Business context and reporting period
The Manitowoc Company, Inc. designs, manufactures, markets and supports cranes and related products, with aftermarket parts and services. It reports Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments. This Form 10-Q covers the quarter and nine months ended September 30, 2021; amounts below are in millions of dollars except per-share data.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $404.5 | $355.6 | $1,222.4 | $1,013.1 |
| Gross profit / margin | $69.0 / 17.1% | $65.1 / 18.3% | $227.8 / 18.6% | $176.7 / 17.4% |
| Operating income | $7.3 | $11.7 | $44.7 | $15.8 |
| Net income (loss) | $(0.2) | $(0.4) | $14.6 | $(20.9) |
| Diluted EPS | $(0.01) | $(0.01) | $0.41 | $(0.60) |
- Q3 sales rose 13.8%, but gross margin declined 1.2 percentage points, primarily from higher material and transportation costs. Q3 operating income fell despite higher sales; EURAF reported a $5.4 operating loss versus $7.3 income a year earlier.
- Nine-month sales increased 20.7% and operating income improved substantially; management attributed the gains mainly to stronger shipments and mix, partially offset by cost inflation and supply constraints.
- Orders were $535.2 in Q3, up 37.3%; nine-month orders were $1,546.0, up 54.2%. Backlog at September 30 was $890.6, up 91.6% from a year earlier.
- Nine-month operating cash flow was $68.1, compared with an outflow of $70.9 in 2020. Free cash flow, a non-GAAP measure defined as operating cash flow less capital expenditures, was $45.8 versus an outflow of $86.2. Inventory increased $94.4 from year-end, partly offset by a $77.1 increase in accounts payable.
- At September 30, cash was $222.3; total debt was $408.3, including $300.0 of 9% second-lien notes due 2026 and $100.0 drawn on the ABL revolver. Reported total liquidity was $388.9, including $226.6 of revolver borrowing capacity. The company reported compliance with debt covenants.
- Current assets were $1,052.5 and current liabilities $526.9. The company said liquidity and expected operating cash flows should cover working capital, capital expenditure and other operating needs for the following 12 months.
Material changes, outlook and risks
- In September, Manitowoc acquired substantially all assets of Aspen Equipment for approximately $50.9; the purchase-price allocation remained provisional. Aspen’s results were included in Americas and had no material consolidated impact through September 30.
- On October 1, after quarter-end, the company acquired the crane business of H&E Equipment Services for a preliminary $130.0, subject to adjustments. The transaction was funded from existing cash resources, including use of the ABL revolver.
- Supply-chain and shipping constraints, higher material and transportation costs, and labor pressures limited the ability to meet higher demand. COVID-19 effects remain uncertain. Management described contingency planning to mitigate supply disruptions but provided no quantitative full-year guidance in the filing.
- A June 2021 cybersecurity incident caused business delays and disruptions, particularly in the second quarter; associated costs were expensed as incurred while potential insurance recoveries remained uncertain.
- The company recorded a $1.9 impairment to write down a Brazilian entity to expected sale price and a $3.6 write-off of a note receivable from the former Chinese joint venture. Restructuring income in 2021 primarily reflected Brazilian tax-credit sales and adjustments to prior restructuring costs.
- Manitowoc was in confidential discussions with the U.S. government concerning its participation in the EPA’s Transition Program for Equipment Manufacturers and related matters. Potential fines or penalties could not yet be reasonably estimated; resolution could materially affect financial condition, results or cash flows.
- Other exposures include product-liability and warranty claims, buyback commitments, guarantees, foreign-currency movements, debt leverage, customer demand and financing, and possible impairment of goodwill or intangible assets. Management did not expect existing legal and warranty matters, apart from the EPA matter noted above, to have a material adverse effect, while acknowledging estimates may change.
Important facts for investors to verify
- Whether elevated orders and backlog convert into shipments and cash generation given supply and shipping constraints.
- Whether margin pressure from materials, freight and labor persists, especially in EURAF.
- Final purchase accounting, integration and funding effects of Aspen and the post-quarter H&E acquisition.
- Future costs and insurance recovery, if any, related to the cybersecurity incident.
- Developments in the EPA TPEM discussions and any resulting financial exposure.
- Liquidity, working-capital needs and covenant compliance following the H&E acquisition and continued inventory build.