The Manitowoc Company, Inc. — Q1 2012 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2012, for Manitowoc’s Crane and Foodservice segments. Comparisons are with Q1 2011 unless otherwise noted. Amounts are in millions of dollars except per-share data.
Financial performance and position
| Metric | Q1 2012 / March 31, 2012 | Prior comparable period / December 31, 2011 |
|---|---|---|
| Net sales | $860.1 | $732.2 |
| Gross profit and gross margin | $206.2; approximately 24.0% | $180.5; approximately 24.6% |
| Operating earnings and margin | $47.6; approximately 5.5% | $29.7; approximately 4.1% |
| Net earnings (loss) attributable to Manitowoc | $0.1; $0.00 per share | $(52.4); $(0.40) per share |
| Cash from continuing operating activities | $(129.6) | $(136.1) |
| Cash and cash equivalents | $70.8 | $68.6 |
| Total debt | $2,043.4 | $1,890.0 |
| Total liquidity, as reported | $387.9 | $536.8 |
| Current assets / current liabilities | $1,394.6 / $1,099.1 | $1,239.8 / $1,104.6 |
Continuing operations recorded a $1.5 loss despite $10.9 of pretax earnings, as the company reported $12.4 of income tax expense. Net earnings attributable to Manitowoc were $0.1 after the $1.9 net loss attributable to noncontrolling interests. Interest expense was $33.0, down from $39.4. Capital expenditures were $14.2, making continuing operating cash flow less capital expenditures approximately $(143.8). Cash used for working capital included a $100.6 inventory increase and an $18.6 increase in receivables.
Material changes and segment results
- Sales increased 17.5%. Crane sales rose 29.3% to $507.9; Foodservice sales increased 3.8% to $352.2.
- Crane operating earnings increased to $20.9 from $10.8, and Foodservice operating earnings increased to $43.3 from $33.2. Corporate expense rose to $16.0 from $13.4.
- Consolidated gross profit grew, but gross margin declined to approximately 24.0% from 24.6%, as cost of sales grew faster than revenue. Management cited higher volume, favorable Crane mix and pricing, and Foodservice lean initiatives; higher material and labor costs partly offset improvements.
- Crane backlog was $931.0 at March 31, up 22.4% from December 31 and 16.4% from March 31, 2011. Management attributed growth mainly to North American and Latin American orders, including demand in energy and infrastructure markets.
- Debt increased by $153.4 from year-end, including $149.0 outstanding on the revolving facility. Liquidity decreased from year-end, partly reflecting the revolver borrowing and reduced available capacity.
- Q1 2011 included a $33.4 after-tax loss on sale of discontinued operations, primarily tax expense related to the Kysor/Warren divestiture. That loss did not recur in Q1 2012.
Outlook, risks, contingencies, and unusual items
- No specific revenue or earnings guidance is provided. Management said liquidity and expected operating cash flows should be sufficient for working capital, capital expenditures, and ongoing needs, and expected to comply with debt covenants over the next 12 months.
- At March 31, the company reported a senior secured leverage ratio of 2.86:1 against a maximum of 3.75:1 and an interest coverage ratio of 2.65:1 against a minimum of 1.75:1. Its trailing-twelve-month adjusted EBITDA for covenant purposes was $360.9. Covenant thresholds tighten in subsequent quarters.
- Management expected the effective tax rate to return to more normalized levels during the remaining quarters of 2012. The filing notes that jurisdictional income mix and jurisdictions where tax benefits on losses cannot be recognized can cause quarterly rate variability.
- Unrecognized tax benefits were $56.7. Some uncertain tax positions could be settled within 12 months; settlements could materially affect results, financial position, or cash flows.
- Goodwill was $1,168.8, including a prior $520.3 Foodservice impairment. No impairment was recorded in Q1 2012, but further market deterioration or results below projections could trigger future non-cash impairment charges.
- Reported reserves included $27.9 for product liabilities and approximately $104.2 for warranty claims. Environmental remediation, product liability, warranty, asbestos, and other legal matters remain contingencies; management did not expect their resolution to have a material adverse effect based on information available, while noting estimates may change.
- Residual value guarantees and buyback commitments totaled $77.8, before potential recovery through repossession and resale. Approximately $48.2 of cash was held by foreign subsidiaries and considered permanently reinvested.
- Key disclosed business risks include construction and crane-market cyclicality, customer financing availability, commodity and material costs, foreign exchange and interest-rate changes, competitive pricing, execution of new products and operational efficiencies, and debt covenant compliance.
Most important facts for investors to verify
- Whether Crane backlog converts into shipments and cash, and whether demand remains strong in the regions and end markets management identified.
- Whether working-capital investment—especially inventory—moderates and operating cash flow improves.
- Debt and liquidity trends, upcoming covenant thresholds, and continued covenant compliance.
- The reason for the unusually high Q1 effective tax burden, the anticipated tax-rate normalization, and outcomes of uncertain tax positions.
- Whether product-liability, warranty, environmental, and guarantee exposures remain within recorded reserves.
- Whether market conditions or operating performance prompt further goodwill or other asset impairment testing.