Wabash National Corporation — Q1 2018 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2018. Wabash manufactures trailers, truck bodies and related transportation equipment. Results include Supreme Industries, acquired in September 2017, as the newly reported Final Mile Products segment; this makes year-over-year comparisons not fully comparable.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net sales | $491.3 million | $362.7 million |
| Gross profit / margin | $64.1 million / 13.1% | $59.4 million / 16.4% |
| Operating income / margin | $25.7 million / 5.2% | $30.3 million / 8.4% |
| Net income | $21.3 million | $20.2 million |
| Diluted EPS | $0.35 | $0.32 |
| Operating cash flow | $(12.0) million | $65.3 million |
- Sales increased 35.5%, including $75.5 million from Final Mile Products. New trailer shipments rose 21.1% to 13,200 units.
- Gross margin fell 3.3 percentage points. Management cited higher commodity costs, labor inefficiencies, overtime and start-up costs related to production increases.
- Net income increased despite lower operating income, reflecting lower income tax expense and $7.9 million of other income, net, compared with $1.3 million in the prior-year quarter. The filing reports gains on sales of assets in both periods.
- Cash and cash equivalents were $152.5 million at March 31, 2018; cash, cash equivalents and restricted cash totaled $158.9 million. Operating cash use reflected a $40.4 million net working-capital outflow, especially higher receivables and inventory.
- Total debt and capital lease obligations were $542.2 million; management reported debt-to-equity of approximately 1.1:1. The company had no revolving-credit borrowings and reported $322.2 million of liquidity, including available revolver capacity. Current assets were $637.2 million and current liabilities $334.4 million.
Material changes and management commentary
- Commercial Trailer Products sales rose 19.2%; Diversified Products sales rose 5.9%. Supreme contributed $75.5 million in Final Mile Products sales and $11.5 million in segment gross profit.
- Commercial Trailer Products gross margin declined to 11.2% from 15.3%; Diversified Products gross margin declined to 18.2% from 19.6%. Final Mile Products reported a 15.3% gross margin for the quarter.
- Backlog was $1.279 billion at March 31, compared with $1.213 billion at December 31, 2017 and $863 million at March 31, 2017. The company expected to complete most of the March backlog within 12 months.
- Q1 investing activities provided $6.5 million, including proceeds from asset sales, while financing activities used $27.1 million, including $17.2 million to repurchase convertible notes, $5.4 million for stock repurchases and $4.7 million for dividends.
Outlook, risks and unusual items
- Management described demand across segments as strong and expected trailer industry production to remain above replacement demand through 2018. It did not provide company-specific revenue or earnings guidance. External forecasts cited in the filing projected 2018 industry production of approximately 305,000–320,000 trailers.
- Planned 2018 capital spending was $40–$50 million. Management said liquidity was adequate for planned operations, working capital and capital expenditures for the remainder of 2018.
- Key risks include commodity-price increases, supply shortages for components and raw materials, manufacturing execution and labor costs, economic weakness, customer and supplier concentration, and integrating Supreme and realizing expected benefits. A 100-basis-point change in floating rates was estimated to affect annual interest expense by $1.9 million.
- The $325 million senior notes due 2025 carry a 5.50% coupon; the term loan balance was $187.1 million. Convertible notes matured May 1, 2018; the filing states the company subsequently settled them for approximately $63 million in cash, excluding interest.
- Contingencies include Supreme-related litigation with a plaintiff alleging approximately $40 million in damages; management said it believed the allegations were without merit and did not expect a material adverse effect. Other legal matters remain subject to uncertainty; the filing says it is not currently possible to estimate a range of possible losses beyond accrued liabilities for certain matters.
- The company adopted the new revenue-recognition standard effective January 1, 2018, with no financial-statement impact. Accounting for certain Tax Cuts and Jobs Act effects remained incomplete at quarter-end.
Important facts for investors to verify
- Whether lower gross margins persist, and whether pricing, productivity and cost actions offset commodity and labor pressures.
- How much of sales growth and backlog conversion is attributable to Supreme, and whether acquisition synergies and integration objectives are achieved.
- Working-capital trends, particularly receivables, inventory, cash conversion and the sustainability of reported liquidity after the convertible-note cash settlement.
- The realized impact of raw-material and component costs, supplier availability, and floating-rate exposure on future results.
- Developments in the Supreme litigation and other contingencies, and the final purchase-price allocation for Supreme, which was still preliminary.