The Manitowoc Company, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Manitowoc designs, manufactures and supports cranes and related aftermarket services. It reports three geographic segments: Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP). This filing covers the three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Financial amounts are in millions of dollars unless stated otherwise.
Financial performance and condition
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Net sales | $354.3 | $329.2; up 7.6% |
| Gross profit / margin | $68.4 / 19.3% | $63.2 / 19.2% |
| Operating income | $10.7 | $5.7 |
| Net loss / diluted loss per share | $(3.1) / $(0.09) | $(7.8) / $(0.22) |
| Operating cash flow | $40.8 | $(78.6) |
| Capital expenditures / free cash flow | $8.0 / $32.8 | $3.6 / $(82.2) |
| Cash and cash equivalents | $158.5 | $128.7 at Dec. 31, 2020 |
| Total debt, net carrying value | $310.2 | $310.9 at Dec. 31, 2020 |
| Total liquidity | $443.3 | $411.7 at Dec. 31, 2020 |
Revenue growth reflected higher crane shipments in EURAF and MEAP, partly offset by lower Americas shipments; currency movements added $15.4 million to sales. Gross profit increased with volume and favorable currency effects, while gross margin was nearly unchanged. Lower restructuring expense and other expense also helped improve operating results, but a $4.2 million tax provision (versus $1.9 million) contributed to the continuing net loss.
Operating cash flow benefited chiefly from collections of receivables, partly offset by a $59.5 million cash use from inventory growth. The company also sold $53.4 million of receivables through its financing programs during the quarter. Cash generation should therefore be considered alongside working-capital movements and factoring activity.
Debt included $300.0 million of 9.0% senior secured notes due 2026 and $13.8 million of other debt. There were no ABL revolver borrowings; reported excess revolver availability was approximately $240.2 million after letters of credit. The company said it was compliant with debt covenants and expects to remain compliant over the subsequent 12 months.
Material changes and segment results
- Orders and backlog: Orders rose 26.3% to $473.6 million. Backlog was $662.5 million, up 27.2% year over year and 22.0% from year-end 2020. Currency effects benefited orders and year-over-year backlog.
- Americas: Sales fell 10.3% to $140.1 million and segment operating income fell to $7.0 million from $9.1 million. Management cited weaker energy and commercial construction shipments, lower aftermarket sales tied to crane utilization, and higher legal and incentive compensation costs.
- EURAF: Sales rose 25.7% to $154.5 million; operating income was $6.3 million versus a $0.4 million loss. Higher commercial construction shipments drove improvement; currency added about $11.8 million to sales.
- MEAP: Sales rose 19.2% to $59.7 million and operating income increased to $6.8 million from $6.3 million, mainly on higher commercial construction shipments.
- New crane sales were $243.5 million, compared with $232.1 million; used cranes, aftermarket parts and other sales were $110.8 million, compared with $97.1 million.
Outlook, risks and unusual items
Management reported improved orders and backlog across all three segments and expressed optimism that improvement could continue through 2021 as the global economy recovers. The filing does not provide numerical full-year guidance. Management cautioned that COVID-19 outbreaks, restrictions and supply-chain disruptions could affect operations, demand and results, and said it was working with suppliers to secure materials.
Other risks identified include demand and market conditions, raw-material costs, the ability to convert orders into sales, foreign-exchange movements, customer financing, operational execution, product quality and warranty exposure, and high leverage. Management reported no material change to previously disclosed risk factors.
Contingencies include product-liability and asbestos-related lawsuits, warranty claims, and customer buyback and loss guarantees. Management did not expect pending legal matters to have a material adverse effect, but stated that estimates for warranty, product-liability, environmental, asbestos and other claims may change. Warranty reserves were $59.9 million at March 31, 2021. Outstanding buyback commitments were $33.5 million and maximum loss guarantees were $30.7 million. The company also noted that future changes to deferred-tax-asset valuation allowances could materially affect results.
Restructuring produced $0.1 million of income in Q1 2021 versus $1.5 million of expense in Q1 2020. The company applied American Rescue Plan Act pension-rate changes and said no minimum U.S. pension-plan contributions were required for 2021.
Key facts for investors to verify
- Whether the higher orders and backlog convert into shipments, revenue and improved profitability, especially in the Americas.
- Whether inventory growth and receivables factoring affect future operating cash flow and liquidity.
- How COVID-19 and supply-chain conditions, foreign exchange and input costs affect demand, production and margins.
- Debt covenant headroom and the company’s capacity to service its 9.0% notes while sustaining liquidity.
- Changes in warranty, product-liability and other claim estimates, and in deferred-tax valuation allowances.