Rush Enterprises, Inc.
Q4 2019 Earnings Call Transcript

Published: 14 Feb 2020

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Rush Enterprises, Inc. Fourth Quarter and Year End 2019 Earnings Results. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Rusty Rush, Chairman, CEO and President.

[Rusty Rush:]

Good morning everyone and welcome to our fourth quarter year end 2019 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 Haselwood, 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, 2018 and in our other filings with the Securities and Exchange Commission.

[Rusty Rush:]

As indicated in our news release, we achieved annual revenues of $5.8 billion and net income of $141.6 million or $3.77 per diluted share. In the fourth quarter net income was $23.8 million or $0.64 per diluted share on revenues of $1.3 billion. We are proud of our team for their hard work this year, which resulted in our strong financial performance and the record high company revenues. Our results were largely driven by execution of our strategic initiatives, a strong economy and strong demand for most markets segments we support. In the aftermarket, our annual parts and service and collision center revenues were $1.8 billion and our annual absorption rate was 120.2%. Our annual aftermarket revenues increased 5.6% compared to 2018, nearly doubling the industry aftermarket growth rate in 2019. The growth was primarily driven by investments in internal and customer facing technologies, expanded all-makes parts offerings and growth in our aftermarket sales team. Fourth quarter aftermarket revenues were flat compared to the fourth quarter of 2018 and down more than anticipated, compared to the third quarter of 2019. In addition to the typical seasonal decline in aftermarket activity, we experienced decreased demand from energy, medium-duty leasing and over-the-road customers during the quarter. We expect industry-wide demand for aftermarket parts and services in 2020 to be flat compared to 2019. But with our continued focus on our aftermarket initiatives, particularly in an improved productivity through Express Services, we helped expedite repairs and reduced customer dwell time and the investments we've made in distribution technologies, we believe, our aftermarket growth will slightly outpace the industry in 2020. Turning now to truck sales. In 2019, we sold 14,986 new Class 8 drugs, up 2% over the previous year and accounted for 5.3% of the total Class 8 U.S. market. Our new Class 8 truck sales grew steadily from the first quarter of 2019 through the third quarter of 2019, primarily due to the healthy economy and strong activity across most market segments we support. In the fourth quarter of 2019, as predicted by ACT Research, industry-wide new U.S. Class 8 retail truck sales declined compared to the fourth quarter of 2019 and our results were further negatively impacted by the timing of certain fleet deliveries. ACT Research currently forecast U.S. Class 8 sales to be 190,000 units in 2020, down 32.5% from 2019. Truck sales will clearly be a challenge in 2020, primarily due to excess capacity of trucks in the market and softer freight rates. That said, freight rates are expected to begin to improve later this year and we have a strong vocational customer base, that, we believe, will allow us to grow our Class 8 market share in 2020. In medium-duty, Class 4-7 new truck sales reached 14,470 units, up 11.7% year-over-year and accounted for 5.4% of the U.S. market. We again achieved record setting year for Class 4-7 truck sales, significantly outpacing the market due to our continued ability to meet our customers' needs with a wide range of product offerings across the country. ACT Research forecasts U.S. Class 4-7 retail sales to be 253,400 units this year, down 5.1% for 2019. We expect solid activity from the customer segments we support and believe our Class 4-7 results will be on pace with the industry in 2020. In the area of network growth, in 2019, we added four new Rush Truck Center locations and purchased 50% of the equity in Rush Truck Centers of Canada Limited, which operates 14 international truck dealerships in Ontario, Canada. During 2019, the company repurchased $58.3 million of common stock. During the fourth quarter of 2019, the company repurchased $4.1 million of its common stock and adopted a repurchase plan that allows us to repurchase $100 million of stock through December 31, 2020. Additionally, we paid a cash dividend of $4.7 million during the fourth quarter of 2019, for a total of $18.3 million paid to shareholders during 2019. Our share repurchase program and cash dividends reflect our confidence in our long term strategy and our commitment of returning capital to shareholders, while growing our business. We ended the year in a strong financial position including $181.6 million in cash. We have already implemented company-wide expense reductions in anticipation of challenging market conditions in 2020. However, we do expect general administrative expenses to be sequentially higher in the first quarter of 2020 due to normal seasonal increases in employee benefits and taxes. I would like to thank our employees for their hard work and commitment to our customers and our strategic initiatives, which helped us achieve such strong financial results in 2019. With that, I will take your questions.

[Operator:]

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

[Operator:]

Your next question comes from Justin Long with Stephens.

[Operator:]

Your next question comes from Joel Tiss with BMO.

[Operator:]

[Operator Instructions] And your next question comes from Chris Armes with Buckingham Research.

[Operator:]

I'm showing no further questions at this time, I would now like to hand the conference back to Mr. Rusty Rush.

[Rusty Rush:]

Well, folks, obviously we won't be long till we talk to you again. We'll be talking to you in April. Obviously, I've got a little comment here of my own before I just go off the cup. While the fourth quarter wasn't what we wanted, I can promise that we are laser-focused. I feel a lot better than I did three, four weeks ago. Again my window is a little bit short, but I feel very good with the efforts that we've got going on throughout the organization on all sides, whether it be on the sales side, on the focus on expenses, just really laser focused that Q4 was in a lot of ways a trough and whether it's dramatic or not, it was going forward, That was the trough and we will produce reports that you'd like. You can count on that. Thank you all very much and we'll speak to you in April.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.