Morningstar | Strong Unit Sales Growth in 4Q Allows Rush Enterprises to Outperform Again
Exceptionally strong demand for commercial trucks allowed no-moat Rush Enterprises to beat Street estimates on both revenue and GAAP EPS. Quarterly revenue of $1.54 billion was up 28% year over year, exceeding consensus estimates of $1.35 billion by 14%. Earnings were even more impressive as GAAP EPS of $1.20 beat consensus of $0.90 by 33%. This performance was remarkable as large fleet sales to non-Rush customers throughout the year drove the firm’s U.S market share of Class 8 trucks down to 5.7% in 2018 from 6.6% in 2017. Management is bullish on its prospects for 2019 as the order backlog is nearly full. Despite Rush’s exceptional performance, we anticipate the commercial truck market will decline in the next two to three years and don’t foresee a significant change to our fair value estimate.Strong performance across all of Rush’s business segments helped lift its operating margin in the quarter to 4.4% from 3.2% a year ago. Solid freight rates and robust activity across the trucking industry enabled Rush to increase quarterly unit sales of new and used trucks by 39% and 31% year over year , respectively. The company’s continued investments in personnel and customer-facing technology facilitated these gains. Moreover, Rush’s enterprise resource planning platform from SAP, which previously entailed delays and cost overruns, has improved its customer insights.
We believe Rush is positioning itself to weather a downturn in commercial truck sales. Despite the inevitable sales decline, freight volume will likely increase in a growing economy, driving demand for aftermarket parts and service. In 2018, Rush hired significantly more technicians, increasing their ranks by 12.5%, while enhancing its mobile service capabilities. Rush also expanded its all-makes parts catalog, enabling it to address a larger share of the parts market. We believe these steps will improve margins and help insulate Rush from the inherent cyclicality in its core sales business.
Rush Enterprises is a retailer of commercial vehicles and related services. The Truck Segment includes the company's operation of network of commercial vehicle dealerships under the name Rush Truck Centers. Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, Mitsubishi Fuso, IC Bus or Blue Bird. Through its network of Rush Truck Centers, the company provides one-stop service for the needs of its commercial vehicle customers, including retail sales of new and used commercial vehicles, aftermarket parts sales, service and repair facilities, financing, leasing and rental, and insurance products.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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