Wabash National Corp (WNC) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Wabash National Corporation first quarter 2005 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star, zero on your telephone keypad. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Mr. William Greubel, President and Chief Executive Officer. Thank you, Mr. Greubel. You may begin.

Thank you. Good morning. Before we begin I'd like to make an important announcement. As with all these types of presentations this morning's contains forward-looking information including statements about the Company's prospects, the industry outlook, backlog information, financial condition and the like. As you know actual results could differ materially from those projected in the forward-looking statements. These statements should be viewed in light of cautionary statements and risk factors set forth from time to time in the Company's filings with the Securities and Exchange Commission.

Welcome to Wabash National's first quarter earnings call. I am William Greubel, CEO. In the conference room with me this morning are Bob Smith, our CFO, and Dick Giromini, our Chief Operating Officer. I'd like to welcome all of the listeners on today's telephone conference call as well as those listening live via the Wabash National Internet site Web cast. We have much to cover today and will try to provide as much information as possible. At the conclusion of the prepared portion of our presentation we will open the call for questions from the listening audience.

We continue to ride the great momentum of the past year into 2005. The industry cycle continues to move forward as replacement and our growth are now occurring the majority of our fleets. Although we did not accurately forecast first quarter trailer shipments, we still managed a very good quarter with sales of 256 million and net income of 18.5 million, or $0.52 cents per diluted share for the quarter. The retail branch side of the business is now making money. We are also very pleased to report that our gross margin was 13.4%, significantly better than any recent quarter and quite possibly any quarter in our history. As typical the first quarters we saw some choppiness in our order patterns and build schedules due to model year changes. We encountered some inefficiency as we jockeyed short lead-time orders, in addition to adding additional shifts. As we pass the model year and as our backlog has improved we are seeing improvement in our plant efficiencies. It is interesting to note that our core accounts represented less than 20% of our sales in the first quarter. Non-core accounts came in strong during this quarter. With the addition of many new customers we had to focus on timely shipments, as revenue was only recognized as trailers leave the yard.

During the quarter we experienced turnover of finished goods in the range of 15 to 25 days after production, or approximately a week slower than our core customers. Going forward we expect to see production efficiencies improve, especially as we produce a higher percentage of core customers. In addition, our finished goods turnover should improve due both to customer mix and greater focus on new accounts to pick-up their trailers. We are also pleased to report our success in the quarter in exceeding raw material price increases. A good portion of this was due to favorable product and customer mix. As we see a larger core customer share and greater diversity of lower priced product mix in the second quarter we should maintain our advantage over raw material and component cost, but not necessarily as great as in the first quarter. I'm sure most folks have read about the current supply and demand situation with steel and the softness of the market. Let me reiterate, most of our seal related raw material and component prices are based on contract pricing that approximate the current spot market and as such we have not seen any price concessions, nor do we expect to see any in the short term. We continue to see price increase in non-steel related components such as aluminum, rubber and plastic, and as you all know as that's -- our focus has been that we will continue to pass these raw material related pricing through. As with all prior calls Dick will discuss the operations side of the business, including the rebound of our retail branch business. Bob will follow with a review of the financials for the quarter.

Before moving on I'd like to update you further on the industry, the mid-market and further discussion on 2005. The truck trailer industry continued to grow in the first quarter for the first 2 months of 2005. Latest ACT data for trailers only and vans only production were both 21% higher than the same period in 2004. Wabash National's market share in the van segment continues to improve. We ended 2004 with approximately 28% share of the van trailer market. For the first 2 months of 2005 our share of the van trailer net orders was over 30%. For the forthcoming ACT March numbers Wabash National's net orders were 9,000 units, reflecting strong closures in our core business, as well as continuing mid-market success. Despite fleet concerns about equipment pricing, trailer only and van net orders for January were 32,826 units, for February were 26,400 units and 19,600 units respectively. For the first 2 months of 2005 trailer only and van trailer net orders were up 25% and 32% respectively year-over-year. We should see this activity decline somewhat over the next few months as the buying season tails off. We should however see higher year-over-year comps, both for the industry and especially for ourselves.

Quote and order activity continues to remain at strong rates. The first quarter we saw the remainder of our larger core fleets finally place their full year orders. We are currently booked at over 75% of our 2005 sales goal of 60,000 units. The American Trucking Association's truck tonnage index remained at a strong 115.7 in February. Year to date through February the truck tonnage index was 6 percentage points higher than the same period in 2004. Industry trailer only and van back box grew from approximately 6 months at year-end to approximately 7 months at the end of February. Our backlog has grown to approximately $500 million, which should help alleviate the choppiness of production that we saw in the first 2 months of this year. We're not seeing any cancellations of comps points at this time, nor any bogus slot positioning, as we are still running far under capacity.

The mid-market remains a key focus and continues to bring in new customers to Wabash National at an increasing rate. We are having success with all product lines and continue to see over half of these sales in DuraPlate. In the first we added over 140 new customers, already over half the total number of new customers added in 2004. Of these, 23 were designated within our mid-market focus group with orders exceeding 1,500 units. All channels are performing very well.

In 2004 we grew our van market share by 1% year-over-year, even with a reduction in core customer sales. Given our experience to date we expect strong share growth consistent with our forecast. We are no longer under the radar of our competition. DuraPlate is fast becoming the product of choice. We expect to see more composite competition over the next few years and the question is, what does this mean to Wabash National? First and foremost it validates the superiority of DuraPlate and the DuraPlate value proposition. Conversion to composite trailers will accelerate now in the industry. We will grow our position as the leader in both technology and reliability as evidenced by our recent announcement to extend our DuraPlate warranty to 10 years. Our competition will be hard pressed to match this, as their composite material will be manufactured offshore. Our experience in service with composite technology is far superior. As our competition is supplying their first units, we are working on our next quarter of a million. All said, this will be good for us and for the industry.

Looking at 2005 and beyond given the high quote interest and ordering patterns business should continue at a strong pace given a continuation of the current economic conditions. ACT's latest trailer forecast for 2005 is 270,000 units, a 15% improvement over 2004. For the vans only forecast of -- it's 196,000 units, or 14% improvement over 2004. This compares to our 2005 forecast of 244,000 total trailer and 178,000 vans. Given the breadth and the number of inquiries and the orders coming in over the first quarter, for once I may be a bit conservative in our forecast and the ACT numbers are starting to look a little bit more realistic to me.

For the second quarter we anticipate shipments in the range of 16,000 units. For the year we are forecasting new trailer sales of approximately 60,000 units verses 51,000 in 2004, or an 18% increase year-over-year. In addition, and including in the 60,000, we anticipate growth in our DuraPlate container business as we add more customers to this growing market segment. Our degree of success in the mid-market and possible future, or further participation by our core customers may positively affect this forecast. We are also continuing to improve our used trailer sales year-over-year with minimal margin loss as we bring in more fleet trades.

For 2006 through 2008 ACT's trailer only forecast averages 280,000 units. Van only forecasts average over 200,000 units during the same period. Wabash National's preliminary expectations are essentially in line with these estimates with the exception of 2007, which may be at a higher peak level. Bob will discuss in greater detail our first quarter results and add a little more detail on 2005 after some comments by Dick relative to operations. Dick?

Thanks Bill. It's once again my pleasure to take this opportunity to update everyone one the progress that the Wabash team continues to make within the operations of our business. We continue to perform well in the area of safety, with our total recordable incident rate for the first quarter running at a lever that is only 60% of the industry average for the SIC code that we're measured in. Even more impressive is the continued performance and our most important severity index days away from work case rate, where the team has not gone 10 consecutive months at a rate less than 1, representing a performance level at less than 20% of the industry for norm for our SIC code.

In the area of product quality, first half's yield performance for this past quarter finished at a respectable 92%, despite some very challenging product mix. Warranty claims have continued to decrease with this past quarter at the lowest level ever. Direct labor productivity continues at a very high level, but as William noted the first quarter did present some efficiency challenges as a result of short lead time orders causing build schedule shuffling, some challenging product mix and the ramp up of additional shifts to meet second quarter demand. We are now on a full shift -- full 2 shift operation across all lines. Much of the shuffling is mostly behind us and we're beginning to see some smoothing out of performance. Further productivity gains will be realized as a result of our next generation initiative that we announced earlier this past quarter. This initiative, which includes the replacement and upgrade of 4 distinct assembly lines over the next 3 years is now well under way, with phase 1 Elpoline [ph] project planned for complete implementation by year-end and as shared during the last call, each line is expected to yield us annualized savings of about $7 million.

Our product standardization efforts continue with the further rationalization of our product portfolio, eliminating certain low volume length, width and height combinations that created both cost and manufacturing inefficiencies. These changes will help to further streamline our manufacturing processes by simplifying the required tooling and fixturing, reducing the customer engineering demands-- the custom engineering demands and minimizing the variability in the manufacturing process. We expect minimal customer sales effect associated with this effort.

On a separate note I do want to share with you that Jerry Linzey, our Senior Vice President Manufacturing, has elected to leave Wabash National to pursue a very attractive career opportunity. As you know, Jerry has been instrumental in leading the introduction of lean manufacturing techniques into our manufacturing business and will be missed. However, the team remains strong and we will not miss a beat and continue to drive further improvements in our business. We've already identified an exceptional individual as a replacement, have extended an offer, received a favorable response and are working on a start date.

On our retail side I'm pleased to announce that Bruce Ewald [ph] joined the Wabash team this past month as Vice President and General Manager of our Wabash National Trailer Centers business. Carrying a great track record, Bruce joined us from Patkar [ph] were he served most recently as the Assistant General Manager of Sales and Marketing for Peterbuilt trucks, which included responsibility for all marketing and dealer development for this $3 billion business segment. We are extremely excited to have Bruce as part of the Wabash team and look forward to his positive impact on our branch business.

From a performance standpoint our branch business delivered nearly $600,000 of operating profit to our business during the first quarter, surpassing our internal expectations for the period. Looking ahead to the second quarter, while we do expect profitable results, we will feel some performance impact from the transitional branches that we are in the process of selling or closing. We expect to complete this restructuring effort this quarter. We're definitely focused in the right areas and will continue to drive improvements daily throughout the branch business.

In summary, despite some early challenges this past quarter was an extremely good one for the operations areas of our business. I look forward to continued progress in our branch business under the new leadership of Bruce Ewald and his team and look to our manufacturing team to continue delivering the good results that we have long become accustomed to. As always the credit must go to all our hard working dedicated associates who make it happen every day and I thank them for what they have done and what they will continue to do. I now turn the floor over to Bob Smith our Chief Financial Officer. Bob?

Thanks Dick. Good morning all. My pleasure to recap our results and financial condition as of the end of the first quarter. As William mentioned, sales were 256 million on 11,200 new units. Income in the quarter 18.5 million, or $0.52 cents a share on a fully diluted basis. I'm going to call out a couple of small items that impacted the quarter. Just for your information we had a $.5 million good guy coming out of workers comp and that's in cost of sales and in other income we had an expense of about $700,000 related to some dispositions of property.

As you recall our results are tax affected at 2% because of the NOL carry forward. The quarter benefited from a small recovery of previous NOLs. Equivalent shares were 37.9 million, which picks up the effective of options in our convertible notes. The information is laid out in the press release for you. Again, sales for the quarter 256 million on 11,200 units, this compares with 287 million on 13,700 units in the fourth quarter of last year and $222 million on again 11,200 units in the first quarter of '04.

By segment, manufacturing sales were 232 million units, 11,500 units. Retail and distribution sales $62 million, 1,500 new units. The elimination, the sales between manufacturing and retail of new trailers, $38 million, 1,800 units. While we look at revenues on a product line basis, new trailer revenues amounted to 225 million. We shipped eleven-two, we built twelve-six. In the fourth quarter we had sales of 257 million, we shipped 13,700 units and we built 12,300 units. A year ago sales were just over 191 million, 11,200 units and we built 11,100 units. As you can obviously see the average selling price in each of the comparative periods to the first quarter has gone up substantially to achieve the sales that we attained. Used trailers, we sold $13 million worth in the quarter on 1,300 units. In the fourth quarter we had done 12 million on 1,400 units and a year ago we did $13 million on 2,000 units. Again, the selling price of the units has gone up consistent with that that you see in the fourth-- in the new trailer business.

Trades continue to be tight and that's a constraint on our ability to move the revenue up on new trailers. The parts and service business had revenues of $14 million this quarter, which was approximately the same as we had in the year ago quarter and a little bit better than we had in the fourth quarter of last year. This is a relatively slow seasonal period for parts and service business.

Other revenues including our leasing businesses we're winding up remaining steady at about $4 million in each of the respective quarters. As William mentioned gross margins for the period were 13.4% and that compares to 10.1% that we had in the fourth quarter of last year. Looking at what changed, predominantly price. We increased selling prices over our cost of raw materials by approximately $11 million. This reflects the fact that the partners represented a relatively low percentage of sales, under 20% during the quarter. Also, we had a benefit of product mix that was in there, a slightly higher percentage of reefer business. We did benefit to a degree from raw material prices. We had purchased as you recall in advance of price increases towards the end of last year. That has helped us out and additionally the price increases from suppliers came through in a bit of a stair step fashion through the quarter and didn't hit us all right at the beginning of the year, of the opening of the year.

As Dick mentioned, labor and overhead suffered a little bit from the perspective that we had short leads in terms of our schedules and we were also adding shifts to the three lines to get those up for production that will be needed in the next quarter so the impact was selling prices offset the decrease in volume in the quarter and some inefficiencies in the manufacturing area. As Dick mentioned the branches provided a contribution of about $1.5 million and other odds and ends, again about $1.5 million, so that takes us to an up tick of $5.3 million from the fourth quarter and gave us the 13.4% margin for this period. Compared to a year ago the results are even more dramatic, but the causes are essentially the same.

When we look forward we expect to hit our volume target of 60,000 units for the full year and we'll see the distribution in terms of by quarter similar to that that we saw in the fourth quarter. Selling prices, as William said we're going to continue to push raw material prices through, but as partners become a larger part of the mix going forward this will have a moderating effect on the average selling price. Additionally, as we add production for freight pros [ph] and containers that will also have a moderating effect on selling prices.

I would like to reiterate that we haven't seen Wall Street Journal articles to the contrary. We haven't seen any abatement coming in from our vendors in terms of steel prices. The contract prices that our suppliers have are getting close to where the spot price is at the moment and we'll be talking to our suppliers to make sure the we get what we can as quickly as we can.

DuraPlate steel is tied to a scrap index and we expect to get a little relief from that in the next quarter, but it's a mixed bag. On the flip side, one of the strengthening agents we use in the cross members varo [ph] vanadium, is at a worldwide shortage and that's driving that price up. Tire availability and pricing is a constraint. Availability is tight and prices are increasing. We buy tires when we can get them, as quickly as we can get them. Supply chain performance remains very acceptable, although it hasn't really given us an opportunity to reduce our inventories at this point. As Dick mentioned, production improvements are expected, better lead times in the second quarter, more partner business coming through and we've got the second shift that were added pretty well lined out, so I think the expectation is for margins in Q2 to be in that 12.5% range, which is I think reasonably consistent with most of your models.

SG&A for the period is 13.0 million or approximately 5.2% of sales, compared to 14.1 million in Q4, or approximately 4.9% of sales, so we've made some progress. It's -- it was good on SG&A. It's probably a little lower than what we might see in the second or third quarter, but not appreciably so. Interest expense at 1.6 million represents essentially the borrowings, the interest payment on the notes. Foreign exchange was a small loss in the period of $140,000. Other, as I mentioned before, is the property dispositions.

Again, tax is at 2% this year. Again, we went into the year with $175 million of NOL. We're working our way through that. We expect to be in a position to revisit our reserve requirements in the second quarter and think that there is an opportunity reverse-- reserves related to taxes, related to 2006 and thereafter in that period.

Depreciation and amortization, $4 million in Q1. Should run about $17 million, down $17 million for the year, a little lower than what we've had in the last couple of years, but that reflects the minimal levels of spending we've been doing. Capital expenditures during the quarter amounted to $6 million. The bulk of it was software as we've gotten into our ERP project. Again, we expect our spending to be around $30 million for the full year. Normal maintenance requirements $6 to $7 million, the line automation that we're working on at $10 million and ERP around $12 million.

Head count ended up at 3,300 full-time associates and 1,000 temporary employees. This is up about 300 associates from the end of the year. The backlog ended at 500 million, up from the 280 at twelve thirty-one.

The balance sheet, just a couple of items I'll point out. We're still cash positive. We did have some investment in receivables as we came off the year-end low point. DSO is in 37 days, which is a pretty acceptable range. Inventories increased quite significantly, again coming off the seasonal low of $95 million. We're at $137 million as of March 31st. Inventory increases reflect several items, one of which would be the price increases we've talked about. We've also built our finished goods inventories up to about 3,600 units, which is about 1,500 units greater than we had at year-end. Work in process is up a bit and the used trailer inventories are up a bit also. I think those are the key points from the financial results and I'll turn it back over to William.

Thanks Bob. From a summary standpoint I couldn't think of a better summary than the one that I just said a few months ago, so since none of you people generally remember this I'll say it all over again. We continue to be bullish about our prospects over the extended period. We should see gradual industry and healthy share growth over the next 3 or 4 years. We continue to work all aspects of our business that we control; safety, quality, technology, cost and operational excellence. Given our recent success over the past 2 years and the future capital plans, we will be in an in enviable position to profitably grow our market share throughout the trailer industry cycle by creating value for our customers and investors alike. Our current challenge with raw material pricing will pass and I think that it's working its way off now. We have labored long hours to mitigate this issue and we're actually using it as I said as a catalyst to become a much stronger company and an industry leader. I will not open the session for questions. Operator?

[operator instruction]

Operator?

Yes sir.

Well it looks like you know we've had such good numbers here that people are speechless. If anyone has some questions Bob and I will be available throughout the day and tomorrow. We appreciate your indulgence here, I know there's a lot of conference calls going and we'll end it right now. Thank you very much.

Thank you, sir. This concludes today's conference. Thank you all for your participation.