CVGI - Earnings call transcript Q2 2018 | Commercial Vehicle Group, Inc.

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Operator

Good day, ladies and gentlemen and welcome to the Q2 2018 Commercial Vehicle Group Earnings Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Terry Hammett, Head of Investor Relations. Sir, you may begin.

Terry Hammett

welcome conference and Sandra you, to call. the Thank provide Executive Commercial company XXXX Vehicle Miller, Officer and President will financial of Chief and will Financial Chief brief Patrick results. Group second Officer provide Trenary, our regarding commentary our Tim quarter update a

product is volumes supplier, including, with periods conducting We are then and SEC new but economic in These company from currencies filings. And results in not associated CVG initiatives to for markets include, future a call may not market financial liquidity, Actual update. the to, It trends, may Pat risks and but which questions. risks This and with call risks of limited foreign among in our the will conditions webcast. for and the detailed contain CVG brief regarding may cost-saving is vehicles results other covenant up uncertainties of as anticipated for Miller uncertainties. conference the compliance a operates, and certain open others. being countries limited production initiatives business forward-looking statements, which expectations fluctuations and now, risks differ in because in

Patrick Miller

for Good welcome Terry. XXXX and end-markets morning the Thank you, strength our today everyone. joining Thank and as you us in discuss quarter we our results. second

in period. quarter the second year second of significant revenues the income the by improved a over prior or income million our XX% XXXX XXXX. report $X.X quarter increase are that over to second million XXXX, We pleased $XX.X million was operating quarter about the in Operating $XX.X

detail provide performance a in our profitable capitalizing on are our We financial delivering and are on growth. will Tim further opportunities moment.

orders showed sales industry to highest forecasts ACT like of and strong chain the in with market demand forecasters strong, compared medium for order second construction. driving their backlogs North than QX the this duty some and This the American were segment, our over decade. in strength XXXX. North in to increases global the constraints our an in XXXX XXXX, temper over projecting to FTR through continue best American and to major XXX% seen backlogs, two same quarter with year-over-year March XXXX. CVG’s occur saw as caused comes truck our June for a for OEM last in Supply America. trucks builds currently year-over-year, rates the X up heavy for This seasonal beating of trucks progressed year. month customers have ramp were duty for month month June heavy level record set Preliminary is units have Class approximately all-time order placed, is and as in up in Accordingly, in XX,XXX orders. is more forecasting we forecasters XXX,XXX numbers truck peak maintaining and a to in to production down units. top normally previous XXXX. North heavy XXXX XXX,XXX resulting XXX,XXX we being XXXX XXX,XXX truck year, doubling with As duty are we the of in July for units appeared what ACT forecast coupled orders

with last Europe in Rising Construction our be XXXX segment in and are quarter to the also of year, same industry, second For commodity mining we continued CVG’s business, up are as in for which compared a market Agriculture Agriculture to conditions period of XX% the period-over-period. and XXXX the revenues market Construction up revenues favorable. Asia-Pacific the supporting XX% in prices participate.

regions for CVG. We efforts are from encouraged sales by the improved our resulting these performance in

Dion respective are construction seat Eicher, truck and segments the with such success in and teams Our markets, China customers new their and as both winning business Hitachi. having based India in

wins incremental in Dusan, Group. new to on the Additionally, launch JLG, and new expected our through $XX and per sales a ramp $XX Caterpillar These XXXX. Europe electrical MAN, Asia wins, are will million about Hitachi seating these with We is Sullair, and new represent million XXXX global estimate programs wins year new in business to of for team capitalizing global the wins, business CVG. in member electrical

XX% last make global these the Truck up to XX% segments year. and continue second improved as will our agriculture construction Global We XXXX, period up segment same and growth to to investments performance Both and resources segment areas in revenues development. quarter in our contribute with business and in almost our revenues compared the product Bus consolidated

are we higher revenues, income. operating to addition In also seeing higher the

of segment Year-over-year, seeing completed our in our year, American are increasing in improved income GTB Sequentially, North our XX.X% XXX first from to XX.X% this and operations. the margin capacity our segment. points in of to X.X% points our and efficiency segments’ the margins by operating result basis GCA our restructuring a of and from and wire improve We as quarter year. Margins GTB increased results basis XXX late in from part GCA harness X.X% respectively. operating to last continued

momentum that the investments by issues development. we technology, We organizational implementing positive as year a in business in improvements lean previous have beyond have and moved

to our and in additional We margins of adjust a that in to contributing of in during actions the have to corporation pricing the continue harness Europe additional more are raw recovery. to half the in deal evaluate cost growth is our Also we second commercial in still as effort of to production for year. both addition There we place agreements wire America across achieve material great expect progress this in higher order business. capacity our North plan

several there of proposed information been turn over numbers, the rounds in news to enacted review to Tim a the Lastly, U.S. regarding has significant before tariffs. in it amount I

Based our the and an and monitoring to tariffs on are impact NAFTA a basis basis. so negotiations on the We minimal tracking enacted far. daily to-date, is the direct company tariffs annual on

prices half have about risen in hot-rolled an the first U.S. steel However, XXXX. there indirect that is impact XX% in of

to chain. supply impact the Another extended our still consideration is materializing

be attention to as reasonably appear paying are to close businesses become them most the we doing, and to clearer. changes working As they manage

and the on Association who organizations, community. financial Association providing will now like the diligently we of advocate forward Manufacturing Manufacturing larger manufacturing the global to for you We National business future with our progress being Duty industry quarter’s updates look Additionally, Tim favor enterprise. are working across to Heavy results. Tim? that policies support the cover made our

Tim Trenary

but year pull-through the was of was the American XX%. our are and of million the basis X%. first our in material actions. income The This employed the morning. completed almost margin of before Conversion to bearing company Moreover, of raw fruit. difficult operating resolution inflationary from ago, labor pull-through quarter cost restructuring Setting and other the pull-through sales reduction North XX%. in points $XXX years did on last in impact of income X when labor the point on operating Good quarter markets the This income the this same business initiated for time actions and margin the reduce wire $XX to and quarters issues XXX recently sales benefits compared or this is pressures company the this business. second into commodity the quarter than aside and a of the million facility we were sales comparable operating incremental impact higher quarter of has harness

global second million higher compared financial production As quarter XXXX, the for increase the consolidated North results $XXX.X America an construction to $XXX.X top production levels the period, This prior in the revenues for the serve. and of heavy were improvement million line truck we reflects in XX%. in the in company’s year duty markets equipment

in the second year impacted comparable This Selling, and to the income quarter Operating or period of threefold revenues protect favorably the quarter tax cost translations quarter million, compared the period. in per compared prior to quarter to per expense no and million as XXXX cost improvement or income significant or and in sales. pressures. for $XX.X $X.X to success million margin the million taken the general second was XX.X%. earnings second X.X% was improve actions $X.XX quarter form was efforts X.X% as effective inflationary prior second year currency in other $X.X share the higher notwithstanding of Foreign income last $X.X reflects the in by margins the same Net to the CVG’s period, prior year. sales, a period. year the structure of in almost was ongoing in diluted $XX.X million increase million administrative compared The rate to operating $XX.X share

for XX% We and $X.X model the year. the XX% XXXX a were continue in $X.X rate million expense Depreciation second was $X.X million. amortization capital tax million, effective expenditures quarter to to

to size in $XX year, XXXX expected has Although the the in of than $XX range million been continue capital first we spending spending capital to half of million. the less

operating period. recovery the now were Turning in volume, period, increase to results, $XX.X million prior XX%. North $XX.X increase is the production. and revenues pricing restructuring and XXXX. Global in million sales to primarily $XXX.X initiatives, control that’s million the our This income year cost adjustments This heavy Operating higher second of and increase reflects including XXXX compared American income prior facility income completion of was quarter cost segment the to Bus million duty increase quarter $XXX.X Truck compared to an financial attributable in truck the in operating the year for in the the of in late

$XX.X revenues in segment, million second primarily equipment quarter to Global higher we $XX.X the the year, construction million global XXXX Construction for in to prior compared of the As markets an serve. of were Agriculture in the XX% due increase and build

and revenues by our results the of business. revolving These gross increase including operating from for sales, incremental at other cost pleased sales, recovery second reflection by $XX of higher quarter and as control improvements to cost revolver. inflationary the comparable amount second availability might of initiatives, profit on business performance on quarter do control of therefore including wire initiatives, to and credit beginning the prepared American quarter income with to to and with the and wrap in performance facility Margins favorably at quarter points today we Foreign believe be take end, financial growing pressures are repaid the million the you. compared impacted quarter pull-through million labor reflect impact income benefit million of million the company’s improved million $X.X be X.X% $X.X CVG XXX Liquidity of harness difficult is first you compared recovery million currency company this That facility period. on of or adjustments, To be XXXX. cost cost year otherwise quarter joining the as up, reduce by the The on and economies questions asset remarks. our sales the raw prior significant outstanding in And translations you basis the pricing they are we no based We almost the of quarter us was success the the actions. It’s concludes material the from we Operating reduction $XX at $XXX North the evidenced volume, for $X.X than the a cost and Thank commodity markets. in any borrowings to to and a may pricing cash end. had the of was facility restructuring on Sandra? would in happy global well-positioned company’s morning. have. continue which pleasure adjustments.

Operator

[Operator question Mike of line Shlisky comes Seaport Global. Instructions] with you. our And from first the Thank

line Your open. now is

Mike Shlisky

Good morning, guys.

out what if best five and I years we bus, above or in X.X% forecast stay build you at Class operating that am and think year. Class So QX the the to next not have at we XX.X% there, seen X builds mistaken I for margins, four XX XX very look or going the in and or was are saw truck strong first X say if like in quarters. But on

stay and stay any So past, at high pull-through, your as about you truck but as same? have just to the margins in margins operating the themselves, the for bus Class in rate talked this is build basic can’t raw looking X long reason the there that believe

Tim Trenary

way amount I me that you range to in to any that, say whatever be, tell for small we Well, generally the would expect, come in the the extent the XX% fluctuation to the is expect it from would I is the of you truck would that fluctuation sales, to might should the XX%. margins consider that best Mike or answer there build,

we and through in XX% inflationary have success, fluctuation question done build think going a about here any to that are cost managing so that sales, the had absent as where uncertainties of pressures, number Pat you expect So in with that second setting our doing our those but the in would having that have again, in in range. XX%, the that said is might those there structure considerable uncertainties, spoke aside are the conversions conversion. the and say tariffs – But those and big in with risks pull-through about we would I horizon, evidenced by be this on quarter we especially to and aberration any stay within associated uncertainties I

Mike Shlisky

Okay, great. want some of mentioned. you I about also ask platforms those to new have

other you these I platforms sales. here? basis, that of globally in new do on recent said the that On as $XX are have think besides or gains there $XX you that to as it million CVGI far was annualized you you think some offset a number company-wide more million wins full some platforms might those of of lost hanging

Patrick Miller

I a have protecting know, to say we have tariff as precise think answer a and it’s our that’s as of think this latest question, territory business going you what don’t always job a would pretty the round I stated condition next-gen we on. core your dynamic but through have activities, I our I is Well, good but done on

incremental are these believe we wins. So,

they incremental to are today. we where are So,

Mike Shlisky

plus ask be Okay. out whether confirm And about, keep And a both tell time? declined bit people’s among construction impacting culprits maybe in issues the Pat you just out deliveries the mean, current could is and perhaps QX have then, wanted in supplier issues confirming to way you, question, in just the some sense constraints there, or I not us not maybe also it’s it’s I market or you, if at ask hearing if might to about CVGI OEMs this truck the there are would the a again? have any and – of those other your I I

Patrick Miller

Yes.

we constraints some directed experiencing are chain So, supply sourcing. on

electrical in I is engineered there the business, quarter specifically some components. think we constraint have that our on the have the from talked first are and sourced direct that openly components about global we and those on customer

So I can And that that the some on time. a broad are not say, components culprit, period does those in the we segment some magnitude unfortunately, go have produce constraint necessarily they but range given across would the of customers. of of

There is just commonality some everybody not it’s customer. that uses. So, one

for are on of anything are. and a bit on have inflated already there sold business who way to show exactly customers they little a – products. numbers side their and side to good the build of build we myriad of much up we other constraints. know activities truck they at not they how still up, but customers going of then The but components managing very I to the issues later, the that aware lose do On causing They the that. in those until be It’s and hard will those out am have working particular, are directly, that us It’s those the the are offline tell in definitely able the constraints. process of have trucks so the them in build frequently slots. show are And they don’t we that put

those there is to reporting on are of bit little components already go and them. sometimes So, vehicles a lag Customers vehicles. between completed shipped

Mike Shlisky

were that note down sales inventories then you the mean, next worked or back Can you two Got the quite could kind through QX whole a there? I how have quarters on remains of for bottlenecks even today? straight inventory though other sense and give healthy a sheet, story guys are think And of balance it. there you did QX just kind to inventories the color. then That’s robust. the good here now to I as levels to have down your that in normalized in us you or reasons QX or more are environment

Patrick Miller

in going on good going to bit Yes, give is of probably chime then too. am a I it’s a question. to one Tim little this color

seeing and So, that various Mostly beginning continued levels situations. and working has better feel relates the supply the down schedules the drive work are performance in and efficient to inventories improved also started delivery process better and we chain that you that to have are we our at in with material actively of management, more numbers. and year been levels that whatnot to

that in versus the at some original of where Some bring fast we more delays to launches proceed of was related sometimes customer. at the may there beginning those material are initially launches how and some plans launches in

those health things don’t think have we continue to contributed, and have opportunities to all frankly we are and group with? we push it but enact an want a concerns intentional opportunities. from of definitely So, to I I there in chime And some about you effort. has standpoint, those Tim, have the still where been

Tim Trenary

just Pat’s numbers described, only – we were the Mike, in year to normally are little end. supplement mean, The they there, for expect than the comments, thing a Pat I at solid, would higher inventory levels reasons

hand, them days of are to of in We down, have very on second comparable quarter the managed but second ‘XX. quarter the ‘XX

So to inventory we what be we reasonable would at sitting consider today are levels.

Mike Shlisky

do of you effort fair to digital capacity, footage last if footprint? that think then use potentially you Okay, comments your make initiatives under want enough. some to of your your line are out don’t more expand a to possible about And square just you to me the roof get kind or from CVG XXX% your sure looking is expand know of on can just current I clear. the I one one

Patrick Miller

Yes.

in. great a that’s So, leave

options us to today. open are of All the

digital with then and the are frees activities assembly throughput especially space. expanding floor in, making investments arena, we harness some the up of are we also wire using So, in improving and

future we we in the still I of more in us need a with and helps new for programs at have looking the form think ahead Europe throughput. and capacity and North probably But are in both America. operations that So the capacity

regular to Obviously, discussed, timing have of of the some dictate balance that and with that the constraints, might which the uptick evaluating we that. So some are already we we of on basis. a market

Mike Shlisky

am so going I much. to Okay, thanks line. the pass

Patrick Miller

Let is, content of exponentially sort the electrical connected of expand me and some are wire with most and thing, say is vehicles things amount reality to other one continues Mike. those harness. The of

And that’s not and industry. that’s like but core in in – feel our so every we just industries,

electronic weren’t before becoming electronic. that things So are

look at that we when if allocated. so our have see and future And business to resources to right grow business opportunities we we of continue the business, that and the capacity

we So a see think term I both it longer short-term and as a view.

Mike Shlisky

sounds a were wire just similar there more in higher lot kind the were a of than about diesel could like harness This trucks than that version or lower? or tell is if EVs, just that made being content us a but you electric future,

Patrick Miller

Well, electronic and think to I standpoint was from only do in I with it. have think various going continue to of all devices a had of on what we that’s powertrain referring the of grow to kind the more what vehicle I regardless

support your of just that we harnesses but mean, count mean, your the we right. phone that in as growth traditional in vehicles, things quite aren’t it’s exact diesel well not front. are EV transmitting I everything. that are talk see in and now, as vacuum the the the in applications engines that on number comparison, data some powertrains I it’s inside right. the don’t things new with I think know exciting vehicle cleaner to both or and So can of the I and it’s the architecture, today out connected generating yet number

Mike Shlisky

for it very I you guys. Indeed, appreciate much it can. the Thank commentary.

Patrick Miller

Mike. Thanks Yes.

Operator

And Douglas [Operator comes line Capital. of question D.C. our the Dethy with you. Thank Instructions] next from

Your line is now open.

Douglas Dethy

on it. the outstanding appreciate We really Congratulations morning. results. Good

Patrick Miller

Thanks, Doug.

Douglas Dethy

up, or it is sales bit of concerning You any of operations, your of now, inputs? just the business sales mentioned on what right you up, on the think obviously, from but just equilibrium that little here? level constraints could little versus a are there kind a Can is kind the terms new on things? receivables, this nothing right receivables on anything of comment we are you And see from of a are and really receivables side bit now then the kind tariffs in

Tim Trenary

in first the ‘XX very half Doug, will fortunately ask in let a second with on that come sales Mike’s to part days will and hand it’s we I to question I had to me on quarter the the QX With where the were we in receivables, transpired were time What we Tim. take of series end might the at before a circumstance of supplement of that respect the the I outstanding the respect to question part to was of so. the end. Pat to payments comparable at rather mentioned where are do happened of you your here year the days ago receivables, second very year the compared comparable. inventory, had first where that as large just payments to as year question a just end year

the of year end receivables were at so sort abnormally And low.

So, level were now the The more DSOs normalized. low. receivables is

Douglas Dethy

Okay, you. thank

Patrick Miller

it’s Pat. hi, Douglas,

had a mentioned some in a into that related part I just think of I around I for components foreseeable constraints, And the think continuing we are the I that the constraint business, of future. of global some growth industry. part is the on electrical our discussion little to bit that go of the On the about

produce So that The the supply rapidly, suppliers we it those demand types adding do on more. able interconnected putting but of if and are more is is capacity and volumes connected more and we They those pressure to somewhat could things there that components. constrain are were does that.

one that of I would point the constraints to. is that So,

didn’t labor I think manning mention if I remiss I globally that challenge. and a be is still would

of internally try maintain that lots to I and are and to think things situation. to improve it’s a be going we challenge doing to continue

but that that got and automation well but as in activities, We to I as and think it a us. are could it that as on impact of hasn’t they we some continue automated they environmental variety continue been where haven’t continue the places definitely and things improvements employee-engagement I us – if consistencies situation held go have has back, have infrastructure think an made projected, before, to economies more area to necessarily direction the challenging

only major I are those would items really probably to. point So, the

Douglas Dethy

Good. Talk your Thank really good part wire that will to bit a would certainly just there, guess If see your I more you yourself advantage supplemental would say? I important just business, little on strategy may you. trends adding it’s secular future, at if of harness you one an and I ask the I there. even guess competitive indeed important, if

Patrick Miller

We is lots what there there harness operate other a smaller that very the volume, that what of have we And say, market don’t companies. complexity things high of And of competition we from those. provide most and and would onsite So are wire multinational assembly the lower tend in a see not capability are space, world industry there automotive tend the the the companies some lot is direct and high to global to in with I We engineering some them to of segments. that they of operate arena, stratified. wherewithal of in some players are proliferation, development in service wire in are in, be some and large the lot do.

kind it’s interesting maintain. can we an that So, position of

not for of have change multifaceted per management are help Our usually lots and SKU. of rapid products and SKUs customers that. need we even that them These ability an accomplish lots large

competition, some business, a from we So, that can to that supply which side service is and model of think the think we have but business that it range obviously within different continue what do competition. range we us differentiates is within we

generation, what be capability give example, for for power harnesses the look We So look provide of continue in service industrial engine examples when are we to to you other have they I of will continuing and an them grow past and which tend what that we volumes able complexity some at and us. with and about to I That’s the Sullair. that for some the in need. in, the industries, powertrain dimension of find do. is types talked We application they to

and what type advantage need really is that think we us various of an service. that’s believe we more segments and what be customers So, that gives that market going and people in more to there

Douglas Dethy

very you Thank Excellent. much.

Patrick Miller

Sure.

Operator

of the Thank you. comes from And next [indiscernible] Capital. line our question

now is line Your open.

Unidentified Analyst

Hi, questions. thanks for taking the

Sort continuation to harness conversation, etcetera, are our you vehicles, markets? of in see we autonomous serve everyday information more those of on innovating any EVs, wire capacity

Patrick Miller

Well, are what’s engaged several of as think a that’s earlier, in mentioned have with I The And who an our that of I for is forefront. vehicle certainly we autonomous debate. broad customers definition question. been up

So, I on what vehicles, those we and And customers say more as things how is needs. to think as would with activities as ongoing near-term had things we going and is driver-assisted they have various might far them I certainly need. as change going there far what help are satisfy

but yes, not So, into I is, answer are the that think something it’s we prepared get to today. details on

Unidentified Analyst

thanks. Okay,

Operator

would I am call remarks. to I the any showing and at return question Thank time Miller Mr. Instructions] further like this And for to you. Patrick [Operator closing no

Patrick Miller

you and you look with is volumes. and when parameters seem the just quarter be everybody to so sure. dynamics And has we for very that favorable our through conditions this into our the markets, I pleased XXXX. team showing much. responded Yes, a higher us pretty Thank core to strong very tell wanted to in at are they how

And so our also unprecedented capitalize an issues, we continue swing are our forward going the like unforeseen to going manage looking us for what businesses. is core to on efforts but in

for joining. the future. forward in thanks and speaking Appreciate I So, to look it

Operator

you program a disconnect. all conference. This gentleman, and conclude have today’s for thank in Everyone and the participating does great day. Ladies may you

Commercial Vehicle (CVGI) 12 Aug 182018 Q2 Earnings call transcript