Rush Enterprises Inc

NASDAQ:RUSHA

Earnings Call Analysis

Rush Enterprises Q2 2024 Performance Overview

Rush Enterprises reported Q2 2024 revenues of $2 billion and a net income of $78.7 million, or $0.97 per share. Despite industry challenges such as low freight rates and high interest rates, the company's strategic initiatives resulted in strong financial performance. The firm expects continued steady performance with no significant improvement in market conditions for the third quarter. They managed a decrease in aftermarket products and services demand, achieving an absorption ratio of 134%. Class 8 truck sales amounted to 4,128 units, supported by strong vocational customer demand, despite an 18.6% decline in U.S. Class 8 retail sales.

Steady Financial Performance Amid Industry Challenges

In the second quarter of 2024, Rush Enterprises reported revenues of $2 billion and a net income of $78.7 million, translating to $0.97 per diluted share. This reflects a resilient financial performance despite prevailing economic challenges such as low freight rates impacting over-the-road carriers. The company increased its quarterly cash dividend by 5.9% to $0.18 per share, marking the eighth consecutive increase in dividends since their introduction in 2018. Such financial prudence and growth strategies position the company favorably in a challenging market.

Sales Performance in Different Classes

During the quarter, Rush sold 4,128 new Class 8 trucks, capturing 6.8% of the U.S. Class 8 truck market despite an overall decline in the sector. Overall, the U.S. Class 8 retail sales were down 18.6% year-over-year. Conversely, Rush's Class 4-7 truck sales performed well, with 3,691 units sold, representing 5.7% of the market. This outperformance stems from strong demand from public sector and vocational customers, which has helped mitigate losses from declining over-the-road sales.

Aftermarket Revenue Dynamics

In terms of aftermarket products and services, revenues reached $627.4 million, down 3.6% compared to the previous year, though the company has outperformed the industry in service sales. The absorption ratio, which indicates the company's ability to cover its fixed costs with gross profits from service operations, stood at a robust 134%. However, demand from small customers appears weak, affecting parts and service revenues significantly.

Market Outlook and Sales Guidance

Looking ahead, Rush Enterprises anticipates no significant improvement in industry conditions or aftermarket demand in the third quarter. Class 8 truck retail sales are expected to decline for the rest of the year per ACT Research, forecasting a total of 228,700 units for 2024, down 15.8% from 2023. For Class 4-7, sales are projected to maintain consistency with second quarter levels since production increase and improved delivery times offer positive signs in this segment.

Cost Management and Operational Efficiency

In response to the market softness, Rush Enterprises has implemented cost-reduction measures, resulting in a 4.7% decrease in general and administrative (G&A) expenses from Q1 to Q2. The company is focused on maintaining operational efficiency while attempting to protect margins against competitive pricing pressures expected in the second half of the year. Rush emphasized the importance of maintaining diverse revenue streams and balanced operations to weather economic downturns.

Competitive Landscape and Strategic Positioning

The competitive landscape in the truck sales market is poised to become more aggressive, particularly in Class 8. Rush noted that they are prepared for this shift, having marked their inventories to current market levels. The industry is experiencing pressure on pricing with forecasted declines in build rates of 15-20%, which is expected to stabilize prices in the coming years. However, with a diversified customer base, Rush is positioned to continue outperforming the industry, leveraging solid vocational segments to compensate for losses in the over-the-road market.

Future Cash Flow Strategies

On cash flow management, Rush Enterprises plans to allocate approximately 40% of free cash flow to shareholder returns through dividends and share repurchases, along with prioritizing growth through potential acquisitions. This balanced approach aims to sustain long-term value creation for shareholders and capitalize on market recovery when it occurs.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to Rush Enterprises Report Second Quarter 2024 Earnings Results. [Operator Instructions]. I would like now to turn the conference over to Rusty Rush, Chairman of the Board, Chief Executive Officer and President. Please go ahead.

[W. Rush, executive]

Good morning, and welcome to our second quarter 2024 earnings release call. With me on the call are Mike McRoberts, Chief Operating Officer; Steven Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General Counsel and Corporate Secretary. Now Steven will say a few words regarding forward-looking statements.

[Steven Keller, executive]

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, 2023, and in our other filings with the Securities and Exchange Commission.

[W. Rush, executive]

As indicated in our news release, we achieved second quarter revenues of $2 billion and net income of $78.7 million or $0.97 per diluted share. We are proud to declare a cash dividend of $0.18 per common share, an increase of 5.9% over our prior quarterly dividend and our eighth increase since announcing our intent to begin playing cash quarterly cash dividend in July of 2018. Despite the ongoing challenges facing our industry that are highlighted in our earnings release, I am pleased with our financial results in the second quarter, past strategic initiatives, including expanding our breadth of product offering, investing in our sales force and technicians and diversifying our customer base to name a few, are helping produce significantly better results than we achieved during the last industry troughs in 2020 and 2016.



Although low freight rates continue to negatively impact over the road carriers, we experienced ongoing strength in other key customer segments, including public sector and vocational, which positively impacted our Class 8 truck sales revenues and market share during the second quarter. Our Class 4-7 sales remain steady, and we executed well on our used truck pricing and inventory strategies. With respect to our aftermarket products and services, we did experience a decrease in demand during the second quarter. However, we believe we kept pace with the industry from a parts sales perspective and outperform the industry with respect to service sales. In the aftermarket, our parts, service and body shop revenues were $627.4 million, down 3.6% compared to the second quarter of 2023, and our absorption ratio was 134%.



As I stated in the news release, the freight recession and high interest rates are still negatively impacting over-the-road carriers. These same challenging economic conditions also led to a decrease in demand from wholesale independent parts distributors and energy customers decreases to those segments were partially offset by healthy year-over-year growth in our public sector, vocational and medium-duty customers. Looking ahead, we do not expect market conditions or aftermarket demand to improve significantly in the third quarter. However, we are committed to leveraging the foundational tools and processes we have put in place over the last few years.



Through the execution of our strategic initiatives, and we are confident this will lead to increased efficiency and provide better service for our customers. We believe that these actions will allow us to improve our market share and continue to outperform the industry. Turning now to truck sales. We sold 4,128 new Class 8 trucks in the second quarter, accounting for 6.8% of the total U.S. Class 8 market and 1.7% of the Canadian market. Weak demand caused by lingering rank recession led to an 18.6% decline in U.S. Class 8 retail sales in the second quarter of 24% compared to the same quarter in 2023.



However, strong retail sales to vocational customers and the timing of deliveries to certain other large customers helped to offset the decline in over-the-road sales and allowed us to increase our Class 8 market share. ACT Research forecasts U.S. Class 8 retail sales to be 228,700 units in 2024, down 15.8% compared to 2023. During the second quarter, the industry experienced higher-than-normal Class 8 order cancellations and weak order intake, which we believe will cause new Class A truck sales to be down for the remainder of the year. We also expect truck pricing to be more competitive in the second half of the year.



However, we expect locational sales to remain strong, and we believe we are well prepared to perform in a more competitive pricing environment. Our Class 4-7 sales reached 3,691 units in the second quarter or 5.7% of the U.S. market and 2.4% of the Canadian market. Commercial vehicle production continued to increase and delivery times have improved, resulting in healthy activity from medium-duty customers. Our Class 4-7 commercial vehicle sales were broad-based across industry segments, and we are pleased to outpace the market in the second quarter. ACT Research forecasts U.S. Class 4-7 retail sales to be 262,000 units in 2024, up 3.7% from 2023.



We will closely monitor economic factors that could in compact customer spending and lead to a decrease in Class 4-7 commercial vehicle demand. However, at this time, we anticipate our third quarter Class 4-7 commercial vehicle sales will be consistent with our second quarter results. We sold 1,723 used trucks in the second quarter, down 7.8% year-over-year. Used truck word demand remained weak due to low freight rates, more radio available new truck alternatives and higher interest rates. However, the rate of used drug depreciation has slowed to more manageable levels, and we executed well on our used truck strategies.



We are keeping inventories low and are well positioned for the second half of the year. We expect our third quarter performance to be on par with our second quarter results. Looking ahead, we will continue to monitor industry and macroeconomic conditions, looking for signs of significant freight recovery. As I previously stated, we expect retail sales of new Class 8 trucks to decrease from second quarter levels throughout the remainder of the year.



And for retail sales to remain solid for new Class 2 47 trucks. Despite the difficult market conditions, we believe we are well positioned to continue to outperform the industry and to increase our market share. It is also worth noting that we instituted expense reductions during the second quarter in anticipation of the soft new market. These actions, combined with the diversity of our customer base and our strategic focus will help us successfully manage this challenging market cycle. Our employees have worked particularly hard throughout this challenging quarter to achieve these positive results.

So I want to acknowledge their efforts and thank them for their dedication to providing best-in-class service to our customers while staying focused on efficiency and successful execution of our strategic initiatives. With that, I'll take your questions.

[Operator]

Thank you. As a reminder name to be announced. [Operator Instructions]. And our first question will come from Daniel Imbro with Stephens.

[Daniel Imbro, analyst]

Thank you, we're good to hear from you. Russ, I'll thought maybe on the demand backdrop. Obviously, fleets are slowing spending and the freight backdrop has remained tough. Just curious how the back half pipeline looks as we head on Class 8 side into the second half? And maybe how has that tone changed as you talk to carriers, I feel like the last few months, some are sounding a little more positive that we're seeing some normalization happening in the freight market. So curious if you're hearing that or how do you think that would affect the back half?

[W. Rush, executive]

You bet... No. I mean when you think about truck sales, most of the truck -- like truck sales for the third quarter, other than stock truck sales, we pretty much know what we've got coming already, right, because there is some lead time still to it. From that perspective, you asked how do I look at it, I'm a say so I would say similar from a Class 8 perspective now, similar to Q1, more like and not as many units as we sold in Q4. And the fourth quarter still to be told. I can still get you all the trucks you need in the fourth quarter if you need so, right?



So obviously, we have business booked in the fourth quarter, but it's still coming together, right? That quarter is still coming together, given the reduction in lead times with basically all Class 8 OEMs. From a customer perspective, yes, for me, yes, things have leveled off. Are they getting a lot better? No. Are they bobbling where I think they're pretty level talking to customers like I do. Yes, I think they're bouncing along. But there's slight green shoots you'll see here and here, but it takes trend lines. It doesn't take a little here, a little spot here and then you skip a little bit here, you really need a consistent trend line of positive news.



Do I believe that's coming. You bet. Do I believe it's going to be difficult to get to that situation get to a real positive environment in the back half of this year with the election and everything else going on, probably going to be tough. But the foundation is set for a rebound for sure for next year, exactly pegging when it will be. I'm not that guy to peg exactly. But I do believe there's not this continual pessimism of continuing to drop, right? But I do believe there will be -- we'll enter our way forward here in the back half of the year. But setting the stage, I think, as we continue to get -- there's still capacity. There's still a little bit too much capacity out there in the marketplace. It's a balancing act between supply and demand, where we have had some come out. We've also -- it's not like freight tonnage is growing a lot either, okay? So we're getting our way.



We're finally -- I think you can see the light, right? But it's not a full picture yet to where -- that our customer base will be able to take advantage of it and try to hit back some of that -- those freight rates that they've been had to be such a highly competitive just to do what they had to do in the last few years, and the reduction in freight rates should be about over with. I think if you see most everybody, it's low singles that they've given anything back here recently. -- and I expect that to flat. And I expect that to maintain, but then they should be able to start picking up -- and I'm talking about the truckload side when I get on the LTL side here, obviously. But on the truckload side, for sure, that's really what I see for the hall for hire.

[Daniel Imbro, analyst]

Really helpful color. And then if I could follow up on the parts and service side. You mentioned revenue stepped down sequentially. I guess, can you talk about what changed since the first quarter? The macro has been tough, but I felt like demand for parts and service maybe slowed more than we thought. And then given the stable macro, I guess, how do you think that year-over-year growth shapes up or sequential growth shapes up into the back half?

[W. Rush, executive]

Yes. Obviously, I don't see any big pickup taking a reverse or let me take you take it the way you asked it. Look, we've been flattening off. I've talked about it for a while. We've had double-digit declines from what I call our unassigned accounts. continually, okay? And that's the small accounts. And that's still 30% of our business, okay? Small customers out there are still struggling. What you've seen is the large customers read all the public trucks, they've been in there for 2 years, and we fought back and fought back and had growth inside of that. Well, it finally coming to where we had -- we went backwards a little bit. But the most important thing to understand is the diversity of our customer base.



If we were tied strictly to the over-the-road business, you would see double-digit somewhere between 10% and 20% declines in our parts and service business. But you don't because we go about it in a very strategic way because of the brands we represent and how we go to market, we make sure that we're doing it in a way that we're hitting every market. That's the diversification of our customer base is one of the most key things that we have. And so that allows you when one segment is way down to still maintain and go along. And then I look to the fact that we could see this coming, and we mentioned it in April that we were going to make some adjustments.



That's the good thing about the business is we understand that the absorption rates that we run now compared to where we used to, we can make adjustments. With our function rate down slightly Yes. But we made some pretty good adjustments inside our expense base to help offset some of that reduction and run a pretty high -- if we have told me a few years ago, we'd be running 134% and complaining to you you're crazy. But those are the kind of things we're able to do. Now as I look forward, you know? I don't see any big catalyst to really push to push that revenue line up. I do think we can maintain where we are currently.



And hopefully, we still have some expense things that -- a few expense things that are going to come in that will help to offset the lack of growth -- but we really -- you got to remember, even though we're very diversified, still the largest base we do business with is the over-the-road business, whether it be the large public carriers or large carriers private or whether it be a small customer. It is still the majority of trucks on the road out there. Just that God that we have the diversity of the customer base we do to maintain where we're at and provide the results that we did in this quarter.



I mean if you look at our results compared to some of our -- not all of our customers, but a lot of our over road customers that have suffered, which is the biggest sector again, that we have. We do all these other things, vocational and wholesale and municipal and all these other market segments. But at the same time, that's still the largest. So when it gets hit like it has to be able to pull through and produce the numbers -- I can tell you, I've never been more proud of the organization than Amit now. And I expect to end with truck sales going backwards. It gives us -- we have these different revenue streams, right? -- different -- we have different gross profit areas, whether it's the parts of service truck sales, heavy-duty, medium-duty used trucks.



And again, that balance of earnings streams is what's providing the results. As I said comments a minute ago, go back and look at the last trough in '20 and about 1 in '16. This organization is not even close. I don't even look like the same organization that it was back in -- the results to that. So I expect we're just bubble along where we are on that revenue and back in line and continue to work on our expense base and continue to provide the outstanding results we have, but we will be backwards in truck sales. Like I said, we'll go back more to Q1 type levels. And let's just let it unfold in front of us, but I'm very confident in the organization to do what it's been doing.



And just look at the last few years' results, I mean, we're tracking in a trough year. We're tracking well, well so I'm not going to get into it, third best or whatever year we've ever had as an organization, and that's pretty outstanding.

[Daniel Imbro, analyst]

No, I appreciate all that color. And I'm going to have a quick follow-up. You mentioned obviously, you guys has been raised and cash flow has been a source of a positive guy throughout the story. I guess how are you thinking about uses of cash, not only here at the trough, but as the cycle turns, I would think cash flow gets even better. I guess, what are you seeing as the most attractive uses of that capital as we think about the cash flow generation through recycle?

[W. Rush, executive]

Sure. Well, we tried to take a balanced approach the last few years to what we do with free cash flow. We said that we'll give somewhere about 40% back in shareholder return, and that would be a combination, obviously, of dividend and share repurchase. At the same time, our #1 thing is still growth, right? So M&A will always be a part of that, too, which could influence some of that as we go forward. So we would -- M&A would be the biggest thing I would tell you that we would be focused on, right? Do I have a lot of it out there right now? Not necessarily. Are we looking at things? Of course, we are. At the same time, I can't side, by the way, I wouldn't sit here and tell you we're going to do something. I would announce it to you when it's done.

But growth inside the organization when it comes to that piece, is there. We had a little acquisition in Nebraska this quarter, and there's some others that we're looking at, not a big one, but just singles, man. Sometimes folks don't understand just because I'm not doing big M&A, like I say, the last big M&A deal was December of '21 when we bought the second largest Navistar dealer. We're always doing what I call bump singles. We're opening up 3, 4, 5 stores a year that you don't see they're a little small. And we're buying little deals. And sometimes we don't even talk about, okay? But right now, M&A would always be, first and foremost, to continue to expand our footprint. Remember, the best thing we have going for us is our footprint. -- outside of our people now.



But the #1 thing is our footprint. It's the differentiation that we can touch more customers, especially as customers continue to consolidate. It's not as fractional as customer base as it used to be. And we can drive efficiencies, not just into our organization, but most importantly into their organization, leveraging off that footprint with our outstanding people, so we can go out and we'll do what. We're out there. We're always out there looking for new customers, right? You've always got target customers and think you going up. And that's, to me, one of our -- is our biggest selling point. I saw around people, as I said, is our network, and we'll continue to look to expand that. That's always going to be #1.



And then it will just be returning to shareholders that if you look at the average, we've averaged around 40% the last 5 years. Some years, it was 25, some years, it was 50. But that's about -- it depends on that year when you're sometimes limited as to what you can do anyway from a repurchase perspective and when you hit it from that perspective. We've consistently raised our dividend every year, sometimes more than 5% or 10%, but our commitment is 5% to 10%. And last year, it was 21%, okay?



It just happened to be that high. But we'll continue to -- those will be the 3 main things that we'll do, right, is shareholder too many shareholders return is 1 and not 2. It will be shareholder return. And then, of course, number one, will be acquisitions if we can find them to continue to build our footprint out.

[Operator]

The next question comes from Andrew Obin with Bank of America.

[Andrew Obin, analyst]

Very good. I'm good. Just maybe you talked about outperformance and obviously, it's because you have higher vocational mix versus the industry. Can you just remind us where we are in your mix at this point?

[W. Rush, executive]

So what was that question again, Andrew? I'm sorry.

[Andrew Obin, analyst]

Your mix, your Class 8 mix versus the industry, right, because you have more vocational, right? You have more waste the road, but less of it. Could you just remind us what the mix is like these days.

[W. Rush, executive]

I'm going to give you -- Andrew, I don't it's not a stat that I'm going to give you -- and I keep total frac up, but I always say and I usually say, somewhere around 50-50 Depending on the brand, we're a little -- maybe a little bit heavier on the locational side on the Peterbilt side than we are on the Navistar side. But somewhere 45%, 50% of our 40-plus let's say 45% of our business is location-somewhere in that range. When you really look into the construction, the refuse and all those businesses, and that's on the ag side, right?



And that's one of the key pieces. Again, it's diversification, diversification to each market segment. And that's really -- and I appreciate the color, the question, but the color would be somewhere in that range.

[Andrew Obin, analyst]

Right. And then what folks are wondering just in terms of orders, what do you think? And I think you've clearly been early sort of sounding caution about outlook for the second half. Where are the orders trending in July, August. What are you seeing? What's your experience?

[W. Rush, executive]

Andrew, compared to where we were in the first quarter, really it started -- it's been all year. It's been pretty down for us all year from an order intake perspective. Now I will say that we -- there's a few -- we had a few -- a couple of deals along the way. But from just a demand perspective quoting, no question it's been down. Our customers -- you're starting to get talk about emissions, right? We're out right now talking with folks. But it's been very difficult for a lot of the truckload guys to start talking about that when you can see their earnings and the pressures that they felt inside their business. So I would tell you, orders are still going to be down in July. I would guess when they come out tomorrow.



I would last month, I think I was on the call, I guess, pretty good view and a bunch of investors around 15,000. And I don't know where they'll be this month. I have -- I'm really not sure, but I'm not going to say they're not going to be super outstanding because folks are -- as I said, they're still build available in the back part of the year, but it's -- people are still trying to come -- the supply demand, we still need more supply from a truckload perspective, it's still the biggest market out there.



We still need more supply to come out, more trucks to come out of the market and capacity from a capacity perspective from where we're at. And people have been too buried, I think, inside of running and managing their own business to worry about 27 emissions. A lot of folks still believe that, well, this election is going to change something. It's not going to change anything -- dramatically. I don't care. This -- the OEMs have spent millions, but they're too busy taking care of their businesses to worry about the cost increases that are going to come with meeting 27 emissions, which is going to happen.



And we can all make an election change all that, but I don't believe that to be the case because of the multiple millions of billions committed to technology already as these things have been worked on for a while. So -- but I do expect that we will get -- maybe -- we usually order start picking up in October, November, December, which translates into picking up business picking up next year. So I can't tell you exactly when I expect that to happen. But usually, you've got ATA in October, and then you people follow through on that. So I'm looking as long as everybody can -- businesses really are flattening like what I said and what I've at people I've talked to, that were on the bottom and they can see slight slivers of green out there in their business going forward that they weathered the toughest part.



Then people will start getting concerned about the technology of diesel trucks and all the after treatment and everything. People still remember what it was like in 2010 when we went into -- or excuse me, one company stayed on EGR, but we went to NCR and the AFA treatment that happened and then also combine that with what we look for cost increases to be. You're going to see some. I just don't think you're really going to see it till late this year, which translates into sometime next year, probably spread deliveries on your big orders throughout the year, starting next year sometime. But I don't look for any uptick in the next couple of months.



I can tell you that big uptick now in the next. But we are out talking and what people are starting to talk more about it. Some people thought they were going to talk you can reach some OEMs I read early and said, "Oh, it's going to happen." -- it's happening, but in a very gradual early stage, let's say like that. But there will be -- they will understand their businesses, customers are smart, and they'll know when it's time to kick it in gear, but I don't look for until the back half of the year.

[Andrew Obin, analyst]

the... But for the next couple of months, do you think these 15,000 sorts of relatively flat or down from that number. Is that a fair estimate?

[W. Rush, executive]

From my perspective, unless the big -- some big customers 3 or 4 big customers want to place big orders that are spread. That -- the demand is not -- the demand is just going to be a yes, not around to answer your question without just overtalking like I do a lot, yes.

[Andrew Obin, analyst]

I don't expect any big uptick in orders. Our decision work out for that CEO Oh, I shouldn't say that -- so sorry, I didn't say that.

[W. Rush, executive]

Let me I'd say that offline, too.

[Andrew Obin, analyst]

I don't think that was allowed in for that building for a while. Just a question on macro. I always ask you because you have very good systems, lots of uncertainty about the economy. I think the PMIs just came out, indicates sort of a step-down in industrial activity. What are you seeing? You have coast-to-coast presence. What are you seeing about the economy? Are you more optimistic about the economy today versus a month ago? Or are you more pessimistic or would love to take to get your take because you tend to be very smart about it.

[W. Rush, executive]

Andrew... One's piloted on me today, are you board -- good question. I just see a lot of uncertainty, to be honest with you. I mean I see more uncertainty in my mind about the economy, and I know it sounds like a broad no answer. But truly, I do believe that. I just think this election and all the stuff that's going on outside of everything else has got people a little bit paralyzed in some areas. As I look around, obviously, the truckload side is still not in good shape. The LTL side has been in good shape.

We were off a little bit in energy as from a parts and service perspective this last quarter more than I would have anticipated. I think the economy just looked a little hot earlier. I think that -- I think it was going to be a tougher back half. But I do expect it to pick up after that. I do expect, no matter what anybody else says, I do expect it to -- my problem is sometimes I get -- I'll look at it to my industry glasses, right? I got to take my -- you want to take my macro-by-macro glasses on. And sometimes maybe I'm not the best at that. I can make a stab at it. But I don't look for any -- I don't -- I'm not looking for a recession, if that's what you're saying right now.



But I'm just looking for sort of bobbling along right now until we get through November and into '25. And then I'm going to feel -- especially from an industry perspective, we feel pretty good about it because we will have had a pretty top-year from a be. And we will have taken out capacity out of the marketplace, and that's always a good thing for the platform to set up for good for my industry. But I just look at this back half is going to be a little slow. If you ask me, and I'm not going to -- I'm not an economist, so I'm not going to get out past that much but.

[Andrew Obin, analyst]

Yes. Is it fair to say that your locational business is fairly stable. Is that a fair statement?

[W. Rush, executive]

Yes. Our vocational business is fairly stable, which is a pretty solid indicator. I will say that a lot of the medium-duty demand has been met. I wouldn't look for continued growth or medium-duty big orders in this back half. I think that will slow down a little bit. from where it has been, but it's not troughing terribly like we said, our Q3. But I'm not sold out in Q4 there. So where we have been pretty sold out for a couple plus years running in medium duty, we're not going to be -- I'm not a year out when I look at it anymore. What does that mean it's terrible. Look, reality is you're not supposed to be sold out a year ahead.



Let's get back to real world. And I think that's one of the things I'm most proud of is how we manage inside these types of situations, and it's showing in the numbers that we're producing and it will continue to show. As you know, I'm pretty conservative judging by where we end up for us where we are sometimes in the back of my head, I probably I always bet on us, probably out a bit more on us. because these people that work with me and beside me every day, all 8,000 of them they prove -- they execute extremely well.

And just as we have this year and the prior few years, I just -- sometimes I wish everybody understood the diversification of the company. And I hope this year proves it to anyone that if this is the trough middle year of a 5-year run, you're in pretty good shape. We're in pretty good shape. It's all I can tell you. And I think the numbers are going to play out. So yes, we're going to sell less trucks, but we're going to do a good job of managing through it, given the diversification of our earnings stream and what we do and how we go to market and expense stuff.



Look, we're down G&A because we're talking about SG&A. I talked about Q1 to Q2, we're down 4.7% in G&A. That's outstanding, okay? That is truly outstanding. And so I'm very proud of our people for doing more with less, and we will continue to execute that way. And we'll -- when the market does pick back up, which I believe to get real fast, we'll get to those numbers I've been talking about the last 3 or 4 years in '25 and '26. We will execute. You've got that commitment for me.

[Operator]

[Operator Instructions]. The next question comes from A. Aerosoles with UBS.

[A. Aerosoles, analyst]

So I just wanted to dig into locational a little bit more. Just kind of want to understand how much do you think that continued strong demand there has to do with that area of the marketing, just a healthier market overall fundamentally versus there maybe just having been more left-over pent-up demand after the past couple of years of tighter supply kind of similar to what we saw with medium duty?

[W. Rush, executive]

Well, I don't think that really -- it's not from left over demand. We were taking care of Class 8 demand regardless balancing it through the last few years. I think it has to do with more of the money the government has been throwing at it. And I think some of these customers got a little bit behind back coming out of COVID. and they're still catching up with where they got a little bit behind in the age of their fleets, not necessarily because the -- well, the -- it was balanced across the board, but they didn't take the hits in their business that the over-the-road business did, right?



So those guys have had to slow down somewhat this year. I do believe this will continue. I feel good about next year. I'm not going to get out and talk about 2- and 3-year runs. But I do believe our locational business will continue to be good. We had some issues. We could have done more vocational business this year, except there's been a lack of -- we had a component issue with transmissions or we would have sold more this year than what we have. So we've got to believe that, that business will carry over into 25 what business didn't get booked and I can't quantify it exactly for you, but that business will get carried over to 25% because that demand is still there. given what's going on.



So I feel really good about where it's going to continue to be strong -- excuse me, into 25. And then sometime in '25, we're going to pick up in the over-the-road business. The LTL business will still be good with our LTL customers, but the small customer is being taken out of the market, you'll show back up by the end of '25, you watch. And I think the over-the-road business will pick up somewhere at 25%, as I said, with maybe orders coming in late this year.



I could be wrong, it could roll into next year, just depending on -- if this is the bottom, I do believe people are going to start thinking about how they get ready for January 1 of 27 and how they position their fleets from an age perspective going into all of that. But no, location could still be solid from the best take I can give you. We're not looking for a No, I will -- we're not looking for anything going backwards across the board when you look across the whole country. So that would be my response.

[A. Aerosoles, analyst]

Okay. Got it. Appreciate that. And then just in terms of your comments about the more competitive truck pricing in the second half, any way you can kind of dimensionalize that in terms of like year-over-year price changes. And just to what extent does it vary by OEM. I'm assuming that we're really just talking about the over-the-road Class 8, but -- also curious if you think that should stick kind of as we go into 2025 and it's really more of like a market share battle over pricing or really just temporary and keeping things moving through out some inventory here in the week second half?

[W. Rush, executive]

Well, when I say it's going to be more competitive, it will be more competitive. -- understand those, the clear quarter business is already booked, okay? What's not like we're booking Q3 business really right now. We're in the middle -- we're 1 month a 3-month quarter. So that's -- there's not much I can do to move that. I think we -- when you talk about pricing, we have -- when you look at our inventories, I'm very comfortable that we have our inventories mark-to-market. We do that every quarter and have done that for 27 years. I don't come out and talk about it when you look at what truly our inventories.



We're very prudent about making sure we understand where the market is and the demand and that we're -- and that's not just us, that's new also across ores. So I feel good that we're -- when I say we're going to be competitively set up to do what we should do with our inventories. When I talk about -- it's going to be more competitive but not crazy competitive. That may see the sense. People -- I think the OEMs are going to show decent discipline they're going to show decent discipline because this is just a moment in time. That doesn't mean there won't be some more competitiveness, and that's really what I was trying to say. But not crazy over competitive -- it's like I saw going way back to 2009 or sometime like that when it was a 92,000 Class 8 truck market.



So because understanding that all you're doing is you're setting yourself up now when the market picks up to have to -- because I think -- I think the majority of all these cost increases have been required. Remember when inflation was like drove it all up. So OEMs had to catch up and they have done that and they don't want to get back in that situation again. Will they be more competitive in certain situations or certain deals probably as needed because they still do need some fourth quarter build, okay? At the same time, they'll manage build rates down. I guarantee you build rates are coming down finally. That was one of the things that got out of whack.



We've got way too much inventory across the whole country right now. You can go look at it. It's out of in it get to almost an on-time high. But they'll have to slow down. I know OEMs are slowing down bill rates. And by the way, I'm not getting specific to any OEMs. I'm just talking broadly here. But I know build rates are going to come down. They have to. You'll see that throughout the back half of the year. I think they'll continue to decline through Q4. When you look at how many -- I don't remember the exact stats, I don't have on me today. I expect build rates to be down 15%, 20% because they stay high too long, they've got too much inventory showed out. They've got to bring them down.



There's only so much the market can take. So that's my overall view of where we're at when it comes to trucks and where they're at. But we feel that when you take build rate out, you'll relieve some of the pressure on pricing, right, when you stop overbuilding. So I think we got a little bit too overbuilt here. I think build rates are coming down. I think build rates will be positioned to be ramped back up, but it will be a little more competitive. Is it going to be -- is going to be under what I've told people, No, it's not. But we're going to be at our highest and highs of 23, No, but we're not currently. We're going to stay pretty consistent. You'll see our blended rates probably fairly consistent, which it should be with where we are currently. I don't look for our margins, blended our blended margins on trucks.



I don't look for them to come backwards from really from where they're at right now. That's all I can tell you. But it will be more competitive. But we believe we've marked our stuff to market and we're prepared to do that, and I expect any orders we will be competitive, but not to the point of dramatically knocking a couple of points or something like that out of margins.

[A. Aerosoles, analyst]

Okay. All right. That's very helpful.

[Operator]

I show no further questions at this time. I would now like to turn the call back over to Rusty for closing remarks.

[W. Rush, executive]

Yes. First off, I just want to thank our employees one more time. I know I've mentioned them a couple of times on this call, but I can't mention them enough. Their persistence and their execution of our strategies in spite of us we did. I reduced some expenses, and we will continue along those lines so that we can do the right thing and produce the kind of results we're producing right now. So I would just like to thank them one more time for their efforts during this last quarter. It was tough. But we're dialed in right now, and we're going to execute, try to stay pretty flat in the back -- like I said, in parts and service, we're on our expenses a little bit with where we're at because remember, I did this during the quarter.



We did it during the quarter, so it'll be a little hopefully a little bit more reduction that took place in the back half of the quarter. We're not looking to do any more. But just the fact that it was rolled into this last quarter, and we still continue to produce these outstanding results, and I look forward to continuing to do that for our shareholders and for the company. So thank you all very much, and we'll talk to you again in October, I guess. So appreciate it. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.