Wabco Holdings Inc. (WBC)

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WABCO Holdings Inc. (WBC)

Q2 2008 Earnings Call

July 30, 2008 8:00 am ET

Executives

Mike Thompson - VP, IR

Jacques Esculier - CEO

Ulrich Michel - CFO

Analysts

Jeffrey Hammond - KeyBanc Capital Markets

Steve Tusa - JPMorgan

Ted Wheeler - Buckingham Research

Martin Sankey - Neuberger Berman

Ben Falck

Presentation

 

Operator

Good day and welcome to the WABCO second quarter 2008 earnings results conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Mike Thompson, Vice President, Strategy and Investor Relations.

Mr. Thompson, Please go ahead.

Mike Thompson

 

Thank you, Teresa. Good morning everyone and welcome to WABCO's quarterly conference call. Today, we will present to you our second quarter results and then answer any questions you might have. With us this morning is Jacques Esculier, our Chief Executive Officer and Ulrich Michel, our Chief Financial Officer. Jacques will start the call with his perspectives on the quarter, and Uly will follow with more detail on our financial performance, we'll then open the lines for your questions.

Before we begin, I'd 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 second quarter results. Replay of this call will be available through Thursday, August 7.

Second, 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 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 contain certain non-GAAP financial measures as defined by the SEC. Reconciliations of the non-GAAP financial measures to the most comparable GAAP measure 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'll turn the call over to Jacques.

Jacques Esculier

Thanks Mike, and good morning everyone, and welcome. Before we jump to actually our Q2 results, I'd like to kind of remind you that in a couple of days actually on Friday, WABCO will celebrate its first anniversary as a publicly traded independent company, and I think, today is a proper platform actually to maybe look at those last 12 months and reflect on what we have achieved so far.

We're going to do it basically using the three main areas of priorities that we've been pursuing in the last few years. One, around at our effort to improve execution across the value chain, the second one is the commitment that we made to transform WABCO that was historically more focused around its traditional markets in Europe and US and kind of expand it's reach to emerging markets.

A third one is, obviously to continue to drive technology as a major differentiator for our business. But again, going back to the way we improve our execution, continuously implementing improvement activities initiative under the umbrella, a concept of the WABCO operating system starting with our continuous deployment of the Lean Six Sigma activities across the value chain, specifically across our factories, across our key suppliers and in logistics.

That has produced some very significant results in the last 12 months. I will start with a significant improvement in the quality of our products that is very well appreciated and recognized by our customers. Actually three of them in the second quarter gave it very prestigious distinguished awards to recognize against the performance of our service level.

I'm talking about Volkswagen in Brazil, Tata in India and KAMAZ out of Russia. When we look at what it does to our profitability, actually from Q2 2007 to now, we have been able to basically lower our accrued expenses to cover warranty expenses from 1.6% to 1.2%. Obviously, improving processes across the value chain also trigger opportunities to generate productivity and when you look at the first half of the year, we have been able to generate in excess of $56 million of good productivity more than offsetting all the headwinds around inflation, commodity price increase and others.

The second thing, we're really paying a lot of attention to and that really delivers a lot of value for us is the way we develop products. We want to make our products more reliable. We also want to make the product development of our products, less expensive and also using less CapEx.

Again, I remind you and you will see again that it happens in the second quarter that we have consistently been able to maintain our CapEx below D&A, so in the last 12 months all the product development activities we have run have seen improved CapEx, significantly lower costs and better quality.

By continuously adhering to those kind of more advanced management environment, WABCO is an attractive place to grow a career for good talents. Not only to actually retain the talent we have, but also to attract some very powerful capabilities and talents from the outside who come to continuously strengthen our global leadership.

Talking about the way, we again transform our company into a company of the world into a more global company. We've seen a lot of improvement and very strong, actually improvement in distinguishing our brand as a brand of reference in all emerging markets and that is a good base to actually generate exceptional sales as we've seen India, China, Brazil, Russia, growing in the last 12 months.

I would just remind you that in 2007, we have doubled our revenue from China. Now looking back at the first half of 2008, we have driven another increase of 75% of its revenues generated by China year-over-year. In order to support this expansion in sales and revenues we obviously have to increase our capacity in those places and we have in the last 12 months inaugurated two manufacturing facilities in India and one in China and we are also further leveraging these low cost countries facilities to transfer labor intensive products from high cost countries to these places generating some good saving and productivity there as well.

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