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Accuride (NYSE:ACW)

Q4 2013 Earnings Call

March 03, 2014 10:00 am ET

Executives

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

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

Analysts

Jimmy Baker - B. Riley Caris, Research Division

Kirk Ludtke - CRT Capital Group LLC, Research Division

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

Operator

Welcome to the Accuride Corporation Fourth Quarter and Fiscal Year 2013 Earnings Conference Call. On today's call are Accuride's President and CEO, Mr. Rick Dauch; and Senior Vice President and Chief Financial Officer, Mr. Greg Risch. My name is Christine, and I will be the operator for 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 will turn the call over to Mr. Greg Risch. Please go ahead, sir.

Gregory A. Risch

Thank you, Christine, and thanks, everyone, for joining us today. As we turn to Slide 2, I want to remind everyone that during this call, we'll be making statements that can be considered forward-looking as defined in the Securities Act. We caution you that these statements are subject to risks in our business, and we 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 conditions in our industry and within our businesses. I'll then review the fourth quarter and full year results and our outlook on 2014 prior to opening up the line for questions.

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

Richard F. Dauch

Good morning, everyone, and thank you for joining our call this morning. Today, Greg and I will walk you through our fourth quarter 2013 results and our preliminary outlook for 2014.

And let me go to Slide 5, please. Let's first look -- take a quick look back at some of our key achievements in 2013. We continued to drive margin improvements in our businesses despite lower industry volumes. Year-over-year, our EBITDA margin increased from 4.2% in the fourth quarter of '12 to 6.8% in the fourth quarter of 2013.

Gunite's EBITDA improved by $6.9 million despite revenue only increasing by $1.1 million. We are starting to see the strong benefits of our investments in new process equipment and the consolidation of our manufacturing footprint at Gunite. We expect this improving trend to continue in 2014.

Throughout 2013, we worked to reduce the breakeven point at all 3 of our business, Accuride Wheels, Gunite and Brillion, through the targeted reduction of plant overhead expenses and the aggressive implementation of Lean manufacturing practices across the company. We strongly believe that we can maintain and will leverage these improvements in our cost structure and operating performance to strengthen our profitability as volumes and revenues increase in 2014 and beyond.

We continued to selectively reduce our corporate SG&A cost as well. SG&A cost averaged $8 million in both the third and fourth quarter of 2013, compared to over $10 million in the first 2 quarters of the year. We believe there are additional opportunities in this area of the business to address upon the full implementation of our new ERP systems across the company in 2015.

We continued to improve our quality, warranty, delivery and lead time performance across all of our businesses. We are delivering on our commitments to our customers to reestablish Accuride Wheels, Gunite and Brillion as reliable, cost-competitive and industry-leading suppliers in terms of operating performance.

We focused on improving our liquidity despite the challenging demand environment we faced in 2013. Trade working capital declined to 7.5% of our net sales in the fourth quarter compared to 8.4% in the previous year. We continued to drive tighter controls of our AR with customers while systematically reducing inventory and improving our terms with our suppliers. We successfully renewed our ABL facility in July with more favorable terms and extended the maturity date out to 2018. And we sold our non-core underperforming Imperial business unit for $30 million in cash in the third quarter.

Gunite is stabilized and market competitive for the first time since I arrived in 2011. It is producing positive operating income and approaching world-class operating metrics. Now we need to properly regain market share in that business.

On the technology front, we recently introduced Steel Armor Coating for our steel wheels, which we believe is a leapfrog product offering versus the standard offerings from our competitors. At Gunite, we introduced our Silver Lightweight Brake Drum, which provides another quality offering for our customers at a good price point and 12 pounds lighter than the standard drum. Stay tuned as we have more new products in our pipeline for introduction in 2014 and '15.

2013 did have some challenges which impacted our financial performance, some under our control and some industry and market driven. Weak industry volumes impacted our business in 2013. As I'll discuss in the next slide, the commercial vehicle market is showing positive signs, while the global industrial mining markets continue to impact our Brillion business, and it appears to be another challenging year in 2014 there.

We did experience some abnormal operating costs under our control in 2013 mostly associated with our Gunite business. It cost us a bit more than planned to consolidate the hub business from Brillion, Wisconsin and Elkhart, Indiana to Rockford in the first half of '13. In the back half of the year, our transfer of the distribution center operations in terms of both changing locations and outside providers negatively impacted our performance. We think that the majority of these costs are behind us now and we should see continued margin improvement at Gunite in 2014.

Slide 6. As I mentioned earlier, the commercial heavy-duty vehicle industry is starting to show signs of improvement. The Manufacturing Index remains solid and on the positive side, which is also positive for freight. Fleet utilization rates are projected to increase and fleet age has remained at all-time highs. We spent a lot of time in the last 60 days out talking to major fleets across the country and all the regions, and we're hearing the same comments from all of them.

Throughout 2013 and into '14, the indicators driving commercial vehicle demand continued to improve. December and January Class 8 truck order and trailer orders reflect the potential recovery of the industry here in 2014.

Unfortunately, we don't expect to see a recovery in Brillion's end markets in 2015. As you see on the bottom part of the slide, indicators for our Brillion business are trending down or flat.

Slide 7. We have shown this slide for a number of quarters now. Industry analysts are currently projecting an increase in Class 8 production in 2014 of 10% to 12% over 2013. I'd like to point out a couple of things. First, typically we see a large delta between the 2 major analyst outlooks for 2014, but these are very close, only 8,000 units apart. FTR recently raised their estimates after the January order numbers came out by 8,000 trucks. I take some comfort in the consensus between the groups and after our meetings with both the fleet and the truck OEMs in the last 60 days.

Second I will caution everyone that the Class 8 market only represents about 33% to 40% of our top line revenue, specifically on the Wheels business. We've become much more of an aftermarket company at Gunite, and we don't have much exposure to the Class 8 truck market over at Brillion.

Slide 8, let me switch gears and talk about 2014 a little bit. Our focus continues to be on the execution of our Fix and Grow strategy but with a strong shift towards growth in 2014. We've got a few things to still clean up on the Fix portion. Specifically, we wanted to launch our new paint systems, and that was done in January, both in Mexico and Henderson. But now we did secure incremental business at those steel wheel plants based on that new technology. I'll update you on our progress in our next call, but we can say positively that we're having a positive momentum from our fleet customers in response to our Steel Armor introduction.

We continue to reduce our costs at our distribution center, and we're seeing much improved results in January and February so far.

At Gunite, while we're operationally stable and we're competitive in the marketplace, we still have some areas to address in our overhead costs at that plant and our labor costs for that plant. Our CBA with the UAW expires in November. We've already started having some preliminary discussions with the leadership of the plant about that. And we will put forth a very competitive contract as we head in the fourth quarter of 2014.

At Brillion, if the markets aren't going to come back to us, we need to continue to lower our operating costs and our overhead costs, and we need to target the new customers at the new end markets, which we started to do late in 2013 and we should have some success there early in 2014 as well. We will continue to selectively and opportunistically reduce SG&A and other overhead costs to improve our profitability where it makes business sense to do so.

Very important for us in 2014 is the launch of our new ERP system and our scheduling systems on time, under budget and without any disruptions to our business or our customers. We have successfully completed the launch in our Henderson facility in January. At the same time, we launched our new paint systems. I give the team both in the IT group across the functional SG&A support groups and at Henderson an A plus for the job they did in January and early February.

We are going to continue to remain focused on liquidity. We will continue to look for ways to improve our working capital metrics. Capital expenditures have returned to normalized levels for the first time since I got here in 2011. We also recently sold our idle asset at Elkhart, which should bring in about $1.1 million in the first quarter.

On the growth side, we want to focus on capturing additional profitable business to fill our excess capacity. We recently reorganized our sales force and established clear targets, metrics and strict accountability across our sales organization, which we believe will improve our effectiveness and drive result. That includes me spending a lot more time on the road with customers than in our operations. I think that's a big step forward for us, where I can now go out and commit to our customers that we have competitive capacity and competitive technology and we can deliver and stand behind our products.

Let me talk about one of those products on Slide 9. On this slide, I want to discuss our new Steel Armor coating for steel wheels. This slide shows our Steel Armor wheel compared to other industry coatings. On the far left, a typical Acrylic E-coat. In the middle, our previous Accuride Powder Coat versus our major competitor here in North America, pretty much apples to apples there. And then Steel Armor.

Steel Armor is a leapfrog technology. It has superior production for steel wheels and should extend the life of a steel wheel by over 2 years. We went out and listened to our customers in 2011 and 2012 at the fleet level, and they told us that the repair and repainting of steel wheels was a major cost driver in the industry. We partnered with our supplier. We have a 7-year exclusivity on this product, and we've launched it successfully at Henderson and Mexico. We think this is a game changer for us, and we've got a few more things up our sleeve as well. We're excited about this product launch, because we think it offers a significant advantage over our competitors. While we just rolled it out late last year, we are getting a very positive result in the marketplace.

Let me turn it over to Greg now, and he'll cover the financials for the company.

Gregory A. Risch

Thanks, Rick. Please turn to Slide 10, which summarizes our Q4 results. Before I get started, I want to remind everyone that due to the sale of our Imperial business during the recent third quarter, the financial results for Imperial were reclassed to discontinued operations.

Okay, let's look at Q4. Sales for continuing operations were $144.7 million or about $4 million or 2.6% lower than Q4 2012 sales of $148.6 million. This was primarily related to the OEM market share changes and continued competitive pressures for our Wheels and Gunite products, combined with the continued low demand from the industrial and agricultural markets that we serve at Brillion. Compared to the third quarter this year, Q4 represented a decrease of 6.8% due to the normal seasonality in our end markets.

Our operating loss of $1.7 million on the lower sales this period shows a favorable comparison to the prior year since we recognized less loss this year despite the slightly reduced revenues year-over-year. Of that $147.3 million improvement, $133.7 million is due to the noncash impairments recorded in 2012 with the remainder related to core improvements in our operations. We'll look at each of the business units in a moment.

You can see similarly an improvement in adjusted EBITDA as a percent of sales moving from 4.2% in 2012 to 6.8% in 2013. Adjusted EBITDA in the current period of $9.8 million was $3.5 million higher than Q4 2012 despite $3.9 million less revenue.

Let's move now to Slide 11. This slide shows our full year results. Again, focusing on our results from continuing operations, revenue of $642.9 million represents a decrease of 19.1% from the prior year of $794.6 million. The decrease was fairly evenly split by business, with Wheels down $49.7 million; Gunite, $53 million; and Brillion, $49 million. The percentage decrease was the largest at Brillion since markets were very robust in the middle of Q3 of 2012. Otherwise, the decrease in Gunite was driven by the drop in OEM demand 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 market diminish.

With the earnings results for 2013, the operational improvements realized this year have brought us closely back to breakeven levels in regards to operating income. We look forward to the improvement in demand from the commercial vehicle industry, which will enable us to see good returns on the investments made. More on that later when I discuss guidance for '14.

Please turn to Slide 12. Slide 12 shows the correlation of our revenue and earnings for Q4 of the current and previous 2 years for our continuing operations on the top half of a slide with the breakout of certain segment information on the bottom half. For continuing operations, the reduced revenue trend in the last 2 years was primarily due to loss position of OEM demand for our Gunite products from 2 OEM customers previously discussed. The adjusted EBITDA improvement in 2013 compared to 2012 was the result of operational improvements, as previously noted.

On the bottom half of the page, we see our full year revenue's segmentation for our 3 businesses, our customer base and the markets that we serve. On the far left, little has changed in regards to Wheels being our largest revenue driver at 57% of our net sales, with Gunite at 27% and Brillion, 17%. The middle graph shows that the truck OEMs including their service locations represent 44% of our sales. Prior to divesting Imperial in the third quarter, the truck OEMs were consistently more than 50% of our revenue, so we're more balanced now, as Rick alluded to with the aftermarket. The market graph on the far right shows that the commercial vehicle market in North America drives nearly 80% of our sales. This is not new.

Next slide please. Slide 13 shows the Transfer Wheels and Gunite businesses. On the top half of the page, Wheels is our largest segment and represented roughly again 57% of our revenues with sales of $84 million in the quarter. The significant change from 2011 to 2012 and 2013 is primarily related to 2 factors: One was a spike in the aftermarket demand in 2011 that diminished in early 2012 when temporary tariffs were lifted on certain imported steel wheels; two, we continue to experience a reduction in market share related to the unfavorable mix in truck OEM market share positions. On the earnings side, they have fallen in line with our reduced revenue. It is our desire to build market share back, as Rick alluded to already.

Gunite continues to show improved earnings year-over-year despite steady revenue as compared to 2012. Gunite sales of $37.6 million were slightly up from last year but they enjoyed a significantly better earning with positive adjusted EBITDA of $2.7 million compared to a loss of EBITDA in the same quarter last year of $4.2 million.

Operationally, we're doing well considering the lower level of revenue, but our challenge remains bringing more revenue across the very capable assets. Again this quarter, I want to emphasize that Gunite continues to improve operationally and we are confident that the improved results seen in 2013 are indicative of the operational progress that will lead us to a much improved earnings picture heading into 2014.

Next slide, please. We'll wrap up the business unit perspective with Brillion. There's a significant change in operating conditions for Brillion due to the end markets reducing their production and inventory requirements. We see the sales of this quarter of $23.1 million represents a little over 10% drop in demand compared to last year, which had already seen a 30% reduction from Q4 of 2011. Making the earnings picture a little tougher in the current period are certain charges related to a ratification of a 5-year collective bargaining agreement that Rick previously discussed. We're pleased to have successfully worked with our local unions in Brillion to get those agreements in place to help grow our business.

Next slide, please. The top 2 graphs on Slide 15 break out 3 components of our trade working capital, trade accounts receivable, inventory and accounts payable. We're continuing to see slight 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 still expect receivables to track sales fairly consistently, our improvements on inventory and accounts payable management have been the more significant drivers on the last 2 years. Overall, our trade working capital has improved percentage-wise year-over-year decreasing to 7.5% of annualized sales this quarter compared to 8.4% in 2012.

Next slide, please. Slide 16 shows our free cash flow for the quarter of positive $13.4 million. Quarter 4 is traditionally a source of cash due to seasonal reductions in trade working capital and this one was no different. Also noteworthy on this slide is the reduced outflow of CapEx now that the heavy lifting of large projects is done. Also, this slide does not include proceeds during Q4 of 2013 for the $2 million earn-out from our 2011 sales of our Fabco business.

Please turn to the next slide. Net debt was reduced this quarter from $311.9 million at the end of Q3 to $296.8 million at the end of Q4. Our liquidity of $63.6 million has been steady through the year other than the spike that we had in Q2. Again, for those who haven't followed us prior to this call, we divested our Imperial business during Q3, which strengthened liquidity by roughly $12.5 million. The transaction represented gross proceeds of $30 million, less the associated fees and the reduction of the asset base availability under our ABL. We continue to manage our CapEx and working capital as well as continuing to explore sales of vital assets such as our Elkhart, Indiana facility. We've successfully sold our Elkhart facility just last week and received the net proceeds of $1.1 million, as Rick discussed.

Now let's turn to Slide 19 to discuss our 2014 guidance. Based on the improvements seen in 2013 and the end market expectations seen at the top half of the page, we expect our 2014 net sales to be in the range of $650 million to $685 million and the adjusted EBITDA ranging from $60 million to $70 million for the year.

Seeing that we expect the aftermarket to be fairly flat year-over-year, there are 3 key factors that are driving our top line guidance. The first driver is Class 5-8 commercial truck builds with the second being tied to our market shares of those OEMS who get the builds. We are more tied to certain OEMs than others. Therefore, our revenue will track more in line with their production schedules. Aside from general assumptions regarding the aftermarket, our near-term forecasts are more directly tied to the production schedules that our customers share with us and less about the total builds as communicated by industry forecasters. The third driver relates to demand from the industrial, mining and agricultural segments that our Brillion business serves. There is not a sole index reference to help understand those various markets, but Rick discussed some of those indicators previously. We expect their markets to be flat to maybe up by 2.5% year-over-year.

As I've said, we will continue to manage cash and liquidity, which should hold steady for the year but have fluctuations due to seasonality. Overall, we expect that free cash flow will be flat to slightly negative, with the $1.1 million of other proceeds noted representing our sale of the Elkhart property just received last week.

With that, I'll turn the call over to Rick to summarize prior to taking your questions.

Richard F. Dauch

So in summary, let's talk about the 5 things we're working on this year. First and foremost, we feel Wheels and Gunite are well poised to regain share and handle the industry recovery. We have adequate and competitive capacity in our steel wheels, aluminum wheels and at Gunite. And we now have strong Lean-operating systems in place to take advantage of higher volumes. That was one of the questions I got when I first got here. Are you not going to make money at high volumes and low volumes? Well, we're positioned now at these kind of volumes going forward to make significant money at Wheels and Gunite.

Two, our ERP launch must be on time, on budget and must be done flawlessly. Going through this process has forced us to go back and make sure our databases are accurate and to map out of processes. We took an extra -- basically an extra year to get things right. And so far, so good, Henderson is off and running and we're on track for 2 more launches here at early second quarter.

The Brillion market, we don't expect it to recover in 2015 based on anything we read. So we need to improve our cost structure, drive better operating performance and to target new customers. We'll talk more about that in the second quarter call. We have some things we're working out there, which could be changing the way we do business there in a positive way.

Third, we want to continue to expand our new product initiatives that either improve our current product offering or fill gaps in our current product portfolio. These efforts are primarily focused on our Wheels and our Gunite business.

Finally, a very strong focus from the CEO on down on growth opportunities, primarily here in North America but also selective opportunities where customers need us on a global basis. We have excess capacity. We need to fill that excess capacity, but we do not want to do that with unprofitable business. We want to focus on business that's good for both us and the customer.

We appreciate your interest in Accuride. We appreciate your support for Accuride, and we look forward to your questions. At this time, we'll turn it back over to the moderator.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jimmy Baker from B. Riley & Co.

Jimmy Baker - B. Riley Caris, Research Division

So you called out some expenses associated with the collective bargaining agreement at Brillion. Can you quantify that for us? And then I understand you don't expect Brillion's end markets to improve in '14, but I guess I was a little surprised that you expect revenue to be roughly flat given the opportunity to bring in some new customers or incremental new business there. Are those opportunities just kind of too speculative at this point to show up in your guidance? Or you're just kind of being conservative there? And then just help me understand if you expect Brillion revenues to be kind of evenly balanced throughout the year. They were pretty front-half weighted in 2013.

Gregory A. Risch

Okay. I think there's a few questions in there. I'll start, and I'll let Rick finish. In regards to the costs related to Brillion, I'll tell you what they were and then how much they were. So there's basically 2 pockets of those. One would be a signing bonus, a ratification bonus to sign the agreement. And then the other part of it was related to crews that were kept on through the quarter that matches up with our agreement on getting that signed. In total, that should be about $800,000 for the quarter. And those, Jimmy, you could say is more of a onetime cost. I think with that, I think the only thing I'll comment on before I hand it over to Rick on the aftermarket is for Brillion sales, that's flat year-over-year. We're really not referring to the calendarization of it other than that this generally the expectation that we're getting or that's what our customers or the markets that Brillion serves are telling us -- it's flat. So it could move around by quarter. And if anything, we've seen that these markets can turn it on and turn it off pretty quickly. So no promises on calendarization, I guess.

Richard F. Dauch

So Jimmy, I think Greg talked about the fourth quarter results. It was very important for us to sit down with steel workers in Brillion to get a competitive agreement. We have a 5-year agreement out there. We feel very confident -- it took us a little longer to get that agreement. I think the contract expired in June. We didn't finish the final ratification vote until late November, early December. We think we have an agreement that is more in line with our competitors across the upper Great Lakes region, both the unionized plants and the non-unionized plants. We got a lot more flexibility in terms of how we operate the plants, in terms of classification structures, our ability to run the plants 7 days a week on flexible operating systems as volumes go up and down. So those are all big steps forward for us. Going forward, based on the end markets we see right now, we think that volume or the revenue should be somewhere in the $30 million to $35 million a year range. We're probably a little conservative right now in the $30 million. We'll see what happens there. We have engaged our entire Accuride sales force. They went through some extensive training in the third and fourth quarter to identify in their regions specific targeted opportunities to grow the business outside of our traditional customer base. We're starting to see some of those. We're also starting to pick up some RFQs, where some of the casting guys are tied up pretty heavily with the automotive industry, which is recovering right now. We're starting to see some smaller opportunities, $500,000 to $2 million a year contracts. And we'll just keep you updated on a quarter-to-quarter basis as we make progress there. That's all I want to talk about today, right? We'll talk about some more things in the second quarter. Is that fair?

Jimmy Baker - B. Riley Caris, Research Division

That's fair and that's helpful. Just a quick point of clarification. The quarterly figures you gave $30 million plus, that's gross sales, right, not inclusive of the intercompany sales to Gunite?

Gregory A. Risch

No, that would include sales to Gunite.

Jimmy Baker - B. Riley Caris, Research Division

Yes, okay. And then I just wanted to circle back to the comments on potential international expansion. Can you just kind of share with us your latest insight and the discussions with customers there? Do you see that as an imminent opportunity that you would consider raising capital to pursue? And should we take some of those comments to imply that the holdup at least in part is you trying to be firmer on pricing and maybe the bidding that you're receiving thus far is not as profitable as you would like to see it to justify the international expansion?

Gregory A. Risch

Well, I don't want to talk too much about details there. I'll just say there are strong interests among the global truck OEMs to expand Accuride at the right time at a price point that's good for them and good for us, okay? I don't want to go into more details about that by region or by customer because that -- let me get the -- let me continue to work on those with the team. Hopefully, I will have something to announce in the next 2 quarters or so. And to your point from a capital standpoint we'll have to assess the opportunity, as you know, we've been open about it. We have open capacity here in North America. We have it in 2 locations that we think maybe we need to move that equipment. And there's an opportunity to do so, all right? Assets that sit idle today don't make any money for Accuride or Accuride investors. It's our responsibility as the leadership team to find a place to put that equipment to work. We have some on the Wheels side; we have some on the Gunite side, okay? That's all I'll say.

Jimmy Baker - B. Riley Caris, Research Division

Okay, fair enough. And then on the Gunite side, can you just kind of give us the latest end-market mix there given the change in your position and the change in customer market share? I'm specifically wondering if you're participating much in a medium-duty OE there or maybe what the medium-duty OE exposure is compared to Class 8.

Gregory A. Risch

Yes. It hasn't changed too much, Jimmy. I would say at the 75% aftermarket with the remainder Class 5-8. We enjoy standard position at Volvo, and so our OEM business at Gunite is going to fluctuate with Volvo's production schedules.

Jimmy Baker - B. Riley Caris, Research Division

Okay. And last one for me. I just want understand what incremental opportunities you might have from here to lower the breakeven point or if you feel like you've kind of done what you can on that front and from here on out it's more about getting more volume through the assets.

Richard F. Dauch

Yes, let me make a couple comments to finish up on a couple of things here, okay? So Brillion, let me go back to your Brillion question first. If you remember back in first half of 2012, we were generating revenue at Brillion of almost $18 million to $20 million. And that meant we went into the mid-teens basically or low teens...

Gregory A. Risch

And that was a monthly number, right?

Richard F. Dauch

Monthly number. That's a monthly number, right? So the fact that we can have a positive operating income on a business that went down to $8 million to $10 million of operation tells the team at Brillion is really doing some great job to driving some costs out of that business. As volumes come back, we think we're well positioned to handle that volume and drive the incremental margin to the bottom line. Okay, does that answer that question about Brillion that I didn't finish up before? At Gunite, we have a few product portfolio gaps, where we have allowed our competitors to pretty much own a market. And we have to do some work on the engineering side of the house to get back in and drive some performance in some end markets we haven't done before. And then now that we've got ourselves requalified, we have opportunities at some of the OEMs to earn back some of that share, okay? We don't want to take share at OEMs where we lose money. It doesn't do us any good to make parts and wrap dollar bills around them. That being said, our reduced cost structure, our improved operating performance allows us to be lower cost than we were previously and we can be more competitive and more selective in taking targeted opportunities in both aftermarket and at the OEMs, okay? And then reducing our operating -- our structural costs, Greg and I think that once we have one common ERP system rather than 7, there's probably some administrative functions we can take a look at across the company or at the plant level where we have duplicate people doing a job because we're monitoring 7 different systems. And obviously, we have at least one operating site that's very underutilized right now. We've got to look at the appropriate time how do we move that equipment somewhere and reduce those overhead costs there at that plant, okay? But I think the heavy lifting has been done, right? Elkhart is gone; Imperial is gone. We consolidated before we sold Imperial one of the sites there as well. Some of the extra heavy lifting we did here at corporate to bring in some heavy hitters to help us fix the business, we don't need those now that we are operationally stable, and we've taken the opportunity of retirements and departures to not backfill those positions, okay?

Operator

Our next question comes from Kirk Ludtke from CRT Capital Group.

Kirk Ludtke - CRT Capital Group LLC, Research Division

With respect to the 2014 guidance, I thought I -- if I heard you correctly, you said that a shift in your customer share negatively impacted your fourth quarter? Was that -- did I hear that correctly?

Gregory A. Risch

Yes, you did.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Okay. I'm just curious, what is your expectation for your customer share in your 2014 guidance?

Richard F. Dauch

It's jumping around a little bit, Kirk, in terms of -- quarter-to-quarter, we're seeing it -- it really depends on how the fleet orders come in. In the fourth quarter we saw one of our customers gain some share, and then in the first quarter we saw them lose some share, right? So I don't want to comment specifically, but we monitor it pretty regularly. We have discussions with those OEMs regularly. We track their build schedules. We get weekly releases and we review them at our level about once a month to make sure we know where we're going. We're seeing a stronger push into some of the Mexican plant in terms of volume, at 2 of the customers specifically. And we'll see how that battle plays out, right? We need to be positioned to gain share or retain share at all 4 OEMs. We've had some strengths in the past with a couple. We've had some weaknesses and we're addressing that. Specifically on the aluminum wheels side, where we think we have less than 5% share of both PACCAR and Volvo in the past. We think we have some opportunity to grow our share at those 2 customers, okay?

Kirk Ludtke - CRT Capital Group LLC, Research Division

That's helpful. And we have been obviously had a couple months of very strong Class 8 orders. And I'm curious if the industry volumes rebound suddenly, would you -- given that you're a domestic supplier, would you think that you're likely to benefit from that because you might be able to be more responsive than some of the -- some of your foreign competitors?

Richard F. Dauch

Mostly, we only see the foreign competitors in the aftermarket on the Wheels side of the house. So Wheels, I think we're well positioned. I think Steel Armor gives us an advantage over our primary competitor. We've got to address a couple of product portfolio gaps on our aluminum wheels side, but we're working on those. On the brake side of the business, the Gunite side, yes, our lead times are 9.9 days now. That's a lot shorter than 7 weeks from China. In everything I read, labor rates are going up there, freight rates are going up there, the economy is getting a little better in China. So I think we have, longer term, an advantage over some of those guys, okay? We also have our own casting operations. Our value stream from our casting operations to our machine operations is 1,000 feet, not 400 miles or not 7,000 miles. We think we'll be able to move quickly. One thing I've heard, Kirk, since I got here, is that Accuride and Gunite had a reputation that when OEM builds went up, they didn't always service the aftermarket the way the aftermarket wants to be serviced. My commitment and Greg's commitment, when he talks to it, are hey, we're a different Accuride. We have doubled our aluminum wheel capacity. We replaced 60-year-old machines at Gunite with brand-new state-of-the-art machines. Our largest competitor at Gunite replaced majority of their machines in early 2000, okay? CNC machines, as you know or maybe don't know, those things last about 10 or 12 years, all right? After that, they start getting pretty ragged. So we've made a big capital investment, so we can now hunker down back to normalized capital rates and we should be well positioned going forward for the next 5 to 7 years for sure.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Great. That's helpful. At least some of your -- some other commercial vehicle suppliers are talking about building inventories, at least in certain categories that they think might become constrained if the industry turns. Is that an issue for you? And I guess, the other question I have is what have you assumed for net working capital in 2014? You might have mentioned it but I...

Richard F. Dauch

Yes, I'll give you the macro and let Greg comment on some of the more financials. On the Wheels side of the business, we have adequate capacity, and one of the great things about Lean manufacturing is you shorten your value stream. So we've taken our lead times on aluminum wheels from 37 days down to around 10, 12 days. We think that's a benchmark in North America. On steel wheels, we've taken our lead times from high teens, low 20s, down to 9 or 10 days. We think that's a benchmark in North America. So there's no need for us to build inventory on the wheels side of the business. We think we're operating efficiently enough that now especially with our new ERP system, we'll see those orders and we can turn and burn, as I like to say, okay? On the Gunite side of the business, based on our comments and our questions from the aftermarket and fleet, this has been, as you guys know, a pretty tough cold, brutal winter and it continues this week here in Evansville where it's icy and 3 inches of snow. We were at one fleet 2 weeks ago. They said they normally have 100 trucks out of 5,000 trucks in for repair. Today, they have 640 trucks awaiting repair. They normally have 500 trailers, right now they have 1,400 trailers waiting for repair. Based on that kind of feedback from fleets, which is pretty consistent across the Northeast and upper Great Lakes and across the Plains States, and from our large distributors, we may be able to see a larger spring selling season at Gunite. There we have targeted putting some additional inventory in place. And I'll let Greg say what that might be or might not be. How's that, Greg?

Gregory A. Risch

Yes. So Kirk, if you look at the quarterly revenue for our Gunite business, specifically in '13, I just kind of went through the 4 quarters and then I'm kind of doing some rounding here: $40 million and $51 million and $41 million and $38 million. So you see the Q2 spike, and that's what Rick was talking to in regards to the spring selling season. So once we thaw out, if we ever thaw out, we'll have a nice little spike for Gunite. So that said, my guess is at the end of the first quarter, we'll probably have $2 million or $3 million of inventory that maybe we wouldn't have otherwise, but it's not atypical for us to have that at the end of Q1. Otherwise, I think the only guidance that I give in regards to trade working capital is that, yes, we'll see slight improvements year-over-year. But otherwise, you should expect Q1 to increase from Q4, just because you get a nice full month of sales in the month of March versus a slower month in December, with the maintenance shutdowns going on, so you see receivables track up. Otherwise, inventory and payables will kind of track with each other, so it should be -- it will come back. You can kind of look at us Q1 versus Q1 year-over-year, as you can Q4, but you should expect increase from Q4 to Q1.

Kirk Ludtke - CRT Capital Group LLC, Research Division

There's a seasonality to it. How about year-over-year, would you expect net working capital to be a -- what kind of a use would expect it to be?

Gregory A. Risch

No, I wouldn't expect it to be a use year-over-year.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Really, even though the industry is picking up?

Gregory A. Risch

Yes.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Okay. And then any thoughts, any feedback from your customers on the February orders?

Richard F. Dauch

We haven't seen them yet. They come out March 4, so they come out tomorrow, I think. As I said earlier, I spent quite a bit of time in the road in January and February meeting with fleets, West Coast, East Coast, Great Lakes. And pretty much, they're bullish. A couple of things I've heard consistently is the new regulations are impacting fleet utilization in terms of CFA, HOS. Obviously, the weather has impacted fleet rates and availability significantly as more trucks are out being repaired right now. Fleet availability has been tight, so we're going to monitor that. I think pretty positive right now, pretty bullish. But I've been here now a little over 3 years. I've seen great starts to the year and then a tail off in the back half of the year. So we're not going to claim any victories yet. We're going to monitor and then we'll adjust accordingly. So the good news is we can flex up and flex down now pretty efficiently as a company.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Good. Now I just have one more longer-term question. Sounds like emission caps are going to be lowered again in 2016. I'm just curious if your customers are starting to think about a pre-buy, any kind -- a meaningful pre-buy in 2015?

Richard F. Dauch

I haven't heard about that. I think they're digesting exactly what those new rates are going to be. Does that mean more CNG or LNG? We think that means probably a positive flow for us on the aluminum wheels side of the business, right? It's one of the reasons we put the capacity in place. I think we're working hard on the Gunite side to continue to take weight out of those products. So we'll see how that plays out. But I have heard a couple of things, specifically on the California CARB regulations that take impact, I think, into 2014 going into 2015, that impacts truck and trailer. We had one fleet guy say he needs to replace quite a few of his older trailers because don't meet the standards of California CARB at the end of this year. So I think you'll see a spike in the trailer orders as well.

Operator

Our next question comes from Rhem Wood from BB&T Capital Markets.

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

Let's see, can you tell us specifically the capacity utilization, where it's running for each of the businesses? I think you gave us numbers last quarter.

Richard F. Dauch

Yes, I can give you that. Overall, steel wheels are probably somewhere between 65% and 75%. Some plants higher, some plants lower. Aluminum wheels, probably somewhere in that same range, 65% and 70%. We have 2 plants running at over 90% and another plant that's less than that but that's where our target is to fill that up. At the Gunite side of the business we're probably 55% to 60%, both in the casting and the machining side. We have one line that we've idled, the one that used to run 7 days a week for 5 years. We've kind of idled that line. We can handle the current volume on our new equipment. And then we're assessing opportunities to put some maintenance in that older line. It's only about 6 years old, so it's in pretty good shape. It just needs a little bit of tweaking. It was running too hard for 7 years. And then Brillion right now we're probably running more in the 50% to 55%, so that's where we've got to fill some capacity out there. Does that give you the numbers?

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

Yes, it's great. And then you talked about how the weather, it seems like, will favorably impact the Gunite business. What about the Wheels business?

Richard F. Dauch

I'll defer to Greg -- He's been here longer, at 19 years -- how much the weather impacts the Wheels business. I don't think as much...

Gregory A. Risch

No, I don't think it will, Rhem. The truck and trailer business Class 5-8 on the truck side, they're driving about 75% -- 70% to 75% of the revenue for the wheels group. So it's not as aftermarket dependent, I'd say. I would say and I can't quantify it, but I would say that there's a lot more trucks off the road and a lot more going into ditches, which probably means that they're going to replace some wheels. But if it's significant enough that it's really going to show, I don't know the exact date, but we'll see.

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

Okay. And just wondering what kind of visibility you guys have. Are you starting to see or can you tell if some of these smaller fleets and midsized fleets starting to spend more and buy more at this point? Can you tell that?

Richard F. Dauch

Can't tell. We continue to hear about some of the smaller owner/operators or smaller fleet type are having a hard time making it against the national fleets. We still think there's some consolidation going to go on at the fleet level. We are starting to see as some of the states are going from a negative tax situation to a tax surplus, we're seeing some of the states starting to reorder buses and snowplows, probably a lot of snowplows used this year, and some of those kinds of trucks, right? I think the housing market we monitor in terms of how that may impact the Class 5-7. I think, we've had mixed data from that in terms of the bad weather slowing it down. But house sales are very strong last month; house prices going up. So as long as interests rates stay low, we might see some there, and that could help us. Since I've been here, I have not seen a Class 5-7 build above 200,000. You go back to almost 2005 and '06 to the last time Class 5-7 was there, so we've got a lot of old Class 5-7 trucks out there as well. Sometimes, some of those are 10, 11 years old now. So we'll see how that plays out.

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

Okay. And then can you remind us how much you have left in the NOLs and maybe what tax rate we should use going forward?

Gregory A. Risch

Yes. As far as in the U.S., yes, we have, let's just say an excess of $230 million of NOL. And then going forward, I think what you should expect Rhem is roughly somewhere between $2 million to $3 million of expense, and that's related to our facilities in Canada and Mexico. I wouldn't expect you've kept up with it, but there's been a lot of tax changes done in Mexico to bolster themselves. I believe they need the cash down there, so there's been a lot of changes. And so that impacts us a little bit. So $2 million to $3 million, which I believe is on our guidance line as well for cash.

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

Okay. And then the last one, I'll turn it over. I believe you guys previously had a poison pill if you will, kind of put in place. Remind us, what are the stipulations around that? When does it expire? And just a little bit of color on that.

Gregory A. Risch

I believe it expires on April 30, and it's pretty general. And I guess there's not a lot to say about that publicly that we haven't already said. And I would say that we expect that to expire at the end of April. And there's -- yes, I think the only thing that's important is that it kept our board in a good position that if somebody wanted to go above 20%, then they would have to come talk to the board. So it's really just about facilitating any large moves there. So we're couple of months away from that.

Richard F. Dauch

Yes, and I'd say also, Rhem, we don't see shareholder activity that makes us concerned at this point.

Operator

We have no further questions at this time.

Richard F. Dauch

Great. Well, we appreciate your interest in Accuride. Again, we appreciate your support. I think we've got the company well positioned, and let's take advantage of this upturn in the industry and we'll continue to drive cost out where we can. Thanks, a lot. Have a great day.

Operator

Thank you. The replay will be available later this morning at 11:30 a.m. Central Time. Dial-in number (888) 843-7419, and toll number (630) 652-3042. Enter passcode number 36732253#. This concludes today's conference. Thank you for participating. You may now disconnect.

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