Rush Enterprises' Q3 2025: Contradictions Emerge on Regulatory Uncertainty, Parts and Service Revenues, and Market Stabilization

Date of Call: None provided

Financials Results

• Revenue: $1.9 billion (third quarter 2025)
• EPS: $0.83 per diluted share; net income $66.7 million (third quarter 2025)

Guidance:

• Continued challenges expected in aftermarket and new Class 8 sales into Q4 2025 and at least Q1 2026 due to depressed freight rates, tariffs and regulatory uncertainty.
• New Class 8 sales may remain weak for the next two quarters; potential for stronger second half 2026 if stricter emissions rules are enforced and capacity exits the market.
• Medium-duty sales expected to be stable through year-end; Q4 medium-duty roughly in line with Q3.
• Used truck sales expected to be in line with Q3 in Q4.
• Truck leasing and rental expected to remain solid; capital returns include stock repurchases and a $0.19/share dividend.

Business Commentary:

• Challenges in the Commercial Vehicle Industry:
• Freight rates remain depressed, with overcapacity impacting market conditions.
• Economic uncertainty and regulatory ambiguity, particularly with regards to engine emissions regulations, are affecting customer vehicle replacement decisions.

• Tariffs on commercial vehicles and parts, scheduled to begin on November 1, add further uncertainty.

• Aftermarket Operations Performance:

• Aftermarket operations accounted for approximately 63% of total gross profit in Q3, with parts, service, and collision center revenues reaching $642.7 million, an increase of 1.5% compared to Q3 2024.
• The absorption ratio was 129.3 in the third quarter, indicating strong financial performance.

• The strategic focus on technician recruitment, retention, and expanding the aftermarket sales force helped offset weak demand in the market.

• New and Used Truck Sales Trends:

• Sold 3,120 new Class 8 trucks in the U.S. during Q3, accounting for 5.8% of the total U.S. market, marking an 11% year-over-year decrease.
• Sales of medium duty commercial vehicles in the U.S. reached 2,979 units, representing an 8.3% year-over-year decrease, and a 5.6% market share.

• Sold 1,814 used commercial vehicles in Q3, essentially flat compared to the same period in 2024, with financing challenges impacting purchases.

• Record Leasing Revenue and Inventory Management:

• Truck leasing achieved record revenues of $93.3 million in Q3, up 4.7% year-over-year.
• Rental utilization improved sequentially, with expectations for solid leasing and rental performance for the remainder of the year.
• Effective inventory management and strategic focus on used truck sales contributed to maintaining profitability despite market challenges.

Sentiment Analysis:

Overall Tone: Neutral

• "Despite these headwinds, I am proud of the financial performance our team delivered"; management notes "continued challenges" and predicts Class 8 weakness for "at least the next two quarters," while highlighting resilient aftermarket (63% of gross profit), stable medium duty and record leasing revenues, balancing caution with cautious optimism.

Q&A:

• Question from Andrew Obin (Bank of America): Can you expand on when the cycle bottoms and what will uncork a recovery—what are you seeing on supply/demand, driver enforcement, emissions and tariffs, and how does that translate into timing?
  Response: Main driver is supply reduction (OEM production downtimes) plus potential attrition from driver enforcement; if emissions/tariff-driven costs and capacity exits occur, fleet should right-size leading to stronger demand in H2 2026, but expect weakness through Q4 and into Q1.

• Question from Brady Lierz (Stevens): Can you expand on the outlook for remainder of 2025 and 1H26—why customers aren't ordering (regulatory vs tariff uncertainty), vocational resilience, medium-duty outlook, and used-truck pricing trends?
  Response: Customers delay orders due to regulatory and tariff uncertainty; record-low order intake and ongoing OEM shutdowns mean fewer deliveries near-term; vocational outperforms, medium-duty should be more stable than Class 8, and used pricing is relatively stable with normal depreciation.

• Question from Avi Jaroslawicz (UBS): What are you doing to pick up more share in parts and service, is it harder in a softer market, and where are opportunities?
  Response: Parts & service is competitive and flat year-to-date; strategy focuses on technology/data, mobile service expansion, technician recruitment/retention, selective M&A and measured share gains (targeting modest outperformance versus market over multi-year horizon).

Contradiction Point 1

Market Regulatory Uncertainty and Demand Impact

It involves differing perspectives on the impact of regulatory uncertainty on market demand, which directly affects the company's sales and revenue forecasts.

When do you expect the cyclical downturn to bottom out and what conditions are needed for sales growth? - Andrew Obin (Bank of America)

2025Q3: Current economic uncertainty and regulatory ambiguity hinder demand. - Rusty Rush(CEO)

How are emissions regulations affecting customer prebuy conversations? - Unknown Analyst (UBS)

2024Q4: Regulations are up in the air, possibly impacting electric truck requirements. Expectations include a prebuy period, but uncertainties remain. The focus is on cleaning up diesel technology and pushing out non-diesel requirements. - W. Rush(CEO)

Contradiction Point 2

Parts and Service Revenue Trends and Growth Strategy

It involves differing expectations regarding the growth trajectory of parts and service revenues and strategies for growth, which are significant contributors to the company's financial performance.

What steps are you taking to gain market share in the parts and service business? Is it more challenging in a softer market? - Avi Jaroslawicz (UBS)

2025Q3: Parts and service revenues are predicted to ramp up from the first half to the second, with growth expected in the back half of the year. - Rusty Rush(CEO)

How should we assess 2025 earnings seasonality compared to normal seasonality? Will parts and service return to positive growth? - Andrew Obin (Bank of America)

2024Q4: We expect parts and service revenues to be down sequentially in Q4 as well, but we believe we will see some improvement in the first half of next year. - W. Rush(CEO)

Contradiction Point 3

Parts and Service Growth Strategy

It involves differing strategies and expectations for growth in the parts and service business, which could impact revenue and competitive positioning.

Can you clarify your strategies to gain market share in the parts and service business? Is it more challenging in a weaker market? - Avi Jaroslawicz (UBS)

2025Q3: Our focus is on enhancing technology and customer experience. We aim for growth slightly above market trends to sustain our competitive position. - Rusty Rush(CEO)

Can you discuss parts and service performance in 1Q and expectations for 2Q? - Daniel Imbro (Stephens)

2025Q1: Expect sequential growth in 2Q due to added service technicians and improved operations. - Rusty Rush(CEO)

Contradiction Point 4

Market Stabilization and Economic Uncertainty

It highlights differing perspectives on when the market may stabilize and the impact of economic uncertainty on demand, which are crucial for forecasting future sales and investor confidence.

When will this cyclical malaise bottom out? What needs to happen for sales to increase? - Andrew Obin (Bank of America)

2025Q3: Non-domicile driver regulations and allocation changes should help stabilize the market. If stricter emissions laws are enforced, it could lead to increased truck sales in the second half of 2026. However, current economic uncertainty and regulatory ambiguity hinder demand. - Rusty Rush(CEO)

Can you discuss new unit sales trends during the quarter and your customers' planned expenditures for the remainder of the year? - Daniel Imbro (Stephens)

2025Q1: Market uncertainty affects customer purchasing decisions. - Rusty Rush(CEO)

Contradiction Point 5

Regulatory Uncertainty and Market Stability

It involves the impact of regulatory uncertainties on market stability and demand, which are critical for the company's sales outlook and investor expectations.

When will the cyclical malaise bottom out? What factors are needed to drive sales growth? - Andrew Obin (Bank of America)

2025Q3: If stricter emissions laws are enforced, it could lead to increased truck sales in the second half of 2026. However, current economic uncertainty and regulatory ambiguity hinder demand. - Rusty Rush(CEO)

How has your macroeconomic outlook changed since April, and what uncertainties persist? - Andrew Obin (Bank of America)

2025Q2: We are operating in an environment where there is still much uncertainty, especially regarding trade policies and emissions regulations. However, there have been positive developments, and we hope for resolution later this year, which would allow customers to make decisions and drive activity. - W. Rush(CEO)