Business context and reporting period
The Manitowoc Company, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2011. Its continuing operations comprise Crane and Foodservice. The Kysor/Warren businesses were sold on January 14, 2011, and are reported as discontinued operations; prior-period comparisons reflect that presentation.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Net sales | $732.2 million | $684.4 million; up 7.0% |
| Gross profit / margin | $180.4 million / 24.6% | $166.4 million / 24.3% |
| Operating earnings / margin | $29.6 million / 4.0% | $32.0 million / 4.7% |
| Loss from continuing operations | $17.2 million | $23.7 million |
| Net loss attributable to Manitowoc / diluted EPS | $52.4 million / $0.40 loss | $23.2 million / $0.18 loss |
| Cash used in operating activities | $155.1 million total; $136.9 million from continuing operations | $69.6 million total; $67.4 million from continuing operations |
Crane sales rose 7.1% to $392.8 million; segment operating earnings increased to $10.9 million from $2.9 million. Foodservice sales rose 6.9% to $339.4 million, while operating earnings declined to $33.1 million from $38.7 million. Segment operating results exclude the separately reported corporate and restructuring costs.
Cash and cash equivalents were $72.4 million at quarter-end, down from $83.7 million at December 31, 2010. Working capital consumed cash: inventory increased by $108.7 million and receivables by $63.1 million, partly offset by a $53.2 million increase in accounts payable. Capital expenditures were $7.6 million. Investing activities provided $136.4 million, principally from $143.6 million of business-sale proceeds.
Total debt was $2.003 billion versus $1.997 billion at year-end; long-term debt was $1.924 billion. Reported liquidity was $305.6 million, including $75.1 million of cash and marketable securities and available revolver capacity after borrowings and letters of credit. The company reported covenant compliance: senior secured leverage of 3.02:1 against a 4.50:1 maximum, and interest coverage of 1.94:1 against a 1.50:1 minimum.
Material changes versus the prior comparable period
- Revenue and gross profit grew, led by Crane; consolidated operating earnings fell as higher segment and corporate expenses more than offset sales growth.
- Net loss worsened primarily because of a $33.4 million after-tax loss on the sale of discontinued operations, driven chiefly by $29.7 million of tax expense. Continuing-operations loss improved year over year.
- Operating cash use from continuing operations increased from $67.4 million to $136.9 million, largely reflecting higher inventory and receivables to support increased order activity.
- Total debt increased slightly, while cash declined. The company received $143.6 million of sale proceeds and said proceeds were used to pay down outstanding debt.
Outlook, management commentary, risks and unusual items
Management cited stronger Crane demand in the Americas and China, robust orders and replenishment of depleted customer inventories. Crane backlog was $799.9 million at March 31, up 39.9% from year-end and 30.6% from a year earlier. Foodservice sales improved across regions as the industry began recovering from deferred spending. Management said higher engineering and other investments are expected to benefit the business and that liquidity and expected operating cash flows should meet anticipated needs. No specific earnings or revenue guidance was provided.
On April 13, 2011, the company announced plans to refinance its senior credit facility, expected to total $1.25 billion, with closing expected in May. Management anticipated average interest-rate reductions of at least 200 basis points across the facilities; completion and realized savings were not assured.
Key risks include cyclical construction and foodservice markets, raw-material and labor costs, customer financing and demand, foreign exchange and interest-rate movements, substantial debt and covenant requirements, and possible impairment of goodwill or intangible assets if markets or results deteriorate. The company also disclosed product-liability, warranty, environmental and other legal contingencies; management did not expect these matters to have a material adverse effect based on information available. Potential changes in estimates remain possible. Deferred tax assets in certain jurisdictions were not recognized because management concluded they were more likely than not to go unused, contributing to Q1 tax expense.
Important facts for investors to verify
- Whether order growth and the $799.9 million Crane backlog convert into sales and improved operating margins.
- Whether working-capital investment reverses and operating cash flow improves as production and shipments progress.
- Completion and final terms of the announced refinancing, including interest savings and effects on covenant headroom.
- The final tax and accounting impact of the Kysor/Warren divestiture and any further discontinued-operation charges.
- Changes in product-liability, warranty and environmental reserves, and any indicators requiring goodwill or intangible-asset impairment testing.