Wabash National Corporation — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Unaudited results; dollar amounts below are in millions unless stated otherwise. Wabash manufactures trailers and related transportation products and reports Commercial Trailer Products, Diversified Products, and Retail segments.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net sales | $531.4 | $491.7 | $1,483.8 | $1,335.8 |
| Gross profit / margin | $86.0 / 16.2% | $61.6 / 12.5% | $215.6 / 14.5% | $169.9 / 12.7% |
| Operating income / margin | $56.4 / 10.6% | $34.9 / 7.1% | $125.7 / 8.4% | $88.2 / 6.6% |
| Net income / margin | $31.9 / 6.0% | $18.3 / 3.7% | $71.0 / 4.8% | $41.8 / 3.1% |
| Diluted EPS | $0.47 | $0.25 | $1.01 | $0.58 |
| Operating cash flow | Not separately stated | Not separately stated | $104.7 | $14.7 |
- Q3 sales rose 8.1%; net income increased 74%. New trailer shipments increased 900 units, or 5.8%, and management cited stronger pricing, higher volume, and manufacturing efficiencies as drivers of the gross-margin improvement.
- Nine-month sales grew 11.1%, while net income rose about 70%. Commercial Trailer Products led growth: nine-month segment sales increased 19.7%, supported by 19.7% more shipments. Diversified Products sales fell 6.1% and Retail sales fell 8.3%.
- For the nine months, interest expense was $14.8 versus $16.9. Other income was $2.5, including an $8.3 gain on real estate sales, partly offset by $5.3 of accelerated amortization and related refinancing fees. The filing also reports $5.6 of loss on debt extinguishment in cash-flow adjustments.
Liquidity, debt, and capital resources
- At September 30, cash and cash equivalents were $197.2, current assets $601.7, and current liabilities $246.7. The reported liquidity position—cash plus available revolving borrowing capacity—was $366.0.
- Total debt and capital lease obligations were reported as $333.0. Debt included $150.0 of 3.375% convertible notes due 2018 and $191.9 outstanding under a term loan due 2022; the notes were not convertible under the stated criteria at quarter-end. The term loan and revolver have conditions that can accelerate maturity if the notes are not addressed and specified liquidity requirements are not maintained.
- The amended revolving facility commitment increased to $175 and maturity was extended to June 2020; less than $0.1 was drawn at quarter-end. The company reported covenant compliance. The term loan amendment refinanced the existing balance, reduced the interest margin, and removed the maximum senior secured leverage test.
- Nine-month investing cash use was $4.7, including $12.6 of capital expenditures and $13.2 of property-sale proceeds. Financing cash use was $48.9, including $43.0 of stock repurchases in the cash-flow statement. Cash increased $51.1 to $197.2.
- Inventory increased $50.4 from year-end to $227.5. Operating cash flow benefited from improved working-capital movements versus 2014; accounts payable and accrued liabilities increased $58.5 during the nine-month period.
Outlook, risks, and contingencies
- Management expected strong trailer demand to continue, citing backlog of approximately $1.097 billion at September 30, 2015, versus $794 million a year earlier. It expected to complete most backlog orders within 12 months.
- Full-year 2015 company guidance was 63,000–64,000 new trailers sold, approximately 10%–12% above 2014. Management anticipated continued pricing and profitability improvement into 2016. Industry forecasts cited in the filing differed on 2016 production direction.
- Management identified economic and end-market weakness, raw-material cost increases or shortages, and dependence on a limited number of suppliers as risks. A hypothetical 100-basis-point change in floating rates was estimated to change annual interest expense by $0.4.
- A Brazilian joint-venture dispute remained on appeal. The lower-court award was approximately R$26.7 million (about $6.5 million at the stated exchange rate), excluding potentially substantial interest and adjustments; the company had not accrued a loss and said it could not reasonably estimate exposure. An appeal decision was not expected before Q1 2016 at the earliest.
- Other disclosed matters include environmental proceedings, an approximately $2.9 million disputed Walker acquisition benefits claim, and an intellectual-property lawsuit. The company stated it did not expect the described matters to materially affect financial condition or liquidity, while noting outcomes remain uncertain.
- Capital spending was expected to be approximately $23 million for 2015. The company had $58.7 million of raw-material purchase commitments, $4.6 million of used-trailer purchase commitments, and $8.1 million of operating lease commitments.
Important facts for investors to verify
- Whether trailer guidance, backlog conversion, pricing, and margin gains were achieved, and whether backlog orders changed or were deferred.
- Whether working-capital investment—particularly the inventory increase—converted into sales and cash flow.
- Compliance with the term-loan and revolver liquidity conditions, and the plan for the $150 million notes due in 2018.
- The eventual outcome and potential exposure from the Brazil litigation and environmental matters.
- The drivers and recurrence of reported gains, refinancing charges, and share repurchases.