The Manitowoc Company, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Manitowoc designs, manufactures and supports cranes and provides aftermarket parts and services. Its reportable segments are Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP). Comparisons are with 2020, when results were significantly affected by the COVID-19 pandemic.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $463.6 million | $328.3 million | $817.9 million | $657.5 million |
| Gross profit | $90.4 million | $48.4 million | $158.8 million | $111.6 million |
| Gross margin | 19.5% | 14.7% | 19.4% | 17.0% |
| Operating income (loss) | $26.7 million | $(1.6) million | $37.4 million | $4.1 million |
| Net income (loss) | $17.9 million | $(12.7) million | $14.8 million | $(20.5) million |
| Diluted EPS | $0.50 | $(0.37) | $0.42 | $(0.59) |
- Q2 sales rose 41.2%; first-half sales rose 24.4%. Higher crane shipments, improved demand and a larger shippable backlog drove growth. Favorable currency movements added approximately $21.3 million to Q2 sales and $36.8 million to first-half sales.
- Gross margin improved on favorable product mix and better fixed-cost absorption, partly offset by higher raw-material costs and disruption from the cybersecurity incident.
- Q2 segment operating income was $21.9 million in Americas, $5.7 million in EURAF and $9.8 million in MEAP. For the first half, the respective figures were $28.9 million, $12.0 million and $16.6 million.
- Orders were $537.2 million in Q2, up 125.8%, and $1.01 billion for the first half, up 64.9%. Backlog at June 30 was $736.1 million, up 71.0% from a year earlier.
- Operating cash flow was $8.9 million in Q2 and $49.7 million in the first half, versus cash use of $20.2 million and $98.7 million, respectively, in 2020. First-half free cash flow, a non-GAAP measure, was $34.3 million versus $(106.7) million.
Balance sheet, debt and liquidity
- Cash and equivalents were $158.5 million at June 30, compared with $128.7 million at year-end 2020. Net working capital grew, including a $56.6 million increase in net inventories since year-end to $529.7 million.
- Total debt was $303.7 million, including $300.0 million of 9.0% second-lien notes due 2026; no borrowings were outstanding under the $275 million asset-based revolver. Revolver availability, net of letters of credit, was approximately $250.6 million.
- Reported total liquidity was $454.1 million, including cash and available revolver and other debt capacity. The company said it expected liquidity and operating cash flows to cover working capital, capital expenditures and ongoing needs over the subsequent 12 months, and reported compliance with debt covenants.
- Capital expenditures were $15.4 million in the first half, compared with $8.0 million in the prior-year period. The company paid down $7.8 million of other debt and reported no revolver borrowing.
Material changes, outlook and risks
- Management said orders and backlog improved in all three segments as the global economy recovered from the pandemic. The filing provides no quantified full-year revenue, earnings or cash-flow guidance.
- A June 2021 cybersecurity incident caused systems outages, business delays and disruptions during the quarter. Systems and operations were restored; the company was investigating costs and potential insurance coverage and expensed costs as incurred. The financial impact and any recovery were not clearly quantified.
- In Q2, the company recorded a $3.6 million expense to fully reserve a note receivable tied to the 2014 sale of its Chinese joint venture. Higher short-term incentive compensation and input costs also weighed on expenses or segment results.
- On July 19, 2021, after quarter-end, Manitowoc agreed to buy substantially all assets and liabilities of H&E Equipment Services’ crane business for approximately $130 million in cash. Closing remained subject to customary conditions and regulatory approvals.
- Principal risks cited include continuing pandemic effects on demand and supply chains, raw-material costs, customer financing, converting orders to shipments, foreign-exchange movements, cybersecurity and technology risks, product liability and warranty claims, acquisition execution, and high debt leverage.
- Management said ordinary-course legal matters, including product-related and asbestos claims, were not expected to have a material adverse effect. It noted estimates and outcomes could change; product-liability reserves were $10.0 million and warranty reserves were $59.5 million at quarter-end.
Important facts for investors to verify
- Whether elevated orders and backlog convert into shipments and profitable sales, and how much reported growth reflects currency effects and the pandemic comparison.
- The ongoing effects and costs of the cybersecurity incident, including any insurance recovery and any further operational disruption.
- Whether higher raw-material and other input costs, working-capital needs and inventory growth affect margins and cash generation.
- Available borrowing capacity, covenant compliance and the cost and funding of the proposed $130 million H&E crane-business acquisition.
- The adequacy of warranty, product-liability and other contingency reserves, and potential changes in tax valuation allowances or unrecognized tax benefits.