Earnings Call Transcript - RUSHA Q2 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Rush Enterprises Q2 Earnings Release Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rusty Rush, CEO. Please go ahead.

W. Marvin Rush, CEO

Now over to Steve for a few comments.

Steven L. Keller, General Counsel

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, 2024, and in our other filings with the Securities and Exchange Commission.

W. Marvin Rush, CEO

As indicated in our news release, we achieved second quarter revenues of $1.9 billion and net income of $72.4 million or $0.90 per diluted share. I'm pleased to announce that the Board of Directors approved a $0.19 per share cash dividend, a 1% increase over our prior quarterly dividend and our ninth increase since announcing our intent to begin paying a quarterly cash dividend in July 2018. Market conditions remained difficult in the second quarter as the industry continues to face a freight recession that has persisted for more than 2 years and continues to face uncertainty with respect to trade policies and engine emissions regulations. As a result of these factors, many of our customers are delaying vehicle acquisition and maintenance decisions. However, despite these many challenges, our employees remain focused on operational discipline and customer service in the quarter, which helped us deliver solid results. So I want to thank them for their hard work and dedication. Our aftermarket operations accounted for approximately 63% of our total gross profit in the second quarter, with parts, service, and collision center revenues reaching $636.3 million, an increase of 1.4% compared to the second quarter of 2024, and our absorption ratio was 135.5%. In the second quarter, aftermarket revenues reached their highest level in the past 12 months, and we saw sequential growth from owner-operators and small fleets, which we hope and believe may be early indicators of improving demand. Technician turnover reached a 12-month low, and we expanded our aftermarket sales force, further strengthening our ability to support our customers. Looking ahead, we expect stable aftermarket demand in the third quarter with potential for modest sequential growth. With respect to truck sales, we sold 3,178 new Class 8 trucks in the U.S. during the second quarter, accounting for 5.4% of the total U.S. market. While this represents a 20% year-over-year decrease, it is important to note that it is primarily due to the timing of several large fleet deliveries that occurred in the second quarter of last year, which made for a difficult year-over-year comparison. In Canada, Class 8 sales totaled 81 units, representing 1.2% of the market. Although demand from large over-the-road fleets remains weak, we achieved strong sales in the Class 8 vocational market, highlighting the strength of our diversified customer base. We expect vocational demand to remain solid for the remainder of the year. However, due to ongoing uncertainty around trade policy and engine emissions regulations, new Class 8 truck sales may decline sequentially in the third quarter, and the market outlook beyond the third quarter is difficult to project at this point. In the medium-duty market, we delivered 3,626 new Class 4-7 commercial vehicles in the U.S. in the second quarter, representing a 1% year-over-year increase and 6.2% market share. We sold 177 medium-duty vehicles in Canada, which represents 4.6% of the Canadian Class 5-7 market. Our medium-duty results were solid in the second quarter with both year-over-year and quarter-over-quarter sales growth. Demand was broad-based across all of our customer segments, and we saw particular strength with lease and rental customers. We believe that our Ready-to-Roll inventory program continues to differentiate us, enabling faster delivery and improved flexibility for customers. Looking ahead, we expect Class 4-7 truck sales in the third quarter to be consistent with our second quarter. We sold 1,715 used commercial vehicles in the second quarter, essentially flat compared to the same period in 2024. While financing remained a challenge for used truck buyers, we believe our inventory is rightsized and our used truck strategy is on track. Unlike the new truck market, the used truck market is less exposed to trade and regulatory uncertainty, which could give truck buyers more confidence and incentive to consider used trucks as part of their fleet mix in the near term. We expect third quarter used truck sales to be in line with the second quarter. Rush Truck Leasing achieved record revenues of $93.1 million in the second quarter, up 6.3% year-over-year. Our full-service leasing revenue increased as we brought new units into service, which also helped lower operating costs and increased profitability. Rental utilizations were lower year-over-year, but improved sequentially, and we are confident our leasing and rental performance will be solid for the remainder of the year. On the capital allocation front, we remain focused on returning value to shareholders. During the second quarter, we repurchased $83.9 million of our common stock as part of our expanded $200 million repurchase authorization. We also paid a cash dividend of $14.5 million in the quarter. And as I previously mentioned, we just increased our quarterly dividend by 5.6%. In summary, I am proud of our team's performance in the second quarter. Through disciplined execution, we continue to deliver solid financial results and return value to shareholders. As we move forward, we will continue to remain focused on operational efficiency and providing our customers with best-in-class service. With that, I'll take your questions.

Operator, Operator

Our first question comes from Daniel Imbro with Stephens Inc.

Daniel Robert Imbro, Analyst

Well, Rusty, I'll start maybe on the industry a little bit. I'm sure visibility into orders is about as clear as mud. But how are you thinking about the third quarter as we sit today? And then from a strategic standpoint, just related to that, with the lack of visibility, I guess, what are the OEMs communicating? Are they taking down production? Are they still pumping out new trucks and telling you guys to deal with them? Kind of what's the order backdrop? And how is that changing with the OEMs?

W. Marvin Rush, CEO

That's a great question. The second half of the year is shaping up to be significantly different from the first half. All manufacturers are reducing production and implementing shutdown days. While I won’t go into the specifics, it's safe to say that across all brands, you can expect a substantial decline in truck production. The reason for this is the uncertainty in the market. For example, April, May, and June recorded the lowest order intake for Class 8 trucks since 2009, with the U.S., Canada, and Mexico seeing less than 30,000 trucks ordered during that time. This drop in orders is reflected in the production levels. Despite having built a lot of trucks, retail deliveries in Q2 were flat or slightly up, as everyone pulled orders forward as much as possible. However, production is facing a huge decline quarter over quarter, especially when considering the effects of COVID-19. Since then, production has not recovered to previous levels, and with ongoing uncertainty, demand remains low. Moreover, recent developments around emissions regulations haven’t provided any clarity. The upcoming regulations add to the uncertainty, leaving many manufacturers and engine producers awaiting direction from the government. This ambiguity impacts the entire supply chain and ultimately the end users, especially given the ongoing freight recession. Looking ahead to Q3, I expect production to be down, and the situation for Q4 is equally uncertain. Manufacturers are canceling orders, laying off staff, and taking significant shutdown periods. Each manufacturer has its own approach, but collectively, they are all grappling with similar challenges due to the lack of demand and unclear future regulations. Customers are hesitant to make decisions without understanding how upcoming environmental regulations will affect them. I mentioned in the release that things might improve as we move later into the year, depending on how tariff-based trade policies and emissions guidelines unfold. If emissions standards remain at a certain level, it might encourage a rise in order demand next year. But if they revert to a higher standard, the implications on costs and technology will leave fleets uncertain. It’s challenging to predict what will happen next since we lack the necessary information. This situation continues to amplify the uncertainty we discussed in our last call. As we await clarity on regulations and policies, we're in a lull, making it difficult to gauge future activity. Additionally, reports suggest that public carriers are experiencing slightly better conditions than in Q1, though they are far from exceptional. Overall, while minor positive signs are emerging, the industry still faces significant challenges due to excess capacity. We're gradually seeing adjustments in the market to better match demand, but it remains a tough scenario.

Daniel Robert Imbro, Analyst

No, always helpful, and I appreciate the answer there. I guess maybe on what is more in your control right now, I guess the parts and service improvement in 2Q was notable. I think revenue was up. It sounds like ad and retention got better. I guess, one, can you talk about what you guys changed to actually drive that or improve retention and hiring? And then two, if you were to size up maybe what the earnings power or revenue uplift you can get from the hiring you've done? Like how should we think about the earnings power that you could add that's more in your control from growing parts and service over the next year relative to everything else out of your control, like the Class 8 demand?

W. Marvin Rush, CEO

I believe that right now, by staying flat or slightly up, we are outperforming the market. We seem to be doing better than the aftermarket reports. It's worth noting that obtaining aftermarket comparisons is quite challenging because they come from various sources, unlike vehicles, which are straightforward and easier to track. I believe we are slightly outpacing the overall aftermarket. Our traditional approach to market has been beneficial, and we are putting in a lot of effort. We recently concluded a strategic offsite in June to further focus on initiatives aimed at accelerating growth in our aftermarket business as we approach next year. If we can maintain our current levels, I can say that July continued and was possibly a bit better than June, though not significantly, so let’s call it flat. Given the current environment, I feel we are essentially growing. We did see a 1.4% increase in revenue along with slightly expanded margins, which I interpret as a positive outcome considering the circumstances. We made minor adjustments to our sales force. While we didn't see significant growth in that area, we are well-positioned for future changes. There are some proprietary aspects I can't fully disclose, but rest assured, we are committed to our traditional practices while also introducing some new strategies for 2026 and 2027. I believe we can sustain our current position in parts and service based on current observations. So far, nothing seems drastically off. Last quarter, 63% of our profits originated from parts and service, highlighting its stability. I think our business model is sometimes undervalued, considering the various segments we operate in, including truck sales and leasing operations, alongside our expense management. In this quarter, we experienced stability in general and administrative expenses, avoiding the usual declines in the past few quarters. This stability is commendable, especially when accounting for inflationary pressures. I'm really pleased with our performance this quarter, especially when comparing truck sales year-over-year. Despite facing challenges, we are less than 10% off last year with significantly fewer trucks, thanks to our parts and service operations. I anticipate growth, although it may not be dramatic this year. I feel good about our performance; even though we have only seen slight increases, it seems more significant given the current environment we are navigating.

Operator, Operator

Our next question comes from Andrew Obin of Bank of America.

Andrew Burris Obin, Analyst

Just a follow-up on the parts and service question. As it seems that a lot of the production shutdowns have to do with the fact that it's more regulatory uncertainty more than anything else. Meanwhile, your parts and service business would indicate that people will continue to utilize the trucks in the field. Wouldn't the setup result in more wear and tear and older trucks, just lack of natural replacement. Wouldn't that drive an uptick in parts and service over the next 6 to 12 months?

W. Marvin Rush, CEO

You're absolutely right, Andrew. That's what we're hoping for. Theoretically, you are correct. However, there is one important consideration regarding the state of the customer's business. While your point is valid, it's essential to consider what the customer's business looks like. Are they reducing operations because their business is not performing well? Certainly, you can expect to see older trucks being used, but first, you need to ensure that all of them are being utilized effectively. It's important to look at utilization and the overall health of the business. If everything aligns, then what you're saying is completely accurate. However, these factors must also be considered. Yes, that's what I'm hoping for, but I have these factors in mind as well. Our business needs to be performing reasonably well.

Andrew Burris Obin, Analyst

I have another question for you, and I appreciate the acceleration of the buyback. However, considering your track record and where we are in the cycle, could you share the Board's latest thoughts on possibly increasing the buyback? Historically, you have been very conservative with your balance sheet, which I understand, but the feedback we receive is that the execution is excellent, the stock is undervalued, and there is capacity on the balance sheet. How is your thinking evolving on the share buyback?

W. Marvin Rush, CEO

We announced during the quarter that we added $50 million to our buyback program. I believe there is about $75 million left to spend out of the $200 million total. We are hopeful that opportunities for spending will arise, and we wouldn't have approved the funds if we didn't plan to use them. However, we proceed carefully and under a 10b5-1 plan. Sometimes, we set prices and refrain from buying for a while due to being in a quiet period. Tomorrow, Steven and I will reevaluate our approach to ensure we continue purchasing effectively. The stock has fluctuated during the quarter, dipping slightly and then rising. We established a buying matrix in June and have not altered it since, but we are actively monitoring the situation. Our cash position is strong, and this year we expect to add around $35 million to $40 million from a favorable tax perspective. Our balance sheet is solid, giving us the ability to execute buybacks. Historically, we have been conservative, and while we may not buy back at the pace some expect, we are buying back at a speed we feel comfortable with. We believe in this organization and see it as a great opportunity to repurchase stock whenever possible.

Andrew Burris Obin, Analyst

20-year history says there's never want to bad moment to lever up and buy back our stock?

W. Marvin Rush, CEO

I don't think you're ever going to convince me to take on more debt. Let's take a moment to consider this, Andrew. There's no need to rush. If you want to fire me for being too conservative, that's up to you.

Andrew Burris Obin, Analyst

A little bit more leverage. A little bit more leverage. A little bit more leverage. How about a little bit more leverage? Let me ask, look, as I said, the execution has been stellar. We appreciate it. Can you talk about just what are you seeing on macro? I keep asking this question. You have fantastic systems. Just maybe walk us across key verticals, across key geographies. And more importantly, how has your thinking evolved over the past, let's call it, 3, 4 months since we've been liberated?

W. Marvin Rush, CEO

I often reflect on what happened on April 1st and how liberating it has been. There's certainly more uncertainty than we can handle. In the past 3 to 4 months, my perspective has shifted significantly. Regarding geographical markets, I don’t want to focus solely on California, especially considering the challenges we’ve faced there regarding truck sales. It’s been tough, almost like a standstill. If all regions were to mirror California's situation with truck sales, it would be dire. Thankfully, we are taking different approaches for the rest of the country, as we navigate the political disagreements between federal entities and state regulations. Fortunately, things are starting to ease up and appear to be adopting a more realistic perspective. What has changed in the past months is substantial; irrespective of where the EPA ends up, things are markedly different from last November. The direction has shifted to a more sensible viewpoint concerning the EPA's role, which should benefit our nation. That being said, the situation is still unsettled. Once it stabilizes, it will be easier for all of us to operate under clear rules. As a manufacturer, it's challenging to add staff just to keep up with constant changes. We need some predictability going forward, and I genuinely believe we’ll begin to see that later this year. Back in April, I was uncertain, but I feel a sense of progress towards clear guidelines from the EPA and coherent trade policies. This will help our customers and manufacturers alike to understand vehicle costs and necessary expenditures. We’re starting to see light at the end of the tunnel, much more than we did in April. That’s why I’m proud of our recent quarter; despite a 25% drop in truck sales and a notable decline in gross profit, we managed to adjust effectively elsewhere. Our profit per share went from $0.97 to $0.90 because we executed well across other areas. I believe our organization is adaptable and capable of continuing this trend. I stand firmly behind our performance compared to others, and I’m the only public entity that highlights execution in truck sales for the second quarter, with plans to maintain this momentum moving forward. We're getting closer to understanding the rules of the game, but until customers have clarity, their decision-making will remain hindered. Currently, we see a sort of paralysis in truck orders as everyone is waiting for more information on future developments.

Andrew Burris Obin, Analyst

So that trumps everything, right? So it's hard to get a read the macro sentiment except that because this uncertainty?

W. Marvin Rush, CEO

No question. That is the most important factor right now. What will happen? Will it remain at 0.035? Will it stay at 200 milligrams? There is a good chance it may. I am not involved in the decision-making, and I don't have contacts in Washington, D.C. to inquire about the EPA. However, I know many people who can provide insights, and their opinions vary. I’m trying to form my own opinion based on secondhand information, but I am in touch with many individuals. Interestingly, their perspectives differ. When I think about it from a customer's viewpoint, I understand why they are hesitant to make decisions. My business is challenging, and I must purchase what is necessary. I will wait until I have more information before acting. However, I also want my business to improve, especially since over-the-road carriers represent a significant portion of the market. Even though retail performance has been good, we have reached an optimal point. I believe that if we can receive more information, activity will begin to pick up. It's important to remember that for me, this is about next year's business. I'm not suggesting that we will see great results in the fourth quarter, but we need some initial activity to trigger pricing, quoting, orders, manufacturing, and ultimately delivery to retail spaces. The decisions being made will not impact volume but may affect overall business performance. If regulations change and we see a move to 0.035, which is where the law currently stands, we could see an increase without a doubt. I cannot predict our production capacity at this late stage, but I hope to see some clarity from the administration in the next 60 days regarding truck sales. Fortunately, two-thirds of my profits come from parts and service, but I also require the truck sales side to be robust. Our leasing business is stable, and while it won't grow drastically, it's still doing well. We will maintain our parts and service stock and keep our expenses in check. Last year, we made necessary cuts, and we’ve kept headcount steady except for some revenue-generating positions. We will continue to deliver solid results until we have a catalyst to enhance the truck sales market. As you mentioned earlier, it makes sense to invest more in older trucks. As fleets age, there will be a need for increased parts and service, which benefits us as it has better margins. However, we still want to sell trucks, and that entire ecosystem needs to function well. Currently, truck sales are on hold until we gain more clarity.

Operator, Operator

Okay. I'm showing no further questions at this time. I would now like to turn it back to Rusty Rush for closing remarks.

W. Marvin Rush, CEO

Sure. Nothing big here. We appreciate everybody's participation. We will look forward to speaking to everyone in late October, I do believe. So take care. We'll see you now.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.