Accuride Corporation's CEO Discusses Q1 2014 Results - Earnings Call Transcript

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Accuride Corporation (NYSE:ACW) Q1 2014 Earnings Conference Call April 28, 2014 10:00 AM ET

Executives

Richard F. Dauch - President and CEO

Gregory A. Risch - SVP and CFO Corporate Officer

Analysts

Jimmy Baker - B. Riley Caris

Kirk Ludtke - CRT Capital Group

Joel Tiss - BMO Capital Markets

Operator

Good morning. Welcome to the First Quarter 2014 Accuride Corporation Earnings Conference Call. My name is Brandon and I'll be your operator for today. 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 it over to Mr. Greg Risch. Greg, you may begin.

Gregory A. Risch

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

Please turn to Slide 3. During today's call, Rick will provide an update regarding activities within the company, including the conditions in our industry and within our businesses. I'll then review our first quarter and our outlook on 2014 prior to opening up the line for questions.

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

Richard F. Dauch

Good morning, everyone, and thanks for joining our call this morning. Today, Greg and I will walk you through the first quarter results and our outlook for the balance of the year. Let me begin by saying how pleased we are with our results for the quarter and the positive momentum we are achieving as a company. We demonstrated improvement across all of our business units from the previous year. Everyone at Accuride has worked hard to implement our fix and grow strategy over the last several years and now we're starting to see the tangible results of those efforts.

Please turn to Slide #4. We'll start with a quick overview of Accuride's achievements in the first quarter, beginning with our improved financial performance for our continuing operations. We had a net loss of $0.07 per share in the first quarter of '14 as compared to a net loss of $0.31 per share in first quarter of 2013. Our adjusted EBITDA was a healthy $18 million compared to $8.2 million in the prior year. EBITDA margin also increased to 10.8% of revenue, more than double of what we achieved in last year's first quarter.

Liquidity remains strong at 62.9 million. That's essentially flat from Q4 of 2013 despite the payment of our semiannual bond obligation in February of about $15 million and the seasonal reinvestment of working capital from the typical year-end low end of '13. The North American commercial vehicle industry is gaining strength with net orders and backlogs increasing our year-over-year basis that seem to change almost on a weekly basis actually. We're also experiencing some positive momentum of our own with revenue this year.

Class 8 net orders have been north of 225,000 units each month since last October. The trailing three-month annual order rate is 382,000 units and the trailing six-month annual order rate is 354,000 units. Due to the increase in net orders, the backlog has increased to its highest levels since early 2012. And this is translating into higher OEM production levels in the second quarter and into the early third quarter so far.

Gunite has made tremendous progress in its operational performance and is now well positioned to compete for and win incremental new business. That's a significant milestone considering how far the business had to come in the three short years. Gunite today is a dependable supplier capable of cost effectively producing quality products and delivering them on time to customers at metrics at or approaching world-class levels.

Turning to Wheels, we continue to receive positive fleet customer response, the value proposition of our new Steel Armor Coating technology that's now standard on our steel wheels. We are confident that new technology innovation such as Steel Armor will allow us to regain some of our lost share in the steel wheel segment over the next couple of years.

All of our operations are stabilized and ready to handle the upturn in the industry. Margins have improved at every business unit. Despite only $4 million of additional revenue year-over-year, margins improved by over 100% on a consolidated basis thanks to the improvement at each of our business units. Due to our operational investments and adoption of LEAN manufacturing systems and techniques, we're seeing continued improvement in all of our operating metrics including safety, quality, lead time, on-time delivery and days on hand inventory.

Last quarter we discussed some of the one-time transition issues we had related to moving our distribution centers to Batavia, Illinois. These issues are now behind us and performance has greatly improved. We have minimized our quality issues and had zero past dues to our customers either internally or externally and that's a first during my tenure at Accuride. The implementation of our PLEX, ERP and scheduling systems remain on track. PLEX is now fully operational at our Henderson plant and we launch at our Canada facility on May 1 and targeting Erie facility in July.

Our immediate challenges are related mostly to demand. As many of you know and experienced, this winter was a tough one and that appears to have delayed the normal spring selling season for our Gunite products. We still expect to see an increase in aftermarket volume as we go into second quarter, but we had expected to see a larger increase late in the first quarter. What we have heard from customers is that things are delayed by about 30 to 60 days. Lastly, we continue to see flat demand out of our Brillion business and still don't expect to see a full recovery of its core industrial markets until 2015.

Let's turn to Slide 5. Key economic indicators for the commercial vehicle industry are strong and continue to strengthen. The manufacturing sector remains solid which was positive for freight. Fleet utilization and freight rates across the country remain high and continue to increase. The aging of equipment fleets purchased in 2005 and '06 well over 700,000 Class 8 trucks back in those days is driving some of the replacement trend we're seeing. Despite the tough winter, housing starts continue to recover which should benefit the medium-duty truck market and some of Brillion's end markets. However, demand for heavy machinery in North America is expected to remain flat this year before improving in 2015.

We're also seeing increasing commentary about two things. One, the need to repair badly damaged roads across the upper Midwest and New England. I saw in the paper last week Ohio has a record capital investment in the roads this year and Illinois is considered another major investment as well. Also, the investment in worn-out infrastructure across the country, specifically bridges and federal highways at the national level, is ongoing debate up into Congress. All of those comments should drive more trucks over the next few years.

Let's turn to Slide 6. Expectations for 2014 Class 8 production has improved since the last quarter. Both forecasting groups have boosted production expectations to north of 285,000 units. I think FTR just adjusted them up again to 292 on Friday. The current order trend and recent announcements by our customers indicate that we should be above the high end of our current guidance range in terms of Class 8 truck build this year. However, as you can see by this chart, we were surprised and disappointed a couple of times back in 2012 and '13 by a significant drop off in truck build. So we're going to wait until we have more data before changing our guidance for the full year.

Slide 7. As we discussed in our last call, Accuride is increasingly focused on the grow portions of our fix and grow strategy now that our investments to fix our operations are now substantially complete. We still have a few fixes to complete. We did successfully launch our new Steel Armor Coating technology in January and are seeing significant interest for fleets. We will continue to update you on this progress. We have begun negotiation in our Erie plant for their collective bargaining agreement that expires later this year. We're on track to work that out in the next 30 to 60 days.

With our distribution center now running well, our focus at Gunite remains on reducing costs, specifically in the areas of overhead and at some areas of labor. Much like Erie we are focusing on the start of labor negotiation at Gunite as well with the current CBA expiring in November at Rockford this year. At Brillion, we are driving actions to lower our operating costs since its end markets aren't expected to return until 2015. Some of these improvements may include the minor capital projects that will have good returns and replace outdated equipment that could be anywhere from 30 to 40 years old.

As previously stated, we are also continuing to selectively reduce SG&A and other overhead costs to improve our profitability without jeopardizing our ERP projects or our sales growth initiatives. The launches for new ERP and scheduling systems remain on track without any disruptions to our business. The launch at our Canada aluminum wheel facility is up next on May 1 this week. We're ready to go on that as well. We remain focused on improving our working capital metrics which improved again in the first quarter. On the CapEx side we're continuing to look for high return projects while operating at a more normal capital investment levels.

We're energized by our greatly improved operation performance and have turned our focus now to energizing the grow portion of our plan. We have defined very clear targets and metrics to our sales organization with associated plans to achieve those goals and metrics. We are also in the process of reviewing CRM systems. We'll select one of them and implement it later on this year to boost our effectiveness and communicating opportunities back to the organization. We are also improving our marketing efforts to let customers know that we are fixed and ready for new business. We're not the same old Gunite and Accuride of the past.

In the Wheels business unit, we are looking to capitalize on industry upturn and regain some lost share at specific OEMs and at both trucks and trailer OEMs, as we say. At Gunite we are looking at addressing our product portfolios to help improve our share in the aftermarket and a specific fleet. We have a few gaps to fill in the product portfolio and we have those under development right now. Brillion's customers have begun asking for castings that fully machined, heat treated and/or painted. So we are looking for opportunities to partner with other suppliers to provide fully integrated products out of our open floor space up at Brillion.

Last point, we continue to explore opportunities to grow the business internationally as our OEM customers asked plus the support into global markets. We still have 1 million per year idle heavy-duty steel truck wheel capacity (indiscernible) that we have the opportunity to redeploy if we find the right customers with the right investment strategy.

I'd like to now turn it over to Greg Risch, our CFO.

Gregory A. Risch

Thanks, Rick. Please turn to Slide 9 which summarizes our Q1 results. Before I get started, I want to remind everybody that due to the sale of the Imperial business during Q3 2013, the financial results for Imperial are represented as continued operations as are the other segments that we have divested.

Okay, let's look at Q1. Sales for continuing operations of 166.8 million were $3.8 million or 2.3% higher than Q1 of 2013 sales of 163 million. Certainly the truck and trailer OEM production rates are improving, yet the aftermarket segment for both Wheels and Gunite along with the industrial and agricultural markets that we serve with Brillion remains slightly weaker than expected.

The messy winter conditions certainly have played a factor but we're hoping for some more sunshine going forward. Our operating income of $6.6 million this period shows a significantly favorable comparison to the $4.8 million loss we experienced last year in Q1. For each of our businesses, we saw improvement in our earnings power year-over-year. We'll look at the businesses in a moment.

For our continuing operations we had a net loss of $3.3 million which is an improvement over last year's loss of $14.8 million. For Q1 2014 we had adjusted EBITDA of $18 million or 10.8% as Rick alluded to. That's nearly $10 million better than Q1 of 2013 with only $4 million more revenue to help. The fix that we speak of is certainly working.

Let's move to Slide 10. Slide 10 shows the correlation of our revenue and earnings for Q1 of the current and previous two years for our continuing operations from top half of the slide with the breakout of certain segment information on the bottom half. On the top half of the page, I would point out again that while revenue was only slightly up, our earnings increased significantly. Our team Accuride is executing and I appreciate the dedication of our associates over a challenging couple of years.

On the bottom part of the page, we have our full year 2013 revenue segmentation for our three businesses, our customer base and the markets that we serve. The far left pie chart shows that Wheels is our largest revenue segment at 57%, Gunite at 26% and Brillion at 17%. Those percentages didn't change much in Q1 of this year. The middle graph shows that the truck OEMs including their service locations represents roughly 44% of our sales. The market graph on the far right shows that the commercial vehicle market and the associated aftermarket in North America driving nearly 80% of our revenues.

Next slide please. Slide 11 shows the trends for our Wheels and Gunite businesses. Again, Wheels is our largest segment and represented roughly 55% of the consolidated revenues with sales of $92.2 million in the quarter. While truck OEM production was improved year-over-year, we did incur $1.9 million of reduced pricing and also experienced reduced demand in the light vehicle and military segments. Despite the flat sales overall, adjusted EBITDA improved to $19.2 million, an increase of $3.2 million over last year.

Gunite continues to show improved revenue and earnings year-over-year, despite the tough winter conditions in Q1 this year. Gunite sales of $44 million were up from last year's revenue of just over 39 million. Gunite also realized significant improvement in earnings. Adjusted EBITDA of $4.3 million was almost 10% compared to a slightly negative margin last year.

To find a quarter that beats this one, I have to reach back to 2007 which has 35% more revenue prior to the severe downturn in our industry, but I appreciate the hard work and dedication by the team. Our earnings this quarter signaled that Gunite is on track to be a double-digit adjusted EBITDA business as previously disclosed.

Next slide. Slide 12 shows the Brillion's revenue of 30.6 million for Q1 this year matched last year almost exactly. However, the team brought in improvement in earnings despite the tougher operating conditions during a brutal Wisconsin winter. Brillion's adjusted EBITDA of $2.4 million this period increased by 700,000 from last year. Operationally, Brillion remains focused on improving costs while fighting to gain more revenue to put across their more and capable assets.

Next slide. The top two graphs from Slide 13 break out the three components of our trade working capital; trade accounts receivable, inventory and accounts payable. We saw slight improvement in components of our trade working capital as a percentage of sales compared to the first quarter of last year as shown on the graph on the lower half of the slide. While I still expect receivables to track sales fairly consistently, our improvements on inventory and accounts payable management are key. Overall, our trade working capital has improved percentage wise year-over-year decreasing to 8.4% of annualized sales this quarter compared to 9% in the first quarter of 2013.

Next slide please. Slide 14 shows our free cash flow usage for the quarter of 23 million which is an improvement over last year's use of $35.2 million. Quarter one is traditionally a use of cash due to seasonal increases in trade working capital, specifically receivables, and this one was no different. Noteworthy on this slide is the reduced outflow of CapEx now that the heavy lifting of our larger projects completes. Also, this slide does not include proceeds this period for the $1.2 million and the sale of our Elkhart, Indiana in February of 2014.

Please turn to Slide 15. This slide shows that liquidity has been steady for the last five quarters. This quarter's liquidity of nearly $63 million was slightly better than expected. We continue to manage our CapEx and working capital and explore sales of idle assets such as Elkhart to maintain and improve our liquidity.

Let's turn to Slide 17 to discuss our 2014 outlook. Shown on this slide is the same outlook we provided about 60 days ago. With the operating performance that we saw in the first quarter and the improving industry conditions, I expect they will be at the top end of our earnings guidance range seen on this slide. Considering the build ranges listed here, our 2014 net sales should be at the top end of the $650 million to $685 million range and adjusted EBITDA at the high end of the $60 million to $70 million range for the year. If industry conditions continue to improve, we expect to revisit our guidance when we announce earnings for the second quarter as Rick mentioned.

Now I'll turn the call back over to Rick to summarize prior to taking your questions.

Richard F. Dauch

In closing let me say that we are well poised at Wheels and Gunite to regain share and profitably capitalize on the industry recovery in 2014 through '16. We will continue to remain focused on profitable growth opportunities. Brillion's core markets are not expected to recover until 2015, so we need to continue to target new customers while continuing to improve our profitability on flat or lower revenues. We've already demonstrated we can do that.

We will increasingly invest in and emphasize new product technology innovation as a way to improve our competitive position in the marketplace. And finally, the implementation of our PLEX, ERP system is successfully underway and on track and that remains a clear focus of the company as we go forward and get this job done on that area in '14 and '15.

That concludes our presentation. I'd now like to open it up for your questions. Operator, please go ahead and provide the instructions for the Q&A.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). From B. Riley & Company, we have Jimmy Baker on line. Please go ahead.

Jimmy Baker - B. Riley Caris

Hi. Good morning, guys. Congratulations on the progress.

Richard F. Dauch

Thanks, Jimmy.

Jimmy Baker - B. Riley Caris

So as we bridge the year-over-year uptick in heavy-duty production versus the decline in your wheel sales, I understand the OEM heavy-duty market share headwind, but can you just speak to what's going on in the light-duty Wheels business and maybe just remind us how significant that is as a percent of segment sales?

Gregory A. Risch

Yes, it's barely small, Jimmy, roughly around $25 million a year and it does fluctuate. But that was down a bit year-over-year by about $40 million in the quarter. So to you point that's exactly right outside – that doesn't have anything to do with the Class 8 or 5 through 7 range, so outside of that.

Jimmy Baker - B. Riley Caris

Okay. And then maybe you can just speak to your ability to capture upside to your production assumptions given your excess capacity? What incremental margins would you expect from Wheels and Gunite? And I apologize for missing this, but could you just please repeat the comment about double-digit EBITDA margins at Gunite, what period were you speaking to there?

Gregory A. Risch

Well, I think if you remember, Jimmy, when we hosted everyone at Rockford a couple of years ago, what we were targeting was a 10% to 12% ongoing business for Gunite. So it wasn't really quarterly as much as kind of on a full quarter basis. So to hit that in the first quarter to be right at 10% is online with what we're thinking. In regards to incremental margins, if we're able to capitalize and get more revenue, I think as normally expected, we'll be somewhere in the 25% range, 25% to 30% for Wheels and in the 20% to 25% for Gunite.

Jimmy Baker - B. Riley Caris

Okay, great. I know you characterized that Brillion demand is weak, but I mean in Q1 that segment's revenue was at least higher than we've seen in the past five or six quarters. Can you just, I guess, speak to what drove the relative strength there may be on a sequential basis? And then also on Brillion, if we look at the full year guidance for flat for the year, it would imply some expectation for sequential deterioration from here. Is that something you're seeing or expecting or just kind of being conservative given the lack of visibility in that business?

Richard F. Dauch

Certainly there's probably a better conservatism in there just because we're not hearing very significant movement from our customer base, I would say sequentially it's a little bit of couple of things. I would say primarily it's just a little bit of seasonal effect from production schedules when you come out of holiday periods. So, I don't think I would look too much into that. It seems fairly stable for us as far as like a daily production.

Jimmy Baker - B. Riley Caris

Okay, great. And a last one for me. Let's just assume that you do track towards the high end of the guide or maybe even higher, would you expect to refi the senior notes in the back half and maybe you can just speak to a target leverage ratio and if you'd be interested in raising equity to help you delever the balance sheet?

Gregory A. Risch

That was a lot of questions back there, that's good. So, if I can break it down, Jimmy, I think what is important is the leverage ratio. I think it's important that our LTM is improving. As I said, we moved from roughly $8 million of EBITDA in Q1 last year to $18 million this year. So, increasingly the LTM by $10 million is certainly important but we still have some room to grow. We got to move forward. So I would expect that we should be showing a couple of quarters. I think the investors or those on the debit side would like to see a couple of quarters of stability and continue to see our leverage go down. It seems that raising equity would be nice. It may be a little premature to discuss exactly what's possible yet, but I think if we continue to execute on our side, we'll put ourselves into position once that call date on August 1 comes in and we should be in better position. But I wouldn't expect necessarily that we're ready to have something soon.

Richard F. Dauch

Jimmy, let me comment a few things. We worked really hard the last three years and put ourselves in a position that when the upturn came that we could execute, right, and drive higher level revenues to the bottom line. If you remember back in '11, '12 when the revenues came unexpectedly and we were building almost 300,000 Class 8 truck run rate, we were struggling to do so. Our contribution margins on higher aluminum sales was zero because we were running seven days a week. At Gunite it was negative contribution with higher sales because we were running seven days a week plus overtime, plus outside premium processes, right. We got the company positioned today to handle quite easily the volumes that we are seeing right now. We are not running on seven day a week, we're running like four and a half, five and a half days a week right now. So I only think we can get better as sales can continue on, whether that's the market increasing and then we go back and re-earn share as we earn back customers' confidence and then we need to execute that. When we do that, we'll put Greg and Todd in a position to go out and refinance the debt at the appropriate time and appropriate costs, okay. So once again I tell our guys jobs not done. Fix the ERP system, implement that, hit the right capital structure in this company going forward in the next 12 to 18 months and then we should pretty much open our doors and become a bigger, stronger company globally. Did that help?

Jimmy Baker - B. Riley Caris

Yes, got it. Thanks a lot Rick. Thanks Greg. Good luck, guys.

Richard F. Dauch

Thanks for your questions.

Operator

From CRT Capital we have Kirk Ludtke on line. Please go ahead.

Kirk Ludtke - CRT Capital Group

Good morning, guys.

Richard F. Dauch

Morning, Kirk.

Gregory A. Risch

Hi, Kirk.

Kirk Ludtke - CRT Capital Group

Congratulations on the quarter. I guess with respect to just a follow-up on the market share questions, on the steel side where there really wasn't any type of operating issues, it looks like the share is slipping. I'm just curious if you can expand on – regaining that share really isn't a function of I wouldn't think regaining your customers' confidence. I would think that's maybe more other types of things as the market recovers and I remember one of the – the supply chain in this industry has always been local or at least in North America because the build tends to be lumpy and so you're customers wanted to keep a shorter supply chain. Can you talk a little bit about that and is that part of your calculus in terms of rebuilding share or how do you rebuild share in Wheels?

Richard F. Dauch

Okay, a couple of things. Remember that we're not – there's a couple of things going on in the market, right. There's also some market share changes going on amongst the top OEMs. You guys know that. You can read the numbers over the last four or five years. We have a stronger position with some OEMs and we have a weaker position. So we are trying to position ourselves to gain share where we're not very well penetrated, specifically at PACCAR and Volvo and we need to hope that our friends at Navistar continue to regain some share out there, okay. I think we're well positioned at Daimler. Trailer side we've gone out, we've won a little bit of business on some trailer guys that we haven't been active for, so you'll start seeing some of that revenue in the back half of the year this year. Our numbers also reflect pretty steep drop-offs in our military wheel business. We don't break it out but that's a nice business for us typically and it's down. That's true of most of the suppliers of the defense industry right now, right. And as Greg said, the light truck volumes down a little bit. I think we introduced to the market late fourth quarter Steel Armor. We launched the process equipment at both Mexico and Henderson over the Christmas shutdown, January 6 specifically. We've powered our sales guys who are out there talking to fleets and I think you'll start seeing some higher share of the fleet as they're starting to specify Steel Armor at OEMs even where we're not the standard steel wheel manufacturer. So we think we're well positioned of where we are in steel. There is Chinese imports still in the aftermarket. We see continued price challenges there. We'll go back and if we need to revisit our antidumping claims sometime later this year or early next year because we do think there is some unfair trade prices going on in the aftermarket specifically. So nothing to talk about really today but we're monitoring it very closely.

Kirk Ludtke - CRT Capital Group

Got it, that's helpful. Thank you. Your guidance, what have you assumed in terms of your market share and your customer market share in your guidance? It doesn't look like there is much recovery?

Gregory A. Risch

Yes. Right now we're just looking at a stable outlook. Not much of how much change we're making.

Kirk Ludtke - CRT Capital Group

Okay. And pricing, is it stable? Is that also assumed to be stable?

Gregory A. Risch

Yes, that's fair, Kirk.

Kirk Ludtke - CRT Capital Group

Okay. And you mentioned Steel Armor increases the wheel life by two years. Can you give us a sense for what the average life is with and without Steel Armor?

Richard F. Dauch

It depends what the conditions are. Did you ask the question what the typical life is?

Kirk Ludtke - CRT Capital Group

Yes.

Richard F. Dauch

What I've been told since I've been here it depends what region you are in the country, right. If you're up in the Northeast or the Midwest or Great Plains where they've got a lot of salt, it tears the wheels up. If you're along on some of the coasts where you got the salty air, it tears them up as well. We think a typical steel wheel gets replaced on a truck or taken off and refurbished about every two and a half to three years. So this will extend it by about two years. Some of the big fleets, Kirk, are selling their trucks within four years, right, so they may not have changed and repaint the wheels at all. That's about $35 per wheel, so that's $300 per truck about every four years. I think we said one time we had one fleet tell us in the Northeast region alone they spent $3.5 million a year in refurbishing steel wheels. That could be cost elimination with MSA go to Steel Armor, right. Will they go for it across the entire fleet, across the whole country? Maybe not, but they may specify all trucks in that region or trailers in that region to go to Steel Armor. They may not need it in Phoenix or New Mexico, Texas, where the weather doesn't get so bad, right. We're going to monitor this pretty closely and we'll give you some updates as we go quarter-by-quarter to see how we do.

Kirk Ludtke - CRT Capital Group

Okay, great. But it's going to…

Richard F. Dauch

We talk about being customer centric, listen to our customers. Back in 2011 we went out and talked to the fleets. Two things they said to us. One, you've got some product apps against our friends at Alcoa on the aluminum side, we're addressing those. And two, if you could find a way to have us stop refurbishing all these steel wheels out there, it's a real pain in the butt for us. Break down the tire, take away the steel wheel, send it out somewhere to get it sandblasted, repaint it. As we look at our warranty data over the years which is very small, most of that warranty comes back on refurbished wheels where someone didn't paint it properly, wrong mill thickness which causes torque issues and then you get into a cracked wheel, right. So we've done a lot of homework in the last three years to put this technology in place.

Kirk Ludtke - CRT Capital Group

Got it. Thank you. And then two other quick topics. One is you got corporate down to 7.7 million this quarter. Is there a target level that you're willing to share with us?

Gregory A. Risch

No, that would be the short answer. I think directionally what you see is progress and as Rick alluded to earlier, we'll continue to refine as appropriate for our size business. So, certainly with PLEX we'll help in regards to being more efficient. So we'll look forward to improvements coming that way and efficiencies.

Richard F. Dauch

Yes, Kirk, I shouldn't have submitted so quick, but we're not going to share out targets but we are monitoring a pretty clear direction, right. I've seen companies that slash their SG&A which includes R&D and some other key processes there ends up costing you money in the long-term, right. So you can reduce people but what skills they're doing, right. So we're more focused on do we have the right people and the right skill sets in the right position to run a world-class company that's able to grow, right. So we can improve numbers by cutting a little more SG&A but will that really be the right thing for us to position us for growth down the road. And we've covered the auto industry for a long time. We just have an old saying when I was with American Axel. We see a lot of companies save their way into bankruptcy by slashing SG&A and R&D and capital, they get themselves in trouble three or four years to make sure short-term numbers. We're not a short-term number company here and I've got clear direction from the Board of Directors to fix the company, put it in position to be a winner long term in up and down cycles. So we're starting to show that progress.

Kirk Ludtke - CRT Capital Group

Got it. And then lastly, given that Gunite is getting pretty close to its EBITDA margin targets, should we assume that there's not a lot of wood to chop at Rockford in the CBA…?

Richard F. Dauch

First of all, I'd say the agreements we had were pretty competitive. We don't have – except Brillion which we addressed last year, there's a few things we do address with our workforce up at Rockford but they're not [barnburner] (ph) issues like I had in the past with other companies, right. We got a good workforce. I would actually credit the workforce at Rockford for holding the operations together over a five or ten-year period when there was little or no capital investment out there. So we got some really dedicated people in Rockford who like the business, who enjoy their jobs and I'm sure we'll find that resolution, so anything we want to take care of, right.

Kirk Ludtke - CRT Capital Group

Good. Okay, so we shouldn't view that negotiation as a particularly tough one?

Richard F. Dauch

Every negotiation is tricky. You never know, right, so we're going to do it – we have a good plan. We have good relationship with the union both at Erie and Rockford. We share the information with them. They're smart businessmen as well. And so they understand what we need to do together to be more competitive and regain some share.

Kirk Ludtke - CRT Capital Group

Great. Thank you very much.

Richard F. Dauch

Thanks, Kirk.

Operator

From BMO, we have Joel Tiss on line. Please go ahead.

Joel Tiss - BMO Capital Markets

Hi, guys. How you doing?

Richard F. Dauch

Good, fine.

Joel Tiss - BMO Capital Markets

Beautiful quarter. I wasn't thinking of this, but just as long as it was brought up, is there any way for you to monitor the age of the wheels out there in the field and kind of proactively call on your customers and fix those wheels to make sure they maximize their safety?

Richard F. Dauch

I don't know if there's an easy way to do it. When we go out to the field, we see lots of different mixtures or parts, some are some of the old Hayes Lemmerz wheels. We're seeing – sometimes we'll see failed Chinese wheels out there in the field. So there's not a easy way to do it, but we're looking hard to see what we can do to continue to drive down fleet operating costs by being better suppliers or either products or services and that helps them, that means better business for us, right.

Joel Tiss - BMO Capital Markets

Okay. And then my main question was just if you guys could help us a little bit with the flow of business. I've been hearing out in the marketplace that there had been some orders placed in 2014 that are more kind of for 2015 delivery and there's a lot of sort of skepticism that the current run rate in the orders is unsustainable. We should have kind of a little more accentuated seasonal slowdown in the summer. So I just wondered if you could give us a little color and kind of help us think about – and I'm not asking for your companies guidance, just sort of industry, what are you hearing from the customers for the next two years or so?

Richard F. Dauch

Yes, that's a good question. We aren't hearing that at all, right. Where we were at MATS, we met with most of the big truck OEs to talk about their schedules. So the primary question I got from the truck OEs is, do you have any capacity issues in place that are going to jeopardize us building trucks in the second, third and fourth quarter? And I can honestly look them in the eyes and say, for the first time since I've been here, no, we do not. But that tells me they may have other suppliers that may have some issues, right. We'll see. That's what we're monitoring right now. That's why we were a little conservative, I think, and not changing our guidance. We want to see how things play out here in the next 90 days not just on the customers' standpoint but can suppliers keep up. If you remember in 2011, '12 and way back in '05 and '06, some suppliers just couldn't keep up, right. So we're going to test the system here in the next 90 or 180 days to see which suppliers have invested to run it 300,000 truck build rates and 225,000 Class 5 through 7 which we haven't seen 10 years ago probably; trailers at 240 or 250, so we'll see. We already had one call last week from a casting supplier who has a challenge right now if they can offload some castings because they're sold out with the automotive pace right now. Okay, that's an opportunity for us to pick up some business, right. We don't know if we'll take it but we're not that far away from capacity issues again and other suppliers, I think.

Joel Tiss - BMO Capital Markets

Wow. And the characterization that I've heard that some of the orders that have been placed in the early part of 2014 are really more for 2015 delivery? That sounds like an exaggeration?

Richard F. Dauch

I have not heard that. I heard that the second quarter is just about filled. We're already into a good portion of third quarter right now, so that's not what we're hearing from our customers either at the fleet level or the OE level.

Joel Tiss - BMO Capital Markets

Great. All right. Thank you so much. I appreciate your time.

Richard F. Dauch

Thanks, Joel.

Operator

Thank you. We will now turn it back to Rick Dauch for final remarks.

Richard F. Dauch

If there's no more questions, we appreciate your interest and support of Accuride. We will continue to update you as the business progresses and we'll see you on the road somewhere at one of our conferences. Have a good day.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Additional playback will be available at 11:30 a.m. Central Time by calling (888) 843-7419 and entering a security code of 37084551. Once again, this concludes today's call Thank you for joining. You may now disconnect.

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