Rush Enterprises, Inc. (RUSHB) Q1 2008 Earnings Report, Transcript and Summary

Welcome to the Rush Enterprises Incorporated first quarter 2008 Earnings Call. This call is being recorded. At this time, for opening remarks and introduction I would like to turn the call over to Mr. Marvin Rush, Chairman of the Board. Please go ahead, sir.

Good morning and welcome to our first quarter 2008 earnings release conference call. On the call with me today are Rusty Rush, Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Vice President and CFO; Jay Hazelwood, Controller of Rush Enterprises and Derrek Weaver, Chief Compliance Officer. Now Steve Keller would like to say a few words regarding the forward-looking statements.

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, 2007 and in our other filings with the Securities and Exchange Commission.

Now we would like to give you an update on our progress. Let's talk about the third-quarter results. In the first quarter, the company revenues totaled $404 million, a 24% decrease from revenues of $531 million reported for the same period last year. Net income for the quarter was $9.7 million or $0.25 per diluted share compared to $13 million or $0.34 per diluted share in last year's first quarter. Let's talk about the business segments. The truck segment: Our truck segment recorded revenues of $377 million in the first quarter of ‘08 compared to $505 million in the first quarter of ‘07. The company delivered 1266 new heavy-duty trucks in the first quarter of 2008 compared to 2030 heavy-duty trucks in the same period of '07. Revenue from Class 8 truck sales decreased $88 million or 37% to $152 million in the first quarter of '08 compared to $240 million in '07. In the first quarter of '08, 972 medium-duty trucks were sold versus 1439 new medium-duty trucks in the same quarter last year. Revenue from medium-duty trucks sales decreased $21 million or 28% to $55 million in the first quarter of '08 from $76 million in '07. The company delivered 900 used trucks in the first quarter of '08 compared to 1077 in the same period of '07. Revenue from used truck sales decreased to $11 million or 20% from $243 million in the first quarter of ’08 from $54 million in ‘07. Parts, service and body shop sales decreased 1% to $109 million in the first quarter of '08 compared to $110 million in '07. Gross profit margins on backend sales remained relatively flat at 43% in the first quarter of '08. Talk about the construction equipment business: The construction equipment segment recorded revenues of $22 million in the first quarter of '08 compared to $21 million in the first quarter of '07. New and used construction equipment sales revenue increased 1% to $16.9 million in the first quarter of '08 compared to $16.7 in the first quarter of '07. Construction equipment parts, service and body shop sales increased approximately 16% to $5.2 million in the first quarter of '08 from $4.5 million in the first quarter of '07. Our absorption rate: we remain focused on increasing our absorption rate. Our absorption rate increased to 104.9% during the first quarter of '08 from 101.7% during the first quarter of '07. This strength in our absorption rate was primarily driven by the expense reductions implemented during the first quarter. Our goal is to achieve an annual absorption rate of 105% in '08, which is consistent with '07, despite the decrease in Class 8 truck market. Talk about the industry outlook: As expected, the impact of the Class 8 and medium-duty truck market downturn that was originally forecast to recover in late '07 has continued to the first quarter of '08. We believe that the current freight and capacity environment coupled with record high fuel prices and tightening credit will cause Class 8 and medium-duty truck deliveries to remain soft through the remainder of 2008. Recently, A.C.T. Research has lowered their estimate of 2008 US Class 8 truck deliveries to approximately 140,000 units, a 10% decline over the already depressed 2007 Class 8 truck market. Currently A.C.T. is forecasting retail sales of medium-duty trucks in the US to be down approximately 12% in '08 compared to '07. However, we believe sales of medium-duty trucks in the US will decline approximately 20% to 25% in '08. Currently, we do not believe there will a significant recovery in truck sales until the first quarter of '09. However, we continue to believe that 2009 will be a strong year for Class 8 truck deliveries given replacement cycles of vehicles purchased in 2004 to 2006 and impending 2010 emission regulations. In recent months, we have experienced increased interest in alternative fuel vehicles. Greater availability of alternate fuel vehicles in the commercial truck market coupled with rising diesel prices and tax credits have made such vehicles a viable alternative for some customers. Alternative fuel vehicles are significantly more expensive than their diesel counterpart. However, the Energy Act of 2005 provides tax credit, for certain qualified alternate fuel vehicles that significantly closes the price gap to the customer. When qualified alternate new vehicle is sold to tax-exempt entities, such a municipality or an exclusive [jurisdiction] or school district, the selling dealer may apply for tax credit. And is that dealer’s discretion to pass through some portion of the credit to customer. A tax credit from the IRS is treated as a reduction in income tax expense, while the amount of dealers who give us the tax-exempt entity is recorded as additional selling expense. Through the first quarter, we have not applied for any alternative fuel vehicle tax credits, however in the future these transaction will only increase our SG&A expense and reduce our effective tax rate and in turn reduce our federal income tax expense. We are now prepared to answer any questions you may have. Operator, please review the procedure for asking questions.

Thank you. (Operator Instructions). And we'll go first to Peter Nesvold with Bear Stearns.

Good morning, guys.

Good morning Peter.

First, just a quick housekeeping item, what was the pricing by different products?

Pricing by, you want to talk about Class 8 average sales price Peter?

Exactly, yeah, so we can just factor it into the model.

Sure. Average sales price was $120,289.

Okay.

On Class 8 new, and medium was $56,756 and used was $47,323.

Great, that’s helpful.

Yeah.

Maybe can I ask a little bit on construction equipment here, which is usually kind of an afterthought in the model, but really pretty surprised that it came in flat year-over-year, given you guys that dealership I believe is down in Houston, which I would think is, we are really benefiting from continued rises in oil prices. So what's going on with the construction equipment dealership that you see and do you think, what's going on with the construction equipment, dealership that you see, and do you think it would remain flat year-over-year or was this something one-timish about some softness here in the quarter?

Yeah Peter, this is Marty. Let's talk about the different segment that effect that store. You've got oil and gas, which is obviously big piece of growth right now, you've got non-residential construction and then you've got residential construction. The market in total right now for the first quarter not that -- just our calendar first quarter is down about 8%. It was up pretty good last year and that 8% decline is really a mix issue between residential construction and non-residential. Pipeline business is still strong. I would say it's relatively constant with what it was a year ago. Non-residential construction is holding its own. However, the residential construction is down significantly, the housing starts and applications for housing in Houston are down very substantially. So the reality is any revenue growth that we experienced out of that store, we've forecasted very modest revenue growth at that store because the housing construction piece is a big piece of our sales model. So, our growth in the first quarter actually we are pretty pleased with, given the [downturn] in the market.

Yeah. I guess no one is immune against it this year due to the housing downturn. I guess next question would be on just what's going on with the LTLs and the TLs right now, we saw some pretty weak reports out yesterday at a Con-Way and Werner coming out of the mid-America truck show, and not too surprising with fuel and freight seeming to take a double dip downturn here, will your conversations like with fleets these days and is that do you think the reason why we saw these orders slowdown in the last two months? Do we need to see either freight rebound or oil stabilize before we see any kind of meaningful firming of Class 8 demand?

Peter I think you hit it pretty much on the head. Obviously there still is a capacity issue out there. At the same time, and I can speak pretty clearly to you, I have been with a lot of customers here over the last week especially. I do see freight tonnage, the gap between freight tonnage and capacity closing, okay. It is headed in the right direction. I would tell you most of the issues are not necessarily due to a lack of freight tonnage or lack of work. It is a lack of margin pressure. You’ve got margin pressure on all sides, I would think from all. If you are a customer, you can’t give us -- you are still excess capacity, now the gap is closing, so you can’t get any pricing. You’ve got operating pressure that’s been totally exasperated by this fuel problem with the fuel or the diesel prices of the last 120 days. And then you have the overall cost of equipment. It has risen dramatically so your cap cost have been up dramatically over the last couple of years. So there really isn’t any piece. There is nothing really good in any of that from our customer base. But I would tell you that the capacity issue, I think capacity will continue that gap between this and freight tonnage is closing. We’ve sent the worst of that and we are headed in the right direction. So I look for some rebounds in some of our customer’s businesses later this year. But it is not anything that’s going to be dramatic you are going to see in the second quarter. I do not believe that. But its still very unclear as far as technology when you look at the 2010 emissions as to which, as to where you are going to have choices in technology and I think right now everybody is still not really focused on purchasing so much, as operating in this very difficult environment we are in.

About the -- if I can play that back, then it sounds like your view is that the demand environment for freight is -- there is no there is no lack of work?

I don't think the overall and I mean there will be pockets here and there, no question, but I think there is demand there. Yes, I do believe there is still this freight to haul, it may not be as quality of freight, its what you could have picked up and driven some margin into, a year or two ago but there is a freight to haul.

So this freight to haul and you are saying that access capacity is gradually leaving the truckload industry and that we get to a more reasonable balance, maybe towards the end of the 2008?

No question.

And so that supports rate environment, firming a rate environment and then there is more money, revenue CapEx, dollars spend in '09 ahead?

That’s exactly -- and your outlook is quite so hazy. Right now it's pretty foggy. It's hard to get -- I believe this is all going on but from our customer’s base I do believe it is a very hazy outlook at the moment but I do believe we are headed in the right reduction. There is no question in my mind we will be headed in the right reduction; we are in the bottom. When you look at our deliveries, I am going to tell you that they are not going to go up. Okay, substantially you are not going to see anything like that as we go out into next quarters Peter, but I do believe we are in the trough right now. So there is only one way in my mind to go from here to later this year, not right away. But that's really what I see.

And two other quick questions, where are you on inventories right now because when I look at Class 8 inventories, there’s a sort of back down in the 10 year average for the industry, although much higher than we normally would see it as a trough and when I look at medium-duty, you said nosebleed levels. I means it just massively too high for the industry and so for you specifically, where do you think you are in your whole inventory cycle right now? Do you have to continue to work [stock-down] or do you think you are going to have to start to restock at some point this year?

I think really we are pretty much stocked accordingly where we need to be for what we see the market being, I will tell you this when you look at Class 8 from the small guy, the owner operator in the small, small fleet. Those sales were up dramatically from last summer, no question. So, I am comfortable. Our inventory levels are down, but we are going into the more of the selling season at the same time. So, there is a balance in there. You want to be prepared if you do get some uptick, which we typically do once we come out of the winter time. You get an uptick as you go into later spring and into the summer. Those are historically our best into third quarter. Those historically are best months for Class 8 stock sales. So, I am comfortable really with where we are at the moment. I mean I would tell you, if it was based just first quarter sales, Peter, I'd want it to be lower. But understanding the seasonality and where we are, we hope we are heading into a little better sales in those areas. We should be stocked accordingly.

Okay. The last quick one, any view here on the 2010 pricing for I think the [plant] trucks?

Peter, I will talk with you offline about it, but I don't really want get into all that right now. I don't have a strong enough view to me to sit here at the moment. I have thoughts, but I really don't have a strong enough view to sit here on the call. Okay?

Thanks, Rusty.

You bet.

And we'll take our next question from John Barnes with BB&T Capital Markets. John Barnes - BB&T Capital Markets: Hi. Good morning, guys.

Good morning, John.

Hello, John. John Barnes - BB&T Capital Markets: Firstly, any of the weakness that you saw in the first quarter, I mean whether with either new Class 8, used or medium, did any of that come as a shock? I mean you were kind of in line with my numbers, so I don't think so. But if there are any weakness in there that surprised you at all?

No, not really. I tried the last call we had here couple of months ago. I tried to say that I was below market expectations and I make most of other people lowered their numbers more in line with what I thought was going to be, when the year was going to play out. I thought we would deliver maybe a few more units, but it's just a tough, tough environment. I knew it was going to be substantially down. Well, maybe I missed it, but I thought we'd deliver 50 to 75 more units, but we're getting real, we are [partners] here now. John Barnes - BB&T Capital Markets: Yes, absolutely.

Again, we are in the trough, but I do not see it over the next couple of quarters any dramatic rise in truck deliveries. I just don't see it. John Barnes - BB&T Capital Markets: Okay.

Okay? It's not out there. I mean you don't hear of the lot of production increases, do you, at the manufacturing level? John Barnes - BB&T Capital Markets: No, no.

So, forget whether we had four months running a 20,000 units in order intake. I think much more indicative is the production levels. I think we all can see where they are at. John Barnes - BB&T Capital Markets: Well, let me ask you that on the production side. I mean Freightliners are now beginning to lay off 1,500 people out of their North Carolina facility. Does that impact, what the magnitude of a pre-buy could be if they are cutting back and are not going to prepare for a certain surge in demand?

John, don't worry. They can wrap up quick enough. John Barnes - BB&T Capital Markets: Okay, fine. So, it doesn't necessarily translate in the market share for PACCAR and then for you?

I am sorry. What was the question? John Barnes - BB&T Capital Markets: Well, what I am saying is the Freightliner is scaling back and is not prepared to meet demand. Or let's say demand kind of shot up in third and fourth quarter this year with some kind of pre-buy. Do you think either PACCAR and therefore your company takes market shares as a result?

Let's put a strong conjecture, but I have all the confidence in the world in my manufacturer being able to adjust to whatever the market conditions are. And I am sure the competition will probably do the same. They can adjust pretty quickly now. Their models are much more nimble than they were historically when you go back 10 or 20 years and how to work their workforce. John Barnes - BB&T Capital Markets: Okay. We've heard from a couple of the truckers that have reported so far declining gains on sale of used equipment and that type of thing. In terms of your average selling price, was there any surprise and matters again just given the market about where you expected it to be?

No. I mean, yes, you look at it. Our average sales price I think last year was about 49,825 in the first quarter and, and is $47,323 right now, obviously there is some pressure on used. Okay, we're seeing some pressure on used, I know one thing that we are safe on our used values and trade commitments, I feel confident and where our inventory is at, and our commitments looking at, I don't have a lot of long-term commitments and I'm still trading with customers and operating my business the way I have to you better believe it. At the same time, we've been cautious in our approach to long-term commitments on used valuations and we'll continue to take that approach as we go forward. Because, we had some last year with the sales of older trucks overseas, it allowed the market to absorb more here in the US, because they took more of the overseas will take more cookie kind of trucks I'd say, and I know one way to term it, and which took some pressure off our pricing, and we had a fairly good used year, in fact we ended up for the year ago in gross profit, we were up used, but now that's not the case in the first quarter, there has been deterioration in pricing which has also had some deterioration in our margin in the first quarter, but we're comfortable and navigate through it, unfortunately which is something we'll have to deal with. John Barnes - BB&T Capital Markets: Okay. Given that you had a pre-buy a couple of years ago, there has been a little less activity in the last say 18 months, the fleets are starting to get a little bit of age on them. Do you see your parts and service business maybe growing at a faster incremental rate than you had originally planned, or and especially if they try to stretch out a little longer, if this economy remains a little lackluster, do you see that momentum kind of growing a little bit faster than you originally thought or -- the same kind of growth?

Down the road you might see that. Right now you've got to understand what's happens in one of these cycles, it becomes a battle of survival, not just for us, but for our customer base. Our parts sale, you are going to see service sales possibly pick up, and have some increase, but as far as like part sales, you don't replace it, you fix it. You do take it off an excess truck and put it on there. I mean that's what when you get in these types of environments that is the reaction of a lot of the customers. And I understood. But your long-term, that's a short piece of the cycle, now if we were not to get the pickup, and ‘09 didn't turn out the way that we are in‘09, yes, I would say you could be right on with those comments. Here in '08, must remember that we have the youngest fleet ever when we started this, so it's not like we should extend it that far out at the moment. Everybody still have plenty of new product they put on board in late '06 and early '07 as you spillover from the '06 pre-buy went into the fleet, so we are not there yet, and that was nine months down the road. Yeah, those comments that you made, you could attribute more credence to those comments. John Barnes - BB&T Capital Markets: All right, last question. Anytime you get an environment like we are in right now, big chart to think a little bit more realistic about valuations on our businesses, and have you seen your pipeline on potential acquisition targets on any of your businesses improved at all, or is there a little bit more product out there to show from an acquisition standpoint?

As you know we announced, we are closing, our plans are to buy two stores in Charlotte, Charlotte Peterbilt store and also a separate Charlotte Navistar store which we are excited about both, Also an Hino and Isuzu franchises come with those, so I really don't have anything else, John. Activity? Yeah, there is some, and there are some other stuff going, but that's something I am not going to comment on at the time. So the longer this stretches out though, again those comments are much more valid. You will definitely see probably more opportunities. At pricing, well that's an issue you deal with on each individual deal, though. John Barnes - BB&T Capital Markets: Sure. Good deal.

Okay. But the opportunities should, if this stretches out longer than anticipated. I mean if we run, I think it's going to run though the whole year as I said especially from the retail side. You might get some pick up in production in fourth quarter, if things come to pass but remember we are on the end of the food chain, so we are the one here. There is always a lag between production and retail delivery for preparing the truck for whatever market segment it is going into. John Barnes - BB&T Capital Markets: Okay. A nice quarter, thanks for your time Rush.

Thank you very much Tom.

We will take our next question from Jamie Cook with Credit Suisse.

Hi gentlemen, it's actually Peter [Chang] for Jamie, how is it going?

Hello, Peter, we are you doing fine. Thank you.

Great. In regards to your 2008 truck delivery outlook, the new ones 140,000 guidance are relative to the 145 to 155 from last quarter. How does that impact you’re expected about 6500 heavy-duty deliveries for 2008?

Definitely it has problem, a little impact on this. If we continue to take that number down, it's only going to have a negative impact. Our vision is, our view is the future gets clear all the time. 6500 could be high, it's back-loaded, it is very -- that definitely could be little substantial. But I am not into -- its pretty simple if you take 1266, that's an annual run rate of a little over 5000, so they are definitely has to be some type of pick up in the overall -- in the deliveries later this year, but the closer we get to it, we are already half way through April. You still don’t see that, so that's what I have said earlier. It's still very hazy out there. So that number could be up. But I guess most importantly remember that whatever that market is you can probably take about 4.25% of US deliveries and that can vary and let say that's going to be Rush's piece out there. Okay. We usually run, I mean I can a little wider, broader with 4 to 4.5, but take 4 in a quarter. So, if we had 140,000, you can see that slightly around 6,000 slightly under 6000 units, will probably be the best way to look at it.

Okay.

Okay. Because if those numbers come down, no doubt, if the overall US retail deliveries come down and projections for that, no doubt that has an effect on our numbers. We are going to get our share of it rest assured. But at the same time, the market is what the market is.

And on the medium-duty side, why the divergence I guess from the industry data, is that just a overall economic environment that you guys are seeing right now, to the down 20 to 25?

Well, I think if you look at, you really have to dive into it. The projections that were put out here a couple of weeks ago, for first quarter we are up already by other people. That 12% put out by A.C.T., they missed some numbers on it already. It was really off to Class five, through seven was up 20% first quarter already. And I looked at the comps, the comps do go down later in the year in '07. I looked at the quarterly comps but they don’t go down as dramatically as I think they do, I think you are still going to see some more, 25 might be a little high. But I don’t -- in my mind there is no question it’s going to probably be a 20% decline in the class four or five to seven, however we want to look at it, we break it. I sometime take Class four and set it here, and then I look at Class five through seven and look at them in two components. But in Class five through seven, I definitely believe they will probably be a 20% decline in deliveries. This is my gut feel, I've talked before to you. I don’t think small business is making as much money as people really believe and we saw that in the purchasing that was down late in the first quarter. If they didn’t make it in '07, and I know they didn’t make it '07. They’re should not going to be only be above what '07 was, in '08.

Thanks for the color guys.

There is going to be some deterioration on those numbers.

Thanks a lot, guys.

You bet, thank you.

We will go next to Chaz Jones with Morgan, Keegan.

Hey, good morning, guys.

Hey, Chaz. How are you there.

Hey great. Thanks Rusty. Firstly, did you mention, and I am sorry if I missed this, but did you say you still expect the Charlotte acquisition to close in the second quarter?

Yes, I mean don't look for any impact in one way or the other. That's not going to have any effect on us. But yes, I am looking forward to close two weeks from this coming Monday if you want to get exact.

Okay, great. And then I know you guys have been spending some time in kind of rationalizing the overhead here with business strength. Is there any way you could be more specific on what you guys are doing to kind keep cost in check?

We're managing, okay? We're doing what you guys say us to do. We're managing. We are setting expectations, and then we're executing on them based on the markets we see in front of us. I mean, obviously we spent the first week of January. I talked to few of the old and new analysts. And some time in December and the first two weeks of January, we spent eight days solid on the telephone myself, Five folks from my senior staff, and we went through with every regional manager and worked through business plans of what we felt we had to model to the market. We had to make some market adjustments. And as you could tell in the release and my comments, I am very, very proud of my people, because the key piece was not to let it affect customer service. And I visited a lot of customers in the last week or so, and I can tell you not one issue came up with our organization and customer service. So, it’s a trend that makes it on my people. They have executed. They have done an outstanding job so far. And I know they are in for the long haul to do whatever the market dictates, we have to do.

Okay. And then moving on to maybe just sort of a background to use the equipment, lot of discussion obviously floating around out here about how to credit record high fuel prices, throwing the kitchen sink is going to lead to this rash of carrier failures over the next several quarters. If that were to take place, and we saw lot of carriers go out of business, could you give us kind of your thoughts on what that would mean for the used equipment market?

Well, obviously, we'll have to flush that through the used systems, right? A lot is going to have to do with keeping the strong global market overseas. It hurts the small guys obviously. I don't think they're going to see a lot of large big carriers go out. Their balance sheets are substantial enough and their management of the businesses are strong enough. The small guys, it's just hurting. It will affect their profits, the big guys' profits more than it'll affect their business. Going out, that's not going to happen, I don't believe. But the small guy gets hurt, and he doesn't have that balance sheet. He doesn't have that backbone behind him to take all these hits. And so, delinquencies are continuing to rise as we see here right now with the small guys. And so, they are going to continue to get hurt. In reality, we've talked for quite a few years that the owner operator and the small guy has become the variable component inside a large -- The true owner operator definition, I've said five years ago and many times, it's not what it was 15 years ago. He has basically the variable price component inside a large fleet and delinquencies are going to continue to rise. We'll have to absorb that repossessed equipment and used equipment, but over time, I don't believe that it's something we could absorb a lot easier, say then, what we did in 2000 and 2002. 2000 2002 was even more of a perfect storm than what we are going through right now. We just have, we have an excess pre-buy, at the same time, their freight turned down and we are just dealing with it now, and that's what we've been dealing with in '07 and are continuing to deal with in '08. I am confident that we are at the bottom overall as to what purchases it is going to be, well from our perspective, our sales are going to be, should I say, from our perspective.

So then just a follow-up to that, you kind of answered it there at the end. I guess you don't foresee as bad as it is the scenario developing that the used equipment market could get as bad as it was back in '01 or 2002?

No. I don't see that type of, I definitely do not see that type of, but do I see it getting softer still, somewhat little bit softer? Sure. I can see some more softness, but I don't see 30% to 40% declines in values either which is what we saw back then.

Right. Okay, guys. Great quarter, thanks.

You know, because we have this, I mentioned earlier. I said, you've got some international markets, that we did not have it in that time. That helps, dampen some of the hits that we take as this equipment comes back, and this used equipment comes back into the marketplace whether by repossession or by trade. Any other comment?

I have another question from Milan Gupta with Southpoint Capital.

Okay.

Hey, guys, just only one another quick question on the parts and service. You mentioned how service, you guys should maybe expect to hold steady and the parts might move around a little bit. Do you guys still expect to penetrate the parts and service side of your dealer base? And you know, certain dealers that might not have focused on that as much being able to drive that part of the sales?

Yeah. We don't get caught up just in the first quarter, because part sales were up, but what you have to review and look at is remember this, in our model, 10% of the gross profit from parts and service are driven out of the sales of new equipment, new truck sales, both Class 8 and medium. You take 700, 800 trucks hit the new side from Q1 of '07 and you are up 450 or so in medium, so you've got to make that up. Those are basically headwinds of the delivery of those vehicles and you've got to make that up before you ever get any growth in that piece. So, plus as I said, right now, and from a part sales perspective especially, is fix it not replace it, and that's the mentality the customer base has in this type of environment. If you look at it on more long-term perspective, yeah, we're going to keep capturing more market share. It's just that I think ours is indicative of pretty much what's going on all of the time. Don't think we are not on the attack, we are everyday that we wake up and we come into the office, and my people are that way. We are just managing through the difficult time, at the same time, we are still going to attack it, we will get back to double-digit growth rates. Trust me on that one. It's just we're operating in this environment and that's the good thing about absorption numbers you can attack, both two sides, the numerator and the denominator, and we're managing like we're suppose to this environment. Yeah, we are on the attack and looking to do what we can do. It's just the part sales are very difficult in this type of environment. I have been through it many times, so we understand it.

It's very helpful, thanks. So to follow-up on that, you mentioned the denominator, in G&A side you guys mentioned I think last quarter that you expect the fixed G&A portion to the flat-to-down as you look out to '08, is that still a realistic expectation?

Yeah, I think it's pretty realistic. I am very comfortable with the fixed G&A, this is in line with what I said. So, we're actually down quarter-to-quarter. You have to stick first quarter to first quarter, do not get caught up, make sure because of the seasonality inside this business both from a sales usually is from an expense side, stay quarter-to-quarter. As I said in the release, I could even tell you, I had a conference call with all of my people last Friday, congratulating and then thanking them for their fine management and execution during the first quarter. But I remind them, nothing is changing immediately for us, so we will just keep at managing and executing through the difficult times we are in. And I think, I am very proud of the first quarter because of the truck sales, which we have no control over the total truck market, we're going to get our percentage. But how we manage and how we execute and how we spend the last seven years since the last downturn changing the earning swings, changing the model of this company, so we are able to better weather and soften the cyclicality of truck sales and not be a class, just totally thought of as Class 8 truck sales organization. And that’s I am very proud of what we've done so far, but don’t look for anything to change over the next quarter or two, its not going to get any better, I don’t believe for the foreseeable future right now. But we are prepared that, when it does get better, the company will be in line to take -- more than take its share of advantage, of a blossoming truck sales market in the future.

That’s very helpful, great quarter and best of luck.

Thank you.

(Operator Instructions) We will take a follow-up question from Peter Nesvold with Bear Stearns.

Sure.

Hey, Rusty.

Yes, Peter.

So, there was some news I think Hino maybe a week or two ago, that they are closing down one of their facilities. I think its one of two facilities. They are saying, they are going to maintain the same amount of stock, production capacity. So they are not reducing capacity, but I don’t know what else they would really say, other than… Lets assume the worst, and lets assume that Hino stops growing in North America from here. What do you do, because certainly lot of your absorption ratio improvement has been from growth in the medium-duty segment, I perceive a lot of that coming out of Hino. Do you continue to buy Hino franchises even if Hino as a brand stops growing or would you start looking at a different horse to start to ride?

No I think first of you get to remember that is not the whole course of our medium-duty plan. Remember we represent many manufactures in the medium-duty businesses. As I said prior year it’s the price point, you have to -- and we represent them all, I do believe also. But you have to hit because we cannot get say a Hino franchise in every area we are in. I cannot get an Isuzu franchise in every area I am. I think its just more less a reaction to the market size. Remember that other plan came online just last fall. Okay. What wonderful timing, right. So their long-term plans I would tell you this, lets go back to the early 60s, remember Toyota when they first got here in late 50s and early 60s. They are not going to change from their plan just like their company that owns a majority of share of -- Hino is not going to change from their long term goals. They may react to a market place that they are not -- but I don't think they are quite use to cyclicality maybe of the truck market compared to the car business, but they'll learn it and they will stay the course and that is not a concern. And again they are not -- and remember we represent numerous clients in the medium-duty business and exceeding those price points, we represent a lot of Hino, we represent a lot of our Isuzu, GM, Peterbilt of course always, we've got Peterbilt at all our locations except for couple of standalones and which we don't have many of. So we're excited. Hino represents roughly I was just able to pull a number here about 22% of our medium-duty sales. So I am not worried in the least.

Okay.

Okay.

Thanks for the time.

You bet.

And it appears there are no further questions. Mr. Rush, I'd like to turn the conference back over to you for any additional or closing remarks.

Well, thank you for listening. You got any further questions, you can call us at anytime. Have a great day.

We thank you very much. And as is I said, the guys look forward to hearing from you in the future or report any other news. Thank you.

That does conclude today's conference. Thank you for your participation. You may now disconnect.