Rush Enterprises, Inc.
Q4 2022 Earnings Call Transcript

Published: 16 Feb 2023

[Operator:]

Good day, and thank you for standing by. Welcome to the Rush Enterprises Reports Fourth Quarter and Year-end 2022 Earnings Results. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Rusty Rush. Please go ahead.

[Marvin Rush:]

Good morning, and welcome to our fourth quarter and year-end 2022 earnings release conference call. On the call are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Vice President, General Counsel and Corporate 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, 2021, and in our other filings with the Securities and Exchange Commission.

[Marvin Rush:]

As indicated in our news release, we achieved annual revenues of $7.1 billion and net income of $391 million or $6.85 per diluted share, an increase of 64% compared to 2021. Included in the $6.85 per diluted share was $0.34 per share of earnings related to the sale of Momentum Fuel Technologies and the acquisition of Rush Truck Centers Canada. Excluding these transactions, earnings per share in 2022 would have been $6.51 per diluted share. In the fourth quarter, we achieved revenues of $1.9 billion and net income of $98 million or $1.74 per diluted share. We are also proud to declare a cash dividend of $0.21 per common share in the fourth quarter. In 2022, demand for new vehicles and aftermarket parts and services was strong, primarily due to supply constraints experienced over the last few years and an overall healthy economy. We continue to invest in our strategic initiatives that are focused on maximizing vehicle uptime for all of our customers, increased our large national account business, expanded our technician workforce and diligently manage expenses to enhance profitability. We are especially pleased with the overall operational execution and financial performance considering the industry backdrop of truck and parts supply constraints as well as the extensive work required by our employees to integrate the Summit and Cummins acquisitions. In terms of network growth in 2022, we added new locations in Florida and Missouri. And we further expanded by adding an international truck franchise in Kansas. We also acquired an additional 30% for a total of 80% interest in Rush Truck Centers Canada Limited and the operating results of RCC Canada are now consolidated into our financial statements. In January 2022, we closed our agreement with Cummins, who has acquired a 50% interest in Momentum Fuel Technologies now branded Cummins Clean Fuel Technologies. All of these changes strengthen our network and enhance the offerings we provide to our customers. In the aftermarket, our annual parts, service and body shop revenues were $2.4 billion, up 32.3%. Our annual absorption rate was 136.6%. We added 190 service technicians into our network and expanded our team of aftermarket sales representatives, allowing us to focus on strategic initiatives including Xpress services, mobile service and contract maintenance while continuing to support large fleets and national accounts. With normal seasonal softness, parts growth began to plateau in the fourth quarter, but service revenues remained strong due to the additional technicians in our workforce. Parts availability remains somewhat choppy, but has improved significantly, and we believe demand for aftermarket parts and service in the first half of '23 will align in the second half of 2022. As we continue to add technicians as well as aftermarket sales representatives, we believe our results for our aftermarket parts and service operations will remain strong in 2023. Turning to truck sales. In 2022, we sold 16,778 new Class 8 trucks, accounting for 6.3% of the total U.S. Class 8 market. Limited new truck production continue to impact the industry, but we experienced healthy widespread demand for new Class 8 trucks. Our results were further shrinkened by our focus on national accounts and the timing of some large fleet transactions early in the year, which helped us gain significant market share. We ended the year strong with continued healthy demand from over-the-road and vocational customers in the fourth quarter. ACT Research forecast U.S. Class 8 retail sales to be 225,000 units in 2023, down slightly from 2022. While we expect we will continue to feel the effects of truck allocation, production has begun to normalize. Our backlog remains strong, and we believe that our Class 8 truck sales will remain strong through at least the first half of 2023. Our Class 4-7 new truck sales reached 11,025 units in 2022 or 4.6% of the U.S. market. Though production remained limited throughout the year, we experienced healthy demand from most market segments we support, and we're able to outpace the industry in 2023. In the fourth quarter, medium-duty truck sales declined from their peak in the third quarter, largely due to the timing of new truck availability for manufacturers. ACT Research forecasts Class 4-7 retail sales to be 253,600 units in 2023, up 8.5% from 2022. As we look ahead, we believe there will be continued pent-up demand for medium-duty trucks, especially from construction and leasing customers, but production constraints on medium-duty trucks will likely continue. We expect our Class 4-7 results to keep pace with the industry in the first half of 2023. Our used truck sales reached 7,019 units in 2022, down 6.7% year-over-year. As 2022 began, there was strong demand. There was strong demand for supply -- excuse me, with limited supply of Class 8 trucks -- excuse me, limited supply of new Class 8 trucks in the market. However, in the second and third quarters, demand and values declined significantly as more new trucks became available. In the third quarter, we took swift action to minimize our used truck inventory to historically low levels. In the fourth quarter, low freight rates continued to cause weak demand and used truck values declined further. Looking ahead, we expect used truck values to continue to decline, and we plan to maintain our low inventory levels until conditions begin to normalize. Due to seasonal increases in employee benefits and payroll taxes, we expect our general and administrative expenses to be sequentially higher in the first quarter of 2023 compared to the fourth quarter of 2022. Before I turn the call over for questions, I would like to take a special minute to thank all of our employees of Rush Enterprises, not just for their outstanding work and unending dedication to our customers that led to our record-setting financial results this year, but for their efforts and execution of our strategic goals over the last 5 years. You see 2022 was somewhat of a milestone year for our company. In 2017, we developed a strategic plan that was heavily focused on expanding our market share and improving our quality of earnings and including aggressive financial goals of growing revenue $7 billion and pretax return on sales of 5% by 2022. Thanks to their outstanding work. Not only did we achieve our revenue goal and exceed our profitability goal, we also were able to enhance our shareholder return programs through opportunistic share repurchases and by introducing a quarterly dividend that we have been able to consistently increase on an annual basis. Our people have demonstrated their ability to execute on the company's strategic initiatives and that they are why I'm extremely confident we will be successful in achieving our strategic goals of $10 billion in revenue with a 6% pretax return on sales by 2027. Again, to all of our employees, thank you. With that, I'll take your questions.

[Operator:]

[Operator Instructions]. Our first question will come from the line of Justin Long from Stephens.

[Operator:]

[Operator Instructions]. Our next question comes from the line of Jamie Cook from Credit Suisse.

[Operator:]

And I'm not showing any further questions in the queue. I would now like to turn the conference back to Rusty for any closing remarks.

[Marvin Rush:]

Well, we thank everybody for their participation, and we will talk to you again in April, I'm sure with hopefully great results again as you. Thank you. Bye-bye.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.