Manitowoc Company, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unless otherwise stated, financial amounts are in USD millions. Manitowoc designs, manufactures, sells and supports cranes and related aftermarket products and services. It reports Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $497.2 | $463.6 | $956.2 | $817.9 |
| Gross profit | $88.7 | $90.4 | $173.7 | $158.8 |
| Gross margin | 17.8% | 19.5% | 18.2% | 19.4% |
| Operating income | $18.3 | $26.7 | $35.9 | $37.4 |
| Net income | $15.1 | $17.9 | $18.2 | $14.8 |
| Diluted EPS | $0.42 | $0.50 | $0.51 | $0.42 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $5.7 | $49.7 |
| Free cash flow | $(8.0) | $1.5 | $(11.1) | $34.3 |
First-half capital expenditures were $16.8, versus $15.4 a year earlier. Cash and cash equivalents were $42.5 at June 30, down from $75.4 at year-end 2021. Total debt was $393.2, including $300.0 of 9% second-lien notes due 2026 and $80.0 outstanding on the asset-based revolver. Reported total liquidity was $267.7, including cash and available borrowing capacity. The company reported compliance with debt covenants and expects to remain compliant over the next 12 months.
Material changes versus comparable periods
- Q2 sales rose 7.2%, while first-half sales rose 16.9%. Acquisitions contributed $44.8 to Q2 and $86.1 to first-half sales; foreign exchange reduced sales by $27.9 and $43.7, respectively.
- Q2 gross profit fell $1.7 and gross margin declined 1.7 percentage points, mainly reflecting higher material and transportation costs. First-half gross profit increased $14.9, but gross margin declined 1.2 percentage points.
- Q2 operating income fell $8.4. First-half operating income declined $1.5. Higher input and transportation costs weighed on results; acquisition-related costs also increased selling and administrative expenses.
- Q2 orders decreased 19.2% to $434.0; first-half orders decreased 9.4% to $915.6. Backlog was $947.8 at June 30, 28.8% above the prior-year level but 6.2% below December 31, 2021.
- First-half operating cash flow fell to $5.7 from $49.7, primarily due to a $109.2 inventory cash outflow amid supply constraints. Inventory increased to $668.9 from $576.8 at year-end.
- The Q2 tax benefit of $7.1 included release of a $12.1 uncertain tax position. This helped support reported net income; the release is a notable non-recurring factor.
Management commentary, outlook and risks
- Management cited inflation, supply-chain, labor and logistics constraints as limiting production and shipments. Price increases and provisional pricing were implemented, but pricing realization lags because of backlog lead times. Management noted some easing in raw-material costs but expected continued wage, logistics, energy and component cost pressure.
- Management attributed softer orders to inflation, rising interest rates and near-term economic uncertainty. The filing provides no specific numerical earnings or revenue guidance. Management believes liquidity and expected operating cash flows can meet needs over the subsequent 12 months.
- The Ukraine conflict and related sanctions increased European component, raw-material and energy volatility and may further disrupt supply. Manitowoc began curtailing Russian operations in Q2, cancelled $21.0 of orders, and stopped taking new orders. Estimated curtailment charges are $5.0–$15.0; actual charges could differ materially.
- The company is in confidential discussions with U.S. authorities regarding EPA/DOJ matters related to emissions-program and certification issues. It recorded a $14.9 liability, while estimating statutory maximum Clean Air Act penalties of approximately $174.0. The company says it has strong defenses; final resolution could materially affect results, financial condition or cash flows.
- Other exposures include product-liability and warranty claims, buyback commitments of $40.8, and other loss guarantees with maximum liabilities of $14.2. Management does not expect the ordinary-course legal matters, in aggregate, to have a material adverse effect, but estimates may change.
Most important facts for investors to verify
- Whether orders and backlog convert into shipments and revenue despite supply constraints, and whether the order decline continues.
- Whether pricing offsets inflation and restores gross margins, particularly in Americas and EURAF.
- Inventory levels, operating cash generation and liquidity as production and delivery constraints evolve.
- Actual Russia-curtailment costs compared with the $5.0–$15.0 estimate and any effects of sanctions or currency movements.
- Developments in the EPA/DOJ matter, including the adequacy of the $14.9 recorded liability relative to potential exposure.
- Debt covenant headroom and refinancing or repayment plans for the 9% notes before the revolver’s springing maturity condition in December 2025.