Wabash National Corporation — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; unaudited. Comparisons are with the corresponding 2012 periods. Wabash manufactures commercial trailers and transportation-related products, with Commercial Trailer Products, Diversified Products and Retail segments.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Net sales | $413.1 million | $362.4 million | $737.4 million | $640.1 million |
| Gross profit / margin | $58.9 million / 14.2% | $39.7 million / 10.9% | $101.0 million / 13.7% | $59.4 million / 9.3% |
| Operating income | $30.5 million | $8.6 million | $45.3 million | $14.0 million |
| Net income | $14.1 million | $1.9 million | $19.9 million | $7.0 million |
| Diluted earnings per share | $0.20 | $0.03 | $0.29 | $0.10 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $6.6 million | $(11.5) million |
Q2 sales increased 14.0%; first-half sales rose 15.2%. The filing attributes much of the increase to Walker, acquired in May 2012, and Beall assets acquired in February 2013. Reported Walker sales were $103.1 million in Q2 and $198.3 million in the first half. Excluding acquired businesses, Diversified Products sales increased 12.9% in Q2, according to management.
Margins improved, supported by trailer pricing, product mix and acquired businesses. New-trailer shipments nevertheless declined 5.8% in Q2 and 10.7% in the first half. Q2 selling, general and administrative expenses rose to 5.4% of sales from 4.2%; higher acquisition-related operating costs, employee costs and amortization also affected results. The first-half effective tax rate was 40.0%, versus a lower prior-year rate that benefited from tax valuation-allowance utilization.
Cash, debt and liquidity
- Cash was $45.4 million at June 30, 2013, down from $81.4 million at December 31, 2012. First-half operating cash flow was $6.6 million; capital expenditures were $6.6 million. Working capital absorbed cash, notably from increases in receivables and inventory.
- Liquidity, defined by the company as cash plus available revolving capacity, was $187.7 million. The $150 million revolving facility had no outstanding borrowings at quarter-end; the company reported covenant compliance.
- Long-term debt carrying value was $397.2 million, with $3.9 million current; capital lease obligations totaled $8.9 million. Total debt and lease obligations were $410.0 million. Management reported a debt-to-equity ratio of approximately 1.4:1.0.
- In May, Wabash amended and refinanced its term loan, prepaying $20 million and reducing outstanding term loans to $277 million. The amended loan carries a lower interest margin and removed the minimum interest-coverage covenant. The reported senior secured leverage ratio was 1.6:1.0, within the applicable covenant limit.
Changes, outlook and risks
Walker and Beall expanded Diversified Products and Retail, but make year-over-year comparisons less directly comparable. Commercial Trailer Products sales fell 7.3% in Q2 and 13.8% in the first half as shipment volumes declined; higher average selling prices partly offset the volume reduction. Diversified Products and Retail sales increased, with acquisitions contributing materially.
Management forecast 2013 new-trailer sales of 45,500–47,500 units and expected industry demand to remain above replacement levels. It cited a $680 million backlog at June 30, 2013 and anticipated approximately $20 million of capital spending for full-year 2013. Management expected continued pricing and margin improvement, facility optimization, acquisition synergies and growth in diversified products. These are expectations, not guarantees; management also cited global economic, unemployment, housing and construction risks.
Risks include volatile steel, aluminum and other input costs; inability to pass cost increases through to customers; floating-rate exposure on the $277 million term loan; integration and synergy execution; and dependence on industry demand. A Brazilian joint-venture lawsuit has an adverse lower-court judgment of about $11.9 million before potential interest, fees or inflation adjustments, which the company estimates could be substantial. Wabash appealed, recorded no loss for this matter, and said it could not estimate a reasonable possible loss range. Other disclosed environmental and legal matters were generally described as not expected to have a material adverse effect. The company reported effective disclosure controls and no material second-quarter change in internal control over financial reporting.
Key facts for investors to verify
- How much of revenue and margin growth is recurring and organic, versus attributable to Walker and Beall acquisitions?
- Whether lower trailer shipments, pricing actions and production levels support the full-year unit outlook and continued margin improvement.
- Whether working-capital investment—especially higher inventory and receivables—converts into operating cash flow.
- Term-loan interest costs, covenant headroom, refinancing requirements related to the 2018 convertible notes, and available revolver capacity.
- Developments in the Brazilian litigation, including appeal timing and any change in the company’s ability to estimate or accrue a loss.