Wabash National Corp. (NYSE: WNC) saw a 37% increase in its order backlog between the second and third quarters. That suggests a strong 2021 — if Wabash can find enough workers to build the dry vans and last-mile truck bodies it makes.
“Labor rather than physical capacity is likely to be the most significant constraint across a vast array of manufacturers in 2021,” Wabash National CEO Brent Yeagy said on the company’s third-quarter earnings call Thursday.
“The labor market is unlike anything we’ve seen before,” he said. “A 10% unemployment rate is now more like a 3% rate of unemployment. For a multitude of reasons, labor has become exceptionally difficult to find.”
Just like with truck drivers, furloughs during manufacturing shutdowns in March and April created a worker shortage. Companies are trying to make up for in industries like home delivery that are thriving during the pandemic. Federal unemployment benefits on top of state jobless pay prompted many workers to pass on going back to work when their jobs were available.
Attracting workers could get harder if extended unemployment benefits are part of a new federal stimulus package.
Tale of two customers
For Wabash National, it is a tale of two customers. The first is well-financed motor carriers increasing orders for dry vans to take advantage of record-high per-mile freight rates. The order backlog stood at nearly $1 billion at the end of the quarter.
But more than 50% of Wabash National’s business comes from nonprofessional businesses trying to weather the crushing business impact of COVID.
“Whether it’s a flower shop, a dry cleaner or an appliance store, delivery is a component of their business,” Yeagy said. “But not their main business. Many of these customers may not have been classified as essential businesses during the state-mandated lockdowns.”
That took a toll on Wabash National’s Final Mile Products business. The division is still absorbing the September 2017 purchase of Supreme Industries. The segment is running below break-even levels in 2020.
“The final-mile group is being impacted by an out-of-the-blue black swan pandemic that has a disproportionate impact,” he said.
Still, Yeagy is optimistic.
“The demand for final-mile equipment will be reversed in coming years as customers most impacted by COVID get their feet back under them,” he said. “As with most cycles, the segments that fall the hardest also rebound the quickest.”
Dry van demand
The demand for dry vans to replace older equipment and to expand capacity led to the second-highest trailer orders on record in September. Wabash National shipped 8,415 trailers in the third quarter. The average price of $27,000 each was up 1% from the same quarter a year ago.
“We have seen our market share expand from the high teens to the mid-20% range aided by the physical and supply chain-related capacity that was constrained in 2018 and 2019,” Yeagy said.
Industrywide trailer production in 2021 could be around 230,000. Wabash National could account for 41,000 of those expected builds. Customer discussions point to firm orders continuing in October, Yeagy said.
“Anytime you see 30% changes in stock rates from the second quarter to the third quarter, we get the attention of the professional carriers,” he said. “That initial pull is very well thought out initial buying decisions. “I think we can look at 2021 as being a relatively significantly improved year from 2020.”
Wabash National earned $3.9 million, or 7 cents per diluted share, in the quarter on revenue of $351.6 million. Company shares rose 10.52% Thursday to close at $16.92.
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