Wabash National Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited consolidated results. Amounts below are in U.S. dollars unless noted.
Business context and performance
Wabash manufactures commercial trailers, diversified transportation-related products, and final-mile truck bodies. Net sales grew 8.5% year over year, primarily reflecting higher Final Mile truck-body shipments. Management said demand remained strong across reporting segments.
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net sales | $533.2 million | $491.3 million |
| Gross profit / margin | $68.7 million / 12.9% | $64.1 million / 13.1% |
| Operating income / margin | $25.2 million / 4.7% | $25.7 million / 5.2% |
| Net income | $14.8 million | $21.3 million |
| Diluted EPS | $0.27 | $0.35 |
| Operating cash flow | $33.8 million | $(12.0) million |
| Capital expenditures | $6.8 million | $6.1 million |
Financial position and liquidity
- At March 31, 2019, cash and cash equivalents were $151.9 million; total assets were $1.409 billion and stockholders’ equity was $483.6 million.
- Long-term debt, including current portion, was $504.6 million at carrying value; finance lease obligations were $0.9 million. Management reported total debt and finance lease obligations of $505.6 million.
- The $175 million asset-based revolver had no outstanding borrowings. Reported liquidity—cash plus available revolver capacity—was $319.1 million. The company reported compliance with debt covenants.
- Current assets were $647.3 million versus current liabilities of $360.6 million. Inventory rose to $257.0 million from $184.4 million at year-end 2018.
- Cash rose $19.2 million during the quarter. Operating cash flow benefited from higher accounts payable and accrued liabilities, which partly offset inventory investment.
Changes versus the prior-year quarter
- Final Mile Products sales increased 33.6% to $100.8 million, with truck-body shipments up 43.4%. Commercial Trailer Products sales rose 4.2%; Diversified Products sales rose 4.7%.
- Gross margin declined 0.2 percentage points. Management cited higher commodity, component, and labor costs; tight labor markets; supplier production interruptions; and unfavorable mix in Commercial Trailer and Final Mile.
- Operating income edged down despite higher sales. General and administrative expense increased, including a $2.1 million machinery and equipment disposal loss, higher legal costs, and employee-related costs.
- Net income fell partly because Q1 2018 included $7.9 million of other income, primarily gains on sales of former branch locations. Q1 2019 had $0.2 million of other expense. The company also sold its Aviation and Truck Equipment business in January 2019.
- Operating cash flow improved from use of cash to generation of cash; however, inventory increased $72.6 million in Q1 2019. The prior-year period had a much larger accounts-receivable cash outflow.
Outlook, risks, and contingencies
- Management expected industry shipments and production to remain above replacement demand for the remainder of 2019 and described the demand environment as strong. The filing gives no company-specific revenue or earnings guidance.
- Backlog was $1.6 billion at March 31, 2019, versus $1.8 billion at December 31, 2018 and $1.3 billion a year earlier. Most of the March backlog was expected to be completed within 12 months; orders may change or be cancelled.
- Management forecast approximately $45 million of capital expenditures for 2019, focused on maintenance, growth, and productivity initiatives.
- Industry forecasts cited in the filing differed: ACT projected 330,600 trailers in 2019 (+2.4% versus 2018), while FTR projected 315,000 (−0.7%). Management flagged economic conditions, raw-material and component costs and availability, and manufacturing execution as risks. Wabash uses pricing actions, cost controls, and hedging, but stated it cannot hedge all commodity exposure.
- Raw-material purchase commitments were $144.9 million through December 2019. Commodity swaps had approximately $34.0 million notional value; the company expected to reclassify about $2.1 million of pretax deferred losses to cost of sales over the next 12 months.
- Legal matters were not expected by management to materially affect financial condition or liquidity, but outcomes are uncertain. A Supreme-related securities class action was dismissed with prejudice; plaintiffs filed an appeal notice on April 29, 2019. An environmental-site settlement payment was described as immaterial.
- Operating lease liabilities were $12.1 million at quarter-end following adoption of the new lease standard. The company reported $13.6 million of future operating lease payments.
Key facts investors should verify
- Whether sales growth, particularly in Final Mile, translates into improved margins as material and labor costs, product mix, and supplier constraints evolve.
- How inventory accumulation and the quarter’s reliance on increased payables affect subsequent operating cash flow and working-capital needs.
- Backlog conversion, cancellations, and actual industry demand relative to the divergent ACT and FTR forecasts.
- Liquidity and covenant headroom under the borrowing-base revolver, including the effect of eligible receivables and inventory and any restricted-availability triggers.
- Progress on the Supreme litigation appeal and any material developments in other legal or environmental matters.