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Wabash posts record revenue, improved margins for third quarter

The Final Mile Products business segment continues to lead revenue growth at Wabash National Corp., as the publicly traded trailer and truck body manufacturer posted a record third quarter.

The company reported revenue was up 5% from the same period last year, to $581 million. Operating income was $38.3 million as Wabash achieved a consolidated operating margin of 6.6%, an improvement of 140 basis points from the third quarter of 2018—highlighting the success of both short and long-term initiatives targeting margin expansion.

“Q3 is a significant milestone of the process improvements we've implemented over the last year that have allowed us to stabilize challenges in the manufacturing environment and excel operationally," said Brent Yeagy, president and CEO. "Our team has executed on initiatives like supply chain optimization, transforming information flows from chassis OEMs and enhanced sales and operational planning to unlock capacity necessary for growth in Final Mile.”

In a conference call with investment analysts, Yeagy noted that the organization had done “an exceptional job” in overcoming the cost pressures from last year, with average selling prices that are up more than $2,000 per trailer.

“I'm encouraged by the progress we have made since the beginning of our Wabash Management System journey in mid-2018. And I'd like to thank our employees for their hard work in helping us achieve these results,” he said. “However, I'm most encouraged by a growing understanding within Wabash that our Wabash Management System is not just about reducing cost. It's truly about enabling profitable growth and advancing the strategy of our business for our people, our customers and our shareholders.”

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By business unit, Final Mile Products delivered revenue of $114 million in the third quarter, up 30% for the year before, a pace of growth that continues to “exceed our expectations,” Yeagy reported. That surge includes an operating margin expansion of 580 basis points to 4.1% and that shows "considerable underlying improvements.”

Yeagy also pointed to the opening of an upfitting parts and service location in Tampa, FL, which complements existing upfit parts and service locations in Cleburne, TX and Griffin, GA. The Tampa location is expected to enhance truck body penetration within the Florida market, as well as position the company to grow in the area of medium- and light-duty body and van upfitting solutions. And at the Goshen, IN truck body manufacturing location, year-over-year production has increased more than 20% coupled with a 30% improvement in manufacturing productivity.

Commercial Trailer Products revenue was $380 million during the third quarter, a 3.3% increase over the previous year's quarter. The largest unit at Wabash shipped 13,700 new trailers for the quarter, down 5.2% from a year ago—but new trailer sales revenue was up 7.4%. The CTP operating margin was 9.6%, an 80-basis-point improvement versus the prior year's quarter as a result of “successful efforts to counter cost challenges experienced in 2018,” Yeagy reported.

“CTP continues to execute on its innovation strategy to further differentiate its products and provide unmatched value to our customers,” Yeagy said. “CTP is currently commercializing Cell Core technology across its dry van product lines for 2020, as well as the added benefit of flush mount integrated logistics to provide unmatched customer value in terms of weight savings and enhanced cargo securement flexibility. In addition, CTP is actively preparing for a launch of its freshened Transcraft Eagle flatbed product for 2020 production.”

The Diversified Products group delivered revenue of $93 million during the third quarter after adjusting for the sale of the aviation and truck equipment business unit. Yeagy again pointed to the year-over-year operating margin improvement, up 220 basis points.

As for backlog, Wabash ended the third quarter at approximately $800 million overall.

“Backlogs have come down as expected within the various trailer market segments as the 2020 order season takes on a more traditional order pattern,” Yeagy said. “We have seen commercial trailer quote and deal activity increase significantly over the past several weeks of October. In addition, our tank trailer and FMP truck body backlogs sit at equal or greater levels than at this time last year.”

Outlook

Looking to 2020, Yeagy suggested it was “too early” to provide a detailed view, deferring to the year-end conference call with analysts. While the Wabash outlook is “consistent with industry forecasters,” he did offer some additional hints.

Yeagy sees “some strength” emerging in the dry van segment that could be offset somewhat by some weakness in the platform in refrigerated markets. Broadly, he anticipates “planned capacity adjustments” at Wabash, rather than a “cliff event situation” some competitors are facing as demand slows.

“When we look at 2020 at this point, we're able to basically meet what I would call work asset production levels without significant changes to our direct labor content, meaning that we can flex with overtime accordingly without making real structural changes to our operating environment,” Yeagy said. “We’re pretty linear in how we manage variable costs going into this next period, so I think we're well-positioned there.”

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