Prepared remarks
Thank you for standing by. My name is Janice, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rush Enterprises, Inc. Report First Quarter 2025 Earnings Results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would like to turn the call over now to Mr. Rusty Rush, Chairman, CEO, and President. Please go ahead.
Well, good morning, everyone, and welcome to our first quarter 2025 earnings call. With me on the call this morning are Jason Wilder, Chief Operating Officer; Steve Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General Counsel and Corporate Secretary. Before we begin, Steve 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, 2024, and our other filings with the Securities and Exchange Commission.
As we stated in our news release yesterday, in the first quarter, we achieved revenues of $1.85 billion and net income of $60.3 million or $0.73 per diluted share. We remain committed to returning value to our shareholders. So I'm proud to announce that our Board of Directors has again declared a cash dividend of $0.18 per common share for the quarter. The business environment in the first quarter was difficult to say the least. The industry continues to struggle with the freight recession, economic uncertainty, growing concerns around U.S. trade policies and tariffs, and the future of emissions regulations. These factors caused a slowdown in customer activity, particularly in the Class 8 over-the-road segment. Truck sales to Class 8 customers were weaker as we began the year. However, thanks to our continued focus on strategic initiatives and our diversified customer base, we managed to outperform the broader market in the first quarter, primarily due to strong sales to vocational and public sector customers.
In the medium-duty truck sales market, while the overall market was down, our unique ready-to-roll inventory program was particularly effective, and again, we outperformed the industry with steady Class 4 through 7 sales in the quarter. From a used truck perspective, we saw a typical seasonal pattern, slower sales in January and February, but a good pickup in March, giving us sequential growth from the fourth quarter. With respect to our aftermarket results, our parts, service, and body shop revenues were $619 million in the quarter, down 4.6% compared to last year. Our absorption ratio was 128.6% compared to 130.1% in the first quarter of 2024, but still very strong. Despite tough market conditions, we experienced a slight improvement in aftermarket sales revenues compared to the fourth quarter of last year, with demand from our public sector, vocational, and medium-duty leasing customers remaining steady and sales to the energy sector beginning to pick up.
We also expanded our aftermarket sales force in the first quarter, which should help us provide an even higher level of service to our customers going forward, all things considered, operations in the first quarter. Looking ahead, we expect to see some improvement in aftermarket revenues in Q2. We added service technicians during the first quarter, which will allow us to decrease customer dwell time going forward. We also continue to optimize our parts delivery routes and improve our call center operations, which help us serve more customers efficiently. With respect to the second half of the year, we are actively monitoring the supply chain and the impact that proposed tariffs may have on parts availability and pricing. We believe that we are well positioned with our parts inventory to mitigate the effects of any potential supply chain disruptions. The Class 8 new truck sales market continues to face challenges.
ACT Research says that U.S. and Canadian retail truck sales totaled 57,946 in the first quarter, down 9% year-over-year. By comparison, we were down 7.8%, selling 3,222 new Class 8 trucks and accounting for 6.1% of the total U.S. market and 1.1% of the new Class 8 market in Canada. While this was a tough quarter, I'm pleased that we outperformed the market. Looking ahead at Q2 and the back half of the year, ACT Research revised its U.S. and Canadian Class 8 sales forecast downward to 234,600 units in 2025, a 14.7% decline compared to last year. However, we do anticipate a slight improvement in Class 8 sales in the second quarter due to the timing of some fleet deliveries. At this point, there is too much market uncertainty to predict what demand will look like in the second half for our over-the-road customers, but we remain optimistic about demand from our vocational and public sector customers throughout 2025.
In medium-duty sales, the overall market declined 3.5% in the first quarter, but our performance remained stable and we sold 3,329 new Class 4 through 7 trucks, outpacing the market and increasing our market share to 5.6% of the U.S. Class 4 through 7 market, and 3.1% of the Canadian Class 5 through 7 market. ACT Research forecasts U.S. and Canadian sales of Class 4 through 7 trucks to be 254,050 in 2025, down 7.2% compared to last year. Going forward, we expect customers to be cautious, replacing vehicles rather than expanding their fleet. But our strategic approach to stocking work-ready vehicles should allow us to meet customer needs when and where they need vehicles, and we expect to continue to outperform the market this year. We sold 1,769 used trucks in the first quarter, down 2.7% compared to last year. As of now, demand remains soft and tariffs haven't yet affected used truck pricing.
But we've been proactive in increasing inventories slightly, in preparation for the spring and summer selling season. And we believe our stock levels are where they need to be to meet customer needs. Our Rush Truck Leasing division delivered solid results again in the first quarter. Leasing and rental revenue increased 2.3% compared to Q1 of 2024 and totaled $90 million for the quarter. Rental revenue was down just slightly year-over-year due to lower utilization rates, while full-service leasing continues to perform well as we put additional vehicles into service. I'm confident that our leasing and rental business will stay strong throughout the year. While we faced our challenges in the first quarter, I'm proud of how our team has navigated the uncertainty currently impacting the commercial vehicle industry. As I said in the news release, what remains unclear for us and for the industry as a whole is how the second half of the year is going to play out.
The ongoing concerns around tariffs, their impact on the economy, and our current emission regulations may be modified are making some customers hesitant to move forward with vehicle purchasing decisions. That said, I'm confident in our position as we navigate these challenges, and I believe our dealer network, strong relationships with customers and manufacturers, and our broad product offerings will allow us to respond quickly as these policies take shape. Before I close, I want to take a moment to thank our employees. The first quarter of 2025 has been tough, but our team has shown incredible resilience. They worked tirelessly to help customers through these uncertain times, while keeping our long-term goals in sight and continuing to manage expenses. Their dedication directly contributed to our performance this quarter, and I am extremely grateful for their efforts. And with that, I'll take your questions.
Questions and answers
Your first question comes from the line of Daniel Imbro with Stephens. Please go ahead.
Yeah. Hey. Good morning, guys. Thanks for taking the questions.
Good morning, Dan.
Rusty, obviously a lot of moving pieces out there. Maybe we'll just start on the demand backdrop.
Sure. Please.
Exactly. Can you talk about maybe how new unit sales trended through the quarter, and maybe here into April? We've seen a lot of the larger fleets lowering their CapEx orders. I know those aren't always your customers, but are your customers behaving in a similar way? What are your customers telling you about their planned expenditures for the rest of the year?
I believe that as we progress through the latter half of the year, we can expect a situation somewhat akin to what we experienced in the second quarter. The fluctuating tariffs, combined with challenging business conditions, have certainly impacted us, as you can see from the earnings reports of various carriers with whom we work. While we may not partner with all of them, they do play a part in our operations. The volatility surrounding tariffs has complicated matters significantly. If you had asked me 60 days ago, I would have provided similar insights about the second quarter as I am now regarding the latter half of the year. We gained some clarity regarding the situation, but it’s limited to the next 60 to 90 days, and we still lack a clear outlook for the entire year. This uncertainty is our biggest challenge. I had concerns about the second quarter as well, although we anticipate slightly higher deliveries compared to the first quarter for Class 8 vehicles.
There is significant uncertainty in the market right now; I've seen some companies completely halt their purchasing plans for the latter half of the year. I'm hopeful for a repeat of the second quarter in the third and fourth quarters. I've referred to our situation as being hand-to-mouth, which we are somewhat familiar with. Our backlogs, while not fully booked with the OEMs we interact with, still have some availability for June. It makes it challenging to predict what the third quarter will look like when there are still open slots in the second quarter. Pricing is particularly difficult at this time, especially with the tariffs being reassessed recently and ongoing uncertainty surrounding emissions regulations. We received news that legislation passed yesterday regarding emissions, but the federal discussions about compliance in California are still pending, and we lack clarity. We are expecting changes to the current emissions standards that are set to take effect on January 1, 2027, although I cannot predict the specifics of those changes.
Given the current administration's stance, we can expect things to evolve. All these uncertainties complicate business operations, and it may take time for the situation to stabilize. I think we are still about 45 days away from having a clearer picture regarding emissions. The discussions surrounding the tariffs are ongoing as well. Moving forward, I don't foresee large backlogs for the rest of the year, and relying on fourth-quarter backlogs could be risky because conditions can change rapidly. I anticipate some demand, but I align with ACT's assessment of a roughly 15% decrease. I’m not attempting to be overly pessimistic, but it’s the reality we’re facing. Despite these challenges, we managed to post solid results last quarter, and I remain hopeful about our ability to operate effectively. Reflecting back to 2020 and the challenges posed by COVID-19, our organization was able to perform well even with limited allocations and long lead times, and I believe we can continue to deliver results regardless of the current environment.
Yeah. Well, that's a tandem out, at least you guys have the experience and done this before. Maybe for my follow-up, Rusty, if you could just expand a bit on the parts and service. Obviously, it was softer in Q1, was that more in any one part of the business, collision, big fleets for small fleets? And then you mentioned you expected an improvement in Q2. Did you mean a return to year-over-year growth or just sequentially higher than the first quarter?
I'm optimistic about sequential growth, but I can't guarantee any year-over-year growth. Starting with Q1, it began slowly. The weather in January caused more store shutdowns than last year due to some severe conditions. I was quite concerned during that month. However, we noticed improvement in February, which continued into March. Looking at April, it was solid but a bit uneven day-to-day. Our backlog of work in process is similar to where we were at the end of March. It’s a bit unpredictable, and there’s uncertainty around the business environment. A key observation is the decline in miles driven, particularly among over-the-road customers, which likely leads to less maintenance and repairs. Nevertheless, given our various initiatives, I believe we can achieve sequential growth since January and February were weaker. We saw an uptick in March, and April's numbers are encouraging. Historically, May, June, and July are stronger months for us, thanks to increased demand for air conditioning services, especially in the southern regions where we have many stores.
While I can't commit to year-over-year growth, I can point out that our expense management has improved, as evidenced by a 5.5% reduction in G&A year-over-year. This efficiency helped mitigate a 1.5% decline in store operating absorption rates. We have several strategies in place to navigate through challenges. Overall, I remain confident in our company and team’s ability to make sound decisions to outperform the market, despite being the only publicly traded company focused solely on truck sales. Historically, we have outperformed, and I expect us to continue that trend.
All super helpful color. Really appreciate it and best of luck.
You bet. Thank you.
Your next question comes from the line of Andrew Obin with Bank of America. Please go ahead.
Hey, Rusty. How are you?
I'm good, Andrew.
Okay. So just to clarify, for the second quarter, Class 8 is expected to improve sequentially, and parts and services are also projected to be better, correct?
Well, Andrew, slightly.
But no, I got it. Yeah.
Slightly. I'm not getting ahead of myself here. The issue is the uncertainty. I wish I could tell you exactly what it is, but if you haven't noticed since our first 100 days, every day has been different since January. I'm not being critical, but the timing keeps changing daily, making it very challenging to run a business and provide accurate forecasts. That's why I'm not making predictions for the latter half of the year. As I mentioned earlier on the call, I provided some insight into Q2 about 60 days ago, and we managed to piece something together when we gained clarity on the pricing for Q2. However, they're reassessing tariffs, so the latter half of the year remains uncertain. Plus, we need to consider what's happening in the economy. We must be cautious.
I appreciate it. Can you tell us how parts and services performed in April compared to March? I know there were some holiday timing issues in April, but did performance improve, remain stable, or decline? Was there any slowdown in April?
A slightly less than April per day average. But I attributed it, hopefully, I'm right, I'm attributing it to the Easter week. Easter week, we did not have a very good week, right? I will tell you this. We closed it. We didn't catch it all up here at the end, but we did close better here over the last week. So I'm hoping that we can maintain some of that. And by the way, it was still better than January and February, okay, per day average. So it wasn't quite to where April was on a per day average. But we closed better than January and February at least. Easter week was a rough week, and if you'd ask me where we ended up today, if you'd asked me a week ago, I would have taken it. So I felt we had a good close to the month. I know we're getting granular. But there are certain pockets in the country that I can attribute. I know you always like to know where around the country, where things are, but there are certain pockets that you can attribute some of this, a little bit of softness to be honest with you.
Okay. And then as I think just I assume that G&A is just fixed is what it is, but as I think relative to '22, right, as I think about SG&A cost, is that a good baseline for what SG&A can be or were you so bare bones during COVID that it's not applicable? And I should just assume that there has been some inflation over the past two to three years?
I don’t want to discuss the past too much; I can't return to those previous numbers right now. I'll be adjusting our meat and bone supply because it's more costly. We haven't completely offset the inflation pressures we experienced in 2022 and 2023, and we are still dealing with inflation, which is why our results have remained relatively stable since I implemented cuts around this time last year. Comparatively, Q1 is down 5.5% from last year's Q1, but we've managed to hold our ground. There might be more we can do, and we're constantly evaluating that on a daily and weekly basis. I make decisions as I gain more clarity regarding the market. I want to see how April concludes and assess our G&A perspective. When I say we're operating on a tight margin, I mean that applies to every aspect of the business. Is that a bad situation? Not necessarily; it’s just the reality. I am confident in our ability to respond to market conditions.
While I may not be able to predict everything as accurately as I’d like, I believe we can act effectively based on what we observe. The situation is complex with a lot of uncertainty, similar to the challenges faced by our customers. It’s difficult for customers to decide to purchase products when they aren’t seeing growth, perhaps because their operational needs are decreased. Overall, from a macro standpoint, the positive aspect is our capacity to navigate and make sound decisions based on the current market landscape. I'm not suggesting a bleak outlook for the second half of the year; I'm just acknowledging the uncertainty because I lack clarity at this point. As I receive more information, I will be glad to share updates.
What do you think it would take for OEs to gain more clarity on production schedules for the second half? Is it related to the uncertainty about whether we're heading into a recession or the treatment of their content under the new tariff rules? Do these factors go together, or is it the case that a competitor has provided pricing that hasn't really driven demand for trucks? What could help resolve this bottleneck?
Well, there has been some progress, but it's accompanied by limitations. It's important to pay attention to the details. As you consider this, Andrew, the situation involves all aspects of our customers' businesses alongside the clarity surrounding restrictions. As I mentioned, a reassessment was announced last week and will take place over the next few weeks. This could change again, much like what happened in the automotive sector this week. Our customers' businesses have shown underwhelming performance, as reflected in the first quarter GDP results and the earnings reports from public carriers, which have not been positive. This isn't a commentary on their capabilities, but rather a reflection of the market conditions they face. Fortunately, we've seen steady performance in vocational and municipal sectors that have helped us maintain our position. For improvement, the overall business climate needs to improve; we cannot expect growth during a GDP contraction.
Companies will need to increase their operations significantly, and we need clarity on tariffs. While we currently believe we have a handle on them, we just announced a review last week. Additionally, there is uncertainty surrounding emissions regulations. I think things won’t be as strict in 2021, and there was expected to be a significant pre-buy starting in 2025, but that conversation seems to have stalled due to the lack of finalized regulations, which are projected to take about 45 days. Recent actions in the House may affect this, but there is still ambiguity. We need clarity on whether new regulations will necessitate higher prices or extended warranties, and we lack definitive answers on emissions standards. As we pushed greenhouse gas regulations out to 2030, we still have many unanswered questions. Combining these uncertainties with a challenging economy and reduced mileage driven creates a complex situation. I cannot provide specific predictions or solutions at this moment; it's a challenging and uncertain period ahead.
And just the last question for me. What's been access to credit? Are people still willing to finance customers or those providing credit to the industry? Are they pulling back on credit or providing incentives? What's happening in terms of liquidity in the market and the ability for you and your customers to access credit? Is it easy or hard at the same time? Thank you.
Credit is not an issue at the moment. There aren’t many individuals seeking subprime credit. If you have a solid balance sheet and a reliable customer base, there is still access to funding available. Regarding incentives, I'm unsure if you're referring to vehicles, but there isn't much happening in that area right now since most manufacturers are focused on pricing for the upcoming months. One manufacturer has stepped back, and while it's vital to pay attention to the details, their recent announcement suggests they are reevaluating their position. I share concerns, but I understand why manufacturers are struggling to adapt. This environment is constantly changing, as we saw from February to March to April, and we're facing another reevaluation. It’s challenging. However, I have confidence in our capabilities. Our history demonstrates our flexibility. We will sell trucks, work on trucks, and continue to deliver strong results. We have multiple avenues to explore; we don't solely focus on selling trucks, parts, or services. We have various options at our disposal to exceed market expectations, regardless of the challenges we face. I don’t have clarity on what the latter half of the year will bring, but I promise to keep you informed as soon as I do.
I'll take it. Thanks so much, Rusty.
You mention.
Your next question comes from the line of Avi Jaroslawicz of UBS. Please go ahead.
Hi. Good morning, guys.
Good morning.
So I know it's got to be hard to parse this out, but just in the hesitancy that you are seeing from customers, would you say it's more from the uncertainty of the prices or more just the uncertainty on the macro impacts that would affect their revenues or profitability?
I would say that the key factor is their business. I can’t specify an exact split, but it’s both. For customers to feel confident, their own business needs to be strong. If you look at some of the reports, they’ve been quite challenging. Customers can prolong the lifespan of their vehicles, but it becomes tougher when I can’t provide clear pricing for trucks in the coming months. Pricing exists with conditions unless tariff laws change, which customers don’t appreciate, and neither do we. It's hard to determine which factor weighs more, as both aspects are intertwined. While it's not the most exciting response, it's the reality. Your own business needs to be solid first. In terms of growth, no one is expanding their fleet; they’re only focusing on replacements, and even that can slow down. Vehicles today are far superior to those from three decades ago, and if mileage is lower, they can last longer. However, we're currently dealing with fewer vehicle miles. We just need more clarity on everything. I can't forecast vehicle costs for January 2027. All we know is it’s likely to be lower than previously projected, but we’re uncertain how regulations will impact OEMs and engine manufacturers, especially concerning costs and warranties. So, it’s about prioritizing the business first and tariffs second. I can provide a price for 60 days, but not for six months without some conditions.
That definitely makes sense. I guess part of what I'm trying to understand is just, if the economy does end up holding up okay, what kind of demand destruction we could see just from the higher price, I don't know if you have a view on that, I'd be curious?
I believe that if the economy remains stable, we will see how things unfold. I've consistently said that as long as you set the rules, I can adapt to them. However, the issue lies in the fact that the rules keep changing, which complicates things not just for me, but for my customers as well. The costs are what they are, and unfortunately, truck prices have surged significantly, especially over the past few years. It's shocking to reflect on how fast they have increased recently. Our business needs to improve to pass on these costs, but that hasn't happened. We experienced an oversupply of trucks for a couple of years, and after selling a lot in 2022 and 2023, we still had a surprisingly strong year in 2024, exceeding our expectations. There has been a glut of trucks relative to the available freight. I've never seen a freight downturn last this long; it’s been quite a unique situation, and not in a good way.
I'm optimistic for some stability in the economy moving forward, but I'm uncertain about where we stand after the last few months of removing trucks from the market to balance supply and demand. Six months ago, we thought we were starting to see a turnaround and anticipated rate increases, but they have been minimal, with the current reports not aligning with our earlier expectations from contract negotiations. No one could have foreseen the turmoil caused by tariffs and their impact on ports. We have yet to fully experience the consequences of these changes, which are still unfolding. I’m just being realistic about the challenges, particularly in California, where a lot of goods come through the ports of LA and Long Beach. We'll find a way through it, but it's still not good for overall business. The shift towards bringing manufacturing back to our country due to the tariffs is a long-term process that doesn't happen overnight.
Even our President acknowledged there would be some pain during this transition, which is what we are currently navigating. I believe this painful adjustment will continue for the near future, and we have not yet overcome these challenges by any means. Things keep evolving, making it difficult to predict.
Yeah. I definitely understand that. I just want to circle back to the regulations quickly. Last quarter, you felt pretty confident that we would still see the low NOx regulations take place with or without the warranty. You still think that's the case or just no comments…
I don't want to overstep my bounds here. I believe we'll see something lower, but it might not be as low as what's currently being discussed. That’s being debated by those higher up than me. Sure, it will be lower than the current figure, but it might not reach the numbers that were initially projected. That conversation is ongoing right now. I won't delve too deeply into it because it might be outside my purview. We'll have clarity in about 45 days, likely by the end of this quarter, so let’s wait and see. I think it'll turn out positively; what we were attempting just wasn't feasible. The logistics for making everything electric are not in place—we lack the necessary grid and infrastructure. That's a long-term challenge, and there are 120 years of investment in internal combustion that won’t change in just five or six years. The outcome will be determined by smarter minds than mine, and it is the right direction to take.
However, this situation likely won't lead to a significant pre-buy, especially with the tough overall economic conditions that we're facing due to tariffs and other ongoing factors. I'm not ruling out a pre-buy for 2026, but with each passing day, January 1, 2027, looms closer. The timeline is tightening, and we’re battling the harsh realities affecting customers. Regardless of truck pricing or technology, I need my operations to be stable enough to make purchases. Those factors present challenges, yet I do expect a pre-buy at some point. Still, it’s hard to predict given the regulatory uncertainties and tariff unknowns. The pending federal regulations will significantly impact this. At the end of the day, managing our business is paramount. Back in 2010, when we transitioned to SCR, we anticipated a strong year in 2009, but the economy didn't cooperate, and 2009 failed to meet pre-buy expectations.
I hope we can stabilize the economy and resolve some of the uncertainties that have arisen recently, allowing us to identify a clear direction for investment. It’s important for us to understand where our business is headed. That clarity is crucial for someone like me managing my operations. Ultimately, I am very confident that Rush Enterprises can adjust and navigate these uncertainties effectively, delivering performance that surpasses our competition.
All makes sense to me. All right. I appreciate the perspective. Best of luck.
You bet.
I will now turn the call back over to Mr. Rusty Rush, Chairman, CEO, and President for the closing remarks. Please go ahead.
Sure. Well, I appreciate everyone's attendance this morning, and I look forward to talking to you sometime in late July. Hopefully with some more certainty and clarity. Maybe I can give you a six-month window instead of a three-month window. Anyway, everybody, have a great day. Thank you very much.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.