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Rush Enterprises Inc (RUSHB) Q2 2019 Earnings Call Transcript

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Rush Enterprises Inc  (NASDAQ: RUSHB)
Q2 2019 Earnings Call
Jul. 25, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, thank you for standing by, and welcome to the Rush Enterprises Inc., Second Quarter 2019 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference may be recorded.

At this time, I would like to turn the conference call over to Mr. Rusty Rush, Chairman, CEO and President. You may begin.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Good morning, everyone, and welcome to our second quarter 2019 earnings release conference call. On the call today are Steve Keller, Chief Financial Officer; Derrek Weaver, Executive Vice President; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Vice President, General Counsel and Corporate Secretary.

Now, Steve will say a few words regarding forward-looking statements.

Steve Keller -- Chief Financial Officer

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, 2018 and in our other filings with the Securities and Exchange Commission.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

As stated in our news release, we achieved quarterly revenues of $1.5 billion and net income of $41.6 million or $1.10 per diluted share. We're very proud of our financial performance this quarter, which was positively impacted by results from our aftermarket initiatives, outpacing the U.S. market for both Class 8 and Class 4-7 new truck sales and an overall healthy economy. We're again pleased to declare another quarterly cash dividend this time $0.13 per common share or an 8% increase over the last four quarters.

In the aftermarket, while industry demand increased marginally, our parts, service and body shop revenues were up $448 million, up 6% over the second quarter of 2018. Our aftermarket gross profit remains strong, up 9% year-over-year, and our absorption ratio was 122.4%. Our aftermarket growth this quarter was directly driven by our strategic initiatives, especially expand the parts availability, data analytics, which help us take advantage of every part sales opportunity and traction in our e-commerce parts platform.

We also enhanced our service offerings and continued efforts to add service technicians to our network. We believe our second half quarter aftermarket performance was especially strong, given the slower rate of growth and aftermarket industry demand and continued softness in the energy sector -- in energy sector activity. We will continue to monitor aftermarket industry demand, but with successful execution of our strategic initiatives, we believe our aftermarket results for the rest of the year will remain consistent with our second quarter performance.

Turning now to truck sales. We sold 4,119 new Class 8 trucks, up 28% year-over-year and accounting for 5.7% of the total U.S. Class 8 market. Our strong growth sales were almost was driven by widespread activity across the country, particularly vocational and large fleet deliveries, and we believe our truck sales in the third quarter will remain on pace with the second quarter. ACT Research currently forecast U.S. Class 8 retail sales to be 275,100 units in 2019. However, there is excess capacity in the market, and Class 8 orders have decreased significantly in the past few months. As a result, Class 8 truck sales could begin to decline as early as the fourth quarter of this year.

In medium-duty, our Class 4-7 new truck sales reached 3,866 units and accounted for 5.5% of the U.S. market. This was a record-setting quarter for us in the medium-duty truck sales due to our ability to provide a robust inventory of ready-to-roll trucks nationwide and strong demand from construction and rental customers. ACT Research forecasts U.S. Class 4-7 retail sales to be 262,300 units this year, up 1.5% from 2018. We expect our Class 4-7 trucks [Indecipherable] sales remain healthy through the rest of 2019.

Our used truck sales were up 2% over the second quarter of 2018 [Phonetic]. Used truck values are beginning to face pressure due to the oversupply of used trucks coming into the market. That said, we believe our used truck inventory is positioned appropriately to support the market. The company increased its lease and rental revenues by 4.4% in the second quarter of 2019 compared to the second quarter of 2018, primarily due to healthy lease fleet demand, management of operating costs and execution of its lease fleet service model.

I would like to express my gratitude to our employees for their continued hard work and dedication to our customers, which helped us to achieve such a strong quarter.

With that, I'll take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question coming from the line of Justin Long from Stephens. Your line is open.

Justin Long -- Stephens -- Analyst

Thanks. Good morning and congrats on the quarter.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Hi, thanks, Justin.

Justin Long -- Stephens -- Analyst

So maybe to start with parts and service gross margins, they were strong, up about 150 basis points from what we saw last quarter. Can you talk about how much of that improvement you view as one time? I just wanted to get a sense for how we should be modeling parts and service gross margins going forward.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Sure. Well, as you know, over the last year or so, given our investment in some of the initiatives we've been talking about for the last two and half, three years, you have seen margins increased, right, steadily over the last two years. I would tell last year and half or two. I would tell you that I don't expect -- it was a record margin we haven't seen probably in, I can't remember six, seven years in Q2. I do not expect the margins to remain quite that strong, but I do expect margins to continue to grow as they have over the last year and half, but maybe the more -- go back to Q1, and now we're expecting to start growing over Q1, maybe not quite as strong as Q2, but we should continue to see margin improvement across the board. I just -- we had an extremely strong quarter. A lot of it had to do with mix and some of these things that were going on in the quarter, but we do continue to believe that we will continue to grow margins over what you saw, say, in Q3 of last year for Q1. We've been steadily ramping margins up, and I expect it to be getting more on a steady pace of ramping up from there.

Justin Long -- Stephens -- Analyst

Okay, great. And then on parts and service revenue came in up about 6%, that was a little bit below the high-single digits you've talked about. Can you talk about how much of a headwind you saw from the energy market? And then as we look into next year, Rusty, what's your view on parts and service growth? Do you still think we can get to that high-single digits even if we see Class 8 sales around 200,000 units in the energy markets stay about where it is today?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Yes, absolutely, we can. Obviously, let -- the energy market had a, I think one of the things I'm most proud of, I truly am, is the fact -- is the headwinds we faced in the energy sector. If you look at it year-over-year, the best we can go across it when we segment our business, parts of the business was probably off about 34% energy customers, and the service business was off 38%, so for a combined 35% year-over-year downturn in the energy sector. So that 6% number to me was outstanding given that.

If you think back to the organization, say, four years ago, go back to 2000 -- or three years, go back to 2016, when we saw the big energy hit, everybody remembers. We got down to $30 below a barrel, and everything was shut down at the end of '15 about through '16. We could never ever outperformed as well as we did in Q2, given the business model that we had then compared to the business model we have now. Now -- so I'm really proud of the organization for producing results we did -- given those headwinds. I mean it just shows the diversification and the effectiveness of the strategy and the implementation of all the tools that we put in across the network over the last couple of years.

Looking forward, I do believe we can get back to high singles, right, because my comp -- whereas energy business, we'll already be out of there, right? So I would hope and believe that we can get back to that high single. I mean, there's -- it's not a forward stretch when you go to and arrive at six and you're already high singles on your margin side to believe you can get back there next year, right? Even in spite of the headwinds of having a market that's -- you're right in where my numbers are and that's 200 U.S. retail sales. Some people don't want to say that, but I'm telling you, that's reality. But I still believe we can get to that high single digit, because I don't think we've seen the full utilization of the investments, and we're continuing to invest. And I think you probably see it in my G&A line, we haven't stopped investing so -- because we think that's key to some of the things, the results that we've seen over the last couple of years, not just in the front market, the results in the back ends of the business.

So yes, the answer is yes. I believe, for sure, that we should be able to -- I'm planning on it anyway. I mean, I wouldn't bet my life on it, but I'm sure that's a lot that we'll still be able to produce somewhere between what do you call high singles -- eight, something like that, I would like to believe in it...

Justin Long -- Stephens -- Analyst

Sure. I get it. That's great to hear.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

And if you were able to get a little bit of pickup as in the energy business, we would take it.

Justin Long -- Stephens -- Analyst

Yes. So that high single digits, it doesn't assume any pickup in the energy business. It's -- just the same as the energy business stays where it is.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

I think, yeah, because the comps, I would hope the energy business doesn't go down any more than it has from our parts and service perspective because the question, as I said, you can tell the numbers out throughout. It has softened, but we're already willing and able if it wants to. If it picks back up again, which anybody with those energy knows it. It can be phased or frame them from one year to the next, sometimes in that sector, but we're always ready to take, but no, I did not assume -- we didn't assume any up or down compared to where we're at right now.

Justin Long -- Stephens -- Analyst

Great. That's really helpful. I appreciate the time.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

You bet, Justin. You'd probably be an upgrade from Brad anyway.

Justin Long -- Stephens -- Analyst

I don't know about that.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Because...

Justin Long -- Stephens -- Analyst

You can tell us from trucks now.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Thanks.

Operator

Our next question coming from the line of Neil Frohnapple from Buckingham Research. Your line is open.

Neil Frohnapple -- Buckingham Research -- Analyst

Hey, good morning, gentlemen. Congrats on a great quarter.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Thanks Neil.

Neil Frohnapple -- Buckingham Research -- Analyst

Just a follow-up on Brad 2.0, I mean, Justin's question there. Just what percentage of overall aftermarket is tied to energy? Is it in that 15% to 20% range, just in more normal times, I guess, roughly?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Neil, I'm going to go a little over that or write it in or give or take a couple of points, OK? And that's a swag. And -- but we would say that, but it's a good business, right? Obviously, it effects -- when you look at -- it effects our Texas stores, especially our West Texas stores, dramatically, it has a [Indecipherable] a more service effect than a parts effect on us, but yet, it does, because of all the upending and the other stuff we do around the country, it affects parts too, but the service side of it is, it affects dramatically more than, say, the parts side of it. But yeah, beyond that 10% range to answer your question.

Neil Frohnapple -- Buckingham Research -- Analyst

Okay. So you guys would have done basically double-digit aftermarket growth had not been...

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Yeah. For sure, double-digit margins. And we've been right after -- to the best of my abilities, we'd have been right at that 10% mark, OK, give or take a point.

Neil Frohnapple -- Buckingham Research -- Analyst

Okay. And then just wanted to switch gears. Obviously, you mentioned the 200,000 Class 8 retail next year, Rusty. So...

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

U.S., yes.

Neil Frohnapple -- Buckingham Research -- Analyst

Yes. So any event that Class 8 industry sales are down 25% to 30%, do you think you can outperform that growth rate just based on your higher mix of vocational and maybe some more Navistar share gains coming through? I mean just -- if you could talk to how you guys are positioned relative to the industry next year.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Yeah. No, I would like to believe so. That's always been -- we've always performed best. If you go back historically, you go back to 15 years, 20 years, our best -- when it comes to the percentage of the U.S. Class 8 market that we get is in the -- not in the big robust over-the-road years. It's -- when it's a little bit more balanced in where the flow of trucks goes into more -- different market segments because, obviously, there's been a huge over-the-road in the last two years. And that's why you've seen our market percentage go back behind 6%. I would expect -- I know, historically, when you get about 200,000 market row, we're 6% so -- of the market.

So we would hope that we could perform like we always do, because we do have -- we do have a very balanced approach to the market, not so much time to one just one market segment, and we're very proud of that. And we do believe we're going to have some tailwinds on the Navistar side as they continue to gain share. I mean, our Navistar sales will be, hopefully, not take the hit. Hopefully, that -- if you take on the other side, I'm sure there will be some, but it won't be -- I mean, take 25% or no, 25% to 30% somewhere. I'm open there, and maybe because of the tailwind of gaining market share, maybe they're all five or two, right, so to help you offset and pick up share. So both of those tools -- both of those reasons that you brought up yourself, Neil, are things that we believe will be in our favor next year in a softer overall retail environment.

Neil Frohnapple -- Buckingham Research -- Analyst

Okay. Great. That's helpful. And just one last one for Steve, like I normally ask. Just -- could you provide the gross margin breakdown by truck in the quarter?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Yeah. Heavy-duty is 8.1%; medium-duty, 5.9%; light, 3.7%; used, 8.3%.

Neil Frohnapple -- Buckingham Research -- Analyst

Alright, great. Thanks so much, guys, and congrats again.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Thank you, Neil.

Operator

And our next question coming from the line of Jamie Cook with Credit Suisse. Your line is open.

Jamie Cook -- Credit Suisse -- Analyst

Hi, good morning and nice quarter. I guess, a couple questions, Rusty. One, can you just talk about where your visibility sits today sort of relative to as we're entering sort of a normal downturn? Is it extended just because some of the OEs are talking about that? Two, can you talk about your comfort level with the inventory at the dealer level?

And then my last question, as I'm thinking about 2020 and assuming we do see the downturn and the industry forecasts are right. Maybe you or Steve, is there any way you can put into context how you're thinking about sort of trough EPS just given we have the differences cycle with the aftermarket? Thank you.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Hello, Jamie.

Jamie Cook -- Credit Suisse -- Analyst

Hello, Rusty.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

You know I'm not going to give you the EPS guidance. But I will say this, I think I'm...

Jamie Cook -- Credit Suisse -- Analyst

Is it consensus-crazy? That's my question. Is it consensus-crazy or not?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

I am sorry. What is that?

Jamie Cook -- Credit Suisse -- Analyst

Is it consensus -- is it consensus or is it reasonable?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Probably a little bit out there. I would say I haven't really studied them. I don't know if, by the way [Indecipherable] in on '20 yet, to be honest with you. Typically, most of ...

Steve Keller -- Chief Financial Officer

I don't even know. I don't even know the number off the top of my head, Jamie. What is it?

Jamie Cook -- Credit Suisse -- Analyst

What -- where is the consensus estimate for 2020? Is that 3 -- like 363?

Steve Keller -- Chief Financial Officer

That sounds a little strong to me, but let's talk about the good stuff. And the good stuff is, if you look at last trough, if you look at the 200,000 -- let's go back, OK? 200,000 units in -- was 2016 and also '17. Now those are two big different years for us, but if I remember well, one was above -- one was around two. Do I feel much better going into a market like that this time than that? You better believe I do. I'm not going to tell you what my target is, but let's just say it's above the last two times it was 200,000. Those were 195, I think, I've gone off the top of my head, and 196 or something around there. So you get a market like that and you look at our performance, you can rest assured our target's a lot more than that.

Okay, with that type of market. So I'll leave it at that. I don't know if there's a -- I'd like to say, I mean -- Steve said I've made much attention to the consensus for next year, because I'm trying to get my arms around what next year is. It sounds like everybody else is smarter and I am, so I'm just probably get around what -- get my arms around what it's going to be. Because, I do believe given -- I don't have to tell anybody. The last six months, 77,000 units in North America, [Indecipherable], and that's 100 -- well, at 60-something-thousand annualize that. You don't get to 130, right? So that's why we've been chewing our backlog. When I say backlog, down 180 something now. It was over 300 and something I stocked over. I mean, we're 200 up, folks. That's just the facts.

So I think we have a whole lot better look on next year once we get to November, OK? But I know I'm kicking the can out, but I think -- if you remember last year, because the orders were so far out there. You had a summer that was -- order intake in the summer, that's usually the summer bell rooms, right?

But people were taking slots. I'm telling you last year, I got to tell you and believe all that, but a lot of this got through, we're building more where we're at, but you had people taking slots and putting orders into the summer like never before. Because, usually, if you order pick up at October, November and December and you can determine especially with the over-the-road customers where all that's going to be. By that time, by October, they've got their budgets less. They know where they're headed and things, that's what you have going on.

So I think this will be more typical that October, November and December will give us good indicators where next year truly is going to land, OK? But I'm not ready to call -- I mean, I'm in the line with what ACT's number is, I'll be honest. That's where, I think, is going to land. Some people may be a little more optimistic. I'm just trying to be realistic, OK, as I always am.

Let's go back to your other question. What was the first question?

Jamie Cook -- Credit Suisse -- Analyst

Just visibility changes.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Visibility?

Jamie Cook -- Credit Suisse -- Analyst

Where is it today versus...

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Yeah, Visibility to me there's going to be, as I said, I got to get to November. I'll be honest, if you wanted a truck right now, I could probably move some sales around and getting it before we pop up some fireworks on New Year's, OK, or open some champagne bottles. So I could probably figure out a way to get it to you. Now it's mostly full, but don't think you couldn't get a truck because it's good, OK? Don't buy that, so I'd tell you, is it a little bit softer than what we thought it would be? Yeah, probably so, but it's still pretty solid, but I can still work in the fourth quarter and do some stuff, as I said.

And what I will -- I will -- as we've said fourth quarter might be a little weaker. Well, I could admit it in another way, he would have said the same thing to me, which doesn't mean it's going to be bad. This means we're back to more normalized times, finishing work and filling out, finishing out the year. That's why I said there might be -- I said I could build you a truck, OK? That doesn't mean that there's nothing in the quarter. That just means there's a little opportunity still out there, which is a whole lot different than six months ago when everybody told you can get your [Indecipherable] in 2020, right?

Okay. And that's just the nature of the beast and I mean it hasn't -- in over-the-road stuff, I don't have to tell you -- I'm sure everybody knows the freight market is. Yes, freight tonnage is up, got it. 4% or something for the year for full or whatever, but it's not -- it's in a different price, OK? Spot markers and we know it's been out most of the year. Contracts, I mean, read them -- I read them all, all week long, put out new contracts and they've been going in flat to down after a huge -- after the shippers got hammered in 2018. Therefore, I will give them a little piece back. That's just the way it works. The portion of the pool.

The consumer is doing a great job of keeping the company going, right now. Our GDP is still solid, I don't know -- I don't think we would lower the rates we have run. So you can get those things out there, you normally don't get three years in a row like this. I told somebody the other day, let's go back and see, '14 and '15, U.S. retail was like two -- it was like 485 [Phonetic] or something, something like that between the two years, OK? Then we got '16 and '17 back to 200, 190-something. And then we got '18 and '19. Well, '18 and '19 right now, we'll probably get to 535.

So if you do that and take a 20% out like you did before, it gets you to about 420,000 over a two-year period looking at two-year cycles, and that's probably where somewhere around that number is where I'm going to like because you don't see three years strong together like what we got in '18 and '19. It just normally -- because if you go back and find it. I can't, it's hard to find in history as you run three years like that.

So you're going to have a little softness, it doesn't mean it's bad. Most people would tell you, the 200,000 U.S. retail is a norm, right? Okay, so let's hope -- that's what we are. I don't want to go lower than that. It's an election year, too. You're going to have -- I think people will be a little indecisive regardless of what you know, and obviously, you can't get declined through Washington to do it. We can't get much done right now, we're getting talked. So there's just things out there to me that they're going to make it around that 200 number, OK?

Jamie Cook -- Credit Suisse -- Analyst

Okay. And then just last question. Any distinction between like what you're seeing in the vocational markets just versus line haul? Any change in trends? And I'll get back in queue after that. Thanks, Rusty.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

You bet, Jamie. I would tell you that, for sure, over the road, it's going to be more stable because it's tied more than those other businesses. Now oil and gas is not there. We haven't had already any oil and gas sales or anything I produced this year, OK. On the truck side, maybe I was talking about parts and service earlier being out 35%, but on the truck sales side, we really haven't had an over -- not a little bridge brass [Phonetic] but nothing would substance over the last year or so, right, as they've been chewing up all the inventory that they bought really back in '17 and into -- or first half of '18.

So -- but if I look at the other, I could always believe that will be more stable. It has historically been the other market segments, whether it be construction. Housing starts pretty solid. They're not over-the-top but they're pretty solid, right? I mean, we run -- they've been running pretty constant. You've got lots of roadwork going on. We need an infrastructure bill, that would surely help. We sure need to spend a little money on infrastructure in this country.

And those other market segments that we're in like that, the construction, they're after used. We're in the crane business, we're in this, we're in that. We're all in all those different segments. We're pretty -- we're going to be more constant and more stable. The over-the-road purchases, we have always -- historically been a little bit more up and down or more volatile. So yeah, that's why -- actually when we're talking earlier when I was talking to Neil, I guess it was, but yeah, I plan on having a better share of the Class 8 market, I do in the 200,000 market than I do in 275,000 market. You better believe that. So we historically have, so you would say, yeah, I guess, that piece of business is a little bit more stable.

Jamie Cook -- Credit Suisse -- Analyst

Okay, great. Thank you, I'll get back in queue.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

You bet. Thank you, Jamie.

Operator

And our next question coming from the line of Andrew Obin with Bank of America Merrill Lynch. Your line is open.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Hey, Rusty. Good morning.

Good morning, Mr. Obin. How are you there?

I was not going to ask this, but I'm clearly not as good and as fast as Jamie is or you -- well, I thought I may ask, but I just want to walk through a couple of framework questions on your downturn guidance. You did say that you're still committed to growth and services businesses. That's fair, right?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Fair. Check.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Check.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Yeah.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

It does seem that you are able to reduce your SG&A in a downturn is just the nature of your SG&A. That's fair, right?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

It's a fair comment. Go back to history and you'll see it every time, Obin. Don't think I'm not already worked to plan it on it, OK. By the time we get to Q4, you'll probably see a little color in that, OK?

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

And just -- and given your mix, you should outperform the industry in the downturn and maybe even outperform PACCAR just because you have more garbage, more vocational and fewer large fleets. That's also a fair statement?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Well, we've always had a higher market share in the downturn as I've said a couple of times today typically.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Okay. I'm just checking, is that a massive as I am [Phonetic]? I just want to check a couple of facts.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Now Andrew, don't you try to model in here on me right now. Don't you...

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

No, no, no. I'm not Jamie. I'm nowhere good as she is, so that's fine. Okay.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

But Andrew, understand, you still -- we're not going to -- we will do better. As I said, our goals are to do better than '16 or '17. If you average those two years, I can -- and we don't do better, you can probably replace me, OK?

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

I have a much simpler quest? So you did say that you are investing in the quarter. Could you -- on SG&A, could you quantify the investments? And also more importantly describe in a more detail, what are you doing? Because I think this has been a huge theme for the company, improving operations over the past couple of years. Just give us a more color.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Well, this is going to be a fine line to walk between what I like to consider proprietary information and what you want me to say on a call, OK? Do you -- there's -- did you review -- Jack In The Box and they will tell you what maybe secret sauce with back in the day? No. So yeah, if I'm going to tell you everything I'm doing, no. I can tell you that in customer related -- look, let me go back to why I think we're capable of.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Right. I think I just want to realize your operating philosophy.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Can I finish? Yes. Thank you, Andrew. Let's go back 10, 11, 12 years ago. We decided, and I'll hold my hand up, I was dancer -- dancing in the room, that we needed different business system, right? So we went down this SAP platform that I told you, and I reminded many of my folks, that it would be three years and since the Board three years and $50 million. Well, six years or so or seven and $50 million later, we got it done. Just -- I was a little off my math, Andrew, but I think it's about $35 million off. And so -- but guess what we got with it, we got data. We got what we think is the most robust data in the industry, OK? And that comes and allows us to do things.

And what we've been doing in the last three years is taking, learning how to use it, because what good is data if you can't turn it into revenue, right? Because obviously range by but for kind of -- computers here to look at everything, but if I can't turn it customer touch and revenue is absolutely worthless. I'm not writing books around here, I'm selling trucks and parts and service. So with that, we've added tools around it, which I'm not going to get into all the tools. We've taken that and trying to turn it into revenue, and that's what we've been spending many of the time, OK?

And I'd like to believe we continue that. We have not seen the full fruition of all that revenue out the investments we've made. We have not -- we're still pepping. We're still learning, we're still headed down that path, but I can tell you this, we run our business a whole lot different than we did three or four years ago, OK, almost to the point -- being an old guy like I am, it's a little more -- it's a lot more regimented and nobody get hind but what -- it will allows you to really understand real time what you're doing, take that and turn it into revenue. I know I'm not telling you about what tools I've invested in because I'm not going to, but we have in many, many projects with millions of dollars, I'll tell you that. I'm not going to get into exactly what's flowing through.

I've had my -- I've seen departments, very large, I'm looking at my CIOs and across the table from me here. And we -- but we continue to take it and invest and give our people the best tools out there we believe. And I know it's a long rambling. You may not think I'm answering it, but I'm answering to the best I can without getting into exactly what we're doing. There's nothing, it's just investment. And a lot of hard work from a lot of great people that we -- I'm blessed with every 600 people, I'm blessed to have in this company.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

No. That's very fair. And just the last question. What do you see a sort of happening in the general economy? You're one of the largest medium car dealers in the country. You have very good systems. A lot of debate about it would really appreciate color from you. Thank you very and great quarter.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Thank you, Andrew. Well, my Vice President medium-duty sitting over here. And he's saying we are the largest. He says not one of and he's getting upset with you, Andrew. So I'll let him -- he's now smiling better. So Mr. Tyler over here. But what do I see in the general economy? I think I've talked to him about a month or so ago, he called me and said, What do you think, Rusty? And I said, You know what, if it's not going to stay as high, it is no way we're going to get 3% GDP next year. It's not going to happen.

And you, among a few others or Rusty, what do you think is how do you spelled? When I realized, he was talking and started the thing with an arrow, I said, No, no, no. Not as that's negative. But I see softening in the GDP, but medium-duty is not -- it's while it's driven by GDP, it's also driven by dynamics changing with all the hub and spoke and last mile of the stuff that's going on. That stuff is moving too, and that's what we believe will help us, as I mentioned on the call before, given the -- given how our -- where we are in that marketplace in the medium-duty side. And it's going to get down into the Class 3 business, 2 business -- we're going to get into -- I mean you're going to get into -- as we get these steps and sorts itself out.

But with the brands we represent. The one thing about every brand we represent, this not only eight side. Every brand we represent in the medium-duty business, OK? Think about that, not every brand we represent is in the eight business, OK? So people don't think about -- they forget that all the time. They forget Peterbilt, Navistar, Hino, Isuzu, Ford. All these guys that we represent, they're all in the medium-duty business and some are only in the medium-duty business. So I believe it will continue to remain strong given -- I always say it's tied more to the general economy, which it is. At the same time, there's also dynamics that are changing around. That should continue to allow that business to grow and be much more stable.

And somebody wrote the other day, it'll offset -- no it's not going to offset, but it's sure going to help, OK? It will continue to help because we see it being a more stable market going forward. So when you add that to the continued -- a great job at PACCAR has done or Peterbilt has done with -- their market share has been better in the last two or two years than it ever has been. And then you get where Navistar is going with their market share.

So you add all that together, and that's why we hope to do a little better. Hey, I can't get away from, I can't make the market. I cannot make a truck sales market, but you know what I can do, we can learn, not me but the organization. We can't operate inside of it and understand what to do. We can't drag it anywhere. What we are sure is that can operate inside changing environments, we like to believe as well as anybody out there, and that's what we plan on doing, guys.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Thank you very much.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

You bet.

Operator

[Operator Instructions] Now our next question coming from the line of Joel Tiss with BMO. Your line is open.

Joel Tiss -- BMO Capital Markets -- Analyst

How's it going, guys?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Oh, I've been waiting to talk to you all morning, Joe.

Joel Tiss -- BMO Capital Markets -- Analyst

Oh, yeah. So you think between the used market being a little bit heavy and orders like probably too many Class 8 orders out there because of cancellations and things like that. You think in 2021, we're going to clear out all the frothiness? Or do you think whatever happens in 2020, there's not going to be enough of an adjustment to be able to get everything back to kind of normal, so we can start to grow again in 2021?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Well, good question, Joe. I mean I would think that if we can run a couple 200,000 years or 210 and maybe 2021, maybe up a little bit. But I mean, I -- one of the -- I can see getting back. I can see we need 20. Look, we've got to -- you asked about used. No one has figured out when they should ask a used question.

Used has remained stronger than I ever expected to do it for longer, but we are seeing softening. If you look at our average sales price, and if you look at our margin, and you can tell in Q2 for the first time, it's more normalized. We've been elevated. We were elevated. I think the last three or four quarters, which is that was, by total, by average, is going to go down in the fall of mid last year, and it didn't. I was very proud and happy to be wrong. But I do think we're finally going to see an oversupply of used trucks.

We'll just -- we're just saying there's a lot of trades coming in, and the economy has been -- we've been chewing them up and getting it soon back out there because the product -- the quality of the product is so much different than it was 10, 15, 20 years ago. It's just great, even the trucks got 400,000 parallel of miles runs, it's still in good piece. So it can still go out and compete with new trucks. We're used to had to go into more region wise calls and things like that. Nowadays, you can still go back over the road because it's just better stuff.

I believe that we'll get through all that, I hope, in 2020, but 200,000 U.S. retail, what advisors always told me is normal. So now -- but I will say this is one of the things it does spur activity and could continue to spur activity is the quality, is the few models. The engines are just continually and continually gotten better and better from a few models perspective. So you can make sense out of it, you just got to be able to balance that with the used values to be able to dispose the used. So I can see it picking up a little better in '21, if we go through '20. I'm not here to guarantee anything about that because you've got an industry, you've got two things.

You have the industry trends and then you've got macroeconomics, right? You got to be confident. GDP and everything else that goes into it. So if the stars aligned probably and we go down in '20, which we are going to sell less trucks in 2020, they will have to stop producing so much product. And we can clear out all of that. And to your point, I can see it picking up a little over '20 and '21, but I'm not ready to guarantee that -- I'm not ready to guarantee that, right?

So -- but I can see that happening. I just want -- as I said earlier, I want to get through November here. We really see if we're more normalized from an order intake perspective, right? And we'll see if things can get better. It's what we've been looking -- this is just natural, and that's why we've positioned the company and has brought-driven so hard on parts and service. So we can prove that we're not just tied to the -- is it going to affect us? Yes, but we're not just tied to Class 8 truck sales. We've changed this organization where there's 65% of the profits come from parts and service, and we're going to stay focused on that, and the markets will sort out where they do. But I think 200 next year and a possible upside of that in '21 to answer your question. A long winded way, as always.

Joel Tiss -- BMO Capital Markets -- Analyst

And then you guys used to talk maybe 18 months ago a little more about sort of the gap between your best dealership location in terms of profitability in the worst. And I just wondered if you could give us a little update there. Has the gap narrowed? Is there still a lot of opportunity? And what are some of the things that you guys are working on, and we could kind of look forward to in terms of milestones?

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Well, we -- the one good thing -- there's something good about when you soften like this makes you clean the house up a little better, right, when the market softens, but we're always working on that. I think the most important thing and what we used to talk about was the gap between the Navistar stores and the Peterbilt stores, right?

Joel Tiss -- BMO Capital Markets -- Analyst

Right.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

And the returns are still higher on the Peterbilt side of the house, but the gas is closing and not because Peterbilt stores are going backwards because Navistar stores are getting better. And so that continues to be -- I think that's, as I always told everybody, that's what I believe one of these -- is sometimes the hidden tailwind in the organization is that.

And it's not an add water and stir or overnight sensation, but it's a steady, ongoing thing. And it's part of these numbers, OK, without me getting in and breaking it all apart. It's part of -- look at the numbers we've posted, OK? It didn't all just come from one place. They've been -- the Navistar side has growth. It has continued doing -- their service growth was very helpful in Q2, way better than the Peterbilt side because Peterbilt side has a big enter in the energy sector because they have more of this in the energy sector. So that was a nice thing that we got out over there in Q2, right?

And their parts, we're getting through, remember, the tough thing for on the Navistar side and that's why I think you were driving it. It was the difference in the both sides of the house is when they took all the 2,000, everything was produced in '10, '11 and '12 and halfway through '13, which is nasty word called MaxxForce, OK? But all those trucks got pretty much abroad, OK? It either went to Vietnam or the Boneyard, OK? Or one of the two. There are great cars in Vietnam. So what happened was you missed this big gap of trucks to work on.

So you didn't have those trucks, but guess what, now we're flowing. We're getting. We're going to be picking stuff up because our sweet spot, the true sweet spot for us in the parts and service business really is year of four through year nine or 10, right in that sweet spot. That's where we produce the most parts and service revenue of the truck. And it's not necessarily that first owner of an over-the-road truck, it's that second and third owner, not necessarily the fourth, but the second, third owner. And we lost three years of production, man. We lost three years of product on that side of the house. And they've done a great job of weathering it.

And with the job that they've done, they have gotten their products better, and their products are appealing, just like what I've said, I'm very proud of what we represent on all brands, but on the Class 8 side on both. So we believe that still will continue to be a tailwind. And sort of -- it would be a plus for us, right? As they continue to gain market share, we continue to roll in to where they started producing, where they start producing some of their own engines but mainly with Tallman's engines. And a lot of those at the second quarter of '13.

Well, you think about that, that has given me about the six-year-old truck, that's a sweet spot for us. So we believe it will get back into picking up more product to work on. So we're not having to scrape muscle and work on -- we work on everything. Remember, we work on any truck, but you do like to work on the brand you represent most. So I know it's a long list on [Indecipherable].

Joel Tiss -- BMO Capital Markets -- Analyst

Yeah, its very helpful Thank you so much.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

You bet.

Operator

At this time, I am showing no further questions. I would like to turn the conference call back over to Mr. Rusty Rush for closing remarks.

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Well, thank you, Ma'am. I hope everybody have a wonderful summer. So far, you got August left. We will talk with everybody in October with our third quarter release. Thank you.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

W.M. Rusty Rush -- Chairman of the Board, President and Chief Executive Officer

Steve Keller -- Chief Financial Officer

Justin Long -- Stephens -- Analyst

Neil Frohnapple -- Buckingham Research -- Analyst

Jamie Cook -- Credit Suisse -- Analyst

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Joel Tiss -- BMO Capital Markets -- Analyst

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