Stock Story -
Commercial vehicle retailer Rush Enterprises (NASDAQ:RUSH.A) reported Q2 CY2024 results topping analysts' expectations, with revenue up 1.2% year on year to $2.03 billion. It made a GAAP profit of $0.97 per share, down from its profit of $1.17 per share in the same quarter last year.
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Rush Enterprises (RUSHA) Q2 CY2024 Highlights:
- Revenue: $2.03 billion vs analyst estimates of $1.86 billion (8.8% beat)
- EPS: $0.97 vs analyst estimates of $0.77 (26.8% beat)
- Gross Margin (GAAP): 19.4%, down from 20.7% in the same quarter last year
- Market Capitalization: $3.97 billion
Vehicle Parts DistributorsSupply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Transportation parts distributors that boast reliable selection in sometimes specialized areas combined and quickly deliver products to customers can benefit from this theme. Additionally, distributors who earn meaningful revenue streams from aftermarket products can enjoy more steady top-line trends and higher margins. But like the broader industrials sector, transportation parts distributors are also at the whim of economic cycles that impact capital spending, transportation volumes, and demand for discretionary parts and components.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Unfortunately, Rush Enterprises's 6.4% annualized revenue growth over the last five years was mediocre. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Rush Enterprises's annualized revenue growth of 15.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
We can better understand the company's revenue dynamics by analyzing its most important segments, Vehicles and Aftermarket, which are 64.1% and 31% of revenue. Over the last two years, Rush Enterprises's Vehicles revenue (new and used commercial trucks) averaged 21.1% year-on-year growth while its Aftermarket revenue (parts and services) averaged 11.7% growth.
This quarter, Rush Enterprises reported reasonable year-on-year revenue growth of 1.2%, and its $2.03 billion of revenue topped Wall Street's estimates by 8.8%. Looking ahead, Wall Street expects revenue to decline 9.1% over the next 12 months, a deceleration from this quarter.
Operating MarginRush Enterprises was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 5.7%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, Rush Enterprises's annual operating margin rose by 3 percentage points over the last five years
In Q2, Rush Enterprises generated an operating profit margin of 6.1%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Rush Enterprises's EPS grew at a remarkable 14.4% compounded annual growth rate over the last five years, higher than its 6.4% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into the nuances of Rush Enterprises's earnings can give us a better understanding of its performance. As we mentioned earlier, Rush Enterprises's operating margin was flat this quarter but expanded by 3 percentage points over the last five years. On top of that, its share count shrank by 4.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Rush Enterprises, its two-year annual EPS declines of 2.3% show its recent history was to blame for its underperformance over the last five years. We hope Rush Enterprises can return to earnings growth in the future.
In Q2, Rush Enterprises reported EPS at $0.97, down from $1.17 in the same quarter last year. Despite falling year on year, this print easily cleared analysts' estimates. Over the next 12 months, Wall Street expects Rush Enterprises to perform poorly. Analysts are projecting its EPS of $3.76 in the last year to shrink by 21.3% to $2.95.
Key Takeaways from Rush Enterprises's Q2 ResultsWe were impressed by how significantly Rush Enterprises blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock remained flat at $51.01 immediately after reporting.
