Wabash National Q2 2024 Earnings Call Transcript

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Provided by Quartr
July 24, 2024

Key Takeaways

  • Despite Q2 revenue landing at the lower end of guidance, earnings per share topped expectations due to stronger margin performance.
  • Wabash is sharpening its strategic focus on parts and services and launching a digital trailers-as-a-service platform via its Wabash marketplace to drive higher-margin, resilient revenue starting in 2025.
  • The company cut its full-year 2024 outlook to a $2.0–$2.2 billion revenue range and $1.50–$1.60 EPS, citing softer customer CapEx plans.
  • With a total $1.3 billion backlog and roughly $1 billion slated to ship in the next 12 months, Wabash notes softer capital expenditure intentions for the rest of 2024.
  • Robust free cash flow generation enabled Wabash to accelerate share repurchases in Q2, reflecting management’s view that current valuations do not fully capture the company’s medium- to long-term earnings potential.
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Earnings Conference Call
Wabash National Q2 2024
00:00 / 00:00

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Operator

Thank you for standing by. I am Augusta, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wabash Q2 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you will withdraw your question, press Star one again. I would now like to turn the call over to Mr. Ryan Reed, Vice President, Corporate Development, Investor Relations. Please go ahead.

Ryan Reed
Ryan Reed
VP of Investor Relations at Wabash National Corporation

Thank you, and good morning, everyone. We appreciate you joining us on this call. With me today are Brent Yeagy, President and Chief Executive Officer, and Mike Pettit, Chief Financial Officer. Before we get started, please note that this call is being recorded. I'd also like to point out that our earnings release, slide presentation supplementing today's call, and any non-GAAP reconciliations are available at ir.onewabash.com. Please refer to slide two in our earnings deck for the company's Safe Harbor disclosure addressing forward-looking statements. I'll hand it off now to Brent.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Thanks, Ryan. Good morning, everyone, and thanks for joining us today. Beginning with the Q2 of 2024, while our quarterly revenue was at the lower end of our previous guidance range, our earnings per share surpassed our outlook on stronger margin performance. Our team has continued to execute well during this transitional year for the industry, and I'd like to commend our employees for their efforts. As we acknowledge that 2024 will be a down year for the industry, this underscores the importance of the strategic changes we have made at Wabash over the past several years. By streamlining our organization, optimizing our overall customer portfolio, solidifying our balance sheet, and narrowing our strategic focus to the transportation, logistics, and distribution markets, we have positioned the company to pursue higher margin and more resilient revenue opportunities.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Nothing speaks to this more than our strategic focus on Parts and Services and the developmental work taking place in 2024. So we are excited about our emerging capability to digitally enable Trailers as a Service through our Wabash Marketplace, which provides us the platform to provide additional value-added services to our customers. In addition, we can now connect all of our customers to our Wabash Preferred Partner Network for maintenance, with a full assortment of parts fulfilled by our Wabash Parts joint venture. With digitally linked and Wabash structured services coming together to begin scaling in 2025, Wabash is positioned to continue raising both the floor and the ceiling on financial performance.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Parts and Services is more stable than transportation equipment, and as these emerging revenues scale, they will provide a critical stabilizing force within our financial performance. But our strategic focus on parts and services ultimately ties back to the equipment side of our portfolio. Given the ongoing conditions in freight, it is worth analyzing our portfolio of first to final mile equipment to recognize that drivers of market activity do vary across verticals. On this call, we are all well aware in how demand for dry vans is certainly influenced by changes in general freight market conditions.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

However, very meaningful parts of our equipment portfolio, such as truck bodies and tank trailer businesses, are influenced by different market drivers. For example, our tank trailers are utilized by end customers for specialized hauls such as chemical or dairy, which are part of supply chains that demonstrate significantly more stability over time compared to general freight conditions.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Within our truck body business, these pieces of equipment are used for a wide range of transportation, logistics, and distribution applications, from middle mile warehouse redistribution to home delivery. This diversity means that truck body is not driven by the over-the-road freight rates, but a much broader set of demand drivers. Extensive strategic planning has gone into shaping our current equipment portfolio, and we are now reaping the benefits of this diversity and the varied factors that influence demand and profitability across our transportation solutions portfolio. Wabash is not pursuing a single market, and we should not be measured in that manner. Instead, we are developing a more resilient and diverse array of products and services to serve a dynamic range of customers from first to final mile.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

It's not about doing more of the same. It's about boldly taking the necessary steps to build a foundation of business resilience and growth. This approach will enable us to continue our trajectory of higher highs and higher lows in financial performance. Turning to market conditions, we see pockets of both strength and weakness, but on balance, I believe there's optimism about what lies ahead. Our dry van customers have had little relief from the ongoing freight recession, although the truckload market seems to be experiencing a return to normal seasonality, a positive way point on the path to recovery. That said, customers have still revised their capital expenditure plans downward for the balance of this year.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

The unfolding reality of 2024 is certainly at odds with how most thought the back half of 2024 would bring moderate improvements in both demand within the freight market as well as freight rates. While important macro indicators like industrial production have turned positive and inventory levels have moved from a state of excess to balance, it will take some time for these supporting factors to manifest in the freight markets. Also, on the macro outlook, a bit further out, I'd like to address the narrative of heavy-duty truck pre-buy potentially impacting carrier spending on trailers. While we agree that the economics underpinning the EPA's 2027 emissions mandates could temporarily boost demand for trucks above trend, we don't anticipate a significant diversion of capital from trailers to trucks.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Additionally, these EPA mandates impact certain chassis classes that receive wall-in truck bodies, and we do expect this segment to remain strong over the next few years. I'll continue to emphasize that over the long term, we remain bullish on higher trailer to tractor ratios being driven by persistent secular trends like power-only operations, driver shortages, and nearshoring. The increase in freight inefficiency is only set to grow. Many shippers are specifying higher trailer-to-tractor ratios in their RFPs, which will only amplify this impact into the future. Shifting focus to our backlog, at the close of the Q2, we had a total of $1.3 billion in orders, with $1 billion of that figure expected to be shipped in the next 12 months, and a significant portion of that earmarked for 2024.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

While our backlog indicates softer customer capital expenditure and intentions for 2024, it is also difficult to see a seasonal pullback in orders during the summer months as carriers prepare for large deal season, which traditionally occurs in the fall timeframe, as they begin to shift focus to 2025. Moving on to our financial outlook. With greater information on customers' CapEx plans, we are reducing our full year 2024 guidance to a midpoint of $2.1 billion in revenue, and a midpoint of $1.55 in EPS. As we have continued to refine our financial outlook for the year, it is important to remember that our overarching theme remains unchanged. Wabash is on track to achieve the best financial performance on record during a correction in our industry.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Finally, I'd like to touch on capital allocation priorities for both the Q2 and full year. Given the significantly positive free cash flow we anticipate generating this year, we are well positioned to confidently invest in the company's strategic growth initiatives, which we will continue to elevate Wabash's financial performance. Additionally, we've increased the pace of our share repurchases during the Q2, taking advantage of what we have viewed as a compressed valuation. We expect to continue making opportunistic repurchases as the company's long-term and even medium-term earnings potential and free cash flow generation does not seem to be fully reflected in our most recent valuation. In closing, we continue to remain agile, adjusting our operations to align with the current market reality.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

That said, Wabash is benefiting from enhanced portfolio diversity within our set of first and final mile equipment, driven by influences far beyond general freight conditions. With a significantly less cyclical parts and service business, Wabash is well positioned and focused on building for the future. To reiterate, our EPS outlook midpoint of $1.55 falls squarely in the middle of the financial performance of peak years, like 2018 and 2019, reflecting the resilience we have built within our portfolio and the structural improvements we have made to our base business. Wabash has never been better positioned to capitalize on the next period of freight expansion. We are focused on continuing our progress toward achieving outsized strategic growth that is both more resilient and more profitable. With that, I'll hand it over to Mike for his comments.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Thanks, Brent. Beginning with a review of our quarterly financial results, in the Q2, our consolidated revenue was $551 million. During the quarter, we shipped approximately 9,245 new trailers and 3,925 truck bodies. Gross margin was 16.3% of sales during the quarter, while operating margin came in at 7.9%. In the Q2, we generated adjusted EBITDA of $62 million, or 11.2% of sales. Finally, for the quarter, net income attributable to common stockholders was $29 million or $0.64 per diluted share. From a segment perspective, Transportation Solutions generated revenue of $499 million and operating income of $57 million. Parts and Services generated a revenue of $55 million and operating income of $12.1 million.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Year-to-date, operating cash was an outflow of $6 million, driven by an increase in receivables, reflecting a busier month of shipments in June relative to April and May. Regarding our balance sheet, our liquidity, which comprises both cash and available borrowings, was $381 million as of June thirtieth. We finished Q2 with a net debt leverage ratio of 1.2x. On capital allocation, during the Q2, we invested $17 million in capital projects, utilized $21.7 million to repurchase shares, and paid quarterly dividends of $3.6 million. Our capital allocation focus continues to prioritize capital expenditures above and beyond our annual maintenance CapEx spend of $20 million-$25 million in order to support our organic growth initiatives.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

We are committed to maintaining our dividend, and then we anticipate continuing to evaluate opportunities for share repurchases alongside a bolt-on M&A. In addition to the factors I just mentioned, our process for assessing our buyback opportunity takes into account the gap in valuation between our internal DCF models, driven by our three-year plan, and the current market value of the company. As Brent mentioned, we've accelerated our buyback activity in Q2 based on what we view as a compressed valuation, bringing our year-to-date share repurchase activity to roughly $37 million, or just over 1.5 million shares, which equates to a reduction of approximately 3% of the float versus the average 2023 share count. We continually run this process to assess our buyback opportunity and will continue to engage when we feel the company is significantly undervalued.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Moving on to outlook for 2024, we're reducing revenue guidance to a range of $2 billion-$2.2 billion, with a midpoint of $2.1 billion, and an EPS range of $1.50-$1.60, with a midpoint of $1.55. We continue to see Truck Body and Parts and Services as stabilizing forces within our portfolio in 2024, as market conditions remain stronger in those businesses relative to dry vans. In particular, we anticipate Parts and Services will move back into year-on-year growth territory during the second half. Thinking specifically about our Q3, our expectation is the revenue to come in between $450 million and $500 million, and for EPS to be between $0.20-$0.25.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

I'd like to mention that while we are not yet positioned to provide guidance for next year, I would caution against extrapolating our implied financial performance for the Q4 of 2024 into 2025. We expect to be able to flex our cost structure to better align with market conditions as we gain more clarity on our 2025 backlog fill as large deal season approaches. We are also expecting to see continued and accelerating growth in our higher-margin Parts and Services segment. Moving on to capital deployment expectations for 2024, we anticipate traditional capital investment to be between $75 million-$85 million in 2024 as a result of planned expenditures to support our strategic growth initiatives. We also expect to invest in CapEx that will be immediately revenue-generating through our Trailers as a Service program.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

As this investment is somewhat dependent on the evolution of the freight markets, we'll look forward to giving more specific guidance as the figure comes into focus. In conclusion, I want to emphasize that 2024 represents a significant opportunity to show the company's improved through-the-cycle financial profile, driven by the diversity of our equipment portfolio, that we're working to supplement with further parts and service exposure. We believe that the enhancement to our portfolio, along with the further improvement contemplated in our strategic plans, have not been adequately reflected in our recent valuation. We are confident that this year's share repurchase activity will prove to be savvy allocation of capital over the medium to long term.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

To expand on Brent's comparisons to 2024 with the previous peak years of 2018 and 2019, our expected 2024 EPS midpoint of $1.55 falls between the adjusted EPS of $1.44 generated in 2018 and $1.62 in 2019. Additionally, anticipated new trailer shipments in the low 30,000 range for 2024, compared to 62,000 in 2018 and 57,500 in 2019. I believe this underscores the fundamental improvements our team has achieved across the business. Though 2024 has turned out incrementally weaker than initially expected, it's important to recognize that the gap between market forecast and market reality can go both ways. Although industry forecasts for 2025 have been revised lower, we believe it's too early to make the call.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Furthermore, Wabash is well situated to generate year-over-year EPS growth across a broad range of market environments in 2025. With our confidence in continued growth next year in Trailers-as-a-Service, specifically, parts and services more broadly, and our truck body business, we view 2024 as the floor for EPS generation. I'll now turn the call back to the operator, and we'll open up to questions.

Operator

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. For our first question, Mike Shlisky with D.A. Davidson, please go ahead.

Michael Shlisky
Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.

Yes. Hi, good afternoon, and thanks for taking my questions.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Hey, man.

Michael Shlisky
Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.

Hey there. Hey, guys. So let me start off with a question about Transportation Solutions margins. And I know there were some kind of. There was a bit of a one-time benefit in the quarter, sort of from pickups that weren't made in the Q1 that got pushed to the second, so there was some good just what's coming in. You got some decent revenue without a lot of cost. Can you maybe give us some thought about the back half of the year margins in that segment? Are there any unusual movements or large orders that will be unusually profitable during the rest of the year, or do you see a more kind of normalized back half of the year for that segment?

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

So yeah, to your point, Mike, we did see a little pickup in pickups. We call that in Q1. We expected that, so it was in our guide. But I'd say in the second half, what you're gonna see, it'll be normalized, but it is going to be lower in large part because of the reduced revenue that we're guiding to. So if you look at our full year forecast and how we're projecting the full year, it would necessitate a lower transportation solutions margin in Q3, Q4. But there's no anomalies or one-offs, so I would expect it to have a normal calendarization, but it will be lower than the first half.

Michael Shlisky
Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.

Okay. And Mike, you had mentioned, for the full year, kind of a low 30s number of shipments, of trailers. I guess I just want to get a feel for the pricing. You were down a little bit in the quarter from the previous quarter. I don't think we can sort back into it, but if you give us any kind of thought as to what pricing might look like on trailers in the back half, that would be appreciated.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Yeah. We're staying prudent with pricing, Mike, but it will be down in the second half. It's not gonna come down a whole lot, but it will be down. It'll be down sequentially, and then. But it's coming from a level that we feel it's still gonna generate pretty solid profitability for the position we're at within the freight cycle. But you will see some sequential step downs in pricing from Q2 to Q3, Q4.

Michael Shlisky
Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.

Got it. You also mentioned, you know, maybe you're not ready to share numbers on, on Trailers as a Service and how that might impact numbers in 2025, but it does sound like it's it looks like gonna be a, a decent-sized number. Could you comment on, on whether the timing of launching it this year into next year is, is like really good timing? I'm kind of wondering if you see great fundamentals turn upward in any decent way if some shippers may be interested in that service as opposed to buying new, if they're not sure how things might play out the first couple of quarters, they might want to get some temporary capacity, and then maybe worry about a larger permanent order down the road.

Michael Shlisky
Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.

Do you think you'll be ready for any big upturn in the freight market with your Trailer as a Service solution? And do you think there's a role for it to play sooner rather than later in the customer landscape?

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Yeah. So we're excited about the positioning of the offering when the upturn comes. So we do believe that it could be a good place for a shipper or carrier broker to enter into the trailer space with a Trailers as a Service offering, as opposed to a full buy. So we feel really good about being ready for that upturn. We're less certain when exactly it happens, which is why we're not giving specific guidance, but we will be ready when it does happen, and we are excited to have that offering as another option for our customers, besides just the outright buy.

Michael Shlisky
Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.

Let me just squeeze in one last one, and thanks for that, Mike. Maybe I just want to ask about your feel for, I don't know, any one-time or unusual costs in the first half of the year and even in the rest of the year. You know, as you look at what decremental margins are, it's, you know, 45% at the midpoint in the new guidance. But I'm curious, you're investing in Trailers as a Service, not just the trailers, but probably some admin costs and software and things like that. You're also investing in the new parts sales channel as well, and other areas. Kind of what would be a more normalized incremental margin, do you think, if all that stuff were excluded?

Michael Shlisky
Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.

And also, what might be a good incremental margin now that you've got your cost structure figured out, when we do see an upturn in the trailer market?

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Yeah, we like to think of it as 20% as a good incremental, decremental. I think there's two things that are happening in the first half. You hit some of them, but I would say there's puts and takes on some of those costs. There were some benefits and costs. It's really lower production output, which can get you obviously some compression and some pricing we already mentioned, which is making the decremental a little higher than the 20%. But we would expect 20% to be a good incremental range as we start to grow into 2025.

Michael Shlisky
Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.

Okay. Thanks for that, for that commentary, guys. I appreciate it. I'll pass it along.

Operator

Your next question comes from Jeff Kauffman with Vertical Research.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

Thank you very much. Hey, everybody.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Yeah.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

Terrific quarter. So don't look behind, look forward, I guess, is the message we're getting. Mike, could you repeat kind of where you thought deliveries could be? I kind of missed the number. You threw it out so quick. Yeah, are you thinking kind of in the 32, 33, 34 range? Where do you think deliveries are for the year?

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Yeah. Yes, that's correct. Low 30s, somewhere in that range.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

Okay. So pretty wide margin. And, it looks like trailer ASP is down. Is it a different type of trailer that we're speccing? Is it a different mix, or, or are prices coming down?

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

There are some prices coming down, but we always see mix. You can see mix between trailer types or different trailer types, tanks versus vans, and you can also see it with long vans versus LTL specs. But there's a lot of above in that, so-

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Yeah, I think one of the, Jeff, this is Brent. I think one of the changes this year, it's just the nature of the market, is typically our, our indirect channel would be a, a stronger contributor, in, in a given year.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

Mm-hmm.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

And this market has somewhat muted that. And those can be, by the nature of the order size and the type of customer, typically higher ASPs on a spec.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

Mm-hmm

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

On a, equal spec to spec. So that's weighing us, too, on ASP, and that'll be a natural pickup once the market begins to turn, and that channel turns back on more fully.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

All right, so my thought from 10,000 feet is you got truck industry P&Ls under pressure, so people would like to build trailer pools, but maybe that's on hold right now. You got a lot of customers that are out there saying, "Okay, I got limited capital. I'm going to cut my trailers more in the short term and try and hold onto my trucks because I'm worried about EPA 2027, who knows?" So to your point, maybe not cannibalization in 2025 and 2026, but maybe in terms of the 2024 budget, you know, the orders for trailers are down 30%.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

The orders for trucks are down kind of 10-ish right now. Based on your conversations with customers, is this more kind of applying a tourniquet to 2024, and we think we go back to a more normal relationship in 2025? Or do you think that there's risk that this extends into early 2025 until truck industry P&Ls pick up? And, you know, how are your customers indicating fall order season and kind of the shape of second half of 2024 versus 2025?

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Yeah, I think there's a lot to unpack there, Jeff. I think there is some plausibility that somewhat demand is muted in 2024 to some degree on just kind of a continued leveling of what we could call it pre-buy, but we'll just call it some focus on tractors. But that is weakening. We know that by looking-

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

Yep

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

-at what's going on with tractor orders going forward. So even that is-

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

We saw that with PACCAR yesterday. Yeah.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Yeah. Exactly. So when we think about how that all, you know, multiple things are integrating into what the first half or second half of 2025 may be, I think regardless of all that, I think it's pretty safe to say that we will look at somewhat of increasing demand profiles across 2025. We are not at a stage where we can quantify, even qualitatively, really understand what that initial first half demand will be. It's too early. Conversations have started, but not enough to even sum it up and gain a conclusion at this point in time. In general-

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

I don't even think your customers know. I mean, they're busy revising budgets, you know, as we speak, so yeah.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

You nailed it. You nailed it. We're a good 60, 90 days away from having those conversations in, we'll call it, specificity, and that's why we're holding off on guidance right now. I would say, you know, we're somewhere within 5% to 10% swing, probably up, in terms of kind of what we're looking at right now. If the market just begins to basically begin to turn, it could be a little higher than that if, you know, it really catches some momentum, but I'm not calling that in any way, shape, or form right now. That would be... And that's over the course of the first half, and even that would be a climb as you start in January and you work towards the June, July timeframe. That's how I would see it right now.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

Okay. So, you know, based on where you sit, right, who knows? Who really knows what's going on? I don't even think your customers know what's going on right now. But you would expect the worst of this to be in the second half of this year, and then maybe mitigating early next year, and then getting back to a probably a more normal split or relationship of the capital pool as we get into 2025?

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Yeah, I'd say as we begin to materially get into 25, we would expect, sitting here today, that we would be back on a general upward demand curve moving into the upswing of the cycle. Yeah, that's what we see.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

Okay, and then final question. If I look at something like profit per trailer, you know, there's, there's a lot of different ways to look at that, but, you know, 2022 and 2023 were pretty good years. Would you argue we're getting back to something more normalized, but because of cost inflation, we probably level out at a higher level than we were previously, you know, even though we're, we're kind of normalizing right now?

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Yeah, I think that's a safe assumption. Even at base case, the inflation itself on a profit per trailer has absolutely, we'll call it, skewed the field going forward, and we're not seeing relief, or change in that right now. And then I would add that I think, you know, what we as we need to internally evaluate what's going inside of Wabash, I think there's a a positive impact that we're also having on that profitability, plus what inflation has given us on a, again, a profit per unit standpoint. We're gonna see some... What's the word I'm looking for?

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Resetting of where we're starting from, but I think we're still gonna be in a good position to continue to climb that profitability over the course of the market upswing over the next two, three, four years, depending on how long that part of the cycle is. So good jumping off point is where is the punchline.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Yeah, I think that's all true, Jeff. The other thing that is in there that's as a positive is the breadth of the portfolio. So specifically, truck bodies. We're looking at Transportation Solutions profitability. That's in there and higher than it was prior to 2022, 2023. So that's a helpful, we believe, sustainable tailwind.

Jeffrey A. Kauffman
Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC

All right. Well, congratulations on a solid Q2, and thank you very much.

Brent L. Yeagy
Brent L. Yeagy
President and CEO at Wabash National Corporation

Thank you, Jeff.

Mike Pettit
Mike Pettit
SVP and Chief Growth Officer at Wabash National Corporation

Thanks, Jeff.

Operator

That concludes our Q&A session. I will now turn the conference back over to Ryan Reed for closing remarks.

Executives
    • Brent L. Yeagy
      Brent L. Yeagy
      President and CEO
    • Mike Pettit
      Mike Pettit
      SVP and Chief Growth Officer
    • Ryan Reed
      Ryan Reed
      VP of Investor Relations
Analysts
    • Jeffrey A. Kauffman
      Partner, Transportation and Logistics Equity Research at Vertical Research Partners LLC
    • Michael Shlisky
      Managing Director and Senior Equity Research Analyst at D.A. Davidson & Co.
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