Wabco Holdings Inc. (WBC)

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Wabco Holdings, Inc. (WBC)

Q3 2010 Earnings Call

October 29, 2010 09:00 pm ET

Executives

Mike Thompson - VP, Car systems and Corporate Relations

Jacques Esculier - Chairman & CEO

Uli Michel - CFO

Analysts

Jeff Hammond - KeyBanc Capital Markets

Robert Kosowski - Sidoti & Company

Keith Schicker - Robert W. Baird

Ted Wheeler - Buckingham Research

Martin Sankey - Neuberger Berman

Robert Kosowsky - Sidoti & Company

Presentation

Operator

Good day ladies and gentlemen and welcome to the WABCO Q3 2010 results conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). 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 systems and Corporate Relations. Sir you may begin.

Mike Thompson

Good morning everyone and welcome to WABCO's quarterly conference call. Today we will present our third quarter 2010 results. With us this morning is Jacques Esculier, our Chairman and CEO and Uli Michel, our Chief Financial Officer. Before we begin, I'd like remind you of a few things. First, this call, webcast and the presentation that we are using this morning are available on our website wabco-auto.com under the heading WABCO Q3 2010 results.

A replay of this call will be available through November 29th. 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 third quarter 2010 quarterly 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. Welcome to out third quarter review and discussion with you but before we jump to our facts and numbers I would like to frame the third quarter in the perspective of the markets. We have seen across the world in all regions another very strong quarter of growth in the number of trucks, traders and buses built.

Actually this third quarter is the second quarter in a row with strong growths in the manufacturer of commercial vehicle in all the regions of the world. Now from WABCO's perspective I would like to share three highlights with you. The first one is that we have again outperformed the markets. The second one is that we continue to transform this strong market growth and strong growth in revenues into outstanding profitability and the third one is that the third quarter has again added to the confidence that we are building up in the recovery of our industry and this leaves us to again update and I would even say a great guidance for the year 2010.

Now looking at the numbers starting with the top line, our third quarter sales grew by 50% in local currency to $545 million. This comes from a very strong growth in demand from our OEM customers, it also comes from a remarkable 25% increase in our revenues year-over-year in aftermarket business. This quarter is actually an all time record quarter in revenues for after markets.

Performance growth profit margin is 27.7 for the quarter, up 200 basis points from 2009 quarter three leads to an incremental gross profit margin of 33%. Our performance operating income is at $56.4 million up about $40 million versus a year ago. We ended up with a margin above 10%, actually to be accurate at 10.3% and it leads to an incremental operating margin of 22%, performance EPS at $0.71 and then a free cash flow that I would call operational free cash flow of $52.4 million after we exclude non-operational items liked (inaudible) identification and other things leading to a conversion rate of a 119% and as I said we are right now in a position to confidently raising our full year guidance for 2010.

Moving to the next page, to kind of review sales performance and market dynamics. Starting with finance, we were up as I said 50% excluding the impact of foreign exchange and when we look at it from three different channels, we generate revenues from starting with OEMs up 59% year-over-year, up 7% sequentially versus Q2 2010, obviously supported by a strong growth across all regions particularly in Europe and South America this quarter as well as continuous increase of our content per vehicle, active markets went up 25% this quarter.

Again we achieved all time record in revenues mostly coming from higher fleet utilization rate as well as obviously continued strong execution of our active market strategy. Also it's worth noting that active market is using a very good indicator for the future evolution of demands from the OE channel. Then our sales to joint venture driven mostly by our sales through our American joint venture, up 74% driven by a strong increase in demand for trader products in the US 82% as well as preparing the supply chain to support what we believe to be a strong acceleration in business activity starting in Q4 2010 extending obviously deep into 2011.

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