The Manitowoc Company, Inc. (NYSE: MTW) Third Quarter 2022 Results Conference Call November 8, 2022 10:00 AMM. , Eastern Time
Participating companies
Ion Warner, Vice President of Marketing and Investor Relations
Aaron Ravenscroft – President and Chief Executive Officer
Brian Regan, Executive Vice President and Chief Financial Officer
Conference Call Participants
Jamie Cook – Credit Suisse
Seth Weber – Wells Fargo Values
Stanley Elliott – Stifel
Tami Zakaria – JPMorgan
Operator
Hello and welcome to Manitowoc’s second (sic) quarter 2022 earnings call. FYI, today’s call is recorded.
At this point, for opening remarks and presentations, I would like to turn to Mr. Ion Warner, Vice President of Marketing and Investor Relations. Please continue, sir.
Ion Warner
Good morning to all and welcome to the Manitowoc convention’s call to review the company’s monetary functionality and business update in the third quarter of 2022, as defined in last night’s press release. Participating in today’s call are Aaron Ravenscroft, President and Chief Executive Officer; and Brian Regan, executive vice president and chief financial officer.
Today’s webcast includes a slideshow that can be found in the Investor Relations segment of our Events & Presentations section. We will set aside some time for inquiries and responses after our comments are ready. I’d like to ask you to restrict your queries to just one: check and get back in line to make sure everyone has a chance to make their inquiries.
Skip to slide two. Please note our safety in the fabrics provided for this call. During today’s call, forward-looking decisions, as explained in the Private Securities Litigation Reform Act of 1995, are based on the Company’s existing assessment of its markets and other points affecting its business. However, actual effects may differ materially from any implied or actual projections resulting from one or more of the items, among others, described in the Company’s most recent filings with the SEC. The Manitowoc Company assumes no legal responsibility to update or revise any prospectives, whether as a result of new information, long-term events or otherwise.
And with that, now I’m going to pass on to Aaron.
Aaron Ravenscroft
Thank you, Ion, and good morning everyone. Skip to slide three. Our operating environment in the third quarter is similar to that of recent quarters, with significant portion shortages, hard work constraints, logistical disruptions and inflation. I greatly appreciate the perseverance and determination of the Manitowoc team to handle those challenging times while executing innovative projects to grow our aftermarket business. The expansion of our aftermarket reduces our cyclicality, provides recurring profit streams and improves our margins over the long term.
During the third quarter, our sales were $455 million and our adjusted EBITDA was $24 million. As I deduced from our last earnings call, we ended the current quarter with an almost complete smart amount of machines. I expect our naturally weaker production required in the third quarter, combined with those nearly finished products, would prevent us from shipping more. Despite this, we did not achieve our adjusted internal income of $45 million for FX.
On the other hand, third-quarter orders were $472 million. Our orders have reached approximately $150 million consistent with the month for the past 8 months. This point of consistency is in our business. Our order book ended the quarter at $943 million fake.
During the third quarter, trends were unchanged from the previous quarter. In North America, consumers are busy with a secure accumulation of projects, broker inventories remain healthy, and planned government investments in infrastructure and shipbuilding provide a clever explanation for optimism.
Not to mention, oil costs are well above $65 consistent with the barrel, which traditionally a smart crane barometer demands on oil fields. Of course, those tailwinds are juxtaposed with inflation, emerging interest rates, consistent portions and shortages of hard work, and longer lead times for cranes, which are holding back growth.
In Europe, Russia’s transgressions have cast dark clouds over the region. Inflation has reached record levels, but the European Central Bank has been slow to adjust interest rates. Tower crane activity has begun to decline and cell crane activity, which was very moderate in the immediate aftermath of the COVID pandemic, has slowly recovered despite the healthy use of cranes in the region.
Of all our markets, the Middle East offers the greatest opportunity for growth. Saudi Arabia’s Vision 2030 initiative is paying off. The government has committed more than $1 trillion to a diverse list of ambitious projects, and momentum is growing. In addition, Qatar and Kuwait are showing promising growth symptoms. After years of muted activity, it turns out that the Middle East is coming. back to life
As in recent quarters, Asia-Pacific remains mixed. While China is a small market for Manitowoc, it continues to deteriorate. Our Chinese competition is once again providing costs and payment terms that defy all logic. These Chinese players have added massive capacity over the past five years. As China’s domestic market continues to sluggish, we expect those competitors to aggressively pursue more export activity in the Belt and Road region.
In South Korea, the local market remains strong, but the strength of the US dollar has become a significant short-term obstacle for us. Similarly, in Australia, crane activity is maintained, but supply chain problems have led to a currency crisis. causing anxiety in the structures industry. Finally, in Singapore, we are starting to see green shoots in the tower crane market.
Skip to slide four. By shifting gears, we continue to advance our Cranes 50 strategy to grow our aftermarket. For the quarter, our non-new machine building sales increased 27% year-over-year, and we are on track to meet our 2022 target. This expansion is primarily due to acquisitions, but the team continues to grow our cash service population and expand our territory.
Last month, we purchased some assets from Honnen Equipment Company, adding Colorado, Wyoming and Nebraska to our footprint. While this investment has been modest, I am excited about expanding our direct-to-customer territory. This is a wonderful addition to our portfolio, with a promising combination of non-new machinery sales and synergies for our MGX and Aspen businesses.
Once the integration of the recent acquisitions was complete, we began to drive the implementation of The Manitowoc Way into those new businesses. To that end, last month we completed two Kaizens at our Aspen appliance plant in Bloomington, Minnesota. One of the Kaizens was focused on the 5S, while the Kaizen moment aimed to increase productivity at one of the locations, the truck frame design mobiles. The team developed an action plan that is expected to remove approximately 80% of the waste from this progression mobile and its capacity up to 30%. While we are still in the early stages of implementing the leader [ph] at Aspen, I am proud of the team’s receptivity to The Manitowoc Way and look forward to achieving additional success.
Skip to slide five. Before moving on to Brian, I would like to comment on last month’s bauma industry fair in Germany. As many of you know, bauma is the world’s largest industry trade fair for structural equipment. It’s a phenomenal opportunity to showcase our new products and solutions. Celebrate milestones with our consumers and spice up the business side of our business. And it takes a colossal amount of effort to get there. I need to thank from the back of my center the many members of the Manitowoc team who made this exhibition a wonderful success.
Customers at the show were very impressed with the 12 new cranes we introduced, adding a 100-tonne 4-axle hybrid concept crane and our first style of boom lift supplied with CCS, our crane system. Our recent acquisitions of brokers in the United States. These acquisitions will allow us to reach out to several of the leading multinational crane operators founded in Europe. And most importantly, our consumers have noticed that the quality of our products has improved significantly, which is a far cry from my first bauma 6. 5 years ago. Overall, feedback from our consumers and global partners confirms that we are on the right track with our strategy.
With that, I’ll call Brian to finances.
Brian Regan
Thank you, Aaron, and good morning everyone. Skip to slide six. Our third-quarter orders totaled $472 million, down 13% year-over-year. as explained by Aaron. This was partially offset by higher orders in our Americas segment. In addition, foreign currencies had a negative impact on orders of approximately $24 million.
Our order book as of September 30 was relatively strong sequentially at $943 million and was impacted by approximately $25 million due to currency fluctuations.
Third quarter net sales of $455 million increased 12% year-over-year. Higher sales of non-new machinery.
However, sales continue to be negatively affected by chain of origin constraints, causing shipments to shift to the right. We estimate that this will have an effect of approximately $45 million adjusted for foreign currency. Net sales were also affected by currency movements. of $32 million.
SG Expenditure
Our adjusted EBITDA for the third quarter was $24 million, an accumulation of 20% year-over-year. As a percentage of sales, the adjusted EBITDA margin was 5. 3%, an accumulation of approximately 40 core issues from the prior year. basically due to higher sales volumes. Foreign currencies had no effect on adjusted EBITDA during the quarter. Depreciation and amortization of $15 million in the third quarter increased to $5 million year-over-year due to acquisitions.
Let’s move on to the source of income taxes. We had a profit the quarter of $300,000. This is due to the jurisdictional allocation of the source of income. As a reminder, we have established provisions for tax losses for certain countries and therefore losses in those countries should not offset the source of the tax burden in the beneficiary jurisdictions.
Our GAAP diluted earnings consistent with the consistent percentage for the quarter were $0. 07. On an adjusted basis, diluted earnings consistent with the consistent percentage were $0. 10, an accrual of $0. 04 from the prior year.
Our year-over-year net operating capital accumulation increased to $112 million, $156 million on a currency-neutral basis, primarily due to acquisitions, volume accumulation, supply chain disruptions, and inflation. Year over year, approximately $75 million of construction is attributable to acquisitions.
Sequentially, net operating current capital increased by $18 million, primarily due to higher inventories due to lost shipments during the quarter and lower accounts payable due to changes in our structured schedules. Sequentially, exchange rates had a favorable effect on net current capital of $18 million.
Transition to money. We used $6 million of money from operating activities for the quarter, primarily due to the ongoing operating capital issues discussed above. Capital expenditures were $15 million, adding $8 million for the leased fleet. $21 million.
We ended the quarter with a cash balance of $43 million, which was solid sequentially. Total one-time loans under our ABL increased in the quarter by $24 million to $104 million and overall liquidity remained strong at $245 million. Our net leverage ratio remained below 3 times as of September 30, 2022.
As we enter the fourth quarter, our higher levels of backorders and stock allow us to succeed in the low end of our full-year adjusted earnings and EBITDA guidance. In terms of loose cash flow, we are at our attractions ready to break even However, we remain vulnerable to portion shortages and boat availability.
With that, I will now call Aaron back.
Aaron Ravenscroft
When I evaluate the existing environment, it is a story of contradictions. On the one hand, high oil prices, increased infrastructure spending, smart crane use, and a giant order e-book are symptoms of a strong crane cycle. On the other hand, we face an unprecedented supply chain and logistics crisis, the highest inflation in 40 years, an exceptionally strong dollar, emerging interest rates and an unpredictable geopolitical scenario at the back door of the EU. Meanwhile, the Manitowoc team remains focused on money generation and execution. of our 4 innovative initiatives.
As I learned 20 years ago from Fred Poses, former CEO of American Standard, when there’s light, it’s hard to see black. And when it’s dark, it’s hard to see the light. At this time, there is no shortage of darkness. That said, crane fleets continue to age and lately are accumulating many hours. All the primary crane houses I contact to acknowledge the desire to upgrade their fleets. The longer the backup crane replacement cycle is delayed, the more powerful the next cycle will be.
While we wait for better times, we will drive continuous internal improvements with The Manitowoc Way as we execute our Cranes 50 strategy. As part of this journey, we will continue our product offerings and expand our presence in the aftermarket, driving our long-term expansion. and generate shareholder value.
That said, operator, open the question forum.
Q&A session
Operator
The first comes from Jamie Cook’s line with Credit Suisse. Your line is now open.
Aaron Ravenscroft
Hello, Jaime.
Brian Regan
Hello, Jaime.
Chigusa Katoku
Hello. Speaks Chigusa Katoku for Jamie. Thank you for answering my queries. My first query is about the fourth trimester. I think sales and margins are implicit in order. Trust that you can hide red labels. If you can comment on the chain of origin and price charge, that would be great.
Aaron Ravenscroft
Yes, of course. I mean, sequentially, the third quarter is still our weakest quarter because of all the shutdowns. That said, of course, we have fewer days due to holidays. But I think there are a couple of things we’re in.
First of all, internally. We’ve reduced our steerage in the same way as the problems we’ve had in the last two quarters. So we got rid of that from our internal forecasts. The other thing I would add is that when you look at the story, we went up $120 million in annual profits through the acquisition. So this will help us succeed in the large number that exists.
And then, the last piece is almost what he’s been suffering for most of the year. For example, we had forty-five finished cranes in the backyard where we searched to get them to ships and inspire consumers to choose their machines. So there is – it’s a mix of fighting portion shortages as well as getting hauls on boats that will make a difference.
But we have the order book, we have the stock affiliates [ph] ToAt this stage, most of those machines are finished. I mean, in general, for us, about a month late. I mean we finished the machines and then a lot of work to do in terms of final configurations and load testing and that sort of thing, but the production is pretty well done until the end of November.
So, considering all those things, if we can have a little bit of luck in terms of the chain of origin, and we do it in the fourth quarter more than in some previous quarters, so that we think it’s feasible. I agree that it is – it’s going to be a tough stretch. But like I said, we have everything in position to do it.
Chigusa Katoku
It is ok. It’s useful. Thank you. My query at the moment is about 2023, the maximum sensitive line. Therefore, I wonder if it is fair to assume that in 2023 it will be maximum maximum likely to decrease due to trends. But, in terms of its point, as given the age of the fleet and the costs of oil and the government stimulus that has yet to manifest, there are also many tailwinds in 2023. So, I just wanted to get your opinion on how to think: how do you think of the 2023 maximum sensitive line?
Aaron Ravenscroft
Ouais. Je means we didn’t give any indication in terms of ’23. All I would say is that we have a smart order book, and we’ve been tracking around 150 per month in terms of orders and a little bit more powerful than in October. So, I don’t think it’s necessarily downward. But then again, we haven’t officially launched any directions at this point. But again, I think there are also positives, assuming a deep recession is not coming.
Chigusa Katoku
It is ok. Thank you.
Aaron Ravenscroft
Thanks.
Operator
The next one comes from Seth Weber’s line with Wells Fargo Securities. Your line is now open.
Aaron Ravenscroft
Hello Seth.
Seth Weber
Hi gars. Bonjour. Je sought to ask about the accumulation and price burden. Do you feel that you have largely worked on a cheap order e-book at the moment?fourth quarter with a big increase there in the fourth quarter?And then, how do you handle charges for orders you take for 2023?Thank you.
Aaron Ravenscroft
So we haven’t worked on it yet. And the third quarter will likely have an impact of $10 million to $12 million, which is more than we indicated last quarter. through all this and exit our order book.
And that said, it’s assuming there isn’t more inflation. And right now, I would say we are: Our biggest considerations are about pay increases, medical increases. I mean, there are a lot of other subsequent increases that are starting to be felt. , even though commodity costs have moderated. So I would say that the moment starts from ’23.
Seth Weber
It is ok. And when you write, when you take orders for next year, do you have company securities or is it some kind of provisional value or. . . ?
Aaron Ravenscroft
Yes, we use supplements, but we have interim costs and have limited the delivery time according to which we would take an order. So we’re pretty much company because we’re within 3 months, about, six months, I guess.
Brian Regan
Yes, it’s six months, Seth. Et when you take a look at our prices, as Aaron said, it’s provisional prices. So everything in our order eBook is at a constant price.
Aaron Ravenscroft
Therefore, it does not go from being transitory to the order book until it is blocked, therefore, the greatest merit that exists comes from giving our distributors the visibility that ten sets have passed on the order board without setting the price yet.
Seth Weber
they gave it to me It’s okay. It’s useful. Merci. So, in the aftermarket alone, is there any loot on how we think about how you envision expanding this business over time?manufacturer on the aspect of the secondary market that is advancing?
Aaron Ravenscroft
Ouais. Je means [technical difficulty] that was just said is that we have acquisitions that are changing the numbers quite strongly in the six months so far this year. And so, I mean, it’s heavily focused on acquisitions, yet it’s slowly invested in and we got more service technicians. We added a little more population.
So I think it’s probably a smart number you’re in. But it’s something we’re constantly talking about over the long term in terms of how to make numbers grow to achieve our purpose and beyond.
Brian Regan
Ouais. Je means you can see that much of our investment has been in this domain with the rental fleet. It is expected to generate profits and further expansion in this domain.
Seth Weber
It is ok. Thank you guys very much. I that
Brian Regan
Thank you Seth.
Operator
The next one comes from Stanley Elliott’s line with Stifel. Your line is now open.
Aaron Ravenscroft
Hi Stanley.
Stanley Elliot
Hi, guys. Hello everyone. Thank you guys for answering the question. I apologize, I was a little late. But that October looked better from an order standpoint. I’m curious to know a little more about the good fortune he had at Bauma with the 12 cranes. And perhaps how do we think about the orders that come out of the series from that?
Aaron Ravenscroft
So, first, I would say this is our first bauma in the fall, and it fits with our winter crusade and some of the other general trends that we have. So it’s a little different from the general. I mean, in general, we expect us to be between $50 million and $75 million. It is difficult to say what comes out of bauma because all other activities take a position sooner or later.
When we take a look at October, I mean we’ve been tracking a $150 million worth of orders every month for the past 8 or nine months. In October, we exceeded $200 million. So I think it’s a clever sign that I’ve noticed some of that. And I think by the fourth quarter, our orders will be above $500 million. So I think it’s a pretty smart signal.
He’s a smart bauma. The dialogues were excellent. Lots of smart activities, lots of discussions. I mean, there’s a lot of uncertainty, especially with the value increases and higher interest rates and some of the things that are going down in Europe.
But I mean, if you take a look at the conversations that have taken place, other people are optimistic. So we just want to solve some of those geopolitical problems or at least locate more certainty, I think that would be genuine merit. for us.
Stanley Elliot
And in the North American market, you’ve talked about a kind of solid public-private investment, you’ve also done a lot to replace distribution, the way it goes to market. To what extent do you think it is the improvement?due to this strategy of approaching the visitor instead of other people looking to load a fleet?Just a little curious about what the dynamic is here in North America?
Aaron Ravenscroft
Ouais. Je, I mean, I wouldn’t say the dynamic has changed much even with acquisition rather than some kind of ordering trend. I mean it’s the struggle of deadlines, with distributors getting the construction program and then managing it instead of value increases. . So I wouldn’t say there was too much effect in terms of overall dynamics. Brian, what do you think?
Brian Regan
Well, I think we have about $90 million in net operating capital on our acquisition balance sheet at the end of September. There is a delay based only on the nature of the distribution activity compared to our sales to our distributors. Little of that, which plays into sales Calfinishar. But I don’t think it adjusts anything more than that.
Stanley Elliot
Great guys. Thanks for the color and good luck.
Aaron Ravenscroft
Thank you Stanley.
Operator
His next comes from Tami Zakaria’s lineage with JPMorgan.
Aaron Ravenscroft
Hello Tami.
Tami Zakaria
Hello smart tomorrow. Thank you so much. I could have lost it, if I ask the same question again, but I think last quarter said I expected about $60 million in production costs for the year. Was this view replaced at the end of the third quarter?
Aaron Ravenscroft
No. The view has not changed.
Tami Zakaria
Costs have come down.
Aaron Ravenscroft
Sí. No, the point of view has not changed. I mean a decline in the third quarter, but we also had decreasing shipments in the third quarter in reduced seats, then. But I would say that number is probably a moderate number for the total year.
Brian Regan
I think the $60 million was the effect of inflation, not just production.
Aaron Ravenscroft
Yes, I did.
Tami Zakaria
they gave it to me It’s okay. And then, going back to third-quarter revenue, at the end of the current quarter, I think he said shipments were in a shortage of about $40 million. And then, in the first quarter, it was $35 million. And what gives you the assurance that you can succeed in the back of the EBITDA consultant for the year?
And then, does that mean you make up for all the shipments lost in the fourth quarter and we get some kind of normalization?How do we fundamentally think: succeed at the bottom of the EBITDA guidance?
Aaron Ravenscroft
So, I mean, we failed: we split that from the internal forecast, $45 million from 3 to 4. In terms of our forecasts, that is, we had an even higher number expected in the fourth quarter. This means that we face the same demanding situations as everyone else in all their other calls. I mean, if we all, if we can get some pieces to pass our path and ships to pass our way, we can touch it. We have the inventory. When I say inventory, I mean empty chassis. I mean almost finished machinery waiting for ships. So that was the challenge I had.
Now, I would say if you look back on our fourth quarter of last year, we had a similar scenario where we were pretty conservative at the analyst meeting, and then we beat the numbers we had projected. , as everyone tries to get all their shipments out in the fourth quarter.
So I think we’re in a position as long as the boats continue to sail, the weather is good in the North Sea and portions are coming in, even, I would say, at the current level, which hasn’t been very good. So I think it’s a long way of saying that we have a lot of machines that are almost finished, whether it’s WIP [ph] or finished products.
Brian Regan
And we adjust our internal steering downwards, and that’s reflected in the consultant at the back of the management.
Tami Zakaria
They gave it to me Thank you very much. It is a very useful color.
Aaron Ravenscroft
Thank you, Tami.
Operator
Next comes from Jerry Revich of Goldman Sachs.
Aaron Ravenscroft
Hi jerry.
Brian Regan
Hi jerry.
unidentified analyst
It’s [Clay] for Jerry today. Our consultation on costs. At other device manufacturers, we see costs accelerating to double-digit rates by the end of the year. Is it similar to what you see for your product lines?
Aaron Ravenscroft
Ouais. Je, if you look back over the last 12, 18 months, our values have increased by 20 to 25%. We haven’t announced all the value increases for early next year, so we’re still trying to figure out how. We believe that we still have a long way to go. As you can see, where is the dollar, that is, in the United States, we expect to be: we must be as fast as possible so as not to exaggerate the number.
unidentified analyst
Merci. Et as a follow-up, can you give us more main points on how usage rates have replaced the quarter based on what you hear from your customers?Thank you.
Aaron Ravenscroft
Oui. Je, I mean, bauma, discussions with all consumers are incredibly positive, I would say, on every major continent, especially on the cellular side of the business. I mean, a lot of that infrastructure that exists is made up of big projects, and other people are in a position to take on those big projects.
But I mean, all the big houses we talked to, especially on the cell side, the activity was good. I would say on the side of the tower, we saw a little more nervousness. The Paris projects that begin to materialize in France or simply the residential structure in France, so the tower would see it a little more nervous. But when it comes to cell cranes, activity and usage are positive.
unidentified analyst
Thank you. I will.
Aaron Ravenscroft
Thank you Clay.
Operator
There are no more questions in this momento. Sr. Ion Warner, I’ll give you the other time.
Ion Warner
Before concluding today’s call, please note that a replay of our third quarter 2020 convention call will be available later this morning by accessing the Investor Relations segment of our online page on www. manitowoc. com. Thank you all for joining us today and for your interest in The Manitowoc Company. We look forward to speaking with you next quarter.