Business Context and Reporting Period
Company: The Manitowoc Company, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Manitowoc operates two primary reportable segments: Crane (manufacturing mobile and tower cranes) and Foodservice (commercial foodservice equipment, significantly expanded by the October 2008 acquisition of Enodis plc). The Marine segment was sold in December 2008 and is reported as a discontinued operation.
Key Financial Metrics
| Metric (in millions) | Three Months Ended Sep 30, 2009 |
Three Months Ended Sep 30, 2008 |
Nine Months Ended Sep 30, 2009 |
Nine Months Ended Sep 30, 2008 |
|---|---|---|---|---|
| Net Sales | $881.5 | $1,106.8 | $2,943.8 | $3,286.4 |
| Operating Earnings (Loss) | $47.6 | $140.6 | $(544.0) | $448.4 |
| Net Earnings (Loss) | $(19.2) | $(26.9) | $(695.2) | $209.5 |
| Net Earnings (Loss) Attributable to Manitowoc | $(17.7) | $(26.1) | $(692.0) | $210.4 |
| Diluted EPS (Attributable to Manitowoc) | $(0.14) | $(0.20) | $(5.31) | $1.60 |
| Cash from Operating Activities | N/A | N/A | $179.9 | $149.7 |
| Total Debt | $2,393.2 | N/A | N/A | N/A |
| Cash and Cash Equivalents | $158.5 | N/A | N/A | N/A |
Note: Operating loss for the nine months ended Sep 30, 2009, includes a non-cash asset impairment charge of $700.0 million.
Material Changes vs. Prior Period
- Revenue Decline in Cranes: Crane segment sales dropped 51.6% in Q3 and 38.6% in the first nine months of 2009 compared to 2008, driven by a weak global crane market and unfavorable currency translation (weaker Euro).
- Foodservice Growth: Foodservice sales increased 247.2% in Q3 and 228.1% in the nine-month period, primarily due to the inclusion of Enodis businesses acquired in late 2008. On a pro forma basis, sales were lower due to reduced capital spending in the restaurant industry.
- Significant Impairment Charges: In Q1 2009, the company recorded a $700.0 million non-cash impairment charge ($548.8 million goodwill and $151.2 million indefinite-lived intangibles) within the Foodservice segment due to depressed market conditions and stock price declines.
- Restructuring Costs: Total restructuring expenses were $38.7 million for the nine months ended Sep 30, 2009, compared to $0.8 million in the prior year. This includes $28.2 million for the Crane segment (workforce reduction) and $10.6 million for the Foodservice segment (facility closures).
- Discontinued Operations: The company recorded a loss on the sale of discontinued operations (Enodis ice machine business) of $25.8 million in the nine months of 2009.
Guidance, Outlook, Risks, and Unusual Items
- Debt Covenant Amendment: In June 2009, the company amended its New Credit Agreement to provide relief on leverage and interest coverage covenants due to lower demand. The amendment increased interest margins and added pricing levels based on leverage ratios. The company was in compliance as of September 30, 2009.
- Liquidity: Total liquidity (cash, revolver capacity, and AR securitization) stood at $569.4 million as of September 30, 2009. Proceeds from the sale of the Enodis ice business ($148.8 million) were used to pay down Term Loan X.
- Outlook: Management noted stabilization in the Crane segment with net positive order flow starting in March 2009, expected to continue into Q4. However, the Foodservice segment faces headwinds from the contraction in restaurant capital spending.
- Risks: Key risks include the cyclicality of the construction industry, foreign currency fluctuations, the ability to integrate Enodis, and the potential for further asset impairments if market conditions deteriorate.
- Unusual Items: The $700 million impairment charge and the $198.4 million loss on currency hedges in 2008 (related to the Enodis acquisition) are significant non-recurring or acquisition-related items affecting comparability.
Investor Verification Checklist
- Impairment Sustainability: Verify if the $700 million impairment charge in Q1 2009 fully addresses the decline in fair value of Foodservice assets or if further write-downs are likely given continued market weakness.
- Debt Covenant Compliance: Monitor the company's ability to meet the amended leverage and interest coverage ratios, particularly as the leverage ratio limits tighten in 2010-2012.
- Enodis Integration: Assess the realization of cost synergies and the impact of the Enodis acquisition on long-term margins, excluding the one-time impairment and restructuring costs.
- Crane Backlog: Track the recovery of the Crane segment backlog, which decreased 65% from year-end 2008 to $667 million as of September 30, 2009.
- Working Capital Management: Review the effectiveness of working capital improvements (reductions in receivables and inventory) in sustaining positive operating cash flow despite net losses.