Wabash National Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Dollar amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. The interim financial statements are unaudited.
Business context and results
Wabash manufactures trailers and transportation equipment and operates Commercial Trailer Products, Diversified Products, and Retail segments. Growth this quarter was led by higher new-trailer shipments in a strong demand environment.
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net sales | $437.6 | $358.1 |
| Gross profit / margin | $57.2 / 13.1% | $46.7 / 13.0% |
| Operating income / margin | $27.3 / 6.2% | $19.5 / 5.4% |
| Income before taxes | $16.7 | $13.8 |
| Net income / net margin | $10.5 / 2.4% | $7.3 / 2.0% |
| Diluted EPS | $0.15 | $0.10 |
| Operating cash flow | $4.2 | ($44.1) |
| Capital expenditures | $3.0 | $2.1 |
Financial position and material changes
- Sales rose 22.2% year over year, primarily as new-trailer shipments increased 4,400 units, or 44.2%. Commercial Trailer Products external sales grew 41.7%; Diversified Products sales declined 4.1% and Retail sales declined 5.7%.
- Gross margin was broadly stable. Commercial Trailer Products improved on volume and pricing, while Diversified Products and Retail gross profit declined with lower non-trailer volumes, product mix, and competitive pricing pressures.
- Operating income increased 40.0%. A $5.3 million debt-extinguishment loss related to the March term-loan refinancing reduced pretax income; absent that charge, reported pretax income would have been higher. Interest expense declined to $5.2 million from $5.7 million.
- Operating cash flow improved from a use of $44.1 million to a source of $4.2 million, but working capital used $26.2 million. Inventory increased $65.8 million during the quarter as production exceeded shipments; receivables rose $21.7 million, partly offset by a $57.6 million increase in accounts payable and accrued liabilities.
- Cash was $125.6 million at quarter-end, down $20.5 million from December 31, 2014. Reported liquidity, defined as cash plus available revolver capacity, was $269.4 million. The $150 million revolver had no outstanding borrowings and the company reported covenant compliance.
- Total debt and capital-lease obligations were $335.9 million. The $192.8 million term loan was refinanced on March 19, 2015, with a stated maturity of March 2022; it carries floating-rate pricing and scheduled amortization. The $150 million convertible notes bear 3.375% interest and mature in 2018. The term loan includes a liquidity condition tied to the notes that could accelerate its maturity if specified requirements are not met.
- Wabash repurchased 1.285 million shares under its repurchase program during the quarter; financing cash use included $19.9 million of total stock repurchases reported in the cash-flow statement. Quarter-end inventory was $243.0 million, versus $177.1 million at year-end.
Outlook, commentary, risks, and contingencies
- Management described trailer demand as healthy and expected industry shipments and production to remain above replacement demand for the rest of 2015. The company estimated full-year new-trailer sales of 62,000–66,000 units, 8%–15% above 2014. This is volume guidance, not an earnings forecast.
- Backlog was approximately $1.206 billion at March 31, 2015, versus $1.087 billion at December 31, 2014 and $791 million a year earlier; the company expected to complete most existing orders within 12 months. Planned 2015 capital spending was approximately $25 million.
- Management anticipated continued pricing and profitability improvement in Commercial Trailer Products and cited facility optimization, cost initiatives, product innovation, and diversification as priorities. It also noted dependence on customer acceptance and expansion of markets and distribution for diversified products.
- Risks include economic and construction-market weakness, commodity-cost increases, and potential shortages from reliance on a limited number of suppliers for certain components and materials. Raw-material purchase commitments were $72.5 million through December 2015. A 100-basis-point change in floating rates was estimated to affect annual interest expense by $0.3 million.
- In a Brazil joint-venture dispute, a lower court awarded approximately R$26.7 million (about $8.2 million at the cited exchange rate), potentially subject to substantial interest, fees, or inflation adjustments. The company appealed, recorded no loss contingency, and said it could not reasonably estimate a possible loss or range; the judgment was not enforceable pending appeal. Other disclosed matters include environmental proceedings and a disputed $2.9 million Walker acquisition benefits claim; management generally did not expect these matters to materially affect financial condition or results.
- Forward-looking statements are subject to risks described in the filing and the 2014 Form 10-K. Management reported disclosure controls were effective as of March 31, 2015 and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether strong backlog converts to shipments and sales, and whether the 62,000–66,000 unit full-year volume estimate is achieved.
- Whether higher production and inventory growth translate into shipments and cash generation rather than continued working-capital demands.
- The pricing, margin, and demand trajectory in Commercial Trailer Products, and continued weakness or recovery in Diversified Products and Retail.
- Term-loan refinancing terms, floating-rate exposure, the notes-related liquidity condition, and the company’s capacity to meet debt maturities and other obligations.
- Developments in the Brazil appeal and environmental matters, including any change to loss estimates or accruals.
- Execution and cash impact of share repurchases, planned capital spending, and management’s diversification and cost-improvement initiatives.