Rush Enterprises, Inc. (RUSHB) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Rush Enterprises First Quarter 2013 Earnings Results Conference Call. At this time all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Chairman, Marvin Rush. Please go ahead.

Welcome to our first quarter earnings release conference call. On the call today are Rusty Rush, President and Chief Executive Officer; Marty Naegelin, Executive Vice President; Steve Keller, Senior Vice President and CFO; Jay Hazelwood, Vice President and Controller, Derrek Weaver, Senior Vice President, General Counsel and Secretary. Now, Steve Tailor, Steve Keller, excuse me, will say a few words regarding 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, 2012, and in our other filings with the Securities and Exchange Commission.

Now let's give you an update on the first quarter. We are pleased to announce that company’s gross revenues totaled $757 million in the first quarter of 2013. Net income for the quarter was $13.5 million and are 34% -- $0.34 per diluted share. We ended the quarter in a strong financial position including a cash balance of $205 million. Our parts, service and body shop revenues reached a new quarterly record high and they accounted for 64% of the company's total gross profits this quarter. This is a result of increased maintenance of aged vehicles, incremental revenue from our Ohio acquisition and our wide range of aftermarket solutions. Despite higher expenses related to taxes and employee benefits and the effects of the acquisition and declines in the energy section we still achieved the 111.9% absorption rate during the first quarter. Rush's Class 8 new truck deliveries accounted for 5.2% of the total U.S. Class 8 new truck sales, which is well below normal replacement levels this quarter. As expected our Class 8 truck deliveries also decreased due to decline in energy section -- sector. Our Class 4-7 deliveries increased about 26% over the first quarter of last year and accounted for 5% of the U.S. Class 4-7 market. This growth is a result of good performance by our medium-duty franchises across the country including our Navistar Division. Our light-duty and used truck sales also increased compared to the first quarter of 2012. Industry outlook, industry experts forecasted Class 8 retail sales will be flat with 2012 or about 198,000 units. Class 4-7 retail sales are expected to increase about 11% to approximately 182,000 units. New truck quoting activity remain strong, we expect this will lead to increased retail sales later this year. We’re encouraged by the successes of [Navistar][ph] gain in implementing their engine strategy this quarter and we believe we have a positive -- this will have positive impact on our Navistar Division truck sales moving forward. We believe our aftermarket parts and business will also continue to remain strong throughout 2013. We are very pleased with the financial performance this quarter and are grateful to all our employees for their contributions to the company’s success. Now we are prepared to answer questions you may have.

(Operator Instructions) Our first question comes from Tim Denoyer from Wolfe Trahan. Your line is open.

Hi. Good morning, guys.

Hi. Good morning, Tim.

Just to start with a couple of questions on the order environment, my favorite topic, the increase in, yeah, is the increase in quoting activity over the past several months translating into orders as it has in the past or is it - if the weakness in the March, April truck load trend we’re kind of seeing muting that a bit this year?

It’s because, good question, Tim, when I had - last call we had was about 10 weeks ago I guess, I said order, as far quoting activity was, strong, and up quite a bit and to be honest with you it’s still the same. Is it muted somewhat in actual orders? I see things lead, tending to, people tending to take longer to make decisions, to your point. We don’t see missing deals. We don’t appear to be deals going away, people are just putting off decisions a little longer then they have in the past. Let me give you one quick (inaudible) I found out by the other day, I was talking to guys back, and it go back to 2011, and I said, the orders that we are taking in 2011 for example, 15% of the orders taken, say, 90 day timeframe were build not in that quarter, more extended out. Currently, the orders that are taken in most of them 35% to 40% are built within 90 days. So I think that shows some change in buying habits of some customers, we all know, it had been very hard to get trucks for the last few years, even wrapped up at 198,000 units retail last year. So I think customers are not necessarily purchasing, looking out 12 to 18 to 24 months out with their orders, but actually ordering for more immediate type delivery because that, that’s part of negotiation process I guess from a customers perspective.

Yeah. And so I guess following up on that, and getting into a margin question, is the fact that truckers are just kind of sitting back a little bit, does that mean that the OEM or your pricing for new truck is being de-limited I guess, is how Packard said it yesterday? And can you talk about what drove the strength in the new truck margin in the quarter or the new end-use truck margin by (inaudible)?

Well, I don’t want to break it, I hate going into, just breaking by segment, when it comes to margin, but obviously it’s a mix issue. We had some nice mix, especially on the medium-duty side. Our medium-duty margins were as good as they’ve ever been and our Class 8 margins actually were typical, we actually matched last year’s first quarter, Q1 of ’12 Class 8 margins were about the same. So when you look at it, I expect our margins to maintain what they have historically Tim. I don’t look for a lot of change in our margin to be honest with you, but it can fluctuate quarter-to-quarter, I mean, it can have 1% fluctuation and that’s basically driven by mix, but I really hate, I really don’t want to get into those, into that on this kind of calls. So but it’s a mix issue. I see no overall degradation or huge uptick in our margin, basically what we have historically averaged over the last couple of years.

And on the truck pricing environment?

Pricing is I think in line with where it has been, there has not been, there has been a little bit of price increase from the OEMs but not a lot, again market driven, at the same, but we expect to be able to maintain our margins no matter the environment, no matter the cost push through from the OEMs or the push back from the customer themselves. We anticipate maintaining our margins, but pricing, it’s a competitive environment. Nothing has changed, I mean, it’s been competitive for a few years, I don’t see anything changing that, I think, it’s been so long since 2006, when it didn’t seem so competitive, I can’t remember back that far,.

Thanks very much. I’ll get back. Thanks.

You bet.

Our next question comes from Neil Frohnapple from Northcoast Research. Your line is open.

Hey, guys. Congrats on another nice quarter.

Thanks Neil.

Rusty, you mentioned quoting activity strong, just trying to get a sense for what your expectations are for Class 8 deliveries in the second quarter, you guys had a very strong Class 8 delivery quarter last year second quarter and just wondering if you can help us frame it?

Sure. I hate to say this, but you know, as I mentioned earlier with people making more instantaneous order to delivery decisions than what they may historically have a couple years back it makes it a little more difficult obviously for me to sit there and try to say, this is what it’s going be this quarter. But if I’m going to look at it, I’m going to sit here and tell you that I expect deliveries to probably up around 10% in Q2, okay. I was hoping 10 weeks ago, I would hope for little bit more, but based on what I’m seeing little bit hesitation in the actual ordering of trucks and people making final decision, I think there maybe more push to the back half of the year then what I would have anticipated 10 weeks ago. I’m not down on the whole year by any stretch, I’m still comfortable, I don’t look for big uptick over the last year, I look for a flat year and I think many, many of the folks I’ve talked to in the industry still feel the same, just a little more back half loaded, than what we may have anticipated 10 weeks ago. So -but activity remains strong, I mean, I’m still looking, we, I was very proud of what we did and still I am, given the headwinds that we’ve had in the energy sector overall. But we are doing this without that. There are some people (inaudible) who were able to perform, even based upon how we go to market, that we do hit all those different locations we talked about. So we are getting some uptick and some construction which we are seeing in some medium-duty business, some concrete truck mix of business, a few other things that we’ve been able to book, that we haven’t booked in the last couple of years. So is that totally offset all the down side we’ve seen in the energy side? No, but, I believe it put us in pretty good position, especially as I see those markets continuing to strengthen throughout the year, I’ll be honest in the back quarter of the year I do expect the energy sector to pick back up. It’s nice to see natural gas prices rising again, getting over $4. And so we see some pretty things out there for us, but as far as Q2 which the original question was, I’m really looking at probably about 10% or so will be my estimate right at this moment.

And just to clarify Rusty is that versus last year’s second quarter or sequentially…

You get good reports a week or two here, and bad reports, good report a month here, and you know another deal. And the other we’ve got going for us also that I look forward to at the back half for the year and really probably little more the fourth quarter is our Navistar side. I’m very excited with their implementation of the Cummins product, the ISX product and the 15 liter engine, they are producing those and just a week and a half ago, their 13-liter engine got EPA approved. And so which they haven’t yet built, so as that begins to take hold, you got to understand with all the acquisitions we’ve done, we’ve got about 25 Navistar stores now. So there are whole lot larger piece of our business and we’d be the headwinds that they face which are obvious, I don’t have to go into them over the last year or so. But I think it’s been a very difficult environment but we are very comfortable long-term with the acquisitions, don’t get me wrong that we have made because we are happy and excited about the implementation of their new engine strategy, SCR engine strategy and how it’s taking place. It’s just, it takes a little time to do that. So we really look at that as really a big 2014 play for the organization as we go forward. So that should help us towards the end of the year a lot more, as product get out in the field and you build confidence and customers confidence in the product, is it makes a come back from its lowest market share in years and years they are experiencing right now as that starts building as we go forward.

Great. And then I guess, as a follow-up to the Navistar discussion I know you mentioned, you delivered 121 Class 8 Navistar’s in the fourth quarter. Did you deliver more of that in the first quarter? I’m just trying to get a sense of the opportunity from the division as we move through the year?

Let me give you a number here, you got it Steve. Yeah. There you go, 150. But if you wanted the same-store comp, 104 of those were in Ohio. So try 46, okay.

Okay.

So you can feel pretty good about the fact that we’re in the trough, right.

Yeah. Right.

So there is not much room to - it’s hard to purchase that when you’re falling out bed. As long as you are not on the top bunk so we look forward to having an opportunity as I said with Navistar division going forward.

Great. And just one real quick one. The energy sector, is that still going strong from a parts and service perspective?

It’s going? Is it as strong as it was last summer? No. But we’re still active in it. It would be more to more normalized rates. I would say last summer was very -- was a very accelerating a little over pretty zealous rate. But right now, it’s active. I’m not going to sit and tell you, it’s the best it’s ever been but it’s for sure, not the worst it’s ever been. I would call it normalized energy sector, parts and service business going on right now.

Okay. Thanks so much guys.

When I look at it, yeah, we did a -- still I get question, you say trough was roughly 112. But you got to understand that, probably a percent of that was muted off by acquisition and then nearly a couple of points maybe what we are off and before it was probably a softness in the energy sector plus expenses in Q1 are always the highest they are throughout the year.

Great. Thanks for the color Rusty. I appreciate it.

Our next question comes from Brad Delco from Stephens. Your line is open.

Good morning Rusty. Good morning gentlemen.

Hi Brad.

Rusty, one of the focus on the industry Class 8, I guess, expectations that are out there. And it seems like you’re kind of subscribing to the 198. But industry sales were down about 17% in the first quarter. What do you think the cadence is throughout the year in terms of how we get back to the 198 given the soft start and what gives you confidence, what your customer is saying? What pockets of strength are you seeing that things we can make this up in the back half of the year?

No question. You look at the Q1. It’s not the worst quarter we’ve had. ‘07, ‘08, I didn’t look back but I know it’s been a couple of years roughly, 39,000. 39,000 U.S. retail deliveries in Class 8 and Q1 was obviously a low for a while. So you say how do you built that back to 198? Well, I guess, you got to look for -- it's all -- these back loaded deals were always fun, right, because you’re counting on the future. But you got to have some confidence driven by what you see in the market place and what we see is still very high quoting activity. Okay. We see housing taking up. We see customers -- I was on a customer tour here, probably saw 70s customers three weeks ago. And most of them are very confident about their business and what was going on. And we’re still in the cap budget. They hadn’t changed their cap budgets or what they had budgeted last year in the back half of the year when I set the budgets for ‘13. Some of them maybe a little hesitant, employing the trigger, just trying to get -- it’s been one thing after another from a political perspective whether it was the election or fiscal cliff or sequestration, all that good stuff. So that just sometimes makes people little more hesitant. And I’m not pointing anything. I’m just telling you guys maybe a little hesitant and a little more -- I think a little bit more fast into their decision process as they make those capital decisions to spend. But in visiting with all those customers and that was from only from one side, one ocean to the other ocean across this country. I did not see any thing that made me feel that people were not still going to do business as usual, should I say. But they were -- we were back in some recessionary or some type of thought process like that from folks because that’s not what I heard from them. I heard basically the business was good. As I look at delinquencies, they are good line. When I look at some of the portfolios, our portfolios and some of the finance companies that I talk to all the time, they are appearing in good stead. I see really nothing out there that tells me that this year is not going to come together. Of course, you’re always a little uneasy when things are backloaded, trust me. Because you are carrying on all those landlords, you see. They tell you, okay, the orders are going to come. But I believe that -- I do believe they are going to pick up, I really do. I think you’re going -- I think -- I just think there is too many good things out there. I think we’ve -- about to squeeze all the productivity we can in some ways out of somewhere. We certainly become very efficient with productivity squeezes whether it’s packaging, whether it’s -- how we do so many different things. We’ve squeezed and we squeezed, I think productivity is going to start to decline a little bit which will lead to higher freight volumes, instead of some of the freight volumes being muted by productivity. So I’m just -- and I’m sort of rambling here on about the things I see, Brad that tell me the year is going to come together. I believe it will. I believe we have a good back half of the year. So from the second quarter, we’ll pick up a little faster 10 weeks ago than I see. I expect Q2 to be better than Q1, just not ramping up as fast as what we saw. But I do expect when we get into the back half of the year that I just think it’s going to be a lot better than -- I think it’s going to meet flat with last year. But unlike last year, which was front half loaded and then trailed out in the back half. This year it will be backloaded.

Got you. But in terms of the 70 customers though, are these your large fleet customers, are these smaller fleet customers, are these more construction. What specifically in terms of…

Those were probably more middle players. Some were large. It was probably a very -- it was very pretty good cross section, probably a mid size to larger size, not only a public truckload carriers there but large private, okay, carriers, also some folks that -- we do not just halt for hire. It was a good cross section on customers, okay. I won’t be going into detail but it wasn’t large public. It was very cross section of customers, especially as far as markets been managed that they met with. So there was some vocational business in there also. But it was -- just a good cross sections of folks talked to, to get a feel for what’s going on out there. So I still feel confident in the year. It’s just I understand it’s more difficult for folks to be -- when you put in the back half of the year. That’s what we believe is going to happen. And for me, for Rush in particular, as I talked about Navistar, I mean, that’s a trough. We delivered 46 units, okay. Off the stores, I had to hire Class 8. I mean, think about that. It can’t get any worse on that, okay. So you got to believe there is some upside there for us, right.

Yeah. That makes sense. And then, Rusty, you kind of mentioned on the margins, there is always mix but I think the one thing that stood out to us was your parts and service margins kind of feel below that historical range of 38 to 40.

Yeah.

Yeah. And I was wondering if there is any way to quantify, was that being driven down by Ohio or is that more function of maybe mix or less energy? What do you think the driver there and what’s expectation going forward?

Okay. There was some of Ohio, okay. There was some -- maybe some of my rigging, which has a lot of service business in it sometimes, okay. That was less. Okay, which would be a mix issue. It was mere of things. I would hope that that margin towards expense side was a little higher. Q1 historically is always our biggest expense quarter, right. We usually pick up -- you look sequentially G&A goes up in Q1. So it’s a mix of those three things. Now, I was a little disappointed as I expected to start making some come back in Q2.

Guys, I appreciate the time. I’ll turn it over and get back to queue.

Thanks.

Our next question comes from Jamie Cook from Credit Suisse. Your line is open.

Hi. Good morning. I guess, a couple of questions, first question is Rusty, I mean, it sounds like the pricing environment is still challenging and you expect to sort of stay that way throughout 2013, no material change. But what do you think the risk is with Navistar back at the market, that the pricing environment was another player in there, it just becomes a little more aggressive and that puts some pressure on your margins. And I guess, my second question is now that Navistar has approval on the ‘13. Can you sort of talk about what you’re hearing for customers in terms of interest level. I know there is a high level of interest on the ‘15, I’m just wondering what you’re hearing on the ‘13 and what that means for you. And then my last question is for Steve. So Steve, how are you thinking? When you think about capital allocation, how are you thinking about stock repurchase here versus the ability to do more acquisitions. And I have one more after that but I’ll let you guys answer those first?

You posed a good questions, Jamie, as always. Pricing, I said it’s going to continue. I don’t see that Navistar getting back into the game more. It’s going to affect pricing. I think they have been -- they fitted it all along. I mean, they happen to shut down factories, okay. They have been selling EGR engines throughout this. So I think, it maybe -- I may take a different approach. I may say it’s better now to have SCR from a pricing pressure perspective because they have been having put pricing pressure with EGR engines. They are ‘13 leader only in the market place already over the last six to eight months, just to keep their factories running. So I might take a little different approach than that.

Okay.

Maybe can iterate folks but sometimes on that way. As far as the desires for ‘13 leader product, it’s a little early for me to say on that, Jamie. I have not been in touch with a lot of folks. It just got approved a week and half ago. I know there will be demand for it. To what level do you see this huge ramp-up in demand. I don’t want to jump out and say we’re hoping that there is a high demand for it, obviously, which I got to believe there will be. Given the -- now there is a whole lot of ‘13 leader engines since 2010. They had not ‘15 leader product per se. So I have got to believe the demand for the SCR ‘13 leader. Once it gets out, it starts proving itself. Remember, it got some hurdles to overcome. There is no question. You can’t hide from the fact of the issues of the EGR 13. I’m not running from it. And the management at Navistar is not running from it either right now. But they are out to prove the SCR solution on that ‘13 leader product will bring to the market place, a very highly competitive, great fuel knowledge, fluid economy type truck that will be accepted in the marketplace. One thing about Navistar, I think sometimes people will give -- customers want Navistar to survive. And that’s no disrespect in my other OEM that I represent but I’m very proud to represent proudly in the Class 8 business. The customers want a fourth alternative. Okay. They do not want three alternatives out there as far as ownership groups. They don’t want just a Daimler or PACCAR and a Volvo solution out there. They want that fourth alternative and I think the customers will be open to Navistar coming back into the market place with a product that better represents and competes than what maybe they’ve had over the last year and half or so. We have wins and trying to bear with the engine issues they’ve had. So overall, just honing in on the '13 leader, I don’t -- I believe there is going to be a desire to work with Navistar from a customer’s perspective.

And then just before you switch over to Steve, I think you said you expect deliveries in the second quarter to be up 10% sequentially. I think it’s the number you gave out. I mean, it doesn’t sound like the month of April. I mean, although we still have some time. But it doesn’t sound like the month of April was at that level. I mean, is there anyway to sort of quantify or give it a feel for how much of a catch-up we need over the next two months to make up for April. If my assumption is right, that April wasn’t there.

No, Jamie. Well, I guess, if you got 39,000 units in the first three months.

What did you see in April?

I don’t see…

You don’t have those numbers. If you don’t have those numbers yet, that’s fine.

We still have the April quarter. It’s hard to -- remember every good truck dealership eliminates -- we said that the units are going to deliver in the last week of the month of the sale when we go and make the pay check. Okay.

Okay. That’s fair. But I assumed April would be an easy comp because I think last year that’s when things fell apart.

Right. It will and I’m looking at last year’s April right now, Jamie.

Okay.

I’m looking at this year because I’m looking sequentially. I am believing that April will be a slight uptick over March.

Okay.

But I don’t know it is enough. It’s going to just start ramping that way. It’s going to have to be obviously. When you get in the hole as far in the first quarter, you get to 198. It’s going to be a about heavy things. I talked to some folks yesterday. Don’t worry -- I spent. When I see their press release, I had to spent three and a half hours in Steve’s office, talking to many people around the country because I had to get a feel for what everybody else saw and thought too. So, I was probably doing some might you do. It’s your job, right, making a lot of phone calls. Just being -- making sure that I wasn’t off. But I hate to get into just that one little.

Okay.

A one month, Jamie that gets a little bit difficult for me there.

Okay. Color I appreciate it. And then, Steve, what are your thoughts on where you are going to spend all your money?

It’s always acquisition right. And with $200 million plus on the balance sheet, we have plenty of money to fund acquisitions. As you know, we have access on our four front lines, which is probably the biggest piece of the assets we buy when we do these things. So we continue to look at acquisitions. There is acquisitions out there to look at. We have nothing to announce now. As far as the stock repurchase program that we announced at the end of Q4, we completed all of our paperwork. At the end of the third quarter, we thought, hey, we should just wait till we released earnings before we actively purchase in the market. You should expect us to see us actively purchasing later this week or early next week. We are ready to go on that and our plan for that would be to purchase within the 10b-18 and then opportunistically look at blocks as they become available.

Okay. Great. Thanks, guys. I appreciate the color.

Our next question comes from John Barnes from RBC Capital Markets. Your line is open.

Hey, good morning, gentlemen. Rusty, in terms of our kind of the end customer, we’ve heard a fair amount so far this quarter about private fleet conversion. It seems like that’s ticking up again. Have you seen any of that impact in any of our customer base in terms of maybe some of the carriers that are on for hire?

Sorry, John. I was looking at some numbers. You want to know about private fleet?

Yeah. Basically, have you seen any private fleet conversion of fleets that you’ve sold in the past that maybe are doing equipment purchasing to another channel now that maybe going through prior, they’ve outsourced it to somebody who is converted their fleet or are you seeing impact on your customer base from that standpoint?

I have not heard that once. We are just in the middle of a bunch of conference calls. Well, our stores right now, as we -- I have not heard that brought up. I was just looking at my comp sales. People the other day spend a couple of hours and that point what brought up to me, John. So, I would have to say no.

Okay. All right. Very good. Secondly, on the used market, can you just talk a little bit about how the used market looks right now? Are you still having any issues on access to equipment and what do you see from a pricing perspective on used equipment as the year progresses?

Pricing went down a little bit in the back half of last year. Pricing has stabilized. And I don’t see any issues with used pricing. I think pricing will be fairly strong because if you take a four year cycle, then we are going back to ’09, right now. In 2009, we sold 97,000 Class 8 years retail. In 2010, we sold 110,000. So, if someone kept it four years, not many people were on a three year cycles anymore. That are mostly little bit more for in five year cycles then we were right in the lowest sales in full year. So I don’t anticipate any issues, as far as valuation goes. As far as getting product, we still see we would be able to try and look upon our base and ample supply of product. How we get product in those two ways? We have to trade with customers and then always, we have buyers and we will be always looking for opportunistic, for opportunities where we can take advantage of someone who is maybe like disposal product where we can buy it right. And then hopefully, we can make a pretty good margin. So we have not really -- other than of the specific little market segment here or there, we don’t have any issues right now with product and we don’t have any issues. Our margins were good last quarter and we anticipate those margins to maintain where they were into the historical trends, which are usually 8% to 10%. I think we were about 10% last quarter. So we were on the high end of what’s normal for us.

Okay. All right. I know you mentioned absorption earlier. Obviously, I think it is kind of humorous that we are complaining about a 1/11 or 1/12 absorption rate. But just out of curious, I mean, I recognized that the acquisitions cost you. Let’s say a point on the absorption rate. Is there anything structural with those acquired properties that would prevent you from getting back there or is it just time?

It’s just time and investment. Let me tell you something. I’m so excited about what we are at. Okay. Why? Because they need a lot of investment. I’ve now got to spend $30 million, $40 million in real estate and I’m excited about it. I’ve got 17 extra anchors. In Cincinnati, I hope we are breaking ground, building up dealership three times of the size here very soon. I’ve just signed LOI. I’m purchasing new real estate in Columbus. This is only three months spent. That doesn’t mean they are going to -- we are going to just. It is not add water and stir, right. You got plans in site and some things and permits and all of good stuff and you go to build. We are looking inside the Cleveland to put a new facility there. So these areas are starving for investment and you know what investment leads to. It leads to business for us. It leads to us taking care of customers and that’s attracting. And attracting more customers, taking care of the existing customers, building a bigger and broader business and becoming a better more dominant player in the marketplaces we represent. So, I’m excited, John, about a year or two from now and the amount of revenue we will be able to produce out of those stores. Remember, Navistar still is the number one (inaudible) in the State of Ohio. That was one of the very attractive things to me about this acquisition. So, no, I see nothing but good stuff ahead for us but it’s not add water and stir. But as we do things like this consistently, you would not like to believe we have year after year, year after year and you stick to your model then I think the results are being disappointed in 112% absorption. How about that?

I hear you. I hear you. On the acquisition front, obviously you’ve laid out fairly aggressive plans and about the new targets on, where you want to be with Navistar. The issues with the engine and just getting a new engine introduced a week or so ago, the invevestmet you need to make in the properties you have acquired. Are this all reasons that maybe you are taking a high 8-ish from that acquisition or opportunities or you are just outrunning into properties that are as attractive now? How would you look at it?

Who’s saying taking high ish?

You didn’t bought anything a little bit.

That was December 31, John. Okay.

Roughly, it’s April 24. Come on, it’s my birthday. At least buy something for my birthday.

John, if you don’t know by now, you never know what I’m working on. Okay. Trust me, I’m actively out there looking to continue to acquire, supported by the Management team at Navistar, as we will make the investments. They believe they need from a dealership perspective, do dispute about that great dealers, but they are looking for more consolidated consistent in geographic areas. So listen, someone will invest and we will invest and we are excited about it. And I feel good about the transformation of the Navistar team that they’ve got in place because they are working their way into it. There have been a lot of headwinds to deal with. So, I mean but they are working their way through it. There is only one way to do that. I think that’s brick-by-brick is what you have to do. They’ve had their issues but I’m still very comfortable with long-term. As I said, customers want April alternative. They don’t want to be tied to three years more than three manufacturers, but three ownership groups out there, okay, in the Class 8 marketplace. So don’t worry, I’ve got only (inaudible) from acquisitions.

Okay. All right. Nice quarter, guys. Thanks for your time.

Thank you, John.

Our next question comes from Andrew Obin from Bank of America Merrill Lynch. Your line is open.

Yeah. Good afternoon, guys. Good morning, I guess.

Good morning.

I just have a question. A, just thinking about vocational market and medium truck market, in your estimates, how far off do you think we are still off to the peak given that resi construction is just starting to recover. And what I’m trying to get at, are you seeing residential construction recovery impacts on your business? And what I’m trying to get, can you quantify what does this mean for Rush that we have Class 8 vocational coming back and also what does it mean to the medium truck market, comes back specifically the contractors?

Right. I think we are seeing, Andrew, a little more uptick on the medium side currently than we are on the Class 8 side. I’m hitting this from a -- but it was a pretty broad Rush effort. What I’m saying a little bit more investment on the medium duty side, from the smaller players. Maybe a little more landscape for carrier, a little more of the guys that are doing the smaller side steps, working around the residential areas, the smaller contractors and your subs and stuff like that. I would like to think that the Class 8 piece, while we are getting a spot here or a spot there, we really haven’t seen that yet driven by construction. So, I know you were trying to quantify this. All you guys do is -- you guys do this all the time. I don’t know how to -- it’s difficult for me to quantify other than say, we are in the beginning stages. We are still in the first quarter, okay.

But then I guess like back and I was -- I know the company looked very different. What percent of your business was vocational? What is it now?

Vocational. Let’s not just say vocational. We will say construction related.

Yeah. That’s right.

Is that a sixth sense, sold 12,00 -- 11,800 and something, 366 if I remember right Class 8 units and I want to tell you that I know we sold 14,00 mixed truck for some of them here, somewhere around that 1,300 or 1,400 mixer trucks. Actually, I didn’t sell any. This year I will probably sell six, seven or hundred, maybe in way it’s going right now. I have just given you a little notes here, so.

Yeah. Sure.

That’s not going to give you everything, but it will give you a lot of those, little points to grab hold. And really in the medium-duty business, we notice large. We hadn’t brought us many. We noticed a Navistar player. There were even a Navistar player for that month, back in there. In those days, I really can’t say given their huge presence in the medium duty marketplace and it’s hard for me to figure out the other Class 8. It’s still varies some of those other small sub contractors or somewhat smaller. I really can’t -- I don’t have the systems to quantify what that means. But obviously from that perspective, there is a lot of upside if we are in the early stages. If we could get back to build a million two, million three, $3 million for houses, then I’m sure you can expect to see those numbers on the Class 8 concrete side and all the other sub contractors with, both heavy and medium accelerate rapidly above our current levels.

Just a follow-up on the question on the part margin. How much of -- I know you are sort of pushing more field services as you are sort of dealing with larger customers in the field particularly in Energy. How much of a drive do you have mix from sales services permanently in the parts businesses going forward?

Andrew, I don’t have an answer for you but it is something I’m looking at right now. Obviously, as I build them to, as brought up earlier in the call that my margin was softer, parts and service then what historically has been, as I brought up it earlier?

But your business is different now.

My business is changing. So maybe I’ll give you all, as I look at this and watch this evolve and if I see that in some consistent thing, I will let you all know. I’m not going to hide anything from you as the business evolves. It's working in arms around in ourselves as we see it evolving as we push more parts and services out, sometimes that brings the higher cost factor, you know what I am saying because you are sitting there in your shops and letting them going to be used. So those are things I will communicate with you -- try to communicate better as we go forward into the year, but this was and I really want to look at Q2, okay and I just looked at Q1 and said okay this is stepping stone as to this is the way it's going to be and let me get a couple of quarters under my belt here, as these things continue to change, especially because they don’t have as much energy involved may be not as much updating and so I am getting my arms around that really right now Andrew.

Thanks a lot.

You bet.

Our next question comes from Chaz Jones from Wunderlich. Your line is open.

Yes, hey good morning, guys.

Hi Chaz. How are you this morning?

Just fine. Hey Rusty on the lease and rental growth it seems to kind of accelerated here over the last several quarters, is that been driven by anything specific or is it just kind of broad based?

Well, it's sort of broad based. We are growing internally. We don’t question about that. As far as we talk about market sectors that we go into or...

Exactly.

Okay. Well, I could drive you out. We keep pretty good tabs on where we are at. I don’t want to be tied to one, right one market segment. So [Audio Gap] at 20% wholesale retail, 14% food products, 10% manufacturing, 10% environmental, waste 7%, other 12%, I could go on and on as to the industries that we are going into. So I see that kind of broad based penetration in all those different markets. I feel pretty good about it and so should you guys because that shows that we are hitting on all the markets that we should hit on and we are not just tied to one. Now as far as our overall lease and rental sales going up, we purchased the Idealease Group in Ohio in Q1, so that was a fairly large group of about 400 power units or so, I am sorry, that was 600 excuse me, 600 power units, I apologize. 600 power units. So that had an impact obviously upon our overall revenue and our margins were pretty good and were higher than what we had been running in that quarter and there were a couple of reasons for that. Some may be sustainable, some not. We are just getting our arms around that also, but we had a really nice quarter in lease and rental and we are still very excited about where we are in lease and rental and we look forward to continuing to grow that piece of our business as we go forward because I think it's been demanded by customers and you know it's one thing I have always told you, one thing we do on the inside of the business, any business we are in as one customer service and we listen to the customer.

The 600 trucks you are talking about, was that included in some of the preliminary guidance for lease and rental for I think around a 125 million for the year?

Yes.

Okay. And then one follow-up question just on the medium duty side, the market share was well above what your guidance typically has been in that kind of 41 to 46 range, so do you expect the market share to fall back or do you expect your guidance to come up?

We've always stayed around 4%. I am going to tell you, I believe we will probably be 4.5% on average. Okay. I think 5%, I think we were 5%, which was obviously an all time high for us. We had a couple nice views that came through, but I actually would like to think when we get into '14 that we could be in that 5% play because as Navistar comes back with their product not just a class 8 engine but their medium engine platforms straight. I would like to think that they would be working towards regaining our share as being the number one provider of medium duty market place which right now they are not. We would look forward to them regaining that spot as we go forward, which would only bode well for us given our investment in Navistar, but we are also -- we've been -- our stores have done a great job with our Hino and Isuzu franchises. We are well over 25% of Hino sales. We were 18% of our Isuzu. I don’t want to get into all that, but we are the largest Isuzu, Hino and look forward to being the largest -- we have the largest people with the largest international medium duty player. We look to capitalize in representing all the lines that we represent and being in first place as far as representing them in market penetration and also total sales.

One quick follow up just one the acquisition conversation earlier in the conference call clearly there is a lot of appetite to grow the Navistar network and I am sure there is going to be other one-off medium duty franchise acquisitions over time but what does that mean for longer term, I think there has been the conversation about perhaps getting back into the construction equipment market?

Well we've had conversations about that this last quarter. Is there anything eminent or anything I consider and tell you that I know is going to -- that we are going to consummate any deal, no. But it's still out there, but obviously our first line of growth right now is continuing to work with Navistar to support them in their efforts to help them get back to their rightful place in the marketplace. So and that acquisition to their side, but for no reason I think they were returned to coast over to be the construction equipment business in just right now to announce our piece is really right at the front of what we are trying to get done. So that doesn’t mean we are not always talking and looking on the city side, so we were trying to the growth in the truck side plus is still in the truck business there is still a core expertise in the organization.

To see business aligns nicely with it as far as business model a little different, but the business model is similar. We are enjoying our turn in the see business in the Gulf Coast of Texas. This couldn’t get any real growth out of it, so we've exited that pace back three and half years ago, three years ago. So we will continue to look to get back if they were make sense where the synergies are right aligning with our truck organization. But at the same time we still want to fill out our map for our truck locations. It's about service. It's about customer service whether I represent that and I represent Navistar or all the other medium duty franchises we represent. It's about points on our map and it's tying all those together and making a customer who come by Rush customer, not necessarily you know being rolled to Navistar but also trying to want to business with Rush because we can keep their truck up and running and understand what it takes to take care of our commercial use who the commercial business and keep their product up and running better than anyone else can from a dealership perspective across this company.

Great. Thanks for your time. Nice quarter.

Our next question comes from Brian Sponheimer from Gabelli & Company. Your line is open. Brian Sponheimer - Gabelli & Company: Hi Rusty, hi Steve how are you.

Good, Brian, good to hear from you. Brian Sponheimer - Gabelli & Company: Most of my questions have been answered, I guess I just want to talk about any benefit you saw from steel campaigns that Navistar has been conducting on trucks that are already in the field and kind of what your customers are saying about the trucks once they do get fixed?

Well right now I am getting good reports back. Obviously, that has had some effect on your Navistar business. Obviously we've been doing a lot of work getting those campaigns, going to customers, customers coming to us. Whatever it took to take care of the customer, we've been very, we've been very flexible, very fluid to try to go out, talk to customers and what can we do best to get hat product fixed because it's important to get it fixed and get it up and running right and not having down time because any customer with the product down, that's not a good thing. So when actually all the reports we've had of what we've done I am sitting here looking right here in the building, but right now Jay with me shaking his head yes that so far everything has been received and product is out there performing as to it -- as it should be with the product that we have fixed. So I don’t know where we are at exactly, I know they are hoping to get this all complete done by summer time. I know that they were over a third of the way through it they felt as of three week ago or around that number of 30% to 35% through all the product I am not sure whether at as of today, but we are doing our part and going above and beyond the call to help where needed. So we benefit in some revenue perspective to that, yes, but we also -- there is also a hindrance from another perspective yet okay. I guess its 22 there right. Brian Sponheimer - Gabelli & Company: Exactly right. In terms benefit potential longer term headwind, let’s talk about what happens once those trucks are fixed, once the fleet owner wants to bring it back, the residual value of that truck has damages that and what does that do for affordability for fleets, are your largest customers anyway on the Navistar side going forward?

Well, you know to think about it once you fix it, excuse me, once you fix the product, the important part is then the product has to prove itself up right. And that's why it's so important and I had many discussions with their management team that we've got to get this product fixed because there is no question, the residual value of the Navistar product has been paid down pretty hard, okay, that's because performance of the engine has not been there, but what we are seeing of the engine is performing and then you have to get up and to has to prove itself on the field which we believe will then lead to the residual values raising the back door they should be and then it has to be supported both by the dealer and the OEM to help people freight out of these products and I think they've got campaigns and thought process I know we are working diligently with Navistar, their management team as we get these product fixed in the field proving itself and then they go back to these customers and help fray these folks out of these products because then I believe the residual value of the products will come up once they approve themselves on the field and you got to get that ball rolling. I think we are right in the middle of all that Brian okay. I know what needs to be done and I think they understand what needs to be done to get us through this tough time, but we are in the middle of all of that but it's not something and again it's not one of those water and stereo type processes okay. You fix the product, you get it outperforming, then you go in, you work, you fight for the product, value should be coming up, you put the product in the secondary market, it proves itself in the secondary market. Values continuing to rise and it eventually fixes itself downstream, but we are in the middle of getting through that first part of that equation. Brian Sponheimer - Gabelli & Company: All right. Thanks for the colour. Keep up the good work guys.

Thanks Brian, we appreciate it.

Our next question comes from Joel Tiss from BMO Capital Markets. Your line is open.

All right. Hi guys. How is it going?

Hey Joel.

If these have all been asked already then just tell me but you had a jump in the SG&A in the first quarter I am sure from the acquisitions, is that, is there a chance to normalize that in the second quarter or is that more going to take a little more time?

Well two things, first off, Q1 is always our largest quarter. You can typically sequentially go back historically and Q1 is going to jump six to eight points from Q4, it's extra comp cost, it's extra taxes, I can go on and on about the list of benefits, everything else that happens in Q1, that's no different in historical. A lot of it you are right, was due to the Ohio acquisition. So the normal jump we got in expenses was in line with historical when you strip out acquisitions if that's the answer you are looking for.

Okay.

And then we would look for things to act a lot like they do historical, but always bearing in mind one thing Joel I want to make sure everybody understands, I am making a lot of investment, probably more investment than I have every made from a corporate perspective inside systems, inside test, people, inside training and inside a lot of different things in this organization. We basically double the size of this organization in the last three years okay and with that you put strain on a lot of different things, so you have to make sure that your systems and your infrastructure and your corporate support are proper enough so that you are managing everything properly, but when you do this, you also increase -- you push yourself in a position to create an organization that you can continue to leverage off of to take it up another 50% or 75% over the coming years as you made for your supporting and profits. So we are going to have a little more G&A cost, I have mentioned that both the last couple of calls, due to some systems and some things I am doing here at corporate, but I am doing that because we've doubled the size of the organization and I plan on continuing to grow the organization throughout this decade as we look towards 2020 and what we think we should be as an organization. So yes, to your question. They are going to -- it's going to subside but also understand, I’m going to continue to invest a lot this year and into early part of ‘14 to make sure because we have double the size of this organization. And I make sure we can properly support it. And again then get the leverage of ability going forward over the next two to three years as we continue to grow the company.

Okay.

There is a plenty of color there.

And then just this question, some parts of it, I guess, sort of, being asked but is the customer acceptance of the Navistar ‘13 leader. Is that -- you guys know the historical legs and all that? Is that a ‘13 event or is that probably more 2014?

Yeah. It’s probably more 2014. I said earlier it would be the last quarter of this year, third quarter. They started to push about in May, which you got to get it out of that. After the problems we’ve been through, you got to build confident from people. People have to account receivable, like you see in the market. You may have receiving engines out there in the company fleets. You are not charging in both. You are letting them build confidence in the fuel economy. They’ll build confidence in the reliability of the products. You’ve got to build that back. What I am telling you, I am very confident. I spend a lot of time with the management team over the last few months, ever since January, February, March, April, I have spend a lot of time with those folks. I think you’re on the right track. I don’t think -- I know they are on the right track. If they saying turn around but it’s not everybody in the street always wants to have (inaudible). This is not (inaudible) business when you dug and pull that. This is a proved business. So this is consistent considerable basis, you got to prove it to, if you made a mistake and we’re in the middle of all doing all that. But here are questions again for us, it’s got up really nice since 2014. If they’re right and I’m very confident it they’re right with their solutions. And you just got to continue to work their way through it, that’s all.

Well. Thank very much. Appreciate your time.

You bet. Thanks bill.

Our next question comes from Martin Falk from MD Falk & Company. Your line is open. Martin Falk - MD Falk & Company: Good morning.

Well. Good morning, sir. Martin Falk - MD Falk & Company: This is my first experience were your company and everything sounds that very interesting. I have a question.

I have heard your name before. Martin Falk - MD Falk & Company: In the New York Times just past week, they wrote on article fueling up for the long haul, the trucking industry is set to expand the use of natural gas and you comment on this and Europe outlook for this type of fuel?

You better believe I’ll comment on it. Considering full glass, when the here the meaning here locally about natural gas for the couple of 100 folks. I would say in natural gas, want to know from my prospective, one more exciting things we have in this country. To make sure take that we take advantage of something we didn’t really know we had available, let say years ago. As easily said right, there is a lot of work involved. We have sold more natural gas trucks than anybody in the industry and the last five quarters, in fact last quarter, I think first quarter and those number you saw, we sold 280 natural gas to outside. Now, that’s out of the norm. For a normal leader, we’re heavily involved in it. On the rescue side, in the ports, in some of the municipal business, municipalities we dea with. With many other those type and end of the oil and gas feeds themselves. So I would tell you that, while it is exciting, there still things to come it, first takes product. We’re still having to get breath of product out there. It’s a CNG, LNG questions. CNG should be able to take hold faster but we’re still waiting. Cummins is coming coming out with their new 12 leader product -- Cummins is coming coming out with their new 12 leader product, it is not out yet. It’s a little delayed but it’s coming out this summer. Maybe coming, I’m not coming out right about now with 350 horse power. They’ve got the 400 horsepower. So that’s really -- that’s the key moment because we really start just getting investment in product over the last couple of years. We have the west port with Cummins and that’s was in 15 leader IFX and then you have them 9 leader. But you didn’t have the breadth needed to cover the different markets that they needed to go into to give you the right torque and the right path, all the stuff which you leave. So continued investment in getting product out there, it works and driving down the cap also. LNG 15 leader product because of the fueling systems and they are paying, and everything else, not just the engine. Talking about our $140,000 on some of those stuff, which was -- became a little bit cost prohibitive. I look forward with continuing investment for those bring driven down. CNG, I think we’re sure will come a little quicker. Now the infrastructure piece, involving -- I tell you everything you don’t know. But the infrastructure piece has to continue to be build out. As we know, there have been folks that have been out there building out infrastructure, starting working on it last year and half really. But it continues to need to be built out more. I know we have seen groups come to us just in the last 45 days, that I talk to over year ago. So let’s talk about I want all of that maybe put some fueling stations inside because we have a lot of real estate around the country. And some of our places, we’ll do it, we pay for it. But now people are coming to me and saying, if you give us the acre of ground, we might do it for free. Not might, we will do it for free. And the if we can sign up some of these guys to buy natural gas, we will work with you help you spending subsidize some of that cost to product because they are out for selling natural gas. So we’re in the middle of this evolution. So you say where does that go, how does that trend line work but one thing for sure, the trend line goes in one direction, that’s up. Now, at what rate, it arises. You got a wide array of estimates, okay. Rusty is going to tell you that probably about 2000, I think 16,17, it might be 10% of the market place. And people say that’s it only going to be five. Some people say it’s going to be 50. I don’t buy that piece, okay. I think it’s a little bit too much. I think it’s a little too. We just don’t -- we’re this not far enough. It’s only 2013. We’re just not far off the long to get to that point. But I do know one things. It’s coming. How fast it comes might depend upon if there is more then government subsidies. That has something to do with it along with those acquisition, a lot of the -- some of the purchases were done, were subsidized by the government. But really improving, most important things is to get that cap cost yet driven down some of those feeling systems. There is not many competitors in those market places they’re building. So the cost is extremely high. So you’ve got to get those cap cost down, infrastructure up. And it only makes sense It only makes sense for us do that. We’ve got 100 years to drive into reserve of natural gas that we know, probably a whole lot more of that. If technology continues to allow us to find reserves that we didn’t know it existed. So I know it’s a long winded answer to your question. I hope that gives you some color. Martin Falk - MD Falk & Company: Thanks very much.

You’re welcome.

Our final question is queue come Art Hatfield with Raymond James. Your line is open.

Hi. Decision is to only ask one or 10 questions?

It’s starting with you. It was John’s first day, okay. So but it’s about -- happy birthday John. It’s not your birthday, Art but I am going to let you ask as many as your like.

Pretty good, Rusty, just one question, a follow-up on the natural gas question. With the Cummins engine come this summer at some point and there is bills in Congress as you said and some of them include tax credits for purchase in natural gas vehicles. Are you here from your customers that all of, any of that stuff is maybe impeding near term demand and they are waiting to see some of this stuff plays out?

I really haven’t heard that but John, I need to hire you. Now getting good point okay. Excuse me, I didn’t mean to call you, John, thinking about been John birthday.

You’re going to have pay me extra for calling me John.

I promise you, big bonus next March, now any way, no it’s a good point, Art. That probably does which I know if I was (inaudible) waiting to do see what (inaudible) give me. So a point taken, so it only makes sense. So yeah, I would have to agree, if I figure and take it out

It’s just hard to gauge to what level and just one other quick question, I’m good. You mentioned your natural gas, your energy customers earlier, what’s the tipping point on natural gas prices where you’d see kind of big demand coming back end from those energy customers, is a 455, 550?

The old rule of thumb back of the day was five. I’m being told though that if we can get some sustainability in the mid force. I’m not going to peg an exact number. And it’s stay that way for while, then we’ll start seeing it racheting, it start racheting back up.

Okay. I was look at rig counts the other day, Art.

I looked at a lot of different things. Any time, it gets backloaded, it always looking at lot of things. We’ll make sure you’re right. After that, I’m still making you John again. I don’t know, I feel terrible.

I guess see happy birthday, to advance but any way, no Art, I’m sorry. But I was looking at some stuff and a where is that to my point, is it 450 is some my tell me was 430 I ask the few folks. But I know rig count, it were down about 10% year-over-year. Okay, from what were year ago, so that’s mainly gas, it’s all gas driven.

All inspiration pretty strong field so, I am going to tell you mid purse okay. I don’t its five it more I think less in that so it’s mid force some what that.

Very helpful. Thanks for the time. That’s all I got.

You’re welcome, Art.

Okay. I hate Rusty.

And there are no further questions at this time. I would now turn the call back to management for closing remark.

Nothing here, we look forward to talking about in July. If you have any other questions, feel free to call Steve and myself after this. Thank you very much.

Thank you. Ladies and gentlemen that does conclude today’s conference. You may all disconnect and have a wonderful day.