While comparisons with the Great Recession are inevitable, the longer-term impacts of the coronavirus pandemic on Rush Enterprises Inc. (NASDAQ: RUSHA), the nation’s largest network of commercial vehicle dealerships, are yet to come.
“Obviously, many of our customers have significantly reduced their operations and nobody knows when the national economy, or society in general, will reopen in any meaningful way,” CEO W.M. “Rusty” Rush said.
Though his business experienced only a brush of pain from the health crisis as the first quarter ended in March, Rush told analysts on the company’s first-quarter earnings call on Thursday that second-quarter retail sales are a question mark.
“It’s not going to be cut in half or anything, but I would expect it to be down significantly,” he said.
Rush faces a grim reality – he cannot sell what manufacturers don’t build. Only about 7,400 Class 8 truck orders were placed in March.
“I don’t anticipate much difference in April,” Rush said, “Everything is going to be hand-to-mouth going forward.”
The retail sales rate over the last 12 months is running at about 104,000 trucks, the lowest since 2009. ACT Research pegs Class 8 retail sales at 127,500 this year, 54.7% below 2019.
Low expectations
Monthly new truck orders, which presage what Rush will have to sell to his large and small fleet customers, have run below prior-year bookings for more than a year.
Class 8 truck manufacturers have suspended most production for the last six weeks. Daimler Trucks North America, which makes Freightliner and Western Star brand trucks, restarted production this week. Volvo Trucks North America will begin limited builds next week. Others are waiting until early May to resume.
“That has a direct impact on what we’re going to deliver,” he said. “If they’re not building anything, my in-box of deliveries starts running out.”
By the numbers
Rush reported 4.4% lower first-quarter revenue of $1.29 billion compared to $1.35 billion a year ago.
First-quarter net income was $23.1 million, or $0.62 per diluted share, down 38% from $37.1 million, or $0.98 per diluted share a year ago.
Parts, service and collision center revenues reached $428 million and accounted for about 67% of gross profits.
“With only a few minor exceptions, our parts supply chain has remained uninterrupted to date,” Rush said. Parts inventories have been increased by 30 days, hedging against temporary supplier-related warehousing or logistics challenges.
Rush delivered 3,078 new heavy-duty trucks, 13.5% fewer year-over-year and 3,264 new medium-duty commercial vehicles, up 24.9% compared with the first quarter a year ago. Used commercial vehicle sales of 1,558 were down 15.3%.
Rush cut new and used truck prices, reducing its profit margin to about 5.7% compared to the typical 8-10%.
“We believe our inventories are appropriately valued to meet the needs of the market,” Rush said.
Coping with COVID-19
Truck dealerships are considered “essential businesses” and most of Rush’s 7,000 employees are working during the pandemic. Some hours have been cut and in-person truck sales have been curtailed. Employees unable to work as a direct result of COVID-19 qualify for up to two weeks of additional sick pay.
“We are following best practices to protect the health of our employees, customers and the public, while responding to changing customer demand,” Rush said. That includes curbside parts pick-up, online parts ordering and web-based vehicle service communication to reduce in-person interactions.
Financial health
Rush has $138 million in cash on its balance sheet and renewed a $100 million line of credit for two years. It has not taken any draws against it. The company repurchased $19 million in outstanding stock during the first quarter but has suspended its buyback program.
Rush took a 25% pay cut and the senior executive team reduced their salaries by 10%. Members of the board of directors voted to reduce the amount of their annual cash retainer by 10%.
“Our balance sheet is healthy, and we believe the company is well-positioned to navigate the economic and industry challenges that lie ahead,” Rush said.