Wabash (NYSE:WNC) Reports Sales Below Analyst Estimates In Q3 Earnings, Stock Drops

Kayode Omotosho

Thu, Oct 24, 2024, 5:21 AM 6 min read

Revenue: $464 million vs analyst estimates of $477.3 million (2.8% miss)
Adjusted EPS: $0.19 vs analyst expectations of $0.23 (18.9% miss)
2024 revenue outlook reduced to $1.95B, Non-GAAP adjusted EPS outlook reduced to $1.25
EBITDA: $41.4 million vs analyst estimates of $34.53 million (19.9% beat)
Gross Margin (GAAP): 12.1%, down from 19.4% in the same quarter last year
Operating Margin: -93.3%, down from 12.3% in the same quarter last year due to a one-time legal charge
EBITDA Margin: 8.9%, down from 14.2% in the same quarter last year
Free Cash Flow Margin: 9.2%, up from 4.5% in the same quarter last year
Backlog: $1 billion at quarter end, down 47.4% year on year
Market Capitalization: $750.6 million

"During the third quarter, our GAAP EPS was $(7.53), primarily as a result of taking a $450 million non-cash charge as the result of a legal verdict, while non-GAAP adjusted EPS was $0.19," said Brent Yeagy, president and chief executive officer.

Company Overview

With its first trailer reportedly built on two sawhorses, Wabash (NYSE:WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.

Heavy Transportation Equipment

Heavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Wabash’s demand was weak over the last five years as its sales fell by 2% annually, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Wabash’s recent history shows its demand has stayed suppressed as its revenue has declined by 4.4% annually over the last two years.

Wabash also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Wabash’s backlog reached $1 billion in the latest quarter and averaged 15.2% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, Wabash missed Wall Street’s estimates and reported a rather uninspiring 26.7% year-on-year revenue decline, generating $464 million of revenue.

Looking ahead, sell-side analysts expect revenue to decline 5.9% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and indicates the market believes its products and services will see some demand headwinds.

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Operating Margin

Wabash was roughly breakeven when averaging the last five years of quarterly operating profits, inadequate for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Wabash’s annual operating margin decreased by 10.2 percentage points over the last five years. The company’s performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Wabash generated an operating profit margin of negative 93.3%, down 105.6 percentage points year on year due to a non-recurring legal charge of $450 million.

Earnings Per Share

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

Wabash’s EPS grew at an unimpressive 6.4% compounded annual growth rate over the last five years. This performance was better than its 2% annualized revenue declines but doesn’t tell us much about its day-to-day operations because its operating margin didn’t expand.

We can take a deeper look into Wabash’s earnings to better understand the drivers of its performance. A five-year view shows that Wabash has repurchased its stock, shrinking its share count by 20.3%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. For Wabash, its two-year annual EPS growth of 23.2% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, Wabash reported EPS at $0.19, down from $1.16 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Wabash’s full-year EPS of $2.29 to shrink by 38.1%.

Key Takeaways from Wabash’s Q3 Results

We were impressed by how significantly Wabash blew past analysts’ EBITDA expectations this quarter. On the other hand, its revenue unfortunately missed and its EPS fell short of Wall Street’s estimates. To add to the bad news, the company also lowered its full year revenue and EPS guidance. Overall, this quarter could have been better. The stock traded down 6.5% to $15.95 immediately following the results.

The latest quarter from Wabash’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price.What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.