Rush’s Net Income in 2015 Hurt by Declines in Energy Sector, Used Truck Values

Rush Enterprises, Inc. (NASDAQ:RUSHA) (NASDAQ:RUSHB), which operates the largest network of commercial vehicle dealerships in North America, announced revenues of $5 billion and net income of $66.1 million in 2015, compared with revenues of $4.7 billion and net income of $80.0 million in 2014.

Rush Enterprises, Inc. (NASDAQ:RUSHA) (NASDAQ:RUSHB), which operates the largest network of commercial vehicle dealerships in North America, announced revenues of $5 billion and net income of $66.1 million in 2015, compared with revenues of $4.7 billion and net income of $80.0 million in 2014.

“We were able to offset lost revenues from declining energy-related Class 8 truck sales with lower margin truck sales to large fleets throughout 2015.  This lower margin business combined with declining demand for aftermarket services from the energy sector and a significant decline in used truck values in the fourth quarter had a negative impact on net income and earnings,” said W. M. “Rusty” Rush, Chairman, Chief Executive Officer and President of Rush Enterprises. “To help offset this decline in business we are implementing broad and significant expense reductions. However, as in past years, the cost of employee benefits and payroll taxes will negatively impact expenses in the first quarter of 2016.  

“During 2015, we continued to invest in our long-term growth strategy.  We expanded our network to 21 states through acquisitions in Georgia, Illinois and Nevada and increased service capacity in existing markets through expansion of existing facilities in California and Tennessee and construction of new facilities in Ohio and Texas.  In the area of aftermarket solutions, we substantially completed the rollout of our RushCare Rapid Parts call centers and introduced our new Momentum Fuel Technologies compressed natural gas fuel system and a new telematics offering.  We also implemented an advanced service management system throughout our network that will lead to real-time and transparent communications for customers with vehicles in our service shops. We also continue to implement improved practices in procurement, asset management, process standardization and customer satisfaction.”

Aftermarket Solutions

Aftermarket services accounted for 64.1% of the company’s total gross profits in 2015 with parts, service and body shop revenues reaching $1.4 billion, up 5.1% over 2014. The company achieved an annual absorption ratio of 115.6%. 

“We began to see a negative impact to overall parts and service revenues from decreased activity in the energy sector in October.  Demand from the energy sector continued to deteriorate throughout the fourth quarter as oil prices continued to fall.  We expect decreased activity in the energy sector will negatively impact aftermarket revenues in 2016.”

Truck Sales

In 2015, Rush Class 8 retail sales accounted for 6.7% of the total U.S. Class 8 market, compared to 7.1% in 2014.  The company sold 16,874 Class 8 trucks in 2015, an increase of 7% compared to 2014.

“Our geographic diversity and hard work allowed us to replace lost energy-related new Class 8 truck sales with incremental sales to large over-the-road fleets throughout the year.  However, in the fourth quarter, our Class 8 new vehicle sales decreased approximately 28%, compared to the fourth quarter of 2014,” said Rush. 

ACT Research forecasts U.S. retail sales of Class 8 trucks to total 222,000 units in 2016, a 12.2% decrease from 2015 retail sales. 

“Additionally, an increased supply of used trucks resulted in a sharp decrease in used truck values during the second half of 2015.  As a result, we incurred a significant write-down to used truck inventory values in the fourth quarter,” Rush explained. 

“Given the decreasing freight trends, increased capacity as a result of 2015 being the best truck sales year since 2006, lower used truck values and ongoing slowness in the energy sector, we believe 2016 U.S. retail sales of Class 8 trucks could be significantly less than ACT Research currently forecasts.”

Rush’s U.S. Class 4-7 medium-duty truck sales reached 11,241 units in 2015, up 13% over 2014, outpacing the industry’s Class 4-7 new truck sales, which were up 8.3% in 2015.   Rush’s medium-duty new truck sales accounted for 5.2% of the total U.S. Class 4-7 market. 

 “Our investment in work-ready medium-duty inventory at our dealerships continues to drive strong sales performance because we can meet the immediate needs of medium-duty vocational customers.   Sales to large medium-duty fleets, primarily in the lease and rental and food and beverage industries, also contributed to our strong sales performance,” said Rush.

ACT Research forecasts U.S. retail sales for Class 4-7 vehicles are forecast to reach 218,350 units in 2016, a 0.1% increase over 2015.  “We believe our Class 4-7 truck sales will remain stable through 2016,” said Rush.

In the fourth quarter of 2015, the company’s gross revenues totaled $1.2 billion compared to gross revenues of $1.3 billion reported for the fourth quarter of 2014. Net income for the quarter was $9.8 million, or $0.24 per diluted share, compared to $24.6 million, or $0.60 per diluted share, in the quarter ended December 31, 2014.  These results included a $6.1 million write-down of new and used truck inventory in the fourth quarter of 2015, which reduced quarterly and 2015 earnings by $.09 per diluted share.  The company recognized a pre-tax charge of $3.4 million in its depreciation and amortization expense related to the impairment of the company’s aircraft in the fourth quarter of 2014, which reduced quarterly and 2014 earnings by $.05 per diluted share. 

For the year ended December 31, 2015, the Company’s gross revenues totaled $5.0 billion compared to gross revenues of $4.7 billion reported in 2014. The Company reported net income for the year of $66.1 million, or $1.61 per diluted share, compared with a net income of $80.0 million, or $1.96 per diluted share in 2014. 

Aftermarket services revenues were $331.4 million in the fourth quarter of 2015, compared to $335.1 million in the fourth quarter of 2014.  The fourth quarter absorption ratio was 111.8% as compared to 119.3% in the fourth quarter of 2014.  The Company delivered 3,686 new heavy-duty trucks, 2,764 new medium-duty commercial vehicles, 518 new light-duty commercial vehicles and 1,882 used commercial vehicles during the fourth quarter of 2015, compared to 5,119 new heavy-duty trucks, 2,393 new medium-duty commercial vehicles, 352 new light-duty commercial vehicles and 2,213 used commercial vehicles in the fourth quarter of 2014.   Fourth quarter Class 8 retail sales accounted for 6.1% of the U.S. market as compared to 8.1% for the same time period in 2014.  Class 4-7 retail sales in the fourth quarter of 2015 accounted for 4.6% of the U.S. market as compared to 4.5% for the same time period in 2014.

Aftermarket services revenues were $1.4 billion in the year ended 2015, compared to $1.3 billion in the year ended 2014.  The company sold 37,702 new and used commercial vehicles in 2015, a 7% increase compared to 35,352 new and used commercial vehicles in 2014.  The company delivered 16,874 new heavy-duty trucks, 11,241 new medium-duty commercial vehicles, 1,665 new light-duty commercial vehicles and 7,922 used commercial vehicles during 2015, compared to 15,833 new heavy-duty trucks, 9,922 new medium-duty commercial vehicles, 1,704 new light-duty commercial vehicles and 7,893 used commercial vehicles during 2014. 

The company’s Rush Truck Leasing operations increased revenues by 12.6% in 2015 compared to 2014, primarily as a result of acquisitions and a successful service model that attempts to maximize uptime for contracted customers.  Including newly acquired franchises, Rush Truck Leasing now operates 72 Paclease and Idealease franchises in markets across the country with more than 7,800 trucks in its lease and rental fleet and an additional 1,345 trucks under contract maintenance agreements.  

 

 

 

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