The Manitowoc Company, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual report; quarterly figures below identify the fourth quarter where relevant. Manitowoc operated two principal businesses: Cranes and Related Products and Foodservice Equipment. Amounts are in U.S. dollars.
Financial performance
| Metric | 2014 | 2013 |
|---|---|---|
| Net sales | $3,886.5 million | $4,048.1 million |
| Gross profit | $986.1 million; 25.4% margin | $1,021.8 million; 25.2% margin |
| Operating earnings from continuing operations | $298.8 million | $364.4 million |
| Earnings from continuing operations | $160.8 million | $189.1 million |
| Net earnings attributable to Manitowoc | $144.5 million | $141.8 million |
| Diluted EPS attributable to common shareholders | $1.05 | $1.05 |
| Cash provided by operating activities | $98.3 million | $323.1 million |
| Capital expenditures | $84.8 million | $110.7 million |
| Total debt | $1,523.5 million | $1,526.8 million |
- Segment results: Crane revenue was $2,305.2 million, down 8.0%; operating earnings fell to $163.9 million from $218.8 million, and margin declined to 7.1% from 8.7%. Foodservice revenue rose 2.6% to $1,581.3 million, while operating earnings declined to $234.0 million from $250.3 million and margin fell to 14.8% from 16.2%.
- Liquidity: Cash and cash equivalents were $68.0 million at year-end. Reported total liquidity was $562.6 million, including $500.0 million of unused revolver capacity, less $5.4 million in outstanding letters of credit. The company reported no revolver borrowings at year-end.
- Debt and covenants: Debt included $80.3 million current and short-term borrowings and $1,443.2 million long-term debt. The company reported compliance with debt covenants; its senior secured leverage ratio was 1.79:1 against a 3.25:1 maximum, and interest coverage was 4.77:1 against a 2.50:1 minimum.
- Quarter four: Net sales were $1,037.4 million versus $1,104.3 million in Q4 2013; gross profit was $241.5 million versus $261.6 million. Earnings from continuing operations before tax were $38.4 million versus $60.7 million. Net earnings attributable to Manitowoc were $33.6 million versus $20.9 million.
Changes versus the prior year
- Consolidated sales declined 4.0%, chiefly from lower Crane demand, especially in the Americas for rough-terrain and boom truck cranes. Foodservice growth, driven by new product rollouts in the Americas, partly offset the decline.
- Gross margin edged up to 25.4% from 25.2%, reflecting pricing and cost-reduction actions. Lower Crane volume and factory absorption reduced earnings; Foodservice earnings were pressured by product mix, discounts and rebates, and warranty costs.
- Operating cash flow fell to $98.3 million from $323.1 million. Management attributed the decline primarily to payment timing for accrued expenses, lower cash from profitability, and working-capital factors; inventory improvements partly offset the decrease.
- Interest expense decreased to $94.0 million from $128.4 million following refinancing, debt reduction, and amortization of a swap monetization gain. However, 2014 included a $25.5 million loss on debt extinguishment, mainly related to redeeming the 2018 notes.
- Net earnings included $11.0 million of losses on sales of discontinued operations. The 2014 effective tax rate was 5.1%, favorably affected by a $25.6 million capital-loss tax benefit related to a U.S. tax election.
Outlook, developments, and risks
- 2015 outlook: Management expected Crane revenue to decline in the mid-single digits, with operating margin in the high-single digits; Foodservice revenue was forecast to grow in the mid-single digits, with margin improvement. It expected capital expenditures of about $85 million, depreciation and amortization of about $110 million, interest expense of about $80 million, and a full-year effective tax rate in the mid-to-high 20% range. These are management expectations, not assurances.
- Market commentary: Management cited lower oil prices as a potential drag on energy-related crane demand and a stronger U.S. dollar as a threat to the competitiveness of U.S.-manufactured products. It described end-market forecasts as uncertain, while pointing to new products, service demand, lean initiatives, cost control, and debt repayment as priorities.
- Proposed separation: On January 29, 2015, the board approved pursuing a separation of Crane and Foodservice through a proposed tax-free spin-off of Foodservice, then anticipated for Q1 2016. Completion, timing, tax treatment, costs, and expected benefits were uncertain and subject to conditions.
- Other risks and contingencies: Key exposures include cyclical construction and foodservice markets, commodity costs and supply interruptions, foreign exchange, customer financing and residual-value guarantees, leverage and covenant requirements, product liability and warranties, pension obligations, tax audits, environmental matters, labor, ERP implementation, and cybersecurity. The company guaranteed a former Chinese joint venture’s third-party loan; the guaranteed balance was approximately $17.3 million after a $7.2 million payment in 2014. Outstanding crane buyback and residual-value commitments were $58.9 million.
- Unusual items and assurance: Manitowoc sold its 50% interest in Manitowoc Dong Yue in January 2014 for a nominal amount and recorded a $9.9 million loss on sale; the sale and related business results were reported as discontinued operations. The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of year-end.
Most important facts for investors to verify
- Whether the 2015 segment guidance was achieved, particularly Crane sales and margins and Foodservice margin recovery.
- Whether the sharp reduction in operating cash flow was temporary and whether working capital and accrued-expense payments normalized.
- Debt repayment progress, available liquidity, covenant headroom, and the cost and terms of outstanding debt.
- Whether the proposed Foodservice spin-off proceeded, its final structure, tax consequences, costs, and allocation of debt and other obligations.
- Potential exposure from the former Chinese joint venture guarantee, crane buyback commitments, product claims, warranties, pensions, and tax matters.
- How much of 2014 earnings and the low effective tax rate depended on the one-time tax benefit and other unusual items.