The Manitowoc Company, Inc. — Q3 2014 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2014. Manitowoc reported two segments: Crane and Foodservice. Comparative 2013 figures were revised for discontinued operations.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net sales | $986.3 million | $1,012.1 million | $2,849.1 million | $2,943.8 million |
| Operating earnings | $81.3 million | $103.3 million | $230.3 million | $265.9 million |
| Earnings from continuing operations | $74.4 million | $53.8 million | $127.3 million | $129.7 million |
| Net earnings attributable to Manitowoc | $73.1 million | $52.9 million | $110.9 million | $120.9 million |
| Diluted EPS attributable to Manitowoc | $0.53 | $0.39 | $0.81 | $0.89 |
| Cash flow from operating activities, continuing operations | Not separately presented for Q3 | $(132.2) million | $61.2 million |
- Q3 gross profit was $245.2 million, or approximately 24.9% of sales, versus $262.1 million, or approximately 25.9%, a year earlier. Operating margin was approximately 8.2%, down from 10.2%.
- At September 30, cash was $74.8 million and restricted cash was $25.1 million. Total liquidity, including available revolver capacity, was $365.4 million, down from $524.3 million at year-end 2013.
- Total debt was $1.747 billion, compared with $1.527 billion at December 31, 2013. Long-term debt was $1.672 billion. Current assets were $1.424 billion and current liabilities $1.003 billion.
- Operating cash flow from continuing operations was negative, driven principally by timing of accrued-expense payments and receivable collections, and higher income taxes paid. Inventory and accounts receivable increased from year-end.
Material changes and segment trends
- Consolidated sales fell 2.5% in Q3 and 3.2% for the first nine months. Crane sales declined 6.7% and 8.9%, respectively, while Foodservice sales rose 3.8% and 5.7%.
- Management attributed Crane weakness to lower volumes across most product lines, particularly rough-terrain and boom-truck markets in North and Latin America. Crane Q3 operating earnings declined to $41.6 million from $59.1 million; nine-month earnings fell to $118.6 million from $164.0 million.
- Foodservice growth reflected new product launches and Americas demand. Q3 operating earnings were $61.9 million versus $69.5 million; nine-month earnings increased to $185.7 million from $181.6 million.
- Crane backlog was $715.6 million, up 25.9% year over year but down 1.6% from June 30, 2014.
- Interest expense declined to $24.7 million in Q3 and $69.1 million year to date, from $31.6 million and $96.8 million, respectively. The 2014 nine-month period included $25.3 million of debt-extinguishment losses, mainly from redeeming the 9.50% notes due 2018.
Outlook, commentary, and risks
- No specific revenue or earnings guidance is provided. Management said expected liquidity and operating cash flows should be sufficient for working capital, capital expenditures, and ongoing needs, and expected to remain in compliance with debt covenants over the following 12 months.
- At September 30, the secured leverage ratio was 2.34:1 versus a 3.50:1 maximum; interest coverage was 4.45:1 versus a 2.50:1 minimum. The company reported covenant compliance.
- Q3 earnings benefited from an $18.1 million income-tax benefit, versus $17.0 million tax expense a year earlier. The year-to-date tax expense fell to $3.7 million from $34.8 million, primarily after a tax-status election produced a $25.8 million capital-loss tax benefit. Tax valuation allowances and uncertain tax positions could affect future results.
- Manitowoc completed the sale of its Manitowoc Dong Yue joint venture in January 2014. The sale and other discontinued-operation items contributed an $11.0 million year-to-date loss on sale. The company guaranteed approximately $17.3 million of the former venture’s third-party debt at the time disclosed.
- Other exposures include product liability and warranty claims, environmental matters, asbestos and other litigation, customer residual-value and buyback commitments, and a guarantee of certain customer financing notes. Management did not expect the disclosed legal and environmental matters to have a material adverse effect, but estimates may change.
- Key business risks include construction-market cyclicality, customer demand and financing, commodity and foreign-exchange volatility, execution of cost and ERP initiatives, and the company’s substantial debt. Foreign-currency translation reduced Q3 comprehensive income by $48.2 million.
- After quarter-end, the company declared a $0.08-per-share cash dividend, payable December 10, 2014.
Investor facts to verify
- Whether Crane demand and backlog convert into sales, particularly in rough-terrain and boom-truck markets.
- Whether Foodservice growth and cost actions offset Crane weakness and higher engineering, product-development, and material costs.
- Whether working-capital outflows reverse and operating cash flow supports capital spending and debt service.
- Debt levels, revolver usage, covenant headroom, and the impact of interest-rate exposure and refinancing.
- The durability of the tax benefit, deferred-tax-asset valuation assumptions, and outcomes of ongoing tax examinations.
- Potential cash or earnings effects from the former joint-venture guarantee, product claims, warranties, and customer guarantees.