Rush Enterprises, Inc.
Q2 2021 Earnings Call Transcript

Published: 21 Jul 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Rush Enterprises, Inc. reports Second Quarter 2021 Earnings Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Rusty Rush, Chairman, CEO and President. You may begin.

[Rusty Rush:]

Good morning, and welcome to our second 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 second quarter, we achieved revenues of $1.3 billion and net income of $58 million, or $1 per diluted share. We are very proud to declare a cash dividend of $0.19 per common share, which is a 5.6% increase over the last quarter. Our results were primarily due to the country's continued economic recovery, healthy activity for most market segments we support, solid demand for new and used Class 8 truck sales and increased aftermarket activity, along with our continued adherence to managing expenses contributed to our strong quarter. As we look ahead, component supply chain issues are delaying the timing of some new truck deliveries into next year. And those constraints are beginning to negatively impact parts and service revenues as well. Despite supply issues, we will continue to add back key personnel to meet market demand, as we believe our financial results will continue to be strong throughout the remainder of the year. In the aftermarket, our parts, service and body shop revenues were $445.5 million and our absorption ratio was 129.1%. Our aftermarket revenues increased 18% compared to the second quarter of 2020, which is primarily a result of the nationwide economic recovery. Our part sales are back to pre-pandemic levels and we increased -- and we experienced increased healthy activity in most market segments, particularly in leasing, refuse, over-the-road customers and independent service centers. Service revenues are recovering at a little bit slower pace than parts, impacted not only by supply chain issues but continued service technician staffing as a common in the industry. Looking ahead, we expect supply constraints will continue to impact parts and service revenues throughout the industry for the remainder of the year. That said, to mitigate those impacts, we are actively hiring key parts personnel and service technicians and focusing on our preventive and contract maintenance service offerings. Further, we leveraged our parts management technologies to help us effectively adjust to market demand and grew our expensive dealership network to help mitigate part supply constraints. Finally, we are also piloting final mile route optimization to help us gain efficiency in our parts deliveries to better serve our customers. We do believe demand for aftermarket services will continue to increase through the remainder of the year as the overall economy remains healthy. Turning to truck sales. In the second quarter, we sold 2,954 new Class 8 trucks, accounting for 5% of the total Class 8 US market. Our truck sales were driven by a healthy economy and strong freight rates, which led to solid activity for most market segments we support, especially vocational, construction and over-the-road customers and healthy truck sales. While demand for new trucks remained strong in second quarter, truck sales were limited by supply constraints, which impacted manufacturers' production capabilities. ACT Research forecasts US Class 8 retail sales to be 259,000 units in 2021, up 32.4% from 2020. We believe this component supplier constraints will likely continue to impact Class 8 truck sales through the third quarter or longer, causing downside risk to the 259,000 units investment. Because of this, we believe our third quarter Class 8 performance will be flat compared to our second quarter results. We believe Class 8, heavy and our new truck sales may accelerate later this year as manufacturers are able to increase production when component parts are more readily available. Our Class 4 through 7 new truck sales reached 2,825 units in the second quarter, accounting for 4.5% of the US market. Our results increased significantly over the second quarter of 2020, largely due to increased activity from leasing and rental and food service customers. However, some of the manufacturers we represent continued to be faced with production shutdowns due to supply constraints, negatively impacting medium-duty truck availability, which will most likely continue through the third quarter. ACT Research forecasts US Class 4 through 7 retail sales to be 257,000 units in 2021, up 11% from 2020. Looking ahead, while we believe Class 4 through 7 production will not increase as quickly as Class 8, demand remains strong and we have the teams and strategies in place to take advantage of every sales opportunity possible. Our used truck sales reached 2,094 units in the second quarter, up 18.4% from the same time period in 2020. Used truck demand and values remain high, primarily due to production constraints of Class 8 new trucks. Though it is becoming more challenging to maintain a healthy used truck inventory, we believe our third quarter used truck sales will be consistent with our second quarter results. In June, we announced we've signed a letter of intent with Cummins Inc., for Cummins to acquire a 50% equity interest in Momentum Fuel Technologies. Cummins is a manufacturer of natural gas fuel systems. This letter of intent reflects our shared belief in the long-term viability of natural gas fuel systems and drew on our shared history as leaders of the natural gas market and our extensive service network capabilities throughout North America. The joint venture is expected to close later this year. As it is -- as always, it is important I thank our employees for their continued focus on growing our business and providing superior truck service to our customers. With that, I'll take your questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jamie Cook with Credit Suisse. Your line is open.

[Operator:]

Thank you. Our next question comes from the line of Justin Long with Stephens. Your line is open.

[Operator:]

Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Your line is open.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Joel Tiss with BMO. Your line is open.

[Operator:]

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Rusty for closing remarks.

[Rusty Rush:]

I'd just like to make one quick comment. Most people don't realize this, but this last quarter, on June 7 was 25 years since my father and I and our team of people went public when we were the first car company to ever to go public. It's been an amazing 25 years, and it couldn't have been done without the support of all the personnel and people that have contributed to Rush Enterprises across the country. So with that, I want to thank them one more time from the bottom of my heart for their efforts and their future efforts, too, as we continue to move forward. But it was -- I still reflect I could get -- I had a little bit sentimental on June 7 thinking about it. And talking to some of the people I know in the industry, but we're still the only public truck dealer. But all the car guys started coming out in the fall, but it was -- it's been a good ride, and I've enjoyed it all and I'm planning on riding it for quite a while longer. I'm getting Steve's voice and tuned up now, as you can hear. So anyway, I'm sure it will be even more closer to mine by Q3. I don't know Steve [indiscernible] we report Q3 results. But thank you, everybody, very much. I appreciate your time.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.