Rush Enterprises, Inc.
Q1 2020 Earnings Call Transcript

Published: 23 Apr 2020

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Rush Enterprises, Inc. Reports First Quarter 2020 Earnings Conference Call. [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 first 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 $1.3 billion and net income of $23.5 million or $0.62 per diluted share. We also declared a cash dividend of $0.13 per common share. In the aftermarket, our annual parts, service and body shop revenues were $428 million down 2.4% over 2019. Our absorption ratio was 114.3%. This decline in our aftermarket revenues can be attributed to softness in the market and the significant decline in the energy sector. Regarding truck sales, we sold 3,078 new Class 8 trucks, down 13.5% from the first quarter of 2019. Our truck sales accounted for 6.3% of the total U.S. Class 8 market. This is the result of an industry wide slowdown in Class 8 truck sales, although refuse, construction and stock truck sales remain relatively healthy. Our used truck sales decreased 15.3% year-over-year. Our results in January and February were down slightly from the same time in 2019 where we experienced a much more significant in used truck sales due to the COVID-19 pandemic in March. Medium-duty our Class 4-7 new truck sales were 3,264 units up 24.9% year-over-year and accounted for 6% of the U.S. market. These solid results were primarily the result of activity from grocery and food service customers, in addition to stock truck sales across the country. In most areas of our business the COVID-19 pandemic had a limited impact on our financial results in the first quarter. However, this does not reflect the significant impact we believe this pandemic will have on our company going forward. We are continuously monitoring the impacts of COVID-19 on the economy and our industry. And we are taking appropriate steps to preserve our financial stability during this pandemic. Rush Truck Center are classified as essential businesses, and remain fully operational across our dealership network though some hours of operation have been modified. We are complying with all CDC guidelines and federal and state and local orders to protect the health and safety of our employees, customers and the public. Going to the aftermarket, our parts supply chain has remained largely uninterrupted today, but we did increase our parts inventories to support an extra 30 days of demands. The investments we made in our strategic initiatives over the past few years in particular technology such as online parts ordering, web-based communication it cope as well to support social distancing measures and capture sales in this tough operating environment. With 2,400 service bays and 500 mobile service units we are prepared as ever to support our customers with expedited service in a safe environment. Many of our customers have reduced their operations and it is too soon to tell when their businesses will fully reopen. We expect COVID-19 pandemic will negatively impact our aftermarket results in the second quarter. All our truck manufacturers have temporarily suspended at least some of their global production facilities causing uncertainty about the availability of new truck inventory. ACT Research recently adjusted its U.S. Class 8 retail sales forecast to $127 of 500 units in 2020, a 54.8% decline over 2019. Our representatives are actively reaching out to customers and prospects to explore every possible sales opportunity. Many customers are delaying purchases due to uncertainty about the economic impacts of the pandemic. We expect the COVID-19 pandemic to have significant impact on new Class 8 truck sales in the second quarter. Regarding Class 4-7 truck sales, ACT Research has forecast the U.S. retail sales to be 147,500 units in 2020, a 44.8% decrease compared to 2019. We anticipate that medium-duty sales will also be negatively impact as those sales generally track with the overall economy. We are taking an aggressive approach to write-downs to new and used vehicles and believe our inventories are positioned well to meet market demand. In the first quarter, we suspended our stock repurchase program and renewed a $100 million line of credit. I have reduced my salary by 25%. Members of my executive team have reduced their salaries by 10% and our Board of Directors have reduced their cash - annual cash retainer by 10%. We are also reducing expenses and delaying other expenses and delaying capital expenditures. While we’re doing everything we can to address the challenges that we are facing, there will undoubtedly be an significant negative impact on our business because of the COVID-19 pandemic. That said our employees and I take pride in being an essential business and supporting our customers through this difficult time. It is important that I thank them for their unwavering commitment to our company, our customers, and keeping themselves and those around them safe and healthy. With that I'll take your questions.

[Operator:]

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

[Operator:]

Your next question comes from the line of Justin Long with Stephens.

[Operator:]

Your next question comes from the line of Joel Tiss from BMO.

[Operator:]

[Operator Instructions] Your next question comes from the line of Andrew Obin with Bank of America.

[Operator:]

I am showing no further questions at this time. I would now like to turn the conference back to Rusty Rush.

[Rusty Rush:]

Well folks we appreciate your participation this morning. We look forward to talking to everybody in July. I wish everybody the best of health as we all - do the right things, I mean I'm big on the right thing. We've been doing the right things here at Rush as best we can while providing an essential business. Basically as I tell my people we are the backbone of this economy in the drug business and we're doing our best, while maintaining all the proper - doing all the proper things, but we're there for you I can promise that doing our job. Thank you very much and we’ll see - and talk to you in July. Bye-bye.

[Operator:]

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