Rush Enterprises, Inc. (RUSHA) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to Rush Enterprises, Inc. Reports Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Rusty Rush, President, CEO and Chairman of the Board. Please go ahead.

Good morning, and welcome to our second quarter 2026 earnings release call. With me on the call this morning are Steve Keller, Chief Financial Officer; Jody Pollard, Chief Operating Officer; Jay Hazelwood, Vice President and Controller; Michael Goldstone, Senior Vice President, General Counsel and Corporate Secretary. Before I get started, 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, 2025, and in our other filings with the Securities and Exchange Commission.

Thank you, Steve, and thanks, everyone, for joining us today. As we reported yesterday, we generated revenues of $1.9 billion during the second quarter with net income of $72.8 million or $0.91 per diluted share. In addition, our Board declared a 3-for-2 stock split for both our Class A and Class B common stock as well as a post-stock split quarterly cash dividend of $0.14 per share, representing a 10.5% increase compared to our prior quarterly dividend. Returning capital to our shareholders remains an important part of our long-term capital allocation strategy, and we are pleased to continue increasing our dividend while maintaining a strong balance sheet. As I mentioned on our Q1 call in April, we believe the first quarter represented the trough of the down cycle that the industry has been dealing with for the last few years. During the second quarter, we saw encouraging signs that market conditions are continuing to improve. While the recovery remains in early stages, improving freight rates and customer confidence, increased quoting activity and significantly stronger new truck order intake all contributed to better business conditions as the quarter progressed, and we feel good about the second half of the year. Given where the industry has been over the last several years, I am proud of how our team performed during the quarter. Our diversified business model once again demonstrated its resilience and our team's ability to execute allowed us to capitalize on improving market conditions and generate solid financial results. We also continue making progress on our strategic growth initiatives. During the quarter, we completed the acquisition of 5 Peterbilt dealerships in Louisiana, expanding our Rush Truck Centers network through the Gulf Coast region. We also expanded our Canadian operations through the acquisitions of 5 commercial dealerships there in Southwestern Ontario, further strengthening our presence in one of Canada's largest transportation markets. And last week, we announced we signed an agreement to form a 50% owned joint venture with MCT Companies, one of the nation's largest Carrier Transicold dealer groups. Subject to customary closing conditions, we expect the transaction to close during the third quarter. Through our investment in this joint venture, we are looking to establish our presence in the refrigerated transportation market, an adjacent business that we believe complements our core dealership operations and will allow us to expand the solutions we offer our customers while also creating long-term value for our shareholders. This transaction demonstrates one of our strategies for achieving long-term growth, and we will continue to evaluate other opportunities to acquire or invest in businesses that are adjacent to the commercial vehicle industry. Our aftermarket operations improved during the second quarter, accounting for approximately 64% of our total gross profit. Parts, service and collision center revenues totaled $645.7 million, an increase of 1.5% compared to the second quarter of last year, and our absorption rate remained strong at 130.8%. Demand for our aftermarket parts and services improved gradually across much of our business as the quarter progressed, particularly among over-the-road fleet customers. As freight markets have continued to improve and fleets are driving more miles, we are beginning to see repair activity return after an extended period of customers deferring spend on vehicle maintenance. With the aftermarket recovery, while the aftermarket recovery is still trailing the improvement we are seeing in commercial vehicle quoting activity and new truck orders, we are encouraged by the momentum we built in the quarter. Looking ahead, we expect our aftermarket business to continue improving as fleet utilization increases and new truck deliveries ramp up. Historically, new truck deliveries create additional opportunities for parts and services as customers upfit those vehicles and prepare trade-ins for resale. We remain focused on improving operational efficiency, growing our managed and national accounts and continuing to deliver exceptional service to our customers. Turning to truck sales. New Class 8 retail sales remained below normal replacement levels during the second quarter. But despite that environment, we sold 3,172 Class 8 trucks in the United States, essentially flat with the second quarter of last year, while the overall market declined. That performance increased our U.S. Class 8 market share to 5.8%, reflecting the strength of our customer relationships, our diversified customer base and our disciplined inventory management. Most importantly, customer quoting activity and order intake improved significantly throughout the quarter, reinforcing our belief that the recovery we anticipated earlier this year is beginning to take shape. Looking ahead, we believe the second half of 2026 will be considerably stronger than the first half with respect to Class 8 truck sales. Improving freight markets, strong fleet profitability and increasing customer confidence are all supporting higher quoting activity. And we are also seeing customers planning equipment purchases ahead of 2027 emissions regulations, which are expected to be finalized soon. With respect to medium-duty commercial vehicles sales, we sold 3,165 new Class 4 through 7 commercial vehicles in the United States during the quarter, down 12.7% compared to the second quarter of 2025. Similar to our medium-duty results in the first quarter, our year-over-year comparison was impacted by the timing of orders and deliveries to several of our larger fleet customers, as our larger medium-duty customers delayed purchasing decisions into the first half of 2026. Like our heavy-duty truck sales, our medium-duty commercial sales improved steadily as the quarter progressed, particularly during June. Although ACT Research expects the broader medium-duty market to remain challenging during 2026, we believe our growing backlog, anticipated deliveries and available inventory position us to meet anticipated customer demand. We believe that our medium-duty sales will continue to improve as the year progresses and will be roughly in line with our sales during 2025. Used commercial vehicle demand also continued to improve during the quarter, with June being our strongest month of the year so far. Healthier freight market conditions continue to support customer demand, particularly among buyers looking for a cost-effective alternative to new equipment. While financing remains challenging for some customers, we believe higher new truck prices, combined with the approaching 2027 federal emissions regulations will continue to make quality used trucks an attractive option. We expect used truck demand to remain healthy throughout the remainder of the year, and we believe our disciplined approach to inventory management and pricing positions us well as the market conditions continue to normalize. Rush Truck Leasing delivered another solid quarter, generating revenues of $94.8 million, an increase of 1.9% compared to the second quarter of last year. Our leasing and rental business continues to be one of the most consistent contributors to our financial performance. Its stable revenue model helps offset some of the cyclicality we experience in new commercial vehicle sales while continuing to generate healthy returns. Looking ahead, we continue to see healthy demand for leasing and rental services as fleets replace aging equipment. As new truck demand improves, manufacturers may eventually reach production capacity constraints, and our leasing and rental activity has historically benefited from reduced manufacturing capacity. Combined with improving rental utilization and continued growth in our contract maintenance business, we believe our leasing and rental operations are well positioned to continue delivering steady growth in the years ahead. To sum it up, I believe our second quarter results demonstrate both our resilience of our diversified business model and our team's ability to execute during a period when commercial vehicle market conditions are beginning to improve. While the industry recovery still has a ways to go, we are encouraged by stronger order activity, improving customer sentiment and healthier freight market fundamentals, all of which support our expectation for a stronger second half of the year. We also remain committed to investing in our future through ongoing strategic initiatives, organic growth opportunities and acquisitions of commercial vehicle dealerships or acquisitions or investments in businesses that are adjacent to the commercial vehicle industry, while continuing to return capital to our shareholders through dividends and shareholder repurchases. We believe these initiatives, together with our strong balance sheet and disciplined operating approach, position Rush Enterprises and our shareholders for long-term success. Finally, I want to thank all of our employees for their dedication, professionalism and commitment to serving our customers. I think they are the best in the business. Actually, I know they're the best in the business, and their hard work continues to distinguish Rush Enterprises as an industry leader. With that, I'll take your questions.

[Operator Instructions] Our first question comes from the line of Brady Lierz of Stephens.

I wanted to maybe unsurprisingly start on Class 8 sales, if we could. Since we talked last May, we did get some clarity from the EPA around 2027 emissions. And then just yesterday, a large public truckload carrier mentioned doing a strategic prebuy. Can you just talk about what you're hearing from your customers on both the prebuy front and kind of what you expect Class 8 sales growth to look like in the back half of the year?

Okay. Well, from the back half of the year, obviously, as I mentioned in the release, we expect to ramp up fairly well. Our backlog is as big as it's been in a couple of years, to be honest with you, where we sit right now. And I'll tell you, we're basically sold out. Now that doesn't mean we don't still have a few trucks to sell, obviously, because we stock a rather large inventory here. But from a large customer perspective, we're basically sold out in what we sell for both our brands on the Class 8 side. We can still squeeze a few in there here or there, but it is very difficult given the current productivity, should I say, the build rates that are going on right now. I guess the most exciting thing to me with the EPA coming out with what they have, understanding that we still have a commentary period going on right now. But when they announce what the regs would be, with the commentary period still out there, they did announce NCPs or nonconformance penalties, right, which will most probably, at least for some manufacturers have already mentioned what their plans are for 2027, which will be utilizing NCPs. I know PACCAR is going to. I know Cummins is going to do a phase-in of their new technology, but they will continue to produce old engines at least through September of next year. So I think that gives a nice platform to really ease into the news. So it sort of excites me about next year, to be honest with you as to what next year will look like because we're not having a cliff event where everybody is just going to new technology, we will ease in new technologies if any certain manufacturers choose to. Those are 2 that I know about. Not everyone has come out and said what their plan is yet. But I do know if I'm a customer and my business is showing the dramatic increases, I think that we see in all the releases that are coming out, maybe not reflected totally in Q2, but the beats that I've seen and the optimism that I've seen, that allows you to further test new technologies while still buying at a decent current noncompliance penalty, not too burdensome, I would say, given the overall cost of vehicles. And that allows you to ease in the new technologies. So with my business getting better, it gives me -- I personally feel that there may be some upside to 2027 at the moment, given what the EPA has come out with as we ease into it and almost move it all out sort of towards first to 2028 for some OEMs, at least those 2 that I mentioned that have already announced, and we'll wait to hear what others are doing. But right now, business is solid. We're just really -- that just came out 2.5 weeks ago or so. So really now we're just getting into where we can truly quote into 2027. So we're right in that transitionary phase, but I feel solid about the back half of this year for sure, without getting into exact numbers, but obviously ramping up in the third quarter and ramping up into the fourth. And remember, we're not in the production side. We're on the retail side, right? So we, for sure, should run into Q1 with what our backlog is for sure. I would tell you, we've got 3 quarters of solid backlog probably right now currently. And we'll wait and see how customers view and how their business continues to improve. But right now, most people believe it will. You're talking about double-digit rate increases for some of these guys right now. So with technology, with stabilization of old technology is still going to be available, even if at a little bit higher price without taking on emerging new technology with maybe some possible question marks that always come with new technologies. I feel good about at least the first half of '27 and probably on through the whole year, especially based upon the performance of our customer, our largest sector. Now obviously, we're big in the vocational business, too. But the over-the-road business is still the largest sector in the Class 8 market out there. So I think all those things I mentioned bode well as we move forward for the foreseeable future.

That's very helpful. Since we last talked in May, also, we've seen a pretty meaningful increase in truckload spot rates. We saw a nice sequential step-up in your parts and service revenue this quarter. How are you thinking about parts and service revenue growth in the second half of the year? And just are you seeing any headwind to parts and service revenue just due to the fact that this improvement in the freight market is supply-driven and not demand driven?

No, I think we've seen it. We have seen some headwinds. The parts and service business have been slower recovery than our order intake from a truck perspective on the Class 8 side. It just has. It's been a very, very competitive environment as people continued to manage their spend. It's like I tell people, it's just like you manage your household spend, right, when it goes down. But now that we're seeing stabilization and business performing better from a customer perspective, we expect that spend to get more in line with normal activity, what we would consider normal activity, but it's been tough for a while now on the parts and service side, right? We've been pretty flat with some margin compression driven by the competitiveness of the marketplace. But as the quarter progressed, we saw it picking up which bodes well. And as we get into the -- in the back half of the year, there's no question in my mind, and I'm even through so far in July, we've seen continued -- not ramping up double digits, but gradually improving and feeling really good about, it will be solid improvement throughout the rest of the year. We feel good about that. We really do. Is it -- are we where we need to be? No. But are we improving? Say really a lot over the last 60 -- 45 to 60 days, can we see it? Do we feel it? Can we look at our backlog in our shops and see that increasing? Yes, we can. So I think one of the things that's really important is that for the first quarter in a while, our small customer base, I've talked about it before, right, our unassigned accounts. We've been crushed in the last 3 years in that area. I mean every year has been down double 10%, 10%, 10%. We've finally seen a trough in that, which is a good thing to see, right, up slightly, small single digits. But obviously, if we can -- that's roughly 30% of our service business, 32% of our service business. So while we've seen growth in national accounts, it's been at very competitive pricing, but feeling like we're going to see the small customer show back up, which is usually better for us. It's part of our mix that we've really been missing that's been declining for us. I think there are many things, along with also increased new truck activity, right? I mentioned in the release, and I mentioned in my earlier comments that there's upfitting and a lot of things that go on because of our diversified customer base when you're in the construction and refuse in these other businesses. And even if the over-the-road businesses produce when you're installing APUs and doing all kinds of different things that come off of truck sales. So I mean, I'm giving you a few different anecdotes here to why I feel good about it, but I believe it will continue to improve throughout the remainder of the year would be what I would tell you. There's not going to be this 1-month dramatic jump, but I do believe sincerely that it will continue to improve and continue to ramp up with everything. As much as anything, given the health of the overall, the largest customer base we have, the over-the-road business continuing to improve.

Our next question comes from the line of Cole Couzens.

From a building demand perspective, it sounds like the new EPA proposal could be good for the Class 8 industry this and next year. But let's say, an OEM wants to sell a current model truck with an NCP next year, how does that impact your pricing and margins in that scenario, if at all?

I think you answered the question, if at all, right? I mean, at the end of the day, an NCP is going to be a known number, right? It's going to be hard to mark up a known number driven by the federal government. How about that, okay? So -- and be honest with you, so there'll be a pass-through. Now there'll be FET on it. I mean, right now, a Class 8 engine is in $6,800 range, the way most people are interpreting it. As I said, that's plus FET, okay? So 12% federal excise tax on top of that. At the same time, there's a commentary period going on right now. So it is subject to possible change. I do believe there are differing viewpoints on this by different OEMs, and I'm not going to get into all of it here. You can ask them individually yourself. But I do believe they have different opinions of the NCP, the amount of the NCP, et cetera. Personally, I think it's fairly fair, okay? It allows for a transition, and I'm sure that it will be like -- and this is not known, but my own thoughts, my own opinion is that will be a 1-year type scenario, and then it will ramp up a lot more by the first part of '28, which will probably make -- by that time, I would expect everybody will be rolling in their new technology anyway, and there won't be much difference, right? So to me, it makes a little sense from a customer perspective, right? I mean, look, I know certain OEMs felt certain ways about it. At the same time, if you take a customer sentiment, they're happy about it, right? This allows them to come off 3.5 years of freight recession, right, just beat up terribly over the last 3.5 years. This allows them to gather themselves, maybe replenish their fleet with some older technology, known technology as we roll into new technology from an aftertreatment and even a little bit -- a little more than just the aftertreatment that goes into some of these engines depending on who the manufacturer is. So I don't see a lot of downside from a customer perspective. Like I said, different OEMs are going to have different opinions. But customers will probably be pretty happy to have an NCP a choice and then watch it transition later through the year is what I think you'll see from most folks. But it's not a cliff event, right? It just makes sense for an industry from my perspective, coming off of a terrible freight recession longer than I've seen and allows them to get a little healthier without having the risk of technology, the engine and their trucks without that risk, and they can try out more, right? I would expect customers to buy some new technology and run some new technology from certain OEMs that offer both platforms. And that's what Cummins, I think, mentioned, they're going to roll in as the year goes on some and transition in. But different OEMs have different opinions from a customer perspective. I think it's pretty good. I don't consider this a prebuy year. You mentioned the word prebuy. We're going to end up the year over what the last 10-year average was. I mean we did 95,000 of U.S. Class 8s in the first half, and we've averaged around 230,000 in the last 10 years, okay? Well, that means there's 135,000 to roll in, which is close to a 40% retail upside in the back half of the year compared to the first half of the year, which gets you right back. You're going to be very close to what the annual average has been in the U.S. over the last 10 years. So I do not consider 2026 a prebuy year. I could see a 2027 with NCPs out there. ACT has already got '27 higher than '26 because of the slow start to '26. So I could see to '27, you might eventually get to where you call it a prebuy if there eventually is sort of more of a cliff with technology changes coming forward by the time we get to the first to '28, along concurrently with customers' health better than what it was this year, right? So there's my opinion right there, okay? It's not set in stone, but I think it's a possibility. I think we just have to let it unfold. But I do believe NCPs are going to make 2027 a better year without a blip of any kind as we roll into it. Remember, like I said, for us is the retail end, we should be thrilled with what we've got in the backlog through the first quarter, if not into the second quarter some with what's in our backlog with NCPs and customers' health getting better. There may not be a blip of a technology change go about. People will just pay that extra $7,000 or so and roll right along, right, because they're getting old technology, proven technology while just paying a little price for it that's not too exorbitant. Just my thoughts.

Yes. That all makes sense, and it's super helpful, Rusty. Maybe just also, can you speak to what trends you're seeing so far in July, whether it's across commercial vehicle sales or aftermarket? And maybe expand a little bit more on the trends you're seeing with small unassigned accounts versus some of your larger national accounts please.

Sure. Yes, I touched on a little bit of that earlier, but I don't mind being a little bit repetitive. Obviously, truck deliveries are going to continue to increase, right? We're receiving trucks more than we have received before. But remember, when we receive trucks, it is typically 30 days depending on applications to 120 days before we deliver to the end user. I expect July, August, September and throughout to continue to ramp. It's not going to double or anything like that. But if you were to ask me about truck in this quarter, will be up 15% or something. Because remember, our carry is going to go into next year, like I keep saying, the stuff we build in December will not be delivered in this year. It will get delivered into January and February. So the stuff in November will. So this will ramp for us and continue to ramp as we go forward. Parts and service, I already said, I expect it to continue to get better. And I've listed a multitude of reasons why, right, with the small user being one of them, right? We saw a 4% sequential increase from Q1 to Q2. Not a lot, but we did see that. And while still very depressed from what it was, say, 3 years ago, at least you feel like you're bottoming, right? And so hopefully, you're troughing in that from that perspective, and you've got upside. And that's 30% of our parts and service business that we've been fighting, we've been fighting that really hard in the last couple of 3 years and producing the results we have, given the diversification, whether it's by that customer segment or market segment or whatever. We deal with a lot of markets. I've talked a lot about just over-the-road here this morning. But I do not want to forget about our vocational businesses, whether it be in construction or refuse or whichever location it might be in or our medium-duty platform, right? I mean those are all things that we work on everything in our shop. The over-the-road business gets the major focus because it is a huge. It's the biggest market. Yet at the same time, we supplement it with diversity from a geographic and a market perspective. So I feel that it's going to continue to get better. I don't want to get overexuberant this morning, but I think there's some legs. I do believe that we've got some legs on this now, especially when I talk to customers, when I see what's going on, when I know -- now I'm getting -- we're not totally done with the EPA. As I said, we're in a commentary period. But we pretty much know that they've cut the warranty, right? Warranty stays where it's been, okay, on the aftertreatment, it didn't go to some 10 years warranty that was costing an extra, the government said $6,000, $7,000, $8,000 that was going to have to be priced in, right? We've changed the length of the life expectancy. We've done some things the government has to soften while still going towards the 0.35 eventually, NOx emissions to begin with, we have also the credit perspective. And there's a lot of things that go into all that, but I'm not going to get into. But there are many -- I can sit here and talk, there are many things that I think are positive, right? And not all of them will probably come to pass, but there's a lot of, should I say, positive feelings around our industry right at the moment. So when you're basically sold out for the year, we haven't done that in a while, 6 months out. And rolling into next year, I feel good about us. We've got -- we're going to have inventory to sell to that is not sold. So most -- a lot of this business has been fleet business. There's just positive things. I mean, I could go on and on. You know I'm a ramper. So -- but I don't want to get ahead of my skis. I don't want to get out over my skis either. This still has to come to pass. At the same time, I can't sit here and give you negative thoughts that I may have in the past, but allow it. Allow it to come to us. And I think that's what we'll see happen. We'll continue to see improvements like we saw from Q1 to Q2 from a result, even though it wasn't all top line driven or margin driven, we managed this company from a G&A perspective, extremely well in the quarter. So I'll be quiet.

Yes. And last one, any signs on the small unassigned versus the national accounts?

The small -- well, the small guys, if they missed out from a truck sales perspective, tell them I might have some inventory they can buy from a parts and service perspective. And by the way, they're going to be able to buy next year with not that big of NCP, $7,000 isn't that bat. In reality, when you're talking about vehicle, [ $200,000 ] vehicle is here, okay, you're not talking about some 10% or 15% price increase here, right? You just may be a little longer to get it as the business improves. That's what's driving used to be better, right, is lack of availability of new. And so that's what's going to make the used market stay solid. So it's really on the parts and service I just spoke about. I think I said we were up 4% sequentially. In my mind, just call it flat. We were trough. We've been going through 3 years of year-over-year double-digit decreases. So that means the health of even the smaller carrier in spite of all these fuel issues, right, in spite of all the geopolitical stuff that's going on, I've been fairly amazed at the resilience of the market. Of course, that has to do with the business model and the pass-through of fleet to the shippers that have gone into place for the last 30 years. But at the same time, I feel good about it. I think the small carrier is -- if he's survived this far, he's going to make it, okay? If they've made it this far, that's the good ones and they're the ones that are going to make it, and they will get their spending habits back more in line with what they would be normalized spending. That doesn't mean they're going to spend it, but they're going to get back to more normalized maintenance and repair. And that just bodes well for us. There's more miles being driven. I mean you're talking about supply being driven down, so that drives the miles up on the ones that are driving. I mean you don't want me -- I could go on, but things just continue to look for solid sequential improvement, not going to double or anything like that, but solid sequential improvement, which is good, I think, for a longer period of time. Most people believe that this freight recovery should have 24 months on it or so. We've been around long enough to know this thing is cyclical, but should have some legs on it for a while, driven by supply coming out. Now -- and we're getting some growth on the other side to the coin. So if that continues to improve from a tonnage and a mileage, from a load perspective, then you have a couple of years of legs on this thing.

Our next call comes from Avi Jaroslawicz of UBS.

Rusty, I know you've already spent a lot of time talking about it. But just sticking on the dynamics of prebuying this year versus next year, would you say that you don't really think we've seen or you're seeing prebuy demand this year? Or is it really more about just how much the OEMs can produce? Because I mean, thinking about $6,000 to $7,000 NCPs before the FET, it's not nothing for next year.