Wabash National Corporation — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also presents unaudited quarterly results, including fourth-quarter 2018. Wabash designs and manufactures commercial trailers, tank trailers, truck bodies, composite products, and related equipment and services across Commercial Trailer Products, Diversified Products, and Final Mile Products.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Net sales | $2.267 billion | $1.767 billion |
| Gross profit / margin | $283.7 million / 12.5% | $260.9 million / 14.8% |
| Operating income / margin | $111.0 million / 4.9% | $130.8 million / 7.4% |
| Net income | $69.4 million | $111.4 million |
| Diluted earnings per share | $1.19 | $1.78 |
| Cash provided by operating activities | $112.5 million | $144.4 million |
| Capital expenditures | $34.0 million | $26.1 million |
| Cash and cash equivalents at year-end | $132.7 million | $191.5 million |
| Total debt and capital lease obligations | $505.9 million | $551.4 million |
| Working capital | $277.7 million | $292.7 million |
Year-end liquidity, defined by the company as cash plus available revolving-credit capacity, was $299.5 million. The $175 million revolving facility had no borrowings outstanding at year-end; Wabash reported covenant compliance. The company declared $0.305 per share in 2018 dividends and said its quarterly dividend would rise to $0.08 beginning in January 2019.
Material changes and operating performance
- Sales rose 28.3%, reflecting stronger trailer shipments and a full year of Supreme, acquired in September 2017. Final Mile Products reported $358.2 million in sales, versus $70.5 million in 2017, which included only a partial year.
- Commercial Trailer Products sales increased 14.0%; new trailer shipments rose 12.7%. Diversified Products sales increased 9.0%, with higher tank-trailer demand.
- Despite sales growth, gross margin fell to 12.5% from 14.8%. Management cited raw-material and component inflation, higher labor costs, labor constraints, and supplier-related production interruptions.
- Net income declined 37.7%. Interest expense increased to $28.8 million from $16.4 million, and the company recorded $25.0 million of impairment charges related to Aviation and Truck Equipment. Lower operating income also reflected weaker segment margins.
- Operating cash flow decreased to $112.5 million, including a $21.7 million use of cash from working capital. Cash declined by $58.8 million during the year.
- Wabash used $80.2 million of cash to settle $44.6 million principal of its 2018 convertible notes. It also repurchased shares and paid $17.8 million in cash dividends.
Outlook, risks, and unusual items
- Management described the 2019 trailer-demand outlook as strong but expected industry production to ease from 2018’s record level. Industry forecasters cited by Wabash estimated 2019 demand of approximately 312,000–316,000 trailers; these are industry estimates, not company revenue or earnings guidance.
- The company expected 2019 capital expenditures of $40–$45 million and said cash, borrowing capacity, and expected operating cash flows should fund planned operations, working capital, capital spending, and debt service.
- Key risks include the cyclical trailer market; tariffs and volatility in steel, aluminum, and other inputs; limited suppliers and possible component shortages; labor availability and production disruption; customer concentration; and the ability to pass cost increases through to customers.
- At December 31, 2018, backlog was approximately $1.788 billion, compared with $1.213 billion a year earlier. Orders may change or be cancelled, and backlog is not a guarantee of future revenue.
- On January 22, 2019, Wabash announced completion of the sale of its Aviation and Truck Equipment business. The business had been impaired by $25.0 million in 2018, including $13.0 million to fully impair its remaining current assets based on the proposed transaction economics.
- Contingencies include a putative securities class action related to Supreme’s historical backlog statements and an environmental matter for which the company described the expected settlement payment as immaterial. Management did not expect existing legal proceedings to materially affect financial condition or liquidity, but outcomes remain uncertain.
- Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective at year-end.
Most important facts for investors to verify
- Whether margin pressure from material costs, labor constraints, and supplier interruptions persists, and whether pricing and productivity actions offset it.
- How much of the elevated backlog converts to shipments and revenue, and whether trailer demand remains above replacement levels.
- Post-divestiture segment performance, proceeds and other terms of the Aviation and Truck Equipment sale, and any remaining related obligations.
- Debt-service capacity and covenant headroom given $505.9 million of debt and capital leases, cash outflows for shareholder returns, and variable-rate term debt.
- Whether working-capital requirements and cash generation support planned capital spending, the dividend, and further repurchases without weakening liquidity.
- Developments in the Supreme litigation and environmental matter, and the potential effects of tariffs, supply constraints, customer concentration, and economic downturns.