Wabash National Corp (WNC) 2014 Q4 法說會逐字稿

Welcome to the fourth-quarter and year-end earnings call. My name is John, and I will be your operator for today's call.

(Operator instructions)

Please note that the conference is being recorded. I will now turn the call over to Mike Pettit.

Thank you, John, and good morning. Welcome, everyone, to the Wabash National Corporation 2014 fourth-quarter and full-year earnings call. This is Mike Pettit, Vice President of Finance and Investor Relations.

Following this introduction you will hear from Dick Giromini, Chief Executive Officer of Wabash National, on the highlights of the fourth quarter and the full year 2014, the current operating environment, and the 2015 outlook. After Dick, Jeff Taylor, our Chief Financial Officer, will 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.

Before we begin, I would like to cover two quick items. First, please note that this call is being recorded. Second, 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 the forward-looking statements. These statements should be viewed via the cautionary statements and risk factors set forth from time to time in the Company's filings with the Securities and Exchange Commission.

With that, it is my pleasure to turn the call over to Dick.

Thanks, Mike.

I'll begin by saying that we're extremely pleased with the Company's 2014 performance, as it marked the fifth consecutive year of revenue and operating income growth and the third consecutive year of record revenue and profitability. For the full year 2014, revenue increased 14% while operating income was up 18.6% over the prior year. Before addressing fourth quarter and full year 2014 in detail, I would like to highlight a few key elements that contributed to our record-setting year.

2014 delivered a year with a strong demand environment as trailer industry shipments finished approximately 15% above 2013 levels. A key performance driver for the business was commercial trailer products' ability to remain laser-focused on margin growth through improved pricing, operational efficiency, and supply chain optimization. This focus led to significantly improved margins year over year in the commercial products business that we will discuss more in a minute.

A second key element for us in 2014 was the expansion of product lines within the Diversified Product segment. We launched a dry bulk pneumatic tank trailer through the Walker Group, further broadening our industry-leading product portfolio. We also began manufacturing Beall brand products in Fond du Lac, and Brenner brand products in Lafayette, leveraging our existing manufacturing footprint to better serve our customers and more quickly align production to demand. And there are more product initiatives planned for 2015.

Our retail segment also realized top- and bottom-line growth, as the team was able to expand their customer site service locations along with increasing mobile service support, helping them leverage their retail network utilizing an asset-light approach. These efforts contributed nicely to the bottom line in 2014, as we will highlight shortly.

With that, I will provide some more color around our record setting year. Revenue for the full year 2014 was $1.86 billion, surpassing the prior year's record and representing a 14% year-over-year increase. As well, we achieved an all time record in operating income of $122 million, representing a $19 million or 18.6% increase over 2013. Furthermore, this brought our operating margin to 6.6%, which equals the all time highs established in 2004 and 2005. We generated a record gross profit of $233 million, an improvement of more than $17 million or 8% as compared to 2013. This translated to a gross margin of 12.5%, within 70 basis points of the record set in 2013.

These financial results directly contributed to a stronger balance sheet. We made two $20 million voluntary prepayments against our term loan in 2014, and ended the year with approximately $146 million in cash. And, confident in the current state of our business performance, the continuing strong demand environment, and the strength of our balance sheet, we recently announced a stock repurchase program authorizing Management to repurchase up to $60 million of our common stock over a two-year period ending December 31 of 2016.

These results clearly validate the efficacy of our long-term strategic plan and demonstrate the progress that we continue to make in executing our plan to profitably grow and diversify the business. We fundamentally changed the composition of our business, significantly improved the balance sheet, and put the Company into a position to leverage strong industry demand and an improving economy.

Now let's focus on fourth-quarter results. On a quarterly basis net sales were the highest in the Company's 29-year history, totaling $527 million on shipments of 16,850 units, significantly stronger than our prior guidance, driven largely by strong industry fundamentals and favorable weather conditions that supported our customers' ability to pick up their equipment prior to year-end. Fourth-quarter bill levels totaled approximately 14,300 units, up over 2,600 units from the fourth quarter of 2013 and consistent with our projections.

Net income for the quarter increased $8.7 million or 83% year over year to $19.1 million. Operating EBITDA, which we believe is an important metric to highlight the Company's progress, increased $10.5 million or 29.5 % year over year, and finished at $46.1 million, just shy of the all-time record of $46.6 million set in the third quarter of 2014. Operating income for the fourth quarter was $34.1 million, representing a $10.1 million or 42% increase year over year, while operating margin in the quarter improved 120 basis points in year-over-year comparisons. The increase in operating income was driven by improvements in all segments but notably Commercial Trailer Products that capitalized on the strength of the trailer industry to deliver a very strong quarter. Overall, we delivered an exceptional fourth quarter with strong trailer shipments, builds, and revenue, which translated into increased profitability and operating EBITDA as well as another quarter of solid cash generation and a strengthening balance sheet.

Consistent with the record level industry-wide trailer net orders being reported by ACT Research, our quote and order activity followed suit throughout the quarter, with backlog increasing sequentially to $1.1 billion in the fourth quarter. With total backlog levels representing the highest we have seen since 1999 and equating to about eight months of build volume on average, all in, the industry closed 2014 with a record net orders placed of 359,000 units versus the 232,000 units in 2013 as reported by ACT. This certainly supports our long stated belief that this could turn out to be an extended cycle of strong demand for our industry driven by excessively aged fleets, demanding regulatory environment, truck utilization at 99%, and an improved pricing environment for our customers leading to improved profitability and investment in new equipment.

With that, let's shift focus to some highlights from each of our reporting segments, and Jeff will follow with more details regarding financial performance.

We will start with the Commercial Trailer Products segment, consisting of our dry van and refrigerated van products, platform trailers, and fleet trade used trailer sales. This segment continues to perform very well in executing its optimization strategy, setting records across a number of financial and operating performance metrics in 2014. Net sales of $378 million represent a year-over-year increase of $54 million for the quarter and reflect the highest ever reported for this segment as currently constituted. This increase in revenue was driven by a 17% increase in trailer shipments during the quarter as compared to the prior year period, along with continued progress on the pricing front.

The CTP team delivered average selling price increases of $600 per unit year over year, with approximately $300 per trailer of actual net pricing improvements in year-over-year comparisons, remaining focused in their commitment to improve sales margins, helping to drive gross margin for the quarter to 8.1%, a 160 basis point improvement over the same period last year. This, despite the higher fourth quarter seasonal operating costs related to decreased build days as a result of holidays and shutdown along with colder weather-driven utility costs. The remaining increase in average selling price was attributed to product mix and customer specifications. Additionally the CTP team demonstrated excellent volume leverage during the quarter, with a strong 76% year-over-year operating income improvement on 17% top-line growth.

We want to emphasize that we remain committed to our stated objective of achieving double-digit gross margin quarter for CTP by the end of 2015, with a longer term goal of sustaining that level on an ongoing basis. The CTP team continues to make progress toward achieving this goal, driven by our stated initiatives to prioritize margin over volume by way of selective order intake, continued manufacturing productivity optimization, and supply chain cost initiatives. Obviously we're very pleased with the current performance in this segment and look forward to continued strong performance in 2015.

Moving on to the Diversified Products segment, which includes the Walker Group, Wabash Composites, and the Wabash Wood Products. The fourth quarter performance in this segment improved nicely from the third quarter, with gross margins coming in just shy of 20% reflecting a sequential increase of 170 basis points at 19.8%. Following two difficult quarters, the DPG segment clearly turned the corner in the fourth quarter, which we fully expect will continue into 2015. For the quarter the DPG group generated net sales of $138 million, $16 million or 13% higher than the prior-year period, and delivered gross profit, operating profit, and operating EBITDA all exceeding the same period last year.

The 170 basis points sequential improvement was driven primarily by three factors: first, the continued strong dependable performance by the Walker tank and engineered products businesses, even delivering 70 basis points of increased gross margin sequentially; secondly the complete elimination of the lumber cost variance impacting the wood products facility performance, which was discussed in the previous three quarters; and third, nice progress and productivity improvement at our wood flooring plant as the team has now adjusted to the staffing ramp up necessitated by the higher flooring demands from the van factory during the past year. I believe we can now remove any concerns related to the wood flooring operation off the radar screen.

The balance of progress needed to get back to the 21% to 24% gross margin range that we had all become accustomed to will soon come from the completion of the ramp up of the new Wabash composites facility and introduction of the suite of the newly developed aerodynamic device offerings as we progress through the next couple of quarters, along with other new product introductions. Finally, as mentioned, the Walker Group turned in another very solid quarter with shipments exceeding prior year by approximately 250 units and gross margins well within the expected range.

We're also pleased to announce that beginning in the current quarter we initiated stationary silo production for food, dairy, and beverage at our recently expanded manufacturing facility in Mexico. This key strategic initiative provides the ability to serve the important southern US, Mexican, and South American markets by leveraging our existing manufacturing facility.

Finally, our retail segment experienced a solid quarter, with year-over-year improvements in revenue and profitability. Net sales of approximately $48 million were 2.5% higher than the prior-year period. However, when adjusting for the three West Coast branches that were transitioned to independent dealer locations in mid-year, current store sales were up $9.2 million or a strong 25% in year-over-year comparisons. The increased revenue on a same-store basis was due to higher sales of new trailers as well as increased parts and service revenue. Operating income finished at $600,000, representing a significant improvement over the break-even levels in the fourth quarter last year. Gross margin was also 20 basis points higher than the prior-year period.

We remain focused on executing our retail strategy to profitably grow this segment by increasing our presence in the tank, repair, and service business through expansion of the number of legacy Wabash National trailer center locations with the capability to perform these services, expanding our mobile fleet, and increasing the number of customer site service locations that we operate. Fourth quarter profitability was significantly aided by these initiatives and year-over-year comparisons, and our customer site service locations contributed substantially to the quarter.

Before I discuss Wabash National's specific expectations for the first quarter and full year of 2015, let me take a moment to comment on a few key economic indicators and industry dynamics that we monitor closely that provide a broader context for our expectations. Following strong growth in the third quarter, the economy continued to expand modestly in the fourth quarter at an annual rate of approximately 2.6% as most macro-economic indicators improved. Manufacturing activity, industrial production, retail sales, and the labor market have all shown improvement over the past three months. In addition the housing sector continues its rebound, as December housing starts improved in both month-over-month and year-over-year comparisons. Most analysts now anticipate the US economy to continue growing moderately at a nearly 3% rate in 2015.

Although the general economy continues to reflect modest growth rates, key indicators within the trucking industry point to continued strong demand and signal a positive outlook. ATA's truck tonnage index was unchanged in December from the all-time high reading of 136.8 in November. The index was 5.2% higher in December than in the same month last year, and has increased 3.5% in 2014 versus 2013. The latest report from ACT Research now forecasts 2015 trailer shipments at 304,600 units, up 11.8% year over year; and 289,000 trailers in 2016, with a continued belief by ACT that potential legislation to permit 33-foot doubles is gaining support and would be included in a new transportation bill anticipated to be signed into law sometime mid-2015, which would likely drive strong demand in the 2016 through 2019 time frame.

FTR has also adjusted its projections upward, now forecasting 289,300 trailers to be produced for 2015, an increase of 7.8% year over year, and projecting 255,000 units to be produced in 2016. According to FTR, the class 8 active truck utilization rate was at 99% in 2014, equaling the historic high from 2004, with expectations that active truck utilization will average 97% in 2015, resulting in a tight market supporting strong rates for carriers.

From a regulatory and legislative standpoint, on December 16 a FY15 funding bill was signed into law that suspends restrictions to the 34-hour restart provision of the hours of service rule until September 30, 2015, while it is being restudied. This provides temporary relief for fleets relating to required nighttime break periods and will have the effect of improving productivity for many fleets during this time.

With that, let me share Wabash National's expectations for full-year 2015. We believe overall demand for trailers will remain very strong and significantly above replacement levels in 2015 and beyond, 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 a continued strong, longer-term demand environment. As stated, quote and order activity remains seasonally strong during the fourth quarter. Additionally, with the recent stronger demand projections from both ACT and FTR for 2015, along with our backlog fill for the year, we're confident that our internal projections for full-year industry shipments will exceed those experienced in 2014.

While still remaining committed to favoring margin growth over volume, we expect that our consolidated full-year shipments for 2015 will be between 60,000 and 64,000 units, or approximately 8% higher than 2014 at the mid point of the range, with year-over-year top-line revenue growth of 6% to 8% overall for the business. For the current quarter we anticipate the typical seasonal lag in customer pickups, and are projecting total shipments to be between 12,000 and 13,000 for the first quarter, a strong 26% higher than the prior year period.

In terms of earnings we expect full-year earnings per share growth of 25% to 35%, putting us in the range of $1.10 to $1.20 earnings per share. Furthermore, continuing our string of improved year-over-year comparables, we expect to deliver first-quarter performance that exceeds that of the first quarter of 2014. That said, please remember that the first quarter always brings with it the full load of seasonal headwinds, and as such, the first quarter is predictably the weakest performance quarter of the year.

So overall, we expect 2015 to be another record-setting year. Additionally, strong cash generation, coupled with a rapidly improving balance sheet, makes us very comfortable that we have ample resources to fund the aforementioned stock buyback, continue to pay down debt, and to selectively pursue organic and strategic growth initiatives.

In summary, we are obviously pleased to have delivered a very strong fourth quarter and another record year in 2014. We have demonstrated the expected improvement in Diversified Products, and continue the string of strong quarterly results in the commercial trailers products group. While new records were established, opportunity remains, and we expect to break those records in 2015. We need to continue to further grow gross margins in our commercial trailer products business, and find more attractive higher margin growth opportunities longer term to drive its top line. Those efforts continue and continue to consistently produce improved margins within this business. We need to accelerate the introduction of new product offerings to drive the top-line growth in our Diversified Products business, as well as return the segment to gross margins more in line with our expectations and historical averages.

Those efforts continue to gain momentum as demonstrated by the encouraging fourth quarter results, and we need to leverage the higher margin tank parts and service opportunities for growth of our retail segment, and execute on commitments made with the expansion of customer site service locations. As mentioned, these efforts are bearing fruit.

With that, I will turn the call over to Jeff Taylor, our Chief Financial Officer, to provide more details around the numbers. Jeff.

Thanks, Dick, and good morning.

Let me start by saying that we are obviously pleased with the full-year and fourth-quarter results. All areas of the business contributed to achieving the financial records that Dick mentioned, and it truly highlights the progress we made to grow and diversify the Company. With that let's begin with the fourth quarter results.

On a consolidated basis, revenue for the quarter was $527 million, an increase of $69 million or 15.1% compared to the fourth quarter of last year. This represents an all-time record for quarterly consolidated revenue. This year-over-year improvement in revenue is attributable to year-over-year improvements in all segments, most notably the strong demand in the commercial trailer products segment. New trailer shipments were 16,850 units during the quarter, 1,300 units above the top end of our third-quarter guidance, on stronger than expected customer pickups driven by strong industry demand and fundamentals supported by favorable weather conditions.

Sequentially, consolidated revenue increased $36 million or approximately 7.3%, primarily driven by higher new trailer shipments in our commercial trailer products segment. However, every segment of the business recorded sequential revenue growth. Commercial Trailer Products net sales were $378 million, which represents a $54 million or 16.7% increase year over year. This growth was driven by an increase in new trailer shipments, as approximately 15,750 trailers shipped in the fourth quarter of 2014 compared to 13,450 trailers shipped in the prior-year period, in addition to improved selling prices.

New trailer average selling prices, or ASP, increased approximately $600 per unit. Net pricing per unit improved by approximately $300, while the remainder of the ASP change was attributed to customer and product mix. On a sequential basis, net sales for Commercial Trailer Products increased $26 million or 7.5% on approximately 1,050 additional new trailer shipments.

Diversified products net sales on a year-over-year basis increased $16 million or 12.7% to $138 million, primarily related to strong shipments in the Walker business, as well as strong sales of wood flooring driven by increased production in Commercial Trailer Products. This was partially offset by lower revenue in Wabash Composites, due primarily to continued competitive pressures in AeroSkirts. On a sequential basis Diversified Products' net sales increased $6 million or 4.3%, primarily driven by strong Walker shipments, partially offset by anticipated seasonally lower demand for our composite product offerings.

Sales for our retail segment increased 2.5% year over year, but on a same-store basis when adjusting for the three West Coast branches which transitioned to independent dealer in the second quarter of this year, sales increased 25% year over year. Sequentially, net sales from the retail segment increased $2.5 million or 5.6%, driven by increased new trailer sales as well as continued growth of our customer site service locations.

Looking at our various product lines, new trailer sales increased $75 million or 20.7% from the prior year on 16,850 units, including approximately 1,050 liquid tank and dry bulk trailers in our Diversified Products segment. This year-over-year increase was driven primarily by higher dry van and platform trailer shipments in our commercial trailer products segment. Used trailer revenue came in at approximately $7 million on 400 units, and decreased approximately $10 million from the same quarter a year ago due to continued tight supply in the used trailer market.

Components parts and service revenue was approximately $36 million in the quarter, a decrease of approximately $2 million or 5.6% from a year ago, driven primarily by AeroSkirt pricing. In addition, equipment and other revenue on a year-over-year basis increased by $5 million to $44 million in the quarter. This increase was primarily driven by higher sales of non-trailer, truck mounted equipment within Diversified Products.

In terms of operating results, consolidated gross profit for the quarter was $62.7 million or 11.9% of sales, which represents a $10.1 million or a 40 basis point increase year over year. The increase in gross profit and gross margin was primarily driven by improved margins in Commercial Trailer Products, partially offset by lower margins in Diversified Products. On a full year basis, gross profit for 2014 was $232.6 million or 12.5%, an increase of $17.5 million. This significant year-over-year improvement truly highlights the progress we have made in executing our strategic plan to profitably grow and strengthen the Company.

With that, let's look at the segments in more detail. Commercial Trailer Products' gross profit improved by $9.7 million or 42.6% compared to the prior year period, driven by higher new trailer shipments and an improving margin profile. Gross margin increased 160 basis points compared to the prior year period due to pricing gains as well as a more favorable mix profile highlighted by significant growth in our platform trailer business. Sequentially, gross margin decreased by 100 basis points or $1.4 million, primarily as a result of lower production on fewer operating days in addition to the higher operating costs we typically experience in the fourth quarter. Production during the quarter was 13,450 units, down approximately 1,000 units compared to the prior quarter. On a full year basis, Commercial Trailer Products' gross profit increased $29 million or 100 basis points on a $212 million increase in revenue, which represents approximately 13.6% flow-through margin.

Diversified Products gross profit increased $1.2 million or 4.4% compared to the prior-year period, driven by an increase in new trailer shipments by approximately 250 units. Gross margins were 160 basis points lower in the fourth quarter versus the prior year quarter, primarily due to pricing pressures within Wabash composites. Sequentially, gross profit was up 170 basis points or $3.4 million, primarily as a result of the wood pricing issues being behind us as well as strong shipments from the Walker Group. For the full year, gross profit from this segment was $100.8 million, a decrease of $13.3 million or 350 basis points as a result of some of the previously discussed wooden composite issues during the year.

Lastly, the retail segment's gross margin in the quarter increased $0.2 million, and gross margin improved by 20 basis points year over year, driven by a growing contribution from our customer site service locations. Sequentially, gross profit declined $0.2 million and gross margin declined by 100 basis points due to a larger percentage of revenue being generated from new trailer sales, which generally carry a lower margin than our other retail offerings. For the full year, gross profit is up $0.6 million or 3%, largely due to new trailer shipments and expanded customer site service locations.

On a consolidated basis the Company generated operating income of $34.1 million, an increase of $10.1 million or 42% year over year. At 6.5% of sales, operating margin was approximately 120 basis points higher than the prior year's performance, driven by significant improvements in Commercial Trailer Products as well as nice year-over-year growth in our retail segment. Sequentially, operating income was lower by $0.8 million, primarily driven by higher seasonal costs experienced in the fourth quarter. For the year, operating income was $122.4 million, an increase of $19.2 million or 18.6%. This represents a new record for operating income and highlights the improvements the Company has achieved in the core trailer business as well as the benefit of our strategic actions to grow and diversify the business.

Selling, general, and administrative, excluding amortization for the quarter, was $23.1 million, in line with the prior year period. Sequentially, SG&A expense for the quarter increased by $1.9 million; however, it remained at 4.4% of revenue, which was in line with our expectations. SG&A finished the year at 4.7% of revenue, an improvement of 80 basis points from 2013 levels. For 2015, SG&A is expected to be approximately 5% of revenue or slightly less.

Intangible amortization for the quarter was $5.5 million, essentially flat with the prior quarter and prior-year periods. The intangible amortization in the fourth quarter was consistent with our expectations. Full-year intangible amortization for 2015 is estimated to be approximately $21 million.

Interest expense consists primarily of borrowing costs totaling approximately $5.3 million, a year-over-year decrease of $0.7 million due to the $40 million of voluntary term loan prepayments made in 2014, as well as the full-year benefit of the $60 million of prepayments 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. To date we have made a total of $100 million in voluntary prepayments against the term loan, resulting in an outstanding balance of approximately $193 million at the end of the year.

We recognized income tax expense of $9.7 million in the fourth quarter, representing an increase of $2.4 million year over year and a decrease of $1.1 million sequentially. The effective tax rate for the quarter was 33.6%, and the full-year tax rate was 38.1%. We estimate that the full-year 2015 tax rate will decrease slightly to approximately 37%.

Finally, for the quarter, net income was $19.1 million or $0.27 per diluted share. In comparison, earnings for the fourth quarter 2013 were $10.4 million or $0.15 per diluted share, representing an 83% earnings growth year-over-year. For the full year, the Company reported net income of $60.9 million or $0.85 per diluted share for 2014. On a non-GAAP adjusted basis, after adjusting for expenses related to the early extinguishment of debt and costs relating to the transfer of our West Coast branch locations, net income was $63.0 million or $0.89 per diluted share as compared to $48.2 million or $0.70 per diluted share in 2013, a growth rate of 27% for adjusted earnings on a year-over-year basis.

In addition, operating EBITDA for the fourth quarter was $46.1 million, a year-over-year increase of $10.5 million or 29%. Sequentially, operating EBITDA decreased slightly by $0.5 million. For the full year, operating EBITDA reached record levels for the Company at $169 million, a 12.8% increase over 2013.

With that, let's move to the balance sheet and liquidity. Net working capital improved from the third quarter by approximately $55 million, with decreases in inventory and accounts receivable, partially offset by a decrease in accounts payable. Capital spending was $10.9 million in the fourth quarter and $20 million for the full year, in line with 2014 full year expectations. We expect full year 2015 capital spending to be approximately $25 million.

Our liquidity, or cash plus available borrowings, as of December 31, was approximately $290 million, an increase of approximately $70 million from the prior quarter. As a result, our pro forma total and net leverage ratios were 2.1 times and 1.2 times respectively. In addition our senior secured leverage ratio under the term loan credit agreement was 0.3 times, significantly below the current covenant requirements.

In summary, we are very pleased with the Company's full-year and fourth-quarter results. We established new financial records for full-year revenue, gross profit, operating income and operating EBITDA. We strengthened our balance sheet during the year by increasing the liquidity, making voluntary prepayments to the term loan, and decreasing our leverage consistent with our commitments, in addition to being overall good stewards of the Company's capital.

Furthermore, as Dick mentioned, our Board of Directors authorized a two-year $60 million stock repurchase program in December, reflecting our strong business performance, industry outlook, and financial position. We have not purchased any shares to date, since the authorization occurred during the blackout period. We look forward to begin executing our share repurchase program once the window reopens.

Looking forward, we expect first quarter shipments will be lower sequentially consistent with normal seasonality, but stronger than the first quarter of 2014. As a result, we currently estimate first-quarter total trailer shipments to be between 12,000 and 13,000 units. Furthermore, the non-trailer portions of the Company are expected to perform in a similar seasonal fashion.

As we enter 2015, we are confident that the demand environment across our businesses remain strong, and we are well positioned to start the year. We have a very strong backlog of $1.1 billion, which is approximately $400 million higher than this time last year. As a result, we anticipate 2015 new trailer shipments to be between 60,000 and 64,000 units.

Lastly, the industry forecasters are both projecting strong demand, significantly above replacement levels, in 2015 and beyond. We believe that the core trailer business still has significant runway ahead and potentially the strongest and longest trailer cycle the industry has experienced.

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

Thank you.

(Operator instructions)

Our first question is from [Joe O'Dea]. Please go ahead.

Hi. Good morning. Maybe first just on price and with the strength of the backlog how you saw pricing trend in the order book into the end of the year. I think based on the numbers you gave in the prepared remarks it sounds like price up maybe a little over 1% year-over-year. Are you seeing that accelerate as the backlog extends and underlying strength in the industry at all?

Yes. We don't -- we don't break down specifically how much until obviously after the quarter we report on the results. But as we have stated in past calls, we continually push to improve pricing, to improve the net pricing so that the impact on margins is positive. We've had good success with that.

And the strong -- the strong demand environments, and you see the order book and what has happened there, certainly supports that we've been able to make progress. We do year-over-year comparisons. Name plate by name plate looking at customers a year ago versus orders -- quotes and orders for the current year and for the following year.

And in every case, pricing and net margin has improved with each customer. So we're seeing nice progress, and with the strong environment, we expect to see even greater strides in the coming year.

Okay. And then just one more. Is there continued progress within Diversified Products and what you see as the timing both for the continued ramp-up in the composites facility and then as well timing of some of the product introductions that you mentioned over the course of 2015? Just to get a sense of some of the momentum that you have going from Q3 to Q4 on the margin expansion there, how we should think about over the course of 2015 getting back to the target range.

Yes. Over these -- over the next two quarters, first and second quarter the ramp of the facility in Frankfort will be occurring. The plant is already up in operation, but now they will be ramping up all of the new product offerings over the next two quarters and into the third quarter. So I would summarize that by saying by the time we get to the third quarter, we should be seeing gross margin profiles overall that would be more to what the path expectations and results were for the Diversified Products business.

Great. Thanks very much.

Our next question is from Brad Delco. Please go ahead.

Good morning, Dick. Good morning, Jeff. How are you?

Good morning.

I may have missed this, because I was jumping off of another call to get on here. But my understanding, 25% to 35% EPS growth guidance for this year. Clearly the top line trends are a little bit more transparent with your expectations on trailer deliveries, can you maybe talk more specifically what some of the inputs are you have to get to those numbers, maybe more from a margins perspective?

Well, as I stated to Joe, our expectations are relative to the commercial trailer products business that we will continue to see margin improvement. We fully expect to achieve the previously stated objective of getting to double digit margins, break that 10% barrier in the Commercial Trailer Products. We expects to do that this year.

There's one driver. The demand environment is giving us opportunity to push pricing more aggressively than what we had experienced in the last couple years.

So we should see that coming to fruition. And then the comments I made about the Diversified Products business, over the next couple quarters, they will continue to make some progress in ramping up the business and getting the new products introduced. That is going to help the Wabash Composites portion of it. The Walker business continues to run very strong, so they're delivering.

By the time we get to the third quarter, my expectation there is that we will be seeing the gross margins back into that 21% to 24% range that we had been enjoying for the first year, year and a half of ownership of that, and when we combine them with the rest of the businesses in diversified. Overall it's a very strong environment. The volume certainly plays a part in providing leverage for the business.

So we will get some improved flow-through. That is going to improve margins as a result of the numbers that we talked about, 60,000 to 64,000 units and 6% to 8% overall top line growth. So a combination of those activities and the continued operational improvements on the factory floor and the great job that our supply chain team does on leveraging the -- from the purchasing standpoint of components and materials.

Right. And just (multiple speakers).

Got you. Go ahead, Jeff.

Sorry, Brad. Just add to that quick also on the retail side. They're obviously benefiting from the strong demand in the trailer industry, and they will continue to benefit in 2015 in addition to continuing growing the customer site service activities that we have in that segment.

Got you. Jeff, just to be clear, the 25% to 35% growth that is off of the adjusted $0.89 number for 2013.

That's correct.

Maybe one more question. Dick, one number that sort of stood out was the used trailer volumes. I don't know if you commented on that. Is this going to be more of a sustainable trend going forward, or what is really driving the used trailer volumes down relative to where you have historically run?

Yes. We have never focused on used trailer as being a real important area of the business. We generally take trade packages for new trailer sales opportunities. Customers will want to trade their old equipment. In some market environments, that makes sense. In others, it doesn't.

In the current environment with the drive-in segment, most customers are deciding to -- to sell those trailers on their own. So they're not -- they're not making them as part of trade packages. On the refrigerated front, a little different story. There is a glut of aged equipment out in the marketplace. And they're not attractive to take as trade packages.

So, again, consistent with our margin over volume approach, we are being very selective on which trade packages we're accepting. And we willingly walk away from opportunities if the combination of the trade value that the customer expects and the price for the new equipment that the customer expects don't make sense to us, then we walk away from it.

That's great color and actually answered really my follow-up question to that. Appreciate the time. Congratulations on the good year.

Thanks.

Thank you.

Our next question is from [Alex Potter]. Please go ahead.

Hello. I was hoping that you could flesh out the growth rates within DPG. So what some of the faster and slower growing segments are specifically within Walker. I know they have a pretty diverse end market exposure. I was just hoping you could comment on where you're seeing relative strength and relative weakness.

Yes. You know, we unfortunately don't get into the details of the individual pieces within the segment. But, you know, we have made comments that obviously the locker business is a very stable business. We expect that to continue to grow.

The composites business has been a growing business for us over the last three to five years. And we certainly expect that to continue, and then, obviously, the wood products really follows the core trailer business pretty closely. Hopefully that gives you some qualitative guidance you can use there.

Okay. How about on the pricing pressure you were mentioning in composites. Any -- is it possible to shed some additional light on that topic particularly?

Yes. Sure.

The specific area that was feeling that pressure was on the AeroSkirt product, which is the side skirt that provides the fuel economy savings for the trucking industry. That specific product was being undercut by other products that have entered the market. And part of the initiative with the Frankfort expansion facility is being able to introduce a new suite of products so we will now be able to offer choices for customers that fit their needs.

So, more entry-level products versus higher-end products, so we'll have a full range of product offerings. And that's what we're ramping up at the moment. That's why we believe that by the time we get through the next couple quarters, we will be -- we will be back in an area where we can compete effectively not only on getting sales but on getting them at an acceptable margin by having a more broad selection of AeroSkirt type products to offer.

Okay. That's -- that's very helpful.

And then, the last question I had here was just on that 33-foot doubles regulation. I was wondering if you could comment a little bit more on how you seeing that playing out? What some of the mix considerations might be for you if the regulation is eventually passed.

Thanks.

Yes. Obviously we don't know precisely a timing. This thing has been an on again, off again topic for the last year or two, but there is certainly a lot of support from the LTLs, especially the big guys, in wanting to get this thing through and included in the Highway Transportation bill so they can get the instant 18% capacity increase per unit. And it will reduce congestion on the highways and actually make things safer for travelers on the highways. There's a lot of good things, things that make sense to get this thing in the bill and passed. The impact of a passage in the bill would be that the -- there would be an immediate demand for 33-foot equipment.

Concurrent with that, there would be an immediate demand for conversions or stretching of current trailers, if you will, extending the 20 -- some of the late model 28-foot pups to 33-foot pups. That would actually would benefit our business in both aspects, both on the new front and the ability to take and do the conversions or the extensions of the trailers. The expectation is that there would be likely a 3-year net favorable impact to overall demand for van-type products through 2016, 2017, 2018 and maybe all the way to 2019. A lot depends on the timing and implementation of when the law would actually go into effect.

Okay. Great. Thanks. Good quarter.

Thank you, Alex.

Our next question is from John Mims. Please go ahead.

Good morning. Thanks for taking the question.

Let me -- Dick, the comment that you made on product mix improved in fourth quarter. When you look at the backlog and the build plan that you have set so far for 2015, how is that shifting, how much are we going to see a shift next year away from more of the stock trailers to a little bit higher priced product?

Well, the pricing -- the pricing improvement is occurring, regardless of the type of products. So even on the more stock-type equipment versus the more higher spec equipment, pricing is improving year-over-year as we progress forward. And any -- all of the open slots are being more aggressively priced as we continue to fill out the year. There's no question in this strong environment the percentage of the high volume orders will dominate over the -- over the smaller orders because the big guys are still aggressively replacing the old equipment that they continue to have in their fleets. So that probably doesn't change a lot from a ratio standpoint. But you should expect year-over-year improvement in the pricing, because we're really pushing that.

Sure. But when you look at a backlog like you have, and I'm sure your competitors are seeing similar type of backlog numbers, are you able to turn the screws on those high volume conversations? I know a few of the big orders that are recurring, are you going back to them and asking for rate increases, or is there still a bit of a relationship you have to maintain there?

It's probably going to have strategic relationships with customers that come into play in any negotiation. But clearly on a year -- on a name plate by name plate basis, on a year-over-year basis, prices are going up, which -- which means margins are going up. So that's the good part of it. The -- as we progress through the year, the remaining open slots become much more selective as far as awarding those.

And that's the beauty of the strong demand environment that we're all enjoying now, is that we can all be much more selective and get the pricing that we would like to see. That does not imply that you will see 5% and 10% price increases. But you are going to see price increases more aggressive than we were able to get as an industry in the last two to three years.

Okay. That makes perfect sense. And then just one more. And I want to just make sure we're clear on the progression of DPG margins. I appreciate the full-year guidance and think the EPS guidance is extremely helpful.

But just in terms of modeling and making sure we don't see any surprises near term, the startup costs that you're talking about and the path that you need to take to get back to a third quarter margin number that is more reflective of historicals, does that imply that margins and are going to be under pressure the first two quarters and then you'll see a big a ramp up in the third, or is the improvement that you saw sequentially in fourth quarter indicative of what we can see in first and second quarter?

Certainly we would expect improvement going forward. However, I want to remind everyone, the first quarter is typically, traditionally and historically the weakest performance quarter for the business because of numerous factors, lower shipment totals that we typically will have. It is -- it is always the lowest shipment total quarter for the year -- year in and year out.

You also have the other headwinds related to other higher operating costs, relating to utility costs, related to operating days. So the first quarter will always have the absorption headwind, if you will, and the higher utility cost headwind that plays into it. And then second, third quarters get significantly better. And typically third quarter is the best quarter. But second quarter generally is strong. And in some years, fourth quarter is the surprising quarter.

It's the one that is the least predictable. And as we all know this past quarter with the favorable weather conditions and some may suggest the bonus depreciation played into that. That's a supposition. We hate to say, because we don't know.

Customers don't tell us whether or not they're taking advantage of the bonus depreciation. But we clearly saw a significant number of trailer shipments occur in December and in the latter half. And very favorable weather conditions helped support that. Quite possibly bonus depreciation played into that too.

Sure. Sure. Just to be clear, and then I'll pass it back. On second quarter, would you -- the start-up costs that you have referenced a couple of times, would that tend to go against what you would normally see as seasonal improvement from first quarter to second quarter, and then you see all of the catch-up in third quarter? Or should we see a normal seasonal uptick in second quarter DPG margins?

John, I think the start-up costs that we're experiencing right now as we continue to launch new products in the first quarter and second quarter and then into the second half of next year probably stay at about the same level each quarter as where we see them today. I don't expect to see a big change in the margin profile driven off of any kind of change in start-up costs or ramp-up costs.

Right.

Expect to see margins better in the second quarter than the first and better than what you saw in the fourth.

Okay. That's helpful. So second quarter better than the fourth quarter of 2014?

Yes.

Perfect. That's what I needed. Thank you so much.

Our next question is from Jeff Kauffman. Please go ahead.

Hey. How are you.

Hi, Jeff.

First of all, congratulations. Fantastic quarter.

Thank you.

Jeff, I wanted to talk a little bit about the cash and the balance sheet, maybe some of the resources that you might need as we get over 60,000 units. You've announced a share repurchase, but you are sitting on a lot of cash. Even with the higher CapEx, you should be building a lot more cash. Can you talk about kind of what the plans are beyond the share repurchase? Any kind of specific debt targets as you get into the year? And then maybe in terms of growth accommodation or some of the new growth initiatives that you have out there, are there any uses for that capital that we may need to think about as we're modeling 2015 and 2016.

John -- Jeff, that's a lot of questions there rolled up into one. Obviously we finished the year with a very strong balance sheet. The cash position was around $146 million, and our net leverage was around 1.2. We feel very comfortable with our leverage position and the strength in the industry and our financial position overall. So that's why we have the confidence to share repurchase.

And that is something that is going to be a priority as we go through 2015 as we recognize that that is an activity where the investors want you to show them some progress. And so we have announced the repurchase. And we anticipate and expect that we will execute against that.

At the same time, you heard in Dick's comments that we don't intend to stop deleveraging. The strong position we're in really gives us the flexibility to evaluate those activities in addition to continuing to strategically grow the business.

We will do that through capital expenditures. We increased from $20 million to $25 million this year in terms of CapEx. We will continue that in the first half of the year. We typically invest in working capital. We expect that investment in working capital to occur this year as well.

Just a rough number: I expect working capital to use about $50 million -- $40 million to $50 million in the first half of the year roughly to give some guidance there. It could be a little more, it could be a little less. But that's where I am today. And then obviously, you know, we've always said we want to reserve the right to continue to look at ways to grow the Company strategically through acquisition.

If the right opportunity presents itself, we continue to be very selective but strategic as we look into those types of activities. And obviously if those things occur, then we will let you know when they happen.

Okay. And you mentioned on the CTP commentary that part of the ASP was mixed, and you were seeing a growth in the platforms. As you're looking 60,000 units, can you talk about how mix is moving around in terms of what your expectations are for CTP but also DPG, because we noticed the engineered products revenue is still a little slower but the tank trailer sales are up.

Yes. I mean in terms of overall mix, we think 2015 is going to be pretty consistent with 2014. We have seen some growth on the platform or the flatbed side. We expect that strength to continue into 2015. On the DPG side, Jeff, if you're seeing some fluctuation there in EP and liquid tank trailers, it's effectively -- those are lumpy business as we have talked in the past, and you're going to get some quarterly fluctuation there.

Okay. Congratulations. And thank you.

Thanks, Jeff.

Thank you.

And we have no further questions. I'll turn it back over to you, Dick and Jeff, for any final remarks.

Thanks, John. Well, while much has been done, opportunities abound. We will continue to be strategic but selective in pursuing opportunities to grow our Business in addition did to the organic growth initiatives already underway. We will consider to be responsible stewards of the Business to ensure that the proper balance between risk and reward is considered in all decisions.

In closing we continue to be well positioned this year to deliver another year of record revenues and profitability with a strong and growing backlog, a demand environment that is solid and gaining momentum and a number of new products nearing launch status. Thank you for your interest in and support of Wabash National Corporation. Jeff and I look forward to speaking with all of you again on our next call. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.