Wabash National Corp (WNC) 2010 Q4 法說會逐字稿

Greetings and welcome to the Wabash National Corporation fourth-quarter and year-end 2010 financial results conference call and webcast.

(Operator Instructions)

It is now my pleasure to introduce your host, Dick Giromini, President and Chief Executive Officer. Thank you, Mr. Giromini. You may begin.

Thank you, Rob. Good morning, everyone. Before we begin, I would like to make an important announcement. As with all of these types of presentations, this morning's call contains certain forward-looking information, including statements about the Company's prospects, the industry outlook, backlog information, financial condition and other matters. As you know, actual results could differ materially from those projected in forward-looking statements. These statements should be viewed in light of the 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 fourth-quarter and full-year 2010 earnings call. I am Dick Giromini, Chief Executive Officer. In the conference room with me this morning is Mark Weber, our Chief Financial Officer. We do have much to cover today and we will try to provide as much information as possible. I will first comment on several key highlights for the quarter, discuss the broader operating environment and provide our expectations for the coming quarter and fiscal year. Then, I will ask Mark to provide a detailed description of our financial results. At the conclusion of the prepared portion of our presentation, we will open the call for questions from the listening audience.

So, with that, let's discuss this past quarter, and our 2010 results. We are pleased with the progress that we are making with the business, both in our financial results and in our Company's overall performance during the quarter and the year, which we feel has been an inflection point for the organization. Our financial performance improved sequentially each quarter during 2010, culminating in our operating results for the fourth quarter, which are our highest since 2007. Notably, we generated positive net income of $4.9 million in operating EBITDA of $10.8 million in the fourth quarter, which drove our full-year 2010 operating EBITDA to a positive $4.9 million. Moreover, gross profit margin rose to 7.2%, which represents a year-over-year improvement of 940 basis points. These results were driven by our continued efforts throughout the year to optimize our cost structure, improve operational efficiency, enhance our capital structure and position the business to meet higher demand levels as the industry recovered during the second half of the year.

Operating results for the fourth quarter 2010 reflected sequential improvement across almost all measurable areas and reached levels not experienced since 2007. During the quarter, we shipped 10,100 trailers, slightly exceeding the high end of our guidance, reflecting a healthier demand environment, and improved pickup performance by our customers during the quarter. Full-year new trailer shipments of 24,900, which were nearly double the level of 2009, combined with the backlog of approximately $480 million as of December 31st, 2010, reinforces that the recovery in our industry is now well underway, and that we are poised to capitalize on the continued improvement in demand. In fact, both FTR and ACT have recently increased their forecast for 2011 industry trailer volumes to 174,000 units and 191,000 units, respectively, representing an approximate increase of 30% to 60% over 2010 levels. It is evident we are in the upside of the cycle and headed in the right direction. After three years of below replacement level demand, we are now benefiting from our customers' needs to address their aging fleets.

At the business unit level, we are pleased with the way in which our Transportation Products Group responded to increasing volumes throughout 2010. The group effectively managed a rapid production ramp-up to support an annualized run rate of 35,000 units, adding second shifts to three lines, doubling the workforce and consolidating manufacturing activities in our Transcraft business, while still maintaining customer delivery schedules in industry-leading quality standards. The group's ability to do so further demonstrates the effectiveness of our Lafayette Transformation Initiative, started back in 2008. Significant strides in productivity improvements have been made at both our Lafayette and [Kadee's] operations, with more to be seen as the workforces continue to gain valuable experience.

Our DuraPlate Products Group made noteworthy progress throughout the quarter and the year, generating 2010 revenues of approximately $24 million, while contributing nicely to our operating performance. The business unit continues to gain traction in new markets and in expanding its customer base, which supports our Company's overall strategic objective of top-line growth, margin enhancement and business diversification. Of note, the DuraPlate AeroSkirt offering has been well-received in the marketplace, and has become the preferred choice by large number of fleets, both for OEM installation and after-market adoption.

In 2010, our retail and distribution business generated three consecutive quarters of positive operating income for the first time since 2006, increasing revenue across all product and service lines. We are pleased with their ongoing progress as they continue to pursue new, diversified growth opportunities, and support increasing new trailer sales. The group is poised to build on 2010 success, and is looking to deliver even more this year.

Before discussing our outlook for 2011, let me comment on some of the volatility we are seeing related to raw materials. When we examine both the current situation and the forecast trend for the raw materials used in the manufacturing of our products, it can most accurately be described as a moving target, at best. Throughout 2010, we saw repeated increases in tire pricing driven by natural rubber cost. For some tire manufacturers, availability was strained. In recent weeks, we have seen more upward pressure on tire pricing, along with increases in steel pricing and some moderate advance in aluminum, plastic and foam. Fortunately, through our quote system, many of these cost pressures had been forecast by us, and therefore are included in our recent quotes, so we do have a level of inflation coverage built into the backlog.

Additionally, as noted on previous calls, we have taken forward positions for aluminum needs for all orders received. That said, risk may develop if recent increases in raw materials were to run up further. We continue to monitor this closely adjusting our quoting models on a regular basis. And, as in the past, our pricing strategy for 2011 is focused on recovering all material cost increases as they are realized, wherever possible.

Now, let's discuss our outlook for the first quarter and full-year 2011 starting first with an overview of some of the key economic indicators that we monitor closely, that provide a broader context for our expectations. The Conference Board Leading Indicators Index rose in December to 112.4, following a 1.1% increase in November, and 0.4% increase in October. This represented a high for 2010 as the highest level in over five years. The ISM Manufacturing Index rose to 60.8 in January, recording the highest reading since May of 2004, and 18th consecutive month of growth. For the fourth quarter 2010, total industrial production increased in an annualized rate of 2.4%, and GDP advanced by a stronger 3.2% during the fourth quarter following the third quarter at 2.6%, and reflecting six consecutive quarters of growth.

And, despite continued weakness in housing and construction, strength in the manufacture and retail sectors have provided more than adequate impetus to drive new trailer purchase behavior. Even greater trailer needs will likely be generated, especially in dry and platform, once the lagging housing and construction sectors begin to recover and pick up steam later this year or next. Within the freight industry, FTR's December truck loading index, impacted by some difficult weather conditions, was down 0.1% month over month, while up 2.6% year over year. Looking forward, FTR now expects demand to push the index upward by greater than 4% annual rate for the next several quarters. The ATA truck index-- truck tonnage index for December registered a reading of 112.9, up 3.4% month over month, and 5.5% year over year. For 2010 overall, total tonnage was up 5.8% versus 2009.

Within the trailer segment, 2010 net trailer orders rose by 105% from 2009 levels to 166,470 units, leading to an industry backlog growth of over 46,000 units. And ACT has reported 2010 factory shipments of just under 120,000 units, up 52% year over year from the 79,000 total shipments for 2009. Similarly, FTR has now reported total trailer production for 2010 of 134,000 units, up 71% year over year from the 78,000 units produced in 2009.

From a regulatory standpoint, as promised, I will now provide updates on some key legislation that impacts the industry we serve. Again, the extent of this impact will become much clearer in the coming months, but could lead to increased trailer demand over time. The Federal Motor Carriers Safety Association's CSA 2010, or Comprehensive Safety Analysis Program, which measures carriers and their drivers on seven safety-related criteria, has continued on its implementation path as outlined last year. Carrier scores were made available for public access through the CSA 2010 website on December 13th. Enforcement actions have been targeted for implementation on a state-by-state basis beginning in June of this year, but most fleets are already anticipating the impact and have taken initial steps to solidify or improve their future score potential.

In December, a preliminary proposal for changes to the hours of service rule was released, with a final proposal due later this month. Still under consideration is a reduction in driver hours from 11 hours to 10 hours per day, as well as extending the restart requirement from 34 hours to as much as 48 hours. Industry estimates suggest that these changes, along with other language in the bill, could negatively impact carrier productivity by 5% to 7%. That would necessitate an increase in the number of tractor trailers on the roads to compensate, thereby exacerbating the congestion problem already existing in many areas. A final ruling on the hours of service proposal is expected no later than July 26th of this year.

And even more recently, last month, the Federal Motor Carrier Safety Administration issued a notice of proposed rule making to require the installation and use of electronic onboard recorders for over-the-road trucks and buses, which would be used to monitor and enforce hours of service rules. A final ruling on the proposed legislation is not due until June of 2012. In summary, the operating environment for motor carriers is likely to change dramatically over the next several years as proposed legislation moves through the process. We will continue to monitor these developments and keep you informed as changes are made.

Now, I will talk a little bit about our expectations for 2011. Again, we are now clearly in the upside of our cycle following three years of below replacement level demand for our industry, and gaining more and more traction. Industry forecasters are aligned in their belief that the demand will continue to increase quite rapidly through 2011 and 2012. The latest report from ACT estimates 2011 trailer shipments of 191,000 units, up 59% year over year, and 235,000 trailers in 2012, up 23% year over year. As well, FTR now estimates trailer production for 2011 at 174,000 trailers, an increase of 30% year over year, and 220,000 in 2012, an additional 26% increase year over year.

So, how does that all play out for Wabash National? As I mentioned previously, as of December 31st, 2010, we had a backlog of approximately $480 million. Quote and order levels remain high as we continue through the peak order season this quarter. Recognizing the early stage of recovery, along with a long duration of under-buy activity, we fully expect that the traditional buying season will be extended. It is clear that the demand we are currently seeing is not driven as much by the overall economy as it is other factors. With continued challenges in housing, high unemployment and tight credit availability, one would expect demand to be moderate at best. However, what we are realizing defies that logic. There are myriad other factors at work here.

Some of the more near-term demand drivers impacting carriers decisions today include the aged equipment. The overall age of fleet equipment is at an all-time high averaging in excess of eight years old, with our main staple, dry vans, at nearly 8.5 years, far exceeding any previous period. This will not be corrected in this year alone. This issue will require two years, three years or more years to correct as fleets play catch-up, thereby supporting the belief that this demand cycle will likely be longer if not higher than the previous. Secondly, the age profile itself of the equipment. Not only is the overall age of fleets at record highs, but the age of the equipment within these fleets is not evenly distributed. With in excess of 850,000 trailers built and sold during the years 1998 to 2000, followed by only 450,000 total trailers built and sold during 2001 to 2003, fleets are burdened with the disproportionate number of older, outdated equipment requiring increased maintenance and uptime challenges. This needs to be addressed.

And of course, the past three years of significant under buy has exacerbated this problem, with less than 350,000 total trailers produced and shipped during 2008 through 2010. There's a significant imbalance within most carriers' fleets. Then, on top of these age drivers, we must consider the potential influence of the so-called bonus depreciation tax treatment that was included as part of the 2010 Tax Act that was signed into law on December 17th, 2010, which provides for 100% write off of all eligible capital investment placed into service between September 8th, 2010 and December 31st, 2011.

Combine these factors with regulatory demands already imposed by CSA 2010 and potentially new hours of service rule changes that may reduce daily driver hours, and you've got a formula for even greater demand than what we are seeing today. If implemented as suggested, the new hours of service rules will lead to productivity losses estimated from 5% to 7%, resulting in the need for more trucks, a likely increase in drop and hook activity, and an incremental bump in trailer demand to support it. This is all without even mentioning California's often-referenced CARB legislation that is driving increased demand for aerodynamic devices, such as our DuraPlate Product Group's AeroSkirt, or longer-term drivers such as the potential for increase in the GVW restrictions from the current 80,000 pounds to 97,000 pounds that Congress is considering, and is supported by the ATA.

All that said, with the most recent added demand driver of the 100% bonus depreciation, we now see 2011 as a stronger year than what we may have previously believed. We now expect the total trailer product shipments for Wabash National to range between 38,000 units to 42,000 units for the full year, with 8,000 to 9,000 being shipped during the first quarter. Still, while volume certainly seems to be in our favor, some challenges still remain for the near term, most notably related to pricing and the aforementioned rising commodity costs. As we have consistently stated, we fully expect to recapture previously enjoyed margin levels over the course of this year and next, as overall demand gets to and settles at previous mid-cycle levels. That process is underway.

In summary, let me say again, we are very pleased with our progress in the fourth quarter and the year overall. I would like to thank our associates, suppliers and customers for their support throughout 2010, as we managed through a challenging start of the year and transition to ramp up operations to meet increase in customer demand. 2010 has definitely been a transition year for the business, and we are now reaching financial performance levels we haven't experienced since 2007. Going forward, the key to our continued success will be based upon volume, pricing and execution. As the recovery continues and demand strengthens, we are well-positioned to grow with the industry's leading carriers as they replace aged equipment in their fleets.

Additionally, we take pride in our ability to provide innovative solutions to support our customers' needs as they face an ever-changing operating environment. Finally, a key to our continued success is the ability to execute and leverage operational efficiencies gained during the downturn. I am confident that our team will capitalize on these improvements made over the past few years, which will enable us to enhance margins, thereby providing further support to our industry-leading product development and innovation initiatives. This success will also fuel our overall business diversification strategy, accelerating our penetration into new markets and higher margin opportunities.

With that, let me turn the call over to Mark.

Thanks, Dick, and good morning. As the 10-K will not be filed until later this month, I will try to provide some more detail on the numbers, focus my comments on the fourth quarter results and the progress made this year. In addition, I will discuss our outlook for volumes and other related factors for 2011. Let's begin.

Sales for the quarter were at the high end of our expectations, coming in at $242 million, including new trailer sales of $220 million on 10,100 new trailer units, which was just over the high end of our guidance of 8,000 to 10,000 units for the quarter, and represents a 49% increase from the third quarter. As you will recall, third-quarter trailer shipments of 6,800 were below the low end of our guidance of 7,000 to 8,000 units, and approximately 2,000 units below our production level that quarter. So, for the first time in 2010, fourth-quarter shipments matched and, ultimately, exceeded production levels during the quarter, reducing finished trailer inventory by over 800 units from September 30th. All told, 2010 showed consistent quarterly improvement and demand, resulting in full-year new trailer sales of $550 million on 24,900 new trailer units, or more than double 2009 revenue of $273 million. The ASP for Q4 was up slightly from Q3 by approximately $100 per trailer, coming in at $21,900 per unit. The increase in ASP is driven primarily by improved margins of smaller quantity orders captured later in the year.

Looking at the other revenue components, used trailer revenue was up slightly this quarter as compared to the prior year quarter, coming in at approximately $5 million on approximately 600 units. Used trailer revenues benefited from an improving demand environment as well as a better mix of late-model equipment. For the quarter, part service and other revenue was approximately $17 million, an improvement of $6 million from a year ago and flat with the third quarter. The improvement in parts and service revenue was equally split between our traditional parts and service revenue through our retail and distribution operations, which has benefited from a recovering industry and fleets upgrading equipment in some cases, to meet CSA 2010 standards, and from our strategic diversification efforts of our DuraPlate products. Revenue from DuraPlate Products Group is included in our manufacturing segment. For the quarter, DuraPlate-related product sales were approximately $5 million, and full-year 2010 revenues closed out at approximately $24 million. This represents a 250% improvement from 2009, and supports the strategic growth initiative originally outlined back in 2007 to achieve over $75 million in revenue from these products.

Let me quickly recap again the breakdown of our sales by major product category for the quarter. New trailer revenues was $220.2 million on 10,100 units, with an average ASP of $21,900. Used trailer revenue was $4.6 million on 600 units, and parts and service revenue was $16.8 million with DPG representing $4.9 million of that.

In terms of the operating results, the fourth-quarter continued the trend of sequential improvements in most areas, driven by the improvement in shipment and production volumes, which have increased steadily since the beginning of the year. Gross margin for the quarter was $17.3 million or 7.2%, and represents an improvement from the third quarter's 3.8%, due to increased shipments of approximately 3,300 new trailer sales. In addition, the fourth-quarter cost of goods sold benefited from the reversal of warranty reserves up $2.8 million, relating to expiring trailer warranties. Half of this benefit relates to the expiration of warranties associated with Transcraft trailers sold prior to our acquisition in March 2006, which are no longer under warranty coverage. The other half relates to our van/trailer business and really highlights the significant improvement in quality which we've been able to achieve from our lean manufacturing and process improvement initiative, that are just now being realized as we close out the five-year warranty cycle on our mid-2000 era production units. Excluding the benefit of this reversal, gross margins would still show a healthy improvement at approximately 6%.

During the quarter, material costs remained stable relative to the prior quarter. However, manufacturing material costs as a percent of selling price remained at historically high levels, but did turn down slightly during the quarter from 75.9% of sales in Q3, to 75.2% of sales in Q4 due to improved customer mix. If we divide the year in half, material margin in the second half of the year decreased by approximately 1.5 points from the first half of the year. However, material cost inflation experienced during 2010 ranged from 2% to 6%, depending on trailer model and customer specification. Our ability to pass along the majority of the cost increases this year, while at times challenging, has been critical to the performance demonstrated in the fourth quarter.

Also, as we have discussed in prior calls, the addition of three shifts resulting in significant head count ramp-up and our Transcraft consolidation activities primarily occurred during the second and third quarters. Entering the fourth quarter, we had a manned workforce in place to support production of approximately 35,000 units annually. While not at targeted levels in Q4, productivity did improve sequentially as head count remained stable and as their experience level improved. As a result, sequential incremental gross margin, excluding the warranty adjustment discussed previously, improved to 11.4%, and was higher than our expectation of the 8.8% achieved in the second quarter. Exceeding our shipment guidance was also obviously a significant factor.

So, fourth-quarter-generated, positive operating income for the first time since 2007 totaling $5.7 million. This reflects an improvement of $17.6 million from last year, and an improvement of $9.9 million over the third-quarter results. Such significant year-over-year improvement from an operating loss of $11.9 million to operating income of $5.7 million, highlights the overall market improvement in our industry and reflects production levels of approximately 9,200 units in the quarter, higher than last year's production by approximately 5,900 units.

SG&A for the quarter was approximately $11.6 million, and up slightly from prior quarters this year due to higher compensation costs associated with the increase in volume. However, at 4.8% of revenue, the fourth quarter represents the lowest level achieved since 2006, the peak of the last cycle. I will provide more commentary on the estimated 2011 run rate in a moment.

Net other expense of approximately $1 million, related primarily to the borrowings and financing costs under our revolving credit facility. In terms of taxes at December 31, we have a US Federal NOL period (inaudible) of approximately $180 million. However, we have a full valuation allowance recorded against our net deferred tax asset. The Federal NOL period (inaudible) begins to expire in 2022. Please refer to our 10-K, once available, for more details on the annual limitations for our NOLs. However, for 2011, we estimate approximately $72 million available to offset taxable income.

Finally, on the income statement, the fourth quarter saw the Company returned to positive net income and EPS of $4.9 million and $0.07 per share, respectively. On an adjusted EPS basis, excluding the trailer warranty benefits, the Company delivered $0.03 per share. When excluding the past impacts associated with the Company's warrant, which was issued in 2009 for the Lincolnshire, and fully-exercised in the third quarter of 2010, the fourth quarter represents the first positive net income and EPS quarter since 2007. It's been a long journey, but we are obviously pleased with the progress demonstrated in 2010 and with the Company's position as we enter 2011.

In regards to the balance sheet and cash flow statement, let me provide a little more detail and some specifics. Total inventory decreased approximately 18 million from September, primarily related to the increased shipment rate of finished trailers during the quarter. As of December 31, inventories of 111 million consists of the following. Raw materials of 28 million, work in process of 4 million, finished trailers of 70 million, parts of 5 million, and used trailers of 4 million.

In 2010, we continue to manage capital spending to only required maintenance projects and cost reduction initiatives, closing out the year with spending of approximately $1.8 million, and which was entirely offset by proceeds received from the sale of idle facilities resulting from our Transcraft consolidation efforts. Looking forward, we currently anticipate full-year 2011 spending to be approximately $5 million, required to support growth and improvement initiatives across our facilities. Our liquidity or cash plus available borrowings as of December 31, was $60.4 million, an improvement of $4 million from the third quarter.

Let me spend a few minutes now on 2011. As Dick discussed, the fourth quarter returned to a more traditionally strong order period, leading to a healthy backlog as of December 31 of $480 million. So far, the first quarter has also looked more typical as the quote and order activity has remained healthy. With industry forecasts now ranging between 174,000 and 191,000, and the improved quote and order activity in our industry, we currently expect 2011 new trailer volumes to be in the range of 38,000 to 42,000 units. More specifically, we expect first quarter shipments to be in the range of 8,000 to 9,000 units, with improving volumes throughout the remainder of the year.

At an annualized rate of approximately 40,000 trailers shipped, and a gross margin of 6% after adjusting for the warranty benefit, the fourth quarter highlights the significant price erosion that has occurred in our industry during the most recent downturn. As Dick and I have discussed in the past, we estimate that pricing, excluding the impact of raw materials, has deteriorated approximately 5% since 2007. While the first challenge is increasing prices enough to cover inflation that our industry is facing, we believe the backdrop from an overall industry demand perspective will begin to reach levels that allow industry margins to improve as well. However, this is likely just the beginning of what could be a two-year journey to return margins to a level that supports the ongoing innovation and premium product design that provides value to our customers.

One final item related to 2011 is the impact of our cost restoration programs. As discussed in prior quarters, the extensive austerity programs which were primarily implemented in early 2009 remained in effect throughout 2010. Our associates have been critical to the success of the Company and, as we feel the recovery in our industry is underway and the health of our Company has improved significantly, we now feel the need to begin the process of restoring some of the compensation and benefit programs reduced during the downturn. The most visible impact of this restoration will be seen in the selling and general administrative costs to the Company. As a result, including the impact of higher volume estimates and restoration, we currently expect 2011 quarterly SG&A to be in the range of $11 million to $12 million per quarter. Finally, as Dick discussed, we are pleased with the progress demonstrated in 2010 and the fourth quarter's results in particular. However, we are still in the early innings of our industry's recovery and remain focused on execution.

With that, I will turn the call back to the operator, and Dick and I will take any questions you may have. Thanks.

Thank you. We will now be conducting the question-and-answer session.

(Operator Instructions)

Thank you. Our first question is from the line of Brad Delco of Stephens Inc. Please go ahead with your question, sir.

Good morning, Dick. Morning, Mark.

Good morning.

Good morning, Brad.

Congratulations on the quarter. I have two questions. First, can you talk a little bit -- it seems like there are a lot of moving pieces with inflationary costs on the gross margin line. You talked about pricing. But the other moving piece, too, you have the Q3 lag on deliveries. How does that impact the fourth quarter, and how should we think about that gross margin line seasonally and sequentially going into 2011?

Yes, Brad. I think, certainly, we were able to pick up some of the trailers that didn't happen in Q3 in the fourth quarter, and recognize from a revenue and a gross margin -- the final sale of those trailers as they were shipped. So, it was a benefit to the higher revenue associated with that in the fourth quarter. You know, seasonally -- there is two components to the first quarter. Obviously, the order cycle is that Q4 and Q1 are historically the stronger order periods. We saw that in the fourth quarter. And, as I mentioned, the first quarter seems to be living up to kind of the same level of activity that you historically have expected in the first quarter. However, from a shipment perspective, seasonally, it's usually the weakest quarter out of the year. From an overall production standpoint, though, Q1 is going to look a lot like the production level we had in Q4.

So, there was -- you really didn't see a benefit in the margin in fourth quarter as a result of those finished goods being sold, in the fourth quarter versus the third?

There's two pieces. We recognize a portion of the benefit of the trailer when we produce them actually in the third quarter, because we got the liquidation of the overhead by producing them in Q3. But, the remaining gross margin associated with those trailers wasn't recognized until the fourth quarter, so we were able to pick up that benefit in Q4 from the additional draw down of inventory and shipment of those trailers.

Got you. Appreciate the color on that. The second question, it sounds like the guidance is for sales levels in excess of -- kind of what, you said you are running at a capacity standpoint of 35,000 a year. So, in the $5 million CapEx that you gave, does that include another line coming on some point in the year? And how should we think about the costs associated with that?

Brad, there's no capital required. The capacity that we refer to is just the staffing level that supports the 35,000. We have opportunities to increase line speeds and -- without adding shifts -- and we also have the ability to add additional shifts, but there's no capital required to do that.

So, is the Alpha Line still idle at this point?

Yes, it is, at this point in time.

Okay. All right, I'll pass that on to somebody else. Thanks, you guys, for your time.

Thanks, Brad.

Thank you. Our next question is coming from the line of Robert Wertheimer of Morgan Stanley. Please state your question.

I know you've touched on this briefly already, but I wanted to ask your sense of the industry pricing environment as -- the industry has obviously been on its back for a while. Materials are going up. Are people more willing to put through pricing? Are smaller competitors more willing to put through pricing? How does it feel versus other points in the cycles?

Yes. We are seeing some improvement. As Mark commented a few minutes ago, the market became so depressed and the trough was so low that margins took a significant hit during this past cycle, much more so than in previous cycles. So, everyone is starting from a lower base. And, as demand continues to improve, all competitors, including us, are gaining some confidence to be able to go out and start the recovery process of some of the lost margin during the downturn. So, it is starting, but it's going to take some time. As Mark stated, it is probably a one-year or two-year effort to get full recovery. And then, of course, recovering that against what's happened in commodities and making sure that we are getting all of that, too.

I definitely understand it takes time. I do. I am a little bit curious as to whether you are seeing anybody break ranks and really price low just given -- maybe they just need the volume or whatever. Whether it can be just a normal, healthy recovery of margins as the volumes come back?

Well, you are always going to get -- from one opportunity to another, you are always going to get somebody who has targeted that opportunity to try and get excessively aggressive, try and fill some their open capacity. But that activity has been going on for the last three years, so there is nothing new out there that people are going beyond that. If anything, it is generally improving from a pricing standpoint, but it's a slow march. Hopefully, that answers your question. It's just going to take some time, but it is moving in the right direction.

Rob, just to add to that, material costs is such a large percentage of the selling price. I think there's a pretty strong emphasis, certainly, with the inflation we've seen in the last several months, for folks to have to increase pricing at some level just to cover what we are seeing on commodities.

I get it. That's great. If I can sneak in one last one, are you assuming in your outlook share gain, or is that all industry volume? Share loss, I guess.

That's really just primarily industry volume at this point.

Perfect. I'll stop. Thank you.

Thank you.

Thank you. Our next question is from the line of Steve Dyer of Craig-Hallum. Please state your question.

Thank you, and congratulations on the good quarter, guys.

Thanks, Steve.

Just kind of picking up on the share question, it would appear -- just kind of been looking at your shipments relative to industry overall -- that you are gaining share, particularly in dry vans. Is that something you guys are seeing or are willing to comment on?

Well, certainly, when you look at what happened in this downturn, the significant portion of our business is dry vans and our effective market share got hurt dramatically during the downturn, especially in 2009 with drive and demand dropping in excess of 80%. So, certainly, we did recover a significant amount of share as a result of that, and driven by dry van demand. Based on preliminary numbers, when you look at what was reported by ACT versus our shipments, it would indicate that we were about 21% overall market share, and just north of 27% when you look at just van business. I'm talking dry van and reefer.

Okay. Reefer. That makes sense. How should we think about incremental margins going forward? And, I don't know if you're willing to kind of spitball a gross margin number for 2011, but how should we think about that as we end?

I think you got a good starting, Steve, with the fourth-quarter incremental margin. We've talked about the workforce. It's probably the best thing that's in our control. We picked up a little bit of productivity out of them in the fourth quarter, but there's a little more runway between that and the Transcraft consolidation. So, Q2 and Q3, we talked about that was about a 1% margin impact. We probably picked up maybe a quarter of that in Q4, and we are going to try to go after the remaining productivity piece of that throughout 2011.

You know, the rest of it kind of comes down to the question we talked about, which is the average selling price recoup of material inflation and returning additional price, on top of that to recoup the depression of the past three years. I think that is one that is still being played out and it's a little premature to comment on how much of that -- how much progress is going to be made on that this year.

Okay. And then, housekeeping question, Mark. Is 70 million a good share count to think about going forward, or is the 68 million -- is that a blended number, or is that kind of the number?

Yeah. The outstanding plus the unlisted, restricted stock at the end of the year was 68.3 million . I don't think that's a bad start.

Okay. I'll hop back in the queue. Thanks, guys.

Thank you. Our next question is from the line of Jeff Kauffman, Stern, Agee. Please state your question.

Thank you very much. Again, congratulations on a real strong fourth quarter.

Thanks, Jeff.

Let me ask you a question. Looking at the backlog and raw materials, Mark, some of the $480 million was put into place back in June, some in September, some in December. If you didn't look forward, and you just kind of took the prices on the units that you have in your backlog, how would we see the recapture of raw materials play out as we went through the backlog into 2011? Would it start lower and then higher? Would it be consistent all the way through?

Certainly, in our quote models, we've built in the fact that we think raw materials throughout the year are going to show some level of increase. So, if a customer is looking for equipment and it is all back-end loaded, so Q3 and Q4 is going to have, by design, a higher selling price associated with it. If it is evenly throughout the year, then it is going to be a blended average throughout the year that we priced it at.

Okay. I guess, coming at it differently, we were 75.9% revenue to raw material. We came down to 75.2%. Historically, that has been in the 68% to 74% range. How long do you think it takes to get back to the high end of that range, say the 74%?

I think that's something that, depending on -- it's a little bit of an art here -- but, depending on where raw materials go from here, we could be there this year.

Okay. Well, thank you very much, and congratulations.

Thanks, Jeff.

Thanks, Jeff.

Thank you. Our next question is from the line of Thom Albrecht with BB&T Capital Markets. Please state your question.

Hey, guys. It's been quite a last 16 months you've had, right? Hopefully, the next 16 are just as eventful, but more profitable. Just a couple housekeeping questions. On your material cost, what's the approximate breakdown between steel and aluminum? I mean, if you had to break those two down within that 75.2%.

I think it's a little bit difficult to do just because of the mix and the specifications by customer. In general, if you divide that 75% in half, half of it is generally component related. So, it's tires, it's suspensions, it's electrical lighting, wiring. The other half of it is generally some level of commodity, and that mix can vary quite a bit depending on what we are actually building.

Okay.

I think that's about as close as I can get you.

Obviously, flatbed trailer may have a lot more aluminum versus a van, et cetera. So, as I look at your production just kind of from a ballpark perspective, if I think about maybe 75% of the production is dry van, 20% reefers and 5% flat and dump, would that be in the ballpark?

Yeah, close. You are within a few percentage, I would think.

Okay. And then, Mark, on the 2% to 6% inflation comment you made relative to 2010, should I read into that that your expectations are that it would be the same or even higher?

Yeah. I think it's -- again, it's a spec issue, closer to base model. DuraPlate trailer was at the lower end and a refrigerated trailer was at the higher end of that spectrum. I think the biggest area we see inflation this year really is on tires and the rubber side of it, and then steel. Again, that could be in that 2% to 6% range, depending on spec.

Okay.

But, it could be tires as half of it, potentially, depending on where that goes.

And, am I correct in assuming that the Prime and Swift orders are now in the backlog, previously there was some delineation?

It's a little bit of a mixed bag, to the extent, they have scheduled some. It is in there, but there's the potential for more to be scheduled yet this year. We continue to have those discussions.

All right. It's just difficult for me to know how much backlog there was, because I think at the end of September it was [334 x those 470 width.] Do you have a little bit of kind of apples and apples, where we can better determine your backlog?

I think you've, obviously, got some benefit through the LTAs, but the majority of the benefit is new orders that were placed in the year. So, I think you can roll forward and back out the shipments and get pretty close on that. I think, we talked about those being a little bit of a carry over between years.

The activity that we saw in the fourth quarter, as Mark commented, quote and order activity has remained strong and consistent with the kind of activity we were seeing in the fourth quarter here in the first quarter. So, we continue to see good activity.

All right. And then, last couple things. Head count and then, did you say production 30,000 to 40,000 for the year?

Yeah. Headcount was -- full-time was 1,800 with temps of 1,200, so a total of 3,000 as of 12/31. And production is going to essentially match our shipment rate of that 38,000 to 42,000 range.

38,000 to 40,000, you said?

38,000 to 42,000 total units for the year. We will monitor the demand. And, we have a number of ways we can -- some overtime can help. We can increase wind speeds, and we can also add shifts, which would increase employment as we progress through the year.

Okay. That's helpful. And then, I'm sorry, I just thought of something. Mark, on your comment about pricing versus 2007 being down 5%, that's just kind of a price today versus then, but probably pricing needs to recover a little bit more because of the commodity inflation. Is that a correct reading of what you are trying to communicate?

Yes. The 5% is a margin ASP, excluding the impact that has happened of raw materials during that time period. So, yes, with the inflation that we've had and the inflation we are expecting in 2011, we need to recover that plus 5%.

Okay, guys. Keep up the good work. Thank you.

Thanks, Tom.

Thank you. Our next question is from the line of Kristine Kubacki with Avondale Partners. Please proceed with your question.

Good morning.

Hi, Kristine.

I was just wondering, on the backlog that you've been booking so far in January, and maybe how the conversations have changed, where are the orders being swatted by truckers? Is it being spread out through the year, or are truckers kind of making that delineation -- that I'm starting to need the trailer right now. And, do you think that increases as we move through 2011?

Well, there's no single approach that customers are using. In some cases, customers are asking for units right away to meet some needs that they have, but generally the majority of the builds are spread out throughout the course of the year. Especially the larger orders, which is typical for the customer base that we serve. So, we are getting a little bit of a mix. In some cases, they are asking, you know, can you get me these sooner rather than later, but for the most part it's spread out throughout the balance of the year.

Okay. That's helpful. And then, I guess, you talked a little bit about the Alpha Line not being up and running. What would you have to see, or what kinds of orders could you hope for, or when do you expect to get that line up and running? Could that have any positive impact in terms of operating leverage to you?

Yes. Once we feel that we have the right product and the right volume of that product to sustain that operation, then we will get that line up and running. We are, certainly, making preparations for that as we speak, with some of the orders that are rolling through. Once it is running at a full load rate, it is the lowest operating cost line that we have, so we do get some benefit from it. But, we are probably looking at more of a second quarter kind of timeframe for that line to be up and operational.

Can you just remind us, under normal operating conditions, what would be the volume maybe coming out of it versus the manual line?

It doesn't have the same line speed. It runs at a slower rate than the high-volume lines just because of the automation in the line and the size of the line. It, generally, runs at about half the line speed, but much less labor content involved. So, you do get -- the net affect is you get, it has better productivity on an hours-per-unit basis than the more manual lines, but the output of that line is about half of what you can get on a per-day basis through one of the high-volume lines.

Okay. That's helpful. And then, just my last question is, you mentioned availability of tires. Is there any other supply-chain issues that you are either already seeing or worried about in terms of tightness your components that could be coming up later this year, especially if material--as volume ramp in Q2 Q3?

Not at this point. We communicate regularly with all of our key suppliers on a monthly basis, conduct teleconferences with them to give them visibility to what demand looks like for us and what our needs will be. We have not experienced anything. In fact, the comment that I made earlier about some tire constraints in the latter part of last year seemed to be abated and now supply is not the issue, it's cost on tires. Because of the shortage of natural rubber. So, I think on the supply side we are in pretty good shape. I have not become aware of any significant shortage of any component or material.

That's good to hear. Thank you very much.

Thank you. Our next question is from the line of Stefan Mykytiuk of Pike Place Capital. Please state your question.

Hi. Good morning. A lot of questions, so I will try to keep it brief. Just in terms of, Mark, when you talked about the gross margin outlook and using Q4 as the proxy, can I surmise from that you are kind of saying that that 11% incremental margin is for now a pretty good proxy for what you'll do in 2011?

I think that's kind of a good floor, I guess, I'd start out as, on an overall basis. There is some improvement, as I talked about, on the labor front as the workforce becomes more seasoned. And then the other piece, which is continuing to play out as we go through the order season here, is really the margin aspect associated with pricing and raws. And, it's a little hard to tell, how much of a pickup or what raw materials do longer term as it relates to that component.

Okay. And, from a seasonal perspective though, the Q1 shipments will be down, so gross margins may be a little bit down there and then it builds through the year?

Yes. Two things. From a production standpoint, production should be relatively flat from fourth quarter to first quarter. So, from an overhead liquidation perspective, those are going to be fairly equivalent. The top line will be down from the 10,100 to our range of 8,000 to 9,000, so you have a little bit of top line and some gross margin associated with those trailers that won't be recognized in the first quarter. But then, building forward, we expect, similar to 2010, as the cycle continues to build, the potential to have increased production and shipments throughout the balance of the year.

Okay. Terrific. Thanks very much.

Thank you. Our next question is from the line of Jared Rosenstein of Woodhollow Capital. Please state your question.

Dick, Mark, congratulations. Fantastic quarter. My first question is just sort of on the industry landscape. Have you seen a shift at all in the truck to trailer ratio, potentially more drop-in hooks or in any conversations?

We haven't seen statistics to that effect, but we have had comments from different customers who have stated that that will be an outcome from productivity losses, as a result of either CSA 2010 or these potential hours of service changes that we will likely see increased drop-and-hook activity. So, it's more anecdotal at this point than anything that's been published or analyzed.

And I know you touched on this briefly, but I was hoping you could just provide a little clarity on the potential market share improvement. Just, sort of, as the dry van segment bounces back a little faster, maybe, than some of the other segments.

Yes. That is our strength. You know, basically, 75% to 80% of what we do is in that dry van sector. Last year's recovery was led by the truckload guys. And, we participate very heavily there. The LTL's weren't in the game for the most part, and they are starting to get in the game, so there is certainly some opportunity, and we play well there also. There's some opportunity to see some further improvement as they get back in the game. So, we feel good about it. We are not out there projecting any market share gains, specifically, but we feel that there is opportunity out there if we do our jobs right and deliver appropriately.

Okay. And then the last thing was, obviously, there's a few smaller competitors that have, potentially, had some pricing pressure. But, in terms of Great Dane, Utility, some of the larger guys, have they been relatively static as well?

As I stated earlier, everybody approaches each and every opportunity individually, and they make their own judgments on which ones are most important to them from a strategic standpoint. Whether it is to retain certain customers or a target, a conquest customers are going after. So, it's difficult to give you any one comment on that. We have seen it all over the map, depending on what the individual opportunity would be.

All right. Well, keep up the good work, guys. Thanks.

Thanks.

Thank you. Our last question is from the line of David Garrity of GVA Research. Please state your question.

Hi. Good morning and thanks for taking my question. Relative to the Alpha Line, you indicated that on a fully-loaded basis, there's a meaningful cost differential between units produced on the Alpha Line versus the your current high-volume manual line. Can you give us an idea as to how significant that difference might be, how much lower costs are the units on the Alpha Line?

I think what Dick was referring to was primarily just the labor component associated with that. It is a more capital-intensive line. There is a labor benefit associated with production on that line. I don't know that we have quantified that in the past externally, so I am kind of hesitant to provide that now.

I understand that this could be higher fixed costs, lower variable cost in nature, but, obviously, to what extent could this be a contributor to margin expansion in the second half of the year, as that ramps up?

Well, I think what it helps us do is put on another shift, if we head down that route here in the next quarter without the significant surge of labor that we saw during the second and third quarter of last year. So, it's a lot less noise, I guess I would say, to ramp up the next shift or two on that line versus the experience we had last year. So, it's helpful in that regard.

We will gain some leverage because we can add that alongside existing shifts. We are operating two shifts today on our lines. We can add two shifts on the Alpha Line without having to go to a third shift which brings that incremental fixed costs associated with it to operate a third shiftSo, it delays that challenge until later in the cycle when we would see even higher volumes.

Okay. One last question, which is on materials, obviously something that concerns people across the Q&A session. In the past, I know that you may have been burned by material cost hedges that you've entered into. But, given the fact that your financial position has improved, returned to profitability, would you give any reconsideration to the use of hedging now?

David, we do hedge on aluminum, which is really the only key commodity where we can do that. The difference in the practice now versus then is we wait until we get the order confirmed, and go out and lock it at that point in time. So, we are really matching the quoted cost of aluminum at the time we do the order with what the market price is, so that we just take that fluctuation of price out of the equation. So, we are doing that today.

Okay. Well, great quarter, and keep up the good work. Thanks.

Thanks, David.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Giromini for closing comments.

Thank you, Rob.

We remain committed to our long-term strategy, which we believe will continue to transform Wabash National into a stronger, more consistent, and more profitable business. Again, I'd like to express my thanks to our associates for their dedication and hard work during the fourth quarter and over the last two years. Those efforts are clearly paying off, and we are extremely excited about the prospects of our future. Thank you for your participation today. Mark and I look forward to speaking with all of you again on our next call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.