Manitowoc Company, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Manitowoc designs, manufactures, sells and supports cranes and related aftermarket services, reporting through Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments. Amounts below are in millions of U.S. dollars except per-share data.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $454.7 | $404.5 | $1,410.9 | $1,222.4 |
| Gross profit / margin | $74.3 / 16.3% | $69.0 / 17.1% | $248.0 / 17.6% | $227.8 / 18.6% |
| Operating income | $7.6 | $7.3 | $43.5 | $44.7 |
| Net income (loss) | $2.3 | $(0.2) | $20.5 | $14.6 |
| Diluted EPS | $0.07 | $(0.01) | $0.58 | $0.41 |
| Operating cash flow | $(6.2) | $18.4 | $(0.5) | $68.1 |
| Free cash flow | $(21.2) | $11.5 | $(32.3) | $45.8 |
Sales rose 12.4% in Q3 and 15.4% year to date, with acquisitions contributing $47.0 million and $129.1 million, respectively. Foreign exchange reduced sales by $31.6 million in Q3 and $75.3 million year to date. Gross margin declined in both periods, principally from higher materials and transportation costs and supply-chain-related production inefficiencies. Nine-month operating income was slightly lower year over year. Nine-month net income included a $12.1 million benefit from releasing an uncertain tax position, including interest.
Cash, liquidity and debt: Cash was $42.6 million at September 30, versus $75.4 million at December 31, 2021. Total reported liquidity was $245.4 million, including cash and available revolver and other debt capacity. Total debt was $411.9 million, including $300 million of 9% second-lien notes due 2026 and $104 million drawn on the asset-based revolver. Revolver excess availability was $168.0 million. The company reported compliance with debt covenants and believes liquidity and expected operating cash flows will cover needs for the next 12 months.
Operating cash flow fell sharply year to date, mainly because inventory increased by $136.1 million amid demand and supply-chain constraints. Capital expenditures were $31.8 million. The ABL facility matures in 2027, subject to a springing maturity in December 2025 if the 2026 notes are not repaid or refinanced before then.
Material changes and business trends
- Q3 orders fell 12.7% year over year to $472.0 million; nine-month orders declined 10.6% to $1,387.6 million. Management cited softer EURAF and MEAP demand amid macroeconomic and geopolitical uncertainty.
- Backlog was $943.4 million at September 30: up 5.9% year over year but down 6.7% from December 31, 2021. Shipments delayed by supply constraints supported backlog, while currency translation reduced it.
- Americas Q3 sales increased 25.1% to $238.5 million and segment operating income rose to $22.2 million. EURAF sales rose 6.9% to $160.3 million, but its operating loss widened to $14.2 million. MEAP sales declined 12.5% to $55.9 million, while segment operating income increased to $7.5 million.
- Management estimated approximately $45 million of Q3 sales shifted to future periods because of supply-chain, labor and logistics challenges. Pricing actions were underway, but longer backlog lead times and shipment delays slowed realization.
Outlook, risks and contingencies
The filing provides no specific numerical full-year revenue or earnings guidance. Management said current liquidity and expected cash flows should meet needs over the next 12 months. It warned that ongoing inflation, supply-chain and labor constraints, customer project postponements, and the Russia-Ukraine conflict could materially adversely affect results and cash flows. The company had contracted energy pricing for most European manufacturing locations through 2024, while noting potential natural-gas rationing and supply disruption risks.
Manitowoc began curtailing Russian operations in Q2, cancelled $21 million of Russian orders and stopped accepting new orders. It estimated additional curtailment charges of $5 million to $15 million, subject to change. The company also disclosed ongoing discussions with U.S. regulators over engine emissions/TPEM matters: it recorded a $14.9 million liability, but calculated potential statutory maximum penalties of approximately $174 million and said final resolution could materially affect financial condition, results or cash flows. Management said product-liability reserves were adequate; the filing also identifies warranty and other legal claims. No goodwill impairment trigger was identified, but management cited macroeconomic conditions and market capitalization below book value as factors to monitor.
Key facts for investors to verify
- Whether pricing and cost actions can restore gross margins as inflation and supply-chain inefficiencies persist.
- Whether delayed shipments convert to sales and whether the order/backlog decline signals further demand softening.
- Inventory levels, operating cash flow, free cash flow and remaining revolver availability.
- Progress and final exposure in the EPA/DOJ emissions matter, including whether the recorded reserve changes.
- Actual Russian curtailment charges and any deterioration in goodwill or intangible-asset assumptions.
- The sustainability of reported nine-month earnings given the material uncertain-tax-position release.