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Wabash National Corp (WNC) Q4 2018 Earnings Conference Call Transcript

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Wabash National Corp  (NYSE: WNC)
Q4 2018 Earnings Conference Call
Jan. 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2018 Wabash National Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr. Ryan Reed, Director of Investor Relations. Mr. Reed, you may begin.

Ryan Reed -- Director of Investor Relations

Thank you, Josh. Good morning, everyone, and thanks for joining us on this call. With me today are Brent Yeagy, President and Chief Executive Officer; and Jeff Taylor, Chief Financial Officer. Before we begin, I'd like to mention that Wabash National's 2019 Investor Day will be held in New York on February 28th. We're looking forward to seeing many of you there for a morning of updates on the Company's strategy and deep dives into our business units. Couple items before we get started. Please note that this call is being recorded. I'd also like to point out that our earnings release, the slide presentation supplementing today's call, and any non-GAAP reconciliations are available at ir.wabashnational.com. Please refer to Slide 2 in our earnings deck for the Company's safe harbor disclosure statement addressing forward-looking statements.

I'll now hand it over and ask that you please refer to Slide 3 as Brent gets us started with his highlights.

Brent L. Yeagy -- President and Chief Executive Officer

Thanks, Ryan. I'd like to begin by saying that 2018 has been an important year in Wabash National's progression toward becoming a stronger, more resilient, and more profitable company. We continue to act on our priorities of strengthening the human capital required to lead this Company into the future. We acted on the position -- acted to position the Company for ROIC expansion while improving organizational focus by exiting a non-core business. Simultaneously, we made significant progress in integrating the Supreme acquisition into our Final Mile business unit and positioning that business on a platform for continued growth. All while running very hard to meet the needs of our customers in a strong demand environment where revenue grew 28% to a record $2.27 billion. Continuing to meet the demand of our customers through this exceptionally busy time has allowed us to further strengthen those industry leading relationships.

While the challenge of new growth in such a dynamic environment has also provided insight and opportunity, which we will use to benefit and strengthen the Company over the long term. Additionally, I'd like to thank our associates for their dedication and hard work during the year that made these achievements possible. As always, the outstanding effort offered by our associates to meet the needs of our customers is without question. With that said, we are focusing on improving the execution required to tackle the operating challenges experienced during the second half of 2018. Supplier disruptions, but specifically chassis availability issues as well as continued labor market tightness and material inflation flowthrough that continued to pressure margins in Q4, impacted our gross margin by 50 basis points sequentially.

We are fully committed to resolving these issues in a timely manner and have focused the entire organization accordingly. Despite those headwinds, Wabash National generated $78 million of free cash flow during 2018. We put that cash to work for our shareholders consistent with our capital allocation through increasing our dividend, repurchasing shares, as well as reducing debt and leverage. Deliberate deployment of capital to strengthen our balance sheet while continuing to return capital to our shareholders remains a key focus area for Wabash National. We also made significant progress in the development commercialization of our next generation of engineered materials, which will serve to further differentiate our products, provide an opportunity for margin expansion, and diversify growth. DuraPlate Cell Core, which provides substantial weight savings while maintaining superior performance characteristics, is progressing as planned.

In Q4 we completed the second phase of our capital investment for Cell Core in order to provide needed production scale to allow CTP to launch this new innovation in 2019. Molded Structural Composite technology deployment continues in both our refrigerated van trailer and our Final Mile Products' truck body product lines. This technology continues to meet our performance and commercialization expectations as we have produced our 100th MSC reefer trailer and our 100th MSC truck body accordingly. In 2019 we expect to reach over 1 million miles of total road exposure, which will greatly advance the collection of valuable data and feedback from our launch partners. With that feedback, we will further enhance the value proposition of the technology; which includes operating costs, improve thermal efficiency, increase payload capability, and extended asset life.

Now specifically, let's talk about 2019. While the freight activity outlook has moderated, we expect GDP growth, industrial production, and retail inventories to remain in positive territory. As a result, demand for our core trailer products is expected to remain strong throughout 2019 while demand for FMP-related products continues to accelerate above our initial expectations. Continued positive quote activity and customer sentiment, very low cancellation rates coupled with a very strong demonstrated backlog which now exceeds $1.7 billion serves to substantiate our expectations heading into 2019. With that said, we expect Wabash National revenue to be in the $2.25 billion to $2.35 billion range.

Now, let me draw your attention to Slide 4 in the deck. As we plan for another year of strong demand for our products and continue to take the necessary steps to strategically grow and diversify the business, our primary focus is on mitigating pressures that recently impacted our margins. We are taking action to reduce the impact of late chassis delivery specifically. Within our Final Mile business, chassis are generally purchased by the end customer. We continue to improve our co-planning activity with our chassis providers and their customers. We are further strengthening our ability to impact inbound transportation services and we continue to improve our manufacturing scheduling system within our Final Mile Products group in order to be more resilient.

Relative to more general supply disruptions across the Company, we've been successful in actively moving and shifting requirements to our strongest partners where possible while increasing safety stock levels, lengthening lead times, and widening delivery windows prior to production. All with the intent to reduce supply chain frequency and magnitude of impact thus preventing labor inefficiency and lost production. On the material cost front, we have taken very direct pricing action to cover 2018 related material and tariff inflationary pressures within our existing backlog. Additionally, our entire customer base has been notified that the Company intends to adjust pricing for new orders and existing backlog accordingly for any tariff or further significant material cost impact that may occur in 2019.

We have also worked to tackle headwinds of rising commodities by expanding the scale of our hedging program in Q4 2019 and successfully capitalizing on recent trends in commodity prices to hedge materials more closely aligned to our orders we're quoting. We have been intensely addressing labor-related costs through both discrete productivity initiatives in each of our operating units while also aggressively pursuing improved supply chain stability. While 2019 demand levels remain high, build rates are expected to be level and in a deep contrast to 2018 where Wabash was ramping production throughout most of the year. This will allow our operations leaders to focus almost solely on production efficiency and delivery.

As a result, we have taken action to shift operating patterns and reallocate labor to drive further efficiency as we enter into 2019. As always, we will continue our relentless approach to efficiency improvement long after these headwinds are successfully addressed. Even with a deliberate and focused approach to addressing our operational challenges, near record industry volumes will continue to stretch industrial supply chains and labor markets accordingly in 2019. Therefore, we also expect to navigate some level of operational headwinds into the new year. We currently project 2019 full-year adjusted earnings per share to be in the range of $1.50 to $1.70. At the midpoint of that range, we would demonstrate year-over-year earnings-per-share growth of approximately 11%. I appreciate the support shown for Wabash National and I look forward to having the opportunity to communicate improved performance throughout 2019 and outlining how Wabash will deliver ever higher levels of shareholder value into the future.

With that, I'll ask Jeff to provide additional color on both our financial performance and our first quarter outlook. Jeff?

Jeffery L. Taylor -- Senior Vice President and Chief Financial Officer

Thank you, Brent. Good morning, everyone. I'll start with Slide 5. On a consolidated basis, fourth quarter revenue was $610 million, an increase of $67 million or 12% year-over-year. Net sales increased in all of our businesses compared to the prior year quarter as a result of strong customer demand in each segment. Consolidated new trailer shipments were 17,500 units during the quarter, at the high end of our shipment guidance range on strong customer pickups. Fourth quarter build levels totaled 14,950 units. In terms of operating results, consolidated gross profit for the quarter was $69.1 million or 11.3% of sales. Gross margin decreased by 210 basis points year-over-year as all businesses experienced operating pressures, including supplier disruptions in addition to higher material and labor cost.

To add some color on the 210 basis point decline in gross margin, approximately 50% of the change was related to increased raw material and component cost inflation. The other 50% was related to labor and productivity cost, including the labor constraints and supplier disruptions. The Company generated adjusted operating income of $36.4 million and adjusted operating margin of 6% during the fourth quarter. For the full year, adjusted operating margin was 6.1%. Selling, general, and administrative or SG&A for the quarter excluding amortization was $28.6 million or 4.7% of revenue, primarily due to lower compensation expense. For the full year, SG&A finished at 5.7% of revenue, roughly flat with the prior year. Operating EBITDA for the fourth quarter was $47.6 million or 7.8% of sales. This brings 2018 full-year operating EBITDA to $187 million or 8.2% of revenue.

Intangible amortization for the fourth quarter was $4.6 million, up about $0.3 million from the prior year period and was $19.5 million for the full year. Interest expense for the quarter totaled approximately $7.1 million, a slight year-over-year decrease. Full-year interest expense was $28.8 million. We recognized income tax expense of $5.4 million in the fourth quarter. The effective tax rate for the quarter was 31.7%, higher than expected as a result of discrete tax items in the quarter. For the full year, our effective tax rate was 27.7%. Finally, for the quarter, GAAP net income was $11.6 million or $0.21 per diluted share. Full-year 2018 GAAP earnings per share was $1.19 per share. On a non-GAAP adjusted basis, fourth quarter net income was $21.5 million while adjusted earnings per share was $0.38. On a full-year basis, adjusted EPS was $1.44 which equates to a 6% increase from prior year adjusted EPS of $1.38.

Let's take a look at the segments, I refer you to Slide 6. Commercial Trailer Products' fourth quarter net sales were $439 million, which represents a $53 million or 14% increase year-over-year on new trailer shipments of 16,750 units. New trailer average selling price or ASP increased sequentially by approximately $800 per unit on pricing actions taken to mitigate the impact of higher material and operating cost. CTP recorded gross and operating margins of 10.3% and 8.9% respectively. Operating margin was down 150 basis points compared to the prior year period due to the same pressures impacting gross margin.

Let's move to Diversified Products Group on Slide 7. DPG produced net sales of $102 million, a year-over-year increase of $11 million or 11% for the quarter, primarily driven by an increase in tank trailer shipments and average selling prices that were sequentially higher by approximately $1,850 per unit, but also supported by strength in process systems and the composites business. DPG posted gross margins of 17% during the fourth quarter. When adjusted to exclude the impact of a non-cash asset impairment related to the divestiture of the aviation and truck equipment business, DPG's adjusted operating margin was 6.7% during the quarter. The 70 basis point improvement in adjusted operating margins as compared to the prior year period was primarily driven by improved mix and lower compensation expense.

Final Mile Products on Slide 8. Net sales for the fourth quarter totaled $75 million. Despite achieving integration-related operational improvements allowing us to increase throughput to better serve our strong customer demand, revenue was constrained in this business by disruption in chassis availability and other supplier shortages. Gross and operating margin for the fourth quarter were 9.9% and negative 2%, respectively. Though truck body demand continues to be strong, the degradation in operating margins reflect significant chassis availability issues that have held back production creating scheduling difficulties, generating operating inefficiencies, as well as exacerbating more general supplier delivery challenges. I'd like to mention that seasonality in this business typically dictates that our customers over the first and second quarters are generally very large in nature and able to source chassis with an improved level of reliability and predictability.

Slide 8 (ph) shows the walk to free cash flow conversion, which was 113% of net income for 2018. This marks our sixth consecutive year with greater than 100% conversion of free cash flow to net income, a record we're proud of. Moving on to our balance sheet and capital allocation strategy on Slide 10. Our liquidity or cash plus available borrowings as of December 31st was $300 million or 13% of 2018 revenue. Additionally, we were pleased to extend our asset based lending facility or revolver during the fourth quarter out to the year 2023. That's a key component of our overall liquidity. With regard to capital allocation, we returned $18 million to our shareholders in the fourth quarter through share repurchases and dividends while raising the dividend by 6.7% beginning in 2019 in the second year of raising our dividend.

For the full year, we allocated $53 million in share repurchase, $18 million in dividends, and $82 million to debt reduction primarily by retiring our convertible bonds. Net working capital finished the fourth quarter down about $22 million from the prior quarter as inventory reduction and accounts receivable collections drove the year-end reduction in working capital. Working capital ended the year at 9% of revenue. We finished 2018 with leverage ratios for gross and net debt at 2.7 times and 2.0 times, respectively. Capital spending was $13.7 million in the fourth quarter and $34 million on a full year or 1.5% of full year revenue. CapEx in 2018 was 31% higher than the prior year as our previously discussed growth -- growth initiatives require more substantial investment in plant, property, and equipment.

Moving on to Slide 11 with our outlook for 2019. We expect revenue to be in the range of $2.25 billion to $2.35 billion with new trailer shipments between 58,000 and 62,000 units. Consistent with our guidance, we expect between 50 basis points and 150 basis points of full-year 2019 gross margin improvement as we progress on operating efficiencies throughout the year. SG&A as a percent of revenue is expected to be approximately 6% in 2019. We expect intangible amortization to be approximately $21 million for 2019 while interest expense should be flat between $28 million and $29 million. We are currently estimating that 2019 full-year effective tax rate will be approximately 26% to 27%. Full-year capital spending is expected to be higher again in 2019 as we continue to support the pipeline of productivity projects and new product commercialization identified across our business segments.

In total, we estimate 2019 capital spending to be between $40 million and $45 million. We are revising our initial 2019 earnings per share outlook to a range of $1.50 to $1.70 per diluted share to account for the ongoing operational headwinds prevailing in the current strong demand environment. As Brent described, we are actively working to mitigate these headwinds as quickly as possible and it is our top priority. I will note that the first quarter is a seasonally lower quarter for shipments, margins, and consequently earnings per share. Our expectation is for first quarter revenue to come in between $505 million to $535 million with new trailer shipments of 13,000 to 14,000 units. Additionally, we expect margins in the first quarter to be up slightly from the fourth quarter of 2018.

In summary, we have made significant progress in 2018 toward building a stronger, more diverse business. We also generated strong free cash flow conversion and effectively allocated capital consistent with our capital allocation plan. We are highly motivated to improve our operating performance in the short term and we're excited for the longer-term opportunities we have to continue building on our achievements and executing our strategy.

I'll now turn the call back to Josh and we'll open it up for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Brad Delco from Stephens. You may proceed with your question.

Brad Delco -- Stephens Inc. -- Analyst

Hey, good morning, guys.

Brent L. Yeagy -- President and Chief Executive Officer

Hi, Brad. Good morning.

Brad Delco -- Stephens Inc. -- Analyst

I want to dig into the kind of gross margin challenges and when we look to '19, do you have more control over your labor challenges or raw material challenges? And chassis may be separate, but the question I have is, is the chassis problem causing the labor problems? I would imagine with strong production or flatter production throughout '19, that shouldn't be as much of an issue and then you got $800 of ASP in the fourth quarter to address raw material. But just help us get some color about how we can get comfortable around seeing the improvements in '19 on the gross margin front.

Brent L. Yeagy -- President and Chief Executive Officer

Yes, Brad, I'll take that. So, let me try to unpack that for you a little bit. Let's specifically talk about FMP and the issue around chassis availability, supplier disruption, and how that impacted gross margins. I think the straightforward story is simply that the second half of the year exceeded our expectations relative to demand and honestly, the way that we were able to positively execute in getting that demand. We attempted to ramp the business accordingly in a prudent manner. What we didn't anticipate nor did anyone, the level of chassis disruption that began to plague us in the early period of we'll call it mid-July to early August and I want to stress that that took the industry by surprise within the -- the medium-duty chassis market.

What we ended up getting then is having to navigate a solid backlog for the second half of that year, having to bring in labor accordingly to meet those minimum production requirements, and then constantly working through rolling interruptions and as I think we've alluded to, 20% of our production was impacted in terms of lost production in the first -- during the third quarter and I would argue that we are approaching 15% of our production impacted in the fourth quarter. Now, that's a -- in theory, that's a 25% reduction in net chassis-related issues. We saw that continue to reduce as we moved into the December time period and that somewhat continued as we moved into the January time period with sequential improvements. I think there's two parts to that.

It's somewhat of the actions that we've taken to begin to moderate those issues and it is literal improved the input performance by the chassis manufacturers, right. As that continues to improve, that just inherently reduces the disruption and interference we see with the installed labor that we have within the business. As we enter into 2019 and we prepare for the seasonal ramp that we would expect within FMP as the Penske and Ryder larger order, we'll call buckets, roll through the business, we are sitting here with a significant number of trained and installed associates beyond where we were at the same time last year. So, we should see some level of productivity flow through there. As long as we can continue to see moderating levels of chassis impact, we feel good about FMP being able to convert that into gross margin improvement. When we -- so, that's FMP.

When we think about CTP, CTP is much more of a material inflation conversation than it is a supplier disruption and a labor tightness. All three issues were impactful, but it's really a material margin issue. And when we think about margins for CTP, it's on the back of discrete pricing actions that were taken as early as the September time frame for the setting of the 2019 backlog. So, we feel comfortable with the level of achievement that the CTP business has done. We bluntly went back to our customers on multiple times to gain additional, we'll call it, inflationary pressure recovery. So, we've established that norm within our customer base. And as I've alluded to, we are prepared to do it again if the market would require it. So as long as we tackle that side of the equation for CTP, we feel good about their ability to execute and again they are not ramping at all in 2019.

It's a stable production level with a relatively stable workforce that we will not be disrupting by trying to add to it. So, that puts them in a great position to execute as compared to 2018. DPG is a little bit of mix of all of it. We have discrete actions there to again tackle the material margin headwinds that we saw, again we see in the backlog. It's a much more open backlog for the second half of the year so we have additional opportunities to gain additional pricing recovery and margin. We'll look for them to execute that. And we've set a -- which I won't get into the specifics of it, but a very discreet plan to shut mix and production to improve operating margins/gross margins accordingly. So, I hope that helps.

Brad Delco -- Stephens Inc. -- Analyst

Yes, that does. And if I could have a quick follow up on that and then one other question. You said you took some discrete pricing actions in CTP in September, what was customer acceptance to that? And it seems like the latest data we've gotten, cancellations have picked up, do you think that's a -- the effect of some of that pricing or discrete pricing action or what do you think the strategy is here?

Brent L. Yeagy -- President and Chief Executive Officer

No, we don't see that at all. When we look at industry cancellations, we see relatively very low levels in how we look at it. So industry wide, we don't see cancellations being an issue at all. Internal to Wabash National, we -- cancellations have not been an issue for us while we've executed those pricing actions nor has it been an issue as we went back to the well on a couple of different occasions to gain additional pricing recovery accordingly. So again from an execution standpoint, we feel pretty good with where we're at. Again we're setting at record backlog levels, we are -- backlog extends well into 2019. So from our standpoint, we feel pretty stable with the actions that we've taken.

Brad Delco -- Stephens Inc. -- Analyst

Okay. And then a quick follow up for Jeff. You made a comment you expect margins to improve slightly on a sequential basis. Is that across -- are we looking at gross margins, are you looking at operating profit? What kind of was that statement in reference to?

Jeffery L. Taylor -- Senior Vice President and Chief Financial Officer

Gross margin is where you should focus in terms of that comment.

Brad Delco -- Stephens Inc. -- Analyst

And is that for the enterprise or is that across the three business segments?

Jeffery L. Taylor -- Senior Vice President and Chief Financial Officer

My comment was in general related to the total Company.

Brad Delco -- Stephens Inc. -- Analyst

Okay.

Jeffery L. Taylor -- Senior Vice President and Chief Financial Officer

So you can think relative to, I mean, we will get a little bit of a boost in the first quarter just because of that segment mix. The first quarter is generally one where Commercial Trailer Products is -- shipments are going to be typically the lowest in the year and because of that, their percentage of the total revenue in Company will be lower in Q1 than in other quarters.

Brad Delco -- Stephens Inc. -- Analyst

Should I read into that that Final Mile gross margin should be better than CTP in first quarter?

Jeffery L. Taylor -- Senior Vice President and Chief Financial Officer

I did not make that statement.

Brad Delco -- Stephens Inc. -- Analyst

Just trying, Jeff, just trying. All right. Thanks guys. I'll get back in queue.

Brent L. Yeagy -- President and Chief Executive Officer

Thank you, Brad.

Operator

Thank you. And our next question comes from Steve Dyer from Craig-Hallum. You may proceed with your question.

Steve Dyer -- Craig-Hallum Capital Group LLC -- Analyst

Thanks. Good morning, guys.

Brent L. Yeagy -- President and Chief Executive Officer

Hi Steve.

Jeffery L. Taylor -- Senior Vice President and Chief Financial Officer

Good morning.

Steve Dyer -- Craig-Hallum Capital Group LLC -- Analyst

A number of mine have been I think answered as it relates to the puts and takes around margins and so forth, But as it relates to cancellations, obviously an uptick sort of in economic and political uncertainty lately. What's I guess generally the feel among the fleets right now? I mean you obviously have very good backlog coverage for the first half of the year, but are you seeing any change to order patterns, any change to sort of appetite for getting in that -- that fleet queue throughout the year?

Brent L. Yeagy -- President and Chief Executive Officer

Steve, no. You would think based on some of the unrest that we've seen in the macro environment that something would begin to trickle through with our conversations with our customer base and that just does not seem to be happening. I think really for us right now, it's almost the opposite issue. We're constantly being talked to about can we add additional production, can we ship production forward, what does 2020 look like, when will your 2020 order book open. It is a different type of conversation, it is a real dichotomy of issues, and it just frames the dynamic environment that we're in right now.

Steve Dyer -- Craig-Hallum Capital Group LLC -- Analyst

Okay. And then just as it relates to pricing actions, Q3 I think was -- was disappointing and you had indicated on your call at the end of October that you felt like you were on top of a lot of that and ahead of a lot of that, pushed through at least one price increase for cost inflation. But it sounds like maybe some other things reared their head as the quarter went along. Did that -- did that get worse or are you just not able to institute those things on a dime? Maybe a little color there around how it progressed throughout the fourth quarter.

Brent L. Yeagy -- President and Chief Executive Officer

That's a great question. Obviously it's a mix of -- of all of that. We absolutely did address pricing moving into the fourth quarter. I think obviously we saw material inflationary pressures continue to flow through at a rate that exceeded what we had thought it would be. That's one of the reasons we began to rolling additional pricing adjustments within the backlog as we learned and understood more deeply how the -- that inflationary structure was coming about. And I think we've caught up with that at that point. This point, we continue to do material margin checks. We've increased the robustness of our material input process accordingly so we feel good where we're at right now.

When we think about the -- we'll call it the operational aspects impacting gross margin, we were absolutely taking action to address the labor conversion issues and labor productivity issues. I think we -- specifically on the chassis side of it based on feedback that we were getting from chassis manufacturers, there was an indication of that that this would subside as it moved throughout the year. While it did moderate and change in its dynamic, it didn't moderate at a level that was being projected and so that added headwinds in the fourth quarter accordingly and that affected our performance as well. We're not at a stage right now where we will anticipate in how we plan our business, we'll call it further moderation. We are tackling what we control in a much more aggressive way and factoring our forecast based on what we know we can do. And then as those issues subside on their own, that would be potential upside for how we see our business operating.

Steve Dyer -- Craig-Hallum Capital Group LLC -- Analyst

Okay, great. That's helpful. And then lastly for me, 2019 should be another very good free cash flow year. You've been as you've noted pretty balanced on the capital allocation. Just -- we're arguably another year into the cycle. Are you still looking at it? I mean are you still comfortable with the leverage? Are you still thinking in terms of balance or does the stock price or other factors sort of impact the way you think about deployment of capital?

Jeffery L. Taylor -- Senior Vice President and Chief Financial Officer

Steve, this is Jeff. I'll take that one. So in terms of capital allocation in regards to the strategy and thinking about 2019 and how we set up, obviously we did the acquisition of Supreme in late 2017 and we do want to pay down debt relative to that acquisition as we move forward. So, I think it's fair for you to expect us to prioritize deleveraging a little bit and some debt paydown in 2019 as we move forward. Otherwise I think, in general, it's going to remain pretty close to what you've seen. Liquidity is always our Number 1 priority in the Company and we will always protect our liquidity. Obviously we're going to fund the dividend. That's a commitment we've made to our shareholders and we expect to maintain that commitment. Debt reduction I talked about.

And then we will do some level of capital expenditure in order to continue to invest in the new products and bring those products to market. And then obviously the lowest priority and the most flexible one is share repurchase and to the extent that we have available free cash flow, then we'll return capital to the shareholders through that as well as the dividend. So hopefully, that helps you think about how we're approaching 2019.

Steve Dyer -- Craig-Hallum Capital Group LLC -- Analyst

Yes, very good.

Brent L. Yeagy -- President and Chief Executive Officer

Yes, just to reiterate. We're sticking to the plan that we've laid out over multiple years. It's a formula that works for Wabash National and we are fully committed to it.

Steve Dyer -- Craig-Hallum Capital Group LLC -- Analyst

Got it, very good. Thank you, guys.

Brent L. Yeagy -- President and Chief Executive Officer

Thank you, Steve.

Operator

(Operator Instructions) Our next question comes from Jeff Kauffman from Loop Capital Markets. You may proceed with your question.

Jeffrey Kauffman -- Loop Capital Markets LLC -- Analyst

Thank you very much. Good morning, guys.

Brent L. Yeagy -- President and Chief Executive Officer

Good morning.

Jeffrey Kauffman -- Loop Capital Markets LLC -- Analyst

I'm going to take a step back and ask some bigger picture questions here, maybe more Analyst Day stuff. First question, shorter question. We're seeing a lot of new people enter the Final Mile business more on the delivery performance side. Can you talk about whether you're seeing a change in the type of customer that's coming into FMP and if so, is this kind of changing your thoughts about types of vehicles or the types of opportunities in FMP?

Brent L. Yeagy -- President and Chief Executive Officer

That's a great question. The -- what I would say is that the changing customer dynamics that we see are in line with how we looked at this Final Mile space two and three years ago. We anticipated that both at the Class 1, Class 2, Class 3 level as well as Class 4 and Class 5, we would see players begin to change. Truckload carriers would begin to move in to the Class 5, Class 6, Class 7 space; we'd see larger players begin to consolidate in the lower class space and Amazon would fall into that category; as well as you would see big box retailers and others try to grow their own FMP presence. All those things are happening just as we anticipated, we see it coming through our customer mix today.

Now how does that -- does it change our outlook? Does it change our strategy? Absolutely not, it reinforces it. So, our product development efforts are very geared to continuing to expand while we have great strength in our Class 2, Class 3 and Class 4 segments of our FMP business. We can serve a wealth of opportunity to expand the portfolio within that point of strength. Coupled with that, we can also -- and it's bearing out, we have long-term relationships with some of the largest transportation carriers in the country and as they move into FMP, we are leveraging that accordingly from a long-term perspective just as we thought it would be.

Jeffrey Kauffman -- Loop Capital Markets LLC -- Analyst

Okay. Thank you. And that leads me into question two. When I go back to the Analyst Day a couple of years ago, there were some goals laid out of $3 billion in revenue and $2.50 in earnings by 2020. I looked at what you've done over the last few years and I would say do nothing different. You've positioned the Company brilliantly, you've gotten into some businesses with some high attractive growth potential. But clearly, we're falling short on both metrics and I would argue the financial returns just haven't been there the way we would have hoped the last two years. And all these shorter-term issues like raw material pricing, chassis availability; these are things that normally happen when we're running at 300 plus thousand units in the industry.

So I guess my question is where do you think we fell short along the path to get to where we wanted to be and when you look at where the Company is today and the businesses that you're in? And again, I want to highlight I think you've done everything right as an analyst following the Company, you're in some great businesses. Was -- why did we fall short? Was the issue that it just required more investment than anticipated? You can't say that the macro market was difficult. I was just kind of curious broader stroke, how you think about the metrics and maybe this is leading into what you're going to discuss Analyst Day, but I thought I'd ask.

Brent L. Yeagy -- President and Chief Executive Officer

Sure. Great job for shadowing the Investor Day, Jeff. I appreciate it, but we count on you. So when we think about that $3 billion target, obviously that was an aspirational level and it helped point the Company in a direction that drove action to allow us to diversify and grow to the point we are today. And in no way, shape, or form do I look at those targets; whether we exceeded or fell short; and say that they did not provide the catalyst to change who we are and what we're going to be in the future. Now, why are we short relatively? Obviously a large part of that $3 billion target was deployment of capital around acquisitions, OK. Those acquisitions have to fit, they have to be available, they have to be actionable. Sometimes it doesn't pan out that way. I think when you look at the or get -- well, I know when we look at the organic initiatives that we've put forth in the Company that we've executed over the last several years, we are very happy with that aspect of our growth and where we've positioned the Company going forward.

When we talk about Analyst Day, we will talk about what are the future opportunities for growth in the business. How do we continually leverage where we're at today? How do we grow and expand additional technology? At the same time, we're going to talk about how do we do and position the Company for improved ROIC such as divesting underperforming core bidding businesses to Wabash National and you can see we've already started to take action. We can continue to provide shareholder value in many different ways than just topline growth. So, we're going to show a much more rounded view of how we do that and optimizing our business while growing, it will be a key aspect of what we talk about.

Jeffrey Kauffman -- Loop Capital Markets LLC -- Analyst

On the organic growth initiatives then, did it -- has it taken you longer to get to where you want to be either because you wanted to test molded structural composite, we needed to build out Final Mile a certain way? Do you still feel that the returns of those businesses are what you thought they were a year or two ago when you started deploying capital in them?

Brent L. Yeagy -- President and Chief Executive Officer

So let's go with FMP, first, absolutely. There is nothing from a growth dynamic standpoint and what this market prevents -- or presents to Wabash National that has made us back up in any way, shape, or form. We're actually in the opposite position, which is trying to understand how can we better execute in the near term while growing dynamically. And let's just be honest, that's a tough thing to do for any business at any time, right, and then you put a challenging operating environment on top of it. So, we're going to get better at it. We're going to put an extreme amount of resources and talent into it and we're going to harvest the huge potential that we see within that business segment and that's our mission to do that.

So, and that is at the -- from a long-term perspective, that is the pinnacle of how we are positioning the Company. When we think about technology plays like molded structural composites, anytime you move into we'll call it a very disruptive type of technology, you have to move through an adoption curve that is different than just say evolutionary change. And while we are hitting on all cylinders relative to the promise of that technology, we also have customers that have to digest that level of change. This is the type of innovation that creates business model change not just incremental operational improvement and for them to understand the economic value presented, they have to continually work through the path of understanding that. And that is a uncertain, non-linear path.

So, are we short to where we would like to be? That would be fair. Are we disappointed with where we're at? No. I think we're understanding more and more about just the dynamic nature of doing something this incredibly impactful to the industry and we feel ultimately it's going to meet all the expectations that we've laid out. The only question would be what's the exact time frame and that's just a difficult thing to say.

Jeffrey Kauffman -- Loop Capital Markets LLC -- Analyst

All right. Well, thank you very much. Those were great answers. Thank you.

Brent L. Yeagy -- President and Chief Executive Officer

Thank you, Jeff.

Operator

Thank you. And our next question comes from Mike Baudendistel from Stifel. You may proceed with your question.

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Thank you. Just wanted to ask you, does this EPS outlook, does that assume that production stays at a fairly consistent level throughout the year? Some of the companies in the industry have talked about maybe 4Q declining some, but I wanted to get your perspective there.

Brent L. Yeagy -- President and Chief Executive Officer

So, let me digest that for a second. Yes. So when we think about production levels and we'll call it on a daily build rate basis, we see very specifically which is CTP which is obviously the lion's share of your question. We see those to be relatively stable throughout the year. We've got a backlog. We have a backlog that allows us to do that. We feel comfortable with that and that's been a conversation that we've had internally. We may see some of our competitors drop build rate in the fourth quarter. We don't necessarily feel that's going to happen to us right now. And so, we feel pretty good with where we're at and have planned to execute it that way. Now we have some level of ramp in some small aspects of our business, but that's not material as compared to what CTP and tank trailer has to do in 2019.

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Great, I appreciate that. And then maybe just because the backlog here at $1.8 billion is the largest, at least now that I've seen it. Can you just give us a sense for how long the backlogs are in the various segments at this point just to help us interpret the monthly data that comes out on trailer orders and things?

Brent L. Yeagy -- President and Chief Executive Officer

Sure. So specifically for CTP, remember that's a host of businesses; that's dry van, refrigerated, and platform trailers accordingly; we are well into the second half of the year. We have some that are substantially longer than that in terms of on a full-year basis and we're talking primarily in straight time equivalents right now. We have and we'll continue to drive opportunities for we'll call it additional throughput and we'll call it production volume assuming that we can get the pricing that we want, the supply base can handle, and labor continues to remain stable within that business. So some opportunity there, but we're trying to execute that in a way to maintain stable build rates right now as best we can based on the environment that we see.

When we think about FMP, FMP is a completely different type of dynamic backlog. It is obviously -- well, from a backlog perspective for FMP, we are encouraged because we have continued to fill the FMP backlog at a high rate earlier in the year as demand for -- from our largest customers continues to grow. That is extended and we have a very solid production understanding through the first half of the year. That is normal. In the second half of the year, we'll continue to fill accordingly just as it always has. So, we'll look to execute that as we go forward. On the tank trailer side, we are well past mid-year from a tank trailer standpoint specifically well -- and for us that's chemical and sanitary. So, well ahead of or slightly ahead of where the industry is from a tank trailer's perspective.

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Very helpful. Thank you.

Brent L. Yeagy -- President and Chief Executive Officer

Thank you, Michael.

Operator

Thank you. And our next question comes from Kristine Kubacki from Mizuho Securities. You may proceed with your question.

Kristine Kubacki -- Mizuho Securities -- Analyst

Good morning, gentlemen.

Brent L. Yeagy -- President and Chief Executive Officer

Good morning.

Kristine Kubacki -- Mizuho Securities -- Analyst

My question is I was just wondering when did you open the order boards for 2018? And if I remember correctly, it seems like it was a bit earlier and I was just wondering how you guys are even thinking about -- now you talked to kind of a good setup for my question here, is that as these lead times now extend well out into '19 and you're thinking about 2020 and when those order boards start to open. How are you thinking about the trying to (technical difficulty)?

Brent L. Yeagy -- President and Chief Executive Officer

Kristine, you cut out there. We lost the very last part of your question, I apologize.

Kristine Kubacki -- Mizuho Securities -- Analyst

Sorry about that, working on a cellphone out of Chicago where it's the Frozen Tundra this morning. So I'm -- I'm just wondering a little bit about the order boards and I guess the pricing dynamics within the backlog and making sure that it seems like things got so far out that the pricing couldn't catch up to where the real market is based on raw materials input cost. How are you guys thinking about latter 2019 and protecting that pricing and then thinking about even 2020 as you get to mid-year and start opening up those order boards?

Brent L. Yeagy -- President and Chief Executive Officer

I think you've been in our boardroom a long time talking about how we dynamically manage this. So, let me try to explain that. So when we think about the orders flowing in specifically for CTP and that's really the heart of the question; yes, absolutely we did see orders beginning to move into the backlog in the mid-summer months. The bulk of the backlog was still moving through in the second half of the year, Q3, Q4. We have -- we had begun to price in we'll call it material cost inflation during those periods. We have -- also at that time knowing that there was a level of uncertainty, we have increased the use of we'll call it risk-based commercial pricing. So, we have more opportunity for material cost adjustments throughout the year. We did that quite regularly especially in those first orders as they moved in.

I've also alluded to -- I didn't allude to, I said we went to the customers multiple times over the course of the last six months to gain additional pricing in some cases through the use of those commercial constructs and in others, just simply saying we're raising the price because we've had this substantial increase in material costs as we continued to correct the backlog to hit the material margin targets that we have for CTP. Now we've continued to raise pricing throughout the last three months to four months to stay ahead of -- to meet and stay ahead of material cost inflation accordingly and we're continually evaluating the material margin in the backlog by period so that we are more dynamic and more real time and any adjustments in pricing that we have to make within the backlog.

That is a very set of discrete actions that we're working to execute, which is obviously appropriate for the environment that we're in, learning of where our challenges were in 2018. When you think about 2020, the order book is not open for 2020 at this time. We obviously have a level of questions around it as customers are looking at least for the first quarter, second quarter of 2020 to have certainty because there is. To a earlier question, the sentiment within the trucking/carrier community is still relatively bullish in how they look at equipment going into the next year even though we are talking about this in January of 2019 just for relevance. We would be very cautious and hesitant to do anything that will leave us exposed in 2020 in any deal construct that we would put together at this time and we would put adequate protections in or we would just wait until we have more stable commodity footing to make those orders.

Kristine Kubacki -- Mizuho Securities -- Analyst

Okay. That's very helpful. I appreciate the time. Thank you very much.

Brent L. Yeagy -- President and Chief Executive Officer

Thank you, Kristine.

Operator

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Reed for any further remarks.

Ryan Reed -- Director of Investor Relations

Thanks, Josh, and thanks everyone for joining us today. And we'll look forward to following up during the quarter.

Operator

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.

Duration: 53 minutes

Call participants:

Ryan Reed -- Director of Investor Relations

Brent L. Yeagy -- President and Chief Executive Officer

Jeffery L. Taylor -- Senior Vice President and Chief Financial Officer

Brad Delco -- Stephens Inc. -- Analyst

Steve Dyer -- Craig-Hallum Capital Group LLC -- Analyst

Jeffrey Kauffman -- Loop Capital Markets LLC -- Analyst

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Kristine Kubacki -- Mizuho Securities -- Analyst

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