Accuride Corporation's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Accuride Corporation (ACW)

Q2 2012 Earnings Call

July 27, 2012 10:00 AM ET


Greg Risch – VP and CFO

Rick Dauch – President and CEO


Jimmy Baker – B. Riley & Co

Kirk Ludtke – CRT Capital Group

Robert Kosowsky – Sidoti & Couple of

David Owen

Barry Hynes – Sands Asset Management

Ren Wood – BB&T Capital Markets

Peter Chang – Credit Suisse

Emanuel Bell – Goldman Sachs Asset Management



Good day ladies and gentlemen and welcome to the Second Quarter 2012 Accuride Corporation Earnings Conference call. My name is Shenell and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Greg Risch, Chief Financial Officer. Please proceed.

Greg Risch

Thank you, Shenell and thanks everyone for joining us today. As we turn to page two, I want to remind everyone that during this call we’ll be making statements that could be considered forward-looking as defined in the Securities Act. We caution you that these statements are subject to risk in our businesses and we encourage you to read all of our SEC filings to understand what those risks are. Please turn to slide three.

During today’s call, Rick will provide an update regarding activities within the company along with key highlights in our industry. I’ll then review our second quarter results prior to open up the line for questions.

With that, I’ll turn it over to our President and CEO, Rick Dauch.

Rick Dauch

Good morning everybody and thanks for your continued interest in Accuride. Let me start off, talk about what we achieved in the second quarter. Our Fix & Grow strategy, we restructure and restore Accuride’s profitability remains on track. It’s a long-term strategy. The business did not get broken overnight and it won’t get fixed overnight. Wheels and Brillion were strong performance for us during the second quarter. Very important for us that we got Imperial’s Decatur and Texas facilities back under operational control.

We put an entire new management team in there. We’ve improved – we’ve eliminated the past dues situation. We’ve improved delivery performance. We’ve eliminated premium freight and we’re now in the process of reducing overtime and labor costs to get back on track from a profitability standpoint.

We’re also very excited to announce that we’ve earned $12 million to $15 million in new business with different customers than the normal Imperial customer base. That represent about a 10% uptick in 2013 over 2012’s current forecast for Imperial. Our aluminum wheel capacity expansions, projects are two to three weeks ahead of schedule in both Camden and Monterrey. And we have more than 25% of the new Gunite machine equipment now installed and operated at our Rockford facility, the second drum line just was installed and has been qualified and starts ramping up this week. And the new assembly line for the slack adjusters was installed just 10 days ago and we were there two days ago watching to make parts getting to ready to ship to customers.

We continue to examine the potential consolidation of some of our heavy duty steel wheel capacity in London and Mexico. And we’ve made a public announcement the difficult decision to close our Elkhart Indiana facility by the first quarter of 2013. These actions help to align our manufacturing footprint with market demands. We’ll improve our operating efficiency. We’ll reduce fixed cost structure and increase our profitability.

We did have some challenges in the second half. We started to experience some near-term net order weakness, which are causing OEMs to reduce their second half production schedules. Although now operation is stable, the Imperial consolidation has been delayed by about six to eight months. We’ve put it on hold for about 60 days till we get the plant down in Texas that we control and we’ve modified some of the building construction that need to be done. So that’s been the jag in our performance in the first half of the year but that would get much better in the second half.

Demand for aluminum wheels in the quarter continued to remain strong, our plants were running seven days a week all quarter long. Our new capacity, we’ve gone up about 5,000 wheels a week in the last six weeks and we’re going to add about another 5,000 wheels a week coming forward to next six weeks. So we’re going to get ahead of the capacity, a situation there for the first time in over two years.

We do continue to experience soft aftermarket demand in Gunite, mostly as impact of offshore pricing and we’ll continue to take a look at that whether we needed to take some actions to address some potential dumping issues on that side of the house. Let me switch gears and let’s talk about the overall industry fundamentals, okay. Overall, if you take a longer term look, the fundamentals are pretty strong.

GDP here in North America is expected to grow between 2% and 2.5% annually. Historically the fleet is at an all-time age of about 6.7 years on the tractors and over eight years on the trailers. Even if you adjust out the low miles in the currently 2008, 2009 the overall tractor was about 6.4 years old right now. Fleet utilization rates continue to run north of 90% so they are starting them to get some wear and tear. In the bottom line is the fleets are also making money and have the ability to invest in new trucks to replace the aging fleet at the time they want to.

However our next slide, near-term order weakness does persist. OEMs continued to build in the phase of weak orders in the second quarter and that just simply is unsustainable. Backlogs are coming down and OEMs are building some inventories, we’re starting to see some custom schedules. What’s causing the order weakness? Truck buyers are concerned about the economy in Europe. They are not willing to put on the extra debt in case there is some kind of a double-dip recession here. Obviously we have some political uncertainty here in North America that will not work itself out until November. Fuel prices were quite high earlier in the year, they have come down but now they are starting to creep back up a little bit and there are some new CAFE standards that are coming in with new engines in 2014, there may be some fleets trying to stretch out some of length of their ownership of the truck to get to those new engines.

Why do OEMs continue to build? First of all they ramped up pretty quickly in third and fourth quarter and it’s not so easy just to ramp right back down. No one wants to lose – risk of losing some market share. There is obviously a favor and there is some market share swing going on out there right there. They want to reduce the backlog of orders they did have and those with inventory creates some cushion there. So as I’ve learned in the last two years the summer months are very typically slow order months, July and August specifically so we’ll see what happens in September, October, November here.

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