Rush Enterprises, Inc.
Q3 2021 Earnings Call Transcript

Published: 21 Oct 2021

[Operator:]

Good day, and thank you for standing by, and welcome to the Rush Enterprises, Inc. Reports Third Quarter 2021 Earnings Results Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions]. I would now like to hand the conference over to Mr. Rusty Rush, Chairman, CEO and President. Thank you.

[Rusty Rush:]

Well, good morning, and welcome to our third quarter 2021 earnings release conference call. On the call today are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Derrek Weaver, Executive Vice President; 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.

[Steve 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, 2020, and in our other filings with the Securities and Exchange Commission.

[Rusty Rush:]

As indicated in our news release, in the third quarter, we achieved revenues of $1.27 billion and record-high net income of $69.4 million or $1.20 per diluted share. We are proud to declare a cash dividend of $0.19 per common share. We continue to see economic recovery and a strong freight environment throughout the country, which created a widespread demand for new and used trucks as well as aftermarket products and services. Our profitability was largely driven by our diligent expense management during the quarter. During 2020, we made it a priority to implement new processes and tools throughout our organization to control expenses throughout the truck cycle. We believe these processes will allow us to effectively control expenses that we -- as we continue to implement our strategic growth initiatives and will contribute and will continue to contribute to higher pretax profit margins than we have historically experienced. Looking ahead though, demand remains healthy for new trucks and aftermarket parts and services. Component supply chain issues continue to challenge the industry, pushing new truck deliveries into 2022 and impacting the availability of aftermarket parts. These supply constraints, coupled with normal seasonal aftermarket softness in the winter months and the fact that we have five fewer working days in the fourth quarter compared to the third quarter will negatively impact our earnings in the fourth quarter. However, we believe customer demand will remain robust and supply constraints will subside and that 2022 will be a strong year for the commercial vehicle industry in Rush. In the aftermarket, our parts, service and body shop revenues were $463 million, and our absorption ratio was 134% in the third quarter. Our aftermarket revenues increased 15.7% year-over-year, which is primarily the result of our continued focus on our strategic initiatives and the limited availability of new trucks, which helps drive demand for parts and services, parts and service of vehicles that are in operation. Our parts sales are historically high, and we experienced healthy activity in most market segments. Service revenues are accelerating gradually, largely due to hiring more technicians and improving the proficiency of our workforce as well as our enhanced service offerings. We believe demand for aftermarket parts and service is strong, but we expect supply constraints to continue to impact the industry through the middle of 2022. We continue to focus on our strategic aftermarket initiatives and expect our fourth quarter performance to remain strong, though we expect normal seasonal decline over the next couple of months. Turning to truck sales, in the second quarter, we sold 2,537 new Class 8 trucks, accounting for 4.7% of the total U.S. Class 8 market. The healthy economy, strong freight rates led to widespread demand for new Class 8 trucks, but our results were natively impacted by manufacturers' limited production capabilities. ACT Research forecast U.S. retail sales to be 228,500 units in 2021, up 16.8% from 2020. We expect component supply constraints will continue to delay some Class 8 tucks push [indiscernible] some Class truck 8 sales into next year, which will likely impact our performance in the fourth quarter. However, we believe Class 8 new truck sales will accelerate in 2022 when manufacturers are able to increase production. Our Class 4 through 7 new truck sales reached 2,792 units in the third quarter, accounting for 4.7% of the U.S. market. We experienced healthy activity for many market segments, particularly food service and leasing rental, but the limited production of new medium-duty trucks negatively impacted our results. ACT Research forecasts U.S. Class 4 through 7 retail sales to be 251,000 units in 2021, up 8% from 2020. As we look ahead, we believe Class 4 through 7 truck production will not increase as quickly as Class 8. We are pleased that Hino is back in production, but we do not expect the other medium-duty manufacturers we represent to significantly ramp up production for some time. That said, demand remains strong, and we believe our fourth quarter Class 4 through 7 results will be on pace with our third quarter results. Our used truck sales reached 1,712 units in the third quarter, down 16.7% year-over-year. Our unit sales were down compared to last year, used truck demand and values remained strong, largely due to production limitations of new Class 8 trucks. We expect used truck demand and values to remain strong in the fourth quarter and begin to normalize when new truck production catches up eventually with customer demand. It is becoming more challenging to maintain a healthy used truck inventory, but we believe our fourth quarter used truck sales will be consistent with our third quarter results. Regarding network growth, this week, we acquired an independent parts and service facility in Victorville, California, that we will convert into a full-service Peterbilt dealership. We also have plans to acquire full-service Hino and Isuzu dealership and help grow Illinois next month. Further, we entered into an agreement with the Summit Truck group to acquire full-service dealerships in several states, representing International, IC Bus, Idealease, Isuzu and other manufacturers. We expect that transition to close in December. Additionally, we plan to close our previously announced agreement with Cummins, with Cummins to acquire 50% of interest in Momentum Fuel Technologies later this year. It is important that I thank our employees for their unwavering commitment to growing our business and supporting our customers. In recognition of their hard work on the front lines during the pandemic, we are happy to issue a 1-time discretionary $1,000 bonus to all employees in mid-December. This is one way for us to express our gratitude to our employees for their impressive work over the past year. With that, I'll take your questions.

[Operator:]

[Operator Instructions] And our first question comes from Jamie Cook from Credit Suisse.

[Operator:]

And our next question comes from Justin Long from Stephens.

[Operator:]

And our next question comes from Andrew Obin from Bank of America.

[Operator:]

[Operator Instructions] And our next question comes from Joel Tiss from BMO.

[Operator:]

I would now like to turn the call back to Mr. Rusty Rush, Chairman President for closing remarks.

[Rusty Rush:]

Thank you. Well, I appreciate everybody’s time. Obviously, it will be a little longer time period until we talk in February. So I want to wish everyone happy holidays. And you can really enjoy your families and enjoy the time that you get to spend with them. And we will talk to you in February. Thank you very much.

[Operator:]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.