Business context and reporting period
The Manitowoc Company, Inc. designs and manufactures lifting equipment for the global construction industry, including cranes, aftermarket parts and related services. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2018. Results are reported across the Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments. Dollar amounts are in millions except per-share data.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net sales | $495.3 | $394.6 | $881.4 | $700.4 |
| Gross profit / margin | $90.5 / 18.3% | $76.3 / 19.3% | $158.9 / 18.0% | $128.2 / 18.3% |
| Operating income (loss) | $24.1 | $11.9 | $25.8 | $(9.9) |
| Net income (loss) | $9.7 | $0.5 | $(0.3) | $(35.5) |
| Diluted EPS | $0.27 | $0.01 | $(0.01) | $(1.01) |
- Quarterly growth: Sales increased 25.5%, primarily from higher crane shipments across regions; exchange rates added $15.8 to sales. Gross profit rose, but margin contracted as higher raw-material costs and unfavorable product mix partly offset volume gains.
- Orders and backlog: Q2 orders rose 13.5% to $430.8. Backlog at June 30 was $692.1, up 40.9% from a year earlier.
- Segment trends: Q2 sales increased in all segments: Americas $227.3 (up 41.7%), EURAF $191.2 (up 15.7%), and MEAP $76.8 (up 11.5%). Segment operating income was $14.7, $8.1, and $10.7, respectively. Americas and EURAF earnings improved; MEAP earnings were slightly lower, chiefly due to mix.
- Cash flow: Six-month operating cash flow was $(281.0), versus $(190.9) in 2017. The company attributed the reported outflow largely to working-capital seasonality and the accounting classification of cash receipts from sold receivables. Its non-GAAP adjusted operating cash flow, including those receipts, was $(30.3), compared with $(44.6). Investing cash flow was $243.9, including $250.7 of cash receipts on sold receivables; capital expenditures were $15.2.
- Liquidity and debt: June 30 cash, cash equivalents and restricted cash totaled $83.7, down from $123.0 at year-end. Reported total liquidity was $198.0, including $83.5 cash and $114.5 of revolver availability after letters of credit. Debt was $272.4, including $253.1 carrying value of 12.75% secured second-lien notes due 2021; no revolver borrowings were outstanding at quarter-end. The company reported compliance with debt and securitization covenants.
- Non-GAAP measures: Q2 adjusted EBITDA was $37.5 and adjusted operating income was $28.4; six-month amounts were $54.6 and $36.4, respectively. These are company-defined non-GAAP measures, not substitutes for GAAP results.
Material changes versus comparable periods
- Six-month sales increased 25.8%, supported by higher crane shipments and $41.2 of favorable foreign-exchange effects. Operating results improved from a $9.9 loss to $25.8 income, helped by higher volume and restructuring expense falling to $10.0 from $17.6.
- Despite higher gross profit, gross margin declined year over year in both the quarter and first half because of input costs and product mix.
- Foreign currency effects were mixed: favorable to sales and operating income, but unfavorable to other income/expense, including $8.8 of adverse Q2 currency effects compared with Q2 2017.
- Cash and total liquidity declined from year-end. Management cited seasonal working-capital build, prior-year incentive compensation payments, $16.6 of semiannual note interest, and capital spending as cash uses.
Outlook, commentary, risks and unusual items
- Management said available liquidity and expected operating cash flows should be sufficient for working capital, capital expenditures and ongoing needs in the foreseeable future, and expected covenant compliance over the next 12 months. The filing provides no specific revenue or earnings guidance.
- Management described the cash outflow as consistent with seasonal inventory needs ahead of the Northern Hemisphere summer construction season. Q2 orders improved, particularly in Americas commercial construction and petrochemical markets.
- Key risks include changes in construction and crane demand, raw-material and commodity costs, foreign-exchange movements, execution of restructuring and manufacturing changes, conversion of orders to sales, customer financing, leverage, and potential warranty, product-liability or impairment costs.
- Q2 included a $4.8 discrete tax benefit, primarily from the expiration of the statute of limitations for U.S. federal tax years 2012 and 2013. The company also noted possible future reduction of UK deferred-tax valuation allowances of up to £15 million if sufficient positive evidence emerges.
- The company adopted ASC 606 revenue accounting on January 1, 2018 using the modified retrospective method, with no cumulative adjustment to retained earnings. Prior periods were not restated. It disclosed a nonmaterial prior-period balance-sheet classification error: approximately $8.8 was overstated in other current assets and understated in property, plant and equipment at December 31, 2017.
- Q2 restructuring charges of $3.8 primarily related to executive severance, training tied to crawler-crane production transfer to Shady Grove, Pennsylvania, and European headcount reductions. The headquarters sale generated part of the first-half fixed-asset sale proceeds.
Important facts for investors to verify
- Whether order growth and the $692.1 backlog convert to shipments and sustained profitability, and how much reported growth reflects currency effects.
- Whether gross-margin pressure from materials and product mix persists or eases.
- Working-capital and receivables-securitization cash flows, including the gap between GAAP operating cash flow and the company’s adjusted measure.
- Liquidity, revolver borrowing-base availability, covenant compliance, and ability to service the 12.75% notes due 2021.
- Potential tax valuation-allowance changes and exposure to warranty, product-liability, restructuring, and impairment charges.