Wabco Holdings Inc. (WBC)

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WABCO Holdings Inc. (WBC)

Q4 2008 Earnings Call.

February 05, 2009 8:00 a.m. ET


Mike Thompson - VP, Strategy and IR

Jacques Esculier - CEO

Ulrich Michel - CFO


Steve Tusa - JP Morgan

Jeffrey Hammond - Keybanc Capital Markets

Mark Shanky - Neuberger

John Smith - Marvel Management



Good day and welcome to the WABCO Fourth Quarter 2008 Earnings Release Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Mike Thompson. Please go ahead.

Mike Thompson

Thank you Mark, Good morning everyone and welcome to WABCO's quarterly conference call. Today we will present our fourth quarter and full-year 2008 results, as well as our current operating framework for 2009. With us this morning is Jacques Esculier, our Chief Executive Officer and Ulrich Michel, our Chief Financial Officer.

Before we begin, I would like to 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 Q4 and full-year 2008 results. Replay of this call will be available through Wednesday, February 11.

Second, as shown on chart 2 of the presentation, certain forward-looking statements that we will make today are based on management's good faith, expectations and belief concerning future developments. Actual results as you know 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 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.

With that I will turn the call over to Jacques Esculier.

Jacques Esculier

Thank you, Mike. Good morning to you all and happy New Year. First, I would start by kind of glancing rapidly through the highlights of our performance for the full year 2008 and this first quarter that we unfortunately be the first quarter of contraction in our revenues after 27 very successful consecutive quarters of growth at WABCO.

Starting with the full year 2008, I would say 2008 has been an extraordinary year built three major phases. One, covering the first two quarters with an exceptional growth of 14% up to 16% actually in the second quarter. The second phase I would call is holding pattering that is Q3 generating a meager 2% growth. And I would call the third phase, the landslide that we have witnessed in our Q4.

Now altogether, the year generated basically a flat level of revenues year-over-year. I would say it's flat in dollars from the operational standpoint it was incredibly challenging and certainly more challenging than just a flat year we started by across the first six months building up significant levels of additional capacity, both in assets and people.

Then we had to extremely rapidly reverse in the later part of the year constraining our expenses, investments as well as obviously starting reduce our workforce. And across all these kind of constraints and particular evolution of things, WABCO was still able to hold margin at 11.6%. And actually when you look at it at performance level, we even increased slightly by 4 basis points and versus 2007.

This superb execution supporting also a pretty good level of productivity was also kind of a supporting a nice rise in our EPS up 25% versus 2007 and a significant record cash flow in excess of $240 million leading to a conversion rate way beyond 100%.

Now when we look at the fourth quarter in particular, I can tell you that it was a, I think in all our memories, as a very special period during which the global demand for commercial vehicle literally fell off the cliff leading to a decrease in our revenues of 25% reported in local currencies.

Now again given the speed and the depth of this reverse in trend, the supply chain and the overall company had to react extremely rapidly and fortunately enough as you know we had anticipated as early as August that we could see a significant drop ahead in the market demand and we had already started to kind of adapt the company to a lower level of demand.

So overall, I would say we are successful and I really repeat successful at keeping a margin of 9.5% of performance EBIT level in spite of all this, which is down 12.9% versus 2007. This resulted in EPS of $0.62 at performance level, down 39% and steal a pretty good free cash flow of almost $60 million for the quarter.

Next page, the drop of 25% in our revenues is based on a drop of demand from our OEMs resulting in 30% less revenues from the channel, a contraction of our aftermarket revenues by 14% and a continuous decrease in our sales in the US through our joint-ventures by 12%.

Now when you look at the way the market behaved in the different regions of the world for this fourth quarter and in particular for the December month as compared to the revenue behavior of WABCO in those different regions, one can see immediately that this time we did not outperform our market like we do usually. And this is directly explained by the fact that our customers have started to drastically adapt the inventories of our parts to align them with this new rate of production.

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