Q1 2021 Manitowoc Company Inc Earnings Call
To walk company first quarter 2021 earnings conference call.
Today's call is being recorded.
At this time for opening remarks, and introductions I would like to turn the call over to ion Warner Vice President of marketing and Investor Relations. Please go ahead Sir.
Good morning, everyone and welcome to the Manitowoc Conference call to review the company's first quarter 2021 financial performance and business update as outlined in last evening's press release.
Participating on the call today are Aaron Ravenscroft, President and Chief Executive Officer.
And Dave Anthony <unk>, 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 I'd 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.
Please note our safe Harbor statement in the material provided for this call.
During today's call forward looking statements as defined in the private Securities Litigation Reform Act of 1095 are made based on the company's current assessment of its markets and other factors that affect its business.
However, actual results could differ materially from any implied or actual projections due to one of 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 the result of new information future events or other circumstances and with that I will now turn the call over to Aaron.
Thank you I on.
Good morning, everyone. Please turn to slide three.
I would like to start by thanking the Manitowoc team for a job well done I was really pleased with our performance in the first quarter adjusted EBITDA and cash flow from operations exceeded our expectations.
Frankly this was accomplished in spite of the myriad of production and delivery issues created by the current supply chain and logistics environment not to mention the ongoing.
<unk> created by the COVID-19 pandemic.
Nevertheless, the team persevered and delivered a very strong start of the year.
In terms of orders, we were pleasantly surprised of the quarter orders were up 26% versus the same period last year and we ended the first quarter with the backlog of $663 million.
Starting with Europe, the tower Crane business was unusually strong during the period.
I attribute this to three dynamics first certain European countries, such as Italy implemented tax incentives to promote capital investments, which drove orders, particularly for self erecting cranes second.
Second we had several key dealers placed partial orders during the fourth quarter winter campaign due to the economic uncertainties as the economy reopens the dealers placed follow on orders in the first quarter.
Lastly, as we implemented price increases to offset material cost increases some dealers placed additional orders in advance of the price change.
Unfortunately, however, the mobile crane business in Europe was not as robust and was more reflective of the cautious tones that we hear out of the EU.
Net net we were genuinely surprised by the performance of the region during the first quarter.
Moving east we can still continue to feel good about the general activity in the Middle East and Asia Pacific.
On the project pipeline in the Middle East is encouraging.
In China, South Korea, and Australia posted strong bookings during the quarter.
Finally, I wanted to and in the Americas to ensure the nobody jumps the conclusion.
But our total performance of the quarter was reflective of.
On a significant change in the U S market.
The order increase of North America was high single digits, which is great news, but we remain tempered with our outlook on the U S market the.
The signals that we see in the marketplace don't necessarily match all of the positive information that you see in the news these days clear.
Clearly the vaccine news is positive and there is a lot of speculation around the U S infrastructure Bill.
<unk> the major crane rental houses are still holding types of the vs.
Big oil companies are still cautious to invest even as oil is back above $60 and on top of that used equipment prices still remain depressed.
When I looked at on our dealer inventory levels and consider the orders that are on the books I would say that our dealer network is well positioned to seize the opportunity for an uptick in business.
So we have the measured view of.
On the North American Crane market.
Given the volatility of the free market, it's essential for us to keep investing in the Manitowoc way to continuously improve the flexibility of our operations.
As I mentioned demand for self erecting tower cranes has been surprisingly strong over the last two quarters in order to meet customer demand our team in the Ela, Italy is in the process of executing several kaizen to increase our production by 30% with minimal capital investment youth.
Using standard of work the team will rebalance the main assembly line and create a few offline production sales to ensure that we can meet the overall tax time and.
In terms of capital investment, we will install a couple of manipulators, but really this is as much about improving safety as it is about increasing productivity.
As always in lean a little elbow grease and creativity can take us a long way of meeting our unpredictable spikes in the crane business.
The big Thank you to peer Dominica and his team and the yellow.
With that I'll pass it to Dave to provide details on our financial results Dave.
Thanks, Aaron and good morning, everyone, let's move to slide four on.
Our first quarter orders totaled $474 million, an increase of 26% compared to $375 million of orders in the same period last year.
On a currency neutral basis, Q1 orders were up $78 million or 21%.
Orders improved in all of our segments, driven by pockets of higher customer and the customer demand within each region.
Our March 31 backlog of $663 million was better by 27% over the prior year and up 23% on a currency neutral basis.
Backlog also increased across all of our segments with over 85% scheduled to ship within the next six months.
Compared to year end backlog was up 22% and on a currency neutral basis up 25%.
Net sales in the first quarter of $354 million increased $25 million or 8% from a year ago.
Stronger results in the Europe, and EMEA segments were partially offset by a decline in the Americas segment net.
Net sales were favorably impacted by 5% from changes in foreign currency exchange rates.
On an adjusted basis SG&A expenses increased by approximately $1 million year over year. The increase was primarily driven by unfavorable foreign exchange rates higher short term incentive compensation expense and increased insurance and legal costs, mostly offset by a decrease in marketing and travel expenses as a reminder, the <unk>.
Thousand 20 marketing expenses were higher due to the triangle current Expo tradeshow.
Our adjusted EBITDA for the first quarter was $21 million, an increase of approximately 29% year over year.
Higher volumes and a favorable product mix drove the year over year increase.
As a percentage of sales.
Adjusted EBITDA margin improved to 6% an improvement of 100 basis points over the prior year, primarily due to leveraging of our fixed costs over a higher sales volume.
First quarter depreciation of $10 million increased $1 million compared to the prior year, reflecting the higher level of capital expenditures in the second half of 2020.
In 2021, we anticipate total capital expenditures between $35 million $40 million, which includes the investment in our European rental fleet.
Our provision for income taxes in the first quarter was $4 million and driven by income in non U S. Jurisdictions. As a reminder, the company has tax valuation allowances established or certain countries and therefore of losses in those countries are not available to offset income tax expense in profitable jurisdictions.
Our GAAP diluted loss per share in the quarter was nine.
On an adjusted basis diluted loss per share of <unk> improved by 12 from the prior year driven by increased operating income and partially offset by higher income tax expense.
Moving to liquidity, we generated $41 million of cash from operating activities in the quarter compared to the use of <unk> 70, <unk> $79 million in the prior year.
Capital spending in the quarter of America to $8 million of which $7 million related to the European tower rental fleet as.
As a result of our free cash flow in the quarter was $34 million. The primary driver of our positive cash flow was a net decrease in working capital.
We ended the quarter with the cash balance of $159 million, an increase of $30 million from year end. Our total liquidity as of March 31 was $443 million with no borrowings on our ABL.
With that I will now turn the call back to Eric.
Thank you Dave please move to slide five.
As I communicated last quarter I see 2021, as the year of transition the COVID-19 pandemic as long from over in fact, I will call on production was significantly impacted during the first quarter on a few of our colleagues of the Shady Grove campus tested positive for COVID-19.
We took immediate action to protect our workforce and to minimize the possibility of spreading the virus, which resulted in a temporary shutdown of certain production areas.
And in Pune, India Hospitalizations have recently spiked due to COVID-19, which is the resulted in an oxygen shortage.
We have temporarily closed our welding operations in effort to help concern of the local supply of oxygen for medical uses.
Turning to the economy as we predicted the return to normalcy of screening a multitude of dislocations throughout the world supply chain a.
A quarter ago, the industrial world forecast of steel prices spiked in the first quarter and the capitulate as the year wore on and capacity with Adam on.
Unfortunately today, the general view of that steel prices will remain at high levels for the entire year.
We expect to see costs for steel logistics, and transportation increase as much as $30 million year over year.
We are raising prices.
Mitigate the impact, but there is always the lag between raw material lead times and the effective date of the price increase the.
The second major complication is the semiconductor chip shortage, which has created significant issues throughout our supply base. For example, the shutdowns on the heavy duty truck industry will impact our boom truck shipments during the second quarter.
So while we feel positive about order and backlog trends, we are nervous about of inflation and the likely supply chain complications in light of this and other headwinds that we discussed on our last call such as insurance increases short term incentive plans of nonrecurring COVID-19 relief benefits, we anticipate our year over year contribution margins to be lower the.
Normal in the second half of 2021.
With that we are introducing full year 2021, adjusted EBITDA guidance of $90 million to $105 million.
Please move to slide six.
Looking beyond 2021, but we still have some questions about how the European tower Crane market may cycle. We generally believe that momentum is building in the overall global crane market Mauro.
Moreover, we believe that on our four strategic initiatives will put us in a strong position to take advantage of the cycle.
<unk>, our European Tower Crane rental fleet strategy is on track during the first quarter, we invested approximately $7 million on Capex on this initiative with most of these cranes already rented in in service.
We plan to the plan to expand the fleet by another $8 million during the year.
Number two our Chinese tower Crane business continues to move forward. We just launched the fourth new model designed by our China team.
The proton M CET 138.
More than 100 customers visited our factory for this product launch and the customer feedback was excellent.
While this strategy helps grow our position in China, and also permits us to grow our market share in the belt and road regions.
Number three in our all terrain Crane business, we are investing an additional $4 million during 2021 in an effort to fill in product gaps.
While several of these new cranes will be launched the bomber next year on that this is a five year strategy.
Over the last three years, the main focus of our engineering team and the business was to improve on quality on legacy machines, while updating designs to meet regulatory requirements such as tier five emission standards among a few others.
It's a nice change in pace to refocus our attention on innovation.
In addition, I am very pleased to speak publicly about growth connect this as a remote diagnostic technology. It's on our engineering team kicked off during the fourth quarter. We are currently testing and expect to launch the first phase of this new technology on the end of this year with additional capabilities to follow.
Adding growth to net to our all terrain cranes will significantly improve the serviceability of these complex machines.
Number four last but not least we continue to pursue acquisition opportunities that will drive substantial long term growth.
In closing the team has performed well on a very difficult conditions. As we stated several months ago 2021 will be a year of transition as the economy on our supply chain normalizes.
We will continue to lean on the Manitowoc way the guide us through these challenging times.
Currently we are confident that on a four point growth strategy will improve our ability to deliver greater value to our customers, while generating greater long term returns for our shareholders with that operator, please open the lines for questions.
Thank you Sir.
To ask a question. Please signal of the pressing star one on your telephone keypad.
Using a speaker phone. Please make sure you're on mute function is turned off to line of signal to reach our equipment.
We will now take our first question from Jerry Revich from Goldman Sachs. Please go ahead.
Yes, hi, good morning, everyone and congratulations on the strong quarter.
Thanks, Barry Thank you very much.
Okay.
I'm wondering if you could.
Talk about the.
Order cadence.
Youre seeing at this point just to expand on the comments you share the open.
The opening remarks, it sounds like the.
The European powertrain momentum has.
Continued.
Into April so maybe just touch on a little bit more in terms of what you've seen since quarter end.
The region of product.
Yes, so I'll speak at a high level I mean April was a good month for us in terms of orders, but the some of that is that we see orders coming in in advance of price increases that we've implemented.
Okay.
You clearly see that as a.
Pull forward Dan.
Yes, I think so.
And then.
Can you talk about the price cost matching some of you folks have a lot of longer term supply agreements as you are seeing this pull forward in.
Orders.
I'm wondering to what extent will your cost base actually.
Generally the okay, we see new folks of vantage.
Pretty volatile input cost environment.
Well over the past couple of years.
Just wondering if the comments that you folks are writing about it matching price with the input cost inflation interest healthy share of the supply chain vs anticipated.
Price cost drag in <unk>.
Q.
So I'm going to ask David to answer that question, but before he does on just say that I would say over the last five or six years, we didn't see the systematic inflation that we see today and even in an instance of steel back in <unk>.
17 line increased it was only up for a quarter and it came back down the day you want to take a more detailed on that yes sure. So Jerry.
We've actually done a nice job and into the first half of 2021 with our with our pricing and our buying of steel.
Which is causing the results to get there, but as you know with with typical with like foreign exchange and everything over the long term you're going to get your cost up to the up to the market price and with the prolonged high steel prices in the short term, it's going to have an adverse effect on our on our price cost comparisons because we can increase prices fast enough.
Offset the material cost increases, which is why we're going to see a degradation in our and our flow through in the second half of the year.
Yeah.
Okay.
David can we just put a finer point on that so.
What's the price cost.
Drag in terms of.
Hundreds of basis points with less of that and then.
Based on net price increases that you've announced.
When do you think youre going to be right side up.
So Jerry I would say number one we don't give quarterly guidance. So we're kind of we've looked at the full year, we've kind of anticipated where we think we'll be in the full year.
2021 will be challenging through the of throughout the year and I see 2022 is being being the year that will this will even out a little bit more.
And I would just add that interest the majority of it.
We have more coverage into the second quarter, when we get into the second half or the steel prices start to really have an effect on it.
So in the order of magnitude of the headwind that the anticipated in the guidance.
Could you just put a finer point on that for us.
I would just point to the $30 million that we commented on the prepared remarks.
That's on a net basis net of pricing, okay, alright. Thanks.
We will now take our next question from on Tuesday from J P. Morgan. Please go ahead.
Good morning Ann.
Please go ahead company. Your line is open please share your mute function is turned off to allow your signal to reach our equipment.
Thank you very much of my mute button on is indeed on bad debt.
Could you talk a little bit of that and the operating free cash flow and new noted that Tam was positive versus the seasonally it should be negative.
On the back of working capital can you just talk about what happened there and on.
How we should think about that as length of forward the cadence of cash generation.
Yes, so I mean, the first quarter was unusual for us historically speaking part of that had to do with the fact that we had high.
At the end of the year.
Of the converted over so that helped US and then the other side of this is just how we manage our inventory throughout the year.
Right now we are at a lower level on building up as the year goes on any of the question for us to really decide in the next quarter will be how we manage the fourth quarter normally we really pulled on inventory in the fourth quarter, but as we see the market picking up and we will have to make some decisions regarding on build schedule, because we don't want to miss out on the potential sales in the first quarters of it.
Typically happen if we draw down on inventories low as we can in the fourth quarter day do everything that yeah and.
I would say if I recall last the last time, we spoke about free cash flow, we talked about being positive and CFO of <unk> cash flow from operating activities and offsets that would be offset by capital spending.
At this time our line of sight indicates that we will have positive free cash flow after the capital spending.
And Thats always contingent upon how the order book takes us to the end of the year and with inventory being the wildcard in that one for the most part.
Okay.
You said that that working capital of being a headwind in first half of pricing in half two side of just curious by the client that had changed thank you for the color.
And then can you talk a little bit can you give us the $30 million on material cost inflation. That's helpful. Can you talk about the other costs that you had discussed in Q4, you talked about $15 million headwind from the return of discretionary costs just update us on that and then you'd also talked about negative.
Of the mix some stronger crawler sales as debt.
Yes, right now just because the crop add towers are picking up so much and again if you can just update us on those I'd. Appreciate it. Thank you yeah you hit the nail on the ahead with respect to the mix because of the tower business is stronger than we anticipated and the problem businesses held steady.
Net net it helps us out so.
That's a good way of looking at it with respect to the cost of you talked about in the fourth quarter I would say those maintained there is no significant change to that $50 million right and I'd say the big benefit came in in the first quarter. When we did the year over year comparison is that last year.
<unk> 2020, we had about $3 million of costs associated with the Con Expo show, which didn't repeat and that was the big driver for the decrease.
Against 2021 results, that's going away and so then those headwinds will continue through the rest of the year.
Okay, I think I just missed kind of achieve said kind of export cost stream could you just repeat that sorry, yes on excellent the Con Expo trade growth trade show cost in 2020, we were about $3 million debt.
That provided a benefit on a year over year comparison.
Okay, that's a good proxy or tranches going forward.
On exposed on boneless. Thank you I appreciate that.
Okay.
We will now take our next question from Mike <unk> from Baird. Please go ahead.
Good morning, Mike.
Good morning, everyone.
So.
You clarified the steel logistics.
All of these inflationary pressures already net $30 million headwind.
So I guess I'm wondering if if we're sort of normalizing for Bob.
You didn't have this $30 billion of headwind.
<unk>.
What incremental margins look like.
Based on your operating plan your guidance for 2021.
I think you're really asking on 2022 question, but.
I think it's difficult to answer that question, especially when we started to look at mix in where we thought we were in the fourth quarter mixes of little bit better.
But the others.
There's a lot of headwinds as we look towards the next couple of quarters.
David anything you'd add the I'd, just say that I.
I am sorry, Matt go ahead.
Right.
I think we all understand that what what we're trying to understand really is.
What do you view at this point given what you've done with capacity given all the investments that you've made would you view as the sort of a normal incremental margin run rate point of the business ex some of these inflationary or cost variations.
Right. So on Mig we've always we've always looked at the upside of 20%.
On the flow through on the incremental sales.
And under normal conditions.
And depending on the product mix it could go up a little bit higher than that but we've always said right around that 20% range.
I see.
And.
I am kind of curious on.
Your price point on pricing and on.
Certain dealers ordering forward and so on.
What exactly are you go on about implementing the price increases.
Do you sort of have like list pricing at the beginning of the year end debt adjusted as the year progressed.
It's a matter of sort of charges or are there other.
Is there another mechanism on.
A warm here and I'm kind of curious the these are sort of temporary moving price or there is a permanent aspect to what youre doing with pricing that carries on into 'twenty two.
Yes, so it's a combination of things first of the says we don't do surcharges, we changed we actually changed the prices.
That being said that.
When we get into negotiated deals.
Question on how much you discount.
And of course, there is putting more pressure on etsy not to discount as much as we work to offset that so I'd say, it's a couple of things I think the real struggle for US is that when we were in the first quarter three months ago, when we talk.
We really anticipated debt the steel price increase would look like it did a couple of years ago of golf for a quarter then it starts to drift back down on.
At the time, you don't want to put too much of a price increase in place because that would cause the other disorders or be less competitive future I think where we stand now is it's pretty it's pretty obvious that the.
The steel prices are going to hold tight maybe of an increase in the second half. So in some instances we'll go for a second round of price increases this year.
Okay and then final question for me, we're looking at the $30 million figure that you've shared with us I'm curious as to what what is all baked into the bigger or are you assuming debt.
On your steel cost sort of.
The converge on to where we're currently seeing spot rates or.
Is there another assumption made here thank.
Thank you.
No I mean, so the three components really when we looked at it our steel transportation and obviously components within the Crane and we're just looking at where the steel is today relative to the futures.
The the futures that are out there.
That are listed on the marketplace right now.
So I don't think I follow your comment there.
Well I would just add that low.
I'll steal the lot of the components and sub assemblies that were buying those folks are seeing the same inflation across the board. So it's not just as of our steel suppliers of increasing prices on us.
Basically everyone.
And I would say there is broad based inflation right now.
For everyone not just the crane business.
Okay I'll I'll take this offline. Thank you.
Alright.
As a reminder to ask the telephone question. Please take over pressing style of one.
We will now take our next question from Jamie Cook from Credit Suisse. Please go ahead.
Good morning, Jamie.
Hi, this is on keeping the circa telco on for Jamie.
Our first question is on the on we hear from companies in particular on Charlie I think you expect the supply of king conditions can probe or they could manage better in the back half of the year, but.
I was just wondering what youre seeing differently and then the second question is can you talk to the variables around the top line for the Sierra and how do you think of the timeline to return to normalized revenue.
One 9 billion that you have talked about previously.
Thank you.
So on the first question I would say that Thats wishful thinking I mean every day, we see different shortages in fact in the United States alone. We've received 40 force majeure letters year to date, which is on the and I've never seen in my career.
And I would just add that when I see the chip shortage. It goes in the basically every sensor that.
And every part so it's very difficult for us to predict who will be shortened ex.
It's something we literally battle day to day.
With respect to the top line I don't think we're ready to comment on when we think we can get back to the $1 nine.
Thank you.
We will now take our next question from Steven Fisher from UBS investment Bank. Please go ahead.
Thanks, Good morning, guys.
Just wanted to ask you feel a little bit about good morning.
I feel a little bit about the energy side of the business because the iron in your comments.
On a tempered expectations around the north American business against to what extent do you have.
Passenger you reserved in North America, just waiting for oil and gas cycle to come back in if we were to remain muted would you need to do anything differently with your capacity or would the potential highway building cycle of absorb the capacity instead.
Yes, I mean, I think when I looked at at the main of the manufacturers' on large Rfps. If you go to the oil patch day drive around Youll see a lot of those sitting in.
The rental houses businesses extremely slow very very low utilization.
We don't expect a significant change next couple of quarters.
I think that we're well positioned on our factories that on both sides of it obviously, we'd love to see the pickup in the business, but we don't need to do any additional restructuring or anything like that to get on capacity back on line.
Okay and then the wind has been somewhat of a helpful driver in the past what are you seeing there at this point.
Yes, I mean, I really think that we saw.
The jump on orders three of four months ago that we had talked about in the last call.
But I'd say over the last since that's when we saw the the jump in the crawler orders, but since then I think it's just been good dialogue.
I think Thats I think three months ago people are putting on orders on speculation that the with the win business with pickup.
Over the last three months, though I would say that those folks have the machines on orders that they want and we haven't seen much more moves on that.
Okay. Thanks very much.
Thanks, Steve.
It appears there are no further questions at this time, Mr. Warner I'd like to turn the conference back to you for any additional or closing remarks.
Before we conclude today's call. Please note that a replay of our first quarter 'twenty One conference call will be available later this morning by accessing the Investor Relations section of our website at Www Dot Manitowoc Dot com.
To everyone for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again next quarter.
Okay.
This concludes today's call. Thank you for your participation you may now disconnect.
[music].
Okay.
Yeah.
Yeah.