Rush Enterprises, Inc.
Q2 2020 Earnings Call Transcript

Published: 24 Jul 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Rush Enterprises, Inc. second quarter earnings release conference call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I'd now like to hand the call over to Mr. Rusty Rush, Chairman, CEO and President. Please go ahead.

[Rusty Rush:]

Good morning, and welcome to our second quarter 2020 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, 2019, and in our other filings with the Securities and Exchange Commission.

[Rusty Rush:]

As indicated in our news release, we achieved quarterly revenues of $1 billion and net income was $16.8 million or $0.46 per diluted share. We also declared a cash dividend of $0.14 per common share, an increase of 7.7% over last quarter. Since the COVID-19 pandemic began, Rush Truck Centers have remained fully operational across our dealership network. We are complying with all CDC guidelines, federal state and local orders, and our own internal policies to keep the health and safety of our employees, customers and communities, our top priority. As expected, the COVID-19 pandemic and resulting economic shutdown, combined with the industry shutdown and continued severe decline in the energy sector, had a significant negative impact on our financial results in the second quarter. To address this challenge and help ensure our long-term financial strength, we implemented immediate steps to reduce and manage expenses during the quarter. We are continuously monitoring COVID-19 and its effect on the economy and our industry. And we are cautiously optimistic we will not see any further declines in our revenues and believe we are right-sized to meet the needs of the market. Turning now to our operations. In the aftermarket, our annual parts, service and body shop revenues were $378 million or down 15.8% compared to the second quarter of 2019. Our absorption ratio was 110.2%. This was the result of declines in virtually all market segments and consistent with what the overall industry experienced this quarter. However, the energy sector remains hardest hit due to global pricing wars and reduced rig counts, and we don't expect it to improve substantially in the near term. The investments we've made in our strategic initiatives, and including our online parts ordering and web-based communication system, enabled us to capture sales in this tough environment. However, there is still great uncertainty in the market and we anticipate that any recovery will be gradual. We believe the COVID-19 pandemic will continue to negatively impact our aftermarket results in the third quarter. Regarding truck sales. We sold 1,866 new Class 8 trucks, down to 50.5% from the second quarter of 2019. Our truck sales accounted for 5.2% of the total U.S. Class 8 market. Our results were down significantly, as we expected, due to the COVID-19 pandemic and an industry-wide shutdown in Class 8 truck sales. Several of them without manufacturers we represent also experienced production closures in the early part of the quarter, which further impacted our Class 8 truck sales. On a positive note, ACT Research recently adjusted its U.S. Class 8 retail sales forecast to 159,000 units in 2020, which is up significantly from ACT's previous estimate. We're seeing increased quoting activity, but our customers still remain somewhat hesitant due to uncertainty in both the COVID-19 pandemic and the upcoming elections. Our used truck sales decreased 15.8% year-over-year. We aggressively reduced our used truck prices and inventory levels in anticipation of the pandemic's impact on used truck sales. We experienced a significant decline in used truck sales through the COVID-19 pandemic in April and May, but we saw truck sales and values begin to stabilize and rise in June. Further, new businesses are entering the market to take advantage of healthy spot rates, and those new businesses easily start by purchasing used trucks, which is an encouraging sign. In medium-duty, our Class 4-7 truck sales were 2,331 units, down 40% year-over-year and accounted for 4.6% of the U.S. market. These results were primarily due to an overall decline in activity throughout the markets we support. Our customers, many of whom are small business owners, are uncertain about the economy and delaying purchases accordingly. That said, cancellations of Class 4-7 new truck orders are not as much as we had expected to be. ACT Research is forecasting U.S. retail sales to be 176,500 in 2020, a 33.9% decrease compared to 2019. We maintain our commitment to returning -- we maintained our commitment to returning value to our shareholders as well as doing the right thing for our employees. We have instituted the share repurchase program that was temporarily suspended in the first quarter and increased our quarterly dividend. We also lifted the wage freeze on our service technicians that was implemented earlier this year as an expense management measure. And earlier this month, we raised our company minimum wage to $15 per hour to encourage employees to build long-lasting careers with us. While challenges remain ahead, our employees and I take pride in being an essential business, supporting our customers and helping our economy recover from this unprecedented time. I am incredibly thankful to them for their dedication to our company and to protecting the health and safety of those around them. With that, I'll take your questions.

[Operator:]

[Operator Instructions] Our first question comes from Jamie Cook of Crédit Suisse.

[A – Rusty Rush:]

You know I'm not going to, Jamie. Okay. I'm not going to start...

[Operator:]

Our next question comes from Justin Long of Stephens.

[Operator:]

Our next question comes from Joel Tiss of BMO.

[Operator:]

[Operator Instructions] Our next question comes from Andrew Obin of Bank of America.

[A – Rusty Rush:]

Thanks, Andrew. Well, I'm going to reflect that when a comment I made a little bit earlier, I think, on the call, maybe. But historically, I'll go back and say it one more time. Historically, I've always told everybody that we grow gross profit, and I'm going to probably spend about $0.50 of every dollar. But excluding investments we've made in the past few years, and through the lessons learned in this pandemic, now that we squeeze taking it down, as the market grows back, we have an internal goal to keep it around 1/3, somewhere being 30% to 35% will go back to cost, back to G&A. So you say, how do you do it? Well, it's obviously, you become more multichannel, right? More online stuff, right? Technology, our phone systems and stuff are all interconnected throughout the whole country. You're picking off -- there's a multitude of things here, okay, that allow you to continue to leverage. You basically do a better job of leveraging off the base you've got and using technology to communicate with your customer. And that's only going to grow. Well, we're in the truck business, pretty mundane business. Doesn't like change. Well, it's like it's -- this just sort of accelerate. When you couldn't go over to everybody's place, you had curbside pickups, you have this going on, and you learn a lot of things during the middle of all this and then pack up -- position with the investments you go, well, okay, I believe I can -- we can do that. You can map it out and it's just not pie in the sky talk because you're learning on it -- and like I said, you leverage off all your phone representatives throughout the country. When one area is busy, it rolls over, it rolls over, it rolls over. You may be doing business for Atlanta and California or something, and it's just a multitude. I'm not going to get all of them right now. But all those are cost cutting, right? You don't need as many bodies in that one area here. You're just leveraging that and you continue to leverage, and I just -- and you continue to get share. Remember you just -- and that's where the growth side comes from. And then you leverage off what you got. I know it may sound a little broad, but it's just really that's how it works, man.

[Operator:]

Our next question comes from Shawn Kim of Gabelli Fund.

[Operator:]

There are no further questions. I'd like to turn the call back over to Mr. Rusty Rush for the closing remarks. .

[Rusty Rush:]

Well, ladies and gentlemen, first off, I want to thank you for joining us on the call today. And most importantly, I wish you and yours and everyone, all the health and safety, I can. So these are still very, very uncertain times. And so just to do the right thing. I spent a lot of time talking with my folks, and if I can tell anybody anything, get off your horse and do the right thing, okay? There's such a thing. We do the right thing around Rush, okay? I can promise you that because the health and safety of our employees and our customers and just our communities in general are the most important things. So the rest of this really doesn't mean a lot. So anyway, thank you very much. Wish you all the best. Bye-bye.

[Operator:]

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