Rush Enterprises, Inc. Q1 FY2026 earnings call

Reported revenues of $1.68 billion in Q1 with net income of $61.5 million. Commercial vehicle market was tough but trough of cycle expected; saw early signs of improvement. Signed deal to acquire Peterbilt dealerships. Aftermarket key strength, made up 66% of gross profit. Truck sales performed well in tough market with 7.2% market share. Rental and leasing revenue up over 2% yoy, strong demand

Aftermarket: generated $627 million in revenue, up slightly year over year, making up roughly 66% of gross profit. Truck sales: sold 2,964 Class 8 trucks in US with 7.2% market share in Q1; Class 4-7 truck sales affected by timing; used truck demand improved. Rental and leasing: revenue $92 million, up over 2% yoy, leasing demand strong, generating consistent recurring revenue

Expect truck sales to improve gradually in Q2 and pick up more in second half. Aftermarket expected to gradually improve through the year. Class 8 sales likely better in Q2 vs Q1; medium duty to improve sequentially. Order activity driven by improving freight conditions and emissions regulations anticipation

Uncertainty in emissions regulations as EPA hasn't clarified details. Geopolitical events may disrupt economic conditions. Customer budget tightening affecting parts and service volumes

Q: Good morning. Glad to see the year is still on track for improvements sequentially. Thinking about the second half, it sounds like there is still a decent amount of uncertainty around the pre-buy this year on a number of fronts — whether the OEMs are going to have new reg engines ready, how the rules are going to be enforced, and the demand dynamics around that. Can you give us a rundown on how those moving parts are shaping your expectations?

A: That is a good statement there, Avi. It is kind of crazy, is it not? We are April 30 tomorrow, we have eight months left in the year, and we still do not have definitive regulations printed. When I am talking about emissions regulations, the EPA has sent out signals and told people what they are going to do — supposedly keep it at 0.35 — but they have not clarified about credits, whether there are going to be NCPs, things like that. We are probably still 60 days away from it. Regardless, we do know there are going to be new emissions regulations, and I think that has spurred customers to order. Order activity, starting in December, has been up dramatically from where it was the prior seven or eight months. Even with that uncertainty, there is certainty that something is going to happen; exactly what it is, we are not sure because it has not been posted by the EPA yet. We hope to know within the next 45 to 60 days, though that timeline keeps getting kicked down the road. The most important thing is customers are more optimistic, finally, because of contraction on the supply side — taking trucks out, whether through nondomicile, building fewer trucks in the back half of last year and in the first quarter of this year. On the supply side, things have squeezed down. Customers are more optimistic about rates. If you had asked me three or four months ago, everyone said flat to low single digits; then it was mid-single digits; and now people are looking at maybe high single-digit increases. So people are optimistic. At the same time, to your point about emissions, we do not know clearly what it is going to be, but we do know it is going to be stricter, whether there will be NCPs and costs go up dramatically, or total enforcement of what is out there for EPA in 2027. That is about the best I can tell you — there is still uncertainty, but something is coming down the tracks; we just do not know exactly what.

Q: Understood. As a follow-up, thinking about improving conditions in the freight market driven by capacity reductions — that does not necessarily help parts and service as much as improving freight activity. What are you seeing there, and when might parts and service volumes inflect positively?

A: Theoretically, people believe that when truck sales go down you get more parts and service, but that is not really the case because people cut back their budgets. That is what we have seen — we have remained fairly flat over the last couple of quarters. In spite of inflation, we have remained flat because people have tightened their belts. The best thing is for their business to get better. Historically, when customers feel better and are more optimistic, there will be no postponing of maintenance or repairs. When income goes down, you take what you spend down too — no different than managing your household. The most encouraging thing will be seeing second- and third-quarter releases and hearing about contract rates going up so that optimism comes to fruition. We have gradually improved: February was better than January, March was better than February, and April looks a little better than March. As conditions improve, parts and service will improve as well. Tonnage was up for the first time in two or three years in February, if I am not mistaken. It is getting a little better not just from the supply side but also demand. There are outliers — overseas events, fuel — but the general macro environment for continued improvement at the customer level is there without interruptions from geopolitics. I believe it is going to be a gradual, continued improvement based on conversations with many customers and people around the industry.

Q: Thanks, and good morning, Rusty. You mentioned you expect overall commercial vehicle sales to improve gradually. Can you help break that out between heavy duty and medium/light duty? Given the weakness in medium duty in the first quarter, should we see a more immediate recovery there versus Class 8?

A: Sequentially, yes, because medium duty was so off in Q1. From a percentage basis, you are going to see medium improve quicker because heavy duty was not off as badly as the market — we were off about 6%, the market was down 20% to 21% — and we were way off in medium, and a lot of it was timing. Sequentially, medium will pick up quicker because we are starting at a lower base. Looking at the year, I expect a better year on the Class 8 side than medium; medium will be closer to flat for the year, catching back up, which bodes well for the next few quarters because we started in such a hole on medium duty. I expect heavy duty to continue to ramp up. If you want a number, say Class 8 up 15% in Q2 if things hold together, we get some emissions clarification, and business continues to look better for our customer base, across vocational and over-the-road. Over-the-road is still the biggest market — about two-thirds — so if that continues to get better, we will continue to increase quarter by quarter as the year goes and roll into Q1 next year. From an emissions perspective, it is all about when the engine was built; those engines are usually built maybe halfway through January, and because we are the retailer, it takes anywhere from 32 days to five months depending on the product to reach the customer. That bodes well for us all the way through next year in Q1. The number that comes out this year probably is not more than a normal replacement, but it will be backloaded. Q1 Class 8 retail of about 41,000 units was the lowest in years, and medium was the lowest since 2015. So with emissions regulations and improving economic conditions for our customer base — as long as geopolitics stay out of the way — it is set to ramp up slowly. Q2 should be better than Q1, not dramatically, and build from there through the rest of the year and through Q1 next year. Typically, parts and service should build as well; it has been slowly building, and I am looking forward to seeing it ramp up a little faster.

Q: Thanks for the color. As a follow-up, the reduction in capacity is driving improvement in freight. How do you think that affects new truck sales this cycle? Is that a headwind, or does the emissions regulation offset it?

A: The first thing was supply — it has been pulled out for the last three quarters. If you took Q3, Q4, and Q1 and strung them together, retail demand would annualize under 200,000 units in the U.S. That has taken supply out, but you need both supply contraction and demand improvement. It was nice to see tonnage bump up in February. Even if it is not robust, having both helps. ACT says the U.S. Class 8 market will be about 225,000 this year. That implies it needs to average around 60,000 a quarter for the last three quarters, a 50% bump from Q1, and it will not be evenly loaded — maybe 50,000 in Q2, then higher in Q3 and Q4 — which is at or slightly under replacement. We just went through a three-year freight recession — I have never seen one like that — and I felt for a lot of our customers. We were fortunate with our diversified business model that we do not rely on one revenue stream. The average fleet age is probably a little over half a year older than where most want it. Even if we have a big ramp up and average 60,000 in the last three quarters, we are still only at replacement. That is not a huge pre-buy that would cause a big drop in 2027. I think we should roll through 2026 and not see a big drop in 2027, at least from my viewpoint.

Q: Good morning, Rusty. Maybe we can talk about parts and services. You have a big initiative with large corporate customers. How is that initiative progressing? Do you think you are outgrowing the industry on parts and services, and what levers do you have to keep outgrowing the industry?

A: In the first quarter, we were probably close to in line. Across the quarter, the hardest-hit piece was service. Service was back for us in Q1, and that is why our margin mix was down a little — service margins are much higher than parts. I was nervous, asking what we were doing wrong, but through our manufacturers I have statistics on other dealer groups. Service was off across a large group of about 200-plus dealers around 3% to 4%. We were off a little less than that. Customer spend was off in Q1 — belt-tightening. On the initiative, yes, our initiatives are still in place. We grew our national account business on the parts side, but people really tightened up on service. You can extend maintenance intervals; you do not have to fix every oil leak; you can extend oil change intervals by 5,000 miles — when things are tight, that is what people do. As their business gets better, they get back to a more normalized spending cycle. Parts was up; service was down, similar to what I saw from others. As business improves, spending normalizes. Spot market rates were up 25% to 30% year over year; the balance between spot and contract got way better. That allows folks to be more optimistic, and when they are optimistic, people spend money. We love our business model — leasing, parts, service, sales — multiple revenue streams that allow us to balance through cycles. Our parts and service initiatives are ongoing; parts was slightly up and will get better through that initiative and others we are not discussing publicly. You have always got to have something going.

Q: You have a footprint across the country and sometimes share macro views. What are you seeing overall and in key verticals? You have a big off-road presence — what are you seeing there? Any impact in oil and gas from higher commodity prices? And on-road as well.

A: Geographically and by vertical, we were up slightly in refuse and construction in the first quarter; most other areas were flat. Our national accounts were pretty flat in Q1 — they were up last year — and we are not keeping up with plan in the first quarter. The most notable softness is in our unmanaged accounts — small customers — which still make up a little over 30% of our business. That segment is down almost another 10% in the first quarter, on top of a weak last year, but we managed to make up revenues in different sectors, particularly vocational — refuse, construction, and other vocational businesses — from a parts and service perspective. Geographically, Florida continues to be strong. On oil and gas, we have not seen a big bump yet; we do expect to possibly see something, but it has not come to fruition yet. Texas is always one of our strongest areas, along with Florida, and we are doing fairly well in the Chicago/Northern Illinois region this year too. Overall, I feel good that we will continue to see gradual improvement without geopolitical interruptions. I prefer consistent, solid growth and taking share rather than a huge pre-buy. Maybe we did not take as much share as I wanted in Q1 — we were slightly better than others, but slightly is not good enough — so we are focused on continuing to execute and rolling out other initiatives. We are ready, willing, and able, and excited for what I believe will be a better environment without outside interruptions.

Q: Good morning, Rusty. Maybe we can talk about parts and services. You have a big initiative with large corporate customers. How is that initiative progressing? Do you think you are outgrowing the industry on parts and services, and what levers do you have to keep outgrowing the industry?

A: In the first quarter, we were probably close to in line. Across the quarter, the hardest-hit piece was service. Service was back for us in Q1, and that is why our margin mix was down a little — service margins are much higher than parts. I was nervous, asking what we were doing wrong, but through our manufacturers I have statistics on other dealer groups. Service was off across a large group of about 200-plus dealers around 3% to 4%. We were off a little less than that. Customer spend was off in Q1 — belt-tightening. On the initiative, yes, our initiatives are still in place. We grew our national account business on the parts side, but people really tightened up on service. You can extend maintenance intervals; you do not have to fix every oil leak; you can extend oil change intervals by 5,000 miles — when things are tight, that is what people do. As their business gets better, they get back to a more normalized spending cycle. Parts was up; service was down, similar to what I saw from others. As business improves, spending normalizes. Spot market rates were up 25% to 30% year over year; the balance between spot and contract got way better. That allows folks to be more optimistic, and when they are optimistic, people spend money. We love our business model — leasing, parts, service, sales — multiple revenue streams that allow us to balance through cycles. Our parts and service initiatives are ongoing; parts was slightly up and will get better through that initiative and others we are not discussing publicly. You have always got to have something going.

Q: You have a footprint across the country and sometimes share macro views. What are you seeing overall and in key verticals? You have a big off-road presence — what are you seeing there? Any impact in oil and gas from higher commodity prices? And on-road as well.

A: Geographically and by vertical, we were up slightly in refuse and construction in the first quarter; most other areas were flat. Our national accounts were pretty flat in Q1 — they were up last year — and we are not keeping up with plan in the first quarter. The most notable softness is in our unmanaged accounts — small customers — which still make up a little over 30% of our business. That segment is down almost another 10% in the first quarter, on top of a weak last year, but we managed to make up revenues in different sectors, particularly vocational — refuse, construction, and other vocational businesses — from a parts and service perspective. Geographically, Florida continues to be strong. On oil and gas, we have not seen a big bump yet; we do expect to possibly see something, but it has not come to fruition yet. Texas is always one of our strongest areas, along with Florida, and we are doing fairly well in the Chicago/Northern Illinois region this year too. Overall, I feel good that we will continue to see gradual improvement without geopolitical interruptions. I prefer consistent, solid growth and taking share rather than a huge pre-buy. Maybe we did not take as much share as I wanted in Q1 — we were slightly better than others, but slightly is not good enough — so we are focused on continuing to execute and rolling out other initiatives. We are ready, willing, and able, and excited for what I believe will be a better environment without outside interruptions.

Q: Good morning, Rusty. Maybe we can talk about parts and services. You have a big initiative with large corporate customers. How is that initiative progressing? Do you think you are outgrowing the industry on parts and services, and what levers do you have to keep outgrowing the industry?

A: In the first quarter, we were probably close to in line. Across the quarter, the hardest-hit piece was service. Service was back for us in Q1, and that is why our margin mix was down a little — service margins are much higher than parts. I was nervous, asking what we were doing wrong, but through our manufacturers I have statistics on other dealer groups. Service was off across a large group of about 200-plus dealers around 3% to 4%. We were off a little less than that. Customer spend was off in Q1 — belt-tightening. On the initiative, yes, our initiatives are still in place. We grew our national account business on the parts side, but people really tightened up on service. You can extend maintenance intervals; you do not have to fix every oil leak; you can extend oil change intervals by 5,000 miles — when things are tight, that is what people do. As their business gets better, they get back to a more normalized spending cycle. Parts was up; service was down, similar to what我看到用户之前的question_and_answer部分可能重复了，需要重新整理。正确的应该是：