Wabash National Corporation — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Financial statements are unaudited. Wabash manufactures and sells commercial trailers, diversified transportation-related products, and new and used trailers and parts through its retail network.
Financial performance
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Net sales | $514.8 million | $486.0 million | $952.4 million | $844.1 million |
| Gross profit / margin | $72.4 million / 14.1% | $61.6 million / 12.7% | $129.6 million / 13.6% | $108.3 million / 12.8% |
| Operating income / margin | $42.1 million / 8.2% | $33.9 million / 7.0% | $69.3 million / 7.3% | $53.3 million / 6.3% |
| Net income | $28.6 million | $16.2 million | $39.1 million | $23.5 million |
| Diluted earnings per share | $0.41 | $0.23 | $0.55 | $0.33 |
| Operating cash flow | Not reported separately for quarter | Not reported separately for quarter | $42.5 million | $(8.5) million |
- Q2 sales rose 5.9%; first-half sales rose 12.8%. Growth was led by Commercial Trailer Products, whose external sales increased 17.5% in Q2 and 27.0% in the first half.
- Commercial Trailer Products’ stronger volume, improved pricing and manufacturing efficiencies lifted consolidated gross margin. Q2 new-trailer shipments increased 13.0% to 16,900; first-half shipments increased 25.5% to 31,250.
- Diversified Products sales declined 18.0% in Q2 and 11.3% in the first half, reflecting lower composite and equipment sales and competitive pressure. Retail sales fell 12.1% and 9.0%, respectively, partly due to the transfer of three West Coast branches to independent dealers in 2014.
- Q2 earnings included $8.1 million of “Other, net” income, primarily an $8.3 million gain on real-estate sales. First-half “Other, net” income was $2.7 million after a $5.3 million charge for accelerated amortization and fees related to the March term-loan refinancing.
- First-half operating cash flow benefited from earnings and a $57.4 million increase in accounts payable and accrued liabilities, but working capital absorbed cash, particularly the $66.8 million inventory increase. Cash declined $6.5 million to $139.6 million during the half.
Liquidity, debt and capital allocation
- At June 30, cash and cash equivalents were $139.6 million. Management reported liquidity of $308.3 million, defined as cash plus available revolving-credit borrowing capacity; the $175 million revolving facility had no outstanding borrowings, and the company reported covenant compliance.
- Debt and capital lease obligations totaled $336.0 million on a carrying-value basis. Principal balances included $150 million of convertible notes due 2018, approximately $192.4 million of term loans due 2022, and $1.4 million of industrial revenue bonds; capital leases were approximately $6.5 million.
- The June credit-facility amendment increased revolving commitments from $150 million to $175 million and extended stated maturity to June 2020. The facility and term loan have provisions that may accelerate maturity if the notes due 2018 are not addressed and specified liquidity conditions are not maintained.
- The company repurchased 1.576 million shares under its program during Q2, for approximately $40 million; $20 million remained authorized at quarter end. Shares outstanding were 66.6 million at June 30, versus 69.0 million at December 31, 2014.
- Capital expenditures were $5.4 million in the first half; management anticipated approximately $25 million for full-year 2015.
Outlook, risks and contingencies
- Management cited continued healthy trailer demand, a $1.13 billion backlog at June 30 (up from $1.087 billion at year-end 2014), and expected to complete most backlog orders within 12 months. Its 2015 forecast was 63,000–66,000 new trailers sold, or 10%–15% above 2014 demand, with further pricing and profitability improvement anticipated.
- Industry forecasts cited by management estimated 2015 demand of approximately 308,000 trailers from ACT Research and 299,000 from FTR. Management cautioned that economic weakness, including in housing and construction, could weaken demand.
- Key operating risks include raw-material cost increases, shortages of components and reliance on a limited number of suppliers. The company had $49.2 million of raw-material purchase commitments through December 2015 and reported floating-rate term debt; a hypothetical 100-basis-point rate change was estimated to affect annual interest expense by $0.4 million.
- Brazil litigation remains uncertain: a lower court judgment was approximately R$26.7 million (about $8.5 million at the stated exchange rate), excluding potentially substantial interest, fees or inflation adjustments. The company appealed, recorded no loss contingency, and said it could not reasonably estimate possible loss. The appeal ruling was not expected before Q4 2015 at the earliest.
- Other disclosed matters included environmental proceedings and a disputed $2.9 million Walker acquisition benefits claim. Management did not expect these matters to materially affect financial condition or results, while noting litigation outcomes can affect a particular period.
- Management stated that disclosure controls were effective as of June 30, 2015 and reported no material second-quarter change in internal control over financial reporting.
Most important facts for investors to verify
- Whether trailer demand, the $1.13 billion backlog and the 63,000–66,000 full-year shipment forecast translate into completed shipments and sustained margins.
- How much Q2 and first-half earnings growth reflects recurring operating improvement versus the $8.3 million real-estate gain and refinancing-related charges.
- Whether rising finished-goods inventory converts into sales and cash without discounting or production disruption.
- Liquidity and covenant headroom under the revolving and term facilities, especially the maturity and minimum-liquidity provisions tied to the 2018 convertible notes.
- Developments in the Brazil appeal and environmental matters, including any change in estimated exposure or accruals.