The Manitowoc Company, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Manitowoc reported Crane and Foodservice segments and was pursuing a separation of those businesses into two independent public companies.
Financial performance
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Net sales | $885.4 million | $1,012.8 million | $1,637.5 million | $1,862.8 million |
| Gross profit | $222.5 million | $270.8 million | $405.0 million | $496.5 million |
| Operating earnings | $60.4 million | $95.4 million | $73.1 million | $149.0 million |
| Net earnings attributable to Manitowoc | $23.3 million | $46.6 million | $14.9 million | $37.8 million |
| Diluted EPS | $0.17 | $0.34 | $0.11 | $0.28 |
| Cash from operating activities | Not presented separately for Q2 | $(80.2) million | $(192.1) million |
- Sales declined 12.6% in Q2 and 12.1% in the first half. Approximate gross margin was 25.1% in Q2 versus 26.7%, and 24.7% in the first half versus 26.7%. Operating margin was 6.8% versus 9.4% in Q2 and 4.5% versus 8.0% in the first half.
- Crane sales fell 21.2% in Q2 and 17.6% in the first half; Foodservice sales were nearly flat in Q2 (+0.2%) and down 4.7% for the first half.
- At June 30, cash was $67.7 million; total debt was $1,628.9 million, including $142.0 million drawn on the revolver. Current liabilities were $970.1 million against current assets of $1,280.6 million. Reported total liquidity was $419.3 million, down from $562.6 million at year-end 2014.
- First-half capital expenditures were $29.2 million. Financing activities provided $103.6 million, primarily from revolving-credit borrowings; cash declined $0.3 million over the period.
Changes and management commentary
- Crane weakness reflected volume declines across product lines, especially rough-terrain and boom trucks in North and Latin America amid depressed oil and gas markets. Dollar strength reduced Crane sales by $44.3 million in Q2 and $82.5 million in the first half.
- Foodservice Q2 sales in the Americas were strong, offset by currency effects and weaker Asia-Pacific demand from large chains. First-half sales also reflected lower restaurant-chain capital spending and prior-year product-rollout comparisons. Currency reduced Foodservice sales by $13.4 million in Q2 and $29.5 million in the first half.
- Lower sales and production absorption weighed on gross profit; purchasing and manufacturing savings partly offset the declines. Q2 included $8.3 million of separation costs; first-half separation costs were $9.8 million. A $4.2 million tax valuation allowance was recorded for Brazilian crane-operation deferred tax assets.
- Crane backlog was $731.0 million at June 30, down 5.1% from March 31 and up 0.5% year over year. The annual goodwill and indefinite-lived intangible review found no impairment.
Outlook, risks and contingencies
- Management anticipated a tax-free Foodservice spin-off, with separation expected in the first quarter of 2016. No quantified earnings or revenue guidance is provided in the filing.
- Management said liquidity and expected operating cash flows should cover working capital, capital expenditures and ongoing needs, and expected covenant compliance over the next 12 months. At quarter-end, secured leverage was 2.35:1 versus a 3.25:1 maximum; interest coverage was 3.94:1 versus a 2.75:1 minimum.
- Key risks cited include construction and oil-market cyclicality, customer spending, foreign-exchange movements, raw-material costs, execution of the separation, leverage and covenant compliance, and the ability to generate cash and manage working capital.
- Contingencies include product-liability reserves of $25.4 million, warranty reserves of $86.9 million, and $62.7 million of residual-value guarantees and buyback commitments outstanding. The company also guaranteed approximately $17.3 million of debt of the disposed Manitowoc Dong Yue joint venture, secured by its assets and inventory; repayment was scheduled through 2017. Management did not expect known litigation or environmental matters to have a material adverse effect, while noting estimates may change.
- Cash used in continuing operations remained negative, and inventories rose to $743.4 million from $644.5 million at year-end. Approximately $44.3 million of cash was held by foreign subsidiaries and considered permanently reinvested.
Key facts for investors to verify
- Whether Crane demand, backlog and margins stabilize, particularly in oil- and gas-exposed markets, and how exchange rates affect reported performance.
- Whether Foodservice improves after weak first-half sales and whether KitchenCare costs or customer spending create further pressure.
- Progress, costs and timing of the planned separation, including the expected first-quarter 2016 completion.
- Cash conversion, inventory levels, revolver usage and liquidity, alongside debt maturities and continued covenant headroom.
- Potential changes in tax valuation allowances, uncertain tax positions, product-liability and warranty estimates, and the guaranteed former joint-venture debt.