RUSH ENTERPRISES INC \TX\ Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Financial Performance: Achieved annual revenues of $7.9 billion and net income of $347 million ($4.15 per diluted share) in 2023. Fourth quarter revenues were $2 billion with net income of $78 million ($0.95 per diluted share). Declared a cash dividend of $0.17 per common share.
• Market Trends: Pent-up demand for new Class 8 trucks was fulfilled by end of 2023. Class 4-7 commercial vehicle demand remained solid. Despite challenging operating environment, aftermarket revenues grew 8% due to supporting large fleets and diverse customer segments. Added 215 service technicians to support strategic initiatives like Xpress services and contract maintenance.

Segment Performance

• Truck Sales: In 2023, Rush Enterprises sold 17,457 new Class 8 trucks, accounting for 6.2% of the U.S. Class 8 market and 2% of the Canadian Class 8 market. Class 4-7 new truck sales were 13,624 units, representing 5.1% of the U.S. market and 2.9% of the Canadian market. Used truck sales in 2023 were 7,117 units, relatively flat compared to 2022.
• Aftermarket: Annual parts, service, and body shop revenues were $2.6 billion, up 8% from 2022 aftermarket results. The annual absorption rate was 135.3%. The company added 215 service technicians to its network, enhancing capabilities for initiatives like Xpress services, contract maintenance, and mobile service offerings.

Guidance

• Aftermarket: Expect first half of 2024 to have aftermarket demand similar to second half of 2023. Cautiously optimistic freight recession may ease summer 2024. Aim for flat to modest aftermarket growth in 2024.
• Truck Sales: ACT Research forecasts Class 8 retail sales to be down ~22% in 2024. Class 4-7 commercial vehicle sales expected to remain strong if medium-duty production improves and demand stays solid. Used truck demand flat in 2024, but depreciation rate to decrease and values to stabilize.

Risks

• Challenging freight conditions and high interest rates impacting customers. Delays from truck body companies affecting Class 4-7 deliveries. Softness in parts and service sales industry-wide due to low freight rates and high interest rates. Volatility in used truck pricing due to spot market conditions and demand.

Question and Answer

• Q: Justin Long asks about parts and service business trends between national accounts and smaller customers.

A: Rusty Rush discusses small accounts down ~12% for the year, national accounts up ~18-20%, and focus on diversifying customer base to overcome softness.

• Q: Justin Long asks about first quarter expectations.

A: G&A typically up in Q1. Truck sales expected softer, but expecting better performance due to customer base diversity. Aftermarket expects flat first half, hopes for slight growth.

• Q: Andrew Obin asks about cycle bottoming and used pricing.

A: Rusty Rush says Class 8 trough likely summer 2024. Used truck pricing still declining, demand tied to spot market recovery.

• Q: Andrew Obin asks about regional economy.

A: Texas, Ohio, Florida, etc., generally holding up, with construction and vocational sectors strong.