Manitowoc Company, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Manitowoc designs, manufactures, sells and supports cranes and lifting equipment, with Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments. Amounts below are in U.S. dollars, millions, except per-share data and percentages.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $508.3 | $459.0 |
| Gross profit / margin | $106.3 / 20.9% | $85.0 / 18.5% |
| Operating income | $30.2 | $17.6 |
| Net income | $16.5 | $3.1 |
| Diluted EPS | $0.46 | $0.09 |
| Operating cash flow | $15.4 | $5.6 |
| Capital expenditures | $10.6 | $8.7 |
| Free cash flow (company-defined) | $4.8 | $(3.1) |
Sales increased 10.7%; gross profit rose 25.1%. Higher sales, favorable product mix and pricing actions lifted gross profit, partly offset by material, transportation and labor costs. Operating income also benefited from higher sales and margin, while engineering, selling and administrative expenses increased 12.9% to $75.1 million, including higher employee-related costs. Q1 2022 included a $4.8 million recovery of a previously written-off note receivable, which benefited expenses and MEAP results.
Orders increased 9.0% to $524.8 million. Backlog was $1,075.7 million at quarter-end, up 4.1% year over year and 1.9% from December 31, 2022. The filing says orders and backlog are non-GAAP measures and may not be comparable with other companies’ methodologies.
Cash, debt and liquidity
Cash was $56.5 million at March 31, 2023, down from $64.4 million at December 31, 2022. Operating cash flow improved year over year, primarily on higher net income, but was partly offset by working-capital investment: inventory used $100.6 million of cash. Investing cash outflow was $8.6 million, including $10.6 million of capital expenditures; financing cash outflow was $15.1 million, including $10.0 million of net revolver repayments and $3.5 million of share repurchases.
Total debt was $377.4 million, compared with $385.6 million at year-end 2022. It included $70.0 million drawn on the asset-based revolver and $300.0 million of 9% second-lien notes due in 2026. Interest expense rose to $8.1 million from $7.4 million, primarily due to higher revolver borrowing rates. Reported total liquidity was $295.6 million, including cash and available borrowing capacity; revolver excess availability was approximately $201.8 million. The company reported compliance with debt covenants and expects to remain compliant over the next 12 months.
Business changes and outlook
- Americas: Sales rose 22.5% to $264.4 million; segment operating income increased to $28.5 million from $5.8 million, supported by higher sales, mix and pricing.
- EURAF: Sales declined 0.6% to $178.2 million, including an $8.0 million unfavorable currency effect. Segment operating income fell 68.4% to $3.6 million, reflecting weaker new-machine mix and higher materials, transportation and labor costs.
- MEAP: Sales increased 2.8% to $65.7 million, including a $3.2 million unfavorable currency effect. Segment operating income declined 34.4% to $8.6 million, partly because Q1 2022 included the $4.8 million note-recovery benefit.
The filing provides no specific full-year revenue or earnings guidance. Management said inflation, supply-chain, labor and logistics pressures continued to affect the business, although some constraints eased; certain key components remained difficult to source and shipment timing was affected. Price increases and provisional pricing are intended to offset cost inflation, but long order lead times delay realization. Management warned that continued inflation and higher interest rates could pressure margins and customer demand. It cited stronger Americas demand but softening EURAF demand amid macroeconomic and geopolitical uncertainty.
Risks, contingencies and unusual items
- Russia operations were substantially curtailed. The company expects $5 million to $10 million in future non-cash charges from writing off foreign-currency adjustments in accumulated other comprehensive loss.
- Confidential discussions with the U.S. EPA and Department of Justice continue over historical engine emissions certification and the TPEM program. The recorded estimated liability was $14.9 million. The company calculated statutory maximum Clean Air Act penalties of approximately $174 million, believes it has strong defenses, and cautioned that final resolution could materially affect results, financial condition or cash flows.
- Product liability reserves were $8.5 million; warranty and related claim reserves were $56.4 million. Management said resolution of the company’s other legal matters is not expected to have a material adverse effect, but estimates may change.
- Outstanding crane buyback commitments totaled $41.5 million, and loss guarantees had maximum liabilities of $13.1 million. Amounts are not reduced for potential recoveries through repossession and resale.
- Macroeconomic, geopolitical, supply-chain, labor, foreign-exchange, customer-demand and leverage risks remain relevant. The company reported no material changes to risk factors disclosed in its 2022 Form 10-K.
Key facts for investors to verify
- Whether the $1.076 billion backlog converts to sales on schedule, given supply constraints and the EURAF demand environment.
- Whether pricing continues to offset input-cost inflation without weakening demand, and whether the improved 20.9% gross margin is sustained.
- Inventory growth and working-capital cash use, including the $100.6 million Q1 inventory cash outflow.
- Debt service and refinancing exposure, particularly the 9% notes due in 2026 and the revolver’s springing maturity provision.
- Developments, potential liability and cash consequences in the EPA/DOJ matter, and the timing and amount of expected Russia-related charges.
- Whether management’s liquidity and covenant-compliance expectations remain supportable if operating conditions worsen.