Manitowoc Company, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited interim results; dollar amounts are in millions except per-share data. Manitowoc designs, manufactures, sells, and supports cranes and related lifting solutions across the Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP). Aftermarket support provides recurring revenue.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $520.9 | $454.7 | $1,632.0 | $1,410.9 |
| Gross profit / margin | $96.8 / 18.6% | $74.3 / 16.3% | $326.1 / 20.0% | $248.0 / 17.6% |
| Operating income / margin | $18.0 / 3.5% | $7.6 / 1.7% | $82.6 / 5.1% | $43.5 / 3.1% |
| Net income | $10.4 | $2.3 | $47.1 | $20.5 |
| Diluted EPS | $0.29 | $0.07 | $1.31 | $0.58 |
Sales rose 14.6% in Q3 and 15.7% for the nine-month period. Higher new and non-new machine sales in the Americas and MEAP, along with pricing actions, drove growth; lower new-machine sales in EURAF partly offset it. Gross margin improved mainly on higher sales, pricing, and lower material and transportation costs. Q3 operating income improved despite higher employee-related costs; nine-month SG&A also included an $10.8 million EPA-related charge.
Cash flow, liquidity, and debt
- Cash flow, nine months: Operating cash flow was $23.2, versus a $0.5 use in 2022. Capital expenditures were $59.9, producing reported free cash flow of negative $36.7, versus negative $32.3. Inventory growth was a significant working-capital use.
- Cash and liquidity: Cash was $40.0 at September 30, 2023, down from $64.4 at year-end 2022. Reported total liquidity was $256.3, including $201.8 of excess availability under the $275.0 revolving facility.
- Debt: Total debt was $398.8, compared with $385.6 at December 31, 2022. It included $70.0 drawn on the revolver, $300.0 of 9% second-lien notes due 2026, and $30.6 of other debt. The company reported compliance with debt covenants and expects to remain compliant over the next 12 months.
- Balance-sheet changes: Inventories increased to $719.9 from $611.9 at year-end; current liabilities were $588.5 and current assets were $1,053.2.
Business trends and segment performance
- Q3 orders increased 12.5% year over year to $531.2; nine-month orders rose 15.8% to $1,606.5. September 30 backlog was $1,028.1, 9.0% above a year earlier but 2.6% below December 31, 2022, as shipments increased with improving supply conditions.
- Q3 sales increased in the Americas (16.1%) and MEAP (67.3%), while EURAF sales declined 6.1%. Segment operating income was $23.5 in the Americas, $12.7 in MEAP, and a $7.7 loss in EURAF. EURAF’s loss narrowed from $14.2 a year earlier.
- For the first nine months, Americas and MEAP segment sales rose 26.4% and 41.3%, respectively; EURAF sales fell 6.2%. All three segments improved operating results versus the prior-year period.
Outlook, risks, and unusual items
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management said liquidity and expected operating cash flows should meet working-capital, capital-expenditure, and general operating needs for the subsequent 12 months.
- Supply-chain, labor, and logistics constraints continued to affect timely sourcing, production, and shipments. Some constraints eased, but key components remained challenged; continued or worsening disruption could materially affect results and cash flows.
- The company recorded an additional $10.8 charge for discussions with the U.S. EPA and Department of Justice concerning engine emissions and certification matters. The recorded liability was $25.7 at September 30, 2023. The company cited approximately $174.0 in calculated statutory maximum Clean Air Act penalties, asserted it has strong defenses, and said final resolution could materially affect financial condition, results, or cash flows.
- Russia operations were substantially curtailed. A $9.3 non-cash foreign-currency translation loss was reclassified to earnings during the nine months; management does not anticipate material future charges related to the curtailment.
- Other notable items include discrete tax benefits, including release of a $13.9 valuation allowance and resolution of a foreign tax matter, and higher interest expense from increased rates on revolver borrowings. Product-liability reserves were $17.4 in total; warranty and related reserves were $55.3. The filing says litigation and claims are not expected to have a material adverse effect overall, while noting uncertainty around the EPA matter.
- Management cited macroeconomic and geopolitical uncertainty, inflation and interest rates, customer demand, foreign exchange, leverage, supplier availability, and the ability to convert backlog into sales among the risks to forward-looking results. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Developments and potential resolution of the EPA/DOJ matter, including any change to the $25.7 recorded liability or estimated penalty exposure.
- Whether inventory levels and working capital convert into shipments, operating cash flow, and free cash flow; capex was substantially higher year over year.
- Backlog conversion, order trends, and the durability of demand and margins, particularly the ongoing EURAF operating loss.
- Liquidity, borrowing availability, debt maturities and refinancing needs, and continued compliance with covenants.
- Potential additional effects from supply constraints, labor costs, foreign exchange, and the Russia curtailment.