Rush Enterprises’ gross revenues totaled $1.003 billion, a 35.1 percent decrease from gross revenues of $1.545 billion reported in the second quarter of 2019, the company announced earlier this week. Net income for the second quarter of 2020 was $16.8 million, or $0.46 per diluted share, compared with net income of $41.6 million, or $1.10 per diluted share, for the second quarter of 2019, ended June 30, 2019.
“As expected, the COVID-19 pandemic and resulting shutdown orders that forced many businesses to close, combined with the previously expected industry downturn in new commercial vehicle sales, and the unexpected energy price war and precipitous drop in oil prices, had a significant negative impact on our financial results in the second quarter,” says W.M. “Rusty” Rush, chairman, CEO and President, Rush Enterprises.
“To address the challenging market conditions, we expeditiously implemented steps to appropriately reduce and manage expenses in order to maintain profitability,” Rush says. “Based on current market conditions, we believe the worst is behind us. We will continue to carefully monitor the pandemic and its impact on our customers and the general economy. We believe any recovery will be gradual and intermittent over the next few quarters.”
Aftermarket products and services revenues were $377.6 million in the second quarter of 2020, compared with $448.2 million in the second quarter of 2019. The company delivered 1,866 new heavy-duty trucks, 2,333 new medium-duty commercial vehicles, 254 new light-duty commercial vehicles and 1,768 used commercial vehicles during the second quarter of 2020, compared to 4,119 new heavy-duty trucks, 3,866 new medium-duty commercial vehicles, 719 new light-duty commercial vehicles and 2,101 used commercial vehicles during the second quarter of 2019.
The company’s lease and rental revenues decreased by 7 percent in the second quarter of 2020, compared with the second quarter of 2019. Rush Truck Leasing operates 45 PacLease and Idealease franchises with more than 8,800 trucks in its lease and rental fleet and more than 1,300 trucks under contract maintenance agreements.
Aftermarket products, services
Aftermarket products and services accounted for approximately 73 percent of the company’s total gross profit in the second quarter of 2020, with parts, service and collision center revenues reaching $377.6 million. The company says it achieved a quarterly absorption ratio of 110.2 percent in the second quarter of 2020.
“Our second quarter aftermarket revenue declined 15.8 percent compared to the second quarter of last year, due to declines across the country in almost every market segment we support, which is consistent with what is happening across the industry,” says Rush. “Activity from the energy sector remains the most severely impacted. Global pricing actions have negatively affected rig counts and the number of energy vehicles in service, and this segment is not expected to improve in the near term.
“Early in the second quarter, we saw the negative impact of COVID-19 on parts sales. However, as the quarter progressed the decline in demand for vehicle upfitting, reduced pre-delivery inspections as a result of fewer new truck sales and a reduction of our service technician workforce caused service revenues to lag behind parts revenues” Rush says.
“Looking ahead, there is still tremendous uncertainty about the strength of our overall economy. We expect that any recovery will be gradual and that COVID-19 will continue to impact our aftermarket revenues for the foreseeable future,” Rush says. “That said, we will continue to execute our strategy and invest with discipline, especially in the technologies that are helping us support customers safely during the pandemic. For example, our RushCare Call Centers are fully equipped to handle customer phone calls within seconds, Parts Connect offers online ordering and Service Connect offers 24/7 real-time communications. Each of these technologies enable our customers to transact business with us safely, efficiently and conveniently, no matter where they need us. We plan to expand and enhance these types of product offerings in the future.”
Commercial vehicle sales
The company sold 1,866 new Class 8 trucks in the second quarter, a decrease of 54.7 percent compared with the second quarter of 2019, and accounted for 5.2 percent of the new U.S. Class 8 truck market. ACT Research forecasts U.S. retail sales for new Class 8 vehicles to be 159,000 units in 2020, a 43.5 percent decrease compared to 2019.
“Our Class 8 new truck sales in the second quarter were down significantly from the same time period in 2019, as we expected they would be, due to the anticipated industry downturn in new Class 8 truck sales and the COVID-19 pandemic. New truck sales were further impacted by production shutdowns in the beginning of the quarter by the truck manufacturers we represent. It is worth noting that ACT Research’s current estimate of 159,000 new U.S. Class 8 retail truck sales in 2020 has increased from last quarter, when ACT Research estimated annual sales would only reach 127,500 units,” says Rush.
“In the second quarter, we experienced overall declines in demand for new Class 8 vehicles from all customer segments. While we are beginning to see quoting activity increase, we believe customers remain hesitant to purchase new vehicles due to uncertainty regarding the COVID-19 pandemic, the economy and the upcoming presidential election. Our truck sales professionals remain focused on understanding the needs of our customers and are positioned to support them during these challenging times. Additionally, most of the truck manufacturers we represent are offering favorable financing terms to support customers and stimulate new truck sales,” Rush says.
The company sold 2,333 new Class 4-7 medium-duty commercial vehicles in the second quarter of 2020, a decrease of 39.7 percent compared with the second quarter of 2019, and accounted for 4.6 percent of the U.S. Class 4-7 commercial vehicle market. ACT Research forecasts U.S. retail sales for new Class 4 through 7 vehicles to reach 176,500 units in 2020, a 33.9 percent decrease compared to 2019.
“Similar to our Class 8 new truck sales, our second quarter Class 4 through 7 new commercial vehicle sales were significantly impacted by the COVID-19 pandemic and overall industry downturn,” says Rush. “Uncertainty about our economy remains a concern for our medium-duty customers, as many are small businesses. Though we have seen some cancellations of Class 4 through 7 new truck orders, those cancellations are not as prevalent as we expected. We believe our medium-duty truck sales will continue to be negatively impacted by the pandemic and overall weakness of the economy.”
The company sold 1,768 used commercial trucks in the second quarter of 2020, a decrease of 15.8 percent over the second quarter of 2019.
“In anticipation of a decline in used truck sales resulting from the pandemic, we took aggressive action to reduce inventory and used truck pricing. Following a significant decline in sales in April and May, used truck sales began to stabilize in June, and we expect used truck sales to remain steady moving forward. A bright spot in the market is that spot freight rates are healthy, which is encouraging more new businesses to enter the market, and those new business usually begin by purchasing used trucks,” Rush said.
Liquidity, expense reduction
The company ended the second quarter with $215.6 million in cash, compared to $137.5 million as of March 31, 2020, and had no outstanding draws on its $100 million line of credit.
In the second quarter, the company continued the expense reduction measures initiated in the first quarter to help navigate the challenging economic and industry conditions, the company reports.
“Our expense reduction measures were widespread, came from all areas of the business and barring any major unforeseen event, we don’t anticipate making any further expense reductions at this time,” says Rush.
“It is also important to note that, despite our cost containment efforts, in early July we announced an increase to the minimum wage that we pay our hourly employees. All of our hourly employees now make a minimum of $15 per hour. We made this change to improve the lives of our employees and their families, and encourage them to build long careers with us,” Rush says. “Earlier this week, we also announced that the wage freeze that we implemented during the second quarter has been lifted for our service technicians in recognition of the important work they are doing to keep our customers up and running.”
Response to COVID-19, business outlook
“As anticipated, following the limited effects of the COVID-19 pandemic on our revenues in the first quarter of 2020, we experienced significant revenue declines in the second quarter. We expect our business to be negatively impacted by COVID-19 for the foreseeable future, but we are cautiously optimistic that we will not see any further declines in revenues. With the expense reductions we have put in place over the past two quarters, we feel we are rightsized to meet the demands of the market while ensuring our Company’s long-term financial strength,” says Rush.
“It should be noted that our first and foremost concern remains the health and safety of our employees, customers and communities. Accordingly, we have implemented appropriate policies and procedures to ensure that our locations are operating in as safe a manner as possible,” Rush added.
Supporting essential functions while focusing on health, safety
Classified as “essential businesses,” Rush Truck Centers have remained fully operational across the company’s dealership network, though some hours of operation remain modified to accommodate previous staffing reductions and frequent cleaning and sanitizing of locations. The company says it continues to provide curbside parts pick-up, online parts ordering and web-based vehicle service communications.
“We continue to stress the importance of compliance with CDC guidelines and all applicable federal, state and local executive orders for limiting the spread of COVID-19. In addition, we are frequently communicating with employees regarding our mandatory COVID-19 policies and procedures. Even in states or cities in which face coverings are not required, our employees are required to wear face coverings at all of our locations,” says Rush.
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