Double-digit growth rates in Europe, China and South America have contributed to record quarterly sales of $595.5 million for WABCO Holdings Inc. This represents an increase in sales of 10 percent over the past year, even though comercial vehicle production in North America has declined due to the introduction of new emission regulations.
The company reported a net loss of $0.3 million for the quarter on a U.S. GAAP reported basis, versus U.S. GAAP net income of $38.1 million in the third-quarter of 2006. The decrease resulted from costs associated with the separation from American Standard Companies Inc. and lower equity income from the company's joint ventures in India and North America. Separation costs included one-time tax charges of $38 million and $6.2 million of other separation-related charges. On a performance basis, excluding separation costs, operational streamlining expenses and one-time and discrete tax items, net income increased 27.5 percent to $45.0 million, or 65 cents per diluted share, compared with $35.3 million, or 51 cents per diluted share a year ago.
"We are pleased with our strong sales performance in the quarter," says Jacques Esculier, WABCO's chief executive officer. "This was driven by our continued focus on outperforming the market in Europe and our ability to rapidly increase content per vehicle in key emerging markets. However, capacity constraints in our supply chain driven by the unexpected high level of demand prevented us from taking full advantage of the volume increase. The company was able to achieve 27.5 percent growth in net income for the third- quarter on a performance basis primarily due to its post-spinoff sustainable tax rate and the increased sales."
The company generated $46.4 million in net cash from operating activities for the third quarter and $29.4 million of free cash flow, which was negatively impacted by the timing of working capital changes. Cash in excess of third party debt, as of the spinoff date, was approximately $83 million higher than previously anticipated. During the third-quarter, the company repurchased approximately 785,000 shares for $35.6 million in open market transactions.
"We plan to utilize some of the additional cash to fund one-time tax charges relating to the separation that were incurred in the third-quarter and to repurchase shares," Esculier says. "Our continued focus on advanced management systems through the implementation of our WABCO Operating System (WOS) will help eliminate capacity constraints that currently limit our performance improvement, and should yield benefits in the quarters to come."
Esculier adds that the company expects to see continued high truck and bus production levels in Europe, in addition to further growth in demand in South America and China. Although aftermarket growth was limited to 6.7 percent by capacity constraints, the company expects these issues to be resolved by the end of the year and aftermarket growth to return to double-digit levels in 2008. The company maintains that its previous estimate of full-year net income per diluted share of $2.85 on a performance basis will remain the same, and has updated its full year net income per diluted sahre on a U.S. GAAP basis to $1.81.
During the past quarter, WABCO continued to grow its business in Asia with the nomination by China National Heavy Duty Truck Group Co. (CNHTC) as its exclusive supplier of braking system components for several platforms. In addition, DCEC, a joint venture between Cummins Inc. and the Dongfeng Motor Corporation in China, awarded WABCO the air compressor business for one of its platforms, and Russian passenger car manufacturer TagAZ which manufactures cars for Hyundai, chose WABCO as its exclusive supplier of vacuum pumps for diesel applications. Additionally, Iveco nominated WABCO to supply its hydraulic Anti-Lock Braking System (ABS) on a new SUV to be manufactured in Spain beginning in 2008.
For more information about WABCO, visit the company's Web site.