Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the Q4 29 PM well gosh National earnings.
At this time, all participants are in and listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time.
No one should require assistance during the conference. Please press Star then zero Touchtone telephone.
A reminder, this conference call is being recorded.
I'd now like to turn the conference over to your host Mr. Ryan lead director of Investor Relations. Please go ahead Sir.
Like you Katrina.
Good morning, everyone. Thanks for joining us on this call.
With me today are Brent Yeagy, President and Chief Executive Officer, and looked at it Chief Financial Officer.
Couple of items before we get started.
First please note that this call is being recorded.
I'd also like to point out that our earnings release, the slide presentation, supplementing todays call any non-GAAP reconciliations are available at IR Dot Wabash National Dotcom.
Please refer to slide two on our earnings deck for the company Safe Harbor disclosure addressing forward looking statements.
I'll now hand, it over and asked would you. Please refer to slide three as Brent gets us what started with as hot.
Thanks Ryan.
Hello, and good morning to everyone with us on the call today.
I'll start by first looking at our full year.
We're pleased that continued revenue growth, while also growing operating income net income and he P.S. versus the prior year.
<unk> cash generation continues to be strong and I'm very pleased to add up to our street or what is now seven consecutive years of free cash conversion of 100% or greater.
We took actions I das business assets that were not part of our strategy a quarter of business. We also made major strides and further transforming Wabash inline with the strategic vision that we have for this company, which are white wine and additional details.
Further on the call.
Lets transition and discuss our fourth quarter.
During the fourth quarter, we continued strong topline performance that is characterized before year end 2019.
We generated record sales of just over $2.3 billion during the full year 2019 with $579 million at revenue in the quarter.
Overall topline for the year end of quarter were driven by strong market performance and pricing in all three operating segments.
Operating conditions in the quarter were somewhat challenging as we navigated through the end of your scheduling in demand fluctuations are CTP and DPG segments, we're able to mitigate the majority of these challenges to pricing actions and their ability to leverage leaner and more nimble operations characterized by their overall Wabash management system maturity.
However, S&P business had a more difficult time executing through those challenges.
As such profitability for the quarter was slightly below expectations on a consolidated basis and as previously stated CTP and DPG were solid performers wasn't able to offset have been piece challenges for the quarter.
Let me get a little bit more detail about snps fourth quarter environment.
New customer inflow and traditional customer order pattern variation challenge the operating systems within bottom our products, which weighed on profitability in the quarter.
This business is in the envious position about and execute on both new growth and a changing customer demographic as being brought on by secular market trends and a new and growing final mile products value proposition based on improved on time delivery and innovation.
The reality is that our operating systems within bottom line of products have further improvements to make.
In order to more efficiently execute on its growth trajectory.
Changes our foot within bottom our products and Wabash national to accelerate the fundamental products operational improvement to more fully incorporate Wabash management system into it everyday operating environment.
The way matter time until a greater level of bottom line performance emerges within this exciting business.
Now I'd like to take a moment share with what we've been doing beyond the numbers to position Wabash for the future.
As part of the leadership transition in 2018, we spent time assessing the company's history legacy competitive advantages and culture.
All with the purpose to better align the organization, creating new organizational set of capabilities to deliver on our revised strategy.
As a result, we've realigned our purpose vision mission and values to reflect how Wabash national can best position the organization to provide breakthrough customer value.
Turn profitable growth.
Well results.
Exciting and rewarding future for our employees.
Beginning at the top we see our purpose for the reason we exist as changing how the world reaches view.
Well back products already touched everything in the logistics chain nothing news without our products and our purpose speaks to how we will align our innovation resources the scale of our desired impact and the legacy that we will create as an organization.
Our vision.
What and how we fulfill our purpose our vision is to be the innovation leader of engineered solutions for the transportation logistics and distribution industries. We believe this vision appropriately captures our foundation as innovators.
And is also broad enough to define where we will grow yet specific enough to show, where we will win.
Our mission is how we intend to act now.
We will enable customer success with breakthrough ideas and solutions that help them move everything from first to final mile.
The customers at the center of our mission and directs us and how we will innovate and provide real change to assure all of our stakeholders are successful.
We've also updated our values and leadership principles to refresh, reflecting more refined inclusive and enabling culture.
Ordinary early stages of building at our company.
Outlook traditional.
We don't tend to be traditional in the future.
Tend to be different and we intend to be better.
Lastly, we will do so with an enterprise lean mindset lean is something.
That many people think about as a tool use only on the shelf for.
Wabash management system applies the same principles. The every aspect of the company and weren't lodging our commitment to the organization to identify and eliminate waste enhance process and establish stable and effective standard work in every aspect of our business.
I'm encouraged by the growing understanding better Wabash management system is not about just slowly reducing waste and cost it's not about just using tools, it's about freeing resources through process improvement and connecting systems to enable profitable growth and advancement of the strategy for our people our customers and our shareholders.
Our reality is that we are at the early stages abroad organizational deployment to division, we have for our Wabash management system.
While this means that we have a journey in front of US. It also indicates the opportunity that awaits us in the future.
To better align the organization, we've recently announced some changes.
Mike that it has taken over as Chief Financial Officer, and I expect the rate of change in his organization to meaningfully accelerate as the finance function executes its vital role in leading the implementation of the Wabash management system and the enablement of both an enterprise lean mindset and a growth mindset across our business.
I'd like to thank Jeff Taylor for his leadership of CFO and wish him all the best in the future is a man of exceptional integrity and I work and he worked diligently to make Wabash a better place.
As part of those organizational changes, we have Kevin page, whose let our diversified products group also assuming responsibility for final mile products. Kevin brought over 20 years of executive level final mile and truck body experience to Wabash in 2017, and we're excited for him to leverage that background.
We have made numerous changes underneath Kevin to support the new structure and assure that we position additional talent to accelerate bottom line the final mile business profitable growth trajectory.
As a reminder, we previously made the organizational changes centralized product innovation from the operating segments to drive breakthrough results in line with their purpose.
Change how the world for each year.
We'll continue to provide updates on further calls to communicate how we are working on the business to create an acquired new capabilities further align the organization.
Well as more quantifiable impacts as we enhanced our future performance in trajectory of our strategic vision.
Now, we'll discuss current backlog and market conditions.
Our backlog ended the fourth quarter at approximately $1.1 billion up sequentially by approximately $300 million from the end of Q3.
For the trailer markets, specifically industry reports have shown backlog and effectively flat from the end of Q3 to Q4. So we expect at this early stage, but we've outperformed the market.
Just as we expected.
The market has certainly taken on a more since normal seasonal pattern for 2020, and we expect weeks to manage orders in a more traditional manner heading into 2020.
AC TNF yards estimates.
Our around 239000 and 270000, respectively for 2020.
We are planning on an environment in this range of approximately 250000 units.
But we're certainly ready if the market turns out to be stronger than we've initially planned.
Within the final mile space, we continue to expect outpaced growth in the longer term, but we expect customer demands to reflect a more subdued levels overall market growth in 2020.
Additionally, we anticipate seeing a seasonal shift in demand that favors the second half of the year and supports growing levels of customer optimism pointing to stronger 2021 demand within truck body space.
Now, we'll talk about capital allocation.
Our primary focus remains repaying debt in the quarter, we reduced our debt by $20 million funded our dividend and repurchased $11 million of shares.
In addition, we've been able to properly funded necessary capital investments to operate the business and invest in the future.
Going forward.
Robert deployment of cash to further strengthen our balance sheet will remain a core part of our capital allocation strategy, while we continue to invest in our business, while returning capital to our shareholders.
However, we believe that the values of stock has experienced significant dislocation that recent levels as we move forward, we won't hesitate to redirect additional capital towards share repurchase if we feel that isn't the best long term interest of the shareholders.
Now, we'll talk about our 2020 outlook.
We're providing a full year revenue outlook of approximately $2.1 billion in the environment. We are seeing earnings per share of $1.20 at the midpoint with a range of $1.10 to $1.30 per share.
We feel that the sequential increase in our backlog speaks to our ability to capture share as we move into a new phases cycle.
Additionally, the relative strength of our backlog speaks to the differentiation that customers experience not only in our products of the overall experience of doing business with Wabash National.
I'd like to conclude my comments by thanking the entire team for their hard work in 2019 and their continued dedication in 2020 as we put forward with our transformation efforts.
With that Pos Mike to provide additional color on both our financial performance and our 2020 outlook.
Thanks, Brett.
Let me start by saying that I'm very excited to begin my journey as CFO for Wabash National I truly believe we have a very unified team that will accelerate the purpose vision and mission that Brent has outlined by fully leveraging the scope and experience of Wabash national.
With that let's turn to slide five.
On a consolidated basis fourth quarter revenue was 570.
$579 million consolidated new trailer shipments were approximately 15000 units during the quarter.
In terms of operating results consolidated gross profit for the quarter was $72.3 million or 12.5% of sale.
Gross margin increased by 120 basis points year over year, primarily as result of cost recovery.
The company generate operating income of approximately $32 million and operating margin of 5.5% during the fourth quarter.
As soon as the quarter, excluding amortization was 35.4 million or 6.1% of sales.
Operating EBITDA for the fourth quarter was $44.2 million for 7.6% of sales.
Intent intangible amortization for the fourth quarter was $5.1 million.
Interest expense for the quarter totaled 6.5 million a modest decrease over the prior year as a result, Barbara continued debt reduction activities.
We incurred income tax expense of 6.9 million in the fourth quarter effective tax rate for the quarter was 27.4%.
Finally for the quarter GAAP net income was 18.4 million or 34 cents per diluted share.
Let's now move on to look at the segments, beginning with CTP on slide six.
Commercial trailer products fourth quarter net sales were 399.3 million on new trailer shipments of 14300 units.
New trailer average selling selling price or ASP increase over the prior year quarter by more than $5800 per unit on pricing actions to mitigate the impact of higher material and operating costs.
CCP recorded gross and operating margins of 12.6% and 10.8% respectively.
Operating margin improved 190 basis points compared to prior year.
Period due to cost recovery in addition to product and customer mix.
Piece full year revenue was $1.5 billion. During 2019 operating income of $146 million, which represents an increase of $4 million, an operating income on lower sales of $50 million.
CGP continues to execute on strategy to further differentiate its products and provides unmatched value to our customers.
We're launching multiple new products in 2020, these new products combined with our focus on creating value added solutions for our customers will enable CTP. It outperformed the market during this period a softer market conditions.
Now moving on to slide seven.
Diversified products group net sales were 95 million a year over year decrease of 7.7 million for 7% for the fourth quarter.
Driven by the sale of the ABT business in mid January 2019.
Represents approximately a seven percentage point drag on DPG year over year growth in the fourth quarter.
DPG posted gross margin of 17.2% and operating margin of 5.9% during the fourth quarter.
80 basis point decline operating margins as compared to the adjusted non-GAAP operating margin. The prior year period was primarily due to lower sales mix from our Wabash composites business.
For the full year DPG is revenue was 385 million, where a 2.4% decline from the prior year adjusting for ABT divestiture growth would've been approximately 6% for the full year.
Operating margin of 7.7% and 29 team showed a 220 basis point increase over the prior years adjusted operating margin.
DPG 20, Nike performance reflects active deployment of key Wabash management system elements, specifically the growing use of an integrated sales and operations planning process highlighted by improved commercial process.
In addition, they've increased their deployment of enterprise lean tools to improve key areas of operational performance.
On slide eight.
Final mile products net sales for the fourth quarter total $93 million driven by solid market conditions as well as demand from customers, who appreciate the operational and technological advantages while that brings the truck body space.
As previously mentioned.
Operating results were certainly not what's your expectations as a result in a difficult build mix combined with a very low average order size in the fourth quarter, which stressed in our and already fragile operating system.
This mix shift proved to be more disruptive in the quarter as it aligned with some process a nike system improvements.
The S&P team continued to push forward through these operational challenges in order to try to keep up with our improving delivery performance for new and existing customers.
All combined this resulted in compressed margins for the quarter with gross and operating margins of 6.7% and negative 6.4% respectively.
We do expect some degree of these operational headwinds to carry over into Q1.
2020, as I worked implement lasting countermeasures continues into this quarter.
The full year final mile to $442 million and revenue growth.
Or 22.
Growth of 22% versus the prior year period.
We have expanded existing customer relationships and developed existing exciting new relationships that we expect to continue to support future growth in this business.
While operating margin of 2.2% for 2019 is certainly not a result, we're satisfied with internally we did generate an increase of 4.2 million EBITDA or 25% growth during 2019, while January 4.8% EBITDA margins in fundamental products for the full year.
We will continue to implement processes to shore up some of the systems, we inherited in the Supreme acquisition, where rapid growth has obviously stretched stressed the operation.
It goes without saying that we're focused on growing margins in this business as we look forward to 2020 and beyond.
Now, let's turn to slide nine.
Slide nine shows the walk to free cash flow conversion on the year to date basis with operating cash flow of approximately 146 million.
Roughly 38 million, which has been invested to be a capital expenditure, leaving 109 million of free cash flow.
Which converted at 121% of net income year to date through Q4.
As Bret mentioned this is a seventh consecutive year of free cash flow conversion of 100% or greater which is a record that we're very proud that too.
Moving onto our balance sheet.
And our capital allocation plan.
Quantity or cash plus available borrowings as of December 30, Onest was 308 million or 13% of trailing 12 months revenue.
With regard to capital allocation during the quarter.
As $20 million of debt reduction and invested 13.4 million in capital projects.
Additionally, we returned 15.5 million of capital to shareholders via the quarterly dividend payment of 4.4 million and share repurchases of 11.1 million.
It's important to note that as of the ended the quarter, we still had 69 million remaining under our share repurchase authorization.
Networking capital finished the fourth quarter down $32 million sequentially and ended the quarter at 8.9% trailing 12 month revenue.
We finished the fourth quarter with leverage ratios of gross and net debt of 2.4 times and 1.7 times respectively.
Now moving on to slide 10 to discuss guidance.
With our outlook for 2020, we expect revenue of approximately $2.05 billion to $2.15 billion, we anticipate gross margin in the mid 13% range.
On our last fall, we mentioned decentralization of our product innovation group as result of this change we saw approximately 1 million per quarter shift from cost of goods sold to general and administration on the income statement beginning in the fourth quarter of 2019 and that will continue going forward.
We would expect 2020 SGN extending after adjusting for the centralization innovation change to approximate 2019 SGN a spending.
As a reminder, we expect amortization to accrete to increase about 1.5 million in 2020.
Detailed amortization schedules can be referenced in our annual filings.
Operating margins are anticipated in the range of 5.3% to 5.7%.
We are estimating the effective tax rate for 2020 to be between 26 and 27%.
Our outlook Embeds, an EPS midpoint of $1.20 cents per share with a range of 110 to 130 per share.
Full year capital spending is expected to remain roughly in line with 2018 in 2019 levels as we continue to support the pipeline of productivity projects and new product commercialization identified across our business segment.
In total we estimate 2020 capital spending to be between 35 and $40 million.
Our expectation for the first quarter revenue is to come in between 430 million and $470 million with new trailer shipments of 10000 to 11000 units.
Moving on a total company profitability, we expect operating margin at first quarter of 2020 to be between 1.5 and 2.5%.
In addition to Q1 being the seasonally weakest quarter for margins as mentioned, we expect operational headwinds in FMT too to impact first quarter profitability.
And as always.
And the schedule for commercial trailer products is loaded towards the back half of the first quarter, which means we do anticipate some Q on production being shipped early in the second quarter.
In summary, we're pleased to have achieved another record revenue in 2019, while also growing operating income net income and earnings per share 2019 was also another strong year for cash generation.
Proceed with our capital allocation plan that balances debt repayment.
Continuing investment in the business and returning capital to shareholders will keep a close on the stock valuation and pivot in the direction share repurchase if we feel that provides the greatest return for shareholders.
While we expect industry volumes to take a step back in 2020.
Also anticipate picking up share as our focus on innovation pays off of new products.
Command customer interest.
The relative improvement our backlog speaks to the market preference for Wabash products, and how strong our full year revenue and EPS guidance for 2020.
Thank you for your interest in and supportive Wabash National.
Brett Ryan I look forward to communicate in further progress throughout 2020 and beyond.
That I'll now turn the call back to country that she will open up the supply for questions.
Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound.
Your first question is from Justin long from Steven line is open.
Thanks, Good morning, and my congrats on the new role just appreciate that.
So maybe to start the midpoint of your 2020 trailer delivery guidance imply that decline of around 11% year over year and it sounds like the expectation for the market is down about 25% based on what you said in the prepared remarks so.
That implies a pretty significant level of outperformance relative to the market could you talk in a little bit more detail about what is driving that and I know you Nick mentioned product mix, but maybe comment on customer mix and if theres any change in terms of strategic pricing as well.
Yeah. Justin this is Brent I'll I'll start that off and Mike can follow up as as he needs to I would start with and just repeat what we've been saying.
Almost for I'd say three to four years, specifically, we've positioned commercial trailer products.
First off we've we've recondition the customer base that we sell to today.
And we're seeing now pull through with will go into direct portion of orders flowing through through through the order backlog at this time.
We've continued to improve the channel mix, specifically shrimping indirect channel.
That we believe.
We'll pull through as we move through the remainder of the first at or the remainder of the summer in the second half of the year. We go back to the dealers that we've added early since 2013.
We see that happening.
These two it is the relative stable pricing that we see move again from 2019 2020 again, representing the premium.
And the reflection of the product that we put on the road for our customers. We see that we can measure it and we got 1.1.
Billion dollars in the backlog to validate that at this time, so that's moving into our calculus at this point on the CTP fraud, we positioned that business well roughly a pull through we've also talked about there is while others a level of absorption issues that come through anytime that you come off of.
Higher volume number we're also picking up a little bit of efficiency was we're running a peak volumes really for the last two years rice overtime comes out and there's just a level of efficiency gain offset by other issues that helps prop up.
Our decrementals when you think through well be going on in 2020, So that's a high level at this point.
Now I'll just I'll just add represents a strong mix of customers in our direct channel as Brent mentioned, a strong and improving indirect channel and obviously a at least from our customers in a very strong value proposition of Wabash products. So I think the other pieces that the visa diversification strategy.
We've implemented over the last six eight years.
To come through in a cycle like for those we've got a growing revenue base within our final mile products through the secular demand.
We've got the ability of from improving those operating margins with work that we're going to implement in 2020, and we'll be working on that final diversified products has shown a higher level of revenue stability.
Specifically, we will experienced that in a trough environment as their cycles, a little bit different.
And HCT actually just raised their expectation by a couple of hundred units.
For 2020, so we'll see that stability, coupled with the fact that they stabilize their margins and shown the opportunity to.
We continue to to work on those.
With the performance they've had so far in 2020 as well so there's a lot of things coming together.
And we've alluded to that all going back to the to the Investor day that we talked about in March of 2019.
Okay, Great that's really helpful color.
Maybe to circle back on on the next question back to what you said on operating margins, Mike I think you mentioned in the first quarter.
Where between 1.5% to 2.5% if you look at that compared to the full year guidance for 2020, it implies that.
Nice pickup sequentially over the balance of the year. So can you talk a little bit more about how you I guess the quarterly cadence of operating margins over the course of this year and where you expect to access 2020 from a margin perspective.
Sure.
I will break down each quarter, but what I will say is typically Q1 is our is our seasonally weakest quarter and thats being added to this year as we mentioned, we do have some headwinds from S&P coming into.
Q1 was is is embedded in our one an attitude and a half percent guidance for the first quarter. What you do see typically in this business than we expected again. This year is much stronger Q2 in Q3 performance as the business ramps through the first quarter you will see strong production exiting Q1, and then you will see sometimes that shipment.
I will move into Q2 and Thats value.
We're very regularly see very strong Q2 Q3.
Quarters within the overall Wabash National business. Furthermore, we expect fundamental products to improve as we go through the year, both in operational performance and into demand environment. So lyrics that the second half of that business to provide a list for the overall margins.
And that will that lift will be provide as we exit 2020. So that's that's all embedded in our guidance. So they have a softer Q1 and a much stronger Q2 to Q4.
Okay, and maybe just one last question and then I'll hop back in the queue, but looking at the revenue guidance for the full year could you speak to what getting baked in for the DPG and and P. segment.
Yeah, we don't we don't typically break that out.
Amongst the three segments, but.
I will say that those those businesses.
As Brett friends alluded that.
I expect it is as much growth in S&P as we've seen the last couple of years.
And then.
CPG.
Well I would think we would trend in general in the same.
Trailer shipment guidance that we gave for the overall business.
Today I would add is on that.
On the demand performance side.
Echoing what Mike said to the degree I think we're not we're not looking for.
Diversified products.
To make any large steps in terms of shared in us or is this year, we need them to our execute their business. We have as they have a stable demand to do that neither work on their margins accordingly on the final mile product space with the market is going to have some some downward pressure we've got some growth.
Studies, we'll see how those offset each other that's factored in CTP.
That's a story, we keep wanting to tell we should see a level of share expansion.
In 2020, as we already have seen in our backlog numbers were not going to get into what that share number is.
At this point.
But we do clearly see the the fruits of our labor is paying off.
So, we'll cgps that'd be a big part of the revenue story.
This year and that's always been part of our strategy.
Okay, Great I'll leave it at that I appreciate the time.
Thank you.
Yes.
Next question is from fuel exclusion from Raymond James Your line is open.
Hi, good morning, guys.
Okay.
Hey, so maybe if I could follow up on some of the comments around really trailer pricing I think obviously you are reaping some of the benefits from some pricing recoups really from from higher raw material costs, but curious if you could touch on your expectations for pricing through 2020, maybe first half versus second half the year and really what you're seeing in the market right now.
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Yes, I mean, that's we've got so many products and certainly different markets.
Quickly say four.
The S&P in DPG business.
Based on demand environment, they've got the customer base I think we're still looking at we'll call it stable pricing from 2019 2020.
And thats baked in our guidance for for CTP, No I think the general layman's expectations that we would be seeing.
Higher levels of pricing pressure at this stage of the game.
And what we're seeing right now is relatively stable pricing as we execute.
The innovation works that we put into our product we are launching multiple commercialization efforts.
In 2020 as well as Garnishing, what we did in 2019. So I would just say we are we are.
Very happy with how pricing is entering into 2020.
But I will stress it as a dynamic year and there are some different channels that still need to come through based on traditional timing specifically the indirect channel.
Look for that to be a general positive story with the work that we've done but thats an aspect of the overall trailer channel make up that is really a Q2 Q3 activity under normal traditional calendarization of orders.
Okay. That's helpful. And then just shifting gears sort of back to final mile here.
Obviously margins were maybe a bit softer than expected in for Q do you mind, maybe elaborating a little bit more on that is there anything in there that we could 0.2 as maybe more onetime in nature I get some of the old rollover into one Q 20, but I'm really trying to understand sort of whats. The go forward run rate as we as we really approach the second half of 2020 here.
So for for diversified products.
When we think about their their margins and then we alluded to in Q4, though from a Wabash composites perspective, I kind of weighed on margins in the fourth quarter, a big part of the revenue stream.
For that that's about business unit is.
Really driven off of dry van volume and converted truck body volume to deploy technology and that began to show itself. In Q4, just based on demand loading at that time, that's a normal.
Hi, guys composites is always pressured in the fourth quarter, we saw a little bit more with those and put items and thats what affected that margin accordingly, our other business segments inside of there thank trailer and.
Process systems.
Well for the market.
For the market condition that they pads. So what we're really what we should see as CTP continues to perform.
We probably would have to why we believe that will be the case that'll crop of Wabash composites through.
Q1, Q3 accordingly.
But it will still way on into the degree in Q4.
Okay, but anything else you guys can say around around final mile products, specifically sort of as we look in the cadence of margins into next year.
Yes, so what we mentioned in the in the remarks loads that Q4 represented a pretty significant shifts in there.
Corporate demand and profile, which.
Which we see starting Q1.
Period off as well so that that is that's that's really what causes margin compression softness we are seeing some nice order intake hasnt moved through Q1, and we believe that a lot of what we saw in Q4 that caused that step down significantly from earlier part of the year, We'll pass throughout Q1, and then we will see much.
To better margins in the Q.
Period.
Okay. Thanks, guys I'll leave it there.
Thanks.
Next question is from Ryan said Bill from Craig Hallum Capital Ladies open.
Good morning, guys and congrats on the new role Mike.
Thank you.
So given maybe just on guidance, it's fairly back half weighted and you guys have talked some about it but I guess how much of that business is in the existing backlog that you have versus maybe indications of orders or expectations of future orders maybe between those three buckets.
So I think you might be aware I mean for our.
The majority of that backhaul, obviously with our commercial trailer products business that back log is relatively.
Evenly spread throughout the full calendarization of year at this point.
Thats, mainly coming from the direct channel that makes up the bulk of our of our CTP.
Demand profile. So we we factor that into the guidance itself, we know what the trailers are laid in.
We know equipment active quote and order activity.
Has has indicated where that will come in the future. So we're very comfortable right now with how we have laid out the distribution.
Revenue in our guidance.
I would I would just add that traditionally the truck body business with a final mile products segment would not have much backlog beyond Q2 at this point of the year ever. So they would they would expect to see goes order starting to roll as we get into late Q1 early Q2.
And then on.
Yeah on CTP pricing.
You mentioned that innovation technology, certainly, hoping you guys from a pricing. This was more structure standpoint, you guys seen any pricing pressure in the industry from competitors and you guys are just offsetting that or is the industry actually.
Holding up maybe better than feared given given the demand environment.
I don't think Thats, one or the other at this point I mean.
It's kind of a twofold, yes, we're seeing some level of pricing pressures in certain markets for certain products and certain customers and I know that's a that's a mouthful, but thats the way that we look at it.
The way, we've positioned our customer base.
Buffers that buffers us from that to a large degree so while we see it we know what's going on.
We've been able to avoid it.
In most cases.
With the bulk of the demand coming in for for our CTP products.
I will say to us I am.
Pleasantly surprised with the level of rationality that we're saying at our with our competitors at this moment in time.
Hi, good that's a that's it for me I could mcus.
Thank you.
Next question is from Jabil piece from BMO line is open.
Hey, guys hasn't gone.
No.
Can you talk a little bit about your 2020 free cash flow expectations, and and and I'm just kind of your preference like which way you leaning with your 140 million of cash that you already have for 'em share repo versus debt reduction.
Sure solid analytic I would expect another year of 100% plus three cash conversion. So you can get to that with our implied guidance.
That.
What kind of a minimum of free cash to be in terms of our existing cash and new cash.
Being generated in 2020 as we mentioned.
Debt pay down.
To de lever remains a priority for the business as well as investing in some really good growth projects. We have we had some really nice organic growth opportunities and I see.
Remains a real positive area for us to invest capital and then depending on what happens with the share price. That's always an opportunity for us to continue to move some capital if valuations point us in that direction.
Okay can you give us a little bit more color on what some of the cost savings targets are for 2020 and any numbers you have around that.
In terms of like our productivity projects.
Yes so.
Well, there obviously, all they're all implied guidance, but we had several projects.
In the hopper through our commercial trailer products group diversified and final mile products. All have active we spent $38 million of capital last year and a good chunk of that is on projects that we believe will come through.
In two into 2025 miles a good example, one when we deploy some capital last year that we believe will help.
Significantly be able to spend the margins of what you saw over into the second half 2020% 2021.
Based on that capital deployed.
In the business I'm not going to breakout specific margin expansion by business based on those projects, but good a good chunk of our of our capital. If that's been deployed organically into the business, which has been at high $30 million range over the last couple of years has them devoted to those productivity projects, yes, I would add just a little bit more granular level we.
Have.
Three to four plan wind velocity lean.
Well caught deployed initiatives that are either actively or actively being worked on or will be worked on in 2020.
Some more than.
Final mile products summer within tank trailer, and we as well as an within commercial credit products.
Two to three major six Sigma projects, one of those will be at our Wabash wood products facility.
To improve productivity there.
And yield that'll be meaningful and when we look at all of those at a minimum target we want to offset at a minimum labor inflation as just a general rule and what we tried to do that's a given thats baked into our numbers and then there's always the potential for upside we don't necessarily bake that all into our guidance because nor do we.
Taking all the risk right, we need those projects to help offset in countermeasure other things that will happen in the course of an operating year. So.
A lot going on and we've expanded the work that we're doing.
From what we saw in 2018 and 2019.
As we are as we're in this period now that we've got a little bit of.
And this is kind of.
Gift that we get.
With a little bit reduced demand, we can get into some of the operations that maybe we could in the past add do some work and those are than planned out for a period of time and we'll engage in that 2020, we'll see the fruits of that most of that really in 2020 1022 is rewrite the upcycle up.
And that's a big part of our strategy going forward that is something Wabash national has not been able to execute in the prior.
Relative downturn periods and people need to keep an eye on that.
In terms of how we're going to perform over the next three years.
And how we're positioned going forward.
That's great and then last can you just give us a little bit of.
A benchmark on the S&P loss from the first quarter is it going to be similar to fourth quarter or better or any any help you can give us there. Thank you.
Not that specific.
Guidance told I will say that we would expect it to improve as it goes through the quarter and how Linda I would exceptionally expect Q1 two to be weaker than Q1 2019.
Yes.
I'll leave it at that we're seeing improvement as we move through Q1 today.
Okay. Thank you very much.
Thanks, Phil.
First question is from Jeff Kauffman from loop capital markets line is open.
Thank you very much good morning, gentlemen, how are you.
I want to Jeff.
Okay. So just a couple of mop up questions here.
You gave us the revenue outlook for 2020, you told US you were going to pick up market share I can't remember did you give a vehicle range for 2020.
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Yes. It is yes, so the vehicle range is.
We've got.
I don't have that in front of the right here I think it's 50 to 62000, but let me, we double check that and I'll get back the offline.
2020, and 58 would include.
Final mile I guess.
Oh I'm sorry go slides here.
No we really given trail guidance, sorry, 49000 to 53000 neutral, okay that that sounds a little better.
Yes.
Okay. So actually if we take that against let's call. It the midpoint of Basi TNF tiara to 50, that's implying almost a 200 basis point market share gain no.
That Atwood whole, yes, that's correct. Okay. Just wanted to make sure. We're on a same page. Thank you and how many how much did you say was left on the repurchase I was writing as quick as I could but I didn't get the numbers and 69 million.
69 million okay. Thank you.
Okay. Let me, let me shift gears on final mile. Because obviously I think that was the big surprise relative to expectations.
So do you would when you look at this.
Mike that Brent.
Is this an issue where the industry acted in a way you didnt anticipate or is this more of a growing pain in this kind of happens from time to time in the fourth quarter and it just caught us off guard.
I would I would.
It was more of a growing paying jobs, where he had a business that was growing rapidly to 2018 29.
Simultaneously, putting in business process improvements that we believe will bear fruit over the long term that got hit with a a shift in the market.
More from a mix in demand profile perspective than overall weakening.
That.
Kind of caught the business in a position where they were struggling to flow products as well as at early on here yes.
Right. So this would be something that once you resolve what you need to resolve that your and your your view on the ultimate profitability or the ultimate opportunity is no different.
The long term view of the performance of the business has not changed at all.
Okay. So this this when you're saying, it's a change in product mix, it's not that the market is shifting its just that the fourth quarter caught you off guard is what your site.
Perfect mix in the core in the fourth quarter caught us off guard add to be very operational when you talk about it this business you're doing.
Discrete capacity planning typically two to three months and advance based on orders blow into that business.
And your evident make decisions on how you how youre going to offer other than that.
Build and differently than how we've positioned the business.
At that affected not only the shop floor, but the average order size affected everything through engineering does to supply chain, just on board somewhere and orders average order size phenomenon.
It just came out that way right. So it'll take care of itself as we move through the year.
Okay, and then final question.
You mentioned Theres, a lot of exciting new product some of the market in 2020.
Can you give us an idea of the timing of different product introductions through the year I think you said, a little more back half loaded but.
You know when winter some of these products coming out and.
Are they going to be visible at the truck shows and things like that early in the year is going to be something where we see more of this toward the end of the here.
Yes, so the bulk of the commercialization efforts are launched.
They will phase and.
Throughout 2020.
We've launched our new.
Perforated core.
A replay channel we have active orders that will put really in the fourth quarter open up for sales in 2019 to fill into the 2020 backlog.
That has would you say met our expectations in terms of product adoption.
That an innovative piece, it's also a margin enhancing opportunity for CTP.
We've continued we've just launched our new revised Eagle to platform trailer and that is now active for orders right now and we'll be gain momentum throughout the year.
We've got a handful of smaller.
Innovation items within our tank trailer business.
Molded structural composite specifically the refrigerated trailer is going through additional revisions right now too.
Broaden the we'll call it.
Addressable market for that product that will say in the second half 20.
20, and we're doing additional things, where most trucks composite truck bodies to enlarge it's applicable market in 2020 have some of your second half of the year phenomenon.
Mike Am I missing anything off time, Thank you again most of them okay.
Okay, great guys, congratulations and thank you.
Thanks, Jeff.
I'm showing no further questions at this time I would now like to turn the conference back to Mr. lead.
Thanks Katrina and thanks, everyone for joining us today, we'll look forward so following up during the quarter.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day you may all disconnect.
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