The Manitowoc Company, Inc. — Q3 2020 Form 10-Q
Business context and reporting period. Manitowoc designs, manufactures and supports mobile, tower, crawler and boom cranes, as well as aftermarket parts and services. This filing covers the quarter and nine months ended September 30, 2020. The company reported through Americas, Europe and Africa (EURAF), and Middle East and Asia Pacific (MEAP) segments. COVID-19-related demand declines, especially in the Americas, affected shipments and facility utilization.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $355.6 million | $448.0 million | $1,013.1 million | $1,370.7 million |
| Gross profit | $65.1 million | $88.4 million | $176.7 million | $263.8 million |
| Gross margin | 18.3% | 19.7% | 17.4% | 19.2% |
| Operating income | $11.7 million | $32.5 million | $15.8 million | $90.6 million |
| Net income (loss) | $(0.4) million | $18.0 million | $(20.9) million | $37.3 million |
| Diluted EPS | $(0.01) | $0.51 | $(0.60) | $1.05 |
| Cash from (used in) operations | $27.8 million | $37.5 million | $(70.9) million | $(197.9) million |
Q3 sales fell 20.6% year over year and nine-month sales fell 26.1%. Lower crane shipments drove the declines. Gross margin contracted amid reduced production and underutilized manufacturing facilities. The nine-month operating-income comparison also reflects lower sales and pandemic-related underutilization.
For the nine months, investing cash outflow was $15.1 million, including $15.3 million of capital expenditures; financing cash outflow was $14.6 million, principally including $12.0 million of share repurchases. Cash declined $98.2 million from year-end 2019 to $101.1 million.
Financial position and liquidity
- At September 30, 2020, cash was $101.1 million; total debt was $310.5 million, including $300.0 million of 9% second-lien notes due 2026. The company had no ABL revolver borrowings at quarter-end.
- Reported total liquidity was $396.7 million, comprising cash, $261.2 million of revolver capacity and $37.4 million of other debt availability, less $3.0 million of outstanding letters of credit. Revolver capacity is borrowing-base dependent.
- Current assets were $858.5 million and current liabilities were $437.9 million. Inventory was $526.7 million, up from $461.4 million at December 31, 2019.
- The company said it was in compliance with debt covenants and believed it could remain compliant over the subsequent twelve months, based on current plans and outlook.
Material changes and segment trends
- Americas Q3 sales decreased 40.0% to $150.7 million, chiefly on lower shipments and shippable backlog. EURAF sales increased 11.1% to $154.7 million, partly due to shipment timing and favorable currency movements. MEAP sales decreased 13.1% to $50.2 million.
- Q3 orders increased 10.5% year over year to $389.9 million. September 30 backlog was $464.8 million, down 0.4% year over year; Americas weakness was partly offset by higher EURAF and MEAP backlog and currency effects.
- Nine-month operating cash use improved versus 2019, but remained substantial. Management attributed 2020 use mainly to an $84.1 million working-capital increase, including higher inventory and payment of prior-year incentive compensation.
- Q3 2019 and nine-month 2019 comparisons included unusual benefits: a $24.4 million net legal settlement benefit in 2019 and a $3.5 million property-sale gain in Q3 2019. Nine-month 2019 also included a $25.0 million debt-extinguishment charge. These items affect year-over-year comparisons.
Outlook, risks and contingencies
- Management expected reduced demand, primarily in the Americas, and production slowdowns to adversely affect results for the remainder of 2020. It did not provide quantified earnings or revenue guidance in the supplied filing text.
- The company said its facilities were operating with preventive measures, but future outbreaks, government restrictions and supplier disruption could impair production and deliveries. The outlook remained dependent on the pandemic’s duration and severity and broader economic conditions.
- To preserve liquidity, Manitowoc reduced discretionary spending and capital expenditures, suspended share repurchases and 2020 base salary increases, and used available government support programs.
- COVID-19 uncertainty could affect estimates for goodwill and long-lived asset impairment, inventory recoverability, taxes and hedge accounting. The March 2020 interim goodwill test found no impairment, and the company identified no further interim trigger through Q3; future impairment remained possible.
- Other disclosed risks include customer demand and financing, supply availability, foreign-exchange movements, high leverage, execution of restructuring, and product liability and warranty claims. Management said pending legal matters were not expected to have a material adverse effect, while noting estimates could change.
- Buyback commitments totaled $23.6 million, and maximum loss guarantees were $26.2 million at quarter-end. Warranty reserves totaled $59.8 million; product-liability reserves were $12.2 million.
- The nine-month tax provision was $9.6 million and included a $3.7 million CARES Act-related net tax benefit. Unrecognized tax benefits increased to $22.7 million, primarily from uncertainty around U.S. federal tax-planning strategies.
Important facts for investors to verify
- Whether order growth converts into shipments and revenue, and how backlog develops by region.
- Whether cash generation improves as inventory and other working-capital needs normalize, given the $70.9 million nine-month operating cash outflow.
- Actual borrowing availability under the asset-based revolver and compliance with financial covenants if demand or collateral values weaken.
- Whether COVID-19, facility utilization, or supply-chain conditions lead to further margin pressure or impairment charges.
- The resolution and potential financial effects of tax uncertainties, product claims, warranty obligations and customer buyback or loss guarantees.