Rush Enterprises, Inc.
Q3 2010 Earnings Call Transcript

Published: 21 Oct 2010

[Operator:]

Welcome to the Rush Enterprises Third Quarter 2010 Earnings Release Conference Call. (Operator Instructions) I would now like to introduce your host for today’s conference Rusty Rush, President and CEO.

[Rusty Rush:]

Good morning and welcome to our third quarter earnings release conference call. On the call with me today are Marty Naegelin, Executive Vice President; Steve Keller, Vice President and CFO; Jay Hazelwood, Controller of Rush Enterprises and Derrek Weaver, our General Counsel. Now, Steve Keller will say a few words regarding forward-looking statements.

[Steve Keller:]

Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As 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, 2009 and in our other filings with the Securities and Exchange Commission. Now and update for the third quarter. We are very pleased report the strongest quarter of financial performance since the recent downturn began. Our truck dealership, parts and service and body shop revenues increased 38% compared to the same time period of 2009. This resulted in a third quarter absorption rate of a 109%, the second highest quarterly absorption rate in the company’s history. We expect our backend operations to still remain strong throughout the remainder of the year. Class 8 new trunk deliveries increased 58% over the second quarter of 2010. This is the highest level of new truck delivery that we have seen in every two years. Although encouraging, request in whether or not this uptick is sustainable until we see improvement in sectors like new housing construction and manufacturing key factors that drive freight. During the quarter, our new medium-duty trucks sales were negatively impacted by production delays from certain truck manufactures and introducing a new models. However, Class 8 used truck sales and values are expected to remain strong for the foreseeable future. During the quarter, the c sold the assets of its John Deere construction equipment business, including its Rush Equipment Centers in Houston and Beaumont, Texas to Doggett Heavy Machinery Services. We also acquired a 49 Isuzu dealership in Dallas, which will broaden our product offering and continue to replace the lost GMC franchise revenues from last year. We are pleased with the performance of our recently acquired international franchises in both Utah and Idaho and we will continue to look for opportunities to expand our network with these manufacturers. Now, for an industry outlook, industry experts currently estimate US Class 8 truck retail sales for 2010 to be roughly 109 thousand units up nearly 13% from 2009. Current industry projections for US Class 4 to 7 retail sales for 2010 and 113,500 units. The age of the fleet and current fleet capacity utilization indicates that parts, service and body shop revenues should remain at a much improved levels that we have seen in the second and third quarters. Higher used truck values and increase backend revenues experience for the past two quarters are strong indicators that an industry recovery is taking place. We are encouraged by the uptick new Class 8 truck sales this quarter and believe we are seeing signs of confidence returning by some customers. Industry experts are forecasting 2011 US Class 8 truck sales to be 178,000 units up 63% over 2010 and Class 4 to 7 trucks sales will be up about 15%. We believe that as general economic confidence returns, we will see strong truck sales markets from 2011, 12 and 13. We are very proud of company’s performances this quarter. Our balance sheet remains strong and the company has continued to generate positive cash flow. We continued evaluate opportunities to extend our to contagious network of dealership locations into other parts of the country. Thanks to our employees, we remained in financially strong and profitable company. We are now prepared to answer any questions that you might have. Operator?

[Operator:]

(Operator Instructions). Your first question comes from John Barnes with RBC Capital Markets.

[John Barnes:]

Good morning guys. Firstly, in looking at the absorption rate during the quarter, impacting in the acquisitions that you made, can you just give us a little bit of an idea of where the absorption rate might be for your kind of things stored, kind of your foot print and then you know, how that compares to the acquired locations?

[Rusty Rush:]

Sure. I would say the same-store absorption rates actually, John, was just a ahead of over a 110%. We manufactured in the acquisition and going down about 1% but we’re pleased so far with our progress of the acquisition from an instruction perspective given only one quarter in to it but it is definitely up over historical that 2009 number in our first quarter of operating the acquisition. So there is still room for improvement obviously there.

[John Barnes:]

Very good, I have asked you this before, but I am just curious are you starting to see maybe some more new equipment being sold just kind of ticket size in your parts and now, have you still seen an increase in that or does that begin to moderate a little bit as you start to see more new equipment being sold?

[Rusty Rush:]

Well, so far we have not seen so much of an uptick in ticket size. It is being more volume of tickets to be honest. That is slightly up John but not enough to be that meaningful. The biggest driver is the amount of tickets that are being written, more repairs whether they making probably basically the same size repairs, produce more of them as utilization of the equipment in the country has gotten stronger.

[John Barnes:]

Okay. Class 8 trucks couple of question number one was there anything one time they would’ve influenced the number of trucks sold in the quarter or this just a nice recovery base into more robust Class 8 cycle going forward?

[Rusty Rush:]

Well, I guess that if you want to script the acquisition out from the truck sales perspective then the new acquisition was a 129 units okay, so that purchase about a same-store of 1154, so it was up a lot of a timing but some other, a little bit stronger I would say two things timing, obviously that could change 100 units here or there. in which quarter they fall can have an affect but also sales were still ups little bit so.

[John Barnes:]

Okay.

[Rusty Rush:]

If I gives here that sort of a can’t alluded answer I understand but things are there, but there are still seeing hesitancy on the part of many operators to go ahead in perfect figure but the pressure continues to mount on the pin up demand as we continue to one of these rates continues to give stronger so when it does break loose, we are going to be looking real closely at the next 90 days of order intake for November and December numbers, specially I am looking at the November-December numbers for some indications of where we are really going to be next year.

[John Barnes:]

My question is, I have seen some data which were suggesting that there is still a number of orders parts available in the fourth quarter and then it looks like first and second quarter there is still a fair number of orders parts available. Are you concerned at all that you’d go back into a low like you just had and then it gets more exposure in the back half again I mean is it going to be a greater degree of cyclicality here until we get back into a firmer economic back drop?

[Rusty Rush:]

Well, I mean is that’s the issue as I said, earlier, I am little hesitant to say here we are this is it. I adjust some of the confidence levels out there. In spite of the dynamics, most businesses the dynamics are pretty good, look at the earnings reports you’re seeing out there. Most everything indicates that truck sales should or ought to be picking up. At the same time, I would tell you that people are just a little hesitant as they look out not necessarily their own end businesses, they look around and what they hear and beat all the time. Okay, I think you said way too much influence on people’s purchasing decisions but the pressure of their own as the fleet continues to age, we will continue to mount. I can’t sit here and give you an exact timeframe. I have been saying all year along, I look for fourth quarter pickups. So if it gets push down a little the pressure would just be stronger on the customers to go ahead and purchase but I am telling you there some hesitancy out there, but its not driven by, I don’t think totally most of their own business, I think its driven by real world economy and listening to a lot of folks, tell them what it’s going to look like in 2011 and 2012.

[John Barnes:]

No doubt, last question on the used trucks side, can you just talk a little bit about, availability of used equipment and the quality of used equipment. It seems like the prices on used equipment have popped up a little bit but the longer the cycle goes, the older the equipment being traded in, are you seeing any, any change in your used equipment business?

[Rusty Rush:]

Well, the business still remains strong. There is a few drivers for that. Obviously, when you look at the used, obviously a lot of it has to do he supply side. So you’ve got to look back three, four years and that typically tells you what’s supply is now. Taking into account that lives have been extended out, the equipment we are receiving is higher model, there is no question about that. We are trading for a lot higher model equipment than we typically would. So until the sales pickup, that is only going to continue to be that way as we are trading for lot of trucks. They are sold and basically sold in ‘06 , they are four years old, and coming on five years old once we turn January 1st, this next year a lot of them. So the equipment is higher model and know that's just the case of what we’re trading. So given the increased in new truck price, over the last eight years, that all surprised us because the spread between the used values and new gets so large that will continue to drive used truck values up, but, yes supply is obviously is waning and I would continue to believe the supply will continue to be an issue on the used truck side as demand continues to remain strong given the cost of new trucks technology that’s been put into them through out the ignition changes in the last decade.

[Operator:]

Our next question comes from the line of Tim Denoyer with Wolfe Trahan.

[Tim Denoyer:]

A couple of Questions. About, how much of the improvement in your Class 8 market share of US retail sales. I’m getting about 4.5 % on the quarter. It was up from 3.1%. Can you say how much that was due to, pretty well nationally I think they gained about 50 basis points?

[Rusty Rush:]

I will give you the same-store basis. At same store basis, we were about 4.1.

[Tim Denoyer:]

Okay. Cool. What do you expect that to settle out with the new acquired stores. It is kind of like 4.1 over the past several years. Do you think that goes up 20, 30 basis points?

[Rusty Rush:]

I would like to believe that the third quarter is indicative of the future and as far as the acquisition we currently have done, yes.

[Tim Denoyer:]

Yes. Okay. and, it does seems like the third quarter seems to be seasonally strong time for your market share just looking historically. Is there any reason for that?

[Rusty Rush:]

I think its just seasonal, from a our customer rates, obviously from a parts and service perspective the second third quarter always stronger. There is always seasonality there due to working days etcetera, the miles that folks at typically running in the part of the country we are in geographically was extremely warm in the south from a parts and service perspective. On the truck side I think it just timing as-much-as anything.

[Tim Denoyer:]

Okay, great. Can you give us any incremental units on medium duty from the acquisition?

[Rusty Rush:]

Yes, the incremental I believe was 73 units.

[Tim Denoyer:]

Great, and the production delays you mentioned on medium duty, is that ongoing can you give us a little more color on which OEM or...?

[Rusty Rush:]

I had mentioned on past calls that there would be lag with the couple of our OEM’s as they introduce products with some on-board diagnostics that they had to get right. So they started delivering in August. Okay. Then we had a lag there as may be 60, 90 days prior to that as you ramp your inventory. So what was delivered in August probably not a lot got sold in to the third quarter now the inventory levels were getting back to more normalized levels, so we should see hopefully an uptick from a unit perspective not huge but an uptick none of the less in the fourth quarter.

[Tim Denoyer:]

That’s great and going back to used trucks for a minute in terms of the, can you give us sense of the pace of used truck price increases in the first half truck as the price of used truck were going up pretty quickly. Do you expect that the kind of moderate in terms of inventory, do you think that could have your new trucks margin?

[Rusty Rush:]

Tim I’d tell you’re the average used truck price in the second quarter just to give you something that to work with is about $398,078. In the fourth quarter average unit price was $410,564, of third quarter excuse me.

[Tim Denoyer:]

Yes, okay.

[Rusty Rush:]

Third quarter 41564, so you can see a slight uptick from quarter-to-quarter sequentially.

[Tim Denoyer:]

Yes

[Rusty Rush:]

It wouldn’t surprise me if it continues at almost the slight uptick levels right there. In that range.

[Tim Denoyer:]

Okay, and…

[Rusty Rush:]

Sometimes that can be mixed driven too, depending on which market you are selling your used in to.

[Tim Denoyer:]

Yeah sure, okay and just last question on Ford, you mentioned you required a Ford, how many Ford franchise do you have at the moment.

[Rusty Rush:]

Well, we currently have three. We’ve had one for a while in the second quarter we had one in Oklahoma cities we located, we’d had one in Dallas, we had said in the third quarter and we will continue to out well in to the fourth quarter we closed well above that’s as we did here in October. As we go forward we will continue to look for more opportunities to add some Ford franchises.

[Tim Denoyer:]

It that mostly the truck franchises or are getting more into the light vehicles a little bit as well.

[Rusty Rush:]

No, we will stay on the commercial side of the business, we will stay in the commercial business.

[Operator:]

Our next question comes from Chaz Jones with Morgan Keegan.

[Chaz Jones:]

I wanted -- little on the absorption ratio, I was trying to remember, I think before the last down turn, you know you guys had a goal of getting the absorption ratio (inaudible) like 1/12 or 1/15 moving somewhere in that range?

[Rusty Rush:]

110 was always our goal prior on an annualized basis not on a quarter. You remember the second and third quarter are seasonally our best quarters. Typically first is fourth quart and first to the top is quarters absorption line but 110 was our goal. Obviously dropping down to 96 last year was painful. So we’re extremely excited about where we’re at. You have to reflect back in a way on annual basis where we were 106% if you remember and that’s where we are at.

[Chaz Jones:]

Al right. So, do you still feel, I mean obviously I would think you feel pretty confident about getting the 110. there is a lot of things internally that have happened since then. Is there a new sort of dreadful that you think the absorption ratio if you can go to the cycle?

[Rusty Rush:]

You really want me? Remember that and of course I feel confidence of getting to 110 here in the cycle. There is no question about that. Sure. What would I say, I got 115 but let me step back and lets think about the business going forward. As we look at future acquisitions, remember, just like the one we just took on. If they ran in a low 90’s last year, I got some work to do, just to get them up to the level of the 110. So there could be a drag on the overall absorption level. If we are able to pull up a few more acquisitions here in the near time. So that’s heading makes the work, makes the hill even taller to climb. So you have to clean up and if you want to look at same store, you better believe the mild stores. I would have a 115 go, I not going to communicate, either not promise that to you but obviously internally and operationally my folks know that.

[Chaz Jones:]

Understood. Then, just looking at the absorption ratio, you sound pretty confident that urgent service business will stay up here in the fourth quarter but you can't eluded to this, I mean typically the absorption ratio would traps on the forth quarter, am I reading that wrong?

[Rusty Rush:]

No. It definitely drops. Obviously from the revenue side, we typically – you know, as I said from the revenue prospective, we have got four less working days. So you’re talking about gross profits crossing $3 million dollars less, have this maintain the same average that you had in third quarter. I would look for our daily averages, be familiar to the third quarter because we measured everything on a daily average of working days and we don’t mean that so many holidays involved in the fourth quarter. So, we are going to be four working days less when you look at that because of holiday in the fourth quarter. So that is definitely a drag on the gross line but hopefully we’ll be able to work with our expenses to help a little, may be a little offset that but offset a little bit but its typically a little tougher in the fourth quarter.

[Chaz Jones:]

Okay. Then, last thing, can you just kind a brought a picture in terms of the customer base. You kind of indicated your – I guess the last couple of quarters that oil and gases has been pretty strong from a customer standpoint. Could you just maybe, hear in terms of where the relatively strength and weakness, you know, oil and gas, truck load vocational municipal, just kind of crest to customer base?

[Rusty Rush:]

Yeah. Oil and gas has been still remain strong. There is no question about that. I would tell you that the refused business has been pretty good. Construction business, no. There is not many houses being build out there not allow to commercial constructions going on either so the utilization as the from our concrete mixer perspective and things like that out there in the market place is still very-very weak. Truck load as party here or there you must get in to customers and where you that was specific customers dry vans, we expect to get there I know as we look forward I make anticipated purchases from some of our dry van customers as we talked to will be definitely up in calendar 2011, so I mean, I was that going to every sector

[Chaz Jones:]

Sure.

[Rusty Rush:]

I mean that will take a long go through every sector but at the same time we just need as I mentioned earlier we’re still now even doing replacement guys we are not even meeting replacement so my I work (inaudible) that 79000 classic US retail deliveries through nine months. That we did about 30000 in the third quarter. You tag on another 30000 and gets to 109 number that I gave you. Remember as a bottom three year and almost the last 30 years, so I mean its we still pin up demand continues to grow every day as we run at these great levels. So, we just need a couple other things to grab hold and telling you a lot over its confidence and not confidence in their own business but confidence in what they see from an over all economic out look okay. So, hopefully maybe there will be a catalyst in 12 days little (inaudible) the future down and allow people focus on their own business that’s some thing that I am hoping for.

[Chaz Jones:]

You and me both well great quarter.

[Operator:]

Our next question comes from the line of Brain Sponheimer with Gabelli & Co.

[Brian Sponheimer:]

Just a couple of questions here. You mentioned timing helped in the quarter was that may be June sale that were delayed in the July or October sales that were pull back in to the September?

[Rusty Rush:]

Probably June, but may have been delayed into the third quarter and it’s not necessarily delayed, it’s just the matter of timing.

[Brian Sponheimer:]

Right.

[Rusty Rush:]

It is for timing than anything else, and its not, it wasn’t, I wouldn’t called it a delay, I wouldn’t use that term its just timing, yeah sometimes but you know I would hope that we will be able to run at rates from a truck delivery perspective. [Forgot] I say this but in the fourth quarter seem little third. Okay, so I would look for to remain relatively flat I hope as I look at projections for the fourth quarter is longest timing doesn’t get out of line with any issues at year end which sometimes that can be year-end issues but typically most people would preferred to get it done for tax purposes prior to year-end, so I wouldn’t look for (inaudible) with somewhere you need deliveries and we’re planning on for the fourth quarter from the third.

[Brian Sponheimer:]

Okay other 1200 trucks is heavy duty trucks you sold in the quarter do you have any stats about next 2010 engines versus 2007? Over the 1200 heavy duty trucks you sold in the quarter, do you have any stats about the mix of EPA 2010 engines versus…

[Rusty Rush:]

No I don’t have that here for you but I am going to tell you the majority were okay, the majority of trucks that we delivered in the quarter have to be 2010 complaint, I don’t have those numbers in front of me be happy to, I can ask my sales guys if they have got something to measure that but we really don’t have a measure balance, we really don’t have to measure that notion.

[Brian Sponheimer:]

Okay. Totally then, what are the customers saying about the new engines both the EGR and the SCR options?

[Rusty Rush:]

I have heard good things on both sides. Okay, so I have not seen any big red flags come up from the operational perspective on either technology. So I guess I will tell you the performing as expected.

[Brian Sponheimer:]

Okay. Great and just one last one, can it seem same breath. To what extent do you think that there is a hesitancy from your customers about being earlier doctors on either engine technology that being potential hold back on sales right now?

[Rusty Rush:]

You know, I would have said, maybe 90 or 120 days ago. That was an issue. Now, I think it’s accepted. It is the world we live in and is accepted that the technologies that we will be going forward with. I don’t believe that those are the issues that are holding backup sales. I think I’ve mentioned twice on this call already, what I feel the issues or and I don’t think the industry driven. I think that outside to the industries is much as anything, that are holding back truck sales from picking up. As I mentioned to the last call, last questioner, I’m hoping in 12 days. We get something that everybody gets a little more comfortable about the future as we look forward into the next couple of years.

[Operator:]

Our next question comes from the line of Robert Kosowsky with Sidoti & Company.

[Robert Kosowsky:]

I was wondering if your thoughts on that ACT [ph] is right for next year and we have a big 60 something percent wrap-up. Would you expect parts and service to fall next year relative to third quarter space obviously taking seasonality into account?

[Rusty Rush:]

No. I would not. If you look historically, it has never fall and even though we ramped up. Our internal work, remember when you sell truck, please don’t take them from the manufacturing and delivered them direct to the customer. There is typically, especially when you show heavily, vocationally, oriented as we are, there is more internal work generated that will more than, typically offset. Any lost as you see is the fleet dates [ph] comes down as there is a hole. So if you look at the last cycle on 04, 05, 06 we continued to ramp our absorption even tough new truck sales went up. So, you know and it always has to do with the mixed of business, how we go to market, how we go after different sectors of the market not just the truck loads business but focus on the vocational pieces to business. In a broad prospective across the network and what that also brings in to pays you get more warranty sales and obviously warranty sales typically we enjoy warranty sales obviously. So, those two factors internal work increase warranty sales more than offset typically. The ages of the fleet coming down and you know maybe some of your customers pay tickets.

[Robert Kosowsky:]

Okay. that’s helpful. We have also seen two step changes from the second quarter was much better than the first quarter and third quarter much better than the second quarter. Due to the opportunity for another one of these step changes, kind of if you’re looking at to 2011, obviously taking seasonally into account.

[Rusty Rush:]

No. I would tell you. We’re right at where we should, we’re going to be. Okay, right now. I wouldn't look for that at the moment, and I wouldn’t gone on that.

[Robert Kosowsky:]

Okay. Then, and could you talk about the increase 70 in SG&A, like what’s driving that and kind a, what happens to truck sales, such to ramp up in 11 and 12 to?

[Rusty Rush:]

Sure. Lets think about it. First of all, you have to take SG&A and breaking apart. Now, take as F is typically associated because that’s the commission on truck sale. So its truck sales went above your assets is going to (inaudible) variable cost component okay if you look SG&A that is where how we really look at it. We looking at SG&A as its going to go up on truck sales growth up Canada as going up with it because typically some where in there 30 low 30% our truck will stop there is a commission of a (inaudible) around 30% because where they get 30% is commissionable of truck gross profit. Now G&A is the part we really manage because that supports the stat as the part of the service operations. Understand that is we will forward we typically as we increase the gross profit in parts and service understand G&A will increase. This is parts and service you turning ventures you’re delivering the parts and things like that’s so that does accelerate to go up it became that remain flat is just fiscally impossible for it to remain flat. The important is what you keep of that incremental gross profit dollar and we have an internal goal of tying to keep it in 55 and 60% of that internal gross profit dollar and as internal gross profit dollar parts on per service perspective and so far we’ve been able to accomplished at this year, because if you look G&A sequentially, I mean I’ll tell was up 3.2% on a same store basis, GAAP margin was up 8.5% so we accomplished what I just mentioned so that how we majored if that helps.

[Robert Kosowsky:]

Yeah, now that helpful and them just two other questions do you see any car market share pick up on a parts and service side what’s kind of driving some of the volume growth which just spend share volume?

[Rusty Rush:]

May we hope to we hope are at the same time those of hard damager and there is going to majored looking back historically not this quick okay. The way they major it will major on the more about that next year when I give some other statistics from some trucks that measured I think its not right trucks, its something is that measure on a longer look back type perspective.

[Robert Kosowsky:]

Okay and then just finally could you given some parts on the medium duty cycle look in to next years outlook. It’s how long before replacement cycle unfold where is some derivers and how much were burden those prepared expenses could harm because when I am or like three or four years past (inaudible)?

[Rusty Rush:]

Well I will tell you medium duty is going (inaudible), it typically does. Simply why, we has to derivers small business, small business is going to derive the general economy is going to derive medium duty more than the classic business, so we get classic is going to be more industry driven, yes driven by general economy but also tie to the influences in the past four years inside the industry, more related to truck sales and things like that where the medium duty businesses always going to be (inaudible) little more to the general economy because it is (inaudible) more to small business if that helps really.

[Operator:]

Our next question comes from the line of Barry Haimes with Sage Asset Management.

[Barry Haimes:]

Hi., not succeeded therefore some of the customer has going to see questions but I had one related question and that is just in your conversation with customers is the regulatory uncertainty haven’t do with (inaudible) service [CSA] etcetera, and possible derivers storages, is any of that do you think have an impact on the customers has going to see or is that seem like (inaudible) there is a much of an issue.

[Rusty Rush:]

No I don’t.

[Barry Haimes:]

No with that is the main deriver behind holding classic truck sales back. I would say no could have an effect is probably got a minimum effect to me the issues as I said broader no one wants to get caught up in some type of huge down turn again I don’t intensepate that ever ones little more conservative given the low lesions of 2006 and 2007 when greak started another 6 everybody was growing fleet everybody was little hesitant there but the overall things that I said earlier replacement cycle pickup really its those numbers were out next year in my mind the numbers the ACT has out there make sure. They don’t take into account any pickup and construction and housing and automotive getting back to 14 15 million sort of number thinks like that (Inaudible) that basically just replacement that’s why I am really extremely sad in about 11 12 and 13 timing wise I have talked about some of these issues that I think may be holding it back a little bit right now and the happening is right now but overall it’s going to come it’s just a matter of timing on what everybody gets paid to pick up the right time that inflation point of when it picks up but we are all looking for that but I am just still very confident in the next three years as we look out.

[Operator:]

Our next question comes from the line of Bill Armstrong with C.L. King & Associates

[Bill Armstrong:]

Good morning where I see there is what some concern in Navastar may loose market share with the new engine technologies I am giving your commitment to growing another subway what are your views on that.

[Rusty Rush:]

If they do it’s just be temporary timing issue I don’t look for them to loose market share there I am very comfortable with both the major OEMS platforms are going forward, have no [inaudible] what so ever investing behind the platform and its just the timing issue as much as anything from their prospective in getting the engines out and ramping up so you know if they do take as little market share, hit temporally I would expect them to get it back in the future.

[Bill Armstrong:]

Just a housekeeping question on huge trucks gross margin have been pretty strong last couple of quarters do you have that number for the third quarter [inaudible] truck margin was .

[Rusty Rush:]

Sure, yes it was 11.4

[Bill Armstrong:]

11.4

[Rusty Rush:]

Which was down from first and second quarter,okay, As I mentioned its going to start trailing because we sold out [inaudible] we traded for the last quarter Last year you know in the fourth quarter last year and you start trading for [inaudible] current market levels.

[Bill Armstrong:]

Right, and you said the average used prices is 39878.

[Rusty Rush:]

No it was 41 564.

[Rusty Rush:]

Okay. Then then the last question within the medium truck sales how many busses were there. Let see there was a 100 let me look at my [inaudible] 114 , we were about if you script out 73 that were sold in our new division which by the way also included international buses , now I don’t have break out of that 73 in the acquisition but in the 73 that includes the medium duty and [inaudible] busses and 114 sold in rust bus under the Gilbert [inaudible] you know that would be under last years number around the second quarter sequential number you know about 15% I think as far a delivery and is reflected back in to the now as I said the OEM’s that we were little late on getting inventories ramped with work didn’t come to market or with their product we didn’t start receiving like the August.

[Operator:]

Our next question comes from the line of Tom Albrecht with BB&T

[Tom Albrecht:]

Thanks, one a great quarter and a lot of my question have been answered but I did want to ask when you look at the increase in new and used truck sales on a revenue base this you are up about 38% of sale on a unit basis those three were up about 18% does that reflect more of a mix issue or does it reflect the cumulative impact of more expensive trucks as a bigger fact those no over these last several years.

[Rusty Rush:]

Yes a lot have it let all- think about like this Tom average sale price dramatically also chafed average sale prize last year in the third quarter was 112792 this year the average sale prize was 127641 when was I looked so was dramatically up plus it is a mix (inaudible) how many when in to different vocations can I have great reflect as I’d remember correctly in the third quarter last year we were heavily waited towards over world and this year we were heavily-more heavily waited to our vocation I was in (inaudible) of couple large flicks last year in the third quarter over the road (inaudible) this year was much on vocationally driven okay I know I don’t have those numbers in front of me but I know the measure customers who are taking [drugs] and (inaudible) so that had a lot to do with the prize being driven up as far as the average cost prize so is that answers it as really as much an anything a mix issue I mean you can look at medium duty truck sales, the average cost latitude was [58220] (inaudible) 69193, so again that’s a new technology was the mixed I the especially on the heavy duty size to whether do on that was not just new technology on the heavy size along that was a mix in the what sectors they result into.

[Tom Albrecht:]

Okay, nice that’s helpful to hear and then I understand your hesitant see the reclaim that this is at the beginning the new cycle were not so in response to ask question on where the absorbs ratio might doubt its next cycle, I guess (inaudible) on that so others already some instruments that seems to reflect a near (inaudible) operating environment over the next fourth five quarters and it doesn’t seem like that’s quiet the way we to be think about the world, do you have any comment from there?

[Rusty Rush:]

No I am trying to get the question, I am sorry.

[Tom Albrecht:]

Somebody estimates, may be already reflect like this is the environments already started to be and given that (inaudible) kind of signal going out its better that might be still more fits and starts just wondering how do you think about the somebody estimates or out there this time.

[Rusty Rush:]

Well I am not, you know what I say that I am just I don’t have I can see that for that out [ph], I am sorry with I feel but its right there, I just its, I have confidence in the industry where its at. It’s the overall generally economy its sort of holds me back. Its just starting right here and I will say okay this is the start date. I know it’s there and I know that everyday that goes by we get closer to reaching that inflexion point. I am just not quite sure confident enough to say. Okay. This is it, it’s solid, it’s not falling back. There won’t be this one quarter where necessary there won’t be this one quarter it pulls back, where everybody get’s a little scared out there. I know one thing when we do start selling trucks we are very poised, I think the model to run long enough time, you’ve seen this long enough. Half the models were solid it has ever been or better than it has ever been and we would be very poised to do that as I said before in the big markets of ‘99 and ‘98 ‘99 ’04, ’05, ’06, I think we executed and I think we handled the down turn better than we ever had especially given the severity of it. I think the organization is poised to take it advantage of it. Can I tell you exactly when it is going to start, no, but if it starts a little later I think to make you feel a little better I would tell you that the incline just gets steeper in the rise. Okay. They all run in front of the bus at the same time, okay. The longer that it goes everybody tries to get to the door but it hits the same time I guess it is the best way for me toexplain it.

[Tom Albrecht:]

I am totally an agreement with you. A different a question given the increase over the years in it’s costs particularly Class 8 equipment and the fact it’s a typical buyer may have a fleet just five or six years old at 3.5 to 4.

[Rusty Rush:]

Right.

[Tom Albrecht:]

How much of it in range from a financing perspective, the idea is they may have to finance $90,000 or more versus $50,000 - $60,000 just a few years ago. How much of a margin of that so far or likely to be in the next few years?

[Rusty Rush:]

I don’t think that’s going to be that Tom, as I am thinking about you question, I thought about the question before , my thoughts are, that’s just going to be just the way it is because of the cost applied for trucks , I mean beside as you look out i think the residual value will continue to rise given that there is not going to be in supply for who knows how long of used trucks and given that new truck pricing is not coming back. I mean we can look at the OEM levels for the last year and half, they don’t margin inside of what they are doing, so then its not going to come back. Trucks would be replaced and balance sheets should be able support them, support the credit they will be needing . My biggest concerns is there going to be enough credit out there. Some friend of ours in Washington continue to borrow more of it and take it out of the private sector where it belongs. That’s the bigger concern to me then that question. So you say financing $90,000. Historically I think that’s always been, I don’t see that as an issue Tom.

[Rusty Rush:]

It would be the way it is. If lives are going to be extended out, and usable lives are going to be extended out because technology has made the equipment that much better than financial institutions should support the underlying value of the product to those levels that’s what I guess. I am shooting from my hip here. I never really thougt about the question but in my mind I don’t see it as big of an issues. The biggest issue to me is whether is there enough credit out there for anyone and any business right now. Will the credit, the financial institutions and the banks be the well enough and whether there would enough available credit or the government starts pooling too much out there for everyone. That’s of concern to me from a personal perspective.

[Operator:]

Our next question comes from Chase Becker with Credit Suisse.

[Chase Becker:]

Just have a quick question and clarification I think what you said in the fourth quarter you expected total truck units delivered to be relatively comparable or were talking specifically Class 8

[Rusty Rush:]

I was talking I think total, I said that about either one. Again timing can be a issue but I will tell you in total roughly, I am thinking about the same. Hopefully I won’t get caught in something that timing changes one of them but I’d look for medium that could be slightly up. I don’t want to get in there medium could be up, maybe used, off a little bit driven by supply, being shorter okay. So hopefully that would offset each other and as you look at as the whole hopefully comparable quarters.

[Chase Becker:]

Just to be clear if ACT’s are assuming that the fourth quarters is up sequentially and then maybe it’s some timing, there is nothing going on in term’s of market share that certainly different?

[Rusty Rush:]

From my perceptive we were running all three’s from a overall market the first half of the year, from a same store we jumped to 4.1 which I mentioned earlier there was maybe some timing involved in that in stuff that didn’t get delivered in June, because of the (inaudible) driven in one it was ordered in (inaudible) into the third quarter but I believe the third and the fourth of these similar okay.

[Chase Becker:]

Okay, and then just quick comment on what you are listening I think is on acquisition in terms of potential size of (inaudible) you are looking at out there.

[Rusty Rush:]

Don’t get me in on that. I know like you talk you know I am working in real I am working in extremely hard at here right now we are pleased with the acquisitions that we have done and you know we would expect to be looking to increase our geographic footprint, you know you remember one of the key factors in our growth have looks going forward with (inaudible) as I said early on the growth will be in areas that we are not what Peter [ph] built is we can continue to increase our customer growth, our customer touch and I also want to do a standup job for (inaudible) that I represent from a classic perspective in those market places so we will be looking to increase our geographic footprint is we look forward not in the territories that we are already in. so but acquisitions you bet will be looking at something I don’t step out in and talk about right now I mean its nothing I can talk about but obviously we are active on the sort of looking right now.

[Operator:]

Our next question comes form the line of Jack Waldo with Stephens Inc.

[Jack Waldo:]

A lot of questions again I have been answered but I didn’t want to touch on two things. First I think I have heard previously comment on maybe the portion of the parts in service revenue that has been driven by new truck sales. Due you see pretty big up taken that this quarter or have that compared to the second quarter.

[Rusty Rush:]

No I think the most of ours was I don’t have that breakout right in front of me but internal was up obsessively because delivery’s were up our internal that is driven internal apart form services driven typically by cost sales. So I would tell you the biggest driver overall was used in customer. Driven by the excess capacity that we have done over the last year and half being put back in the operation so our (Inaudible) sales were down this year dramatically but that’s because perhaps that many trucks sold the few trucks that resolve last year obsessively less than 5 so you have left that (Inaudible) perform warrantee most of the year has been driven by customer sales internal sur picked up in the quarter but I have not seen it. You just would up because of the man adorability. So the majority of the update has come through customer caretakers and that is taking the excess capacity and putting it back in the servers.

[Jack Waldo:]

Got you, and then how much was from the acquisition.

[Rusty Rush:]

On a partner service perceptive let me grab that sheet here I am not going to get into exact dollars overall that I mentioned before the absorption level that I was left then our world absorption the accusation ran about 98% absorption where historically had ran in the low line range last year above 90 so from absorption perceptive you can see that but if you look at it as we said before they were basically 10% of our revenues i would look at that across the board view.

[Jack Waldo:]

Got you [inaudible] basically want I am trying to get out it seam like you sort of hit a new base in terms of expectation on revenue line item just trying to get a sense more , what opportunities ahead including , provide all your truck sales and how that would drive , maybe more to that revenue line?

[Rusty Rush:]

Well I was a truck going to drive a revenue line , [inaudible] big big diver because of the high revenue ins , so parts and service have a much less effect on revenue but reflect on profits so I look forward to continue as I said or sequentially the forth quarter will probably on a per day prospective , it will be , off probably over off parts and service sales from third, but would you look at it, we got four less working days because of holidays so you know that is the issue and I would tell you its not growing sequentially like it did first to second , second to third from parts and service prospective it grew so rapidly that is leveling off , in fact coming backwards but its just not going to continue that same rate of growth end of the fourth quarter , especially because seasonally you tucks , you get close to Christmas you shut down [inaudible] miles, I mean its just some seasonal issue in there to so what we would do would be looked forward maintaining our per day average ad they are ramping up when we get towards march, April, may of next year we get out in the seconds third quarter we would be looking for our revenue lines to continue to grow even a stronger parts and service prospective .

[Jack Waldo:]

Got you, one last question and that we touched on SG&A cost but and you guys if get little be – good leverage there with improvement and revenues but any thing an cost control there put in the place during the down term and that maybe coming back on terms of benefits or any thing like that we need to be expecting or make sure looking at correctly.

[Rusty Rush:]

Well I don’t think they much is benefits but you got a reverse even in our parts and service business there are variable (inaudible) plans so is gross profit from parts service and body increases you have we have a large out side sales was the people on even realize on (inaudible) parts and service prospective we will so that’s why I talked about earlier by that 60-40 split its I try to simplify may (inaudible) pretty straight pretty sample. It’s not like loan and money some ones that had turn that range somebody is going to (inaudible) that parts somebody has to delivered its specially when you are running exact strength to levels is we were the last couple years we took a 25% of (inaudible) gross profit in parts and service and even a build it huge revenue at the same time and (inaudible) that the 22% revenue here. So that was very difficult we’re run extremely lean achieving 96% of (inaudible) that the sound real good last year but I am going tell your levels that was difficult (inaudible) and so because of the hit we took on the profit side but we have to take out we took out 15% of we picked up from our expense (inaudible) prospective so we can’t handle these (inaudible) volumes parts and service with that from (inaudible) cost increase just a wait is so wait is business work but except a assist managers which I have all the confidence in the world in my organization in people up there to handle it and manage within fad the clearly defined goals and what we expect in the parameters the way it should be done the we lay out as an organization and these guys has always turn the path that my people they know how to do it and I have all the confidence in the world they will continue to meet the goals that I set up for them but I am not foolish enough that to expect them to keep 90% of every income in the gross profit by own profit and service adjustment it doesn’t that way.

[Operator:]

Our next question is a follow up from Tim Denoyer - Wolfe Trahan

[Tim Denoyer:]

Hey just one more little detail wanted to ask about the tax rate coming down to about 35% in the quarter. Is there no percent over 40 ?

[Rusty Rush:]

Historically growth pro last year our because of the resection crazy year in terms of even level the profitability and alternative field tax credit historically we were on roughly 38% some year’s better but ball parts of that now we are back at the profitability level that we were at. We should be back 38,39% for the share blended money year end. The other thing that effect that this quarter there is some alternative few tax credits that come right off the bar line but from operational basis when you model use about 38, 39% and then we will just keep your price if there is any material effects from alternative field tax credit

[Tim Denoyer:]

Okay, great just one more little detail couple of weeks ago the bomits desperation is extended by the government and we see any of that in customer (Inaudible) get anything in the full year end.

[Rusty Rush:]

No, I cannot say anything here for the last couple of weeks to do with that. Might show up real quick given the odds there is still time we hope so. I would tell you we would love to see it but we have not seen that, that has been reflected in the conversations that I have had

[Operator:]

(Operator Instructions) At this time there are no further questions in the queue.

[Rusty Rush:]

Well we appreciate your participation in the call look forward to talking to you soon I guess in probably February were we get year end release (Inaudible) so thank you very much for participating and see you later thank you.

[Operator:]

Ladies and gentlemen thank you for your participating in today’s conference this concludes the program you can all disconnect have another great day.