Rush Enterprises, a premier solutions provider to the commercial vehicle industry, announced its second-quarter financial results, demonstrating robust performance despite a challenging market environment. The company reported revenues of $2 billion and net income of $78.7 million, or $0.97 per diluted share.
Rush Enterprises, which trades under the ticker RUSHA, also declared a cash dividend of $0.18 per common share, marking a 5.9% increase from the previous quarter. Strategic initiatives have enabled the company to navigate industry troughs more effectively, with notable strength in key customer segments bolstering Class 8 truck sales revenues and market share.
However, the company did face a decrease in demand for aftermarket products and services and a decline in Class 8 retail sales due to a freight recession. The outlook for the third quarter suggests market conditions and aftermarket demand will likely remain consistent, with the company focused on leveraging strategic initiatives to maintain efficiency and market share.
Key Takeaways
- Rush Enterprises reported $2 billion in revenue and a net income of $78.7 million or $0.97 per diluted share.
- A cash dividend of $0.18 per common share was declared, up 5.9% from the previous quarter.
- The company saw strength in the public sector and vocational customer segments.
- Demand for aftermarket products and services decreased.
- Class 8 truck sales declined due to weak demand, though used truck depreciation rates slowed.
- Market conditions and aftermarket demand are expected to remain unchanged in the next quarter.
- Strategic initiatives are being used to improve efficiency and market share.
Company Outlook
- No significant catalyst for revenue growth anticipated, but the company expects to maintain its current position.
- Aim to return about 40% of cash flow to shareholders via dividends and share repurchases.
- Mergers and acquisitions are a priority for growth and footprint expansion.
Bearish Highlights
- Challenges in the industry, including a decrease in aftermarket demand.
- Decline in Class 8 retail sales due to a freight recession.
- Used truck demand remains weak.
- Small accounts are struggling, and large customers have faced declines for two years.
Bullish Highlights
- The company has made adjustments to its expense base to offset revenue reductions.
- Strong demand in vocational sectors due to government stimulus and post-COVID catch-up.
- Competitive truck pricing expected without significantly impacting margins.
- Orders are expected to pick up in the coming months, leading to increased business next year.
Misses
- Order intake has been down throughout the year due to uncertainties.
- No continued growth in medium-duty orders expected in the second half of the year.
- A component issue with transmissions affected vocational sales.
Q&A Highlights
- CEO Rusty Rush estimates 45-50% of business is in vocational trucks.
- OEM build rates expected to decline by 15-20% in Q4, which should relieve pricing pressure.
- The company has prepared for upcoming competition by marking inventories to market.
- No significant impact on margins is anticipated despite market conditions.
During the call, CEO Rusty Rush discussed the reduction in freight rates, stating that the reduction should be over and rates are expected to remain flat, with potential increases on the horizon. He highlighted the importance of the company's diverse customer base in maintaining revenue despite segment declines and the adjustments made to the expense base to mitigate revenue reductions. Looking forward, Rush does not foresee any significant catalyst for revenue growth but is optimistic about maintaining the company's current position through strategic initiatives, including mergers and acquisitions.
Rush also provided insights into the vocational sector, which he expects to remain strong, driven by government stimulus and recovery from the COVID-19 impact. He noted that while the truckload market still needs more supply and capacity, the company is well-positioned to manage through the downturn, thanks to cost-cutting efforts and diversification. Despite current challenges, Rush Enterprises remains committed to executing its strategies and delivering value to its shareholders.
InvestingPro Insights
Rush Enterprises (RUSHA) has been navigating the commercial vehicle industry with strategic precision, as evidenced by their recent financial performance. InvestingPro data highlights a market capitalization of $4.01 billion, showcasing the company's significant presence in the market. With a Price-to-Earnings (P/E) ratio of 12.11, Rush Enterprises is valued favorably compared to industry averages, indicating potential for investor interest based on earnings.
Further reinforcing the company's financial health, Rush Enterprises boasts a robust revenue figure of $7.91 billion over the last twelve months as of Q2 2024. This is complemented by a Gross Profit Margin of 19.83%, which suggests the company is effectively managing its cost of goods sold and generating a healthy profit on its services and products.
InvestingPro Tips reveal that Rush Enterprises has not only been profitable over the last twelve months, but it also has a history of rewarding its shareholders. The company has raised its dividend for six consecutive years, a testament to its commitment to returning value to its investors. Additionally, Rush Enterprises has experienced strong returns over the last month, with a 24.72% price total return, reflecting positive investor sentiment and potential confidence in the company's future performance.
For readers who are keen on gaining more insights and detailed analysis, there are additional InvestingPro Tips available, which can be accessed through the InvestingPro platform at https://www.investing.com/pro/RUSHA. These tips provide valuable information that could further inform investment decisions regarding Rush Enterprises.
Full transcript - Rush Enterprises (A) (RUSHA) Q2 2024:
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Rush Enterprises Report Second Quarter 2024 Earnings Results. At this time all participants are in a listen only mode. After the speakers presentation there will be a question and answer session. [Operator Instructions]. Please be advised that today’s conference is bring recoded. I would like now to turn the conference over to Rusty Rush, Chairman of the Board, Chief Executive Officer and President. Please go ahead.
Rusty Rush: Good morning. Welcome to our second quarter 2024 earnings release call. With me on the call are Mike McRoberts, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior 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 risk 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 31st, 2023, and in our other filings with the Securities and Exchange Commission.
Rusty Rush: As indicated in our news release, we achieved second quarter revenues of $2 billion, and net income of $78.7 million or $0.97 per diluted share. We are proud to declare a cash dividend of $0.18 per common share an increase of 5.9% over our prior quarterly dividend, and our 8th increase since announcing our intent to begin paying quarterly cash dividend in July of 2018. Despite the ongoing challenges we facing in our industry that are highlighted in our earnings release, I am pleased with our financial results in the second quarter. Past strategic initiatives, including expanding our breadth of product offering, investing in our sales force and technicians, and diversifying our customer base to name a few are helping produce significantly better results than we achieved during the last industry troughs in 2020 and 2016. Although low freight rates continue to negatively impact over-the-road carriers, we experienced ongoing strength in other key customer segments, including public sector and vocational, which positively impacted our Class 8 truck sales revenues and market share during the second quarter. Our Class 4 through 7 sales remain steady, and we executed well on our used truck pricing and inventory strategies. With respect to our aftermarket products and services, we did experience a decrease in demand during the second quarter. However, we believe we kept pace with the industry, from a part sales perspective, and outperform the industry with respect to service sales. In the aftermarket, our parts, service, and body shop revenues were $627.4 million, down 3.6%, compared to the second quarter of 2023, and our absorption ratio was 134%. As I stated in the news release, the freight recession and high interest rates are still negatively impacting over-the-road carriers. The same challenging economic conditions also led to decrease in demand from wholesale, independent parts distributors and energy customers. Decreases to those segments were partially offset by a healthy year-over-year growth from our public sector, vocational, and medium-duty customers. Looking ahead, we do not expect market conditions or aftermarket demand to improve significantly in the third quarter. However, we are committed to leveraging of the foundational tools and processes we have put in place over the last few years, through the execution of our strategic initiatives, and we are confident this will lead to increased efficiency and provide better service for our customers. We believe that these actions will allow us to improve our market share and continue to outperform the industry. Turning now to truck sales. We sold 4,128 new Class 8 trucks in the second quarter, accounting for 6.8% of the total U.S. Class 8 market and 1.7% of the Canadian market. Weak demand caused by lingering freight recession led to an 18.6% decline in U.S. Class 8 retail sales in the second quarter of ‘24 compared to the same quarter in 2023. However, strong retail sales to vocational customers and the timing of deliveries to certain other large customers helped to offset the decline in over-the-road sales and allowed us to increase our Class 8 market share. ACT Research forecast U.S. Class 8 retail sales to be 228,700 units in 2024, down 15.8% compared to 2023. During the second quarter, the industry experienced higher than normal Class 8 order cancellations and weak order intake, which we believe will cost new Class 8 truck sales to be down for the remainder of the year. We also expect truck pricing to be more competitive in the second half of the year. However, we expect vocational sales to remain strong and we believe we are well-prepared to perform in a more competitive pricing environment. Our Class 4 through 7 new truck sales reached 3,691 units in the second quarter or 5.7% of the U.S. market and 2.4% of the Canadian market. Commercial vehicle production continued to increase and delivery times have improved, resulting in healthy activity for medium-duty customers. Our Class 4 through 7 commercial vehicle sales were broad-based across industry segments and we are pleased to outpace the market in the second quarter. ACT research forecast U.S. Class 4 through 7 retail sales to be 262,000 units in 2024, up 3.7% from 2023. We will closely monitor economic factors that could impact customer spending and lead to a decrease in Class 4 through 7 commercial vehicle demand. However, at this time, we anticipate our third quarter Class 4 through 7 commercial vehicle sales will be consistent with our second quarter results. We sold 1,723 used trucks in the second quarter, down 7.8% year-over-year. Used truck demand remained weak due to low freight rates, more readily available new truck alternatives, and higher interest rates. However, the rate of used truck depreciation has slowed to more manageable levels and we executed well on our used truck strategies. We are keeping inventories low and are well positioned for the second half of the year. We expect our third quarter performance to be on par with our second quarter results. Looking ahead, we will continue to monitor industry and macroeconomic conditions, looking for signs of significant freight recovery. As I previously stated, we expect retail sales of new Class 8 trucks to decrease from second quarter levels throughout the remainder of the year, and for retail sales to remain solid for new Class 4 through 7 trucks. Despite the difficult market conditions, we believe we are well positioned to continue to outperform the industry and to increase our market share. It is also worth noting that we instituted expense reductions during the second quarter in anticipation of a softening market. These actions, combined with the diversity of our customer base and our strategic focus, will help us successfully manage this challenging market cycle. Our employees have worked particularly hard throughout this challenging quarter to achieve these positive results, so I want to acknowledge their efforts and thank them for their dedication to providing best-in-class service to our customers, while staying focused on efficiency and successful execution of our strategic initiatives. With that, I'll pick your question.
Operator: Thank you. [Operator Instructions]. And our first question will come from Daniel Imbro with Stephens. Your line is now open.
Daniel Imbro: Hey, good morning guys. Thanks for taking the questions.
Rusty Rush: Thank you, Daniel. Good to hear from you.
Daniel Imbro: Rusty, I'll start maybe on just the demand backdrop. Obviously, fleets are slowing, spending and the freight backdrop has remained tough. Just curious how the back half pipeline looks as we head on Class 8 side into the second half? Maybe how has that tone changed as you talk to carriers? I feel like the last few months, some are sounding a little more positive that we're seeing some normalization happening in the freight market. So curious if you are hearing that or how you think that would affect the back half?
Rusty Rush: You bet. No, I mean, when you think about truck sales, most of the truck – like truck sales for the third quarter, other than stock truck sales, we pretty much know what we've got coming already, right, because there is some lead time still to it. From that perspective, you asked how do I? I look at it. If I'm going to say something, I would say similar from a Class 8 perspective now, similar to Q1, more like and not as many units as we sold in Q4 and the fourth quarter still to be told. I can still get you all the trucks you need in the fourth quarter if you need some, right. So obviously, we have business booked in the fourth quarter, but it's still coming together, right. That quarter is still coming together, given the reduction in lead times, with basically all Class 8 OEMs. From a customer perspective, for me yes, things have leveled off. Are they getting a lot better? No. Are they bobbling where I think they are pretty leveled, talking to customers like I do? Yeah, I think they are bouncing along. But there's slight green shoots you'll see here and here, but it takes trend lines. It doesn't take a little here, a little spot here and then you skip and then a little bit here. You really need a consistent trend line of positive news. Do I believe that's coming? You bet. Do I believe it's going to be difficult to get to that situation, get to a real positive environment in the back half of this year, with the election and everything else going on, probably going to be tough. But the foundation is set for a rebound, for sure for next year, exactly pegging when it'll be. I'm not that guy to peg exactly, but I do believe there's not this continual pessimism of continuing to drop, drop, drop, right. But I do believe there'll be – we inch our way forward here in the back half of the year, but setting the stage I think as we continue to get, there's still capacity. There's still a little bit too much capacity out there in the marketplace. It's a balancing act between supply and demand, where we have had some come out. We've also, it's not like freight tonnage has grown a lot either, okay. So we're getting our way. We're finally, I think, you can see the light, right, but it's not a full picture yet to where – that our customer base will be able to take advantage of it, and try to hit back some of that, those freight rates as they've been. So it’s highly competitive, just to do what they've had to do the last few years, and you know the reduction in freight rates should be about over with. I think if you see most everybody, its low singles if they've given anything back here recently, and I expect that to flat. I expect that to maintain, but then they should be able to start picking up. I'm talking about the truckload side. We are not getting into the LTL side here obviously, but on the truckload side, for sure, that's really what I see for the haul for hire.
Daniel Imbro: Really helpful color. Then if I could follow-up on the parts and service side. You mentioned revenue stepped down sequentially. I guess, can you talk about what changed since the first quarter? The macro has been tough, but I felt like demand for parts and service may be slower than we thought. Then given the stable macro, I guess how do you think that year-over-year growth shapes up or sequential growth shapes up into the back half?
Rusty Rush: Yeah, obviously I don't see any big pickup, taking it reverse. Let me take it the way you asked it. Look, we've been fighting it off. I've talked about it for a while. We've had double-digit declines from what I call our unassigned accounts, continually okay, and that's the small accounts, and that's still 30% of our business. Small customers out there are still struggling. What you've seen is the large customers. Read all the public trucks – they've been into it for two years, and we've fought back and fought back and had growth inside of that. Well, it's finally coming to where we had it. We went backwards a little bit. But the most important thing to understand is the diversity of our customer base. If we were tied strictly to the over-the-road business, you would see double-digit, somewhere between 10% and 20% declines in our parts and service business, but you don't, because we go about it in a very strategic way because of the brands we represent and how we go-to-market. We make sure that we're doing it in a way that we're hitting every market. The diversification of our customer base is one of the most key things that we have. So that allows you, when one segment is way down, to still maintain and go on. Then I looked to the fact that we could see this coming. We mentioned it in April, that we were going to make some adjustments. That's the good thing about the business, if you understand the absorption rates that we run now compared to where we used to, we can make adjustments. Was our absorption rate down slightly? Yeah. But we made some pretty good adjustments inside our expense base to help offset some of that reduction, and run it pretty high. If you told me a few years ago we'd be running 134% and complaining, I would have told you you're crazy. But those are the kind of things we're able to do. Now, as I look forward, I don't see any big catalyst to really push that revenue line up. I do think we can maintain where we are currently, and hopefully we still have some expense things – a few expense things that are going to come in, that will help to offset the lack of growth. But we really – you got to remember, even though we're very diversified, but still the largest base we do business with is the over the road business, whether it be the large public carriers or large carriers private, or whether it be the small customer. It is still the majority of trucks on the road out there. Just thank God that we have the diversity of the customer base we do to maintain where we're at and provide the results that we did in this quarter. I mean, if you look at our results, compared to some of our – not all of our customers, but a lot of our over the road customers that have suffered, which is the biggest sector again that we have. We do all these other things, vocational and wholesale and municipal, and all these other market segments. But at the same time, that's still the largest. So when it gets hit, like it has, to be able to pull through and produce the numbers, I can tell you, I've never been more proud of the organization than I am right now. And I expect us, and with truck sales going backwards, it gives us – we have these different revenue streams, right. We have different gross profit areas, whether it’s the parts of service, truck sales, heavy duty, medium duty, used trucks. Again, that balance of earnings streams is what's providing the results. As I said in my comments a minute ago, go back and look at the last trough in '20 and our trough in ‘16. This organization is not even close. They didn’t look like the same organization that it was back in and the results show that. So, I expect we'll just bobble along where we are on that revenue and back in line, and continue to work on our expense base and continue to provide the outstanding results we have. But we will be backwards in truck sales. Like I said, we'll go back more to Q1 type levels. Let’s just let it unfold in front of us, but I'm very confident the organization will do what it's been doing. Just look at the last few years results. I mean, we're tracking in a trough year, we're tracking to well, well – I'm not going to get into it, third best or whatever year we've ever had as an organization, and that's pretty outstanding.
Daniel Imbro: No, I appreciate all that color. I have a quick follow-up. You mentioned it, obviously trough has been raised and cash flow has been a source of a positive guide throughout the story. I guess, how are you thinking about uses of cash, not only here at the trough, but as the cycle turns, I would think cash flow gets even better. I guess, what are you seeing is the most attractive uses of that capital as we think about the cash flow generation through a cycle?
Rusty Rush: Sure. Well, we tried to take a balanced approach the last few years to what we do with fee cash-flow. We said that, we'll give somewhere about 40% back in shareholder return, and that would be in combination obviously of dividend and of share repurchase. At the same time, our number one thing is still growth, right. So M&A will always be a part of that too, which could influence some of that as we go forward. So, we would – M&A would be the biggest thing I would tell you that we would be focused on, right. Do I have a lot of it out there right now? Not necessarily. Are we looking at things? Of course we are. At the same time, I can't sit here – by the way, I wouldn't sit here and tell you we're going to do something. I would announce it to you when it's done. But growth inside the organization, when it comes to that piece, you know is there. We had a little acquisition in Nebraska, this quarter, and there's some others that we're looking at, not a big one, but just singles, man. Sometimes folks don't understand that just because I'm not doing big M&A, like say the last big M&A deal was December 21 when we bought the second largest Navistar (NYSE:NAV) deal. We're always doing what I call bud singles. We're opening up three, four, five stores a year. If you don't see it, they are little small, and we're buying little deals that sometimes we don't even talk about, okay. But right now, M&A would always be first and foremost to continue to expand our footprint. Remember, the best thing we have going for us is our footprint, outside of our people now. But the number one thing is our footprint. It's the differentiation that we can touch more customers, especially as customers continue to consolidate, it's not as fractionalized customer base as it used to be, and we can drive efficiencies, not just into our organization, but most importantly into their organization. Leveraging off that footprint with our outstanding people, so we can go out and we do what? We're out there, we're always out there looking for new customers, right. We've always got target customers and things you're going at, and that's to me one of our, well here is our biggest selling point outside of our people, as I said, is our network, and we'll continue to look to expand that. That's always going to be number one. And then it'll just be returning to shareholders that – if you look at the average, we were averaged around 40% the last five years. Some years it was 25, some years it was 50, but that's about. It depends on that year when you're sometimes limited as to what you can do. Anyway, from a repurchase perspective, and when you hit it from that perspective, we've consistently raised our dividend every year, sometimes more than 5% to 10%, but our commitment is 5% to 10%, and last year it was 21%, okay. It just happened to be that high. But we'll continue to – those will be the three main things that we'll do right, is shareholder two maybe. We’ll look at shareholder return as one and not two. It will be shareholder return, and then of course, number one, will be acquisitions if we can find them to continue to build our footprint out.
Daniel Imbro: Great. I appreciate all the color. Best of luck!
Rusty Rush: You bet. Thank you, Dan.
Operator: The next question comes from Andrew Obin with Bank of America (NYSE:BAC). Your line is open.
Andrew Obin: Hey Rust, how are you? Good morning.
Rusty Rush: I’m very good Andrew. How are you this morning?
Andrew Obin: I'm good. Just maybe you talked about outperformance and obviously it's because you have higher vocational mix versus the industry. Can you just remind us where we are in your mix at this point?
Rusty Rush: So what was that question again, Andrew? I'm sorry. My mix is what?
Andrew Obin: Your mix, your Class 8 mix versus the industry, right, because you have more vocational rights? You have more waste [Multiple Speakers]. You were on the road, but less of it. Could you just remind us what the mix is like these days?
Rusty Rush: I'm going to give you – Andrew, I don't – it's not a stat that I'm going to give you, like keep track of, but I’ll always say and I usually say, somewhere around 50-50. Depending on the brand, we're a little, maybe a little bit heavier on the vocational side, on the Peterbilt side than we are on the Navistar side. But somewhere 45%, 50% of our – 40% plus – let's say 45% of our business is vocation, somewhere in that range. When you really look into the construction, the refuse and all those businesses, and that's on the 8 side, right, and that's one of the key pieces. Again, it's diversification, diversification to each market segment. And that's really – and I appreciate the color, the question, but the color would be somewhere in that range.
Andrew Obin: Right. And then what folks are wondering just in terms of orders, what do you think? And I think you've clearly been early, sort of sounding caution about outlook for second half. Where are the orders trending in July, August? What are you seeing? What's your experience?
Rusty Rush: Andrew, compared to where we were in the first quarter, really it started all, it's been all year. It's been pretty down for us all year from an order intake perspective. Now, I will say that we – there's a few – we hit a few couple of deals along the way, but from just a demand perspective quoting, no question it's been down. Our customers, you are starting to get talk about emissions, right. We're out right now talking with folks. But it's been very difficult for a lot of the truckload guys to start talking about that when you can see their earnings and when the pressures that they felt inside their business. So I would tell you, orders are still going to be down in July, I would guess when they come out tomorrow. Last month, I think I was on a call. I guess, pretty good view and a bunch of investors, around 15,000. And I don't know where they'll be this month. I'm really not sure, but I'm not going to say they are not going to be super outstanding, because folks are – as I said, there’s still build available in the back part of the year, but people are still trying. The supply demand, we still need more supply from a truckload perspective, it's still the biggest market out there. We still need more supply to come out, more trucks to come out of the market and capacity, from a capacity perspective from where we're at. And people have been too buried, I think, inside of running and managing their own business to worry about 27 emissions. A lot of folks still believe that, well, this election is going to change something. It's not going to change anything dramatically. I don't care. The OEMs have spent millions, but they are too busy taking care of their businesses to worry about the cost increases that are going to come with meeting 27 emissions, which is going to happen. And we can all think an election will change all that, but I don't believe that to be the case, because of the multiple millions to billions committed to technology already, as these things have been worked on for a while, so. But I do expect that we will get – maybe they’ll – well usually orders start picking up in October, November, December, which translates into picking up, business picking up next year. So I can't tell you exactly when I expect that to happen, but usually you've got ATA in October, and then people follow through on that. So I'm looking – as long as everybody can – if businesses really are flattening like what I said and what I've talked, the people I've talked to, they were on the bottom and they can see slight slivers of green out there in their business going forward that they weathered the toughest part. Then people will start getting concerned about the technology of diesel trucks and all the after treatment and everything. People still remember what it was like in 2010 when we went into EGR – excuse me, NCR (NYSE:VYX). One company stayed on EGR. We went to NCR and that the after treatment that happened and then also combine that with what we look for cost increases to be, you're going to see some. I just don't think you are really going to see it till late this year, which translates into sometime next year, probably spread deliveries on your big orders throughout the year, starting next year sometime. But I don't look for any uptick in the next couple of months, I can tell you that. The big uptick now in the next – but we are out talking and people are starting to talk more about it. Some people thought they were going to – targeting to reach some OEMs I read early and said, “Oh, it's going to happen.” It's happening, but at a very gradual, early stage, let's say it like that. But there will be – they will understand their businesses, customers are smart, and they'll know when it's time to kick it in gear, but I don't look for it until the back half of the year. [Multiple Speakers]
Andrew Obin: But for the next couple of months, do you think this 15,000 is sort of relatively flat or down from that number. Is that a fair estimate?
Rusty Rush: From my perspective, unless some big customers, three or four big customers want to place big orders that are spread. The demand is not – the demand is just going to be limited, and yes. I’d rather answer your question without just over talking like I do a lot, yes. I don't expect any big uptick in orders. [Multiple Speakers]
Andrew Obin: Our decision work out for that CEO – Oh, I shouldn't say that – so sorry, I didn't say that. Let me, so…
Rusty Rush: I know, you didn’t say that offline too.
Andrew Obin: I don't think I was allowed into that building for a while. Just a question on macro. I always ask you, because you have very good systems. Lots of uncertainty about the economy. I think the PMIs just came out. It indicates sort of a step-down in industrial activity. What are you seeing? You have coast-to-coast presence. What are you seeing about the economy? Are you more optimistic about the economy today versus a month ago? Or are you more pessimistic? Would love to take – to get your take, because you tend to be very smart about it. Thank you.
Rusty Rush: Oh Andrew, just pounding on me today, aren’t you boy? Good question. I just see a lot of uncertainty. To be honest with you, I mean, I see more uncertainty in my mind about the economy. I know it sounds like a broad no answer, but truly I do believe that. I just think this election and all the stuff that's going on outside of everything else has got people a little bit paralyzed in some areas. As I look around, obviously, the truckload side is still not in good shape. The LTL side has been in good shape. We were off a little bit in energy this last, from a parts and service perspective, this last quarter, more than I would have anticipated. I think the economy just looked a little hot earlier. I think it was going to be a tougher back half. But I do expect it to pick up after that. I do expect, no matter what anybody else says, I do expect it to. My problem is sometimes I get – I'll look at it through my industrial glasses, right. I got to take my – you want to take my macro, put my macro glasses on, and sometimes maybe I'm not the best at that. I can make a stab at it, but I don't look for any – I'm not looking for a recession, if that's what you are saying right now. But I'm just looking for sort of bobbling along right now until we get through November and into '25. And then I'm going to feel especially from an industry perspective, I’ll feel pretty good about it, because we will have a pretty [inaudible] and we will have taken out capacity, out of the marketplace, and that's always a good thing. It would be a platform to set up for good for my industry. But I just look at this back half, it can be a little slow if you ask me, and I'm not going to – I'm not an economist, so I'm not going to get out past that much, but… [Multiple Speakers]
Andrew Obin: Yes, is it fair to say that your vocational business is fairly stable? Is that a fair statement?
Rusty Rush: Yes. Our vocational business is fairly stable, which is a pretty solid indicator. I will say that a lot of the medium-duty demand has been met. I wouldn't look for continued growth or medium-duty big orders in this back half. I think that will slow down a little bit from where it has been, but it's not troughing terribly like we said, our Q3. But I'm not sold out in Q4 there. So where we have been pretty sold out for a couple plus years running in medium duty, we're not going to be – I'm not a year out when I look at it anymore, but that doesn’t mean it's terrible. Look, reality is, you are not supposed to be sold out a year ahead. Let's get back to real world. And I think that's one of the things I'm most proud of, is how we manage inside these types of situations, and it's showing in the numbers that we're producing and it will continue to show. As you know, I'm pretty conservative, judging by where we end up plus where we are sometimes. In the back of my head, I probably thought I always bet on us, probably ought to bet more on us, because these people that work with me and beside me every day, all 8,000 of them, they prove they execute extremely well. And just as we have this year and the prior few years, I just – sometimes I wish everybody understood the diversification of the company. And I hope this year proves it to anyone, that if this is the trough middle year of a five year run, we're in pretty good shape. We're in pretty good shape is all I can tell you. I think the numbers are going to play out, so we’re – yes, we're going to sell less trucks, but we're going to do a good job of managing through it, given the diversification of our earnings stream, and what we do and how we go-to-market and expense stuff. Look, we're down G&A, because remember, I never talk about SG&A, I talk about G&A. Q1 to Q2, we're down 4.7% in G&A. That's outstanding, okay. That is truly outstanding. And so I'm very proud of our people for doing more with less, and we will continue to execute that way. When the market does pick back up, which I believe to get real fast, we'll get to those numbers I've been talking about the last three or four years in '25 and '26. We will execute. You've got that commitment from me.
Andrew Obin: Well sir, thank you so much.
Rusty Rush: You bet.
Operator: [Operator Instructions]. The next question comes from [inaudible] with UBS. Your line is open.
Unidentified Participant: Hey, good morning guys. Thanks for taking my questions.
Rusty Rush: Hey, good morning.
Unidentified Participant: So, I just wanted to dig into vocational a little bit more. Just kind of want to understand, how much do you think that continued strong demand there has to do with that area of the marketing, just a healthier market overall fundamentally versus there maybe just having been more left-over pent-up demand after the past couple of years of tighter supply, kind of similar to what we saw with medium duty?
Rusty Rush: Well, I don't think that really – it's not from left over demand. We were taking care of Class 8 demand regardless, balancing it through the last few years. I think it has to do with more of the money the government’s been throwing at it. And I think some of these customers got a little bit behind, back coming out of COVID, and they are still catching up with where they got a little bit behind in the age of their fleets, not necessarily because – like, well it was balanced across the board, but they didn't take the hits in their business that the over-the-road business did, right. So those guys have had to slow down somewhat this year. I do believe this will continue. I feel good about next year. I'm not going to get out and talk about two and three year runs. But I do believe our vocational business will continue to be good. We had some issues. We could have done more vocational business this year, except there's been a lack of – we had a component issue with transmissions or we would have sold more this year than what we have. So you've got to believe that that business will carry over into ’25, what business didn't get booked and I can't quantify it exactly for you, but that business will get carried over to 25%, because that demand is still there, given what's going on. So I feel really good about where it's going to continue to be strong – excuse me, into ‘25. And then sometime in '25, we're going to pick up in the over-the-road business. The LTL business will still be good with our LTL customers, but the small customer, he’s been taken out of the market, he'll show back up by the end of ‘25, you watch. And I think the over-the-road business will pick up somewhere in ‘25 as I said, with maybe orders coming in late this year. I could be wrong, it could roll into next year, just depending on – but if this is the bottom, I do believe people are going to start thinking about how they get ready for January 1 of ‘27 and how they position their fleets from an age perspective going into all of that. But no, vocational could still be solid from the best take I can give you. We're not looking for a ‘No, I will.’ We're not looking for anything going backwards or across the board when you look across the whole country. So that would be my response.
Unidentified Participant: Okay. Got it. I appreciate that. And then just in terms of your comments about the more competitive truck pricing in the second half, any way you can kind of dimensionalize that in terms of like year-over-year price changes, and just to what extent does it vary by OEM. I'm assuming that we're really just talking about just your over-the-road Class 8, but also curious if you think that should stick kind of as we go into 2025, and it's really more of like a market share battle over pricing or really just temporary and keeping things moving through out some inventory here in a weak second half?
Rusty Rush: Well, when I say it's going to be more competitive, it will be more competitive. Understand though, the current quarter business is already booked, okay. Well, it’s not like we're booking Q3 business really right. Now we're in the middle, we're one month through a three month quarter. So that's – there's not much I can do to move that. I think, when you talk about pricing, we have – when you look at our inventories, I'm very comfortable that we have our inventories mark-to-market. We do that every quarter and have done that for 27 years. I don't come out and talk about it when you look at what truly are inventories. We're very prudent about making sure we understand where the market is and the demand and that we're – and that's not just used, that's new also across those. I feel good that we're – when I say we're, like I’m going to be competitively set up to do what we should do with our inventories. When I talk about – it's going to be more competitive, but not crazy competitive, if that makes any sense. People, I think the OEMs are going to show decent discipline. They are going to show decent discipline, because this is just a moment in time. That doesn't mean there won't be some more competitiveness, and that's really what I was trying to say. But not crazy over competitive, it's like I saw going way back to 2009 or sometime like that when it was a 92,000 Class 8 truck market. So, because understanding that all you are doing is you are setting yourself up now when the market picks up to have to – because I think the majority of all these cost increases have been required. Remember when inflation was like drove it all up, so OEMs had to catch up and they have done that and they don't want to get back in that situation again. Will they be more competitive in certain situations or certain deals, probably as needed, because they still do need some fourth quarter build, okay. At the same time, they'll manage build rates down. I guarantee you, build rates are coming down finally. That was one of the things that got out of whack. We've got way too much inventory across the whole country right now. You can go look at it. It's out of line. It’ll get to almost an all-time high, but they'll have to slow down. I know OEMs are slowing down build rates. And by the way, I'm not getting specific to any OEMs. I'm just talking broadly here. But I know build rates are going to come down, they have to. You'll see that throughout the back every year. I think they'll continue to decline through Q4. When you look at how many, I don't remember the exact stats. I don't have it on me today. I expect build rates to be down 15%, 20%, because they stayed high too long. They've got too much inventory showed down. They've got to bring them down. There's only so much the market can take. So that's my overall view of where we're at when it comes to trucks and where they're at. But we feel that when you take build rate out, you'll relieve some of the pressure on pricing, right, when you stop overbuilding. So I think we got a little bit too overbuilt here. I think build rates are coming down. I think build rates will be positioned to be ramped back up, but it will be a little more competitive. Is it going to be under what I've told people, no, it's not. Are we going to be at our highest of highs of ‘23, no, but we're not currently. We're going to stay pretty consistent. You'll see our blended rates probably fairly consistent, which it should be with where we are currently. I don't look for our margins blended, our blended margins on trucks. I don't look for them to come backwards from really from where they are at right now. That's all I can tell you. But it will be more competitive. But we believe we've marked our stuff to market and we're prepared to do that, and I expect any orders we get will be competitive, but not to the point of dramatically knocking a couple of points or something like that out of margins, okay.
Unidentified Participant: All right. That's very helpful. Thanks for the time.
Rusty Rush: You bet. Thank you for the call.
Operator: I show no further questions at this time. I would now like to turn the call back over to Rusty for closing remarks.
Rusty Rush: Yes, first off, I just want to thank our employees one more time. I know I've mentioned them a couple of times on this call, but I can't mention them enough. Their persistence and their execution of our strategies, in spite of us, we did. I reduced some expenses, and we will continue along those lines, so that we can do the right thing and produce the kind of results we're producing right now. So I would just like to thank them one more time for their efforts during this last quarter. It was tough. But we're dialed in right now, and we're going to execute, try to stay pretty flat in the back, like I said in parts and service. Work on our expenses a little bit with where we're at, because remember, I did this during the quarter. We did it during the quarter, so it'll be a little, hopefully a little bit more reduction that took place in the back half of the quarter. We're not looking to do any more. But just the fact that it was rolled into this last quarter, and we still continue to produce these outstanding results, and I look forward to continuing to do that for our shareholders and for the company. So, thank you all very much, and we'll talk to you again in October, I guess. So, appreciate it. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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