Rush Enterprises (RUSHA) Q3 2025 earnings call transcript

Good morning, and welcome to our third quarter of 2025 earnings release call. With me 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. Thank you. As indicated in our news release, we achieved third quarter revenues of $1.9 billion and net income of $66.7 million or $0.83 per diluted share. I am pleased to announce that our board of directors approved a $0.19 per share cash dividend. The commercial vehicle industry continued to face challenging operating conditions in the third quarter of 2025. Freight rates remained depressed, and overcapacity continues to weigh on the market. In addition, while the industry gains some clarity regarding the tariffs that will be imposed on certain commercial vehicles and parts beginning November 1, economic uncertainty and regulatory ambiguity remains, especially with respect to engine emissions regulations.

These factors are impacting our customers' vehicle replacement decisions. Despite these headwinds, I am proud of the financial performance our team delivered in the third quarter. Our employees' commitment to operational discipline and customer service was evident in our ability to maintain strong aftermarket results and manage expenses effectively, and I am deeply grateful for their dedication. Our aftermarket operations accounted for approximately 63% of our total gross profit in the third quarter, with parts, service, and collision center revenues reaching $642.7 million, an increase of 1.5% compared to the third quarter of 2024, and our absorption ratio was 129.3. In the third quarter, our aftermarket products and service businesses remain resilient despite ongoing market challenges. Our strategic focus on technician recruiting and retention, expanding our aftermarket sales force, and identifying new customer segments helped offset weak demand.

Looking ahead, we anticipate continued challenges in our aftermarket business due to seasonal trends and broader industry headwinds, but we remain confident that our diversified customer base and operational discipline will allow us to successfully navigate the remainder of the year. With respect to truck sales, we sold 3,120 new Class 8 trucks in the U. S. during the third quarter, accounting for 5.8% of the total U. S. market. While this represents an 11% year-over-year decrease, we outperformed the market primarily due to stable demand from our vocational customers, underscoring the strength of our diversified customer base.

Looking forward, economic and regulatory uncertainty continues to dampen customer demand, particularly with respect to new Class A trucks. We believe that the weak demand the industry is currently experiencing will negatively impact new Class A truck sales for at least the next two quarters. That said, if stricter emission laws become effective as planned, and if capacity continues to exit the market due to bankruptcies, retail sales being below replacement levels, and continued enforcement of government policies regarding English language proficiency and non-domiciled drivers, Class A truck sales may be strong in the second half of 2026. In the medium-duty market, we delivered 2,979 Class 4-7 medium-duty commercial vehicles in the U. S. in the third quarter, representing an 8.3% year-over-year decrease and a 5.6% market share.

We also sold 448 Class 5-7 commercial vehicles in Canada, which represents 10.7% of the new Canadian Class 5-7 commercial vehicle market. Despite ongoing industry headwinds, our medium-duty results in the third quarter outpaced the broader market. Our performance was bolstered by a significant increase in bus sales following our acquisition of an IC bus franchise in Canada, which further diversified our customer base.

Looking ahead, we expect medium-duty commercial vehicle sales to remain stable through the remainder of the year. We sold 1,814 used commercial vehicles in the third quarter, essentially flat compared to the same period in 2024. While financing remains a challenge for used truck buyers, we believe our inventory is right size and that our used truck sales strategy is on track. Unlike the new truck market, the used truck market is less exposed to tariff concerns and regulatory uncertainty, We expect fourth quarter used truck sales to be in line with the third quarter.

Rush truck leasing achieved record revenues of $93.3 million in the third quarter, up 4.7% year-over-year. The last year, our full service leasing revenue increased as we brought new vehicles into service, which also helped lower operating costs and increase profitability. Rental utilization was lower year-over-year, but improved sequentially, and we are confident our leasing and rental performance will be solid for the remainder of the year.

On the capital allocation front, we remain focused on returning value to shareholders during the third quarter. We repurchased $9.2 million of our common stock as part of our expanded $200 million repurchase authorization, and we also played a cash dividend of $14.8 million in the quarter.

In summary, despite the after-mentioned industry headwinds, I believe we've delivered solid results, and I am proud of our team's performance in the third quarter. Our employees across the U. S. and Canada continue to demonstrate resilience, and I am deeply grateful for their dedication.

With that, I'll take your question. Thank you.

Hey, thank you, Andrew. I appreciate that. I'm sure the team worked very hard. Just a question. Could you just tell us, you know, we've been stuck in this cyclical malaise for a while now. We've been waiting for the turn of the cycle, you know, for a while now. Can you expand and tell us what are you seeing? When do you feel things actually bottom, and what's the path going forward? What gets this thing uncorked and lets the sales actually go up eventually? Thank you. I'm guessing, Andrew, that you're speaking from my customers' perspective. Is that correct? Is that correct?

Yes. Okay. Well, great. Well, I just so happened that I spent the last couple days in lovely San Diego, California at ATA, which is the largest truck convention or customer truck convention there is. So I met with quite a few customers while I was out there. And I think as I mentioned in one of the paragraphs there in the press release, and I mentioned a little bit earlier, this is the first time I'm going to say, man, we've been three years in a freight recession, man. Three. This usually doesn't last but 12 to 16 months. I have never seen in my career it go so long. You couldn't figure out why supply was not coming out.

There's supply, and then there's demand. I can't really speak to demand as well. That's more of an economic-driven, economy-driven stuff around tariffs and just around the economy itself. But from a supply side, the crazy thing is it just has not come out of the market. It always comes out faster. And I think, you know, if you look at it, you know, after rates were way up in 21, 22, and they started coming down, that's been that three-year run of just depressed freight rates from the customer perspective, especially on the truckload side. Not so much on the LTL side, but on the truckload side for sure. And, you know, I think the government's finally got their arms around some of this.

I mean, one of the things I learned while I was there is, you know, you read a lot, and people are saying this non-domicile driver thing, and, you know, the English-speaking proficiency, but really around the non-domicile driver. I will now turn the call over to management for the U Department of State 15 to 20 states are really starting to enforce it right now and that they all have to get on board And so over the next little bit, it could take out up to 15% of the drivers, which are probably some of the smaller carriers have been using to hang on and stay. Those are the carriers that usually go out in a freight recession first, not your more well-capitalized bigger guys, but the smaller carriers that are always that variable piece that get in and get out based upon where rates are.

And so that's one of the things that I believe will for sure help. Also, I think people continue to buy trucks after we came off of allocation. We should have slowed down selling trucks or producing trucks quicker than we did, because there's two sides to it, right? That's the attrition side. Well, the other side is, what are you producing, right? Well, right now, the back half of this year, I mean, you're talking, we're going to be down in production 30%, 35%, 40% at all the OEMs combined. I'm not sure exactly where it is. But it's down dramatically. And I think that's going to continue into the first quarter for sure, maybe the first half. Now, if you add that, you know, you think about that, so you're shutting down the supply side, you know, the intake side, you're taking people out of the attrition side.

Well, you should start to get a more right-sized or balanced fleet out there with what market demand is, right, or what freight tonnage is. And I think you can see that if you look out.

Now, on top of that, even though the carriers, and I'm on their side, would prefer that it's changed, you know, the law of it's going into effect right now. The current law, the way it stands, is, you know, 35, don't get me, it's changing to 35 particulates on the NOx side. It's 200 currently, okay, but the new law says 35. I'm with the carriers. They would prefer a pause on 35, but I'm not in the middle of that. But you see folks and customers that are putting pressure on the EPA to pause that law. Right now, I can't tell you where it goes, but if it stays as is and goes into effect, I do believe it will change.

If it stays as is, you will see change and the warranties will come down, because a lot of the cost for that is going to be in warnings. But it's still going to add more cost, where tariffs have added more cost, to an industry that's been in the three-year recession. But people are asking for it. Like I said, carriers are asking to say $200, and I support them on that. I don't know. But currently, if you look at the law, it says it's going to go to $35. Well, that's going to add more cost also by the end of next year. So you tie that in with tariff costs, which are happening for sure, starting Saturday, with the new tariffs.

I mean, there's been tariffs already all year, but with the new 232 rule and how that affects everything, you're going to put, the DPA thing will only increase, you know, costs on trucks at the end of next year. So you add that with a better right-sized fleet for the environment, that's why I wrote you can see a much stronger back half of next year. Now, I would prefer that we also have freight tonnage growth with that, so it's not just regulatory driven. I think if we can get, you know, some freight growth, which I hope we'll get some certainty, man. Uncertainty for everybody has been the craziest thing trying to run a business all year, okay?

But we get some certainty around whatever it is, add that in, like I said, take it some fly out. And even if it stays at 35, it will help truck sales. But I'd like for my customer to be more healthy, and I think getting a right-sized fleet is the most important thing with a pickup in freight tonnage.

And that's why you see some optimism. I'm more optimistic now for that, you know, the big over-the-road market. Look, that's still two-thirds of the market that's out there, okay? Well, vocational is awesome, and we do more in vocational than a third of our business, but that's still the largest segment, and it has been obviously headwinds for everyone, my customers more than me, for the last three years. So I know that's a long-winded answer, but you're used to my long-winded answers. I'm open, and that's sort of the way I see it right now. I have a little more optimism than I have had after coming back from San Diego. That's not happening right now. Okay? Remember, we had five months, six months of the lowest order intake since 2009.

I'm the tail on the dog, so we're going to feel it in Q4 and Q1 without question. At the same time, it feels good to really believe that you can see real drivers to get the market right-sized as long as the economy stays in good shape. That's sort of the way I see it.

Oh, boy. I'm not an economist, Andrew. What do I worry about? I worry about unemployment. Which for sure would affect consumer demand. That bothers me. I worry about, I don't feel that we have seen the full effect of tariffs. No way. We had a free buy prior to August, but we're draining those, as we drain those inventories down, we've got a restock. I have seen many large companies, manufacturers, customers, you know, across all segments that have eaten a lot of those costs. I don't see them eating those costs forever, which ends up being pushed down to the consumer at the end of the day. You know, those are the two things that bother me more than anything.

I'm hoping we can, you know, get around to all that. But I do, you know, an inflationary, a little more inflationary environment if tariffs get pushed on through, because everybody knows that people pre-bought prior to August, but we're draining those. So, you know, and you put that in, we get some more of unemployment. You read some of the stuff you see. I see little anecdotes out there myself that have me a little nervous, a little bit concerned. I can't say this is the number or this is what's going to happen, but I do have some concerns as I look around myself and try to pay attention to what's going on, right? Like I said, I'm not an economist.

I'm just looking at it from my street level, but I do have quite a bit of touch and feel with a lot of different companies and things out there. So besides all the big stuff you read about when you read about, you know, when you read about UPS and these guys, you know, these big companies that are laying off right now, Amazon, and by laying all these people off, there you go. That's what I'm worried about.

Thank you very much. Yeah, well, it was flat to slightly up for the third quarter, but September was softer than I would have liked. Remember, we naturally have seasonality. I've always told folks if I could get rid of sometimes November, December, January, and February, I might keep the holidays for the kids. But other than that, from a business perspective, if I could sometimes, you know, we're in the south. It can help a lot of our stores in the south. The majority of them are. So that's, you know, a little harder, a little softer. You have fewer working days. We typically tick down 3% or so, 3% to 4% from Q3 and Q4 and Q1. It'll start picking back up hopefully by late February and March.

It's often a little quicker in September. I'm waiting to get October finished tomorrow night. I'm hoping that we can try to get pretty close to flat with last year. We'll be really close, I think. But, you know, how about TBD? To be determined. You know, there's certain things I look at that show month over month. We've got the same amount of backlog in our working process in the Parchin service. But I do, you know, I'm hoping it's just like normal seasonality, and we have a slight downtick, and we have one less working day, which is, you know, quite a bit of gross profit, as big as our parts and service operations are. And it's the holidays, you know, factories shut down between Christmas and New Year, but you deal with that every year.

So I'm hoping we stay in the range of what we typically do. I was a little disappointed with September. Typically, we'll start in October, but we'll see here by the end of the workings, by midnight tomorrow night on Halloween, because they'll be closing tickets and doing what they do every month, getting it all in. So we'll see. But I expect it to be fairly close and to flat with last year's number, which if we're there, given the environment, I'll be okay with it. You know, I'll be okay with that.

Well, from a delivery perspective, we slightly outperformed the Class 8 diff. We were off 11. Market was off more than that, I think, in Q3. But around, we'll go to your first part, Q4, Q1, maybe partially into Q2. I can't tell. Remember, like I said earlier, we're the tail of the dog. And when you look at the order intake from April, May, June, July, August, September, it's like September. There was 20,000 units. We had months that was 7,400 units. This is North America, 11,000. Those were the worst order intake months since 2009. I know that every manufacturer has taken more down days over the last since July. Everybody built as much as they could in the first half of the year.

There is not one manufacturer, not one, that hasn't taken many down days and weeks so far in this quarter. Okay? So, you know, we're building less trucks. I guess it's less to sell, but it's because there's been less demand. And you can circle E. That's all of the above. When you see you hit it, it's, you know, really three things. It's their business. It's, you know, everybody's business. But the uncertainty, you know, tariffs have made freight go up and down and cost of trucks go up and down. And then you add in, can we get an answer on emissions next year? Because, you know, Everyone I spoke to, if their business can get a little bit, you know, a little, which I'm not saying they're getting it now, because you've got to take care of those supply issues that I rambled on and talked about earlier, you know, when I talk about the amount of trucks on the road, has to get in line with freight.

If you can get that back in line, bring some certainty to here's what the emissions regulations are, whatever they are. And if they stay as they are currently under the law, I don't think there's any question, in spite of the large freight customers, they'll probably try to pull a little bit forward, not have huge free buys, but they will try to shift some stuff. Maybe they do it in Q1 or 27 or Q2 and try to shift some of those purchases into the back half of the year if it stays as it's written right now and there's not a pause and they get a little relief, which I said before, for their sake, it might hurt my mind.

We'll try truck sales in the back half, but for their sake, I just assume they get it, get that relief.

But, you know, it's what you said, but really, they need to get aligned. Really, we've got to get the supply aligned with tonnage to where they can get a little contract rates. I mean, if you look at the TL side, I mean, if they got 2%, they were lucky this last year because they were going down, down, down 10, 15 plus percent the prior couple of years. Well, the cost of trucks and everything operationally and inflation went up, up, and up. They have not, you've seen the ORs in some of these things, and they're not what they historically have been on that side. Now, LTL started prepared better. Of course, two years ago, they got a little tailwind with the demise of yellow.

And so when their largest carrier goes out, and there's many fewer barriers to entry, or there's more, excuse me, more barriers to entry in LTL with all the doors and terminals and all the stuff that's required in that space. So they've weathered it better than the TL side. But I just got to tell you, the next couple quarters are going to be tough. You can tell by the order of intake that's been there. And it wasn't like everybody was ordering trucks hand over fist. It's difficult to give a price on a truck's deal. Remember, the tariffs, the definition of it just came out a week and a half ago, okay? And these manufacturers are just pouring through it, trying to make sure they clearly understand it, okay?

Because it gets pretty complicated, you know, as to where, you know, how these tariffs are figured out. And from where you build and where your suppliers, could people use different suppliers and where that comes from, et cetera. I would tell you that we'll probably have a whole lot more clarity as to how things are going to pick up in the next 30 to 45 days. You know, there wasn't a lot of clarity at ATA because people, it was good for some manufacturers and bad for others.

And they're trying to sort it out with the rule 232 is what I'm talking about. But that just came out, whatever, 10, 12 days ago, 10, 11 days ago. And folks are just pouring through it, making sure that they understand it right. So, I mean, I'll be honest. You couldn't price a lot of people right now. And when you can't do that from a manufacturer, how's somebody supposed to buy something? You know, it's been crazy all year because you would price like you would give quotes that were only good for 90 days, right? Or maybe 120 based upon the ever-changing environment around tariffs. Well, that's difficult. You know, you've got all these question marks. If this happens, this will.

If not, you know, it's no good. I mean, that's the world we've been living in for the last six plus months. Which has made it extremely difficult. So, you know, that's all I can tell you is clarity, clarity, clarity. And less uncertainty, and continue taking supply out, and hopefully get a little bump in freight, or tonnage here. I don't see it right now, but I would hope as we get into the first part of next year, we do see something by the time we get out into Q1, into Q2. N-Q-2, something there while you're taking supply out over here, while you're building less trucks, so your intake's less, so you should naturally be squeezing down the supply of trucks.

That's all I can. So the best way I can describe it, which for me, the hard part was while we were in a freight recession, we just kept building and selling trucks longer than we probably should have. But now we're on that right-sizing piece, along with the government activities around drivers that are going on with things I mentioned earlier. So anyway, I have some optimism. It's just not over the next six months. Okay?

You know, medium duty is a different environment, right? A different market by far than the Class A world. I would tell you we expect it to be fairly flat in Q4 with Q3 on the medium side. Most of the downturn for us will be on the Class 8 side, for sure. Like I've mentioned, there's no question we're going to deliver fewer trucks and things, because you can see order intake. That kind of tells you what you're going to eventually come to. Regardless of what our share percentage might be, there's going to be a lot less deliveries in this country because we haven't taken many orders in for the last six months.

I would tell you, there's a lot of leasing around medium duty, and also what we call our ready-to-roll inventory. It's more about the general economy and what's going on around there. Housing has a lot to do with it. There's a lot of the leasing companies. I would tell you we're working some stuff that had me somewhat hopeful for the entire year next year, but it too will probably suffer some, maybe not to the degree, right? It'll be more stable, I believe, than the Class 8 business will for the next couple quarters. But at the same time, I don't know that we can comp. I don't believe we'll comp to the same that we did this year, but it won't have as big a hit, say, as the heavy-duty side will right now.

So that's about all I can tell you about it. It's pretty much hand-to-hand combat out there still right now, right? If you want a truck, I can still build you a few this year. All you got to do is tell me there's lots of slots open, you know, for everyone, for all manufacturers. So, that's what's, you know, it's going to be November 1st, and we shut down, most manufacturers shut down, you know, the last 10 days of the month, so, of December, so, and they're still not full by any stretch in their backlogs, and that's why they keep taking shutdown days, and I'm talking about all manufacturers. Some will probably do better than others, but I'm not going to get into all that right now.

But you know all I can tell you is that medium duty should weather better from a downturn perspective given the diversity of the markets it serves because it serves so much the general economy but it will suffer some for sure though That's super helpful.

Sure, you got it. Could you share what you're seeing in the used truck market, particularly how is used truck pricing trending, just given this, like you said, volatile backdrop, to say the least? Well, I think it's been fairly stable. And when I say that, you know, normal depreciation, unlike, say, a year ago, if you asked me that, I would have told you no, if depreciation's two years for sure, or double depreciating, I would tell you now depreciation is more in line with what you typically would see from a percentage perspective. So that's good. You know, and, you know, I use drugs while, you know, it's always one of the most common things. We're difficult in wintertime with you, but we've done a really nice job.

I'm proud of the job we've done on the use side all year long, managing our inventories and doing what we have to do to support our customer base. Because remember, one thing about use is you take trades, right? So you have to have the flexibility and the ability to take trades. We've taken our inventory up a little on purpose during this last couple quarters to try to move more. We've taken it way down. We've probably split the middle on where our inventory is currently, where I used to carry it to where we do now. Because you've got to turn your used inventory. And our turns are maybe not as tight as they were at one time, but our production overall, you've got to have inventory to do that for sure.

You know, as always, when you think about, as I mentioned in my comments to open, used trucks, they don't have to worry about tariffs or emissions, do they? Okay? So there is somewhat of an advantage to that. There's certainty around use trucks, so they're not worried about tariffs or emissions when you're buying it used. So that's a plus. So we've been at a really nice year, and we expect it to be solid going forward. The problem is the volumes just can't make up for when heavy duty drops down. But remember, think about the company, and I think sometimes people lose sight of it. We have many revenue streams. Remember, I've got a great leasing fleet.

We're super profitable in our leasing operations. We're profitable in our parts and services. You can tell all the time. You know, everybody's focused always on truck sales, and they are a big piece of what we do. But at the same time, they're not the most, you know, parks and services, the one stable piece that you, when I say it does not have the, you know, it does not have the volatility, say, of the class A truck sales market. So, you know, fortunately, we have all those revenue streams to help us weather the storm. We top it up, you know, knock it out of the park. You need to have all pieces contributing. But the good part is, unlike some other businesses where they're tied to just one or two revenue streams, we have many more, which allow us to get through environments like we're seeing right now and continue to put out the kind of results we do.

Are they the best results we've ever had? Of course not. But we're not going to sell as many trucks. But they're going to be solid, and they're going to be good. And, you know, forgiving the environment, a whole lot better than my customer base has had to put up with. I feel sorry sometimes what they've had to go through the last three years. A lot of them have anyway, especially, like I said, on the truckload side and some of the others. So anyway, I know it's probably more than you wanted to hear about, but that's just how I usually approach it. But no, we're good where we're at on use and hope to continue having solid quarters there.

Well, it is more challenging without question, right? Because the overall market is down. I would tell you we're holding our own. This year, I don't know that we've picked up as much as we would like to. You know, because when you get in this type of environment, it becomes much more highly competitive. And especially with the inflation stuff we've seen in the parts arena this year, you know, it becomes more competitive, to be quite honest. You know, some folks are just looking to turn cash, right? And sometimes margin sometimes takes a backseat. So you have to balance what you're doing between, you know, taking share and margin and results at the same time. And so that becomes a challenge in this type of environment.

You know, when it's not a growing sector, we've remained fairly flat all year, right? I would tell you where in line might be a little bit better than the overall from a dealer from you have to break it into independence and the dealers. And I would tell you from a dealer perspective versus other dealers, I think we're in pretty good shape. Independence, you know, they can get down and dirty when it comes in this type of environment. But, you know, our overall deal is this. And over time, I don't want to look at it as just every quarter. I'd rather look at it, you know, annualized. And, you know, over a couple, three years, you know, if the market, if a market goes up, let me just make a simple math, 5%, we want to go up 6%, okay?

Why does that mean? And that means we're taking share. We have historically been able to do that, and then throw a little M&A in there, and, you know, do better than that some years, right? But so, you know, I'm not going to say we've done that this year, but I think we've taken some, maybe not as much as I would like. We want to be 20% better, right? Because if you're 20% better, if you're taking a little bit more, you're slowly ramping up your share. It's not an add water and stir arena. And as far as what we do, I think our technology and our data is second to none. Okay? So it's continuing to take that.

And without getting into each and every project that we have out there, we always have projects going on to help enhance it. We don't go about it the same way every year when we go about our business, but we keep enhancing and adding technology and stuff to make it easier for our customers to do business with. That's the key piece from our perspective as we look at going forward. Our industry is, you know, it's not like consumer, right? It tends to operate a little behind the times, okay?

Well, which can, you know, be challenging because you have to keep pace with your customers, right? And when I say that, I don't want to downgrade our industry, but it's typically, you know, still a little more hands-on than, say, some other consumer-type things and how you go about it. But technology continues to be a bigger piece of it, and I don't like to get into some of the things we do just because I consider them proprietary. I think those investments, and also our investments in folks and people, our growth in the mobile service area, you know, those types of things. We have goals that, you know, are pretty well stated out there. I think most a lot of investors understand that because we expound on them quite a bit when we go to conferences.

I got three of them here coming up in the next month. So, you know, to let people know those types of, you know, investments where we want to grow our global service fleet to X, and then we want to take our, you know, total technicians, and we want to, you know, grow our outside service, you know, excuse me, our outside parts and service, what we call ASRs, you know, take those guys more, grow that part of our business too. But sometimes you have to be careful because in a market that's getting really tight, you need to have a market out there. But we still think there's a lot of runway, and we will continue to do it and have the goals we have around, like I said, to try to do about 20% better from a growth perspective.

If the market goes up five, we want to go up six because it's not somewhere you're going to go from five to 15%. If the market's five, we're not going to take 15%. That means I'm giving stuff away or doing this and doing that, and that would not be, I don't believe that's the right way to go about it.

You bet.

Well, everyone, this is the longest gap between earnings calls. We won't be talking to everybody until February. So, you know, in the meantime, I wish everyone a happy holidays and safe holidays, and we'll talk to you in February. God bless you all.