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WABCO Holdings Inc. (NYSE:WBC)

Q2 2011 Earnings Call

July 28, 2011 9:00 am ET

Executives

Mike Thompson - VP, Car Business and Corporate Relations

Jacques Esculier - Chairman and CEO

Ulrich Michel - CFO

Analysts

Jeff Hammond - KeyBanc Capital Markets

Robert Kosowsky - Sidoti & Company

Ted Wheeler - Buckingham Research

Presentation:

Operator

Good day ladies and gentlemen and welcome to the WABCO Second Quarter 2011 Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star and then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference Mr. Mike Thompson, Vice President, Car Business and Corporate Relations. Sir you may begin.

Mike Thompson

Thank you Johan. Good morning everyone and welcome to WABCO’s quarterly conference call. Today, we will present our second quarter 2011 results. With us this morning is Jacques Esculier, our Chairman and CEO and Uli Michel, our Chief Financial Officer.

As a reminder, this call, webcast and the presentation that we are using this morning are available on our website wabco-auto.com under the heading WABCO Q2 2011 results. A replay of this call will be available through August 28th.

Also, as shown on chart 2 of the presentation, certain forward-looking statements that we’ll make today are based on management’s good faith, expectations and beliefs concerning future developments. As you know, actual results may differ materially from these expectations as a result of many factors, examples of which can be found in our company’s Form 10-K and quarterly reports including our second quarter 2010 report, which was filed with the SEC this morning.

Lastly, some of our remarks contain non-GAAP financial measures as defined by the SEC. Reconciliations of the non-GAAP financial measures to the most comparable GAAP measures are attached as an appendix to this presentation and to our press release from this morning, both of which are posted on our website.

I’ll now turn the call over to Jacques Esculier.

Jacques Esculier

Okay, thanks Mike. Good morning, good afternoon ladies and gentlemen and thank you for joining us today. Well, prior to jumping to numbers, I would like to kind of share with you that this quarter marks yet another period of compelling results for WABCO. And this is very much in line with the strong performance that WABCO has delivered since the first quarter of 2010 when the economy was back on the recovery path and particularly for our industry.

Indeed in this second quarter, we have again seen a very strong organic growth at the top line and we have again proven our ability to transform this strong top line growth into strong bottom line configuration through a very significant level of incremental margin. And we are again breaking new ground in profitability.

So now, looking at numbers, top line went up 29% in local currencies of 44% reported. Our performance gross margin broke a new record at 29.6% at a performance level. Our operating income broke for the first time the threshold of $100 million at a performance level, leading to again a new record level of operating income margin of 13.6% for the quarter. And this drove to an EPS of $1.23 per share, again new record level, which is very close to twice as much as what we had seen just a year ago in the second quarter at 2010.

We generated free cash flow of $53 million, of which actually we returned the vast majority of it to our shareholders to repurchase 794,000 shares. Actually, that amounted to $51 million of buyback. And as we will share with you later during this call, we are again raising our expectation and guidance for the full year 2011.

So in summary, this is another quarter of stronger new growths, a new record profitability on this suite of very strong quarters that we have seen again starting in early 2010.

Next page, as we do every quarter, we are going to give you an analysis of ourselves. Again, revenue went up 29% short of this foreign exchange impact contributing to it 33% gross year-over-year of our revenues from OEMs. And actually, sequentially it is up 5% versus the first quarter of this year and that is reported by continuous increase of our content per vehicle and again, very strong growth that we are seeing from our developed markets particularly Europe and the U.S. Astro market went up again a hefty 13%, which is a very strong contributor to our growth.

And then, revenues from our sales through joint ventures mostly coming from the joint venture in the U.S. up 39% or up sequentially 4%, basically translating this continuous recovery of the market in the U.S. Now looking at the comparison of our evolution of revenues to the production by region, I think we can start saying that we again outperformed the market in all regions of the world. Starting with Europe, where we grew revenues 45% for an increase in production of commercial vehicles of 41%.

North America, a very healthy production increase of 52% that we outperformed by another 6%. South America went up 15% in production breaking a new record in the number of commercial vehicles built and again, we outperformed by 4%. Japan and Korea went down only 13%, we are going to see that Japan actually has not been as impacted as we had anticipated by the tragedy that they have gone through earlier this year and we outperformed by a healthy 23%.

Now China went down 22%, which is actually more severe than what we had anticipated and our revenues are down 12%. I think it’s first important to note that this only represents 5% of our revenue, so it doesn’t have tremendous impact on our ability to grow our top line. The other thing is we only outperformed the market by 10% because actually the number of heavy truck builds has gone down even further as compared to the medium size trucks and we all know that the content per vehicle where WABCO products and system is higher on heavy trucks.

And finally, India has seen a continuous double-digit growth in line with what we had seen and anticipated previously and we outperformed again by a healthy 8%. So overall, another very strong organic growth for WABCO outperforming all the markets around the globe. Then, I am going to ask Ulrich to drive you through the details of our financial performance, Ulrich.

Ulrich Michel

Thanks Jacques and good morning everyone and thanks again for joining us today. Our sales in the quarter increased by 29% in local currencies versus last year and we are 3% above the first quarter of this year. This increase in sales includes price reductions to customers of 1.1%, which is in line with the lowest level we have seen historically in our business. Gross profit increased 30.2% with an adjusted gross profit margin that has improved by 27 basis points compared to a year ago. Gross profit was driven most significantly by higher volumes, which contributed $32.2 million. Our productivity initiatives continue to deliver good results including 5% through our material projects partially offset by 2.3% of commodity inflation. The result was in that materials productivity of 2.7% for the quarter.

Our conversion productivity was 5.3% and we also generated $17.7 million of benefits from more efficient absorption of overhead costs. The result is a performance gross profit margin of 29.6% this quarter, as Jacques mentioned representing a new record level of gross margin for WABCO.

In operating expenses, you can see an increase in the second quarter versus a year ago. We have increased our spending on research and development projects by $4.5 million to support our strategic initiatives that are around new technologies and product development. We have also invested an additional $1.9 million in activities to support our efforts in expanding our global reach.

Also in the quarter, our incentive compensation expense was $600,000 higher than last year as a result of the improved performance. Additionally, labor and other cost inflation added $1.7 million in costs. Even considering these increases in operating expenses, we have limited the overall increase in operating expense to less than one third of our sales growth, resulting in margin expansion of an additional 298 basis points versus a year ago. So altogether, we generated operating income of $102 million or 13.6% of sales on a performance basis, which is a new record for WABCO. This quarter’s performance operating income of $100.2 million is nearly double the $52.6 million reported last year and 70% higher in local currencies.

We have expanded operating margin by 325 basis points delivering 25% incremental operating margin on a sales increase of $149 million or 29% in local currencies. Also, there is one other important item to note. Similar to what we said last quarter, if we were to exclude the effects of commodity inflation and transactional effects, we would have generated an incremental operating margin well above 30%, which is in line with the structural margins that our business is now designed to generate at these levels of growth.

Continuing down the income statement, you can see that this quarter equity income was $3.8 million, which includes an improvement in earnings of $1.2 million from our North American joint venture. Additionally, the expense to minority shareholders amounted to $1.3 million this quarter compared to an expense of $3 million a year ago. It is primarily driven down by our majority owned subsidiary in China that provides mechanical products mostly to the local market.

Our performance EBIT this quarter was $101.4 million or a margin of 13.7%, this result is also a record level for WABCO. Moving to Texas, we have slightly renewed our outlook for our full year performance tax rate to approximately 15%. With the first quarter recorded at a rate of 15.6% we recorded a rate of about 14.5% for the second quarter to adjust the year-to-date amount to the 15% resulting in performance tax expense of $14.6 million for the second quarter.

After excluding the nonperformance items, net income was $86.1 million. It marked another new level of record profitability at WABCO and more than twice the amount generated in the second quarter of 2010. With regards to earnings per share, this translates to $1.23 on a performance basis versus $0.63 last year. So, despite an increase in share count, we almost double earnings per share.

In summary, we are pleased to record yet another quarter with a high level of organic growth, continued margin expansion and record levels of profitability.

Turning to chart 6, let’s go to our cash flow for the quarter. You can see that working capital had a negative impact on our cash flow in the amount of $44 million, included in this amount is a $90 million increase in accounts receivables, which is largely driven by increased business volumes. We continue to keep our past few receivables at historically low levels.

Inventory increased in the amount of $12.2 million, although inventory returns again remained consistent with the first quarter of this year additionally impacting these increases in working capital or to decrease in accounts payable in the amount of $12.7 million.

The changes in other assets and liabilities negative $6.1 million for the quarter resulting in a net operating cash flow of $71.2 million. Net cash used in investing activities was %22.1 million up from $14.5 million in the second quarter last year. We are currently investing above our reduced levels of depreciation and amortization. The investments are in support of growth and new projects we have launched. Therefore, free cash flow was $49.1 million or $53.4 million when excluding the streamlining and separation payments made during the quarter resulting in the conversion rate of 62% on our performance net income.

Finally, as we announced at the end of May, our Board has approved the share buyback plan that allows for $400 million of repurchases of our common stock over a two-year period that began on June 1st. In the month of June, we repurchased 794,000 shares of our stock at a cost of $51 million of which $48 million was settled in cash during the month and the remaining $3 million in the first date of July. For the time being, we intend to keep returning our free cash flow back to our shareholders through this buyback program.

Now let’s turn to chart 7 and I will quickly take you through some highlights of our new credit facility we signed this month. As we announced a few weeks back, we now have a new $400 million 5-year multi-currency unsecured revolving credit facility in place with expiration in September of 2016. This new facility has been established as a replacement to our previous facility that was set to expire within the year.

Given the facts that the EC fine indemnification is now paid and this uncertainty is behind us, we have been able to reduce the size of our revolving credit facility considerably. The $400 million facility now provides us with ample liquidity reserves for the next 5 years. The applicable fees and margin range from 80 to 180 basis points depending on the utilization and leverage ratios.

Currently, the applicable margin is 80 basis points. This pricing reflects today’s market conditions for borrowers that are considered investment grade. The main financial covenants of our new facility are very similar to our previous facility. They include again a leverage ratio with maximum net indebtedness not to exceed 3 times trailing for quarters adjusted EBITDA as well as a coverage ratio with EBITDA to cover at least 3 times net interest expense. However, there are a number of improvements, which greatly enhance the value of the facility to us, which I would like to point out to you.

We previously had a $100 million limit to the amount of cash that we could deduct from our debt balances in order to determine net indebtedness for further fees of the covenant calculation. Under the new facility, we can deduct 100% of the cash on our balance sheet as an offset to our debt. We also do not have a liquidity reserve requirement anymore, whereas our previous facility required a reserve of $100 million.

Also, we are able to exclude both the expenses we incur for any streamlining activity as well as the cash payments associated with those activities from adjusted EBITDA. Our previous facility required for the inclusion of cash payments and as some of you may know, there are a few accounting changes that might arise in the U.S. in the coming years that could have an effect on company’s balance sheet and the definition of debt.

It is important to note that no changes in accounting standards will be considered for any calculations under our new credit agreement. And last but not least, the new facility provides for increased flexibility in subsidiary indebtedness as well as the currency, which we can borrow under the agreement. These improvements make the new facility more accessible when needed and give increased flexibility in its usage.

So all in all, we are very pleased with this arrangement and feel that it adds flexibility for managing our business in view of potential opportunity for acquisition as well as navigating through any uncertain economic times. Now, I would like to turn it back over to Jacques who will highlight some market dynamics, Jacques.

Jacques Esculier

Okay, thank you Uli. So, turning to page 8; we are going to give you an update on our view of the market by region starting with Europe. While Europe has seen a very strong increase in truck registration up 56% in the months June and actually for the quarter it is up 49% when you look at it at the level of the first 6 months of 2011, it went up 58%.

So, our order book for European customers is high and is now at a stable level. We expect for the full year, an increase of production of commercial vehicles in Europe up 30% and this is actually an improvement of 5% versus the previous forecast that we had shared with you three months ago and that would again bring the level of production for Europe to about 620,000 trucks and 510,000 of which they are in Western Europe and that corresponds to the level that we had seen back in 2004, which is roughly 25% lower than the peak that we had reached in 2008.

Moving to North America, the order book remains obviously very high. It seems that capacity is the constraint right now, since the supply chain has some issues over there that I think kind of gives some good expectation for 2012, demand is higher than production apparently and we still expect an increase in production of truck and buses by 50% to 60% for the year 2011, bringing the level of production to where it was back in 2000 or as well which is 40% below the peak it had reached back in 2006.

Moving to China, again as I shared with you, the level of the drop we have seen in Q2 is beyond what we had anticipated, it's down 22% year-over-year or 21% sequentially versus the first quarter of 2011. Fortunately, China still remains actually a source of significant growth for WABCO in the medium to long term, but as of today, China only represents 5% of our revenue.

So ABS continues to increase in penetration. Right now, we have seen an increase at about 100% versus a year ago and again accounting for the drop in the market, we outperformed this part of the business by more than a 100% in this ABS work.

Again unfortunately, it's still the most challenging market to predict, however, our best estimate right now is for the full year to see a drop of 20% to 25%, I think the market should bottom up probably in Q3. We are expecting some pre-buy activity in Q4, potentially ahead of the introduction of Euro 4 in early 2012.

Now, why this drop? Well, it seems that there are really three reasons. One is the phase out of the stimulus activities put together by the government and a more limited access to credit. Second, it follows the efforts from the government to law inflation and actually slow down GDP growth to a single digit level. For example, it seems that the government is slowing down on some construction projects like high-speed trains for example. And third, there is systematic enforcement of a regulation relief to payloads.

As you probably know, trucks have been significantly overloaded and now it seems that the government wants to enforce this legislation that obviously do not allow that and we had an impact particularly on heavy struck sales, because it seems that the market now favors medium trucks, because heavy trucks that are built to carry an excessive load are actually very heavy themselves, and actually penalized the operator and the operator is not able to overload it.

So, those three points are what we think the root cause or the main root causes of this slowdown. Again, it does not challenge our view of China as a major source of growth for companies like WABCO in the medium through long term.

Moving to India, India continues to grow again double digit. We expect the year to end up between 10% to 15%. We continued to see good ABS penetration improvement and at this level of production, India has reached the highest level ever.

Turning to page 9 and moving to Japan and Korea. As I shared with you the impact on Japan after the disaster this country had gone through during the first quarter, it is lower than expected. Second quarter, we have seen a drop of production by 22%, it seems that they are already back in terms of production rates to where they were back a year ago. We expect Q3 to see an increase year-over-year of 5% in Q4, an increase of actually up to 15%.

In the meantime, Korea is also incrementally growing. So altogether, we think that Japan and Korea should produce a growth for the market for us in terms of vehicle produce just short of 5%.

Moving to Brazil, government stimulus as we shared with you already in Q1 has been extended throughout the year 2011. There is a pre-buy activity expected also towards the end of this year ahead of the introduction of the Euro 5 standards in early 2012. So, we are seeing actually a stronger improvement of the number of vehicles this year by 5% as compared to what we had shared with you up 15% altogether.

Astro market again continues to drive force and we expect the overall 2011 performance to be up 10% versus 2010. And finally traders, we continue to see some growth particularly from the U.S. with an expected growth year-over-year between 30% to 35%.

Turning to page 10, we are again kind of sharing achievements along the three periods of our strategies. Starting with globalization, we have actually signed a contract with Hyundai Motors in Korea to equip their trucks starting in 2013 with the advanced technology called OnGuardPLUS, which is the first advanced emergency braking system to be introduced in the market.

We also have signed a couple of contracts with two leading U.S. car manufactures to equip them with WABCO's vacuum pumps. The contract plans for start of delivery late this year and to which a peak volume of 3 million pumps in the coming years. Then the second pillar of our strategy around technology, we have been successful at introducing our new breakthrough air disk brakes that we call MAX US. That's the single piston 22-inch air disc brakes for heavy trucks. We are introducing it in one of the largest fleets in the U.S. for a testing exercise, for a trial test.

We have also actually added three new functions to our Trailerguard Telematics Award-Winning Technology that makes this even more attractive to a trailer manufacturer. And finally, we have signed a contract to equip the trailers manufactured by the largest manufacturer in Europe with our 22-inch single piston technology air disc brakes, and that should start production in 2013.

Now on the third period of execution, we are very proud to have received the prestigious recognitions from Cummins as Supplier of the Year and Best Delivering Capacity. Again, this is a very important achievement for us and this award is highly valued by the WABCO Team.

And then finally, our WABCO operating system continued as Uli says to generate very strong contribution to productivity, 5% for material productivity and 5.6% from productivity in our factories.

Turning to page 11, this is the way we are seeing the year-end guidance for WABCO. Upgrading our sales objective to a range of $2.84 billion to $2.9 billion or 22% to 25% growth. Performance operating margin in the range from 13.2% to 13.8%, although it is important to note that actually when we look at these operating margin at the previously planned exchange rate of $1.37 per Euro actually dipped. Basically, the exchange rate would have stayed constant since we last shared our guidance with you. The operating margin would be between 13.5% to 14.1%, so meaning that the evolution from 137 to 142 is costing us 0.3% of margin.

That leads to a performance EPS expectation in the range of 455 to 480 from the previous guidance to 415 to 455. And that in the mid range corresponds to about $0.33 of improvement and out of the $0.33, there is $0.07 coming from those transactional impact of foreign exchange and the bulk of it is $0.25 driven only by performance, $0.07 come from increase in sales, $0.05 from contribution from equity income and $0.13 from cost curtailment. And then finally, we maintained our commitment to a free cash flow conversion between 80% to 90%.

Last page is now the summary. I think we are closing this second quarter again with strong performance, at the top line 29% of organic growth that we have very efficiently transformed into record performance operating margin of 13.62%. They still continue to see high level of incremental margin leading to record level EPS of $1.23 per share and generating healthy cash flow that we are starting to return to shareholders and that allows the market and actually the performance of WABCO allows us to raise expectation to our performance for the full year 2011. So, I would say as a conclusion that so far all lights are glowing on the WABCO dashboard and we have continued to shift to higher gear to continue to generate great results.

Thank you and I will now open the discussion in question, Johan?

Question-and-Answer-Session

Operator

Thank you. (Operator Instructions). Our first question comes from Jeff Hammond with KeyBanc Capital Markets.

Jeff Hammond - KeyBanc Capital Markets

Hi, good morning guys.

Jacques Esculier

Good morning Jeff.

Jeff Hammond - KeyBanc Capital Markets

I guess on Europe, I mean it seems like production numbers are still going up there and you raise your forecast. I guess if we go back to last cycle, they were raising, the OEs were kind of raising production late as things were maybe rolling over. I mean, what are you seeing differently in terms of those guys managing production rates and how are they, are you comfortable that we are not missing some underlying slowing?

Ulrich Michel

Well, Jeff the message in the kind of interface with our customers shows that they have orders to support the production level that they have reached today and that they want to reach by the end of the year. I don’t think anybody would hide that they would have slower level of orders that may not sustain that level of production anymore. Also as you know, this industry has been burnt pretty badly back in 2008, I think this time too it will be probably a little bit more cautious and anticipate it in case we see some dark clouds on the horizon. So overall, yes the economy still carries a lot of uncertainty, but it doesn’t seem yet to have any impact on the number of orders and the expectations from the industry to see that strong growth in Europe in 2011.

Jeff Hammond - KeyBanc Capital Markets

Okay, great. And then, I think you have mentioned on previous calls that you guys do checks and talk to your fleets. What is this, just anecdotally what are people saying about freight rates demand, used truck prices, etc., in Europe in general?

Ulrich Michel

Well, very frankly, right now we don’t see any kind of signal again coming from fleets Jeff of any slowdown or concern that would lead to them kind of revising their plans to buy or change trucks.

Jeffrey Hammond - KeyBanc Capital Markets

Okay, great. And then finally, I think part of the raise you mentioned was equity income or JV income and I have been modeling that flat to up sequentially and it seemed like 1Q to 2Q was down, but yet I think you talked about sequential improvement in that business. What’s going on there in terms of just profitability?

Ulrich Michel

The minority expense was down in Q2 as we said and this is mostly related to a joint venture we have in China that as I said, produces conventional products mostly for the Chinese market and it was also impacted by expense that occurred in Q2, which we don’t think will reoccur. So the minority expense will go up and levitate in the coming quarters, but we also think that our equity income will go up a bit higher again.

Jeffrey Hammond - KeyBanc Capital Markets

Okay. Was there anything behind the sequential drop in JV income, 2Q versus 1Q?

Ulrich Michel

No, not really. I mean, there is nothing dramatic, no.

Jeffrey Hammond - KeyBanc Capital Markets

Okay. And then just a last question on Europe. What are you hearing in terms of seasonal shutdowns? Are they normal? Are they less than normal? Just a little more color there.

Ulrich Michel

Well, they are actually normal except for a couple of manufacturers that I think have shortened the shutdown by a couple of weeks, otherwise, business as usual.

Jeffrey Hammond - KeyBanc Capital Markets

Thanks guys.

Ulrich Michel

Okay. Thanks Jeff.

Operator

Our next question comes from Robert Kosowsky with Sidoti & Company.

Robert Kosowsky - Sidoti & Company

Hi. Good morning guys. Hope you are doing well?

Ulrich Michel

Hey Bob. Great, thank you.

Robert Kosowsky - Sidoti & Company

I was just wondering kind of I guess longer terms say like, the economy continues to do okay, I guess that’s some of the weakness we see in Italy and Spain. Do you see any reason that reaching the previous peak might be difficult to attain just because of those big kind of truck markets not really being as strong as they once were?

Ulrich Michel

Well Bob, to tell you the truth again, we are 25% down from that peak. Obviously, the southern part of Europe is still lagging a lot on this past recovery. I don’t make any assumption yet as to whether or not we would reach that peak and when we would reach it if we reach it; I think it is too far down the road. There is 25% still of activities of GAAP between the last peak and now. Again, let’s not forget that quite a few of those trucks that are built in Western Europe go to international kind of customers. If you think about it, you think we are just about 500,000 trucks in Europe this year, 125 of those are kind of exported outside of the European Union mostly to Russia and the Middle East and actually right now you see an enormous amount of growth probably there. I mean, year-over-year that number of 125 is growing 23% and I think we could see some continuous growth there, again generated by demand in Russia and in the Middle East. So, that’s what I would kind of say at this point.

Robert Kosowsky - Sidoti & Company

Okay. And then, you have done a great job on the supply chain. Have you noticed any problems in electronic sourcing, whether it be Japan or maybe even North America given that North America is snapping back. Hard to get some components that might come from North America, just kind of your thoughts on just the sourcing and your suppliers?

Ulrich Michel

Well Bob, we have been under these heavy constraints since early 2010 actually and suffered from this significantly, I think we have shared that with you quarter-after-quarter for the last year and a half. We still have major constraints particularly as you mentioned from products and technologies coming from the high-tech world, the electronics components, and electronic boards and what not. Japan, as we said, we were able to rapidly kind of mitigate the concern that we had after the disaster; they were I think about 10 or less than 10 part numbers that we are able to relocate rapidly, so this is not an issue for us anymore. And I don’t hear anything coming from the U.S., anything particularly more constraining than what we have seen before.

Now, we have seen some improvement in Q2 versus Q1 that translates up into a little drop in freight costs, but again I would say that the supply chain is still fairly stretched right now across the world and the across the industry.

Robert Kosowsky - Sidoti & Company

Okay, but it is consistent with what you have been saying for the past few quarters too, it sounds like it.

Ulrich Michel

Absolutely, absolutely.

Robert Kosowsky - Sidoti & Company

Okay. And then, as far as your repurchase strategy, it is something where you are going to buy back stock until maybe you see a good acquisition and then you might suspend the pace of doing that if you need the cash to basically do the deal, is that kind of the right way to look at it?

Ulrich Michel

Well Bob, I mean it depends on the size of the acquisition that we would be kind of deciding to pursue. I mean, we had the flexibility obviously to kind of time the $40 million of repurchase in an appropriate way. Right now, obviously we are at the nominal rate of buyback to kind of cover those $400 million in the coming two years. If, obviously, depending on the size, we target, it comes up on our radar screen. Again, we will review whether it will impact our strategy really to buyback or not.

Robert Kosowsky - Sidoti & Company

Okay, thank you very much and good luck with the back half of the year guys, you are doing a good job.

Ulrich Michel

Okay, thanks Bob.

Operator

Our next question comes from Ted Wheeler with Buckingham Research.

Ted Wheeler - Buckingham Research

Hi, good morning everyone.

Ulrich Michel

Good morning Ted, how are you?

Ted Wheeler - Buckingham Research

Well, I guess it is afternoon as well? On Europe just if you have the data, I am just wondering if there is a difference in the level of sales or shipments 25% below peak. What would that look like if we separated the markets heavy and medium? Is it similar or where are we relative to peak if you could separate heavy and medium?

Jacques Esculier

Well, actually right now, it seems that the mix is more favorable, because there are more heavy trucks proportionately than they used to be at the peak of 2008.

Ted Wheeler - Buckingham Research

So the mix of heavy trucks in the fleet is actually higher than?

Jacques Esculier

Higher.

Ted Wheeler - Buckingham Research

Okay. And just shifting, well go ahead I am sorry.

Jacques Esculier

No, no go ahead please.

Ted Wheeler - Buckingham Research

Yeah shifting, you mentioned the buyback in the progress. Should we think in terms of the buyback holding share count where it is or do you think over not exactly linear, but over some period of time that the share count drifts down with the buyback?

Jacques Esculier

No, Ted we showed on the last slide that we are assuming on our guidance a share count of $69.6 million at the end of Q2, we were slightly above $70 million. So, we assume that the buyback will have to bring it down. In this $69.6 million we have modeled an increase of our share price in the close of the year closer to what you guys think in consensus and us buying about $50 million back in each of the next two quarters. And of course, these buybacks do not have as much weight on this year’s share count as they will have on next years’.

Ted Wheeler - Buckingham Research

Right.

Jacques Esculier

But then, on the other hand, we will not or I do not know what our share price will be and that of course has an impact on the diluted shares. I do not know how many people will exercise their options and that will have an impact on or diluted shares, but we do of course include the buyback as a favorable impact on our share count, yes.

Ted Wheeler - Buckingham Research

I am disappointed to hear you are relying on my price expectations?

Jacques Esculier

Well, I am not relying.

Ted Wheeler - Buckingham Research

You are not very good at this.

Jacques Esculier

That determines for helping, I think it is conservative way if the price does not go up, our $50 million we will buy back more shares of course.

Ted Wheeler - Buckingham Research

Yes, of course. Thank you. Good quarter.

Jacques Esculier

Thank you.

Operator

(Operator Instructions). I am showing no further questions in the queue. I would now like to turn it back over to Jacques Esculier for any closing remarks.

Jacques Esculier

Okay, very good. Thank you for attending our call this quarter and looking forward to another good quarter to report in three months. Thanks and have a good day.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may all disconnect. Everyone have a great day.

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Source: WABCO Holdings CEO Discusses Q2 2011 Results - Earnings Call Transcript
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