RUSHA

Rush Enterprises, Inc. (RUSHA)

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Industry: Consumer Durables
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Rush Enterprises, Inc. (RUSHA)

Q2 2008 Earnings Call Transcript

July 24, 2008 11:00 am ET

Executives

Marvin Rush – Chairman

Steve Keller – VP and CFO

Analysts

Jamie Cook – Credit Suisse

Rhem Wood – Stephens Inc.

Andrew Obin – Merrill Lynch

Chaz Jones – Morgan Keegan

Todd Maiden – BB&T Capital Markets

Presentation

Operator

Good day everyone. Welcome to the Rush Enterprises, Inc. second quarter 2008 earnings conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Marvin Rush, Chairman of the Board. Please go ahead, sir.

Marvin Rush

Welcome to our second quarter 2008 earnings release conference call. On the call today are Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Vice President and CFO; Jay Hazelwood, Controller, Rush Enterprises; and Derrek Weaver, Chief Compliance Officer. Now, Steve Keller will say a few words regarding our 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 forwardlooking statements include but are not limited to those discussed in our annual report on Form 10-K for the year ended December 31, 2007 and in our other filings with the Securities and Exchange Commission.

Marvin Rush

Now we would like to give you an update on our progress second-quarter results. In the second quarter, the company’s gross revenues totaled $455 million, a 12.5% decrease from gross revenues of $519 reported in the same period last year. Net income for the quarter was $6.1 million or $0.16 per diluted share compared to $13 million or $0.34 per diluted share in last year’s second quarter. These results included a $5.4 million write-down of used truck inventory in the second quarter of ’08 which reduced earnings about $0.08 per share.

We will look at the segment of the business. Let’s talk about truck segment. Our truck segment recorded revenues of $425 million in the second quarter of ’08 compared to $488 million in the second quarter of ‘07. The company delivered 1665 new heavy-duty trucks in the second quarter of ‘08 compared to 1869 heavy-duty trucks in the same period of ‘07. Revenue for Class 8 trucks sales decreased approximately $25 million or 11% to $201 million in the second quarter of ’08 from $226 million in ’07.

In the second quarter of ’08, 979 new medium-duty trucks were sold versus 1324 new medium-duty trucks in the same quarter last year. Revenue from medium-duty truck sales decreased approximately $16 million or 22% to $57 million in the second quarter of ’08 from $73 million in ’07.

The company delivered 795 used trucks in the second quarter of ‘08 compared to 984 used trucks in the same period of ‘07. Revenue from used truck sales decreased $13 million or 26% from $38 million in the second quarter of ‘08 to $51 million in the second quarter of ‘07.

Parts, service, and body shop sales remained constant at $112 million in the second quarter of ‘08 and ‘07. Gross profit margins on backend sales decreased to 42.5% for the second quarter of ‘08 from 44% in ‘07.

Talk about the construction machinery business. The company’s construction equipment segment recorded revenues of approximately $25 million in the second quarter of ‘08 compared to $26 million in the second quarter of ‘07. New and used construction equipment sales revenue decreased 8% to $19 million in the second quarter of ‘08 from $20.7 million in the second quarter of ‘07.

Construction equipment parts and service sales increased 3% to $5.5 million in the second quarter of ‘08 from $5.3 million in the second quarter of ‘07.

Talk about the absorption rate. We remain committed to achieving our annual absorption goal of 105% in this depressed stock market. During the second quarter of ‘08, our absorption rate decreased to 105.4% from 109% for the same period of ‘07. Our yeartodate absorption rate is 105.1% compared to 105.4% in ‘07. Relatively flat parts, service, and body shop sales coupled with a slight decrease in gross margins from these operation and new-store acquisitions have put pressure on our year-to-date absorption rate. These pressures will partly offset the expense control measures implemented in the first quarter of the year. Our people have worked extremely hard during the first half of this year to contain spending without compromising customer service.

We will continue to pursue further expense reductions while maximizing our effort to create incremental growth opportunities to help offset the soft new and used truck sales environment.

Talk about the industry outlook. As expected, Class 8 medium-duty, new and used truck sales have been weak through the second quarter. We expect truck sales to remain slow through the remainder of ‘08. We continue to believe that with the replacement cycles of vehicles purchased between 2004 to 2006 demand with the 2010 emission regulations will create increased demand for Class 8 medium-duty trucks in 2009.

The current freight environment, record fuel prices, tightening credit and overall challenging economic conditions throughout the country hit used truck values particularly hard in the second quarter. Demand for used trucks rapidly declined and valuations for used trucks have decreased approximately 15% to 20% since April. Used truck valuation write-down always will occur in dealership operations. These write-downs increased in magnitude when truck values decreased rapidly in a short period of time. We have adjusted our new-truck values to better reflect these market conditions. The new-truck valuation write-down reduced earnings by $0.08 per share.

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