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Wabash National Corporation (NYSE:WNC)

Q1 2014 Results Earnings Conference Call

April 29, 2014 10:00 AM ET

Executives

Dick Giromini - President and CEO

Jeff Taylor - SVP and Chief Financial Officer

Analysts

Ben Hearnsberger - Stephens Inc.

John Mims - FBR Capital Markets

Steve Dyer - Craig-Hallum

Mike Baudendistel - Stifel Nicolaus

Tom Finan - Avondale Partners

Operator

Welcome to the First Quarter Earnings Call. My name is Yolanda, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Dick Giromini, President and CEO. Mr. Giromini, you may begin.

Dick Giromini

Thank you, Yolanda, and good morning. Welcome to the Wabash National 2014 first quarter earnings call. This is Dick Giromini, President and Chief Executive Officer. Joining me today is Jeff Taylor, Senior Vice President and Chief Financial Officer. Following this introduction, I will provide highlights for the first quarter, followed by a look at the current operating environment and our outlook for the remainder of the year, after which Jeff will provide an overview of our financial results. At the conclusion of our prepared remarks, we’ll open the call for questions from the listening audience.

Before we begin, I would like to cover two items. First, as with all of these types of presentations, this morning’s call contains certain forward-looking information, including statements about the company’s prospects, the industry outlook, backlog information, financial condition and other matters.

As you know, actual results could differ materially from those projected in forward-looking statements. These statements should be viewed in light of the cautionary statements and risk factors set forth from time-to-time in the company’s filings with the Securities and Exchange Commission. Second, please note that this call is being recorded.

Let me start by saying we are pleased with the ongoing progress we continue to make with the business and then the execution of our strategic plan. Importantly, we maintained the momentum generated in 2013. We achieved all time records for any first quarter in the history in both revenue and gross profit as we benefited from historically strong and more balanced top-line and bottom-line results across our three segments.

These results demonstrate and validate the transformative nature of our strategic growth and diversifications initiatives. Perhaps even more impressive, we executed well despite considerable industry wide disruptions caused by severe weather conditions resulting in lost production days, shipment delays and higher operating costs.

Despite these headwinds, trailer shipments for the quarter exceeded 9,900 units, coming in at the high end of our previous guidance of 9,000 to 10,000 units, achieved through strong March shipments as weather related challenges for our customers began to awake.

First quarter build levels totaled approximately 12,900, exceeding projections by nearly 2,000 units driven by solid operational execution along with strong customer demand, particularly within our van operations here in Lafayette, Indiana.

Net sales for the quarter were an all-time first quarter record $358 million, representing a $34 million or 10% increase compared to first quarter of 2013.

In addition adjusted earnings for the quarter increased by more than $2 million year-over-year; operating EBITDA, which we believe is a more appropriate metric to highlight the company's progress increased by 13% or $3.5 million to $30.6 million in the first quarter, which is a reflective of strong performance from all three segments and improved balance across the enterprise.

Consolidated gross profit of $46.7 million also set a record for first quarter, exceeding first quarter of 2013 by $4.5 million, while gross margin remained consistent in year-over-year comparisons at 13.0% for the quarter. Sequentially, gross margin increased 150 basis points over the fourth quarter of 2013, primarily driven by a shift in segment mix with the higher margin diversified product segment representing a larger percentage of the overall company.

Operating income for the first quarter was $19.5 million, representing a $4.6 million or 31% increase year-over-year, largely driven by significant improvement in the commercial trailer products segment partially offset by a slight decline in diversified products.

Overall, despite the winter weather headwinds, we had a very good first quarter with strong trailer shipments built-in revenue, which translated into improved profitability and strong operating EBITDA. It represented the second best first quarter operating income performance ever, providing a solid foundation to build upon as we move through the second quarter with seasonally stronger trailer volumes to leverage.

Quote and order activity remained strong throughout the quarter and inline with seasonal demand trends. Backlog further increased during the quarter reaching $791 million, the highest levels since 2000 and representing greater than six months of production at a consolidated level.

Looking forward we see a continuance of a strong and solid demand environment supporting pricing stability and some growth. Key drivers such as improving freight demand, supporting carrier efforts to increase rates and improve profitability, excessive fleet age, regulatory compliance requirements along with increased residual value of used trailers and improved access to financing all support continued strong demand for new trailers. And as you will hear in a moment, this sentiment is supported by strengthening forecast from both ACT and FTR.

With that let’s shift focus to some highlights on each of our reporting segments and Jeff will follow with additional details regarding financial performance. We’ll start with the Commercial Trailer Product segment, consisting of our dry and refrigerated van products, platforms trailers and fleet trade used trailer sales. This segment continues to perform well and executing its optimization strategy with an ongoing commitment to margin improvement, manufacturing excellence and leadership and product innovation.

Gross margins increased by 70 basis points year-over-year on net sales of $227 million. This improvement was driven by the team’s continued execution of a pricing strategy committed to favoring margin over volume, as well as an improved productivity overcoming a previously discussed severe weather disruptions.

As stated in prior calls, we continue to focus on achieving double-digit gross margins in at least one quarter over the next one to two years, while working to make that a sustainable objective longer term. We expect trailer demand to remain strong in 2014 with both industry forecasters expecting total demand significantly above replacement levels and stronger than 2013.

Commercial Trailer Products continues to capitalize on new growth opportunities with a recent agreement to produce drive-ins, refers and platform trailers for Mezz Trailers, a distributor based in Western Australia.

While the Australian trailer market is relatively small with roughly 10,000 units to 12,000 units annually, we believe that our low cost footprint and capability provide a competitive advantage for this market that could contribute to incremental margin growth for the segment.

By leveraging Wabash National’s product innovation leadership, our ability to help fleets reduce their total cost of ownership and our proven success in developing products to meet the most challenging needs, we believe that we are well positioned to have success in a market that has historically been difficult for foreign manufacturers.

While recently in Melbourne to speak at the Global Truck and Trailer Leader Summit, I received very positive feedback about Wabash entering the Australian market that validated our assumptions about the market’s potential for us and the technological advantages of Wabash National's product offerings.

Moving on to the Diversified Products segment, which includes the Walker Group, Wabash Composites and Wabash Wood Products. This segment delivered a solid first quarter with net sales of $120 million, representing an increase of $8 million over the prior year period. Overall, the segment experienced solid productivity pointing to healthy demand levels in most of the markets served, including the primary markets of liquid tank trailers and composite products.

While the largest part of the Walker Group business is liquid transportation, storage and containment products, we should not overlook the engineered products portion of the business, which serves the pharmaceutical, bio and life science and food industries.

In July of 2013, we announced our initial order for mobile clean rooms which provide customers with mobile and flexible manufacturing space. I’m pleased to report that Walker Barrier Systems recently completed delivery of all 8 mobile clean rooms, for use of development and production of vaccines and therapeutics for clinical trials.

Small in number, but large in value, we look for this product line to grow in use and popularity in years ahead. In addition, our Garsite aviation refueler business continues to extend its leadership position in the market, as Atlantic Aviation recently selected Garsite to replace 20% of their existing refueler fleet. Again, not huge volume in this market, but significant to this business.

Our Wabash Composites business continues to focus on providing innovative solutions that solves customers’ unmet needs particularly in aerodynamic product development as fleets realize the fuel economy benefits in their operations.

Earlier this year, the team signed an agreement with Con-way Freight to install DuraPlate AeroSkirt on nearly 16,000 units in the company’s less than truckload fleet. As after market demand for DuraPlate AeroSkirt sales continues to grow and with additional new product innovations planned to be released later in the year, we expect this business to continue to generate nice year-over-year growth for the foreseeable future.

On the down side, our Wabash Wood Products business came in far short of internal expectations as escalating material costs during the past year con up with them, impacting performance by approximately $1.5 million during the quarter. With the slowing in the year-over-year growth rate in the housing sector, it appears the pace of wood price increases has moderated and some idle capacity has recently come back on line.

As normal with all material cost increases, we systematically adjust our costing models to reflect new and projected material costs, but in this case, we are faced with the normal cost recovery lag tied to the long procurement and processing lead times related to this particular input.

Not specific to Wabash is all suppliers and users of wood flooring have been impacted pricing recovery efforts are underway supported by a strong demand environment that will provide support to these efforts. That said we will feel some impact within the wood flooring business for the next two or three quarters.

Finally, our retail segment showed a nice year-over-year improvement in revenue and profitability. Net sales of approximately $46 million represent a $5 million increase year-over-year primarily due to the higher new and used trailer sales partially offset by lower parts and service revenue. Gross margin dollars rose in the quarter to a strong $5.4 million while gross margin percent was essentially flat at 11.8%.

Looking forward we expect this business to continue to improve longer term as we focus on expanding tank repair and services business to provide greater access for our customers increasing the number of legacy Wabash National trailer center sites that are certified to perform tank repair service, expanding our mobile service fleet and increasing the number of customer site service locations.

Before I discuss Wabash National’s specific expectations for the second quarter and full year of 2014 let me comment on a few key economic indicators and industry dynamics that we monitor closely and provide broader context for all our expectations.

As we all know economic activity slowed in the winter months as poor weather conditions were impart responsible for decline and key macro economic indicators in January including manufacturing activity, industrial production retail sales, home construction as well as job creation.

However, most macroeconomic indicators return the positive territory by the end of the quarter. Analyst now expect both the hosing sector and labor mark to improved somewhat over the course of 2014 with GDP now projected to increase 2.7% in 2014 and 3% in 2015.

Although the general economy continues to reflect modest growth rates, key indicators and forecast within the trucking industry reflect growing confidence in demand strength and longevity. ATA's TruckTonnage Index increased 0.6% in March to 127.3 after rising 1.9% in February. The index was impacted by severe weather in the first two month of 2014 after reaching record levels at the end of last year, at the overall trend remains positive. The index was 3.1% higher than in the same month last year and 2.3% higher year-to-date.

And catching up to now even exceeding our own and earlier internal projections of 5% to 7% year-over-year demand growth. The latest report from ACT now forecast 2014 trailer shipments at 256,000 units of 7.4% year-over-year and 259,000 trailers in 2015 up another 1.2% sequentially with the believe that potential legislation to permit 33 for double is gaining support and we'll drive even stronger demand in the 2016 to 2019 timeframe.

FDR has also adjusted its projections upward now forecasting 248,500 trailers to b the produced for 2014, an increase of 5.8% year-over-year and projecting 237,000 units to be produced in 2015. According to FTR the class A active truck utilization rate was at 99% in first quarter this year equaling the historic high from 2004 with expectations at active truck utilization will continue to average 99% throughout both 2014 and ‘15 resulting in a very tight market supporting significant rate increases for carriers.

Recent press reports indicate that the largest LTL carriers including FedEx and (inaudible) ABF, etcetera have already announce rate increases for the year. Multiple channel checks and direct discussions with fleet customer support this as carriers are becoming more local and confident in their ability and intensions to seek rate increases going forward.

From a regulatory standpoint, The Federal Motor Carrier Safety Administration release the proposal on March 13 that would require all interstate truck operators to install an operate electronic logging devices or ELDs in each vehicle within two years after the final rule is published.

If implemented is currently written its believe by many that the room contribute even further tightening of industry capacity of smaller private fleet struggle to meet the cumulative cost and compliance challenges our recent legislation including CSA, hours and service car, but now ELD’s potentially leading increased failures and further consolidation.

From an hours and service standpoint, probably traded carriers continue to report productivity losses of between 2% and 3% as well as subsequent adverse impacts to operating revenues as a result of the rule. As we stated in previous calls these productivity losses may lead to increase demand for additional drivers and equipment to fill that gap.

So the combination of the slowly strengthening economy, solid truck tonnage and improving rate environment and increasing regulatory impact on fleet productivity all support the potential for increased trailer demand overall for our industry.

Now we share Wabash National's expectations for 2014 and the second quarter. We believe overall demand for trailers remain solid and significantly above replacement levels in 2014. Consistent with ACT and FTR projections, as key drivers all remain positive. Fleet age, customer profitability used trailer values, regulatory compliance and access to financing all support the continued strong longer term demand environment.

Historically, the first quarter is a seasonally light quarter with trailer shipments picking up in the following three quarters of the year. Total shipments of nearly 10,000 units were consistent with our previous guidance and based on the strength of production and inventory build levels during the quarter along with backlog growth and winter behind us all we are clearly well positioned as we progress through the second quarter to realize strong quarter of customer shipments. As a result, we expect second quarter consolidated shipments to be between 13,500 and 14,500 units with total build levels for the quarter within the same range.

As stated, we continued to see strong quote in order activity during the first quarter, consistent with our growing backlog which has continued into April as well. Additionally, with the recent stronger demand projections from both ACT and FTR for the current year that are now more in line with our own previously shared views, we're even more comfortable with our internal projections that full year industry shipments will exceed those experienced in 2013. With a continued commitment to favor margin over volume, we reiterate our expectations of full year shipments of 47,000 units to 50,000 units.

In summary we're obviously pleased to have delivered a solid quarter, overcoming a harsh winter environment that impacted all within our industry, and continue our momentum from a record setting year in 2013.

Progress continues to be made throughout all businesses. Some new records were accomplished, but as always much opportunity remains. So let me reiterate, we still need to break the code, the leveling out the current seasonality in numerous parts of our business that cost concerns for external stakeholders and operational inefficiencies for those within, those efforts continue.

We need to further improved gross margin in our commercial trailer products business and find more attractive higher margin growth opportunities to drive its topline. Those efforts continue and are bearing fruit. We need to accelerate the topline growth rate of our Dura side products business to leverage the attractive margins inherent within its offerings. Again well underway with new product offerings and new markets.

And we need to leverage the higher margin tank parts and services opportunities for growth of our retail segment, same here underway. So while much has been done plenty of work remains, we’ll continue look at opportunities to strategically but selectively grow our business.

In addition to the organic growth initiatives already underway. We’ll continue to be responsible (inaudible) of the business to assure that that the proper balance between risk and reward is considered in all decisions. We have proven our ability to not only acquire business with the size and complexity walker, but seamless absorb it and deliver results that exceed anything done previously.

We are now far more diverse with a broad portfolio of products in end markets that provide stability and opportunities for growth. This certainly is not the Wabash national yesterday and should not be viewed as such, historical comparisons are becoming less and less meaningful as each day passes. Truly a new Wabash national in structure, in performance and in execution. We will continue to manage for the long-term to build value and sustainability.

So in closing, we continue to be well positioned this year to deliver another year of top-line and bottom-line growth. With a strong and growing backlog, our demand environment is solid and gaining momentum and a number of new products nearing launch.

With that I will turn the call over to Jeff Taylor, Chief Financial Officer to provide more detail around the numbers. Jeff?

Jeff Taylor

Thanks Dick and good morning. In addition to the press release, we filed the 10-Q after the market closed yesterday so I plan to hit the highlights. With that, let’s get started. As Dick mentioned, consolidated revenue for the quarter is $58 million, an increase of $34 million or 10% compared to the fourth quarter of last year and a record for revenue in the first quarter. Total new trailer shipments were 9,900 units at the top-end of our guidance range for the quarter and 1,300 units [sold] year-over-year. Sequentially, consolidated revenue decreased $100 million or approximately 22% primarily due to a decrease in new trailer shipments of 4,300 units versus a seasonally strong fourth quarter.

Commercial trailer products net sales were $227 million, which represents a $29 million or 15% increase on a year-over-year basis due to higher new trailer shipments of approximately 1,200 units.

Average new trailer selling prices decreased approximately $600 per unit to 23,200 primarily resulting from the customer mix similar to the fourth quarter skewed towards large fleet customer with lower spec and lower price trailers, as well as a product mix bias towards lower price products such as dry vans, LTL trailers and converter dollies. Sequentially, we did experience a slight improvement in mix and pricing with ASP increasing $400 per unit.

Diversified products net sales increased 7% or $8 million on a year-over-year basis to $120 million as a result of strong market demand from all businesses within this segment; Walker Group, Wabash Composites and Wabash Wood Products. Walker Group revenue was higher primarily due to new trailer shipments increasing by approximately 200 units partially offset by lower sales of non-trailer truck mounted equipment, while Wabash Composites revenue was up year-over-year as a result of strong truck body demand in the first quarter. Wabash Wood Products improved on a year-over-year basis as a result of increased wood requirements from higher demand for new trailers and commercial trailer products.

On a sequential basis, diversified products net sales declined less than 2% from the previous quarter due to lower sales for engineered products partially offset by the increase in Wabash Composites. The retail segment increased approximately $5 million or 12% compared to the same period last year on higher sales of new trailers by approximately 200 units, as well as higher used trailer sales and continued strong demand for parts and service.

Sequentially, net sales for retail decreased less than $1 million or 2% driven primarily by a sales mix for lower percentage of refrigerated trailers which have higher average selling price.

Looking at our various product lines, new trailer sales of $268 million or 9,900 units increased $33 million or 14% year-over-year including approximately 800 liquid tank trailers in our diversified product segment. This year-over-year increase is due to strong demand for new trailers across all business segments.

Used trailer revenue was approximately $16 million on 2,100 units, an increase of approximately $7 million from the same quarter a year ago as a result of increased fleet trades within commercial trailer products.

Component, parts and service revenue was approximately $42 million in the quarter essentially flat from a year ago, with stronger demand for composite products, as well as parts and service to our retail locations offset by a decline in Commercial Trailer Products non-trailer transportation equipment sales.

Finally equipment and other revenue on a year-over-year basis decreased by $7 million to $32 million for the quarter; this decrease was primarily driven by lower sales from the non-trailer truck mounted equipment within diversified products.

In terms of operating results, consolidated gross profit for the quarter was $46.7 million or 13.0% of sales compared to $42.2 million in the same period last year. This represents a $4.5 million increase or 11% year-over-year. Commercial trailer products was the primary driver of the gross profit increase, with retail also making a positive contribution partially offset by a slight decrease in diversified products.

With that let’s look at the segments in more detail. Commercial trailer products’ gross margin increased 70 basis points over last year resulting in the 28% increase in gross profit or $3.3 million. Sequentially, gross profit decreased $6 million on seasonally lower trailer volume, however gross margin increased slightly by 10 basis points.

Production during the quarter was 12,100 units, up and approximately 1,200 units sequentially as production ramps up in the first half of the year consistent with seasonal expectations. On a year-over-year basis, production was up 2,500 units due to strong demand in the current period compared to weaker demand in the prior year period.

Diversified products gross profit and gross margin decreased $0.5 million and 200 basis points respectively compared to the prior year period due to higher wood cost in Wabash wood products partially offset by higher Walker Group new trailer shipments and increased Wabash Composites demand.

Sequentially, gross profit was down $0.7 million due to higher wood cost, as well as lower volumes in Walker engineered products partially offset by stronger new trailer shipments and Wabash Composites demand.

Lastly, the retail segment’s gross profit in the quarter increased $0.5 million or 10% year-over-year due to increased new and used trailer sales, as well as continued strength in parts and service. Sequentially, gross margin increased $0.9 million or 210 basis points primarily due to increased parts and service revenue.

On a consolidated basis, the company generated operating income of $19.5 million in the quarter, an increase of $4.6 million or 31% year-over-year, with solid contributions from all three operating segments. At 5.4% of sales, operating margin was approximately 80 basis points higher than the prior year quarter.

Sequentially, operating income was lower by $4.6 million primarily driven by lower shipments of new trailers in the commercial trailer product segment due to normal seasonality and the severe weather conditions particularly in January and February.

Operating EBITDA for the first quarter was $30.6 million, a year-over-year quarterly increase of $3.5 million or 12.8% resulting from a strong first quarter performance from all business segments. Sequentially, operating EBITDA decreased by $5.0 million from lower new trailer sales. On a trailing 12 month basis, revenue was $1.7 billion, with operating EBITDA greater than $153 million or 9.2% of revenue.

SG&A excluding amortization for the quarter was $21.7 million, an increase of $0.4 million or 2% over the first quarter of last year. The year-over-year increase is primarily attributable to higher employee-related cost slightly offset by reduced depreciation. Sequentially, SGA expense for the quarter decreased by $1.3 million, however SGA expense as a percent of revenue increased to 6.1% on lower net sales for the quarter. We expect SGA as a percentage of revenue to be lower in subsequent quarters as revenue ramps up consistent with our trailer guidance with the target of approximately 5.5% for the full year.

Intangible amortization for the quarter was $5.5 million essentially flat with the prior quarter and $0.1 million higher compared to the prior year period. The intangible amortization in the current quarter is consistent with our guidance provided last quarter and is expected to continue at this level for the remainder of 2014.

Interest expense consist primarily of borrowing cost totaling approximately $5.7 million, a year-over-year decrease of $1.8 million primarily related to re-pricing of the term loan in May of 2013 and the $60 million of voluntary term prepayments we made in 2013.

Approximately $1.5 million of our reported interest expense was non-cash and primarily relates to the accretion charges associated with the convertible notes. Similar to last year, we do not make a voluntary prepayment on the term loan in the first quarter, since we generally use cash during the first half of the year with the typical seasonal ramp up in production.

As a result, the outstanding balance of the term loan is approximately $234 million at the end of the first quarter. We recognized income tax expense of $6.5 million in the first quarter including a $1.0 million charge resulting from the revaluation of our deferred tax assets due to a decrease in state income tax rates. The effective tax rate for the quarter was 47.1%. However, we now expect the effective tax rate to be approximately 39.5% going forward.

On March 13, 2014, we have an estimated 36 million of remaining U.S. federal income tax net operating loss carry forwards which begin to expire in 2029 if unused. And we currently estimate that all of our U.S. federal NOLs are available for utilization during 2014 subject to pre-tax earnings. As a result, the company does anticipate cash taxes to increase significantly upon utilization of the remaining NOLs.

Finally for the quarter, net income was $7.3 million or $0.10 per diluted share. On a non-GAAP adjusted basis and after adjusting for the changes through statutory tax rates and the corresponding impact from revaluing our deferred tax assets, net income was $8.3 million or $0.12 per diluted share.

In comparison, the non-GAAP adjusted earnings for the first quarter of 2013 were $6.1 million or $0.09 per diluted share which excluded $0.6 million of non-recurring charges related to the Walker acquisition and the purchase of new assets.

With that let’s move to the balance sheet and liquidity. Net working capital increased during the current by $57 million as we ramped up production in the first quarter consistent with our seasonal expectations. We expect net working capital to be relatively stable during the second quarter. Capital spending was approximately $2.1 million for the quarter and we anticipate full year 2014 capital spending to be approximately $20 million, consistent with our previous guidance.

Our liquidity and cash plus available borrowing as of March 31st was approximately $206 million, a decrease of approximately $48 million from the year-end as a result of higher working capital needs from early finished goods inventory as we ramped our production. A pro forma total and net debt leverage were 2.6 times and 2.2 times respectively. In addition, our senior secured leverage ratio under the term loan credit agreement was 1.2 times, significantly below the current government requirement of 4.0 times or less.

With that, let me wrap up with some overall financial highlights. The company performed very well during a difficult environment and deliver against our expectations for the quarter. All business segments posted solid revenue numbers, the consolidated gross margin at respectable 13.0%. Additionally, the performance improved during each steps (inaudible) during the quarter and we entered the second quarter with very good momentum. The balance sheet remains strong and we are well positioned to maintain our velocity in the second quarter. We finished the quarter with approximately $66 million of cash and ABL revolver remains untapped.

Our leverage ratios and debt covenants remain in comfortable territory, particularly considering our position in the current cycle and the long-term outlook for trailer demand. Lastly, we have no significant debt maturities unit 2019, and we expect a lower effective tax rate going forwards as previously discussed.

Thank you. And I'll now turn the call back to Yolanda, we will take any questions that you have.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Brad Delco. Your line is open.

Ben Hearnsberger - Stephens Inc.

Hey guys, it’s actually Ben on for Brad. So maybe first looking at the guidance, you guided 2Q ahead of our expectation and let full year in place which implies that 2H guidance is down 8%. Can you kind of give us more color on the conservatism around the full year guide?

Dick Giromini

Sure. We were probably a little bit out ahead of everyone else in our projections initially. When you look at where ACT was earlier in the year, they have subsequently increased in two consecutive months what their projections are for the year. So now they are little bit ahead of us. We are in that 5% to 7% projection on year-over-year growth specifically in our Commercial Trailer Products business which is the bulk of the unit volume. And they were at about 1% to 2%, about 1.5% initially; now they are in north of 7%. So we are on a wait and see attitude, I guess you can say at this juncture to assure that the code activity continues consistent that the order conversion rates continue and then our focus and commitment to favor margin over volume is playing into what you may view as conservative or not increasing the range. So, we feel it’s prudent at this point, we are probably leaning more toward the high end of that than we are in the middle. But we will take another look at it as we progress through the quarter, we will make determination of whether to increase.

Obviously, we are well positioned to take advantage of the market and of the opportunities out there but it has to be at the kind of pricing that we believe we need and expect to continue to drive the margin improvement in the Commercial Trailer Products business.

Ben Hearnsberger - Stephens Inc.

Got it, okay. Thanks for the color. And then looking at gross margins in the commercial trailer products business, historically or at least over the last couple of years, you've seen a 200 basis point improvement sequentially in 2Q and given the strong delivery guide, is there any reason why we wouldn't see a similar margin increase this 2Q?

Jeff Taylor

Yes Ben, this is Jeff. I think you're right, historically you do see the margin increase in 2Q and towards the middle of the year, when you see the indirect channel come more into the overall picture. Obviously in 4Q and Q1, we've talked about the mix and how it's got a significant portion of that servicing the large fleet and we saw that this quarter. We do expect that the margin will improve as we move into Q2 and we're currently seeing more of the indirect channel come in.

I'm not going to provide guidance as to what the magnitude of that's going to be. But we certainly do expect to see improvement sequentially there.

Dick Giromini

Yes, let me just add to that Ben. As we progressed through the second quarter, one of the things that's always misunderstood in our business is the timing event of when these improvements flow through. First quarter shipments in many respects reflect fourth quarter builds. As there is the lag effect on pickups. And as you progress through the second quarter that improves because you're now building product that’s priced for the 2014 build and you're progress into third quarter and you get even further benefit of it with continued improving weather and all. So we do expect continued improvement in the quarter-over-quarter and then of course on a year-over-year as the pricing environment has become a much more stable and much more able to continue to push price through. So we do expect to see continued improvement.

Ben Hearnsberger - Stephens Inc.

Okay. Thanks and then one last one, can you maybe give us a little bit more color on the impact of weather on your 1Q core, maybe help us frame it up a bit?

Jeff Taylor

Yes. Ben, I think the weather impact that we saw in the quarter was consistent with what we talked about in the fourth quarter in terms of higher operating cost during the quarter. We did have in January and February -- we did have some production days that were lost, we made those up by working additional shifts on the weekend and were able to really minimize the overall impact from over time and doing that. We do have a flexible workforce. And so we're able to manage around those types of scheduling issues.

And so, it did have an impact on us in the quarter, we’ve absorbed that. I think the good news is that as you look at the margin in commercial trailer products specifically from Q4 to Q1, we actually increased by 10 basis points despite the challenges we were facing with the weather in Q1.

Ben Hearnsberger - Stephens Inc.

Okay. Thanks guys.

Jeff Taylor

Thank you, Ben.

Operator

Our next question comes from John Mims. Your line is open.

John Mims - FBR Capital Markets

Hey, good morning guys. Thanks for taking my question.

Dick Giromini

Hi John.

John Mims - FBR Capital Markets

Hey. So let me look -- let me start with some of the ACT order numbers that have come out for first quarter. So if you look at the whole quarter together just in drive in net orders were up 55% year-over-year so big numbers and obviously you see that in your backlog. But can you maybe answer a couple of questions on that? The first how much are you participating in that big surge, I know you have said you are holding back more for price has your market share basically stayed same in that push and also how has that mix been evolving particularly in the March and then the April away from the large orders and away from the LTLs into the more indirect channels

Dick Giromini

Well our backlog as you heard grown to about little over six months kind of consolidate basis $791 million worth of backlog. So we have continued to see grow so our participate rate in what’s after being ordered is certainly evident with that when you think about the shipment levels and production builds that we had. So we are participating we don’t generally try and evaluate the market share until everything clears up for the whole year because there are so many moving parts with orders versus builds versus shipments which are all auto sync with each other certainly appears that we are getting our fair share of what’s out.

We are being very deliberate on the orders that we are accepting. We stated over these last couple of years many times about our desire and need to continue to improve the margin profile in the commercial trailer products business we are committed to that. So we remain focused on that and have seen some nice improvement everyone is aware of. And we want to continue that to get to that double-digit goal that we put out there. That doesn't mean that we won't take advantage of opportunities as they are out there, they have to be attractive to us.

Now clearly, the early order that come in in any order season are dominated by large fleets, who get in early and order for the full year and as we progress through the quarter and through the balance of the year, you'll get a lot more of the indirection channel orders that will come through. Those will carry not only higher pricing, but they also carry higher margin as it goes through and that mix between the high volume low respect products to the lower volume tending to be high respect product will shift as we progress through second and third quarter. So that helps drive the improvement also.

John Mims - FBR Capital Markets

Sure. So but and you've commented on price stabilizing. When I see this type of order numbers, it would appear that, you're back into a good solid CapEx environment where orders coming in, funds are flowing in. So maybe [in your] segments, your ability to gain core pricing increases in this environment kind of offset by mix and separate the mix away from kind of what you're seeing from a core pricing standpoint to help us understand exactly how aggressive you can get in pricing now and how that should continue in the second quarter?

Dick Giromini

Yes. As I stated in the past. 2012 was a big year, we took a big step and really pushed hard and pricing decline if you will set stage for the industry to respond and we were highly successful between what we saw in 2011 versus the results were in 2012. since that time I have used the expression enabling around the edges and we have continued to do that. What we are starting to see now and if there is truth in the numbers on a macro basis for the industry, we are starting to get some demand levels that could provide opportunities as we get into the latter part of the year. So really push pricing more aggressively as we get more into the next year as order season.

In a lot of cases the backlog that we have is locked up for the year for the large guys, I stated many times that the large fleet don’t order and order is not equivalent to shipment, because the other can spread out over the course of the whole year. So when you receive the order it’s not turnaround in 30 days it is turnaround in many cases and pieces over the course of 10 or 12 months.

So as we progress through the year, we do believe the environment is becoming more favorable for the manufactures to be able to get better and better pricing and that’s a good thing. So we are excited about that and we will try and take advantage of that more so with the smaller orders and the indirect channels as we progress through the balance of the year.

John Mims - FBR Capital Markets

Is there any risk with the order flow that you are seeing to some industry basis that component prices input prices start to pick up on the back half of the year or is margin squeeze on that side not a concern at this point?

Dick Giromini

Yes, other than the wood flooring that we talked about the well wood pricing that we dealt with earlier in the call relative to our wood flowing operation, everyone in the industry if facing them. When you get strong demand environment and you get cost inputs that everyone is being impacted by it is a lot easier to deal with those than if it was exclusive to us in particular. So, we feel pretty good about being able to deal with those increases that may occur, but in most cases, we've got lock commitments, lock contracts for the year with the vast majority of our large component supplier.

So, that part is not an issue. And then on some of the raw materials as we've talked in the past with aluminum, we have lock based on the reunite orders. So the backlog, six plus months backlog that we talked about basically all of that is locked from aluminum standpoint, good percentages that is locked in this field side. And then on the component side, it's pretty much locked in. So, other than an input like the wood, which is a variable we have a pretty high percentage of certainty and what our costs will look like going forward?

John Mims - FBR Capital Markets

Okay. Sure and that is helpful. And just one last question from me and then I'll turn it back over. Since the start of the call, the stock has had about 10% negative swing, I mean clearly the Street is reading your comments is it's kind of the factor guidance perhaps to the back half of the year and I don't think that's your intention.

So, can you maybe, maybe kind of just walk through that again as far as your outlook for revenue and earnings growth in the back half that's maybe not being captured by the shipment range and kind of what you would need to see to provide better clarity for what happens beyond second quarter from a revenue and earnings standpoint?

Dick Giromini

Yes. I’m not sure about the implied cut in the second half because it’s certainly not what our internal plans would imply. As we’ve talked in the past many times, the second and third quarters are the strongest shipment quarters that we tend to see; our first quarter was just shy at 10,000 units, while pleasing relative to the winter that we faced and relative to last year an improvement is still just 10,000 units, with projections of 47 to 50 for the year. And as I said earlier, we are probably leading more towards a high-end of that at this point. We're talking 13.5 to 14.5 second quarter we have to match that type of volume in the third quarter and be some more close to that in the fourth quarter to be even at the top-end of our range.

So, I’m not sure where that assumption is coming from that we’re cutting back on our projections. We are just trying to be a little bit more prudent at this point as we get further into this quarter and take another look at things as we get to the mid-year. And if we believe that the opportunities that we're looking at and the pricing is right then certainly we can take a look and see about adjusting the guidance that we provided. But at this point, we felt the prudent thing to do was to just reiterate our guidance, reroute (inaudible) forecasters were, I think that’s forgotten in this whole thing that they were much more conservative than what our view was.

We saw where the market was heading and that’s why we were little more aggressive on our year-over-year projections than what they were earlier. They’ve caught out to us now and we’ll take a look at it as we progress through the quarter.

John Mims - FBR Capital Markets

Okay. That’s really helpful. Sorry, are you going to add something Jeff?

Jeff Taylor

Yes. John, I was just going to add I mean obviously we don’t comment on the stock price or changes in the stock price. But I think to reiterate some of what Dick said there, we had a really strong start to the year, Q1 has been a really nice quarter despite some headwinds out there in the industry caused by weather. We gave good strong guidance for Q2 and we’ve got nice favorable positive outlook and we really feel confident in the full year. So, we feel good about where we are and there is still opportunity as we progress through the year for things to continue to develop there.

John Mims - FBR Capital Markets

Yes. I agree with you, I think it sets up really well. But I was just pointing out that the market seems to be reading it slightly differently, so just wanted you to readdress that. Anyway, thanks a lot and I will get back in the queue.

Jeff Taylor

Thank you.

Operator

Our next question is from Steve Dyer. Your line is open.

Steve Dyer - Craig-Hallum

Good morning, Dick, good morning Jeff.

Dick Giromini

Hey Steve.

Jeff Taylor

Hi Steve.

Steve Dyer - Craig-Hallum

Most of mine have been addressed, but I am wondering if you could talk a little bit about your sense of capacity in the industry both in the industry and for you guys as well, certainly it would seem like if you have extra it’s an opportunity to take price in the back half of the year. Are you seeing something similar we are hearing a lot of slots going up well into the year at this point, how do you see it?

Dick Giromini

Yes, we’ve heard some of the same comments that some competitors have taken on some business that’s pushed out their backlogs quite a bit. We feel very good about where we are at and the approach that we have taken. We have installed capacity and I always say mixed dependent, installed capacity to do upward across our whole business, upwards of approaching 75,000 units across the whole business.

So, with our guidance there, two-thirds of that we still have opportunity to take advantage. If the market continues to show strength as we progress into the middle part of the year, we’ll be well positioned to take advantage of what could turn out to be a very favorable pricing environment.

Steve Dyer - Craig-Hallum

Okay. I'm wondering if you could break out your backlog in terms of the different, the different product areas, commercial products group it's trailer traffic get some senses, this is obviously a big backlog number, but try to get some sense as to where that shakes out?

Jeff Taylor

Yes Steve, obviously the backlog as Dick said was $791 million; it was up from $711 million in the prior quarter, so really strong growth in the backlog there. We don't break it out by a segment or product line, but what I would say is that the backlog and all areas of our business is healthy and within the range we would expect it to be in.

Steve Dyer - Craig-Hallum

And is the convey [skirt] order; is that in there?

Dick Giromini

No, the convey skirt order would not be included in the backlog.

Steve Dyer - Craig-Hallum

Okay. So that's additive. And I know Jeff you didn't want to kind of comment specifically on margin guidance, but you have kind of the cross wins of mixed working against you sort of offset by the much bigger volumes trained workforce all those types of things. Is there any reason you wouldn't be able to sort of keep gross margin sort of flat at a minimum year-over-year going forward throughout the remainder of this year?

Jeff Taylor

I don’t see why we wouldn’t be able to maintain at or near that level, I mean obviously the mixed plays an important role in that. And I think the things we’ve talked about in the past are that when we look at our mix on our product by product basis, we maintain price and or increase price in all situations there. Our manufacturing operations ran very well in the first quarter and continue to run very well.

So, I think when you add all those things up, we would expect on a apples-for-apples the margin to be certainly at a minimum equal to if not better than what we’ve seen in the past. And once again that will be mix dependent, but we will make the appropriate value for the products we failed.

Steve Dyer - Craig-Hallum

Okay. That’s all I have. Thanks guys.

Operator

Our next question is from Mike Baudendistel. Your line is open.

Mike Baudendistel - Stifel Nicolaus

Thank you. Just wanted to clarify a comment that Jeff made, Jeff I think you said that on the ASP was up $400 per unit was that adjusted for mix and customers what that number was?

Dick Giromini

It’s not adjusted for mix, it’s a pure, just a pure calculation from the total revenue and the total number of unit shift. So mix price of factor and then pricing is also playing a factor in that Mike. That was the sequential increase, it’s up approximately $400 so we do – it will do see some improvement coming in the mix there.

Mike Baudendistel - Stifel Nicolaus

Okay. And you haven’t estimate of how much the negative mix impact from the customers and low value products had on the commercial trailer products that gross margin segment in the quarter when we think about the trajectory there?

Jeff Taylor

I don’t an estimate of that, I mean the probably the best indicator you have ASP of a year-on-year basis. I did say that it decreased $600 that was pretty much all mix driven, if not all mix driven. And once again, when we compare on a product by product basis pricing for our products to be the flat or up and in most cases it's up. So, that's entirely mix and that can give you a sense for how that changes. I think that, translates into a 2.5% decrease in net price.

Mike Baudendistel - Stifel Nicolaus

Okay. And you talked about the commercial trailer products margin improving and you're making operational improvements there. What are some of the specific things besides from higher volume that you are doing there to improve the margin?

Dick Giromini

It's continued to as the workforce has matured more and more and gained proficiency, line velocity improvements which really helps the efficiencies and the operation. Those efforts have continued and we're seeing more and more the benefits of much more stable workforce, a workforce that's becoming more trailer builders each day. So, we're able to introduce even more advanced concepts for them to deal with it as we continue to work on the velocity side of things and that will continue throughout the year and beyond then. So, that's those are the main things that we've been working on from that regard.

Mike Baudendistel - Stifel Nicolaus

Good. And the last question from me is, there were some news articles in the past week or so about the shale activity driving improved demand for the tank trailers. I don't think I heard you mentioned that as one of the drivers. Is that something that you are chasing your most focus in the traditional markets in that segment?

Dick Giromini

Yes. We’ve seen some recovery in demand for the crude oil products we produce out of our Walker Group business, not as much on the shale side or the frac side of the business. That business was pretty well saturated with equipment during the strong periods of couple of years ago; and over the last year and half or so, there is just a lot of equipment out there that’s, so we're not seeing a lot of demand for that at this point in time.

Jeff Taylor

I think having said that we are in a position where if that does turn out Michael and we have the opportunity to participate in that, obviously it’s a product we’re familiar with and we have some experience in the market as well.

Mike Baudendistel - Stifel Nicolaus

Great. Thanks very much.

Operator

Our next question is from Tom Finan. Your line is open.

Tom Finan - Avondale Partners

Good morning guys. I’m filling in for Kristine.

Dick Giromini

Hey Tom.

Tom Finan - Avondale Partners

Hey. So, most of mines have been answered but assuming that you could be a little conservative on your guidance, and how the workforces improved, would you need any additional headcount to meet demand above 50,000 trailers?

Dick Giromini

It’s very incremental. We were able to and part of what of my comments just a moment ago about improving the line velocity, you gain a lot through those CI efforts without having to add any significant amount of personnel to support it. So it would be just variable labor addition to support some incremental volume but very little, nothing like what we faced a couple of years ago.

Tom Finan - Avondale Partners

Right, right. Okay, great. Thank you. That’s helpful.

Dick Giromini

Thank you Tom.

Operator

We have a question from John Mims. Your line is open.

John Mims - FBR Capital Markets

Hey guys, thanks. Just one quick follow-up, on the used trailers that you sold in fourth quarter and then in first quarter, much stronger than historical levels. Can you comment. I guess one, what’s driving that strength? And then also provide some framework on incremental margin basis as far as your gross margin but also the EBIT per trailer that you are getting on with U.S. being a larger piece of the mix, because the EBIT per trailer and commercial products swung, it was up 34% year-over-year. So I wanted to know how much used trailers actually impacted that.

Dick Giromini

Let me comment about the demand side of the used trailer. Some of that was the seasonal demand. The unusual winter weather conditioned created some real tightness in capacity. So, you had a significant demand for equipment short period of time. So, we saw some of that lift during the quarter. So I don’t know that you would want to look at that as something that is continue ongoing demand. But yes, we aren’t -- I mean that’s not a huge part of our business, the used trailer part but we did have some opportunity as a result of the weather conditions.

Jeff Taylor

Right John, this is Jeff. Obviously used trailers have increased as we talked about that’s largely driven by fleet trades. Can’t say that we track EBITDA per use trailer, the use trailers has a lot of variability in it based on the type of trailer it is, the age of the trailer, the condition of the trailers. And so there can be pretty big swings in what that looks like as we evaluate those. And obviously we evaluate each one of those trade packages independently to make sure that it makes sense for us and we're making -- getting appropriate value for taking those trades and then moving them out.

John Mims - FBR Capital Markets

Yes. Sure, that's helpful. I was just thinking if you're getting them for almost nothing but selling them for $6,000 and certainly the last two quarters that sales numbers been up more than 100% each quarter; is that all going to the bottom line and that's maybe making on the margin, making the whole Group’s returns and margins a little better or if that’s still just kind of a minimal impact that’s kind of is what it is?

Dick Giromini

Yes. That certainly not -- it's a [false] to think that we're getting the trailers for nothing. Generally, the margins on used trailers are still in that similar range bound kind of margin that you see across our business. I mean some of them, you're happy to breakeven on, because they are fleet trades and it’s part of the acquisition of the order for the new equipment. And other cases, you may have opportunities to get an attractive margin, but we're not talking about margins in the 30% or 40% kind of arena or higher, we're talking about 10%, 15% kind of margin that you get on a huge trailers. So, it' not like you -- if it was that good, we all be just used trailer guys.

John Mims - FBR Capital Markets

Yes. That’s fair. But going forward it’s still above 1000 a quarter is reasonable but that 1,700 trailer level is probably the high that’s what you are saying?

Jeff Taylor

It will be dependent on the market, John. I mean we obviously forecast something there closer for a longer term run rate but it could be over that below it depending on the current environment but what the availability of those fleet trades in the market is.

Dick Giromini

Yes, that one is a real tough one John, because it’s not a core piece of the business, it’s one out of convenient to support to customers, often times customer will sell their equipment on their own, or they’ll want to include it as part of a trade package for a new order that is coming up. So it’s always difficult to predict which path that they are going to choose. So, it’s not a piece of the business that we count on as a revenue profit generator for the company, it’s more a convenience to support customers for the most part.

On our retail side, we do some of that when we go out in the market and find some opportunities, but again it’s not a huge revenue or profit piece of the business. So I don’t think it should be driving any decisions or any significant lose in any modeling that you’d do.

John Mims - FBR Capital Markets

Yes, great. That’s exactly what I needed. Thanks again.

Dick Giromini

Thank you.

Operator

We have no further questions at this time. I will turn the call over to Dick.

Dick Giromini

Thank you, Yolanda. In collusion, we are extremely pleased with the results we are able to deliver in the first quarter of 2014. That said, we see even further opportunities to accelerate our top line growth, expand our product to market breadth and to delivery even greater performance in almost all aspects of our business. And with a key focus on execution and delivering results, I'm certainly confident that we'll do just that. Thank you for your interest and support of Wabash National Corporation. Jeff and I look forward to speaking with all of you again on our next call. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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