WABCO Holdings Inc. (WBC)
Q4 2012 Earnings Call
February 15, 2013, 09:00 pm ET
Jason Campbell - Financial Reporting & IR Director
Jacques Esculier - Chairman & CEO
Uli Michel - CFO
David Leiker - Baird
Robert Kosowsky - Sidoti
Brett Lindsay - KeyBanc Capital Markets
Alex Potter - Piper Jaffray
Tim Denoyer - Wolfe Trahan
Jerry Revich - Goldman Sachs
Ed Wheeler - Buckingham Research
Larry De Maria - William Blair
Previous Statements by WBC
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I would now like to introduce your host for today’s conference call, Mr. Jason Campbell, Director of Investor Relations. You may begin.
Thank you, Kevin. Good morning, everyone and welcome to WABCO’s quarterly conference call. Today, we will present our fourth quarter and full year 2012 results. With us this morning is Jacques Esculier, our Chairman and CEO; and Uli Michel, our Chief Financial Officer.
As a reminder, this call, webcast and the presentation that we are using this morning are available on our website, wabco-auto.com, under the heading WABCO Q4 2012 Results. A replay of this call will be available through February 22nd.
Also, as shown on chart two of the presentation, certain forward-looking statements that we’ll make today are based on management’s good faith expectations and beliefs concerning future developments. As you know, actual results may differ materially from those expectations as a result of many factors, examples of which can be found in our company’s Form 10-K which was filed this morning with the SEC and our quarterly reports.
Lastly, some of our remarks contain 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.
I’ll now turn the call over to Jacques.
Well, thank you Jason. Good morning, good afternoon everyone and Happy New Year to you all. Thanks for joining us today. But before we jump into reviewing our Q4 and full year 2012 numbers, let me kind of frame these results into a context within the dynamics of our markets.
I would say first that the global economy is still in what I would call the holding pattern with some ups and downs. We are waiting for the US and Europe to decisively rebuild their economical strength which will lead them to growth in their industrial activities. However, when we look at this point, I believe the political environment in Europe had not yet really made the progress that I think is necessary to us for any kind of economical rebalance. However, I feel optimistic that things are progressing in the right direction there and that should ultimately lead to an improvement in industrial activities in Europe.
Now when you look at 2012 market evolution, the truck demand in this part of the world has dropped around 10% versus the level of 2011. Now when you look at the US, the market has experienced a very strong and sudden turn during the first half of 2012, but unfortunately, this led to a collapse in major slowdown in the second half of 2012, which was around 16% lower in production versus H1. In the meantime, those emerging markets have actually all suffered in 2013, particularly in the second half and so altogether, the global market has seen an erosion of 10% in production rate year-over-year for commercial vehicles.
Now in our view, this year 2013 should basically be more of the same, except maybe in Brazil after a disastrous 35% drop in the number of trucks built in 2012, obviously driven by the pre-buying that happen in the later part of 2011. So now what does that means for, what’s going? Well, it means that we continue to do what we do best, continuing to flex our capacity up and down, continuing to adapt and to optimize our organization and also continuing to invest and develop differentiation through innovation, technology, globalization, service level to our customers while obviously staying well positioned and ready to jump up on all opportunities that markets will offer.
So now looking back on 2012 our performance and achievements reflect exactly the strategy that I just described. As I mentioned before, during that year the market lost significant momentum, but we were able to continuously adapt and flex our capacity and cost structure to secure the best results for our shareholders and we end up actually delivering a new record in performance operating margins.
Looking at slide three, starting with the topline. For the fourth quarter, our sales ended up close to $600 million, down almost 8% year-over-year, I think with exchange rates, and down 1% sequentially versus sales in Q3. Performance operating income reached $75 million down from $90.5 million a year ago which led to a operating margin of 12.6% leading to a performance earnings per share of $1.08 per share versus $1.21 last year, generating a healthy free cash flow of $49 million of which actually we returned $51 million back to shareholders with repurchase of about 800,000 shares.
Now looking at the full year 2012, we ended up with sales close to $2.5 billion which is close to 5% less of where it was in 2011. Our performance operating income at $335.6 million versus $375 million a year ago leading to again new record level of operating margin of 13.5%. Performance EPS was $4.46 per share versus the $4.73 we had reached a year before and we generated a very strong free cash flow of $274 million which led to a strong 94% conversion rate, so again even though we had to deal with a market that was very challenging across all regions of the globe, we ended up delivering strong result even actually breaking the new record in operating margin.
Going to page four, as we do every quarter, we are kind of framing the revenue evolution of WABCO versus the evolution of our markets in all channels and regions of the world. So again, our performance revenues went down 7.9% versus a year ago. Looking at the channels, the OE channel actually has seen a decrease of sales of 12% which is consistent with a very strong slow down in that quarter in all markets globally, and it’s also seasonally 1% down versus Q3, 2012.
We had a solid performance in aftermarket with a growth year-over-year of 9% breaking a new record in quarterly revenue and also seeing consistent growth across all regions of the world. We continue also to actually replace some of our competitor’s air disc brakes through a campaign launch by one of the key European OE manufacturers.