Wabash National Bets Big On Dry Vans, Increases Capacity By 20%

Wabash National Corp. is ramping down traditional refrigerated capacity and converting the floor space to add 20% more dry vans by 2023, counting on freight demand lasting well beyond the current peak.

"As we think about the past, present, and future of our manufacturing footprint, we have found ourselves with demand [that] has exceeded physical capacity for the production of dry vans," CEO Brent Yeagy said Wednesday on the company's Q2 call with analysts.

Building dry vans to address demand spikes in 2018 and 2019 required a lot of overtime and weekend work, he said. Even then, customers wanted more than Wabash could manufacture.

The move adds 10,000 dry vans — a 5% increase in industry capacity but 20% more dry vans than Wabash makes today.

"Our customers are uniquely positioned to grow capacity, and 10 years of continued growth in overall trailer demand [means] it's time for Wabash National to increase our ability to capitalize on this profitable opportunity," Yeagy said. 

Wabash WNC will use more lightweight molded structural composite (MSC) technology across its portfolio, including dry and refrigerated vans. Additional MSC for refrigerated van assembly capacity will follow in coming quarters, Yeagy said.

"We have now reached the point where conventional reefer design is the past and we are all-in in commercializing the future," he said. That includes working on zero-emission, solar-powered trailer refrigeration units. The company has about 100 of the units in production with eNow.

Portfolio Pruning

West Lafayette, Indiana-based Wabash is reorienting its business to focus on first-to-last-mile trailer products and exiting businesses that do not fit that plan.

Most recently, the company sold the Extract Technology business, part of its Diversified Products unit, to Dietrich Engineering Consultants at the end of the second quarter. 

Extract, which provides containment and aseptic systems for the pharmaceutical, health care, biotech, and chemical market, was part of Wabash's 2012 acquisition of Walker Group Holdings. Extract accounted for $22 million in Wabash revenue in 2020.

"Although Extract is an excellent business, our strategy is now squarely focused on the transportation, logistics and distribution industries," Yeagy said.

Wabash previously divested a fuel tank trailer business and sold its last remaining Wabash branch location. Wabash sold Garsite, an aviation refueling business, in 2019.

"Through these non-core asset sales, we have raised a total of approximately $40 million and also structured our portfolio in a manner that aligns with our strategy for growth," Chief Financial Officer Michael Pettit said.

Rising Costs

Higher retail sales and low business inventories prompted increased trailer production in Q2 when Wabash delivered 11,590 units. But rising commodity costs and supply chain disruptions drove higher costs.

"We're having difficult but necessary conversations with our customers about recovering cost increases throughout our backlog," which at $1.3 billion is 77% higher than a year ago, Yeagy said.

A shortage of workers and unplanned downtime by chassis manufacturers because of a global shortage of semiconductors required adjusting capacity lower, a situation expected to last the rest of the year, according to Pettit.

Order books for 2021 have been closed for months and the 2022 order book is not yet fully open.   

By the numbers

Second-quarter revenue was $449 million for a gross margin of 12.4% of sales, Pettit said.

Operating earnings before interest, taxes, depreciation, and amortization was $35 million or 7.8% of sales, comparable to pre-pandemic margins.

Net income was $4.3 million or 24 cents per diluted share.

During the quarter, Wabash spent $30 million to reduce debt, $22 million to repurchase shares, $7 million for capital projects and $4 million to fund its quarterly dividend 

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Click for more FreightWaves articles by Alan Adler.

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