Commercial Vehicle Group, Inc. Q1 2010 Earnings Call Transcript

Commercial Vehicle Group, Inc. Q1 2010 Earnings Call Transcript
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Commercial Vehicle Group, Inc. (CVGI)

Q1 2010 Earnings Call

May 6, 2010 10:00 am ET


Chad M. Utrup – Chief Financial Officer, Executive Vice President & Secretary

Mervin Dunn – President, Chief Executive Officer & Director


Ann Duignan – JP Morgan

Craig Berenson – Berenson Loshak Asset Management

Analyst for David Leiker – Robert W. Baird & Co.

Derrick Wagner – Jefferies & Company

Kirk Ludtke – CRT Capital Group

[Rohan Shetty – Alaclap Capital]



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Welcome to the first quarter 2010 Commercial Vehicle Group conference call. At this time all participants are in a listen only mode. We will be conducting a question and answer session towards the end of today’s conference. (Operator Instructions) I would like to now hand the call over to your host for today Chad Utrup.

Chad M. Utrup

As usual, let me read a few things here first before we begin the formal portion of the call today. I’ll first read through our Safe Harbor language and then Merv will give a brief company update and then we’ll walk through our results for the first quarter 2010 and then open it up to Q&A. With that, I’d like to remind you that the conference call contains forward-looking statements. Actual results may differ from anticipated results because of certain risks and uncertainties.

These may include but are not limited to the economic conditions in the markets in which CVG operates, fluctuations in production volumes of vehicles for which CVG is a supplier, risks associated with conducting business in foreign currencies and other risks detailed in our SEC filings. With that, I’ll turn the call over to Merv.

Mervin Dunn

This is Merv. Chad and I will get to the answer session. We’ll try not to step on each other answering. We’re not together this morning, I’m in Mexico with customers. I’d like to thank everyone for joining our call today. Overall, the first quarter has progressed very well and we feel the economy may be starting to move forward. We experienced decent Class 8 builds here in the first quarter as we expected which likely is due to the OEMs continuing to manufacturer the pre-2010 emission vehicle orders using existing inventories of over [inaudible] engines.

We are seeing an uptick in construction orders on a global basis and continue to strengthen in military sales. While our military business was exceptionally strong in Q1 we see this as a spike rather than a start of a trend given the random order patterns for these vehicles. That said, we believe we now have the leadership position in harnesses and wipers for wheeled tactical vehicles.

Until this week we had continued to feel that 2010 build rates will only be slightly ahead of 2009 production levels until the end of the year when we may see the beginning of a return to normal volume levels. We don’t believe that we will see the meaningful recovery of Class 8 OEM vehicles in 2011. Currently we believe Class 8 North American vehicle rates will be in the 130,000 to 135,000 units for 2010 but as the news has come out now we have seen higher orders sooner than thought and some of our customer are saying that they will not see a downward motion in second quarter, third or fourth. They believe it has taken off on Class 8 North America.

Regardless, during the fourth quarter we continue to focus on positioning CVG for a rebound in the overall economy and our end markets. In March we were pleased to complete a public offering of common stock at $6.25 per share. This offering resulted in total sale of 4.37 million shares of newly issued CVGI common stock for which we received approximately $25.4 million after fees and discounts.

We feel the proceeds from this offering and the $21.4 million tax return we previously discussed along with our ABL borrowing capacity provides CVG with a strong balance sheet and excellent liquidity. As we mentioned before, one of our main goals is to be a global partner to our customers. This includes customers such as UD Trucks, formally known as Nissan Diesel and [Volvo AB] and Daimler which are heavy players in both heavy truck and with Volvo construction vehicle markets as well as US based global construction customers such as Caterpillar to name a few.

As we look to continue growing with our customers on a global scale, we believe there are opportunities to utilize some of the proceeds from our recent stock offering for new business purposes including expansion in China, India and Mexico. In China we began operations in 2004 with a wholly owned foreign entity in Shanghai. Since then we have experienced significant growth in that facility. We began production in the facility with only $4 million in sales and today we are very close to $40 million in sales with expectations of continued growth. In addition to serving US based OEM partners in Japan and other Asia markets, we have also gained domestic business in Chinese markets.

In Mexico we have established a presence and we intend to extend and explore new potential opportunities to grow with our global OEM customers there. Likewise, India is a market that interests us and we are looking at prospects and opportunities to expand our global footprint and participate in that market. As you know, ours is a fragmented industry with many smaller non-public competitors and suppliers. The current economic situation has been difficult for all of us and especially for many of these companies and we feel that also presents opportunities for us.

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