Wabash National Corporation (NYSE: WNC) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results; comparisons are with the corresponding 2021 periods unless stated otherwise. Wabash designs and manufactures transportation equipment, trailers, truck bodies, components, and related services. Its reportable segments are Transportation Solutions (TS) and Parts & Services (P&S).
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $642.8 million | $449.4 million | $1,189.5 million | $841.4 million |
| Gross profit / margin | $78.0 million / 12.1% | $55.6 million / 12.4% | $136.1 million / 11.4% | $102.8 million / 12.2% |
| Operating income / margin | $35.9 million / 5.6% | $22.7 million / 5.0% | $56.0 million / 4.7% | $33.9 million / 4.0% |
| Net income attributable to common stockholders | $22.6 million | $12.3 million | $34.6 million | $15.5 million |
| Diluted EPS | $0.46 | $0.24 | $0.70 | $0.29 |
- Revenue drivers: Q2 sales increased 43.0%; new trailer shipments rose 17.9%. TS sales increased 48.2%, while P&S sales rose 3.4%. For the six months, sales grew 41.4%, led by TS; P&S sales were slightly lower than a year earlier.
- Margins and costs: Gross margin declined year over year in both comparison periods, mainly because higher material costs outpaced pricing actions. Q2 operating margin improved, with lower selling, general and administrative expenses as a share of sales and reduced intangible amortization.
- Cash flow: First-half operating cash flow was $82.7 million, versus cash used of $13.1 million in 2021. Working capital provided cash overall, as higher payables and accrued liabilities more than offset increases in receivables and inventory. Capital expenditures were $22.4 million.
- Balance sheet and liquidity: June 30 cash was $138.5 million; total debt principal was $459.0 million, comprising $400 million of 4.50% senior notes due 2028 and $59 million drawn on the revolving facility. Reported liquidity, defined as cash plus available revolver capacity, was $298.1 million. The revolver matures December 2023. The company reported covenant compliance.
- Other metrics: Backlog was approximately $2.297 billion, up 71% from June 2021 and down 2% from March 2022. The company declared dividends of $0.08 per share in Q2. First-half share repurchases and withholding-related repurchases totaled $13.3 million in cash flows.
Material changes and unusual items
- Compared with Q2 2021, higher trailer shipments and stronger demand drove much of the sales and earnings growth. Truck-body shipments fell 17.3% in Q2, primarily due to supply constraints, although truck-body revenue increased.
- First-half 2022 comprehensive income attributable to common stockholders was $28.5 million, below net income attributable to common stockholders of $34.6 million, reflecting derivative and foreign-currency losses recorded in other comprehensive income. Derivatives had a net liability fair value of $1.5 million at June 30; the company expected to reclassify about $4.2 million of pretax deferred hedge losses to cost of sales over the next 12 months.
- First-half 2022 impairment and other included a $1.0 million impairment of construction-in-progress projects, partly offset by a gain on sale of a building. Q2 2021 included a $1.9 million gain from the sale of Extract Technology, which affects comparisons.
- Wabash formed Wabash Parts LLC with a 50% partner. Wabash consolidates it as the primary beneficiary of a variable interest entity; the partner has a put right that could require Wabash to buy its interest. The put had not been exercised at quarter-end.
Outlook, commentary, and risks
- Management described demand and backlog as strong and said it expected to fulfill most June 30 backlog within 12 months. Industry forecasts cited in the filing estimated 2022 U.S. trailer production of approximately 305,000–311,000 units. These are third-party industry estimates, not company revenue or earnings guidance.
- Management planned to increase dry-van manufacturing capacity by 20% beginning in 2023, converting floor space from traditional refrigerated-trailer production. It expected 2022 capital expenditures of $80–$90 million.
- The filing provides no specific company earnings or revenue guidance. Management emphasized pricing, productivity, cost management, and capital discipline while pursuing growth and diversification.
- Key risks include supply-chain and chassis constraints, raw-material inflation, labor shortages, production ramp-up challenges, cyclical demand, and dependence on a limited number of suppliers. Management cautioned that prolonged or worsening disruptions could materially affect operations, financial condition, and cash flows.
- Commodity purchase commitments were $90.3 million through December 2022. A hypothetical 10% change in commodity prices on those commitments would change cost of goods sold by approximately $9.0 million over a one-year period, before considering competitive conditions or management responses. A 100-basis-point rate change on revolver borrowings would change annual interest expense by about $0.6 million.
- Management said existing legal proceedings were not expected to materially affect financial condition or liquidity if resolved adversely, but noted outcomes are unpredictable. It also identified environmental matters; the company did not expect the described matters to have a material adverse effect based on information available.
Important facts for investors to verify
- Whether the backlog converts to shipments and revenue on expected timelines, given that orders may change or be cancelled.
- Whether material, freight, labor, and supply constraints ease, and whether pricing and productivity can sustain or improve margins.
- How the planned 20% dry-van capacity expansion and $80–$90 million 2022 capital program affect production, cash flow, and returns.
- Revolver availability and refinancing needs ahead of its December 2023 maturity, alongside the company’s debt service and capital-return plans.
- Potential effects of commodity hedge losses, the Wabash Parts LLC partner put right, and legal or environmental matters.