Wabco Holdings Inc. (WBC)

WBC 
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WABCO Holdings Inc (WBC)

Q3 2008 Earnings Call

October 29, 2008 8:00 am ET

Executives

Jacques Esculier – Chief Executive Officer

Ulrich Michel – Chief Financial Officer

Michael Thompson - Vice President, Strategy and Investor Relations

Analysts

Jeff Hammond – Keybanc Capital Markets

Steve Tusa – JP Morgan

Martin Sankey – Neuberger Berman

Michael Coleman – Sterne Agee Group

Unidentified Analyst

Presentation

Operator

Good day and welcome to the WABCO third quarter 2008 earnings results conference call. Today’s call is being recorded. At this time, I’d like to turn the conference over to the Michael Thompson. Please go ahead, Sir.

Michael Thompson

Thank you, Michelle. Good everyone and welcome to WABCO’s quarterly conference call. Today we will present our third quarter results as well as our outlook for the remainder of this year. With us this morning is Jacques Esculier, our Chief Executive Officer and Ulrich Michel, our Chief Financial Officer. Jack will start the call of with his perspectives on the quarter, and Ulrich will follow with more detail on our financial performance. We will then open the line for your questions.

Before we begin I would like to remind you of a few things. First this call, webcast, and the presentation that we will be using this morning are available on our website www.wabco-auto.com under the heading WABCO Third Quarter Results. Replay of this call will be available through Thursday, November 6th. Second, as shown on chart two of the presentation, certain forward-looking statements that we will make today are based on management's good faith expectations concerning future developments. As you know, actual results may differ materially from these expectations as a result of many factors, relevant examples of which are set forth in our company’s Form 10-K and quarterly reports. Lastly, some of our remarks contained certain 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. With that, I will turn the call over to Jacques Esculier.

Jacques Esculier

Thank you for joining us on this call today. Before starting, I wanted to just share with you that it’s going to be probably the strangest quarterly report that I would ever have to make today because we will report and share with you the results of what is our 26th consecutive quarter of growth, both at the top and bottom lines, and then we’re going to immediately shift into major actions that we have taken and are still taking to anticipate the impact of these turbulent times that we will most probably affect most industries across most of the countries around the world.

First, let’s spend a little time reviewing, again, what has been a very good quarter for us, again demonstrating our continued ability to outperform our markets everywhere in the world. Our sales growth of 2% in local currencies or 10% reported at $655 million translated into a performance EBIT of 11% in local currencies, or 27% reported, resulting in $0.94 of EPS at 45%, and then an EPS reported of $0.97. I think it’s noteworthy to also describe the fairly exceptional conversion rate of 123% for free cash flow of $78.4 million for the quarter. We continue to repurchase shares, and we actually repurchased $1.3 million of those during the quarter, but suspended the program in early October momentarily given the obvious circumstances we had to face at that time.

Now looking ahead, our fourth quarter looks significantly less attractive than what we had anticipated, and it leads us to adjust our performance EPS projections from the prior guidance of $4.12 to $4.26 to $3.90 to $4.00 at equal exchange rate and anticipating obviously an impact of the exchange rate down to $1.3 per euro, it would go down to $3.85 to $3.95. To just put things in perspective, when we last reviewed our guidance, we had forecasted a drop in revenues or in growth more exactly for the second half of the year between +4% to +10% coming out of our first half of the year at +14%. After revision, we are right now seeing second half of the year to be a -5% to -1% decrease in our revenue base.

Turning to page 4, I would say that in these turbulent times and for the last three years, we have refocused on two things that we will keep focusing on actually as we move ahead. One is our ability to anticipate any downturn, any trend, or any change of trend in the industry. Obviously, we’re talking about right now negative trends, but I think it’s going to be very important moving forward that we also fully anticipate a reverse in trend that will lead to a recovery in our industry because we certainly want to fully take advantage of future recovery in the overall business environment.

The second area of focus is definitely to maintain the essence of our intent, which is to continue our passion for growth across these turbulent times. Now, looking at what happened around the first area of focus in the third quarter, just after we turned the page and actually reported to you all an outstanding second quarter result, and I think it’s going to stay probably as one of the best quarters in terms of growth, as we had reported at that 16% growth and still admitting that the second half was again not as strong as what we had seen during the first two quarters. Shortly after that, we received some first signals of a potential slowdown even, again, beyond the forecasted slowdown that we had shared with you, and we immediately triggered actions to mitigate the challenges that were identified on the horizon, so we launched a program to decrease costs and progressively along the last 2 to 2-1/2 months approximately, we ended up with a program that was actually identifying $20 million of savings during the last 5 months of the year, $4 million of which actually kind of positively affected the third quarter, the remaining $16 million being affecting the fourth quarter.

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