The Manitowoc Company, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Manitowoc is now focused on engineered lifting equipment and reports one segment, Cranes. Its foodservice business, MFS, was spun off on March 4, 2016 and is presented as discontinued operations; comparisons therefore include different business scopes.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net sales, continuing operations | $457.7M | $477.7M | $885.1M | $884.4M |
| Gross profit / margin | $88.2M / 19.3% | $94.9M / 19.9% | $170.1M / 19.2% | $170.3M / 19.3% |
| Operating income / margin | $4.8M / 1.0% | $14.2M / 3.0% | $7.8M / 0.9% | $5.9M / 0.7% |
| Net income (loss), including discontinued operations | $(4.9)M | $23.3M | $(212.4)M | $14.9M |
| Diluted EPS | $(0.04) | $0.17 | $(1.55) | $0.11 |
Q2 continuing-operations loss was $4.1M; six-month loss was $208.4M. Six-month results included a $76.3M debt-extinguishment loss and $122.2M income tax expense, primarily a noncash $120.2M valuation allowance against domestic deferred tax assets. Q2 restructuring expense was $8.8M; six-month expense was $13.2M. Interest expense fell to $9.9M for Q2 and $19.6M for six months, from $24.0M and $47.3M, respectively, reflecting lower average debt partly offset by higher rates.
Cash flow, debt and liquidity
- Six-month operating cash use was $226.5M, including $162.6M from continuing operations and $63.9M from discontinued operations. Continuing-operations cash use was $39.6M in the prior-year period. Management cited the debt redemption prepayment penalty and working-capital movements; seasonal working-capital investment also weighed on cash.
- Investing cash use was $25.9M, including $24.7M of capital expenditures. Financing provided $228.6M, principally reflecting the MFS distribution and new notes, offset by repayment of prior debt. Cash and temporary investments were $40.8M at June 30, 2016.
- Total debt was $292.2M, including $275.0M long-term debt and $17.2M short-term debt, versus $1,397.6M at December 31, 2015. The company issued $260M principal of 12.75% secured notes due 2021 and redeemed its prior 2020 and 2022 notes and term loans.
- Reported total liquidity was $197.0M, versus $458.6M at year-end, including $40.8M cash and $197.7M revolver capacity before short-term borrowings and letters of credit. No ABL revolver borrowings were outstanding; availability after letters of credit was approximately $173.4M. The company reported compliance with debt and receivables-securitization covenants.
Changes, outlook and risks
- Q2 sales fell 4.2%, primarily due to weak mobile-crane demand, especially in the U.S. amid lower oil prices. First-half sales were essentially flat: stronger tower-crane sales, supported by improving European construction trends and new products, offset mobile-crane softness. Lower volume reduced gross profit and fixed-cost absorption; cost reductions partly offset the pressure.
- Backlog was $393.5M at June 30, down 21.6% from March 31 and 46.2% from June 30, 2015. The filing provides no quantified sales or earnings guidance.
- On August 8, the company announced plans to move crawler-crane manufacturing from Manitowoc, Wisconsin, to Shady Grove, Pennsylvania, effective in Q3 2017. Expected costs include $10–15M cash severance and employment costs, $15–20M other costs, $10–15M capital expenditures, and $30–40M noncash charges, primarily fixed-asset and inventory impacts.
- The company will discontinue its SAP ERP implementation and expects a noncash impairment charge of approximately $75–80M in the second half of 2016.
- Key risks include construction-market cyclicality, oil prices and mobile-crane demand, leverage and liquidity, working-capital and cash-generation needs, foreign exchange, execution of restructuring and facility consolidation, and tax valuation allowances. Product-liability, warranty, asbestos and other legal matters were disclosed; management did not expect their resolution to materially harm the company, but estimates may change.
Investor facts to verify
- How demand, backlog and margins develop, particularly for mobile cranes and in the U.S. market.
- Whether Manitowoc generates operating cash and maintains adequate liquidity while managing seasonal working capital and debt obligations.
- The realized cash and noncash costs, timing and savings from the factory relocation and SAP cancellation.
- Whether deferred tax asset valuation allowances change and how that affects reported earnings.
- Progress against debt covenants, and the exposure represented by guarantees, warranty reserves and product-liability claims.