Manitowoc Company, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Manitowoc designs, manufactures, sells, and supports cranes and related lifting solutions, with Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments. Amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $602.8 | $497.2 | $1,111.1 | $956.2 |
| Gross profit / margin | $123.0 / 20.4% | $88.7 / 17.8% | $229.3 / 20.6% | $173.7 / 18.2% |
| Operating income / margin | $34.4 / 5.7% | $18.3 / 3.7% | $64.6 / 5.8% | $35.9 / 3.8% |
| Net income | $20.2 | $15.1 | $36.7 | $18.2 |
| Diluted EPS | $0.57 | $0.42 | $1.03 | $0.51 |
- Sales grew 21.2% in Q2 and 16.2% year to date. Management attributed growth chiefly to higher new and non-new machine sales in the Americas and MEAP and pricing actions; EURAF sales declined.
- Gross margin expansion reflected favorable product mix and pricing. Segment operating income in Q2 was $29.6 in Americas, $6.4 in EURAF, and $19.0 in MEAP; year-to-date amounts were $58.1, $10.0, and $27.6, respectively.
- Q2 adjusted EBITDA, a non-GAAP measure, was $60.4 (10.0% margin), versus $36.4 (7.3%). For the six months, it was $105.5 (9.5%), versus $67.6 (7.1%). These figures include specified adjustments, including the EPA-related charge.
Cash flow, balance sheet, and liquidity
- Six-month operating cash flow was negative $3.1, compared with positive $5.7 a year earlier. Capital expenditures were $36.3; free cash flow, as defined by the company, was negative $39.4 versus negative $11.1. Working-capital use included a $107.4 inventory cash outflow; inventory rose to $727.4 from $611.9 at year-end.
- Cash was $25.9 at June 30, down from $64.4 at December 31, 2022. Reported total liquidity was $254.9, including cash and available borrowing capacity. ABL revolver borrowings were $82.0, with $189.8 excess availability after outstanding letters of credit.
- Total debt was $387.4, including $300.0 of 9% second-lien notes due 2026 and $82.0 drawn on the asset-based revolver. Interest expense rose to $9.0 in Q2 from $7.9 and to $17.1 year to date from $15.3, primarily due to higher revolver rates.
- Management said liquidity and expected operating cash flows should meet working-capital, capital-expenditure, and other operating needs for the next 12 months. The company reported compliance with debt covenants and expects to remain compliant over that period.
Material changes, outlook, and risks
- Orders rose 26.8% in Q2 to $550.5 and 17.4% year to date to $1,075.3. Backlog was $1,024.6 at June 30, up 8.1% from a year earlier but down 3.0% from December 31, 2022; management attributed the sequential decline mainly to higher shipments as supply conditions improved.
- Supply-chain, labor, and logistics constraints continued to impede timely sourcing, production, and shipments, although some constraints eased. Certain key component supply chains remained distressed. Management warned that continued or worsening constraints could materially affect results, financial condition, or cash flows.
- Q2 and six-month results included a $10.8 charge tied to ongoing discussions with the U.S. EPA and Department of Justice concerning engine emissions certification and the TPEM program. The recorded liability was $25.7 at June 30, compared with $14.9 at year-end. The company cited a statutory maximum penalty of approximately $174.0, said the final outcome cannot be meaningfully quantified, and stated it believes it has strong defenses. Final resolution could materially affect financial condition, results, or cash flows.
- Russia operations were substantially curtailed. The company recorded a $9.3 non-cash foreign-currency translation write-off in other expense and said it does not anticipate material future charges from the curtailment.
- Q2 net income benefited from a $13.5 discrete tax benefit, primarily release of a valuation allowance. No specific full-year financial guidance is provided in the filing. The company identifies macroeconomic conditions, inflation and interest rates, supply constraints, demand, leverage, foreign exchange, and execution risks among factors that could affect forward results.
- Other contingencies include product-related litigation and warranty claims. Product liability reserves were $13.8 in total at June 30; warranty and related reserves were $53.7. Management stated that the ultimate resolution of the discussed matters, apart from the EPA matter, is not expected to have a material adverse effect.
Most important facts for investors to verify
- Developments in the EPA/DOJ matter, the basis and adequacy of the $25.7 recorded liability, and potential exposure relative to the stated statutory maximum.
- Whether inventory growth and working-capital investment convert into shipments, operating cash flow, and improved free cash flow.
- Backlog conversion, order trends, and demand and profitability by segment—particularly continued EURAF weakness.
- Cash availability, revolver borrowing costs, covenant headroom, and the company’s ability to manage the 2026 notes maturity and refinancing timetable.
- The extent to which reported earnings and adjusted EBITDA depend on discrete tax benefits and adjustments for unusual items.