Commercial Vehicle Group CEO Discusses Q3 2010 Results – Earnings Call Transcript

Commercial Vehicle Group Inc. ( CVGI)

Q3 2010 Earnings Conference Call

November 4, 2010 10:00 AM ET

Executives

Chad Utrup – CFO, EVP and Secretary

Merv Dunn – President and CEO

Analysts

Ann Duignan – JP Morgan

David Leiker – Robert W. Baird

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Third Quarter 2010 Commercial Vehicle Group Earnings Conference Call. My name is Grace Ann and I will be your operator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Chad Utrup. You may proceed sir.

Chad Utrup

Thank you and welcome everybody the conference call. As usual allow me to read through our Safe Harbor language then Merv will give a brief company update. And I’ll take you through our results for the third quarter of 2010 and afterwards we’ll take time to answer your questions.

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 expectations for future periods with respect to cost savings initiatives, market conditions or financial covenant compliance and liquidity, the economic conditions in the markets in which CVG operates, fluctuations in the production volumes of vehicles for which CVG is a supplier, risks associated with conducting business in foreign countries and currencies, and other risks detailed in our SEC filings.

And with that, I’ll turn the call over to Merv.

Merv Dunn

Thank you Chad and thanks to all of you that have joined our call today. During the third quarter, we continued to see an improvement in North American Class 8 builds and according to Transport Topics, truck tonnage has continued to rise over 2009 levels. In addition to these positive truck market trends, we’ve also seen our global construction markets increased sizably over the last year and recently again this past quarter.

Although, we don’t currently expect these dramatic increases to be sustained, we are optimistic for 2011 and eager to move further past this economic downcycle. We believe our cash position and in fact that we had no debt on our revolving credit facility at the end the quarter, continues to place us in a favorable position to develop new geographic markets and respond to our improving end markets.

As we’ve stated before we see Mexico, China and India’s key develop areas to leverage our capability to be a global supplier to the global OEMs. And along with that, to develop a local presence within these markets. In September, we were pleased to announce an agreement with Daimler Trucks North America to provide trucks for DTNA’s manufacturing facilities in Saltillo, Santiago, Mexico, as well as three of their facilities in United States.

In accordance with that agreement, we also announced that we will open a new facility near Saltillo, Mexico. We expect this new facility which is an addition to our facility in Agua Prieta, Mexico to be in operation by mid to late 2011. Daimler has been valued long-term CVG customer and partner. The fact that they chose CVG for this strategic partnership is a testament to our engineering and production capabilities and our financial strength.

In line with our strategy, this agreement represents an opportunity for us to work with an existing customer and to also expand our geographic footprint to find new business opportunities in growing low cost production region. During the past quarter, we have also gained additional business awards in several exciting areas. The first is with the Texas based defense contractor to provide electrical components for use on a wheeled mine-resistant vehicle. This additional military business is meaningful because the M-ATV business we do for Oshkosh has moved from peak production volumes to more to a traditional replacement levels.

We anticipate production will begin in the first quarter of 2011 and the revenues to be approximately $2 million on annualized basis. Next CVG customer awarded us with approximately $5 million to $6 million incremental electrical component business for its compact construction equipment. Currently, we are ending the launch phase with this business to be produced in our Agua Prieta, Mexico facility. Additionally, we launched local production of wiring harnesses is to be used on excavators that John Deere manufactures with its partner XCG, in China.

We’re especially pleased this business is our first harness production in China. We anticipate annualized revenues for this new business to be around $850,000 in 2011 and grow to approximately $2.5 million in 2012, and rise to a range of $4 million to $4.5 million 2013. Finally, our Czech Republic operation has just been awarded $10 million to $12 million euros of annualized business to produce wiring harnesses for Skoda, a neighboring light vehicle automotive customer.

This business starts in 2012, as expected to hit peak revenues levels during 2013. CVG evaluates light vehicle business on a purely opportunistic basis. This award is a unique case for historical relationships paired with a great performance record that makes sense for both CVG and our customer. In September we had a very successful exhibit at the 63rd IAA Commercial Vehicle show in Hannover, Germany. The IAA show is one of the largest in the world and gave us a great opportunity to show up our products and capabilities on a worldwide stage and to meet with existing and potential new customers.

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