Wabash National Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Wabash manufactures commercial trailers, diversified transportation and industrial products, and final-mile truck bodies. Amounts below are in U.S. dollars; financial-statement amounts are in millions unless noted.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net sales | $339.2 | $626.1 | $726.2 | $1,159.2 |
| Gross profit / margin | $34.3 / 10.1% | $87.7 / 14.0% | $71.1 / 9.8% | $156.3 / 13.5% |
| Operating income (loss) | $6.0 | $47.5 | $(104.1) | $72.7 |
| Net income (loss) | $(0.1) | $31.0 | $(106.8) | $45.7 |
| Diluted EPS | $0.00 | $0.56 | $(2.01) | $0.82 |
- Q2 sales fell 45.8% year over year, while six-month sales declined 37.4%. Management attributed the contraction principally to softer demand, worsened by COVID-19; Q2 new-trailer shipments fell 44.0% and truck-body shipments fell 62.5%.
- Operating results for the first half included $106.8 million of goodwill impairment charges recorded in Q1: $95.8 million for Final Mile Products and $11.0 million for Tank Trailers. Q2 impairment and other was a $1.7 million net credit, primarily from a gain on asset sales.
- Q2 operating income also reflected that manufacturing fixed costs did not fall as quickly as sales. Final Mile Products’ first-half operating loss was $114.6 million, including the goodwill impairment.
- Six-month operating cash flow was $22.7 million, versus $61.0 million in 2019. Capital expenditures were $10.9 million; cash and cash equivalents declined to $136.0 million from $140.5 million at year-end 2019.
- At June 30, cash was $136.0 million, long-term debt net of fees was $455.8 million, and finance lease obligations totaled $0.5 million. The $175 million revolving facility had no borrowings outstanding after the company repaid a precautionary $45 million draw in Q2. Reported liquidity, including available revolver capacity, was $303.6 million.
- Total assets were $1.142 billion, down from $1.305 billion at year-end 2019; stockholders’ equity was $393.2 million, down from $521.0 million, primarily reflecting the impairment and first-half loss. Inventory rose to $201.1 million from $186.9 million.
Outlook, management commentary, and risks
- Management said it expected the COVID-19 downturn’s duration and severity to remain uncertain, but believed liquidity was adequate to meet cash obligations for at least 12 months. The company reported compliance with debt covenants and no expected pandemic-related effect on its ability to remain compliant.
- Estimated 2020 capital spending was approximately $20 million, depending on the duration and severity of pandemic impacts. The company reported backlog of approximately $0.8 billion at June 30, versus $1.1 billion at December 31, 2019 and $1.2 billion a year earlier; it expected to complete most of the June backlog within 12 months. Orders may change or be cancelled.
- Industry forecasts cited in the filing were revised upward from April: ACT estimated U.S. trailer production of 177,050 in 2020 and FTR estimated 189,000. Management cautioned that pandemic uncertainty could cause actual production and demand to differ materially. These are third-party estimates, not company guidance.
- Management described cost-containment steps including furloughs and temporary plant idling, headcount and discretionary-spending reductions, travel restrictions, and a temporary freeze on share repurchases. It also cited weaker demand and reduced chassis availability as pressures, particularly for Final Mile Products.
- Key risks include prolonged pandemic disruption to demand, operations, customers and suppliers; supply constraints and commodity-price volatility; and potential further goodwill or intangible-asset impairment. Process Systems’ estimated fair value exceeded carrying value by only about 3% in the Q1 analysis; sensitivity tests indicated that modest unfavorable assumption changes could produce impairment.
- Floating-rate debt exposure: management estimated that a 100-basis-point rate change would affect annual interest expense by approximately $1.4 million, based on the debt outstanding described in the filing.
- The company reported ongoing legal and environmental matters, but management did not expect currently known proceedings to materially affect financial condition or liquidity. The Indiana environmental investigation remained under review, with an initial report expected in Q3 2020.
Most important facts for investors to verify
- Whether demand, shipments, and backlog stabilize or deteriorate further, and whether backlog converts to revenue as expected.
- Whether lower production volumes continue to pressure margins because fixed manufacturing costs cannot be reduced proportionately.
- Whether liquidity, covenant compliance, and debt servicing remain adequate through the downturn; confirm revolver availability and upcoming 2022 term-loan maturity terms.
- Whether reporting-unit valuations—especially Process Systems after its narrow estimated fair-value cushion—require further impairment charges.
- Whether supplier chassis availability, raw-material costs, and pandemic-related disruption affect production, delivery schedules, or the company’s capital-spending estimate.