Wabco Holdings, Inc. (WBC)
Q1 2010 Earnings Conference Call
May 5, 2010 9:00 AM ET
Mike Thompson – VP, Strategy and IR
Jacques Esculier – CEO
Ulrich Michel – CFO
Josh Pokrzywinski – KeyBanc
Ben Elias – Sterne Agee
Robert Kosowski – Sidoti & Company
Previous Statements by WBC
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Good day ladies and gentlemen and welcome to the WABCO Q1 2010 Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require technical assistance you may press star then zero on your touchtone telephone. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today Mr. Mike Thompson, Vice President Corporate Relations VP.
Thank you (Sean). Good morning everyone and welcome to WABCO’s quarterly conference call. Today we will present our first quarter 2010 results. With us this morning is Jacques Esculier, our Chairman and Chief Executive Officer and Ulrich Michel, our Chief Financial Officer.
Before we begin, I would like to remind you of a few things. First, this call, webcast and the presentation that we are using this morning are available on our website www.wabco-auto.com under the heading WABCO Q1 2010 results. Replay of this call will be available through June 5th.
Second, as shown on chart 2 of the presentation, certain forward-looking statements that we’ll make today are based on management’s good faith, expectations and belief concerning future developments. As you know, actual results may differ materially from these expectations as a result of many factors, examples of which can be found in our company’s Form 10-K and quarterly reports including our first quarter 2010 report, which was filed with the SEC this morning.
Lastly, some of our remarks contain non-GAAP financial measures as defined by the SEC. Reconciliations of the non-GAAP financial measures to the most comparable GAAP measures are attached as an appendix to this presentation and to our press release from this morning, both of which are posted on our website.
I’ll now turn the call over to Jacques Esculier.
Thanks Mike. Good morning everybody. So turning to Page three. First this is no news to you that our industry is starting to show signs of recovery but what may be more surprising to you are two things. Number one, the pace of increased in the number of buses and trucks built in Asia and South America is increasing incredibly fast. Second thing, we experienced in the first quarter an unusually high level of growth in our aftermarket activity. Actually this is the record growth level we have ever seen.
And these two bursts of growth support WABCO’s strong performance in this first quarter of 2010. But before we jump into numbers, I have three highlights from WABCO’s perspective, one is our growth was strongly above the rise of truck and bus built in our traditional market i.e., Europe and the US fueled obviously by again exceptional increase in the production of commercial vehicles in emerging markets.
Two, the exceptional growth lead to a superb marginal profitability, and three, what happened in the first quarter is actually building up our confidence into progressing recovery of our industry to the point where we feel very comfortable at raising our overall guidance for the current year.
So now looking at numbers. We ended the first quarter with sales of $491 million, up 47% reported or 36% in local currency. What is interesting is what makes up this 36% growth. About two-third of it comes from increasing sales to OE out of Asia and South America. You have to realize that 75% of the commercial vehicles built during the first quarter globally were manufactured either in China, India or Brazil.
The second part of this growth, 20% of those 36% was driven by again this exceptional surge in revenues from aftermarket and the rest was coming from gross in OE business in Europe and in the US.
We have seen a very strong gross profit margin of 28.5% or 20.6 at a performance level, which is actually one of the highest level of margin that we have seen in a lot of years. Actually, you have to go back to 2006 to find this kind of levels, but remember in 2006, it was supported by much higher level of revenues.
Operating income was at performance level $44.5 million or 9.1% margin versus sales, which leads to an incremental margin on these incremental sales of 31%.
EPS reported was $0.47. We generated $0.51 at a performance level and our free cash flow was a healthy $26.7 million excluding the $11 million of payment for the streamlining programs that we had initiated last year and that leads to a conversion rate of 87%. So altogether again, we feel comfortable at upgrading our full year guidance and we will give you more details at the end of the presentation.
Turning to page four, which gives you snapshots on our sales performance versus market trends. In the first quarter, we were really propelled by the market’s natural growth. In particular our sales growth strongly benefited from WABCO’s, what I would say, well-anchored position in fast growing emerging markets like China, like India or Brazil.
We also, as I said, benefited from record growth in our aftermarket business. So, looking at our three segments of business, OEs to start with, our revenues went up 38% or 25% when we exclude the impact of the acquisition of our joint venture back in June 2009, which was not accounted for obviously in the first quarter of 2009. It’s still up 17% versus the last quarter of 2009 and this is driven, again, a lot by these exceptional growth in emerging markets as well as continuous increase of technology level and – i.e. content per vehicle.