Wabash National Corporation — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed February 25, 2020. The filing also reports unaudited fourth-quarter results. Amounts below are U.S. dollars.
Business context
Wabash manufactures trailers, truck bodies, tank trailers, composite products, and related equipment and services. It reports three segments: Commercial Trailer Products (CTP), Diversified Products (DPG), and Final Mile Products (FMP). In January 2019, Wabash divested its Aviation and Truck Equipment business, previously part of DPG.
Financial performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Net sales | $2,319.1 million | $2,267.3 million | +2.3% |
| Gross profit / margin | $306.4 million / 13.2% | $283.7 million / 12.5% | +8.0%; +0.7 percentage points |
| Operating income / margin | $142.8 million / 6.2% | $111.0 million / 4.9% | +28.7%; +1.3 percentage points |
| Net income | $89.6 million | $69.4 million | +29.0% |
| Diluted EPS | $1.62 | $1.19 | +$0.43 |
| Cash from operations | $146.3 million | $112.5 million | +$33.8 million |
| Capital expenditures | $37.6 million | $34.0 million | +$3.6 million |
Annual sales growth was led by FMP, whose segment sales rose 23.4% to $441.9 million, supported by higher truck-body shipments and improved chassis availability. CTP sales declined 1.0% to $1.52 billion as new-trailer shipments fell 8.2%. DPG sales declined 2.4% to $384.5 million, partly reflecting the AVTE divestiture. Total new trailer shipments reported for CTP and DPG fell 7.5% to 57,500 units.
Fourth quarter: Net sales were $579.0 million versus $610.2 million in Q4 2018; gross profit was $72.3 million versus $69.1 million; net income was $18.4 million versus $11.6 million; and diluted EPS was $0.34 versus $0.21.
Liquidity, debt, and capital allocation
At year-end, cash and cash equivalents were $140.5 million, working capital was $282.0 million, and total debt and finance lease obligations were $456.1 million. Wabash reported liquidity of $308.1 million, comprising cash and available revolving-credit capacity; it had no revolving-credit borrowings and approximately $167.6 million available under the facility. Stockholders’ equity was $521.0 million.
Wabash generated $146.3 million of operating cash flow and used $36.9 million in investing activities. Financing activities used $101.6 million, including $50.5 million of term-loan principal payments, $33.7 million of share repurchases, and $17.8 million of dividends. Term-loan borrowings ended the year at $135.2 million, down from $185.7 million; $325 million of 5.50% senior notes mature in 2025. The company stated it was in compliance with debt covenants.
Changes, outlook, and risks
- Industry and outlook: Management described 2019 as another strong trailer-industry year but expected softer 2020 demand. ACT estimated approximately 239,000 U.S. trailers in 2020, down 28.3% from 2019; FTR forecast approximately 270,000, down 17.9%. Management expected demand to remain above estimated annual replacement demand of about 220,000 units and believed it could protect or improve margins through pricing and productivity measures.
- Backlog: Orders stood at approximately $1.127 billion at December 31, 2019, down from $1.788 billion a year earlier. Most was expected to be completed within 12 months; orders can change or be cancelled.
- Goodwill sensitivity: FMP’s year-end impairment test found fair value only about 3% above carrying value. Management estimated that a 100-basis-point decline in forecast EBITDA margin could imply a $19.5 million impairment; a 50-basis-point higher discount rate, $5.0 million; and a 100-basis-point lower terminal growth rate, $5.4 million. The filing also notes a post-year-end decline in market capitalization that could prompt further impairment testing.
- Other risks: The business is cyclical and exposed to freight and economic conditions, raw-material price volatility and supply constraints, customer concentration (top five customers were 27% of sales), chassis availability for FMP, competition, acquisition-integration execution, and debt-service and covenant constraints. Tariffs and regulatory uncertainty, including trailer emissions rules, may also affect costs or demand.
- Contingencies and unusual items: The company reported no 2019 impairment expense; 2018 included $25.0 million of impairment, mainly related to AVTE. It disclosed environmental PRP matters in South Carolina and Indiana, which management did not expect to materially affect results based on information available, and $0.1 million of estimated remediation reserves. The financial statements received an unqualified audit opinion; the auditor identified goodwill valuation as a critical audit matter.
Important facts for investors to verify
- Whether 2020 trailer demand, order trends, and the substantial backlog decline translate into lower production, pricing pressure, or working-capital changes.
- FMP’s operating improvement and the assumptions supporting its narrow goodwill valuation cushion.
- Whether raw-material and component cost increases can be passed through, and whether supplier or chassis constraints recur.
- Debt reduction, liquidity, and covenant headroom as the term loan approaches its 2022 maturity and the senior notes remain outstanding through 2025.
- The final exposure, if any, from the environmental matters and other legal contingencies.