Q3 2020 Manitowoc Company Inc Earnings Call
[music] Good day, everyone and welcome to the minutes walks third quarter 2020 earnings Conference call today's call is.
We recorded at this time for opening remarks, and introductions I'd like to turn the call over the ion Warner Vice President marketing and Investor Relations. Please go ahead.
Thank you and good morning, everyone and welcome to the Manitowoc Conference call to review the Companys third quarter 2020 financial performance as outlined in last evening's press release.
Participating on the call today are Aaron Ravenscroft, our President and Chief Executive Officer, and Dave Antolik, Executive Vice President and Chief Financial Officer.
Today's webcast includes a slide presentation, which can be found in the Investor Relations section of our website under events and presentations.
We will reserve time for questions and answers after our prepared remarks.
And I would like to request that you limit your questions to one and a follow up and return to the queue to ensure everyone has an opportunity to ask their questions.
Please turn to slide two.
Please note that our safe Harbor statement in the material provided for this call.
On today's call forward looking statements as defined in the private Securities Litigation Reform Act of 1995 are made based on the company's current assessment of its markets and other factors that affect its business. However.
However, actual results could differ materially from any implied or actual projections due to one or more of the factors. Among others described in the Companys latest SEC filings.
The Manitowoc company does not undertake any obligation to update or revise any forward looking statement, whether as a result of new information future events or other circumstances.
And with that I will now turn the call over to either Aaron.
Thank you ion and good morning, everyone.
During our last call I outlined minutes lost three key priorities for managing through the COVID-19, pandemic, which are one manage the health and safety of our employees to strengthen our balance sheet and three positioned the company for long term growth.
I'm proud to report that our team has done an extraordinary job delivering on all three of these priorities and I. Thank all of them for a job well done.
Orders for the quarter were $390 million and frankly, much stronger than we had anticipated.
This laid the groundwork for us to increase our factory production in certain facilities, where we had an aggressive shutdown planned and allowed us to deliver on the strong quarter.
We generated $21 million of free cash flow during the quarter and ended the quarter with $101 million of cash on hand, our.
Our total liquidity of $397 million at the end of September positions us well for the cyclical nature of the crane business and to execute on our strategic growth initiatives.
With that I'll ask Dave to take us through the details of the financial results and I'll close with some more color on the market outlook and our strategy.
Thanks, Aaron and good morning, everyone, let's move to slide three.
Our third quarter orders totaled $390 million, an increase of 10% compared to $353 million of orders last year.
The year over year increase was driven by improved crawler crane demand in the Americas segment, partly offset by declines in other product lines due to the continued effect of COVID-19 on our end markets. In addition, we secured a couple of large mobile Crane project orders in EMEA AP segment.
Which contributed to the year over year increase fared.
Favorable changes in foreign currency exchange rates positively impacted our year over year orders by approximately $6 million.
Book to Bill in the quarter was 1.1.
Our third quarter, ending backlog of $465 million was essentially flat over the prior year and up $35 million or 8% on a sequential basis.
Headcount reductions in the Americas.
Our gap diluted earnings per share in the quarter was a loss of one spent per share versus income of 51 per share in the prior year.
On and adjusted basis diluted earnings per share was income of 10 cents compared to 54 and the comparable period.
The primary driver of lower adjusted Deluding earnings per share with the impact of reduced year over year sales volume.
And the third quarter, we generate a $28 million of operating cash flows, which was primarily driven by a reduction in working capital of $19 million.
On a currency neutral basis, we reduced inventories by approximately $18 million during the quarter. We continue to closely manage are working capital needs to current demand levels and remain on track to achieve our plan to 80 million inventory reduction on a currency neutral basis.
During the third quarter total liquidity increased approximately 12% from a year ago.
And the quarter, we repaid to $50 million draw on our ADL facility and ended the period with zero borrowings on our ABL facility.
Our liquidity remains sufficient to meet our obligations for the foreseeable future.
Additionally, we do not have any significant debt maturities until 2026 and as stated in previous calls are 2019 that agreement simplified in east Covenant compliance affording us greater flexibility to access our liquidity.
Our net debt leverage ratio is two six providing us with sufficient runway to the boy capital for growth initiatives.
Due to the significant uncertainty regarding the impact that COVID-19 would have on our end market demand and supply chain on March 27th 2020, we suspended guidance for 2020.
Although significant uncertainty continues to persist in the markets. We serve our line of sight to fourth quarter results have improved accordingly, our forecast for revenue is between $425 million and $450 million and between $18 million and $23 million for adjusted EBITDA.
With that I will now turn to call back to Eric.
Thank you date please.
Please move to slide for.
The third quarter was a refreshing recovery from the steep decline that was experienced in the first half of the year, but we are not out of the woods yet the covid pandemic continues to create uncertainty and industry confidence remains weak and the Americas, we still face headwinds, including Covid presidential election dynamics challenging oil prices.
An elevated dealer inventory.
Demand for <unk> has been better however, when speaking to our customers and dealers. The consensus is that we won't see a broad recovery until mid 2021 at the earliest.
In Europe, we saw good orders during the third quarter, reflecting a bounce back after business grounded to a halt in the second quarter. Although looking forward. We are most concerned with this region. The recent spike in Covid cases is weighing heavily on the general sentiment even more so than in the United States at certain countries have been implemented severe lockdowns and.
And if you recall that hurricane business in this region was already cycling down before covid him.
And math I would describes customer sentiment as mixed.
China, and South Korea have been relatively strong for us in 2020, and we've landed a couple of nice sized projects in the middle East.
That said, we have to see structural improvements in the middle east economies that we'd give us confidence that is sustainable recovery is imminent.
South East Asia, and India remains very slow lastly, while Australia has been strong throughout the summer we have.
Seen some signs of a slowdown as the geopolitical situation with China evolves.
There is no question that we are operating and unprecedented times, while we continue to manage the business closely during these challenging market conditions were also proactively taking action to accelerate our growth from the market recovers.
Our investment in new product development remains on track and we are developing new strategies to get closer to our customers to grow the business.
If you'd please turn to slide five this will give you some insight as how we are beginning to think differently about the business.
This slide breaks down the different revenue streams that are derived from a timeframe.
Historically, we've primarily focused on the sale of new cranes, which serves us well in markets, where you have strong distributors and partners.
However, there are certain geographic territory, such as Germany.
Or some of our partners don't have the balance sheet to take advantage of rental fleet of large top flowing Tyler Craig.
In addition, large international construction companies rely on creating rentals to help manage their fleet and they are beginning to shift their preferences to rent from oem's as part of bundled deals.
Beyond the obvious benefits of having a rental fleet to run trains. This business model helps facilitate greater service revenue and used equipment sales.
Moreover, many customers prefer to rent a claim for two years to work down the acquisition price prior to the actual purchase.
We see this approach as an opportunity to diversify our revenue streams and generate attractive returns in markets, where we have opportunity to grow our sure.
We quietly child. This initiative during 2020 with good success and intend to expand this initiative in 2021, we will continue to share more on this initiative as it matures, but we wanted to give you some insight on how we're changing our mindset around growth.
So I think it's tough to give you a good answer in detail on that Jerry.
I would say that I would look at the America's we're.
At a low level and calms begin to get easier and there are some opportunities out there still projects in the middle East I think will help us out and some of the new products that we've launched.
China business, I think will help eight us and Asia pack.
I would say like I had mentioned in the prepared remarks Europe is.
What I worry about the nose.
Okay. Thank you and then can you expand on the initiative.
In rental creams in Germany.
Level of Capex are we thinking in seating that business and what's the return on capital level that you're thinking about it as reality.
Capital in that direction.
So we invested roughly $4 million and 20 at the end of 2019 into a couple of units that we put into the fleet had good success with that right now we're in the process of actually building $5 million of the cranes that will go into the fleet in January and as we build our budget and look what are the opportunities other opportunities we have to invest our cash for.
Valuing different options of maybe expanding that a little more and we will have more color free on that in February.
With respect to return I'll, just say that it's.
Could you just prioritize but our opportunities for for all of our Capex. That's always thanks very high.
<unk>.
Okay. Thank you.
Thanks have a good day.
We'll go next to Michael Suski with colors to khakis.
Hello, This is Jacob parchman.
Jacob Parsons on the call for Mike sorry for the confusion there.
But I'll get right to it can you talk about the general pricing environment for clean.
If there's any nuances between the category that really appreciate kind of any details you could get there.
Yeah, So I'd say broadly that we haven't seen we're not taking price reductions, let's say are there are not many requests I think it's.
Sort of holding paces, where we've been that being said when there's a large project those are always negotiated.
And markets like the Middle East and Southeast Asia, which have been really down for a long time now those are always very very strongly negotiated downward pressure.
Okay Gotcha gotcha. Thank you.
And one final question here.
I know, it's only been.
A couple of days the whole election, we still don't have a.
The winter inside quite yet, but have you had any chance to talk to customers of the teams around.
What's your attitude now regarding post election, and I know you guys come up.
Talked about how the election has been kind of a sore spot but.
When it comes to getting back to buying trains has there been any talk with customers quite yet.
No I mean, I think it goes back and forth. There's there's people debating with the effects of it could be from a tax perspective, and then the other side of it is of course.
Divine talk about infrastructure. So I think it's really just a wait and see attitude.
Alright, Gotcha I appreciated that'll be all thank you.
Thank you okay.
We'll go next to Steven involvement with Jeffrey.
Hi, Good morning, guys. Thanks for taking my question.
Say one word.
Good morning, I Wonder if we could just talk a little bit about sort of decadence of some of the cost actions you've taken I think you mentioned, Dave some short term incentive comp and some discretionary savings and it looks like based on your guidance, maybe some of those start coming back in the fourth quarter.
And then I'm trying to figure out I guess really was 2021 look like in terms of kind of those costs coming back.
And then perhaps maybe some benefits of some of the restructuring that you've been doing as well. So that's my question. Thanks.
Okay. So I will speak broadly just in terms of the outlook on some of those items that you are a stephen in a safe to speak directly to the fourth quarter and some of those other questions around a restructuring details and I would say that.
The current situation around the globe is really dynamic with respect to this covid pandemic every country every market is being affected differently. One of the things that we see out there is unfavorable next quite frankly, probably that's the biggest challenge that we have just as.
Whether it be geographically even product oriented so right now we've got some challenges there and then with respect to these cost challenges.
As we look out there is definitely some costs that we took out with things like lower travel that will come back as as we go back to normal or some version of normal.
And of course, we're not immune to some of these other costs that are out there like such as insurance, which has been a really dynamic markets covid hit.
Dave.
Yeah, So Steve I I'll, just comment that sequentially.
We will probably see an uptick in our SG&A cough.
But year over year will still be down.
We will have less of a benefit in our short term incentive plan in queue for than we have in Q3 in addition to that.
Had recently gone through our insurance renewal, which is our new premiums are going to affect Q Q4, adversely and into 2021 as well so.
A lot of the cost reductions there was big benefit in Q3, we're getting some headwinds to that in queue for so.
One of the reasons that we will see an uptick in cost in Q4 versus Q3.
Okay, great and maybe I can push it one step further let's assume that next year's kind of flat and that's my assumption that yours from a volume perspectives.
How do I balance those temporary costs coming back with whatever benefits of sort of improved productivity and or restructuring that you might have coming in texture.
Right, Okay, great question so.
That there is we looked at a high level our puts and takes there is there is a little more headwinds and our cost structure than anything I think the number one item coming back is is when you look at salary and step expensive short term incentive plan expenses and 2020, we did not have any any salary increases nor do we.
Eight any significant amount of.
Short term incentive compensation for US in addition, who talked about the insurance and finally, what I would say is that FX is going to be a headwind for us, particularly for those products that we manufacture in Europe, and 70, United States, which are pretty significant.
Steve as we come out of the pandemic, we believe there'll be a bit of a hangover that we need to manage through.
Understood. Thank you guys.
Okay.
We'll go next can and begging Mkay P. Morgan.
Hi, Thanks, This is Charlotte fallen off and on.
You mentioned that you're still on track to will be sharing employees by.
For the year and would you expect these possibly be enough to write that inventories or would you expect.
All the back pain can be required into 2021.
So generally speaking I think that we have a cycle. So typically what our cycle does as we build inventory and the first half of the year in inventory come down in the second half of the year. So I believe that that cycle will again exist in 2021, so we'll be of use of cash at the beginning of the year.
And I would just add that in some respects tied to what our orders are so if we come out of this and orders a really strong mid point of the year second half that will have an effect on what our builds schedules are so.
We are.
Fangled data.
The advantage of tightly relative to to what are what are the greatest.
Thanks I appreciate the call today and then we also have one projects have been a bright spot for quality demand could you discuss a little bit more about your product offering a niche market and kind of of elaborate more on your competitive. Additionally, five region.
Yeah, So I mean, because we manufacture in the United States and where currencies has been over the last 10 years, and that's really where the main emphasis is with respect to where we serve the wind market.
Several years ago, we launched a couple new MLC units to 366 these are much bigger grains.
Let us crawler crane and that's really what are the opportunity is.
There is also some altering creams that participate in the pace and that space for maintenance.
But that's an accident, we haven't developed yet.
Great. Thanks, I appreciate the time off that and cute.
Thank you.
Okay next time frame with bird.
Alright. Thank you good morning, gentlemen, and congratulations on a good quarter.
Good morning.
So.
What surprised me the most I guess was war.
Order intake.
This is the first double digit growth that we've seen in.
Quite some time and in a press release, you were talking about that metro it could be an ahead of your expectations as well.
I'm trying to understand here based on the commentary you provided us on slide four.
How we should be thinking about where we are in terms of demand for the cycle.
Maybe five.
I am not going to call him, one time, but I don't know what else to call them.
Project and you called out in the Middle East.
That might have benefited the quarter that perhaps are not sustainable on a go forward basis and can you kind of give us a sense as to what your view is in terms of.
Bold.
Inability of growth or the path for growth going forward.
Okay. So that's the thing with the million dollar question make [laughter].
I think.
We were we were very surprised with just how the third quarter played out in terms of orders I think we've silver.
We were.
China. The toughest continues as we could to make sure we can manage through it so.
When I look at the third quarter and think about the third quarter and the thing that David and I talk a lot about is.
That we see orders coming from the second quarter.
Didn't happen and.
And even I would say when we don't put our winter campaign for the tower cranes in the fourth quarter, we see some action happening there because some people are pulling them down other projects that they're trying to get done yet.
If you ask them about visibility in the next year. There is nine and then there's fewer orders to some of our core customers that we would typically get orders from in this period frankly, they've been much lower because they don't want to take the risk and give us a bigger orders. So I would say it's extremely difficult.
Situation for Australia get our arms around because on one hand, we look at the numbers and say a notice those really good but then when I turn around and talk to our larger the big train operators and you get the feedback from them.
They're extremely conservative.
Conservative with respect to how they see the market so.
We've been happy with what the team pulled together and so far I would say October was.
Good for us and.
Right now, we're sort of taking at quarter by quarter.
With respect to the size of those projects that you had mentioned, there's really too big chunks there.
Typically when we get because crawler trains are so expensive when you get a small patch of those.
At 10 to $29 range than those projects in the Middle East haven't described similarly.
In terms of how many of them are high.
Handful.
Okay. It is interesting it's not a large big train operators, that's not where the orders or comment from currently right now our orders coming from sort of smaller houses, they're taking advantage I think of the opportunity of the timing and then some of these projects.
Understood and when my follow up is done.
Related to competitive dynamics.
Especially outside of North America right.
I am putting tough competitors, especially in the middle East.
And I'm wondering if you've seen any different attitudes from them and changes on the ground that.
Benefiting from a share standpoint, or anything else that you think we should be aware. Thank you.
Yeah. So the middle East has an extremely competitive I wouldn't say that that's actually changed in a couple of these orders that we went to get.
We went to go get him I would say that frankly speaking the one we took in a price that we wouldn't normally have taken that we need to stay relevant relevant in the market and one after and I think that's important, especially when you look at where our order book is that we've got some units to to to fat to put to the factory.
I wouldn't say the dynamics of change we haven't seen any of that you have to at least.
Okay I appreciate it and good luck.
Thank you.
We'll go next to snatch rubber, but RBC capital markets.
Hey, guys good morning, and a couple of days Monothetic.
Alright, I guess he's addressed a lot of those on my list, but I wanted to touch on the aftermarket business being down in the quarter.
I guess you know normally I think we would look at that as a leading indicator rate of.
Time for getting better I would assume aftermarket would be will be.
Can you and I know, it's been a big initiative financial ought to to grow the aftermarket business. So can you just sort of help us understand what's going on there.
Has it was it up I believe it was up in the first part of the year. So did something change here to push the aftermarket business down in the third quarter. Thanks.
Okay. So I'll sort of take the broad comments on pastor, Dave when I look at it I mean in the second quarter, we were down and we got really hit hard in April timeframe whenever covid hit and a stop the other sites in Europe, I frankly in and of course, we have the summer months, which are always slow and sometimes difficult to predict and find local going.
The last six months it really hasn't been the best period.
Go grow aftermarket 19, that's sort of let me see it in the numbers David you anything in terms of current on that so I think generally speaking.
When we look at our day rates in the aftermarket business. We just had a slow start to the quarter and when I look at the year over year change. It's a small difference it's nothing significant right I mean, it's probably in the in the 2% to 3% decline range in that particular case Vanessa has to do with the slow start to the end of July timeframe.
As of right now we believe that the aftermarket day rates are back to normal levels make it a little bit low, but it's really based upon the market and where the market conditions have at this point in time.
Okay, and then just your commentary about.
About dealer inventory levels is that it.
Closer to the to the north to the American market or.
Is that a global situation yet.
Entirely in the U S market and it's been elevated for several quarters continues to get into a better.
Spot, but it's still a little bit higher than what we'd like to see it, especially when you look at the.
The current environment.
Okay I appreciate that thank you very much.
Hi, Jeff.
Well next to Stanley Elliot Plisky fall.
A couple of guys. Thank you for taking the question.
Circle back to the Middle East.
Orders.
Ballpoints you guys are trying to kind of make camera to some new customers was curious if if this is what's showing up in the results and.
But we'll leave that for that.
Yeah, I think yes, it is a simple answer.
Some of these customers that we've been longtime customers to just.
With some of the quality challenges that we had going back five years ago and reentering those accounts and some of it too has been we're really tight on terms of maintaining our price discipline and I think we've got to the point. We said, okay. We've we've got to be in the market and we.
And more competitive than let's say, we would have been two or three years ago.
That's fair and I'm, assuming that material costs have been trending favorable for you guys. As a result is there any way to kind of.
Highlight what that was in terms of the solid decrementals.
Nine.
Yeah, No I Stanley I don't think that was that's a really big driving factor into Decrementals. Okay. Okay. And then lastly are there any of the crane markets globally kind of position like your move and the EU, where you can become more vertical and closer to the customers.
Yeah, we think there's other opportunities that will just take it piece by piece.
Great guys. Thanks for time best of luck.
Thank you.
We'll go next to Jamie Catholic Credit Suisse.
Hi, Good morning, I guess most of my questions have been answered, but this one sort of longer term question just given.
Length of the downturn within the crane market and just understanding covid complicate things, but.
Can you sort of have a new view on how you think about normalized sales or margins for.
Manitowoc today, I guess relative to maybe 12 to eight months ago and.
Could you just help us understand how are you.
Thinking that thing thank you.
Yeah, that's a tough one to answer because I'm not sure everything's normal lines anymore, even when I joined the company five years ago when I when.
When I joined five years ago to instead of a sort of a seven year cycle. So.
Right now, it's even harder to say what that cycle is going to look like when we come out of it.
I do believe if you look over the last.
Six years, the market has been way down in relative to the 10 years before that so at some point the market is going to come back and be free dynamic.
When that happens.
I think it's anyone's guess to be honest with you.
Okay, and any any changed longterm view on and margins for man o'clock or is it still.
Fairly consistent.
So from my point of view on the margins we've done all the heavy lifting in terms of cost to really move the number of because it's pretty meaningful numbers and we've got $100 million worth of costs.
So it is going to be volume dependent.
As you can imagine if you swing between where we are now and even when we weren't last year that would be having a huge effect on our margins and I think the last piece of just how how we really start to grow the business.
Talk to him out and this opportunity for towers those those are going to come with better margin. So as we grow and go after new business, we want to make sure that that's favorable.
And likewise any accusations any any acquisitions we looked at.
Are all going to be.
Favorable for us.
Okay I appreciate it thanks again.
Thanks, Jamie.
And that concludes today's question and answer session I'd like to turn the conference back of our tent Mr. Ian Winer for any additional closing remarks.
Before we conclude today's call. Please note that a replay of our third quarter of 2020 conference call will be available later this morning by accessing the Investor Relations section of our website at Www Dot Manitowoc Dot com. Thank you everyone for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again next quarter. Please.
Say.
And that concludes today's conference. Thank you for your participation you may now disconnect.
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