The Manitowoc Company, Inc. (NYSE: MTW) — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing also reports unaudited quarterly results. Manitowoc designs, manufactures and supports mobile, tower and crawler cranes and boom trucks, with Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $1,834.1 million | $1,846.8 million |
| Gross profit / margin | $344.1 million / 18.8% | $328.1 million / 17.8% |
| Operating income (loss) | $108.4 million | $(19.3) million |
| Net income (loss), continuing operations | $46.6 million | $(66.9) million |
| Diluted earnings (loss) per share | $1.31 | $(1.89) |
| Cash and cash equivalents at year-end | $199.3 million | $140.3 million |
| Total debt | $312.2 million | $273.1 million |
Sales fell 0.7%, primarily from $44.3 million of unfavorable foreign-exchange effects and weaker MEAP energy shipments, partly offset by increased North American shipments. Gross profit rose 4.9%; improved pricing and mix lifted gross margin by 1.0 percentage point. Operating results benefited from lower selling, engineering and administrative expenses and the absence of the prior-year goodwill impairment. The 2019 results also include a $25.0 million debt-extinguishment charge.
Cash flow: GAAP operating cash flow was negative $53.3 million; capital expenditures were $35.1 million. Management’s non-GAAP adjusted operating cash flow was $148.0 million and free cash flow was $112.9 million, including adjustments for receivables-sale cash flows and other items. The company explains that receivables securitization activity materially affected reported cash-flow classifications in both years.
Segments and material changes
- Americas: Sales increased 9.9% to $969.7 million; operating income rose to $113.4 million from $58.8 million. Growth reflected petrochemical and utility activity, fleet replacement, product share gains, pricing and improved factory utilization.
- EURAF: Sales decreased 5.2% to $644.9 million, including $34.7 million of unfavorable currency effects. Operating income was $3.8 million versus a $68.2 million loss in 2018, which included an $82.2 million goodwill impairment. Excluding that impairment, EURAF operating income declined year over year.
- MEAP: Sales decreased 22.6% to $219.5 million, mainly from lower energy-related crane shipments; operating income fell 28.3% to $22.6 million.
- Year-end backlog declined to $475.1 million from $670.6 million. Orders fell 14.2% to $1,638.6 million, with weaker demand in the Americas and MEAP cited as key factors.
- Fourth-quarter sales were $463.4 million versus $515.3 million in 2018; operating income was $17.8 million versus a $62.0 million loss, and net income was $9.2 million versus a $78.3 million loss.
Debt, liquidity and other key items
- In March 2019, Manitowoc refinanced its prior 12.75% notes due 2021 with $300 million of 9.0% senior secured second-lien notes due April 2026 and established a $275 million asset-based revolving credit facility. No revolver borrowings were outstanding at year-end; reported excess availability was approximately $206.4 million.
- Total reported liquidity was $444.5 million, including cash, revolver availability and other debt availability, less outstanding letters of credit. The company reported compliance with debt covenants and expected to remain compliant over the following 12 months.
- No cash dividends were declared or paid in 2019. The company repurchased $7.4 million of common stock during the year.
- Goodwill and other intangible assets totaled $348.8 million at year-end, about 22% of total assets. The 2019 annual impairment test indicated no impairment; the auditor identified goodwill valuation as a critical audit matter because of the judgment involved in projected revenue and operating income assumptions.
Outlook, risks and unusual items
The filing provides no quantified revenue or earnings guidance. Management said available cash, the revolver and expected operating cash flows should fund foreseeable working-capital, capital-expenditure and other operating needs. It also described demand as slowing in the Americas and MEAP. Principal risks include cyclical crane demand, customer financing availability, high leverage and debt covenants, foreign-exchange movements, steel and other input costs, supplier disruptions, execution of restructuring and manufacturing changes, product warranty or liability claims, and possible goodwill impairment.
Unusual items included a $24.4 million net gain from settling a legal matter, recorded partly in other income and partly as lower engineering, selling and administrative expense; a $3.5 million gain on sale of the Manitowoc, Wisconsin facility; and the $25.0 million refinancing charge. Year-end buyback commitments were $28.5 million. Product-liability reserves were $12.8 million, and warranty reserves were $60.6 million. Management said ordinary-course litigation, including asbestos-related claims, was not expected to materially adversely affect the company, while noting estimates could change. Pension and postretirement obligations exceeded plan assets by approximately $106.5 million.
The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective at year-end.
Important facts for investors to verify
- Whether the fall in orders and backlog signals a sustained slowdown, particularly in Americas and MEAP energy markets.
- How much reported cash generation depends on receivables sales, and how the discontinued domestic securitization program affects future cash-flow comparability.
- The company’s ability to service the 9.0% notes, maintain covenant compliance and preserve revolver availability under weaker demand.
- Whether price and cost actions can sustain margin gains amid foreign-exchange and raw-material pressures.
- Potential exposure from buyback commitments, warranty and product-liability claims, pension funding needs, and goodwill valuation assumptions.