Rush Enterprises, Inc. (NASDAQ:RUSHA) Q4 2023 Earnings Call Transcript February 14, 2024
Rush Enterprises, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and thank you for standing by. Welcome to Rush Enterprises, Inc. Reports Fourth Quarter 2023 Earnings Results. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Rusty Rush, President, CEO, and Chairman of the Board. Sir, you may begin.
Rusty Rush: Well, good morning, and welcome to our fourth quarter and year-end 2023 earnings release call. 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.
Steven 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 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, 2022, and in our other filings with the Securities and Exchange Commission.
Rusty Rush: As indicated in our news release, we achieved annual revenues of $7.9 billion, and net income of $347 million or $4.15 per diluted share. In the fourth quarter, we achieved revenues of $2 billion, and net income of $78 million or $0.95 per diluted share. In addition, we are pleased to declare a cash dividend of $0.17 per common share. Throughout 2023, there was pent-up demand for new commercial vehicles due to limited production over the past few years. With respect to new Class 8 trucks, that pent-up demand was largely fulfilled by the end of 2023. With respect to the Class 4-7 commercial vehicles, demand remained solid. The manufacturers we represent were able to increase production throughout the year, which led us to significantly – I believe, this is significantly outpacing the industry with respect to new Class 4-7 commercial vehicle sales.
Despite a challenging operating environment in 2023 caused by low freight rates and high interest rates, which led to great general softness in parts and service sales industry-wide, we were able to achieve a healthy growth in the aftermarket revenues. The growth was due primarily to our ability to support large fleets and strong demand from the diverse range of market segments we support, including our refuse, public sector, wholesale and energy customers. In addition, our aftermarket revenues also increased due to the addition of 215 service technicians to our network. Expanding our service technician workforce is a key aspect in a certain of our strategic initiatives. Overall, we are very proud of both our operational and financial performance in 2023.
A convoy of vehicles in a large parking lot, showing the myriad of leasing and rental services offered.
In the aftermarket, our annual parts, service and body shop revenues were $2.6 billion, up 8% over 2022 aftermarket results. And our annual absorption rate was 135.3%. As I previously mentioned, we added 215 service technicians to our network last year, which enhanced our ability to execute on certain of our strategic initiatives, including Xpress services, contract maintenance, and mobile service offerings. We also experienced healthy part sales growth from our energy, refuse and leasing customers. Looking ahead, we expect the challenging freight conditions and high interest rates will continue to impact our customers and that aftermarket demand in the first half of 2024 will be similar to the second half of 2023. However, we are cautiously optimistic that the current freight recession may begin to ease in the summer.
In addition, we believe that our diverse customer base, our ability to support large national fleets, and our ongoing focus on our strategic aftermarket initiatives will allow us to outpace the aftermarket industry and to achieve flat to modest aftermarket growth in 2024. Turning to truck sales. We sold 17,457 new Class 8 trucks in 2023, accounting for 6.2% of the total U.S. Class 8 market and 2% of the Class 8 market in Canada. As previously stated, we experienced healthy demand from a variety of market segments. However, the pent-up demand from the Class 8 market has been satisfied. ACT Research forecast Class 8 retail sales to be 214,300 units in 2024, down roughly 22% from 2023. Though, the industry is expecting new Class 8 truck sales to be down significantly in 2024 due to challenging economic and industry conditions.
We are confident that we will be able to navigate a down year and outpace the industry in 2024 due to our strategic decisions we made in prior years to diversify our customer base and focus on vocational customers. Our Class 4-7 new truck sales reached 13,624 units in 2023, or 5.1% of the U.S. market and 2.9% of the Canadian market. In addition to pent-up demand due to limited new medium-duty commercial vehicle production over the last few years, the manufacturers that we represent were able to increase production throughout the year. Those factors along with our ongoing efforts to diversify our customer base and support large national accounts allowed us to significantly outperform the industry in 2023. We are still experiencing delays from truck body companies, and these delays impacted deliveries during the fourth quarter, which limited our growth somewhat.
ACT Research forecast Class 4-7 retail sales to be 254,250 units in 2024, up slightly from 2023. As we look ahead, we expect they will continue to see improvements in the medium-duty commercial vehicle production for the manufacturers we represent, and we expect customer demand to remain strong. In both of these things occur, we believe our Class 4-7 commercial vehicle sales will remain strong in 2024. Our used truck sales reached 7,117 units in 2023, relatively flat compared to 2022. Through the high interest rates and soft freight rates, demand for used trucks was weak, and used truck values declined throughout 2023. In 2024, we expect that demand for used trucks will remain flat, but the rate at which used trucks are depreciating will continue to decrease, and the used truck values will stabilize somewhat over the course of the year.
We are confident our diverse product mix and ability to move inventory throughout our network will help us to continue to effectively navigate the used truck market in 2024. Looking ahead, we expect demand for Class 8 trucks to be soft, while demand for Class 4-7 commercial vehicles remains healthy. It should be noted that delays from body companies may continue to impact deliveries of new Class 4-7 commercial vehicles. We will continue to monitor freight rates, interest rates, consumer spending, and other economic factors that impact both commercial vehicle sales and aftermarket demand in our industry. Despite challenging market conditions, we are confident that the strategic decisions we’ve made in the past several years to diversify our customer base on supporting large national accounts and to add technicians to our workforce has well-positioned to perform in 2024.
As always, it is important that I take a moment to thank our employees for their incredible work during 2023 and providing world-class service to our customers, while staying focused on our company’s long-term goals. With that, I’ll take your question.
