Wabash National Corp.
Trailerbodybuilders 6321 Wabash Corporate

Wabash posts record Q1 revenues; bottom-line gains to follow

May 4, 2018
Pointing to strong overall demand, greater than anticipated new trailer shipments, and revenue from its Final Mile business, Wabash posted record Q1 sales.

Pointing to strong overall demand, greater than anticipated new trailer shipments, and revenue from an expanded Final Mile business,  Wabash National Corporation has reported its best-ever first quarter net sales of $491 million, an increase from the prior year of 36%.

Operating income, however, decreased 15% to $25.7 million, as rising raw material costs, along with normal seasonally higher operating costs and “inefficiencies” associated with growing the workforce, all impacted margins throughout the quarter. CEO Dick Giromini also pointed to the ongoing development costs associated with its molded structural composite (MSC) and Cell Core panel technologies.

“While unfortunate that these all seemed to come to a head at the same time, we need to recognize that this is temporary in nature and a standard part of doing business in the industrial manufacturing space, especially when growing and diversifying your business as we are,” Giromini said during an earnings call with investment analysts. “Our expectations are that this past quarter will prove to be, by far, the low-water mark of performance for the year.”

A solid U.S. economy, combined with record carrier profitability, have led to an “extremely bullish” trailer market, with FTR Transportation Intelligence and ACT Research forecasting 2018 trailer production of 305,000 and 320,000 units, respectively, he noted.

“I can’t emphasize strongly enough how confident we are and how good we feel about the year going forward, with the actions that have been taken by the organization, relative to pricing, to offset some of the headwinds that we’ve seen in material costs,” Giromini continued. “With the significant increase in demand through the rest of year, it’s going to make a tremendous impact on both the top line and bottom line.”

Specifically, Wabash was able recover some $6 million in material costs through repricing orders from the backlog. As COO Brent Yeagy explained, Wabash could increase the price of trailer orders already on the books because of longtime customer relationships and “transparent” communication.

“Some of those conversations are not the most pleasant in the world. But what we have done shows the fruits of building relationships—deep relationships—with some of the most strategic customers in the industry,” Yeagy said. “We’ve been having this conversation leading up to this moment—so we had a high degree of success in passing along those costs once we were able to make that argument.”

And that favorable pricing environment is expected to last into next year, Giromini suggested, noting that “volume leads margin.” He compared the current market to the run-up in 2015-2016.

“The volume has recovered, and now the pricing opportunities have followed,” he said. “The challenge is: Can the supplier community meet these demand requirements? We know that in the 2015-16 timeframe, trying to meet the kind of demand that the industry had at that time was stressing the supplier community. We’re seeing some of those same challenges.”

He added that Wabash is “fortunate” to receive “preferential treatment,” so the company has not had to manage the supply challenges that “many of the smaller players” currently face.

“But there can be interruptions when you get into this strong demand environment,” Giromini said. “As in 2015-16, volume will flow into the following year as capacity is limited by the supplier community.”

Integration of Supreme into the Wabash Final Mile operation is “on track and in many areas ahead of schedule,” Giromini noted, adding the he’s been “very impressed” by the team’s progress so far.

“As both production and shipments increase during the second and third quarter seasonal peak periods for the Final Mile business, we will the realize benefits of increased revenues and profits in this segment,” he said.

Among other key takeaways:

  • Wabash delivered 13,200 trailers in the first quarter, and has increased its 2018 projection for new trailer shipments by 2,000 units, to a range of 58,000-62,000 trailers.
  • Backlog reached a record level of $1.3 billion, with sequential increases of 40% in Diversified Products and 50% in Final Mile. Trailer orders within the Commercial Trailer segment led its third highest first quarter backlog on record, up 22% compared to a year ago.
  • Income from operations margin slipped to 5.2%, down from 6.5% in the previous quarter and from 8.3% in 1Q2017.
About the Author

Kevin Jones | Editor