Wabco Holdings Inc. (WBC)

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WABCO Holdings Inc. (WBC)

Q2 2010 Earnings Conference Call

July 28, 2010 9:00 AM ET

Executives

Mike Thompson – VP, Strategy and IR

Jacques Esculier – CEO

Ulrich Michel – CFO

Analysts

Jeff Hammond – KeyBanc Capital Markets

Robert Kosowsky – Sidoti & Company

Ted Wheeler – Buckingham Research

Presentation

Operator

Good day ladies and gentlemen and welcome to the WABCO Q2 2010 Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. If anyone should require assistance during the conference please press star and then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Mr. Mike Thompson, Vice President, Car Business and Corporate Relations. Sir you may begin.

Mike Thompson

Thank you (Daven). Good morning everyone and welcome to WABCO’s quarterly conference call. Today we will present our second quarter 2010 results. With us this morning is Jacques Esculier, our Chairman and Chief Executive Officer and Uli Michel, our Chief Financial Officer.

Before we begin, I’ll remind you of a few things. First, this call, webcast and the presentation that we are using this morning are available on our website www.wabco-auto.com under the heading WABCO Q2 2010 results. Replay of this call will be available through August 28th.

Second, as shown on chart 2 of the presentation, certain forward-looking statements that we’ll make today are based on management’s good faith, expectations and belief concerning future developments. As you know actual results may differ materially from these expectations as a result of many factors, examples of which can be found in our company’s Form 10-K and quarterly reports including our second quarter 2010 report, which was filed with the SEC this morning.

Lastly, some of our remarks contain non-GAAP financial measures as defined by the SEC. Reconciliations of the non-GAAP financial measures to the most comparable GAAP measures are attached as an appendix to this presentation and to our press release from this morning, both of which are posted on our website.

I’ll now turn the call over to Jacques Esculier.

Jacques Esculier

Thanks Mike. Good morning to everybody. Well first on behalf of the WABCO folks I would tell you that I am very happy and proud to report another exceptional quarter performance for our company. But before we jump to numbers, I would like to share a few highlights with you.

Starting with the fact that for the first time in two years, market is re-firing on all cylinders, indeed when you look across the world all regions have significantly increased their level of production for commercial vehicles actually above 50% for all of them except in the US where it was only 12%. Second, during the second quarter WABCO has again outperformed the markets. Third, this second quarter results confirm our exceptional ability to transform topline growth into great profitability and fourth, our confidence in the progressive recovery of our market is actually strengthening and this results were actually in our ability to again raise our 2010 guidance.

Now looking at numbers starting with revenues, we end up the quarter with a sales of $512.3 million, up 65% excluding the impact of foreign exchange just to note upfront that its 25% below our second quarter 2008 record level. Gross profit margin actually up already at a record level of 29.3% versus 22.6% a year ago. When you look at the operating income, we reached $52.6 million versus loss last year. And we are back in the world of double-digit margin at this level, to be accurate; we ended up the quarter at 10.3%.

All this leading to a performance earnings per share of $0.63 versus a loss of $0.07 in the second quarter the performance level. Now obviously when considering the significant impact of the announcement of the European fine indemnification at $400 million, obviously the reporting EPS is going down to $5.68 of loss. We again generated very strong cash flow of $74.9 million now, when you look at the what I call the operational conversion rates, that’s excluding all the exceptional items which leads to the fine to refinance them receivables, we ended up with a conversion rate of 88%.

And again in view of the continuous improvements in the market conditions we are in a position to raise our full-year guidance as we will go in detail through that at the end of this presentation. So conclusion is our market is to definitely better across all regions and WABCO is able to fully leverage this market unwind (ph).

Turning to next page, describing the market structure and evolution, first of all as I already said we went up 65% revenues excluding exchange rates driven by a strong growth coming from our activity – the impact of the India transaction that happened I’ll remind you actually back in June 2009. So those revenues from are 10% versus the previous quarter, its led by a strong recovery in Europe and continuous strong growth in emerging markets as well as a continuous increase content per vehicle in all regions of the world.

Aftermarket which is another record level of growth 29% or 24% again excluding the impact of the India transactions. And we are back to a revenue level pre prices level. And this is obviously driven by higher fleet utilization rates and is also a confirmation that the OE growth in the manufacturing of commercial vehicles is on the move. Sales of joint venture which most represent our sales to the Meritor WABCO joint venture in the US is up 101% driven by a very strong increase in demand for traders in the US as well as preparing the supply chain for an anticipated strong growth in the second half of this year and particularly in 2011.

Read the rest of this transcript for free on seekingalpha.com