Wabash National Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are to the same periods in 2020 unless stated otherwise. The unaudited filing covers a manufacturer of commercial trailers, diversified transportation and industrial products, and final-mile truck bodies.
Financial performance and position
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $449.4 | $339.2 | $841.4 | $726.2 |
| Gross profit / margin | $55.6 / 12.4% | $34.3 / 10.1% | $102.8 / 12.2% | $71.1 / 9.8% |
| Operating income (loss) | $22.7 | $6.0 | $33.9 | ($104.1) |
| Net income (loss) | $12.3 | ($0.1) | $15.5 | ($106.8) |
| Diluted earnings (loss) per share | $0.24 | $0.00 | $0.29 | ($2.01) |
| Operating cash flow | Not separately presented for quarter | Not separately presented for quarter | ($13.1) | $22.7 |
Q2 sales rose 32.5%, primarily on stronger demand and increased shipments: commercial trailer shipments increased 38.6%, and final-mile truck-body shipments increased 58.4%. For the six months, sales rose 15.9%. Gross margin improved with higher production volume and 2020 cost-containment measures; management also cited ongoing production ramp-up and supply-chain challenges. Final Mile Products remained loss-making at the operating level in Q2, with a $3.2 million operating loss, while Commercial Trailer Products and Diversified Products reported operating income of $32.3 million and $5.8 million, respectively.
Six-month operating cash flow was negative despite net income, principally reflecting working-capital use, including an $89.7 million inventory increase and a $25.8 million increase in accounts receivable, partly offset by higher accounts payable and accrued liabilities. Investing activities provided $9.9 million, including $21.0 million of asset and divestiture proceeds, against $11.1 million of capital expenditures. Financing activities used $78.5 million, including $41.3 million for share repurchases, $30.0 million of term-loan principal payments, and $8.4 million of dividends.
At June 30, cash and cash equivalents were $134.4 million; cash, cash equivalents and restricted cash totaled $136.0 million. Long-term debt was $418.9 million, with no revolver borrowings; finance lease obligations were about $0.2 million. Reported liquidity, including cash and available revolving-credit capacity, was $304.3 million, down from $384.0 million at December 31, 2020. The company reported compliance with debt covenants.
Material changes and unusual items
- The prior-year six-month operating loss included $106.8 million of goodwill impairment charges recorded in Q1 2020. This makes the year-over-year improvement in operating income and net income substantially affected by a prior-period unusual charge.
- Wabash sold its Extract Technology business in Q2 2021, receiving approximately $20.8 million net of transaction costs and cash divested and recognizing an approximately $1.9 million gain. Some proceeds were used to repay term-loan principal.
- Q2 and six-month 2021 impairment and other, net included the Extract gain, partly offset by a $0.8 million Q1 impairment of unused and obsolete property and equipment.
- Inventory increased to $252.6 million from $163.8 million at year-end 2020. The company cited higher finished-goods levels and raw-material stocking for anticipated production.
- Wabash repurchased approximately 2.34 million shares during the first half and had $11.4 million remaining under the authorization at June 30. The quarterly dividend was $0.08 per share.
Outlook, risks and contingencies
Management said it expected industry demand and production to recover from 2020 levels and believed the company was positioned to benefit, while noting uncertainty related to COVID-19. Industry forecasters cited in the filing estimated U.S. trailer production of approximately 291,000–295,000 units for 2021; these are industry estimates, not company revenue or earnings guidance. The company raised its 2021 capital expenditure estimate by $20 million to a range of $55–$60 million, including spending to expand dry-van production capacity.
Backlog was approximately $1.342 billion at June 30, down 9% from December 31, 2020 but up 77% year over year; management expected to complete most of it within 12 months. Orders may change or be canceled. Key risks include the ability to scale production, labor availability, shortages or price increases for materials and components, reliance on certain suppliers, cyclical demand, and ongoing pandemic impacts. Wabash said it would seek to pass input-cost increases to customers and use cost management and hedging, but acknowledged it may not fully offset higher costs.
Commodity swap contracts had approximately $110.8 million of notional exposure; management expected to reclassify about $44.1 million of pretax deferred gains into cost of sales over the next 12 months as related inventory purchases settle. A 100-basis-point change in floating rates was estimated to change annual interest expense by approximately $1.1 million. The filing describes ongoing legal and environmental matters; management did not expect currently known matters to have a material adverse effect, but noted outcomes are uncertain.
Important facts for investors to verify
- Whether shipment growth and backlog convert into delivered sales and sustained margins, particularly in Final Mile Products.
- Whether production constraints, labor availability, and material and component costs affect output, pricing, and gross margin.
- Whether inventory and receivables normalize and operating cash flow turns positive as production and shipments increase.
- How the $55–$60 million 2021 capital spending plan affects capacity, liquidity, and returns.
- Debt repayment, interest-rate exposure, covenant compliance, and the level of available revolver capacity; the nearest stated debt maturity is the Senior Notes in October 2025.
- Whether backlog remains firm, given possible changes or cancellations, and whether the cited industry forecasts are realized.
- Any material developments in legal or environmental matters, and the realization and earnings timing of commodity-hedge gains.