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Accuride (NYSE:ACW)

Q3 2013 Earnings Call

November 01, 2013 3:30 pm ET

Executives

Gregory A. Risch - Chief Financial Officer, Chief Accounting Officer and Vice President

Richard F. Dauch - Chief Executive Officer, President and Director

Analysts

Kirk Ludtke - CRT Capital Group LLC, Research Division

Alfred Rhem Wood - BB&T Capital Markets, Research Division

Jimmy Baker - B. Riley Caris, Research Division

Barry George Haimes - Sage Asset Management, LLC

Operator

Welcome to the Accuride Corporation Third Quarter 2013 Earnings Conference Call. On today's call are Accuride's President and CEO, Mr. Rick Dauch; and its Vice President and Chief Financial Officer, Mr. Greg Risch. My name is Vanessa and I will be your operator on today's call. [Operator Instructions] Please note that this conference is being recorded and will be available for replay later today. [Operator Instructions] And now I would like to turn the call over to Mr. Greg Risch. Please go ahead, sir.

Gregory A. Risch

Thank you, Vanessa, and thanks, everyone, for joining us today. If we turn to Slide 2, I'll remind everybody that during this call, we'll be making statements that can be considered forward-looking as defined in the Securities Act. We caution that you read these statements and they're subject to risk in our business, and encourage you to read all of our SEC filings to understand what those risks are.

Please turn to Slide 3. During today's call, Rick will provide an update regarding activities within the company, including the conditions in our industry and within our businesses. I'll then review our third quarter results and the 2013 outlook prior to opening up the line to questions.

With that, I'll turn it over to our President and CEO, Rick Dauch.

Richard F. Dauch

Good afternoon, everyone, and thank you for joining our call. Today, Greg and I will walk you through our third quarter results, our outlook for the balance of the year and take a quick glimpse into 2014. Let's go to Slide 5.

During the third quarter, we saw our EBITDA margins improved to 2 -- 7.2% from 6.6% in 2012, despite a $32 million decrease in year-over-year sales. While we are disappointed in the revenue decline, I think the improvement in margin shows our hard work to reduce our cost structure and improve our operating capability is starting to pay off. We sold Imperial for $30 million and a $2.25 million earnout. Imperial was a non-core asset that have been a drag in our earnings and required a lot of management attention for the past several years.

In the third quarter, we initiated the move on our distribution center from Whitestown, Indiana to a smaller facility in Batavia, Illinois. We are experiencing some unplanned launch cost related to the move, which impacted the third quarter. We expect the move to be fully completed during the fourth quarter.

We reached a tentative agreement to sell our idle Elkhart facility for $1.3 million. The buyer has completed a diligence and the transaction should be closed in the fourth quarter. We made selective cuts to SG&A and overhead reductions during the quarter, and we will continue to evaluate additional reductions as we adjust our current volumes in the marketplace.

I want to point out that we are being thoughtful and careful regarding our cost-cutting to avoid repeat of past errors that left critical positions vacant or overloaded employees with multiple responsibilities. Some of these decisions directly impacted our ability to deliver quality products to our customers in a timely fashion, which led to some of our market share lost. We have a very good team in place here at Accuride that has made great progress across all of our businesses, and we want to be prepared to fully grow the business when the market upturn is expected in the near future.

We did face challenges in the quarter. Weaker than expected commercial vehicle volumes are impacting both our Wheels and Gunite business, while softness in the global mining and construction industry is significantly impacting our Brillion business. Near-term, we expect this weak demand to continue as we head into 2014. We are currently experiencing low capacity utilization rates in all of our businesses units. These low utilization rates are related to a combination of market share losses, shifts in the market share amongst our OEM customers and lower overall industry demand.

Now that we are 95% complete with the FIX strategy, we need to work hard to fill our open capacity here in North America or look to redeploy that capacity as part of our longer term global expansion plan.

Let's turn to Slide 6, please. We've adjusted this slide to show indicators for the commercial vehicle industry that impact our Wheels and Gunite business on the top half, the top 3 slides and industry indicators for the general industrial construction and mining industries that impact our Brillion business on the bottom half of the slide. Overall, the indicators are mixed, which leads to near-term market uncertainty. In this uncertain environment, both consumers and businesses tend to be cautious and conservative, thus we are seeing a tepid economic recovery. The projected second half '13 upturn that we talked about earlier in the year simply did not materialize either at Wheels, Gunite or at Brillion. While near-term, we don't see any indication of accelerated growth, we do believe the mid- to long-term prospects for all of our businesses remain strong.

Slide 7. Let's look at the actual and projected Class 8 truck builds by a quarter from 2012 to 2014. As the data suggest, build are both cyclical and unpredictable. Both ACT and FTR have recently reduced both their 2013 and their 2014 forecasts. 2013 is estimated to end up between 240,000, 250,000, and 2014 is projected to be between 260,000 to 280,000 truck builds.

We are in the midst of our own 2014 planning process and we are looking at the commercial vehicle market being up around 5% in -- versus 2013.

Slide 8. Our 2013 forecast revision reflects lower than expected build levels in the second half of 2013 at our OEM truck customers. On the left side of the slide, we showed the build projections that we received from our customers, our own internal forecast and the actual build for the third quarter. We were planning for production to be about 8% below on our customers forecast and it actually came in an additional 7% below our conservative forecast. Looking at the fourth quarter, we are currently looking at production to be 9% below the October forecast provided by our customers. Overall production is coming in weaker than expected as our customers adjust their build schedules at current order levels. The October order rate for Class 8 trucks will give us a good indication of how strong builds will be in the first quarter of 2014.

Slide 9. As we discussed in the second quarter, all of our critical capital investment projects are complete. The aluminum wheel capacity expansion, the Gunite Machining and plant consolidation are all 100% complete. The new hub machine line is now online and in production. The results are beginning to show up in Gunite's operational and financial performance. Brillion's improvements remain ongoing. We are continuing to look at opportunities to streamline their operations, this may include some select capital investments to improve their core and finishing areas in the manufacturing process, so we can reduce cost and become more competitive at Brillion. We are making significant progress and getting ready to implement our new ERP system, this will continue as we focus in 2014.

Slide 10. With the FIX portion of our Fix and Grow plan now 95% complete, we are shifting focus to continue improvement efforts and growth. I've mentioned the ERP implementation, which is an important step that will tie our improved operations together and eliminate numerous hidden costs in our business. Implementation will start at our Wheels facilities in January, in Henderson, followed by the Gunite and aftermarkets distribution center in later 2014, and then Brillion in early 2015.

We are in the process of upgrading our coatings systems and coating processes in our steel wheel business. These improvements will create advanced coating solutions that will lead to superior product performance and greater customer satisfaction. We expect to launch our new coating for steel wheels in January of 2014. As part of our normal ongoing capital expenditures, we will continue to make select upgrades in our Gunite and Brillion foundries. These upgrades will focus on greater operational efficiency and improved quality.

Our primary focus is now on growing our business. The projected recovery in Class 5-7 and Class 8 markets in 2014 and '15 will help us in that direction. More importantly, our investments have restored our ability to be a dependable and capable supplier to our customers. We could now compete for new business toe to toe, with our chief competitors. We will roll out new technology above Gunite and Wheel later this year and in early 2014 that should drive new businesses our way. We are aggressively bidding on numerous opportunities to grow our aluminum wheel business, at the truck and trailer OEMs, at fleets and in the aftermarket. Growth may also come as we look to redeploy idle wheel capacity to global markets our customers are asking us to enter over the next 2 to 3 years. The bottom line is that we are focused on profitably growing our business and our finally in a position to do so from a competitive nature.

Slide 11. Let's talk about some recent wins we've had. We have recently re-secured a long-term aluminum wheel agreement with a large trailer OEM with upside volume potential as he continues to grow his business. We have repositioned our aluminum wheels as a competitive option and large truck OE, which will help us gain share at one of our largest customers. We recently won over another top 10 fleet who is now going to spec our aluminum wheels for 2014. We are also successfully gaining share in aluminum wheels in the aftermarket at nice pricing. We will look to secure a standard or competitive option positions at truck and trailer OEMs in North America in both steel and aluminum wheels. We have lost some of these customers over the last 6 to 7 years, and we're working hard to gain that share back. Another opportunity to gain share would be through fleet spec conversions. We're also looking to increase our share in the aftermarket where we've lost some on the steel wheel business. In the future, we've got some things to announce in early 2014 on that. Gunite will focus on growing our share in the aftermarket and we will also look to gain share back at OEMs through new technology introductions where we think we have a better mousetrap and a lighter weight drum.

We are reestablishing Gunite's reputation as a cost-competitive, capable supplier, one customer at a time. I recently attended a VIPAR meeting in Florida, and I've had 2 customers who both moved away from Gunite over 4 years ago; one's doubled his sales with Gunite this year, and one has come back 100% to Gunite and eliminated the Chinese supplier he used before.

At Brillion, we are targeting nontraditional regional customers where we have garnered multiple requests for quotes for over $25 million in opportunities for new business. We are also looking to diversify our customer base by including value-added machine, which seems to be an increasing market trend in quotes we received. Right now, we have an additional $30 million to $40 million in RFQs for these types of products in the coating process right now.

At this time, I'm going to turn to Greg and let him cover the financial results for the third quarter and the forecast, going forward. Greg?

Gregory A. Risch

Thanks, Rick. Please turn next slide, which summarizes Q3 results.

Before I get started, I want to remind everyone that due to the sale of the Imperial business during the quarter, the financial results for Imperial for all periods presented were re-classed to discontinued operations. Okay, let's talk Q3.

Sales for continuing operations of $155.3 million were $32 million or 17% lower than Q3 of 2012 of $187.3 million. This is primarily related to lower demand from the commercial vehicle industry for our Wheels and Gunite products, combined with a significantly lower demand from the industrial and agricultural markets that we serve at Brillion. Compared to the second quarter this year, Q3 represented a decrease of 14% due to the strong seasonal demand in Q2 at our Gunite business that doesn't historically repeat in Q3, as well as overall reduced demand from our OEM segment.

Our operating loss of $700,000 on the lower sales this period, shows a good comparison to the prior year since we recognized less loss this year, despite the reduced revenue year-over-year. This is due to 2 factors: one, we recognize $6.6 million of onetime cost last year associated with our Gunite business and other staffing reductions compared to $1.4 million of similar charges in the current quarter; and two, we're make significant improvements in the operational efficiencies of our businesses. Just considering the change of revenue of roughly $32 million, one might expect normal contribution loss of about $8 million. And instead, we improved our earnings by $2 million after excluding the $5 million difference of onetime costs. Said another way, excluding the change in revenue, we improved our operating earnings by roughly $10 million.

You can also see a similar improvement in the adjusted EBITDA, which excludes the noise of the one-timers. Adjusted EBITDA in the current period of $11.2 million was only $1.1 million lower in Q3 of 2012 despite $32 million of less revenue. What we're looking forward to is a pickup on the revenue side to show the earnings power of the new Accuride. Next slide, please.

This slide shows our year-to-date results. Again focusing on our results from continuing operations, revenues so far this year, just under $500 million represent the decrease of nearly 23% from the prior year of $646.1 million. This decrease is fairly evenly split by business, with Wheels down $47.5 million, Gunite down $54.1 million and Brillion down $46.3 million. Of course, the percentage decrease is the largest at Brillion, whose markets were very robust through late August last year. Otherwise, the decrease in Gunite was driven by the drop in OEM volume from the loss of standard position at 2 OEM customers that we communicated late last year. Wheels continues to be negatively impacted by the shifting OEM truck share positions, with our market share tied more closely to the OEMs that have seen their share of the Class 5-8 truck markets diminished, as Rick alluded to earlier.

For the earnings results for the first 9 months of 2013, the decrease in revenue and the operational improvements realized this year have brought us back to breakeven levels in regard to operating income. Although we believe that the commercial vehicle industry trough is behind us, as Rick discussed, we're eager to utilize our improved operational capabilities in a more robust environment with favorable trends in the OEM market share distributions. The other aspect to look forward to is the recovery of the markets that Brillion serves. More on that later when I discuss guidance for the full year. Next slide.

This slide shows the correlation of our revenue and earnings for Q3 of the current and the previous 2 years for continuing operations on the top half of the slide and Wheels on the bottom half. For continuing operations, the reduced revenue trend is primarily due to loss position of OEM demand for our Gunite products, on the 2 OEM customers previously mentioned, along with the reduced demand from both the commercial vehicle market and the industrial market that Brillion serves. What is improving is the adjusted EBITDA on the reduced revenue. We took a nice step forward earlier this year, mostly as seen through the Gunite turnaround. Remember that our EBITDA margin in quarter 1 this year was 5% for continuing operations compared to the current quarter of 7.2%. So improvements do continue despite lower earnings -- lower revenue.

With regard to Wheels, it is our largest segment and represented roughly 57% of revenue with sales of $88 million in the quarter. While the earnings fall in line with the reduced revenue trend that you see on this slide, our opportunity in Wheels is to improve our overall share position. From 2011 to 2013, our active market revenue in Wheels has been steady, but overall aluminum wheel demand has increased as weight savings have become more important. On the OEM side our revenues decreased over these periods presented, some due to builds and some due to the unfavorable mix of our customers share position. This overall mix has moved the Wheels business from an 80-20 ratio for OEM day aftermarket in 2011 to 70-30 here in 2013. Next slide.

This slide shows our trends for the Gunite and Brillion business in the same way as the previous slide. Gunite continues to show improved earnings year-over-year, despite reductions in revenue mostly related to the OEM share loss in 2012. Gunite sales of $40.8 million were $8.8 million less than last year, but they enjoyed positive EBITDA of $1.5 million compared to losing $1.7 million last year in Q3. Operationally, we're doing well considering the reduced level of revenue within the aftermarket, but our challenge is to utilize more of our manufacturing capacity to show our true earnings power. Similar to what you saw last quarter during the height of the seasonal demand. Again, the key takeaway here is that Gunite continues to improve operationally and we are confident that the results seen beginning in Q2 are indicative of that operational progress that will lead us to a much improved earnings picture heading into 2014. The challenge remaining in 2014 is to chip away at labor and overhead cost opportunities. So for Brillion, we see a distinct change in operating conditions, similar to last year and last quarter. Sales this quarter of $26.5 million represents a 33% drop in sales demand in comparison to last year. This decrease represents the most significant percentage change in demand among our 3 segments and is due to production and inventory levels of the customers that Brillion serves. Despite this demand change, Brillion remains profitable with adjusted EBITDA margin of 5.4%. Next slide, please.

The graphs on the top half of this slide contain a full year 2012 results with Imperial included. The bottom half are the pro forma numbers without Imperial. I show these to better explain the significant shifts within our revenue mix, sliced 3 ways. We divested Imperial because it was non-core and a marginal income business. The other shifts that the divestiture makes for our markets are twofold: One, since PACCAR represented roughly 75% of Imperial's revenue, our overall dependency on that customer and the OEMs, in general, has diminished, as you can see in the middle of the slide. Two, for the graphs on the far right of the slide, Accuride is less tied to Class 8 and more tied to the aftermarket segment. The other key points that largely remain unchanged are that we serve primarily only the North American market and our core Wheels business continues to be the largest of our segment. Next slide, please.

Top 2 graphs on this slide break out the 3 components of our trade working capital: trade accounts receivable, inventory and accounts payable. We're continuing to see improvements in our trade working capital as a percentage of sales, as shown in the graph on the lower half of the slide. While I expect receivables to track sales fairly consistently, our improvements on the inventory and accounts payable management have been the more significant drivers. Haven't seen inventory managed better at Accuride and what I'm most proud of is that the improvement is due to systematic, sustainable changes. A true culture change. Overall, our trade working capital is fairly steady percentage-wise and represented 8.8% of sales this quarter. Next slide.

This slide shows our free cash flow for the quarter of negative $23.6 million. Clearly, you can see that the third quarter includes the semiannual interest payment of $14.7 million for our 9 1/2% interest notes. Not included in the cash flow presentation on this slide are the gross proceeds of $30 million related to the sale of our Imperial business on August 1. Despite working capital appearing to hold fairly steady during the period, we did build a little inventory due to the relocation of our distribution center, that Rick discussed and some related to Brillion as we finish labor negotiations in Q4. Capital spending was reduced over the prior year and will continue to diminish now that the heavy lifting of the Fix strategy is nearly over. Aside from the industry recovery and shared growth, the continued focus on reducing our cash conversion cycle is vital to maintain positive free cash flow on an annual basis. We do expect the seasonality of our industry that we serve to continue in the future, which is why I comment that we have periods of cash flow that will be negative. This will be offset by future periods of positive cash flow, as our capital spending diminishes and the markets recover. Next slide, please.

Net debt was reduced this quarter from $316.8 million at the end of Q2 to $311.9 million at the end of Q3. We reduced demand outstanding on our ABL by $10 million during the quarter, which came from the proceeds of the sale of Imperial on August 1. Our liquidity of $62.4 million has been pretty steady through the year, other than the spike we had in Q2. Divesting Imperial during the period strengthened liquidity by roughly $12.5 million. This represents gross proceeds of $30 million less the associated fees and then the reduction of the asset base availability underneath the ABL.

As we noted earlier, we recognized $2 million of income related to the earnout in the Fabco business sold in 2011. These funds were received in October and will help us to continue to hold liquidity steady through the end of the year. Other than curtailing the normal categories of spend, we continue to work on other liquidity opportunities such as managing CapEx, working capital and continue to explore sales of non-idle assets such as our Elkhart, Indiana facility that Rick mentioned. Let's turn to the next slide -- or to the 2013 guidance slide, Slide 22.

Last quarter, we were previously guiding you to the lower end of our range for revenue and earnings. Based on the results in quarter 3 and the reduction of our customers' production schedules, including increased weakness in Brillion's core construction and mining equipment markets, we expect our 2013 net sales to be in the range of $625 million to $650 million, and adjusted EBITDA ranging from $45 million to $50 million for the year for continuing operations. There are 3 key factors that are driving our top line guidance: First driver is commercial truck builds, with the second being tied to our market shares of those OEMs who get the builds. We are tied more to certain OEMs than others. Therefore, our revenue will move more in line with their production schedules. Aside from general assumptions regarding our aftermarket, our near-term forecast are more directly tied to the production schedules that our customers shares with us and less about the total builds as communicated by industry forecasters. Also, we've been targeting converting certain OEM volume for aluminum wheels that has not come to fruition during 2013 as previously expected. This third driver relates to demands on the industrial, mining and agricultural segment that our Brillion business serves. There's not a sole index reference here to help understand those various markets, but Rick discussed some of those indicators previously on an earlier slide. Overall, our top line guidance change of $25 million was roughly 60% related to Brillion's market, with the remaining related to Wheels, which is mainly driven by our reduced schedules and a decrease in expected market share for aluminum wheels. Gunite has held more steady due to their customer mix being more heavily aftermarket-driven, which has been predictable than the OEM segment. Overall, the lower production environment leads to challenges within our operations. We'll continue to manage cash and liquidity, which again will hold steady through year end. We changed the presentation of the cash, so that you could see the incoming cash related to asset sales on the leases received earlier this year, separated from the other cash flows. Now I'll turn the call over to Rick to summarize, prior, to taking your questions.

Richard F. Dauch

I'm on Slide 28. In summary, the operational FIX portion of our strategic plan is now largely complete. We continue to explore opportunity to improve our operations, including launching a new steel wheel coating system in the first quarter of '14, reducing the distribution center cost during the fourth quarter of '13, and developing a new product technology to bring the market at Gunite.

At Brillion, we are continuing to lower operating cost with the pending new collective bargaining agreement, implementing our lean system approach and selective capital investors to grow to enable our ability to grow the business back at Brillion.

We will continue to selectively reduce corporate SG&A and planned overhead cost without jeopardizing our capabilities as a supplier. We will successfully implement our new ERP and scheduling systems in 2014. We continue to enhance our liquidity position through a focused effort on working capital management and minimizing capital expenditures now that we've got our plants back in shape. Our focus on growth. We must fill or redeploy wheel capacity, focusing our gains at the fleets, the truck and trailer OEMs. At Gunite, we are focused on the aftermarket and new product offerings at the OEMs and fleets. At Brillion, we will selectively reduce our costs and selectively upgrade or add capacity and capability with partners in order to grow our sales. We will look to opportunistically grow Wheels globally.

Let me wrap up with a couple of comments. 2.5 years ago, when I got here, when I arrived, our plants were in disarray. Our customers were unhappy with us and looking to re-source the significant parts of our business, and some just -- did just that. We have dealt with big swings in the markets we serve, way up when we were not ready and incapable of meeting demand or meeting customer requirements, and now down when we are ready to meet those demands. Better days are ahead for Accuride, Gunite and Brillion. We're ready to win again in the marketplaces where we compete. We're ready to turn over for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we have our first question from Kirk Ludtke with CRT Capital Group.

Kirk Ludtke - CRT Capital Group LLC, Research Division

I guess I wanted to start with talking about the Wheels business in the third quarter. And it looks like on -- it looks like production -- Class 8 production was relatively flat or to down maybe 4%, depending on which forecast you look at on Slide 6, or which forecasting service you look at. But the Wheels revenue was down 10%. And you attribute it to, I guess, 4 different things: customer market share, competitive pressure, military and pricing. I was -- are those in order of importance? And then maybe, I think I understand the customer market share, but maybe if you can elaborate a little bit on the competitive pressure in the segment and what that really means?

Gregory A. Risch

Yes. I think the -- we don't actually layout each of these segments individually, but yes, I think I can address them. I think, overall, your point is correct in regards to maybe level of importance. Certainly, we feel that maybe if I can pick these off one at a time, is that the share of certain OEMs was maybe greater than others than we expected. So there's just a -- there's a mix for us. That's certainly meaningful, and it has been throughout this year and in last as well. I think if we talk about the competitive pressure that, that's maybe more an overall general statement, but maybe affects more -- on a quickly basis, it affects the aftermarket business. Those can swing around pretty quickly from month-to-month and regarding who's got a better price. So we feel pressures there. Overall, though, we've started saying in 2012 with the low-cost countries that we've had pressure after losing that case in April of 2012. So we continue to see that pressure for primarily steel wheels in the aftermarket.

Richard F. Dauch

Also, there's been a big drawdown in the military spend. That's a big piece that occurred.

Gregory A. Risch

Right. That was on your list.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Okay. So the shift in the OE share is not for new trucks, it's on their -- on replacement volumes?

Richard F. Dauch

Yes, I mean, you guys, there's lots of literature out there in the marketplace right now of share gains between truck OEs, right, both on the Class 8 side and the Class 5-7 side. You guys can do your analysis like we have. We see who's winning and who's losing. Some places, we're positioned quite well, and some, where we've lost share in the past or lost a tenure position we've lost. We're working hard now that we have competitive plants to get some of that share back. So we didn't do it so far in '13. We'll work hard in '14 and '15 to get there. So...

Kirk Ludtke - CRT Capital Group LLC, Research Division

Okay. And then you mentioned pricing.

Richard F. Dauch

Does that help?

Kirk Ludtke - CRT Capital Group LLC, Research Division

Yes, sure, it does. And can you talk about the trends in pricing?

Richard F. Dauch

Pricing on the Wheels side was okay. It's stable right now, I think. I think with no one standing still right now, in terms of everybody's fighting, right? We still compete in a size of the markets where [indiscernible] coal and aluminum side, and now in the steel side, it's us and Maxion with a little bit of pressure on the Chinese side, but most in the aftermarket on the Chinese wheel supply. Greg?

Gregory A. Risch

Yes, I think the only thing that I can add with these, that you are going to see fluctuations of our pricing on the OEM side, just due to the material change. It's OEM and aftermarket in that effect. There wasn't any change within the period, within these 2 periods that we're talking about in regards to standard position at the OEMs, we can -- aside from the share shift between the truck OEMs, there's no fundamental changes there.

Richard F. Dauch

Yes, I think our domestic competitors are pretty rational in most cases. Now some places, they've enjoyed a large share for a long time, and so they're going to fight tooth and nail to hold onto that share. So we're going to monitor that quickly. Does that answer your question?

Kirk Ludtke - CRT Capital Group LLC, Research Division

Yes, that's helpful. And one last one. Is the -- is your military business weighted toward the Wheels segment?

Richard F. Dauch

Yes.

Gregory A. Risch

Yes.

Operator

And our next question comes from Rhem Wood with BB&T Capital Markets.

Alfred Rhem Wood - BB&T Capital Markets, Research Division

Okay. So first question, do you feel like things kind of decelerated throughout the quarter? And then, you guys, I think you said that the revenue decline was 65% Brillion, the rest was at Wheels, particularly like the aluminum part, would you feel like you're losing share at this point in any of the businesses?

Gregory A. Risch

Well, see, I want to take those one at a time. Did it decelerate? I think the answer is yes. We're aware that July, historically, always has a shutdown for some of the major truck OEMs. So we're used to that, but otherwise, let's say, the daily rates and things like that, yes, I think you could say that a little bit. So quarter 4 would be the same thing, so slowing down a bit. And the second part of your question would be, are we losing share? Were you asking for a particular segment?

Alfred Rhem Wood - BB&T Capital Markets, Research Division

Maybe all the segments, if you can touch on that? Particularly, you attributed the lost revenue to Brillion and then to -- on the Wheels side, the aluminum business.

Gregory A. Risch

Yes, yes. So if it's fair, let me kind of break it down in a couple of places. In quarter 3, the overall percentage decreased from maybe our expectations, was fairly close percentage-wise between our 3 businesses. Quarter 4 is a lot more heavily weighted towards Brillion. So overall, when I mentioned that we took the top line guidance down $25 million and, roughly, 60% of that was due to Brillion, a large chunk of that is in quarter 4. I think, overall, I think if you kind of go back, and it's hard to do it all at once, but if you go back and summarize kind of what we've been talking about in just the last 30 minutes here, is that, yes, I think we've lost share and, in particular, one of those drivers is just the OEMs that we are tied to, we're naturally losing some there. Obviously, the effectiveness on who's going to pull through -- like I said, there's no change in the standard position at the OEMs. But there is a shift from period-to-period, quarter-to-quarter in regards to which programs are being produced or which vehicles are being produced, and we have maybe more or less share on certain of those as well.

Alfred Rhem Wood - BB&T Capital Markets, Research Division

Okay. And then it sounds like things will get a little bit worse in the fourth quarter. I mean, how does this play out? When do you expect things to kind of turn? When can you kind of achieve an earnings breakeven at this point?

Gregory A. Risch

Well, I think, certainly, you can do the math now. We don't give quarterly guidance, but at this point, I can't hide quarter 4, right? So with the number of days that are down between the holidays and November and December, certainly, it's a much lower revenue quarter. Other than that, we'll talk about 2014 in regards to the specific dollars or earnings dollars when we come out in February. But we're looking for a small improvement in the truck OEM builds that's been communicated. Those numbers are out there, our friends at ACT and FTR, otherwise, we expect Brillion to be fairly flat, but maybe it's on way up as we exit 2014.

Richard F. Dauch

So Rhem, we've all read all the news out of Caterpillar in the last 10 days or so, right? So that really impacted our Brillion business, right? Although 20% of our revenue at Brillion in 2012 and in the beginning of 2013, it was tied to Cat. So initially, when we left 2012 and into 2013, we were talking about an upturn on that side of the business. In the back half of '13 now, we don't see that happening until the back half of '14, right? So instead of waiting for that, we're going to go out and find some new customers who we can make money and make castings for. We've done a good job up at Brillion to work at the union and the leadership team up there to find ways to drive costs down, both in the labor and overhead costs side of the house, to lean manufacturing, the new contract, and some select capital to put us in a position to grow Brillion back and diversify our customer base up there. That's the most meaningful drop in price-to-price that you and us, in the fourth quarter, is just how weak the market got over on the Brillion side of the business.

Alfred Rhem Wood - BB&T Capital Markets, Research Division

Okay. And then last one, and I'll turn it over. How much more can you -- how much more cost can you take out of the business at this point, if volumes remain sluggish?

Richard F. Dauch

Well, there are some things we can do, I don't want to get into the details on this -- on this phone call right now. There are some things we can do as we get the ERP system in place. It will take out some costs from the SG&A standpoint. There are some other things we can do from an operational standpoint, in terms of we can mothball some equipment for a while and try to double up in some other places, so we'll look at all those kind of things. I'd like to see the October and November Class 8, Class 5-7 sales numbers before I do some of those kind of things, though, right? Because I gave you an example, we have 2 dieselmatics up at Brillion, right? They're both running somewhere to -- close to 50% capacity utilization. Do I need to spend the money to tool one of them up, to run all 100%, and then take the other one down and maintain it for a while, or not? So those are the things we're looking at now, all right? What I don't want to do is I don't want to go into the slash and burn mentality to make some numbers, to please some people; it's damage to the business. I've seen that happen before in my career at other companies, and we used to say that it's saving your way into bankruptcy, all right? So we're not going to go in a position where we don't have a quality manager at Gunite, we don't have an off-shift manager at Gunite, we're not hiring people to run the Gunite, so that just leads to disaster. It's just kind of what we inherited here, okay? That thing said, we're in the business to make money, so we'll figure out how to get that done.

Operator

And our next question comes from Jimmy Baker with B. Riley & Co.

Jimmy Baker - B. Riley Caris, Research Division

So I just wanted to start with a follow-up to some of the share gain comments or attempts to gain share going forward, mostly on the Wheels and Gunite side. So as you're out there attempting to fill this excess capacity that you have, what's the risk that you begin applying pressure to your existing business, even if you are successful, you'd be freeing up capacity at your competitors? So how should we think about the pricing environment when -- as you kind of engage in these attempted shared gains?

Gregory A. Risch

Are you asking if we have to buy that share? If we -- are you insinuating that if we have to buy that share, what does that do to our other business?

Jimmy Baker - B. Riley Caris, Research Division

I'm insinuating that if your -- I mean, if you can -- it would be helpful if you could give the capacity utilization, but even if you don't, clearly, you're significantly underutilized, and if you do win that share, it would seem that you'd put some of your competitors significantly underutilized. And I'm just trying to understand how you win that business in a way that's attractive from a margin perspective and gets you to profitability if you use kind of industry volumes.

Richard F. Dauch

Then let's go across the businesses, okay? So steel wheels, there's really been no capacity shift that I know of in the last 2 or 3 years. And we know that we have a plant that sits in Canada, and the truck plants got closed in Canada during the big recession and moved South. So we know we have excess capacity there. That capacity is likely, at some point, to be moved to another part of the world where there's a need for us to create a competitor situation, right? I won't go into the details. You guys know enough about the market to figure out where we might want to put that stuff. On the aluminum side, in the past, when the markets ticked up, Accuride always ran out of capacity. And what I heard very clearly, from the OEM customers, the trailer and truck OEM customers and the aftermarket, is we can't trust Accuride because you don't have enough capacity. Now we do. Right? The question is do we have too much in North America, how much share can we gain in North America over the next 2 years, or should I pick up some of that capacity and move somewhere else in the world where there is no competitor, right? So we'll take a look at that down the road, too, right? On the Gunite side of the business, obviously, we have a lot of capacity there, both from the casting standpoint. The good news is we've talked to our guys, is you don't just have to make drums on the casting equipment. Where else can we make castings competitively for other customers as that market ticks up in 2014 and '15? If we need to redeploy one of our idle machine lines to somewhere where there's not a competitor, we can take a look at that as well. So the beautiful thing about equipment is that it's not owned by the plants, it's owned by the company. Right? And if customers need that equipment somewhere, we'll find a business case to put it there, okay? At Brillion, hey, it was only 14 months ago, we were running the plant 7 days a week, 24 hours a day, with 11 crews. Today, we're running the plant 4.5 days a week with 5 crews. All right? So this -- I'm learning that this business at Brillion cycles up quickly and it's cycles down very quickly as well. So if any of you on the phone can tell me when things are going to cycle up, let me know because I don't want to be in a position where we're moving equipment and all of a sudden, things turn up. As one of the plant managers here, who's been here over 39 years, he told me that [indiscernible] plant, stay the course. This market will turn and it will turn quickly. As soon as the economy picks up, you will be really ready to go. So I've been here less than 39 months, right? He's been here 39 years, he's been through up-and-down cycles. I'll trust his judgment. So...

Jimmy Baker - B. Riley Caris, Research Division

So I understand that you've positioned the business to be considerably more profitable, and better positioned for your customers when the up-cycle comes. I'm just trying to understand, let's say, at current levels of demand, at current levels of market share, you're going to burn over $35 million in cash. So how do you -- and I understand you don't want give too many specifics on potential cost cuts, but talk to me about if it kind of all goes well with your plan from here, what level of cash burn, if any, would you expect the business to have at current levels of end market demand, current levels of market share?

Gregory A. Risch

Yes, I think, as I understand, the quarterly fluctuations which seasonally come with our business. I think on an annualized basis, without giving guidance for next year, we'll probably need to pick up a little bit. But we do have some levers within our CapEx that can help control that. So I'm not expecting a large cash burn at all next year.

Richard F. Dauch

And, yes, remember, we've had abnormally high CapEx for the last 2.5 years, basically, right? 60, 60 and 38, some time, I think, this year?

Gregory A. Risch

Right, right.

Richard F. Dauch

We don't need to spend that capital and -- the money has been spent to fix the plants, close the plants, replace old equipment that was 60, 70 years old. Put in new paint lines that are -- replacing lines that are 41 years old. The work's done, right? We can go back down to $15 million, $20 million CapEx if we need to. That's significant change in cash burn, right? We have some abnormal costs this year to close the Elkhart facility and do it very quickly when the market changed, and we had some cash burn this year to close the -- and move our warehouse operations, right? We have some staffing levels that are somewhat high. We can take a look at some of that as well.

Gregory A. Risch

Jimmy, I think I get your question, and maybe simpler said, "Hey, Greg and Rick, how are you guys going to make money at these levels?" If that's what you're getting at, that is exactly how we view it as well.

Jimmy Baker - B. Riley Caris, Research Division

Well, I guess -- that is part of what I'm getting at. I'm also just trying to get a handle on liquidity. So -- and your, and I guess, frankly, the accuracy of the cash flow forecasting going forward. So 3 months ago, it was at the midpoint, $12 million cash burn for the quarter. Now it's -- or for the year, excuse me, now it's over $35 million. Can you just talk about how you see the balance sheet progressing over the next 2 quarters, particularly in the seasonally cash-burning first quarter and what the balance sheet might look like at the end of Q1?

Gregory A. Risch

Yes. I think I can give you a little bit without giving you everything. I think we may need to clarify, maybe you had the presentation from last quarter to this quarter, that maybe is a little too heavy of how you categorized it. Otherwise, I think I said earlier, I think -- I'm pretty sure I said that liquidity should be about the same at the end of this year than it was at the end of Q3, so in that $60 million to $65 million range. So quarter 1, depending on where the cycle is or where each of the business markets are, I wouldn't expect it to be too much different other than, obviously, we'll make our bond payment in the quarter. But, otherwise, it shouldn't be too much worse than that, probably somewhere -- probably in the $50 million to $60 million range, though, just considering that outflow of the interest in the quarter.

Operator

[Operator Instructions] Our next question comes from Barry Haimes with Sage Asset Management.

Barry George Haimes - Sage Asset Management, LLC

I had a quick question related to -- kind of related to Slide 6 where you've got the ACT and FTR projections for next year, Class 8. But they're kind of top-down macro guys. So my question is when you talk to your customers, the OEs on the truck side, and my recollection was, over the last year or 2, you've been spending a lot more time talking to the fleets, could you just give us a feel for what their mood is, what they're telling you when you talk to them about 2014, as opposed to these sort of macro industry forecasts?

Richard F. Dauch

Yes. Great question, Barry. So we have talked to all the customers in the last few weeks, myself included, both truck and trailer. And I'd say in the trailer side, they feel pretty comfortable. They like to see the order numbers for the next 2 months, and see if they can continue to build that, 240,000 to 250,000 rate for the trailer side. Class 5-7 seemed to be a little bit of a pickup in terms of some progress on that side of the business. In Class 8, the numbers that we're hearing from the customers are somewhere in that 255,000 to 265,000 range right now. So right, we tend to be, as you know, on the more conservative side. So budgeting, we're going to be below it than they are right now. So the other thing I'd say to you is that not only do we talk to the OEM customers, we talk to the OEM customers' customers, the fleets, and there seems to be some pent-up demand out there as well. But I think everybody's cautious before they go put $135,000-plus for a truck out there. Is there going to be -- what kind of economy are we going to have in the United States in 2014? We get some insight to that in the next 90 to 120 days. And then I think you could see -- that's with the plant manager I talked about. He said, "Hey, Rick. If the economy picks up, this thing will take off again." These trucks are old out there, and there's over 700,000 trucks built in 2005 and '06. Those trucks are now 8 to 7 years -- 7 to 8 years old. Right? So the average age of the fleet is 6.5 still. So, fair enough?

Operator

We have no further questions at this time. I will now turn the call over to Mr. Rick Dauch for closing remarks.

Richard F. Dauch

And we thank you for your interest and your support of Accuride. We continue to work our butts off over here to position this business to be a winner. And we're confident we can do so. Have a great weekend, and thanks for sticking around with us. Bye.

Operator

And thank you, ladies and gentlemen. I would like to remind you that a replay of this call will be available beginning at 5:00 p.m. Central Time today. You can access the replay by calling (888) 843-7419 in the United States or (630) 652-3042 internationally, using access code 35957427. This concludes today's Accuride third quarter earnings call. Thank you again for participating. You may now disconnect.

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