Williams Controls, Inc. (WMCO)

F4Q10 (Qtr End 09/30/2010) Earnings Call

December 15, 2010 10:30 am ET

Executive s

Dennis Bunday - CFO

Pat Cavanagh - CEO

Analyst s

John Nobile - Taglich Brothers Inc.

Michael Taglich - Taglich Bros, Inc.



At this time, I would like to welcome everyone to the Williams Controls fourth quarter and year end fiscal 2010 conference call. (Operator instructions) I will now turn the call over to Mr. Dennis Bunday, Chief Financial Officer.

Dennis Bunday

Good morning, everyone, and welcome to our fiscal 2010 fourth quarter and year-end conference call. Before we begin, you should note that the following discussions and responses to questions reflect management's views as of today, December 15, 2010, and may include forward-looking statements.

Actual results may differ materially from those projected in the forward-looking statements. Information concerning risk factors and other factors that could cause actual results to differ materially is included in our filings with the SEC, including our 2009 annual report on Form 10-K, our fiscal 2010 quarterly reports on Form 10-Q, and our fiscal 2010 current reports on Form 8-K.

Specific factors that may cause such a difference include, but are not limited to, availability of adequate working capital, domestic and international competitive pressures, increased governmental regulation, increased costs of materials and labor, general economic conditions in the United States and abroad.

I will now turn the call over to our CEO, Pat Cavanagh, for his comments on the quarter.

Pat Cavanagh

Thank you, Dennis. Good morning, everyone, and welcome to our fiscal year-end 2010 conference call. This morning we released our financial results for the fourth quarter and our complete results for fiscal 2010.

We enjoyed the fifth consecutive quarter of increased sales. From our low point in the third quarter of fiscal 2009, we've seen a recovery of our worldwide markets, the results of increased penetration in the off-road market and improvement in the emerging markets.

In our fourth quarter, our sales were $14.1 million, an increase of 34% over last year's fourth quarter sales of $10.5 million and up 3% from the year's third quarter. Net income for the fourth quarter was $0.07 per diluted share. For the fiscal year our sales were up 35%, as we ended the year at $52.3 million, higher than last year's $38.8 million. For the fiscal year, our earnings were $0.19 per diluted share compared to $0.27 per diluted share loss last year.

During the fiscal year, our earnings were negatively impacted by the development cost for a record number of new customer programs that will reach production in the next several years, an accelerated startup of our Indian facility, high premium freight charges as a result of a rampant production ramp up by our customers combined with supplier capacity issues and a settlement of a warranty and legal issue. Dennis will go into detail on these items later in the call.

We continue to enjoy positive sales trends that were established earlier in the year. These include significant sales improvements from new products and new program introductions for the off-road and military applications. Stand-alone sensors, electronic hand controls and continued increases in penetration of electronic controls in India and China.

While we don't breakout revenues in individual markets, I want to share with you some relevant comparisons and market projections. In the fiscal year we won new incremental business that will contribute almost $8 million annually in full production. In addition, approximately 4 million of our sales increase in fiscal 2010 came from new products and programs.

Our established market saw a recovery almost across the board. The European truck market was up 80% for the year. Sales in Korea showed 60% improvement this year and our off-road sales increased 57% over fiscal 2009 to a record off-road sales for Williams Controls. Also in the fourth quarter we awarded a new pedal program from a leading agricultural OEM and we signed an LOI with the major Indian truck manufacturer for our new light commercial vehicle pedal.

Our NAFTA truck OEM sales also showed solid results with the 21% recovery from fiscal 2009, with rising freight volumes, improved trucker profitability and the average age of class A trucks approaching seven years. The consensus points to a continued recovery of NAFTA truck bills in 2011. Although, the estimates as to the magnitude of this recovery very widely, current industry projections for calendar year 2011 are between 180 to 230 class A trucks, up from approximately 150,000 units this year.

Projections for calendar year '12 and '13 are over 300,000 class A trucks, basically double of what we saw this year. We also believe calendar year '12 and '13 will show increased penetration in the emerging markets of China and India, where we are well positioned.

Our sales in India in fiscal year 2010 almost doubled over the previous year. We saw this dynamic coming some time ago, and Dennis and I will be traveling to India in January, along with one of our board members to commemorate the opening of our new Pune factory, as we begin production for some of the industries leading OEMs.

We also plan to use our Indian facility to leverage our worldwide engineering and software capability. In fact one of our first hires in engineering is spending time in Portland this week, familiarizing himself with our capabilities. This facility will be key to our continued growth in the Indian market.

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