Wabash National Corporation (NYSE: WNC) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Comparisons are with Q1 2021 unless otherwise stated. Amounts are in U.S. dollars.
Business context
Wabash designs and manufactures transportation equipment and provides related parts and services. Its reportable segments are Transportation Solutions (TS) and Parts & Services (P&S). TS includes trailers, truck bodies and related products; P&S includes parts, services, upfitting, composites and engineered products.
Financial performance
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net sales | $546.8 million | $392.0 million; up 39.5% |
| Gross profit / margin | $58.1 million / 10.6% | $47.2 million / 12.0% |
| Operating income / margin | $20.1 million / 3.7% | $11.2 million / 2.8% |
| Net income | $12.1 million; diluted EPS $0.24 | $3.2 million; diluted EPS $0.06 |
| Operating cash flow | $(34.6) million | $(22.4) million |
| Capital expenditures | $9.9 million | $4.2 million |
| Cash and cash equivalents | $72.8 million at March 31 | $71.8 million at December 31, 2021 |
| Total debt | $489.0 million | $433.0 million at December 31, 2021 |
| Liquidity | $203.1 million | $258.0 million at December 31, 2021 |
New trailer shipments rose 21.1% to 11,695 units, while truck-body shipments fell 25.6% to 3,540, primarily because of supply constraints. TS sales increased 45.5% to $502.1 million; P&S sales decreased 3.9% to $46.7 million, partly reflecting the 2021 Extract Technology divestiture and service-location closures. On a comparable basis excluding those effects, P&S sales increased approximately $7.4 million.
Gross margin declined as material and manufacturing costs rose; pricing actions only partially offset those costs. Net income improved substantially, while interest expense fell to $4.9 million from $6.2 million, primarily because the prior-year period included interest on debt repaid in Q4 2021. The effective tax rate was 20.3%, versus 36.3%.
Cash, debt and capital allocation
Operating activities used $34.6 million, including a $61.4 million increase in working capital. Receivables rose $113.5 million during the quarter; management cited higher shipments and the timing of customer collections. Inventory increased $49.1 million. Financing activities provided $44.1 million, principally from revolving-credit borrowings; investing activities used $8.5 million.
Debt comprised $400 million of 4.50% senior notes due 2028 and $89.0 million drawn on a $225 million revolving facility due December 2023. The company reported compliance with debt covenants. It paid $4.3 million of dividends and reported $8.0 million of stock repurchases and withholding-related purchases in financing cash flows; $131.4 million remained under the repurchase authorization at quarter-end.
Outlook, risks and unusual items
- Backlog was approximately $2.339 billion at March 31, down 7% from December 31, 2021 but up 51% year over year. Wabash expected to complete most of it within 12 months; orders may change or be canceled.
- Management described 2022 trailer-market demand as strong and cited industry production estimates of 300,000–315,000 U.S. trailers. These are third-party forecasts, not company revenue guidance.
- Management expects 2022 capital expenditures of $80–$90 million and plans to add 20% more dry-van manufacturing capacity beginning in 2023 by converting refrigerated-trailer floor space.
- Key execution risks include supply-chain disruption, shortages of chassis and other components, labor constraints, inflation in materials and freight, and the ability to ramp production and pass cost increases through pricing. COVID-19-related effects and their duration remained uncertain.
- Commodity swap contracts had a $22.7 million net asset fair value. The company expected to reclassify approximately $21.9 million of pretax deferred gains to cost of sales over the next 12 months as related inventory purchases settle; hedges do not cover all commodity exposure.
- Q1 unusual items included approximately $1.0 million of construction-in-progress impairment, partly offset by a $0.7 million gain on sale of a building and land. The company also recorded $13.6 million of net-of-tax unrealized derivative gains in other comprehensive income.
- Management did not expect existing legal proceedings to materially affect financial condition or liquidity, while noting outcomes are unpredictable. It reported no goodwill impairment indicators in the quarter.
Important facts for investors to verify
- Whether backlog converts to shipments and cash on expected timelines, including the risk of order changes or cancellations.
- Whether pricing and productivity improvements can offset continued materials, freight and manufacturing-cost pressure and restore gross margin.
- Whether supplier availability and labor capacity allow the planned production ramp and 2023 dry-van capacity expansion.
- Working-capital needs, receivable collections, revolving-credit usage and liquidity as production scales; the filing reports $203.1 million of liquidity at quarter-end.
- Actual 2022 capital spending versus the $80–$90 million expectation, and progress on capacity plans and shareholder returns.
- The timing and earnings impact of commodity-hedge gains, and developments in legal and environmental matters.