Wabash National Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated results; amounts below are USD unless noted. Wabash manufactures trailers, truck bodies, transportation equipment, and parts and services. Its reportable segments are Transportation Solutions (TS) and Parts & Services (P&S).
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $655.2 million | $482.6 million | $1,844.7 million | $1,324.0 million |
| Gross profit / margin | $92.0 million / 14.0% | $51.0 million / 10.6% | $228.1 million / 12.4% | $153.8 million / 11.6% |
| Operating income / margin | $52.9 million / 8.1% | $18.3 million / 3.8% | $108.9 million / 5.9% | $52.2 million / 3.9% |
| Net income attributable to common stockholders | $36.2 million | $11.0 million | $70.8 million | $26.5 million |
| Diluted earnings per share | $0.73 | $0.22 | $1.43 | $0.51 |
- Revenue drivers: Q3 sales rose 35.8% year over year, primarily on stronger trailer and truck-body shipments and higher revenue per unit. Trailer shipments increased 7.3% and truck-body shipments 8.9%. TS sales increased 38.2%; P&S sales increased 11.5%.
- Cash flow: Nine-month operating cash flow was $72.2 million, versus a $74.2 million use in 2021. Investing activities used $40.9 million, including $42.3 million of capital expenditures; financing activities used $21.6 million. Cash and cash equivalents were $81.5 million at quarter-end.
- Liquidity and debt: Reported liquidity, defined as cash plus available revolver capacity, was $349.5 million. Debt principal totaled $448.0 million: $400.0 million of 4.50% senior notes due 2028 and $48.0 million drawn on the revolver. Carrying value of long-term debt was $443.7 million. The company reported compliance with debt covenants.
- Other: Nine-month dividends paid were $12.2 million; share repurchases and withholdings totaled $24.5 million. The quarterly dividend declared was $0.08 per share.
Material changes versus the prior comparable period
- Q3 gross margin improved 3.4 percentage points to 14.0%, which management attributed mainly to shipment volume and pricing actions that helped recover higher materials costs. Nine-month gross margin increased 0.8 percentage points.
- For the first nine months, sales increased 39.3%. Trailer shipments rose 15.4%, while truck-body shipments declined 13.4%, which management linked primarily to supply-chain challenges.
- Working-capital investment remained substantial: during the first nine months, accounts receivable used $71.6 million and inventories used $72.1 million, partly offset by a $101.1 million cash source from accounts payable and accrued liabilities.
- In September, Wabash amended its revolving credit agreement, increasing commitments to $350 million and extending maturity to September 2027. The facility bears variable-rate interest.
- Capital expenditures increased to $42.3 million from $20.2 million in the prior-year nine-month period. The company also consolidated Wabash Parts LLC, a newly formed 50%-owned distribution venture, as a variable-interest entity.
Outlook, risks, and unusual items
- Outlook: Management described the trailer-market outlook and backlog as strong, while noting execution risks. Backlog was approximately $2.319 billion at September 30, up 20% year over year; the company expects to complete most of it within about 15 months. Orders may change or be cancelled.
- Management cited industry forecasts of 2022 U.S. trailer production of approximately 303,000–306,000 units and expects demand to remain supportive into 2023. These are third-party industry forecasts, not company production guidance.
- The company expects 2022 capital expenditures of $80–$90 million. It plans to add 20% more dry-van manufacturing capacity beginning in 2023 by converting refrigerated-trailer floor space.
- Principal risks: Supply-chain and chassis constraints, labor shortages, inflation and commodity-price volatility, ability to ramp production and meet backlog, cyclical demand, and reliance on a limited number of suppliers. Management cautioned that disruption or adverse demand could materially affect results, liquidity, and cash flows.
- Commodity swaps had a $6.4 million net liability at quarter-end; management expects to reclassify approximately $7.1 million of pretax deferred losses to cost of sales over the next 12 months as inventory purchases settle. A 10% change in commodity prices on disclosed purchase commitments was estimated to change cost of goods sold by about $5.0 million. A 100-basis-point rate change on current revolver borrowings was estimated to change annual interest expense by about $0.5 million.
- Unusual items included a $1.0 million impairment of construction-in-progress projects in Q1 2022 and a gain of approximately $0.7 million on a building sale. Management said it found no goodwill impairment indicators during the period. It did not expect the Inflation Reduction Act to have a material financial-statement impact.
- The company is involved in legal and environmental matters. Management did not expect currently identified proceedings to materially affect financial condition or liquidity, but noted outcomes are unpredictable.
Important facts for investors to verify
- Whether backlog converts to shipments and revenue on expected timing, given that orders can be revised or cancelled.
- Whether pricing continues to offset material, freight, labor, and other production-cost pressures without weakening demand or margins.
- Whether supply availability and staffing allow Wabash to ramp production and execute its planned dry-van capacity expansion.
- How working-capital needs, capital spending, and shareholder returns affect operating cash generation and liquidity.
- Revolver availability, variable-rate borrowing costs, covenant headroom, and the company’s ability to service its debt.
- How commodity-hedge losses flow through cost of sales, and whether the disclosed legal and environmental matters or other contingencies change materially.