleets around the 12-liter Westport Cummins natural gas powered truck coming here.

What are you seeing out there? Do you have any opinions on, I guess, how much enthusiasm there is out there with the fleets?

We are excited to hear that. Every -- we are spending money. Again, you talk about investments; I mean I am spending money. Everything we open -- I was just opening, our grand opening of our new Ardmore store and we have got four fully equipped CNG/LNG bays. Our new store opening in Corpus in the next four or five months comes fully equipped with CNG/LNG bays. We retrofitted a lot of our shops.

I have said all along we are going to be on the leading edge. We have got a nice lease fleet coming on that we have done here. We are putting like 40 or 45 units, something like that or maybe more -- I'd have to go pull the numbers -- coming on this month in one of our areas.

We have got some other activity on the sales side also. We are just getting that higher horsepower version, so as that hits the market it will create more activity. No question about what you said.

It may be more than people anticipated. Okay?

People have said -- I am a proponent natural gas is only going one direction, and we are going to continue to try to be on that leading edge, supporting that on and off in all facets, in both heavy and medium.

But the higher horsepower and the heavy side and the 12-liter engine is definitely going to have -- having -- we are seeing a lot of -- to your point, we are seeing a lot more increased activity from a talking activity, and we are seeing more quoting activity on it right now, too. So we look forward to that being a whole lot bigger player as we go forward.

Good to hear. Thank you.

Thom Albrecht, BB&T Capital Markets.

Hey, good morning, everyone. A lot of my questions have been answered, but I have got a couple of bigger-picture questions and a couple housekeeping items. So, just in terms of earnings, the consensus prior to today for the third quarter had been $0.48. You just did $0.30. Can you --

I don't think -- I don't -- go ahead, I will let you finish.

I was just going to say I know you don't give guidance, but I mean, just to try to get some of the uncertainty out of your stock and to have a set of numbers that make sense, should we be leaning towards -- which of those numbers should we be leaning towards?

Well, first off, I think consensus was closer to $0.42, Thom.

I am talking for the September quarter, not for the June quarter.

Oh, I'm sorry. I was looking backwards.

No, you're right, it was $0.42.

Thom, now are you really going to get me to -- (laughter). You said I don't give guidance, and then you ask me to give guidance. Now, Thom.

Well --

I don't know how to answer that.

Well, you can't blame me for asking, can you?

No; I like the way you did it, though.

Okay.

I guess (multiple speakers) at least I was awake this morning.

Let me ask a couple other questions then.

I would look -- I would look -- how about if I answer it to you this way? How about Q2 being the bottom side, okay? And let's just say I don't anticipate anything under that, and I will let you figure.

We will talk about deliveries, about absorptions, and things like that, and maybe some slight softening in G&A. You have to take all that into account, and I will let you try to figure it from there, if you want to.

Yes, I may be dialing Steve later.

Well, he is going to give you the same comments, but you are welcome to. We are welcome to try -- you want some more details. But as you know, we do not give earnings guidance and earnings per share.

But we can -- I expect medium-duty to remain stable, slightly up in Class 8, and a little bit of softening in G&A, and that is what we -- and absorption rates to remain strong. I can tell you so far for the month of July, they are remaining strong.

And the gross profit from a parts and service perspective remains strong, and that is where we are at. Our leasing business is doing well, too.

Steve, on the housekeeping side, how many units of Navistar heavy-duty and medium-duty units did you do in those two categories?

I will have to get you the medium duty off-lines. The way we look at our Navistar stores, we combine the other brands that we sell inside those Navistar dealerships in the medium-duty number.

Okay.

As far as the heavy-duty goes, it was 186.

I missed it by one; I said 185 earlier. My fault.

Okay.

I remember because -- as I said I remember quarters I sold more than that in Utah, when I only had Utah and Idaho. So that's -- and I am very comfortable the third quarter will be better than that, and I don't look for it -- we bottomed, okay? We bottomed and we're only going to go one direction.

What pace? I am not here to give you a guarantee, but I can promise you it is going one direction.

Right. The $98 million of G&A, what was the amount from the year-ago period?

Same-store?

No, I thought earlier in the call there was $98 million for G&A and $9.8 million for selling, excluding the Marvin cost.

You're talking in Q2 there was -- I don't remember that being said in the quarter.

Okay.

But last year in Q2 the breakout -- I think you are asking me what the breakout between G&A and the S piece is?

Yes.

Q2 of '12, G&A was about $83 million, and the S piece was close to $9 million, $8.8 million. But you have a lot of acquisitions that drove up that $82 million to that $98 million that you just mentioned.

Was that $98 million correct, then?

Yes, that $98 million is in the ballpark. You are correct.

Okay, all right. Then lastly on the decline in parts and services -- and I missed the first five minutes, so I apologize if this is a repeat. How much of that was more the facility upgrades and diagnostic equipment investments versus the nature of repair work?

Did you say -- when you say decline in parts and service --

The gross margin from almost 39% to 37.2%.

Okay. I think I mentioned last call a lot of our growth is coming from the mobile side. 20% or plus of our technicians are not even in our shop. So there are sometimes more cost to get a person to work on the mobile side. Okay? From that perspective.

But we view that as incremental and business that we don't get. So I would tell you, as I mentioned, there may be a mix. Historical trend is maintenance shift.

Now, we will continue to see the growth there from a revenue perspective, but with some deterioration in margin to somewhere between the 37% to 38.5% range we're going to look at. I don't know that 40% or 41%, which is a peak is where we are going to land, given the changing landscape that we are dealing with and how we go to market. Okay?

It doesn't mean all our margins are down across the board. It just means that some of incremental business that we are adding on the growth side is maybe a little bit less margin. But at the end of the day, if it is incremental, it is incremental.

Right. Okay. That's all I needed for now. Thank you, guys.

Joel Tiss, BMO Capital Markets. (Operator Instructions)

I am not showing any other questions in the queue at this time.

Okay. Well, we thank you very much for your time this morning and look forward to talking to you in October after Q3. Thank you very much.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect.