The Manitowoc Company, Inc. — Q2 2019 Form 10-Q
Business context and period: Manitowoc designs, manufactures, sells and supports cranes and related services. This filing covers the quarter and six months ended June 30, 2019. Results are unaudited; interim results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net sales | $504.7 million | $495.3 million | $922.7 million | $881.4 million |
| Gross profit / margin | $95.2 million / 18.8% | $90.5 million / 18.3% | $175.4 million / 19.0% | $158.9 million / 18.0% |
| Operating income | $41.9 million | $24.1 million | $58.1 million | $25.8 million |
| Net income (loss) | $46.0 million | $9.7 million | $19.3 million | $(0.3) million |
| Diluted EPS | $1.29 | $0.27 | $0.54 | $(0.01) |
| Operating cash flow | Not separately presented by quarter | $(235.4) million | $(268.3) million |
- Q2 sales increased 1.9%; first-half sales rose 4.7%. Crane shipments drove growth, especially in the Americas. Foreign exchange reduced sales by $13.7 million in Q2 and $30.0 million in the first half.
- Q2 operating income improved as gross profit increased and selling, engineering and administrative expenses declined. The expense reduction included a $9.2 million recovery of prior-period legal fees. A legal settlement also produced a $15.5 million benefit in other income; together, the filing reports a net settlement gain of $24.7 million. These items materially contributed to Q2 net income.
- First-half results included a $25.0 million debt-extinguishment charge related to refinancing. Adjusted EBITDA, a non-GAAP measure, was $53.3 million for Q2 and $82.9 million for the first half, versus $37.5 million and $54.6 million, respectively, in 2018.
- First-half adjusted free cash flow, a non-GAAP measure, was negative $43.8 million, compared with negative $61.9 million in 2018. Working-capital investment, including receivables and inventory, weighed on operating cash flow.
Financial position and liquidity
- At June 30, cash was $35.0 million, down from $140.3 million at year-end 2018. Current assets were $907.5 million and current liabilities were $508.9 million.
- Reported total debt was $318.3 million, including $300.0 million of 9.0% senior secured second-lien notes due 2026. The company refinanced and redeemed its prior 12.75% notes due 2021, recording the $25.0 million charge noted above.
- The company had no revolver borrowings at quarter-end and reported total liquidity of $340.2 million, including $275.0 million of revolving capacity before letters of credit. It reported compliance with debt covenants and said it expects to meet them over the next twelve months.
- Inventory was $552.3 million, up from $453.1 million at December 31, 2018. Operating lease liabilities were $48.6 million following adoption of the new lease standard.
Material changes, outlook and risks
- Orders fell 13.7% year over year to $372.0 million in Q2; backlog fell 18.9% to $561.4 million at June 30, 2019, compared with $692.1 million a year earlier.
- Americas segment sales rose 16.4% in Q2 and operating income increased to $35.7 million from $14.7 million. EURAF sales declined 4.5%, with operating income down to $1.7 million. MEAP sales declined 25.1%, primarily due to lower crane shipments for the oil and gas market; operating income fell to $5.1 million.
- Management provided no specific full-year financial guidance in the supplied filing text. It stated that liquidity and expected operating cash flows should cover foreseeable working-capital, capital-expenditure and operating needs.
- Key stated risks include changes in customer demand and economic conditions, converting orders to sales, foreign-exchange and commodity movements, leverage, cash generation and working-capital management, product quality and warranty exposure, and executing restructuring and manufacturing initiatives. The company also noted uncertainty around estimates for legal, product-liability, environmental and other claims. Management did not expect existing legal matters, individually or collectively, to materially adversely affect the company.
Investor verification priorities
- Assess how much Q2 and first-half earnings depended on the one-time legal settlement and how recurring operating performance compares with reported results.
- Track the substantial year-over-year declines in orders and backlog, including whether weaker MEAP demand persists.
- Monitor cash conversion, receivables, inventory and liquidity following termination of the domestic receivables securitization program.
- Review the cost and covenants of the 9.0% 2026 notes, available revolver capacity, and the company’s ability to service debt.
- Evaluate exposure to foreign exchange, warranty and product-liability claims, and remaining restructuring costs.