Rush Enterprises, Inc.
Q2 2013 Earnings Call Transcript

Published: 24 Jul 2013

[Operator:]

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.

[Rusty Rush:]

Welcome to our second quarter earnings release conference call. On the call today are Marty Naegelin, Executive Vice President; Steven Keller, Senior Vice President and Chief Financial Officer; Jay Hazelwood, Vice President and Controller, and Derrek Weaver, Senior Vice President, General Counsel and Secretary. Now, Steve will say a few words regarding forward-looking statements.

[Steven Keller:]

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.

[Rusty Rush:]

Let me first start by saying this was a tough quarter. As you have read in the news release we are in $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 as an increase in our G&A expenses over the first half of the year. Given our accelerated phase of growth, we have made investments to put the resources and technology in place to leverage our growing network and keep us all interact to successfully reach our long-term strategic goals. Despite the timing and its impact on earnings, we believe these are necessary investments. We expect 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 rose or 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 their engine transition. We 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’ve seen in some segments. On a positive note, parts, service and body shop revenues remain strong, there are absorption rate is up from last quarter. We expect demand for maintenance and repair to continue and we believe our growing network on service points and portfolio of aftermarket solutions are in helping to drive success in this area. Let’s talk about growth. We completed an acquisition with Piedmont International in North Carolina, we’ve added Ford and Mitsubishi Fuso franchises in Cincinnati, Ohio. We are announcing purchase agreements with two additional bigger groups, Midwest Truck Sales in Kansas and Missouri, and TransAuthority in Virginia. Including the Ohio acquisitions we have acquired – 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 that represents the Cummins and we continue to evaluate opportunities with Navistar. We are also investing in our existing markets. These new facilities remodels and renovations allows 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’ll take any questions.

[Operator:]

Thank you. (Operator Instructions). Our first question comes from Chaz Jones with Wunderlich. Please go ahead with your question.

[Chaz Jones:]

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

[Rusty Rush:]

As I mentioned last quarter, I think last quarter was a – it’s all of a 160 units and I’m going up a memory here, I’ll look it up, but I think the second quarter probably raised a 185 I believe, so obviously not much change from first to second quarter. Now we do expect that 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 the release of the 15 liter ISX in the first quarter, obviously it’s just beginning to take the attraction obviously and take all. So, that’s one of the upsides as I’ve said along, they we believe we’ll see as we go forward especially in the 14 and 15 as they get back to a more normalized historical market share.

[Chaz Jones:]

Okay, is that something that I mean given the acquisition activity that, you could see Navistar unit sales, maybe double or triple from where they’re at I’m not talking about in the back half of the year but looking out to maybe 2014 and beyond.

[Rusty Rush:]

Good question. I mean obviously given the number of dealerships we have and the ones that we’re adding in some of the markets that we’re taking on the Ohio market is a great market, we look forward to Virginia market it’s also a very nice market. So along with the other markets in Atlanta, Utah and Idaho and North Carolina as we currently have we definitely feel that we bottomed out and we should see those kind of numbers we should be going over one direction from the other.

[Chaz Jones:]

Okay. And then 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 that’s what’s kind of the disconnect there?

[Rusty Rush:]

Well obviously used truck markets are typically the biggest driver is supply and demand that is if you look back to 2009 and 2010 you start talking about three and four year old leases in equipment, those were the two worst years in 40 something years so your supply side it’s obviously very low you can – manufacturers can build as many new trucks as the market demands but your used is obviously limited by supply so I have to tell you that’s one of the things we’ve seen and we have nice quarter in used and we expect that to continue through the – for the foreseeable future over the next few year so anyway.

[Chaz Jones:]

Okay. And last thing I have and I’ll get back in the queue, is I know you interest SG&A a little bit in the quarter in the investments that you’ve been making and I guess without getting into all the details of it. Is that a good run rate moving forward or I know there is seasonality to that number quarter-to-quarter but…

[Rusty Rush:]

Sure.

[Chaz Jones:]

Just kind of in terms of what we might be anticipating?

[Rusty Rush:]

Sure Chaz. As I’ve always said in the past you got to sort of strip S from G&A right. S is more variable driven by truck sales. I would tell you that our G&A has peaked it where it’s at and we would look forward to slightly – I want to slightly soften as we go – go through the rest of the year. Again S is driven we would hope S by go up some right, we sell a few more trucks. So that would be the goal there obviously as its variable but you’ve also got to look you look into that number you got to look at on same-stores going also obviously we have some acquisitions and continue to have acquisitions. So understanding G&A fees from a sequential basis I would tell you that it’s peaked to where it’s at for now. We’ve also – we’ve been finishing through we’re in the middle probably half way through implementing our new business system. We’ve doubled the size of the organization in the last three and a half years and we’re very, very comfortable with where we’re at. And we think the moves that we are making I’ve mentioned it in the last couple of conference calls that I’m making some strategic moves to be able to support this growth that we have seen that we’re in the middle of and the growth that we anticipate going forward. So sometimes it’s – I would say chicken with the egg with a revenue will be obviously the revenue from some of these acquisitions that we’re in the middle of moving and hope there is some others that might be on the way we hope as we say there is no guarantees in running that but we’ll (inaudible) out and that we have built a base of – a baseline from the corporate perspective to support these acquisitions.

[Operator:]

Our next question comes from Brad Delco of Stephens. Please go ahead with your question.

[Brad Delco:]

Hi, good morning Rusty. Good morning gentlemen.

[Rusty Rush:]

Good morning Brad.

[Brad Delco:]

First I do just want to congratulate Marvin’s very successful career and please pass my wishes – well wishes on to him.

[Rusty Rush:]

Thank you. I’ll be happy to do this.

[Brad Delco:]

Rusty, I want to just focused on the growth here just clearly that’s the big story line at least that I read through from this release three more acquisitions or two acquisitions in the announcement in Cincinnati. Can you kind of give us a – where we are in terms of what you want to do with Navistar I think it’s 32 stores now it sounds like there is some more things in the offer but where do you want to take that and how close that do you think to accomplishing that growth goals?

[Rusty Rush:]

Well, without giving too specific Brad that’s obviously there is two parties and this is the OEM and ourselves but we are very comfortable I think the OEM is with where we’re at and we don’t feel that we have reached to the end. We’re basically helping consolidate a pretty fragmented leadership organization and trying to add some capital to their leadership group on that side. So we’re in the middle of it of what we in the areas that we were to be in and we’ll continue to look for opportunities where it makes sense for us and obviously it has to make sense for the OEM also. So but we feel they’re very comfortable with us and we’re very comfortable with them especially as given the investments that we’ve made and the support we believe we have shown them areas like transition into this new engine strategy we try to partner very – partner with them to get through this though moments the tough moments they’ve been through in the last couple of years and I’m very comfortable the organization is comfortable with them we’ll get back on track.

[Brad Delco:]

Gotcha. And 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 digestions sort of paying. And what I’m trying to understand is on the G&A side how much of the cost in 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?

[Rusty Rush:]

Well, there is obviously a piece of that but I’m not going to tell you that’s the majority of piece of it okay, some of it is the infrastructure we put in place. As I said earlier we have doubled the size of the company in the last three and a half years and sometimes some of the support that we need to do especially when it comes to driving out to the service markets that we’re after to support trying to tie this whole network together to differentiate ourselves when we go to market which I think has proved successful very successful for us in the past. So it’s hard to really give you the exact answer but I’m not going to tell you it’s majority of them some of it is some infrastructure we put into be able to support an organization is quite the size it was it’s just 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 this year and always – we always have some seasonality softening in the fourth quarter but it should have peaked in the segments and slightly softening around from a G&A perspective in the third quarter also.

[Brad Delco:]

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

[Steven Keller:]

Heavy for the quarter was 67, medium is 5, light was 37 used was 10.5.

[Brad Delco:]

Thanks guys. Very much appreciated.

[Steven Keller:]

You bet. Thanks.

[Operator:]

Your next question comes from Jamie Cook of Credit Suisse. Please go ahead with your question.

[Jamie Cook:]

Hi, good morning.

[Rusty Rush:]

Good morning Jamie.

[Jamie Cook:]

Couple of questions, one Rusty just interested in your – if you could 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 Packard had a more constructed outlook I guess yesterday. And the other thing I just wanted to ask how much of this is timing to 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’m just wondering how much of it is – was it a timing issue just as it relates to you building out Navistar as well them having now the ISX engine in the market in the 13-liter that some of this could be timed for you versus sort of industries specific issues. Thanks.

[Rusty Rush:]

Well, it was handful I’m not going to say a couple there was a handful of customers that we typically that we didn’t anticipate it purposely in purchase and tie that in as I said with the decrease in the capital expenditures in the oil and gas sector. I think that’s the basic reasons that we were under what I would have like to achieve it’s just simple as that it is simple as that and also compounding that it’s the Navistar as you alluded too. So as we go forward activity levels on those fronts as we see the construction market starting to pick up continuing to pick up but not at a rapid base but consistently picking up month to month we’re 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 on line and their Asian transition being accepted in the marketplace obviously our goals are lot higher for truck sales next year. You said you needed numbers, I think I thought Packard yesterday they actually lowered their high-end numbers.

[Jamie Cook:]

Well they lowered the high-end a little bit but they were definitely more positives in their broader commentary about sort of it mean the U.S. market. So, they did mentioned fleet deferring purchases et cetera so.

[Rusty Rush:]

Well maybe that’s specific Jamie somewhat but I don’t think if you extrapolate Canada out of their number the high-end of their number was lower than say ACT’s forecast currently and their lowering number was way under that from the U.S. retail if you extrapolate Canada out of their number that I saw yesterday. So, I don’t know how close that was myself compared to some other estimates that have been out there earlier in the year. I might – I’d say we’re attracted to many little lower than the outlook maybe 5% of it last year but I mean that’s just my good check on it this year off of last year when we’re talking about U.S. retail sales.

[Jamie Cook:]

Okay.

[Rusty Rush:]

But I’m very, I am comfortable that a lot of that timing for us. I think over our 17 years since 1996 when we were public I think we’ve been pretty right on when we do this just happened to be a core 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 small I think that’s reflected in the absorption numbers to say. So it’s just that I think some organization in 2011 and 2012 might have outpaced themselves in capital expenditures, outpaced the needs and that and I think we have a little positive kept some area and I think we’re anticipating a better 2014 and 2015 as we go forward so.

[Jamie Cook:]

Okay, cool. Thanks. I’ll get back in queue.

[Rusty Rush:]

You bet. Thank you Jamie.

[Operator:]

Our next question comes from Neil Frohnapple with Northcoast Research. Please go ahead with your question.

[Neil Frohnapple:]

Hey guys, good morning.

[Rusty Rush:]

Good morning Neil.

[Neil Frohnapple:]

Rusty, can you comment on at the hours of service regulations having any impact on your customers purchasing decision and just any initial pass you can provide on the impact there?

[Rusty Rush:]

Well it’s a little early. Being its only 30 almost 30 days in place the new regulations. I’ve seen, I’ve heard very, I’ve heard both sides so I am almost going to have to sit back Neil and let it play out I really I thought I’d listen to both sides from different customers as to how it effects truck purchases going forward. So, I really going to wait just let it play out they’re probably more knowledgeable more than I am. And I think customers are also going to wait and see how it plays out and how it effects purchases and I think we’re just going to have to see and I think to dodge your question but I really don’t have a definitive answer and that’s not my style to say something well I don’t believe it so I don’t know so. The answer is I really don’t know because I’ve heard two varying hard and negative review points and more reviews on that.

[Neil Frohnapple:]

Okay understood. Follow-up to Chaz’s question on the Class 8 used truck market, could you provide a little bit more granularity on what you’re seeing with the used truck prices I mean – it was based on your gross margin performance in the quarter it would suggest that they’re relatively stable or maybe they’re moving higher a bit. Can you just talk about what you’re seeing in the market currently for Class 8 used truck prices?

[Rusty Rush:]

Stable maybe slightly what was our, excuse me one second let me look, our average obviously our average price was up year-over-year I’m trying to look sequentially here it was up about four grant year-over-year, what was that you said? Well I’m sorry it was actually down I apologize but the margins obviously but – it really it’s hard to look at the revenues side of it because that could be a mix depending on what type of products you’re moving but how much of wholesales 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 over the next 12 months or so.

[Neil Frohnapple:]

Great. And then just one last one. Could you just speak to share buybacks any update on the strategy there?

[Rusty Rush:]

Well we have been purchasing RUSHB shares as everyone is aware but we are limited in the amount by regulations in loss and how much we can purchase so. We are purchasing what we can give the regulations with what we deal with.

[Neil Frohnapple:]

Great. Thanks very much guys.

[Operator:]

Our next question comes from John Barnes of RBC Capital Markets. Please go ahead with your question.

[John Barnes:]

Hey good morning guys. Rusty your comments about G&A I just want to just for clarification you’re saying that the 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’ve done.

[Rusty Rush:]

Right.

[John Barnes:]

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

[Rusty Rush:]

No, no, no, no, no on same-store when I’m speaking I was speaking on a same-store basis John.

[John Barnes:]

Okay all right, all right.

[Rusty Rush:]

No, no, no it’s not I wish I could say that.

[John Barnes:]

Yeah.

[Rusty Rush:]

But that’s really not feasible, okay.

[John Barnes:]

Okay. So, on a same-store basis we’ve seen them top out.

[Rusty Rush:]

Right.

[John Barnes:]

But in terms of absolute corporate G&A because of the acquisitions that number will still be going up a little bit.

[Rusty Rush:]

Not corporate G&A no I think corporate G&A is topped out – but the overall G&A when you look at the store levels yeah it’s going to continue to rise we had acquisitions.

[John Barnes:]

Okay all right, I just wanted to make sure I had the difference there on that okay.

[Rusty Rush:]

Right we’ll be, obviously if you have any other questions more details you’re welcome to call Steve any time after the call.

[John Barnes:]

No worries. In terms of the used truck market obviously great numbers there in the quarter, you have talked in prior calls that inventories been a little bit tough to come by can you just – where do you stand in terms of used inventory at this point are you missing any opportunities because of maybe tied inventory on the used side?

[Rusty Rush:]

No, I think you see that the – because of the pickup in used sales we have had pretty sufficient inventory to obviously we had accelerated used sales sequentially here in this quarter. So, I would say our inventory levels have risen some and we’re comfortable at where we’re at right now.

[John Barnes:]

Okay.

[Rusty Rush:]

But obviously if we find opportunities to purchase what we think is good used inventory that we can sell we’re all over it.

[John Barnes:]

Okay, all right very good. And then Steve, just one question on with the acquisitions you’ve done I’ve known from time I know from time to time you had to do some things expand the floor plan financing program and some things like that. Where do you stand in terms of kind of capital structure today your relationship on 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?

[Steven Keller:]

John, we just increased the floor plan effective July 11th we put on an 8K but it was quite period so we don’t talk to any of you guys. It was with this, still with GE it’s with the same lender group everyone just increased their hold positions and we’re able to cut 20 basis points out of the deal and increase it from $600 million to $750 million that was in reaction to an anticipation of these acquisitions we have coming. So we’re in a good shape that’s a three-year deal that we have with those guys that we just renewed. So, we’re in a good shape from a floor plan perspective.

[Rusty Rush:]

It’s out of the game, John.

[John Barnes:]

Yeah. And Rusty, just one last on the acquired on the new acquisitions, I know in the past you’ve bought some things where the absorption rates not been as good as Rush’s you’ve bought some thing where it was a little bit better than Rush’s how would you stack up the new properties that you’re buying in terms of absorption rate and how quickly do you think it takes to come and get it to where you want to corporate wise?

[Rusty Rush:]

Well, so far everything we bought is not as good as our absorption rate. So, from our perspective that’s opportunity right that’s the opportunity to get out strategies in place bring more mobile service you could, Ohio was a good example of that we have increased their mobile and technician and mobile trucks increased the amount of technicians we have operating in customer shops manifolds already but they didn’t have a lot of that’s going on okay. So we’re doing a lot of that especially because a lot of the absorption that we’re going to get growth in takes the investments okay. We’re in just thinking 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’re actively looking in the Cleveland/Akron area currently also so, but you got maybe we just still goes on in January and there is a little there is a timetable there 12 to 18 months to get all that put together and done. So we believe our opportunities are immense especially downstream but putting out strategies in place obviously giving proper sized facilities for marketplaces we think they were very under facilitized when it comes to facilities given the size of those markets so. Those are great things that we look forward to that we’ve proven in the past we can be pretty successful with just give us a couple of years to get them running, running out of the Rush way.

[John Barnes:]

Got it, very good. Rusty, thanks for the colors there. I appreciate it.

[Rusty Rush:]

You bet. My pleasure.

[Operator:]

Our next question comes from Art Hatfield of Raymond James. Please go ahead with your question.

[Art Hatfield:]

Hey, thanks. Good morning Rusty.

[Rusty Rush:]

Good morning Art.

[Art Hatfield:]

Just a couple of things, obviously, 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?

[Rusty Rush:]

Sequentially, I would look from, as I said slightly – slightly up, lot of that has to do with timing.

[Art Hatfield:]

Yeah and oh yeah and not a problem.

[Rusty Rush:]

I don’t want to get – I don’t want to get expectations out of and, given sometimes the timing, because of the, just what it takes for us, because of our heavy vocational mix.

[Art Hatfield:]

Yeah not a problem, I just want to clarify. I know year-over-year versus sequential is only a couple of 100 truck difference, but just wanted to…

[Rusty Rush:]

Right.

[Art Hatfield:]

See what you were saying. On Navistar when you say and you’ve addressed just a little bit and you talked about where you – where you’ve been at the last couple of 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 kind of Navistar getting their market share backup into the low-to-mid 20% type or is there something out for you specifically that you are thinking of when you say that?

[Rusty Rush:]

No I’m talking more about Navistar and I’m not going to go to mid-20s, I must say if they get backed up, I gained, okay.

[Art Hatfield:]

Okay, okay.

[Rusty Rush:]

Let’s just get back, which would be probably close to their 50% pick up where they are currently.

[Art Hatfield:]

Okay.

[Rusty Rush:]

So you know 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 assure to that, because we’re just, obviously we’re very excited about where we’re at in Ohio, we’re just getting, we took on a great sales, good sales organization and they would – everybody else, the whole Navistar division is just being hampered by the strategy of the last couple of 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, in the mid 14 or something like that that would be a reign on that range I would look at something like that, trying to get back up to that, think if I get to 17%, 18% something like that by year end hopefully, it’s not delivered by – at least into the first quarter and accelerating there to the low 20s.

[Art Hatfield:]

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

[Rusty Rush:]

No, I really can’t, and you guys have to say I haven’t, I mean that’s hard to say, they have – they have a lot of dealers and a lot of (inaudible). But as far as percentage of their market I don’t have that number to give you, I mean we’re – I’ll just say, I think their comfortable where we’re at and we’re comfortable and believe there are still some room in there for growth.

[Art Hatfield:]

Yeah fair enough, I’m just trying to extrapolate kind of market share.

[Rusty Rush:]

Right.

[Art Hatfield:]

And they don’t….

[Rusty Rush:]

And maybe you know, I’ll talk about this on the next call, its right to get that in the next call we have.

[Art Hatfield:]

That would be helpful.

[Rusty Rush:]

Okay.

[Art Hatfield:]

And then finally, just I want to get thoughts on this, you had obviously in a, it’s been a tough market for truck sales it’s gotten a little better, but you know we’re really not taken off and the expectations have been with the age of the fleets out there, there should be a pickup in truck sales, you’ve obviously had, downturn in the vocational side, the – 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 take about that a little bit, I’m not hearing that from you, I’m hearing that you…

[Rusty Rush:]

(inaudible) somebody is misinterpreting what I’m saying, I’m telling we bought it, okay.

[Art Hatfield:]

That’s what I hear.

[Rusty Rush:]

We got it with a – we got it with a few different things at one time, so if you can look at the Class 8 deliveries, we got it here with a couple of, three different things in one time, one the Navistar division is not operating where it should, I mean I used to deliver more Class 8s when we only had to use (inaudible), okay.

[Art Hatfield:]

Right.

[Rusty Rush:]

Three years ago and if you want to really look back before we have those other markets. We I’ not saying that at all, we have some areas of the business there, producing very strong as I said construction is picking our Refuse business is good, our Crane business is good. We’re seeing some activity in some small-to-mid size fleet. We just missed, we’re just missing a couple here, maybe a couple of large fleet deals in there, some oil and gas business that we had in the 2011 and 2012 that I anticipate, we’ll get back some of it in 2014 unlike we say we’ll get it all that, but I’m hoping and anticipating we’ll get some of it back in 2014 if it’s all going to support, sometime I might not exactly sure what quarter, and I definitely know Navistar is going to – we are going to go whole lot better than Navistar division, the activity level is peaked up and I will be able to hope we’ll tell you that with deliveries each quarter as we move forward. We have bottomed out on that side.

[Art Hatfield:]

Okay, and so okay. That’s…

[Rusty Rush:]

I don’t know what, I’m not looking for a depressed market, no meaning no renouncing, no I maybe. I’m – I still hoping and believing 2014 will be better than 2013, you know I’ve always thought 2014 was going to be the best market aiming, 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 grow huge peaks and huge valleys tied in with 2009 and huge, in the big recession we all went through and where our growth and if I think that you are going to see pretty stable maybe up 10% to 15%, that’s maybe 20%, I mean I don’t want to get out of that one over this couple of years, but I don’t think it’s going to get, I think this is a bottom, okay, I don’t see this, I don’t see it going down in 2014 by any specs, okay. This would be the baseline and look for some growth over that.

[Art Hatfield:]

Got it. That’s very helpful Rusty and thanks for your time this morning.

[Rusty Rush:]

You bet.

[Operator:]

Our next question comes from Andrew Obin of Bank of America Merrill Lynch. Please go ahead with your question.

[Andrew Obin:]

It’s good, I’m still out to ask questions, so that’s good and how are you guys. Just a question can you just describe 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 would do we know we’re not going to have a similar surprise in the second half of the year that, just the decision process internal planning? And the second thing if you can touch on your sort of before you talked about some share buybacks and I apologize if I missed that, but the business is doing really well, you’re generating cash, stock is down, what’s your thinking on share buybacks at this point? Thank you.

[Rusty Rush:]

The share buyback these we will continue to buy, the B shares. We are limiting what we can buy on a daily basis, based upon the trading history over the past weeks were prior to, that’s just SEC regulations. As far as the G&A if I said I believe G&A peaked in the second quarter, but I go back to the last couple of calls, I have told that we will – we are going to make investments to support the growth that we had on the play, we are on play. It’s just not something that I – some people may have not listened, but the infrastructure when you double the size of the organization in 3.5 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’ve laid the ability to probably add-on another 50% without any warrant and so we’ve got a baseline to leverage all that as we go forward from a G&A corporate perspective in our mind and we do anticipate that there may be some slight softening, because we had a lot of activity, there is still a lot of activity, but still slight softening in the third quarter and then typically seasonally if you look back the fourth quarter is always our best, G&A. We always have season and seasonality that affects the fourth quarter which is our lowest G&A quarter of the year and we do it to anticipate that to be the case again this year.

[Andrew Obin:]

But I – I guess what I’m trying to understand is that, it seems that I don’t think directionally, you’re absolutely correct, I think if telegraph that you have to increase the spending, but I think the step up in the spending all at once and I understand that we have peaked, just when did you guys it seems that it sort of it’s a decision to size out the organization to add a lot of capability, I’m 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 a true way is a onetime step and the cost structure is in place?

[Rusty Rush:]

Well Andrew I have to tell you, the Ohio acquisition was a large acquisition for us, okay. And you can see the step up constraining in the first quarter and it continue to do the second, we do believe from a corporate G&A perspective that we have got it there now, okay. We can handle more acquisitions without increasing it. But to properly manage it, we knew we were going all with these acquisitions the last couple of years doubling the size of the organization and we have stretched it pretty fair, from a support perspective on all fronts whether it would be training or real estate departments or all these areas we had to add, we had to add some headcount to be able to effectively manage these as we have historically. So, we, it was really I mean it’s more timeline I knew in the fourth quarter last year and I didn’t mention that we were going to make investments and as we go back in one of the transcripts I mentioned it twice (inaudible 00

[Andrew Obin:]

I really appreciate it. Thank you very much Rusty

[Rusty Rush:]

Thank you Andrew.

[Operator:]

Our next question comes from Bill Armstrong with C.L. King & Associates. Please go ahead with your question

[Bill Armstrong:]

Good morning Rusty, could you talk about the vocational versus non-vocational during the quarter and what the outlook is there?

[Rusty Rush:]

Well, we are seeing some pickups in the construction, where a few (phonetic 00

[Bill Armstrong:]

Right and kind of along the lines and what you’re saying with the oil and gas, your expansion in Navistar and into new state and new geographies, do you think overtime that will reduce your reliance maybe reliance isn’t the right word but the percentage of your business that’s like those going to be oil and gas sectors?

[Rusty Rush:]

No question Navistar is a different business model a little different in the market that they serve and we truly get that. And 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 and what their strengths are and those are the areas we’re going after and it doesn’t rely on oil and gas it is much more of a freight truck Midwest in freight truck and also a very strong initiative government initiative (phonetic 00

[Bill Armstrong:]

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

[Rusty Rush:]

Okay, let’s look and see here I didn’t even look this morning, we’ll get it out for you how long, Steve getting it right now though.

[Bill Armstrong:]

Okay.

[Steven Keller:]

I’ll give it to you in one second, how much?

[Rusty Rush:]

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

[Bill Armstrong:]

141, great, okay thanks Rusty.

[Operator:]

Our next question comes from Brian Sponheimer with Gabelli & Company. Please go ahead with your question.

[Brian Sponheimer:]

Hi, good morning guys

[Rusty Rush:]

Good morning, Brian

[Brian Sponheimer:]

So, regarding these acquisitions that you made and you’re obviously looking across the table at someone who is selling the Navistar dealership what do you think is getting these deals done is it fatigue on their end or something else price playing a roll, just talk about the multiples that maybe you’re paying versus where you may have payment intact?

[Rusty Rush:]

I don’t want – I am not going to say I am paying depressed multiples. I am going to do the same thing what we basically a fair deal, I don’t want to, and I am not saying over, I am not over paying obviously given what they’ve been through the last couple of years but I just think the opportunities are there. I think they have maybe some success initiatives at some of their some of their franchisees may have some success initiatives as they age the ownership ages. So we’ve seen that come along and obviously if someone is looking to sell, we are probably as good buyer the best buyer out there and most folks know that we’re there and we’re active in the market place so, we’re there is really, it just appears there has been some accelerated activity, okay, no one reason maybe some folks are fatigue but I don’t I haven’t really seen that, the system good activities is all I can tell you from that perspective and we are comfortable.

[Brian Sponheimer:]

Thank you, just staying with Navistar how are you seeing that – their own used truck prices hold up?

[Rusty Rush:]

I am sorry say that, as we gain that….

[Brian Sponheimer:]

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

[Rusty Rush:]

Well, obviously they’re well they – from a Navistar perspective they bought them now. It was a tough, interesting job (phonetic 00

[Brian Sponheimer:]

All right. If I could just, Steve on the parts and service side what was the comp store number?

[Steven Keller:]

You’re talking about growth or you’re talking about absorption?

[Brian Sponheimer:]

Growth, just the sales growth in parts and service.

[Steven Keller:]

Same-store parts and service if you’re looking from Q2 of 2012 it was 17.6.

[Brian Sponheimer:]

All right. And how much of that number roughly speaking were these now at Navistar campaigns?

[Steven Keller:]

I can’t – I don’t have the breakout of how much that – of total parts and service revenue is Navistar, clearly that certain warranty fees on the Navistar side of the house is significantly greater than it is on the Peterborough side but I don’t have an absolute number in dollars for you on what was generated by Navistar (inaudible).

[Brian Sponheimer:]

Okay. All right. Thanks guys.

[Rusty Rush:]

You bet. Thank you.

[Operator:]

Our next question comes from Kristine Kubacki with Avondale Partners. Please go ahead with your questions.

[Kristine Kubacki:]

Good morning. I’m not could be that harsh but I’m just wondering a little bit about order trends on the Class 8 side have been pretty strong across the industry going back to October and November and have been really pretty stable but the retail sales in across the industry have lagged. And you mentioned that retail are – how that outlook has weakened slightly. I guess I’m just wondering if you could comment on the disconnect between the retail sales and the order level. And then we’ve seen tonnages been pretty good but obviously the rates I know these guys are getting as not as high they’d like to be. What is it going to take in your conversations with these fleets so what’s it going to get them off the spends as we know that the fleets have aged and these guys do need to replace what’s it going to take for them to start, what do they need to see for 2014 to be a better year?

[Rusty Rush:]

Right. So tip that over right. Kristine sometimes I wish I had to crush the ball to give you the exact answer. I think I’ve got some customers that are replacing some but the lot of couple of our larger handful as I said earlier our larger customers they just postpone purchases one drive forward that was mentioned a lot which they also look at the miles. There is a few other things that the cost of equipment the mileage is down on equipment over where 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’s not like it was 10, 15 years ago where the product is just better and the mileages are down the (inaudible) are down and you know we have as many people that are running just totally across country truckload coast to coast it’s more – are been slow more regionalized snowing. And so that piece into lower mileages the hours of service engine to also into that. So I know I’m not giving you definitive answers but it also has to do GDPs than we’ve had it was five years ago where that’s be sticking around 2% give or take for five years we said that in 2010. I think truck their late truck deliveries are going to stay similar to that I’ll be quite honest if we add all those factors together as I said earlier about 10% to 15% pickup in deliveries I know after I might have plugged different a year ago that we might have seen something in the absolute 40 years we’re in but I don’t know – I don’t know about U.S. retail deliveries I don’t know that over the next depth that we don’t see a peak of just 2020 or something we get a peak here in the next two years. And cost should continue to increase so that and the cost of trucks has not come down by any stretch so you don’t have to be got to less permissions the costs have continue to slightly rise and as you said to your point rates they haven’t got in the rate increases so even come close to offsetting the last decade and cost to increases that we saw during the last decade. So people are just working their equipment longer especially when they’re looking at the – they’re not their maintenance cost to have down accelerate as fast as they used to in 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 where we see we have 240 or 250 U.S. retail I really don’t. But that was if maybe in a more stable environment from that perspective going forward and that gives us the opportunities for further growth in our absorption rate as we go forward and we’re continuing to drive that and we’ll do our best in the truck sale side we’ve always done a great job in truck sales that I mentioned it three times already we just got yet it maybe a three forms of meal here in the some second quarter that’s all I can say but I’m very comfortable that we’ll get back to our 5% market share so hopefully better as Navistar comes back over the next couple of years I’m looking to I want to one day tell you and I still don’t care about meeting 5% this year by any stretch no guarantees but last year we had a – we have a 5 6 we’ll a 4 4 or 5 4 sometimes it’s just having for us. So that’s where I and I have no idea I can’t tell you what it takes of it but I don’t know if there is any huge I don’t know if there is any huge clip to where it just goes I think you’re looking at more steady purchases with maybe at 10% to 15% picker in it so I’m ready.

[Kristine Kubacki:]

That’s helpful. And then just lastly on the different note I was just wondering how much is the (ACTXO) there was a lot of chatter more than I expected a lot of enthusiasm from the fleets around the club we have Westport Cummins natural gas-powered truck coming here. What are you seeing out there and do you have any opinions on I guess how much enthusiasm there is out there with the fleets?

[Rusty Rush:]

Right. We’re excited to hear that and we – we were spending money again you’re talking about investments I mean I’m spending money everything we open I was just opening our grand opening of our new hardware stores and we’ve got a four fully equipped CNG LNG base our new store opening courses in the next four or five months comes fully equipped with CNG LNG base. We really retrofitted all of our shops I’ve sell along, we’re going to be on the leading edge we’ve got a nice lease fleet coming on that we’ve done here we’re putting in like 40 or 45 unit something like that already than more I have to go for the numbers coming on this month in one of our areas we got some other activities on the sales side also it’s we’re just getting that higher horsepower version. So if that hits the market it will create more activity no question about what you said and maybe more than people anticipated okay. And people have said have I’m a proponent to the natural gas is only going one direction and we’re going to continue to try to be on that leading edge supporting that all in all in all classes in both heavy and medium but the higher horsepower in the heavy side is what we origin is definitely going to have – having this we’re seeing a lot of back to your point okay we’re seeing a lot more increased activity from a talking activity and we’re seeing activity more coding activity on it right now too. So we look forward to that being a whole lot bigger players as we go forward.

[Kristine Kubacki:]

Go to hear. Thank you.

[Rusty Rush:]

You bet.

[Operator:]

Our next question comes from Tom Albrecht with BB&T Capital Markets. Please go ahead with your questions.

[Tom Albrecht:]

Hey, good morning everyone. A lot of my questions have been answered but I’ve got a couple of bigger picture questions and couple of housekeeping items.

[Rusty Rush:]

Sure, Tom.

[Tom Albrecht:]

So in terms of earnings the consensus prior to today for the third quarter had been $0.48 you just did 30.

[Rusty Rush:]

I don’t (inaudible) I don’t – go ahead, I’ll let you finish.

[Tom Albrecht:]

I was just going to say I know it will give guidance but I mean just to try to get some of the uncertainty out of your stock and have a set of numbers that make sense should we be leading towards which of those numbers should we be leading towards?

[Rusty Rush:]

Well first half I think consensus was supposed to be quarter two Tom.

[Tom Albrecht:]

I’m talking for the September quarter not for the June quarter.

[Rusty Rush:]

I’m sorry I was looking backwards.

[Tom Albrecht:]

Yeah, no you’re right it was 42.

[Rusty Rush:]

Tom, that you really going to get me to – you said I don’t give guidance and then you ask me to give guidance it’s not Tom. I don’t know how to answer that.

[Tom Albrecht:]

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

[Rusty Rush:]

No, I like the way you did it though.

[Tom Albrecht:]

Okay.

[Rusty Rush:]

I think that was awake – Navistar was awake this morning so…

[Tom Albrecht:]

Let me ask couple of other questions then.

[Rusty Rush:]

I would look at – I would look at – how about if I answer to you this way how about Q2 being the bottom side okay. And then let’s just say I don’t anticipate anything under that knowledge you figure it you know we’ll talk about deliveries about absorptions and things like that and maybe some slight softening in G&A I mean you have to take all that into account now let’s see you try to figure it from wherever you want it.

[Tom Albrecht:]

Yeah, I’ll maybe dial in Steve later so.

[Rusty Rush:]

Well he’s going to give you the same – he’ll give you the same comments but you’re welcome to him we’ll welcome to try to give you out some more detail 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 a little bit of softening in G&A and that’s what we’re in the absorption rates to remain strong they, I think they have so far for the month of July they’re remaining strong the gross profit from the parts and service perspective remains strong and that’s where we’re at our leasing business is doing well too so.

[Tom Albrecht:]

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

[Steven Keller:]

I’ll have to get you the medium-duty offline so where we look at Navistar source we combine the other brands that we sell inside those Navistar dealerships in the medium-duty number.

[Tom Albrecht:]

Okay.

[Steven Keller:]

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

[Rusty Rush:]

No, I missed about when I said 185 earlier my fault.

[Tom Albrecht:]

Okay.

[Rusty Rush:]

I remember because it’s just as I said I remember quarters I sold more than that in Utah when we had Utah and Idaho. So, that’s and I’m very comfortable that the third quarter will be better than that and I don’t look forward we bottomed we bottomed we’re only going to go one direction, at what pace I’m not here to give you a guarantee but I can promise you it’s going on one direction.

[Tom Albrecht:]

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

[Rusty Rush:]

Same-store?

[Tom Albrecht:]

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

[Steven Keller:]

You’re talking in Q2 there was I don’t remember that being said in the quarter but last year in Q2 the breakout I think you’re asking me what the breakout between the G&A and FP sales?

[Tom Albrecht:]

Yeah.

[Steven Keller:]

Q2 of 2012 G&A was about $83 million and the FPs was close to 9 8.8, but you have a lot of acquisitions that drove up that 82 to 98 that you just mentioned.

[Tom Albrecht:]

Is that 98 correct then?

[Steven Keller:]

98 yeah, it’s in the ballpark you’re correct.

[Tom Albrecht:]

Yeah, okay, all right. And 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 and investments versus the nature of repair work?

[Steven Keller:]

What you say decline parts and service?

[Tom Albrecht:]

The gross margin from almost 39 to 37 too.

[Steven Keller:]

I think I missed in last call a lot of our growth is coming from the mobile side.

[Tom Albrecht:]

Right.

[Steven Keller:]

What percent (inaudible) of our technicians are not even in our shop. So there is sometimes more cost to get a person to work on the mobile side okay from that perspective but we view that as incremental in business that we don’t get. So, I would tell you as I mentioned there may be a mix historical trend is the maintenance shift, now we’ll continue to see the – growth in 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’re going to land given the changing landscape that we’re 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 the incremental business that we’re adding on the gross side is it maybe a little less margin but at the end of the day if its incremental it’s incremental.

[Tom Albrecht:]

Right okay. That’s all I needed for now. Thank you guys.

[Rusty Rush:]

Yeah, thanks Tom.

[Operator:]

Our next question comes from Joel Tiss of BMO Capital Markets. Please go ahead.

[Steven Keller:]

Hello.

[Operator:]

Joel, your line is open you could just try pressing your mute button possibly. Joel if you have a question please press your mute button. I’m not showing any other questions in the queue at this time.

[Rusty Rush:]

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.

[Operator:]

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