Wabash National Corp (WNC) 2014 Q1 法說會逐字稿

Welcome to the first-quarter earnings call. My name is Yolanda and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

I'll now turn the call over to Dick Giromini, President and CEO. Mr. Giromini, you may begin.

Thank you, Yolanda. Good morning. Welcome to the Wabash National 2014 first-quarter earnings call.

This is Dick Giromini, President and Chief Executive Officer. Joining me today is Jeff Taylor, Senior Vice President and Chief Financial Officer.

Following this introduction, I'll provide highlights for the first quarter, followed by a look at the current operating environment and our outlook for remainder of the year. Afterwards, Jeff will provide an overview of our financial results. At the conclusion of our prepared remarks, we will open the call for questions from the listening audience.

Before we begin, I would like to cover two items. First, as with all of these types of presentations, this mornings 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. Second, please note that this call is being recorded.

Let me start by saying we're pleased with the ongoing progress we continue to make with the business and the execution of our strategic plan. Importantly, we maintained the momentum generated in 2013. We achieved all-time records for any first-quarter in our history in both revenue and gross profit, as we benefited from historically strong and more balanced top-line and bottom-line results across our three segments. These results demonstrate and validate the transformative nature of our strategic growth and diversification initiatives. Perhaps even more impressive, we executed well despite considerable industry-wide disruptions caused by severe weather conditions resulting in lost production days, shipment delays, and higher operating costs.

Despite these headwinds trailer shipments for the quarter exceeded 9900 units, coming in at the high end of our previous guidance of 9000 to 10,000 units, achieved through strong March shipments as weather-related challenges for our customers began to abate. First-quarter build levels totaled approximately 12,900, exceeding projections by nearly 2000 units, driven by solid operational execution along with strong customer demand, particularly within our van operations here in Lafayette, Indiana.

Net sales for the quarter were in all-time first-quarter record $358 million, representing a $34 million or 10% increase compared to first-quarter of 2013. In addition, adjusted earnings for the quarter increased by more than $2 million year over year. Operating EBITDA, which we believe is a more appropriate metric to highlight the Company's progress, increased by 13%, or $3.5 million, to $30.6 million in the first quarter, which is reflective of strong performance from all three segments and improved balance across the enterprise.

Consolidated gross profit of $46.7 million also set a record for a first-quarter, exceeding first-quarter of 2013 by $4.5 million, while gross margin remained consistent in year-over-year comparisons at 13.0% for the quarter. Sequentially, gross margin increased 150 basis points over the fourth quarter of 2013, primarily driven by a shift in segment mix, with a higher margin diversified product segment representing a larger percentage of the overall company.

Operating income for the first quarter was $19.5 million, representing a $4.6 million or 31% increase year-over-year, largely driven by significant improvement in the commercial trailer product segment, partially offset by a slight decline in diversified products. Overall, despite the winter weather headwinds, we had a very good first-quarter with strong trailer shipments, builds, and revenue which translated into improved profitability and strong operating EBITDA. It represented the second-best first-quarter operating income performance ever, providing a solid foundation to build upon as we move through the second quarter with seasonally stronger trailer volumes to leverage.

Quote and order activity remained strong throughout the quarter, and in line with seasonal demand trends. Backlog further increased during the quarter, reaching $791 million, the highest level since 2000 and representing greater than six months of production at a consolidated level.

Looking forward, we see a continuance of a strong and solid demand environment supporting pricing stability and some growth. Key drivers such as improving freight demand supporting carrier efforts to increase rates and improve profitability, excessive fleet age, regulatory compliance requirements, along with increased residual value of used trailers and improved access to financing all support continued strong demand for new trailers. As you'll hear the moment, this sentiment is supported by strengthening forecasts from both ACT and FTR.

With that, let's shift focus to some highlights from each of our reporting segments, and Jeff will follow with additional details regarding financial performance. We'll start with the commercial trailer product segment consisting of our dry and refrigerated van products, platform trailers, and fleet trade used trailer sales. This segment continues to perform well in executing its optimization strategy, with an ongoing commitment to margin improvement, manufacturing excellence, and leadership in product innovation.

Gross margins increased by 70 basis points year over year on net sales of $227 million. This improvement was driven by the team's continued execution of a pricing strategy committed to favoring margin over volume, as well as improved productivity overcoming the previously discussed severe weather disruptions. I stated in prior calls, we continue to focus on achieving double-digit gross margins in least one quarter of over the next 1 to 2 years, while working to make that a sustainable objective longer-term. We expect trailer demand to remain strong in 2014, with both industry forecasters expecting total demand significantly above replacement levels and stronger than 2013.

Commercial trailer products continues to capitalize on new growth opportunities with the recent agreement to produce drive-ins, reefers, and platform trailers for Mezz trailers, a distributor based in Western Australia. While the Australian trailer market is relatively small, with roughly 10,000 to 12,000 units annually, we believe that our low cost footprint and capability provide a competitive advantage for this market that could contribute to incremental margin growth for the segment.

By leveraging Wabash National's product innovation leadership, our ability to help fleets reduce their total cost of ownership and our proven success in developing products to meet the most challenging needs, we believe that we are well-positioned to have success in a market that has historically been difficult for foreign manufacturers. While recently in Melbourne to speak at the Global Truck and Trailer Leader Summit, I received very positive feedback about Wabash entering the Australian market that validated our assumptions about the market's potential for us and the technological advantages of Wabash National's product offerings.

Moving on to the diversified product segment, which includes the Walker Group, Wabash Composites and Wabash Wood Products. This segment delivered a solid first-quarter, with net sales of $120 million representing an increase of $8 million over the prior-year period. Overall the segment experienced solid quote activity, pointing to healthy demand levels in most of the markets served, including the primary markets of liquid tank trailers and composite products.

While the largest part of the Walker Group business is liquid transportation, storage, and containment products, we should not overlook the engineered products portion of the business, which serves the pharmaceutical, bio and life science, and food industries. In July of 2013, we announced our initial order for mobile clean rooms, which provide customers with mobile and flexible manufacturing space. I'm pleased to report that Walker Barrier Systems recently completed delivery of all eight mobile clean rooms for use in the development and production of vaccines and therapeutics for clinical trials. Small in number but large in value, we look for this product line to grow in use and popularity in the years ahead.

In addition, our Garsite aviation refueler business continues to extend its leadership position in the market, as Atlantic Aviation recently selected Garsite to replace 20% of their existing refueler fleet. Again, not huge volume in this market but significant to this business.

Our Wabash Composites business continues to focus on providing innovative solutions that solve customers' unmet needs, particularly in aerodynamic product development, as fleets realize the fuel economy benefits in their operations. Earlier this year, the team signed an agreement with Con-way Freight to install DuraPlate AeroSkirts on nearly 16,000 units in the company's less-than-truckload fleet. As aftermarket demand for DuraPlate AeroSkirt sales continues to grow, and with additional new product innovations planned to be released later in the year, we expect this business to continue to generate nice year-over-year growth for the foreseeable future.

On the downside, our Wabash Wood Products business came in far short of internal expectations, as escalating material cost during the past year caught up with them, impacting performance by approximately $1.5 million during the quarter. With the slowing in the year-over-year growth rate in the housing sector, it appears the pace of wood price increases has moderated and some idle capacity has recently come back online. As normal with all material cost increases, we systematically adjust our costing models to reflect new and projected material cost, but in this case we're faced with the normal cost recovery lag tied to the long procurement and processing lead times related to this particular input.

Not specific to Wabash, as all suppliers and users of wood flooring have been impacted. Pricing recovery efforts are underway, supported by a strong demand environment that will provide support to these efforts. That said, we will feel some impact within the wood flooring business for the next two or three quarters.

Finally, our retail segment showed a nice year-over-year improvement in revenue and profitability. Net sales of approximately $46 million represent a $5 million increase year-over-year, primarily due to the higher new-and-used trailer sales, partially offset by lower parts and service revenue. Gross margin dollars rose in the quarter to a strong $5.4 million, while gross margin percent was essentially flat at 11.8%. Looking forward, we expect this business to continue to improve longer-term, as we focus on expanding the tank repair and services business to provide greater access to our customers, increasing the number of legacy Wabash National Trailer Center sites that are certified to perform tank repair service, expanding our mobile service fleet, and increasing the number of customer site service locations.

Before I discuss Wabash National's specific expectations for the second quarter and full year of 2014, let me comment on a few key economic indicators and industry dynamics that we monitor closely to provide broader context for all our expectations. As we all know, economic activity slowed in the winter months, as poor weather conditions were in part responsible for declines in key macroeconomic indicators in January, including manufacturing activity, industrial production, retail sales, home construction, as well as job creation. However, most macroeconomic indicators returned to positive territory by the end of the quarter. Analysts now expect both the housing sector and labor market to improve somewhat over the course of 2014, with GDP now projected to increase 2.7% in 2014 and 3% in 2015.

Although the general economy continues to reflect modest growth rates, key indicators and forecasts within the trucking industry reflect growing confidence in demand strength and longevity. ATA's truck tonnage index increased 0.6% in March to 127.3 after rising 1.9% in February. The index was impacted by severe weather in the first two months of 2014 after reaching record levels at the end of last year, yet the overall trend remains positive. The index was 3.1% higher than the same month last year, and 2.3% higher year-to-date.

In catching up to and now even exceeding our own earlier internal projections of 5% to 7% year-over-year demand growth, the latest report from ACT now forecasts 2014 trailer shipments at 256,000 units, up 7.4% year-over-year, and 259,000 trailers in 2015, up another 1.2% sequentially. With the belief that potential legislation to permit 33 foot doubles is gaining support and would drive even stronger demand in the 2016 to 2019 timeframe.

FTR has also adjusted its projections upward. Now forecasting 248,500 trailers to be produced for 2014, an increase of 5.8% year-over-year and projecting 237,000 units to be produced in 2015. According to FTR, the class A active truck utilization rate was at 99% in the first quarter this year, equaling the historic high from 2004 with expectations that active truck utilization will continue to average 99% throughout both 2014 and 2015, resulting in a very tight market supporting significant rate increases for carriers.

Recent press reports indicate that the largest LTL carriers occluding FedEx, YRC Freight, ABF, et cetera, have already announced rate increases for the year. Multiple channel checks and direct discussions for fleet customers support this, as carriers are becoming more vocal and confident in their ability and intentions to seek rate increases going forward.

From a regulatory standpoint, the Federal Motor Carrier Safety Administration released a proposal on March 13 that would require all interstate truck operators to install and operate electronic logging devices, or ELDs, in each vehicle within two years after the final rule is published. If implemented as currently written, it's believed by many that the rule could contribute to even further tightening of industry capacity, as smaller, private fleets struggle to meet the cumulative cost and compliance challenges of recent legislation, including CSA, hours of service, [carve] and now ELDs, potentially leading to increase failures and further consolidation.

From an hours of service standpoint, publicly traded carriers continue to report productivity losses of between 2% and 3%, as well as subsequent adverse impacts to operating revenues as a result of the rule. As we have stated in previous calls, these productivity losses may lead to increased demand for additional drivers and equipment to fill the gap. So, the combination of a slowly strengthening economy, solid truck tonnage, an improving rate environment, and increasing regulatory impact on fleet productivity all support the potential for increased trailer demand overall for our industry.

Now let me share Wabash National's expectations for 2014 and the second quarter. We believe overall demand for trailers will remain solid and significantly above replacement levels in 2014, consistent with ACT and FTR projections, as key drivers all remain positive. Fleet age, customer profitability, used trailer values, regulatory compliance, and access to financing all support the continued strong longer-term demand environment.

Historically, the first quarter seasonal is a seasonally light quarter, with trailer shipments picking up in the following three quarters of the year. Total shipments of nearly 10,000 units were consistent with our previous guidance, and based on the strength of production and inventory build levels during the quarter, along with backlog growth and winter behind us all, we are clearly well-positioned as we progress through the second quarter to realize a strong quarter of customer shipments. As a result we expect second quarter consolidated shipments to be between 13,500 and 14,500 units, with total build levels for the quarter within the same range.

As stated, we continued to see strong quote and order activity during the first quarter, consistent with our growing backlog, which is continued into April as well. Additionally, with the recent stronger demand projections from both ACT and FTR for the current year that are now more in line with our own previously shared views, we're even more comfortable with our internal projections that full-year industry shipments will exceed those experienced in 2013. With a continued commitment to favor margin over volume, we reiterate our expectations for full year shipments of 47,000 to 50,000 units.

In summary, we're obviously pleased to have delivered a solid quarter, overcoming a harsh winter environment that impacted all within our industry, and continue our momentum from our record-setting year in 2013. Progress continues to be made throughout all businesses. Some new records were accomplished, but as always much opportunity remains. So let me reiterate, we still need to break the code to leveling out the current seasonality in numerous parts of our business that cause concern for external stakeholders and operational inefficiencies for those within. Those efforts continue.

We need to further improve gross margins in our commercial trailer products business and find more attractive higher margin growth opportunities to drive its top line. Those efforts continue and are bearing fruit. We need to accelerate the top line growth rate of our diversified products business to leverage the attractive margins inherent within its offerings. Again, well underway with new product offerings and new markets. And, we need to leverage the higher margin tank parts and services opportunities for growth of our retail segment. Same here; underway.

So, while much has been done, plenty of work remains. We'll continue to look at opportunities to strategically but selectively grow our business in addition to the organic growth initiatives already underway. We will continue to be responsible stewards of the business to ensure that the proper balance between risk and reward is considered in all decisions. We have proven our ability to not only acquire business with the size and complexity of Walker, but to seamlessly absorb it and deliver results that exceed anything done previously.

We now are far more diverse, with a broad portfolio of products and end markets that provide stability and opportunities for growth. This certainly is not the Wabash National of yesterday and should not be viewed as such. Historical comparisons are becoming less and less meaningful as each day passes. It's truly a new Wabash National in structure, in performance, and in execution. We'll continue to manage for the long-term to build value and sustainability.

So in closing, we continue to be well-positioned this year to deliver another year of top-line and bottom-line growth, with a strong and growing backlog, a demand environment that's solid and gaining momentum, and a number of new products nearing launch. With that, I'll turn the call over to Jeff Taylor, Chief Financial Officer, to provide more detail around the numbers.

Jeff?

Thanks, Dick, and good morning.

In addition to the press release, we filed a 10-Q after the market closed yesterday, so I plan to hit the highlights. With that, let's get started.

As Dick mentioned, consolidated revenue for the quarter was $358 million, an increase of $34 million or 10% compared to the first quarter of last year, a new record for revenue in the first quarter. Total new trailer shipments were 9900 units, at the top end of our guidance range for the quarter, and 1300 units higher year-over-year. Sequentially, consolidated revenue decreased $100 million, or approximately 22%, primarily due to a decrease in new trailer shipments to 4,300 units versus a seasonally strong fourth quarter.

Commercial trailer products net sales were $227 million, which represents a $29 million or 15% increase on a year-over-year basis, due to the higher new trailer shipments of approximately 1200 units. Average new trailer selling prices decreased approximately $600 per unit to $23,200, primarily resulting from the customer mix, similar to the fourth quarter, skewed toward large fleet customers with lower spec and lower priced trailers, as well as a product mix biased towards lower-priced products such as dry vans, LTL trailers, and converter dollies. Sequentially, we did experience a slight improvement in mix and pricing with ASP increasing $400 per unit.

Diversified products net sales increased 7%, or $8 million, on a year-over-year basis to $120 million as result of strong market demand from all businesses within this segment: Walker Group, Wabash Composites and Wabash Wood Products. Walker Group revenue was higher primarily due to new trailer shipments increasing by approximately 200 units, partially offset by lower sales of non-trailer truck mounted equipment, while Wabash Composites' revenue was up year-over-year as result of strong truck body demand in the first quarter. Wabash Wood Products improved on a year-over-year basis as a result of increased wood requirements from higher demand for new trailers and commercial trailer products. On a sequential basis diversified products net sales declined less than 2% from the previous quarter, due to lower sales for engineered products, partially offset by the increase in Wabash Composites.

The Retail segment increased approximately $5 million, or 12%, compared to the same period last year on higher sales of new trailers by approximately 200 units, as well as higher used trailer sales and continued strong demand for parts and service. Sequentially, net sales for retail decreased less than $1 million, or 2%, driven primarily by a sales mix of lower percentage of refrigerated trailers, which have a higher average selling price.

Looking at our various product lines, new trailer sales of $268 million, or 9900 hundred units, increased $33 million, or 14% year-over-year, including approximately 800 liquid tank trailers in our diversified product segment. This year-over-year increase is due to strong demand for new trailers across all business segments. Used trailer revenue was approximately $16 million on 2100 units, an increase of approximately $7 million from the same quarter a year ago as a result of increased fleet trades within commercial trailer products.

Components parts and service revenue was approximately $42 million in the quarter, essentially flat from a year ago with stronger demand for composite products, as well as parts and service through our retail locations, offset by a decline in commercial trailer products, non-trailer transportation equipment sales. Finally, equipment and other revenue on a year-over-year basis decreased by $7 million to $32 million for the quarter. This decrease was primarily driven by lower sales from the non-trailer truck-mounted equipment within diversified products.

In terms of operating results, consolidated gross profit for the quarter was $46.7 million or 13.0% of sales, compared to $42.2 million in the same period last year. This represents a $4.5 million increase, or 11% year-over-year. Commercial trailer products was the primary driver of the gross profit increase, with retail also making a positive contribution, partially offset by a slight decrease in diversified products.

With that, let's look at the segments in more detail. Commercial trailer products gross margin improved 70 basis points over last year, resulting in a 28% increase in gross profit or $3.3 million. Sequentially, gross profit decreased $6 million on seasonally lower trailer volume. However, gross margin increased slightly by 10 basis points. Production during the quarter was 12,100 units, up by approximately 1200 units sequentially, as production ramps up in the first half of the year consistent with seasonal expectations. On the year-over-year basis, production was up 2500 units due to strong demand in the current period compared to weaker demand in the prior-year period.

Diversified products gross profit and gross margin decreased $0.5 million and 200 basis points, respectively, compared to the prior year period, due to higher wood cost in Wabash Wood Products, partially offset by higher Walker Group new trailer shipments and increased Wabash Composites demand. Sequentially, gross profit was down $0.7 million due to higher wood costs, as well as lower volumes in Walker engineered products, partially offset by stronger new trailer shipments and Wabash Composites demand.

Lastly, the retail segment's gross profit in the quarter increased $0.5 million, or 10% year-over-year, due to increased new and used trailer sales, as well as continued strength in parts and service. Sequentially, gross margin increased $0.9 million, or 210 basis points primarily due to increased parts and service revenue.

On a consolidated basis, the Company generated operating income of $19.5 million in the quarter, an increase of $4.6 million, or 31% year-over-year, with solid contributions from all three operating segments. At 5.4% of sales, operating margin was approximately 80 basis points higher than the prior year quarter. Sequentially, operating income was lower by $4.6 million, primarily driven by lower shipments of new trailers in the commercial trailer products segment due to normal seasonality and the severe weather conditions, particularly in January and February.

Operating EBITDA for the first quarter was $30.6 million, a year-over-year quarterly increase of $3.5 million, or 12.8%, resulting from the strong first quarter performance from all business segments. Sequentially, operating EBITDA decreased by $5 million on lower new trailer sales. On a trailing 12 month basis, revenue was $1.7 billion, with operating EBITDA [rated on] $153 million, or 9.2% of revenue.

SG&A excluding amortization for the quarter was $21.7 million, an increase of $0.4 million, or 2%, over the first quarter of last year. The year-over-year increase is primarily attributable to higher employee related costs, slightly offset by reduced depreciation. Sequentially, SG&A expense for the quarter decreased by $1.3 million. However, SG&A expense as a percent of revenue increased to 6.1% on lower net sales for the quarter. We expect SG&A as a percentage of revenue to be lower in subsequent quarters as revenue ramps up consistent with our trailer guidance, with a target of approximately 5.5% for the full year.

Intangible amortization for the quarter was $5.5 million, essentially flat with the prior quarter, and $0.1 million higher compared the prior year period. The intangible amortization in the current quarter is consistent with our guidance provided last quarter, and is expected to continue at this level for the remainder of 2014.

Interest expense consists primarily of borrowing costs totaling approximately $5.7 million, a year-over-year decrease of $1.8 million primarily related to repricing of the term loan in May of 2013, and the $60 million in voluntary term loan prepayments we made in 2013. Approximately $1.5 million of our reported interest expense is non-cash and primarily relates to the accretion charges associated with the convertible notes. Similar to last year, we did not make a voluntary prepayment on the term loan in the first quarter since we generally use cash during the first half of the year with the typical seasonal ramp-up in production. As a result, the outstanding balance of the term loan is approximately $234 million at the end of the first quarter.

We recognized income tax expense of $6.5 million in the first quarter, including a $1 million charge resulting from the revaluation of our deferred tax assets due to a decrease in state income tax rates. The effective tax rate for the quarter was 47.1%. However, we now expect the effective tax rate to be approximately 39.5% going forward.

On March 31, 2014, we have an estimated $36 million of remaining US federal income tax net operating loss carry-forwards, which begin to expire in 2029 if unused, and we currently estimate that all of our US federal NOLs are available for utilization during 2014, subject to pretax earnings. As a result, the company does anticipate cash taxes to increase significantly upon utilization of the remaining NOLs.

Finally, for the quarter net income was $7.3 million, or $0.10 per diluted share. On a non-GAAP adjusted basis and after adjusting for the changes to our statutory tax rates and the corresponding impact for revaluing our deferred tax assets, net income was $8.3 million, or $0.12 per diluted share. In comparison, the non-GAAP adjusted earnings for the first quarter of 2013 were $6.1 million or $0.09 per diluted share, which excluded $0.6 million of nonrecurring charges related to the Walker acquisition and the purchase of Beall Assets.

With that, let's move to the balance sheet and liquidity. Net working capital increased during the current quarter by $57 million as we ramped up production in the first quarter, consistent with our seasonal expectations. We expect net working capital to be relatively stable during the second quarter. Capital spending was approximately $2.1 million for the quarter, and we anticipate full-year 2014 capital spending to be approximately $20 million, consistent with our previous guidance.

Liquidity in cash plus available borrowings as of March 31 was approximately $206 million, a decrease of approximately $48 million from the year end as a result of higher working capital needs, primarily finished goods inventory as we ramped up production. Our pro forma total and net debt leverage were 2.6 times and 2.2 times, respectively. In addition, our senior secured leverage ratio under the term loan credit agreement was 1.2 times, significantly below the current covenant requirement of 4.0 times or less.

With that, let me wrap up with some overall financial highlights. The company performed very well during a difficult environment and deliver against our expectations for the quarter. All business segments posted solid revenue numbers, with consolidated gross margin at a respectable 13.0%. Additionally, the company performance improved during each subsequent month during the quarter and we entered the second quarter with a very good momentum.

The balance sheet remains strong, and we are well-positioned to maintain our velocity in the second quarter. We finished the quarter with approximately $66 million of cash and the ABL revolver remains untapped. Our leverage ratios and debt covenants remain in comfortable territory, particularly considering our position in the current cycle and the long-term outlook for trailer demand. Lastly, we have no significant debt maturities until 2018, and we expect a lower effective tax rate going forward, as previously discussed.

Thank you, and I will now turn the call back to Yolanda, and we will take any questions that you have.

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

(Operator Instructions)

Brad Delco.

Hi guys, it's actually Ben on for Brad. So maybe, first looking at the guidance. You guided 2Q ahead of our expectations but left full-year in place, which implies that 2H guidance is down 8%. Can you give us some more color on the conservatism on the full year guide?

Sure. We were probably a little bit out ahead of everyone else in our projections initially. When you look at where ACT was earlier in the year, they have subsequently increased in two consecutive months what their projections are for the year, so now they're a little bit ahead of us. We're in that 5% to 7% projection on year-over-year growth, specifically in our commercial trailer products business, which is the bulk of the unit volume. And, they were at about 1% to 2%, about 1.5% initially, now they're in north of 7%.

So, we're in a wait-and-see attitude, I guess you could say, at this juncture to ensure that the quote activity continues consistent, that the order conversion rates continue, and then our focus and commitment to favor margin over volume is playing into what you may view as conservative on not increasing the range, but we feel it's prudent at this point. We're probably leaning more toward the high end of that than we are the middle. We will take another look at it as we progress through the quarter, and we will make a determination of whether to increase.

Obviously, we are well-positioned to take advantage of the market and of the opportunities out there, but it has to be at the kind of pricing that we believe we need and expect to continue to drive the margin improvement in the commercial trailer products business.

Got it, okay. Thanks for the color.

Looking at gross margins in the commercial trailer products business, historically or at least over the last couple of years, you've seen a 200 basis point improvement sequentially in 2Q, and, given a strong delivery guide, is there any reason why we wouldn't see a similar margin increase this 2Q?

Yes, Dan, this is Jeff.

I think you're right. Historically, you do see the margin increase in 2Q and towards the middle of the year, when you see the indirect channel come more into the overall picture.

Obviously, in 4Q and Q1 we've talked about the mix and how it's got a significant portion of that servicing the large fleets, and we saw that this quarter. We do expect that the margin will improve as we move into Q2, and we're currently seeing more of the indirect channel come in. I'm not going to provide guidance as to what the magnitude of that is going to be, but we certainly do expect to see improvement sequentially there.

Yes. Let me just add to that, Ben.

As we progress through the second quarter, one of the things that's always misunderstood in our business is the timing event of when these improvements flow through. First-quarter shipments, in many respects, reflect fourth-quarter builds as there's the lag effect on pickups. And, as you progress through the second quarter, that improves because you're now building product that's priced for the 2014 builds and you progress into third quarter and you get even further benefit of it with the continued improving weather and all.

So, we do expect continued improvement in the quarter over quarter, and then of course on a year over year as the pricing environment has become much more stable and much more able to continue to push price through. So, we do expect to see continued improvement.

Okay. Thanks.

And then one last one. Can you maybe give us a little more color on the impact of weather on your 1Q quarter? Maybe help us frame it up a bit?

Yes, Ben, I think the weather impact that we saw in the quarter was consistent with what we talked about in the fourth quarter in terms of higher operating costs during the quarter. We did have, in January and February, we did have some production days that were lost. We made those up by working additional shifts on the weekend. And, we were able to really minimize the overall impact from overtime in doing that.

We do have a flexible workforce, and so we're able to manage around those types of scheduling issues. And so, it did have an impact on us in the quarter. We have absorbed that. I think the good news is that as you look at the margin in commercial trailer products specifically, from Q4 to Q1 we actually increased by 10 basis points, despite the challenges we were facing with the weather in Q1.

Okay. Thanks guys.

Thank you

John Mims.

Good morning, guys. Thanks for taking my question.

So, let me start with some the ACT order numbers that have come out for first quarter. When you look at the whole quarter together just in drive and net orders you are up 55% year over year, so big numbers and obviously you see that in your backlog. But can you answer a couple of questions on that? The first, how much are you participating in that big surge?

I know you said you're holding back more for price, but has your market share basically stayed the same in that push, and also how has that mix been evolving, particularly into March and into April, away from the large orders and away from the LTL's into the more indirect channels?

Our backlog, as you heard, has grown to a little over six months on a kind of consolidated basis, $791 million worth of backlog, so we've continued to see growth. Our participation rate in what's out there being ordered is certainly evident with that when you think about the shipment levels and production builds that we have. So, we are participating.

We don't generally try and evaluate the market share until everything clears up for the whole year because there's so many moving parts, with orders versus builds versus shipments, which are all out of sync with each other. It certainly, it appears that we're getting our fair share of what's out there.

We are being very deliberate on the orders that we are accepting. We've stated over these last couple of years many times about our desire and need to continue to improve the margin profile in the commercial trailer products business. We're committed to that.

So, we've remain focused on that and have seen some nice improvement that everyone is aware of. We want to continue that to get to that double-digit goal that we put out there. That doesn't mean that we won't take advantage of opportunities as they're out there, but they have to be attractive to us.

Now clearly, the early orders that come in in any order season are dominated by the large fleets who get in early and order for the full year. And then, as we progress through the quarter and through the balance of the year, you'll get a lot of more of the indirect channel orders that will come through.

Those will carry not only higher pricing, but they also carry higher-margin as it goes through, and that mix between the high-volume, lower spec product to the lower volume, tending to be higher spec product will shift as we progress through the second and third quarter. So, that helps drive the improvement also.

Sure. So, you've commented on price stabilizing, but when I see this type of order numbers, it would appear that, yes, you're back into a good, solid CapEx environment, where orders are coming in, funds are flowing in. So maybe can you segment your ability to gain core pricing increases in this environment?

And kind of offset by mix -- maybe separate the mix away from kind of what you're seeing from a core pricing standpoint to help us understand exactly how aggressive you can get in pricing now and how that should continue into the second quarter?

Yes. As I have stated in the past, 2012 was a big year, we took a big step and really pushed hard on pricing to try and, if you will, set the stage for the industry to respond. And, we were highly successful between 2000 -- what we saw in 2011 versus what the results were in 2012. Since that time, I've used the expression nibbling around the edges, and we've continue to do that.

What we're seeing -- What we're starting to see now, and if there's truth in the numbers on a macro basis for the industry, we're starting to get some demand levels that could provide opportunities as we get into the latter part of the year to really push pricing more aggressively. As we get more into the next year's order season. In a lot of cases, the backlog that we have is locked up for the year for the large guys. I've stated many times that the large fleets don't order, and order is not equivalent to a shipment because the order can spread out over the course of the whole year.

So, when you receive the order it's not turned around in 30 days, it's turned around in many cases in pieces over the course of 10 or 12 months. So, as we progress through the year, we do believe the environment is becoming more favorable for the manufacturers to be able to get better and better pricing, and that's a good thing.

So, we're excited about that and we'll try and take advantage of that more so with the smaller orders and the indirect channels as we progress through the balance of the year.

Is there any risk with the order flow that you've seen, just from an industry basis, that component prices, input prices start to pick up in the back half of the year, or is margin squeeze from that side not a concern at this point?

Yes. Other than the wood flooring that we talked about, the raw wood pricing that we dealt with earlier in the call, relative to our wood flooring operation. Everyone in the industry is facing that. When you get strong demand environment and you get cost inputs that everyone is being impacted by, it's a lot easier to deal with those than if it was exclusive to us in particular.

So we feel pretty good about being able to deal with those increases that may occur, but in most cases we've got locked commitments, locked contracts for the year, with the vast majority of our large component suppliers, so that part is not an issue.

And then, on some of the raw materials, as we've talked in the past with aluminum, we lock based on when we get an order, so the backlog -- the six plus month backlog that we talk about, basically all of that is locked from aluminum standpoint, a good percentage of that is locked on the steel side. And, then on the component side, it's pretty much locked in.

So, other than an input like the wood, which is a variable, we have a pretty high percentage of certainty in what our costs will look like going forward.

Okay. That's helpful. And just one last question for me and then I'll turn it back over.

Since the start of the call, the stock has had about a 10% negative swing. Clearly, the street is reading your comments as kind of a de facto guidance cut to the back half of the year and I don't think that's your intention. So can you maybe just walk through that again, as far as your outlook for revenue and earnings growth in the back half that's maybe not being captured by the shipment range and kind of what you would need to see to provide better clarity for what happens beyond second quarter from a revenue and earnings standpoint?

Yes. I'm not sure about the implied cut in the second half, because that's certainly not what our internal plans would imply. As we have talked in the past many times, the second and third quarters are the strongest shipment quarters that we tend to see. First quarter was just shy of 10,000 units. While pleasing relative to the winter that we faced, and relative to last year an improvement, it's still just 10,000 units. With projections of 47,000 to 50,000 for the year, and as I stated earlier we're probably leaning more towards the high end of that at this point.

We're talking 13,500 to 14,500 second-quarter, we have to match that type of volume in the third quarter and be somewhere close to that in fourth quarter to be even at the top end of our range, so I'm not sure where that assumption is coming from that we're cutting back on our projections. We're just trying to be a little bit more prudent at this point as we get further into this quarter and take another look at things as we get to the mid year, and if we believe that the opportunities that we're looking at and the pricing is right, then, certainly, we can take a look at see about adjusting the guidance that we provided.

But at this point, we felt the prudent thing to do was to just reiterate our guidance. We were out front of where the forecasters were. I think that's forgotten in this whole thing, that they were much more conservative than what our view was.

We saw where the market was heading and that's why we were a little more aggressive on our year-over-year projections and what they were earlier. They caught up to us now, and we'll take a look at it as we progress through the quarter.

Sure. That really helpful. Sorry, were you going to add something, Jeff?

Yes, John, I was just going to add, obviously we don't comment on the stock price or changes in the stock price. But I think to reiterate some of what Dick said there, we had a really strong start for the year. Q1 has been a really nice quarter, despite some headwinds out there in the industry caused by weather. We gave good strong guidance for Q2, and we've got a nice favorable positive outlook and we really feel confident in the full year. So, we feel good about where we are and there's still opportunity as we progress through the year for things to continue to the develop there.

Yes, I was just going to say I agree with you. I think it sets up really well. But I was just pointing out that the market seems to be reading it slightly differently, so I just wanted you to readdress that. Anyway, thanks a lot, and I'll get back into queue.

Thank you

Steve Dyer.

Morning, Dick. Morning, Jeff.

Most of mine have been addressed, but I'm wondering if you could talk a little bit about your sense of capacity in the industry, both in the industry and for you guys as well? Certainly, it would seem like if you have extra it's an opportunity to take price in the back half of the year, are you seeing something similar, where you're hearing a lot of slots filling up well into the year at this point? How do you see it?

Yes. We've heard some of the same comments that some competitors have taken on some business that's pushed out their backlogs quite a bit. We feel very good about where we're at and the approach that we've taken.

We have installed capacity -- and I always say mix dependent, but installed capacity to do upwards -- across our whole business, upwards of approaching 75,000 units across the whole business. So, with our guidance there at two-thirds of that, we still have opportunity to take advantage as the market continues to show strength as we progress into the middle part of the year, we'll be well-positioned to take advantage of what could turn out to be a very favorable pricing environment.

Okay. I'm wondering if you could break out your backlog in terms of the different product areas, commercial products group, et cetera, to try to get some sense as to -- this is obviously a big backlog number. To try to get some sense as to where that shakes out?

Yes, Steve, obviously the backlog, as Dick said, was $791 million, it was up from $711 million in the prior quarter. So, really strong growth in the backlog there. We don't break it out by segment or product line, but what I would say is that the backlog in all areas of our business is healthy and within a range we would expect it to be in.

And is the Conway skirt order, is that in there?

No. The Conway skirt order would not be included in the backlog.

Okay. So that's additive.

And I know, Jeff, you didn't want to comment specifically on margin guidance, but you have kind of the crosswinds of mix working against you. Sort of offset by the much bigger volumes, trained workforce, all those types of things. Is there any reason you wouldn't be able to sort of keep gross margin sort of flat at a minimum year over year going forward throughout the remainder of this year?

I don't see why we wouldn't be able to maintain at or near that level. I mean, obviously, the mix plays an important role in that. I think the things we've talked about in the past are that when we look at our mix on a product by product basis, we've maintained price and/or increased price in all situations there. Our manufacturing operations ran very well in the first quarter and continue to run very well.

So, I think when add all those things up, we would expect on apples for apples the margin to be certainly at a minimum equal to, if not better than what we've seen in the past. And once again, that will be mix dependent. But, we will make the appropriate -- we'll get the appropriate value for the products we sell.

Okay. That's all I have. Thanks guys.

Mike [Waldenstill]

I wanted to clarify a comment that Jeff made. Jeff, I think you said that the ASP was up $400 per unit. Was that adjusted for mix and customer, is that what that number was?

It's not adjusted for mix. It's just a pure calculation from the total revenue and the total number of units shipped.

Mix plays a factor in that, and pricing is also playing a factor in that, Michael. That was the sequential increase, it's up approximately $400 so we do see some improvement coming in the mix there.

Okay. You have an estimate of how much the negative mix impact from customer and the lower valued products had on the commercial trailer product gross margin segment in the quarter, when we think about the trajectory there?

I don't have an estimate of that. Probably, the best indicator you have is the ASP on a year-over-year basis, I did say that it decreased $600, that was pretty much all mix driven, if not all mix driven. And, once again, when we compare on a product by product basis, pricing for our products is either flat or up, and in most cases it's up.

So, that's entirely mix and can give you a sense for how that changes. I think that translates into a 2.5% decrease in that price.

Okay. You talk about the commercial trailer products margins improving, and you're operational improvements there. What are some of the specific things, aside from higher volume, that you are doing there to improve the margins?

Yes, we've continued to -- as the workforce has matured more and more and gained proficiency, line velocity improvements, which really helps the efficiencies in the operation, those efforts have continued, and we're seeing more and more the benefits of a much more stable workforce, a workforce that's becoming more trailer builders each day.

So, we are able to introduce even more advanced concepts for them to deal with as we continue to work on the velocity side of things, and that will continue throughout the year and beyond then. So, those are the main things that we've been working on from that regard.

Good. The last question for me is there were some articles the past week or so about the shale activity driving improved demand for the tank trailers. I don't think I heard you mention that as one of the drivers, is that something that you're chasing or are you more focused on the traditional markets in that segment?

Yes, we've seen some recovery in demand for the crude oil products that we produce out of our Walker Group business. Not as much on the shale side or the frac side of the business.

That business was pretty well saturated with equipment during the strong periods a couple of years ago, and over the last 1.5 years or so, there's just a lot of equipment out there. So, we're not seeing a lot of demand for that at this point in time.

I think, having said that, we are in a position where, if that does turn up, Michael, then we have the opportunity to participate in that. Obviously, it's a product we are familiar with and we have some experience in the market as well.

Great. Thanks very much.

Thom Finan.

Morning guys, I'm sitting in for Christine. Most of mine have been answered, but assuming that you could be a little conservative on your guidance and how the workforce has improved, would you need any additional headcount to meet demand above 50,000 trailers?

It's very incremental. We're able to -- and part of one my comments just a moment ago about improving the line velocity, you gain a lot through those CI efforts without having to add any significant amount of personnel to support it. So, it would be just variable labor addition to support some incremental volume, but very little. Nothing like what we faced a couple years ago.

Right. Great. Thank you, that's helpful.

Thank you, Thom.

John Mims.

Hey guys. Just one quick follow-up.

On the used trailers that you sold in fourth quarter and then in first quarter, much stronger than historical levels. Can you comment, I guess one, what's driving that strength, and also, provide some framework on an incremental margin basis as far as your gross margin, but also EBIT per trailer that you're getting on with used being a larger piece of the mix, because EBIT per trailer in commercial products [SWONG] is up 34% year over year. So, I wanted to know how much used trailers actually impacted that?

Let me comment about the demand side of the used trailer. Some of that was the seasonal demand that -- the unusual winter weather conditions created some real tightness in capacity. So you had a significant demand for equipment in a short period of time. So we saw some of that blip during the quarter.

So, I don't know that you would want to look at that as something that is a continual ongoing demand. But, yes, that's not a huge part of our business, the used trailer part. We did have some opportunity as a result of the weather conditions.

Right. John, this is Jeff.

Obviously, used trailers have increased. As we talked about, that's largely driven by fleet trades. Can't say that we track EBITDA per used trailer. The used trailers has a lot of variability in it the based on the type of trailer it is, the age of the trailer, the condition that the trailer's in, so there can be pretty big swings in what that looks like. As we evaluate those, and obviously we evaluate each one of those trade packages independently and make sure that it makes sense for us and that we are making -- getting appropriate value for taking those trades and then moving them out.

Yet. That's helpful.

I was just thinking, if you're getting them for almost nothing but selling them for $6000 and suddenly the last two quarters that sales number has been up more than 100% each quarter, is that all going to the bottom line? Maybe making on incremental -- on the margin, making the whole group's returns and margins a little better or if that's still kind of a minimal impact that is what it is?

Yes. It certainly -- it's a fallacy to think there we're getting the trailers for nothing.

Generally, the margins on used trailers are still in that similar range bound kind of margin that you see across our business. I mean, some of them you're happy to break even on because they're a fleet trade and it's part of the acquisition of the order for the new equipment. And, in other cases you may have opportunities to get an attractive margin but we're not talking about margins in the 30% and 40% kind of arena or higher.

Were talking about 10%, 15% kind of a margin that you get on a used trailer. So it's not like -- if it was that good, we'd all be just used trailer guys.

Yes, that's fair. Going forward, there's still above 1000 a quarter is reasonable, but that 1700 trailer level is probably a bit high. That's what you're saying?

It will be dependent on the market, John. We obviously forecast something there closer to our longer-term run rate, but it could be over that or below it depending on the current environment and what the availability of those fleet trades in the markets is.

Yes, that one is a real tough one, John, because it's not a core piece of the business. It's one out of convenience to support the customers. Oftentimes customers will sell their equipment on their own, or they'll want to include it as part of a trade package for a new order that's coming up. So it's always difficult to predict which path that they're going to choose.

It's not a piece of the business that we count on as a revenue profit generator for the company, it's more of a convenience to support customers for the most part. On our retail side, we do some of that where we go out in the market and find some opportunities, but again, it's not a huge revenue or profit piece of the business, I don't think it should be driving any decisions or any significant moves in any modeling that you would do.

Yes, that's exactly what I needed. Thanks again

Thank you

We have no further questions at this time. I'll turn the call over to Dick.

Thank you, Yolanda.

In conclusion, we're extremely pleased with the results we were able to deliver in the first quarter 2014. That said, we see even further opportunities to accelerate our top-line growth, expand our product and market breadth, and to deliver even greater performance in almost all aspects of our business. And with a key focus on execution and delivering results, I'm certainly confident that we will do just that.

Thank you for your interest and support of Wabash National Corporation. Jeff and I look forward to speaking with all of you again on our next call.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating.

You may now disconnect.