The Manitowoc Company - Earnings Call - Q2 2025

Transcript

Speaker 3

Good day, and welcome to The Manitowoc Company's second quarter 2025 earnings conference call. Please note that today's event is being recorded, and all participants will be in a listen-only mode. Should you need any assistance today, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw a question, please press star, then two. I would now like to turn the call over to Ion Warner, Vice President of Marketing and Investor Relations. Please go ahead. Good morning, everyone, and welcome to our earnings call to review the company's second quarter 2025 financial performance and business update as outlined in last evening's press release.

Joining me this morning with prepared remarks are Aaron Ravenscroft, our President and Chief Executive Officer, and Brian Regan, our Executive Vice President and Chief Financial Officer. Earlier this morning, we posted our slide presentation on the Investor Relations section on our website, manitowoc.com, which you can use to follow along with our prepared remarks. Please turn to slide two. Before we start, 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 1995 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 or more of the factors, among others, described in the company's 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. With that, I will now turn the call over to Aaron.

Speaker 4

Thank you, Ion, and good morning, everyone. Please turn to slide three. To start, I'd like to express my deep appreciation for the hard work of the Manitowoc team. While the Great Trade Reset continues, I'm really proud of how our teams continuously react to the ever-changing tariff landscape and focus on finding solutions to service our customers. During the second quarter, we generated $540 million in revenue and $26 million in adjusted EBITDA. Orders were $454 million, and backlog ended the period at $729 million. Our non-new machine sales were $162 million, up 10% year over year. In terms of tariffs, during our first quarter call, we were modeling $60 million in incremental tariffs for the year, with plans to mitigate 80% to 90% of these costs. Today, we believe the full-year gross impact of tariffs is $35 million.

The change in our assumption is due to a combination of lower purchases and a different mix of various tariffs. We expect to mitigate 90% of these costs. Given the fluid nature of the situation and the price elasticity of cranes in the short term, we see a drag on demand in the U.S. Moving to the Manitowoc way, we recently held our annual corporate kaizen in Niella, Italy. For this kaizen, we organized four dedicated teams to focus on enhancing the information and material flow essential to building rough-terrain cranes. As always, a good kaizen is a humbling experience. It reminds us that running a production line smoothly is only possible if all of the necessary parts are available exactly when needed. Sometimes that's a big if.

The team walked away with a year's worth of action items, but what stood out most was the continued growth in collaboration and teamwork across the organization. It's inspiring to see how we keep getting better together. Also, I'd like to thank Ransom Research and Front Street Capital Management for their valuable participation in the event. Quickly touching on safety, I'd like to recognize our team's steadfast efforts to improve our working environment. For the first half of the year, we achieved a recordable injury rate, or RIR, of 0.67, which is another new safety record. Our goal is zero, but I'm proud that we continue to make progress towards it. Please move to slide four for my market update. Starting with Europe, we're seeing two distinct market dynamics depending on the country. In the U.K., Netherlands, and France, demand has been slow.

In contrast, customers in Spain, Italy, and Germany are showing signs of optimism, and we sense that business is starting to rebound. Across Europe, we've recently seen three encouraging data points. Number one, the U.K. launched a £39 billion housing program for the next 10 years with a goal of building 300,000 homes. Number two, last month in Germany, the government passed a new accelerated depreciation scheme, which complements the €500 billion infrastructure fund that was recently created. Number three, in France, we saw May housing permits turn favorable, up 20% year over year. On a product line basis, despite great excitement following the April-Bauma trade show, momentum in the mobile crane market moderated during the quarter. At this point, we need to wait until after the summer holiday to get a clearer picture on demand. Conversely, however, the tower crane market has continued to be positive.

While the market hasn't fully recovered, we still have easy comparisons, which is always the birth of a rebound. During the quarter, our new tower crane orders were up 104% versus the same period a year ago. This is the fourth quarter in a row that we have seen orders improve on a year-over-year basis. Turning to the Middle East, the market continues its dynamic growth with especially strong activity in Saudi Arabia and UAE. During my recent visit to the Middle East, I was struck by the remarkable pace at which infrastructure projects move in this region. Major luxury residential developers like Sobha and Binghatti are reshaping the skylines of Dubai. In addition, the Stargate UAE data center project was kicked off outside of Abu Dhabi, starting with a 200 megawatt data center where we won an order for 16 large capacity tower cranes.

Upon completion, the campus will span 10 square miles and is expected to host 5 gigawatts of capacity. Likewise, Saudi remains highly active with our local partner playing a key role in several major stadium projects. The overall pipeline remains very strong. Shifting our focus to Asia, China continues to face economic headwinds, and we don't anticipate a meaningful rebound in the near term. Elsewhere, however, sentiment is improving. During my recent visit to Korea, coinciding with the national election, a common view prevailed. Regardless of political preference, the new president is seen as pragmatic and supportive of pro-business initiatives. In addition, renewed interest in the Samsung Fab 5 semiconductor project has boosted confidence. We anticipate the Korean market could regain traction within the next six months. In Vietnam, we secured crane orders for multiple projects this quarter, an encouraging signal of the market reawakening.

Meanwhile, in Australia, conditions remain mixed. The Australian dollar has been hovering at $0.56 to the euro, which has hindered the market, but crane activity has been strong with early signs of activity emerging in preparation for the 2032 Brisbane Olympics. Finally, in North America, the market remains in a holding pattern with significant uncertainty around how various tariffs may unfold. Both dealers and crane rental houses are delaying purchasing decisions until there is more stability around tariffs and pricing. Overall, crane rental houses remain busy, and we've seen success at some of the bigger players to reduce the age of their fleets. This is encouraging for the health of the overall industry, and I remain cautiously optimistic about long-term demand in the region. Looking at the next 12 months, however, I have two views around U.S. demand depending on the time horizon.

For the next six months, it's hard to see a scenario where demand accelerates. Crane buyers can afford to wait, and at the moment, they prefer to buy units that are sitting on the ground at pre-tariff prices. If I consider the Europeans' reciprocal tariffs, lots of buyers had been hoping that the tariff would drop below 10%. We'll have to see how customers react to the 15% tariff. On a $2 million all-terrain crane, that's real money, and rental rates would need to increase to financially justify a buying decision. Moreover, dealers are reluctant to place new orders, and dealer inventory has been declining. Looking beyond the next six months, dealer inventory in the U.S. could reach all-time lows if current trends continue. As a result of the One Big Beautiful Bill, 100% accelerated depreciation has been reenacted.

The previous program stimulated demand in December, and this could drive dealer inventories even lower. Point being, dealer inventory could be exceptionally low, which is a classic signal for the market to accelerate at the beginning of next year. Unfortunately, we cannot turn our manufacturing on a dime, and we have to align our build schedules with current demand. This adjustment will impact our financial performance in the second half of the year, which is why we are guiding to the low end of our EBITDA range. With that, I'll pass it on to Brian to walk you through the financials before I close with our strategy update.

Speaker 0

Thanks, Aaron, and good morning, everyone. Please move to slide five. During the period, we had orders of $454 million, an increase of 6% from a year ago, resulting in Q2 ending backlog of $729 million. The higher order intake was driven primarily by our European tower crane business, where new machine orders were up 104% year over year. In addition, we saw an increase in our non-new machine orders. As Aaron mentioned, our third-party dealers in the U.S. are reluctant to commit to orders at this time due to the uncertainty around tariffs. For the quarter, this slowdown in demand was more than offset by higher orders in MGX, our fully owned distribution business, as end customers placed orders to lock in pricing on in-stock units. Net sales in the quarter were $540 million, a decrease of 4% from a year ago.

We missed several deliveries due to supply chain constraints and last-minute commercial delays. Our non-new machine sales were $162 million during the quarter, up 10% year over year, demonstrating the momentum we continue to build around our Cranes Plus 50 strategy. On a trailing 12-month basis, non-new machine sales were $659 million, another record. SG&A was $87 million in the quarter, up $4 million year over year. On an adjusted basis, SG&A was up $9 million year over year. Foreign currency accounted for $2 million, with the balance driven by the Bama trade show and other employee-related costs. Our adjusted EBITDA was $26 million, down $10 million year over year. This was primarily driven by the lower sales and the higher SG&A. The net headwinds from tariffs in the quarter was approximately $1 million. Our GAAP-diluted income per share in the quarter was $0.04.

On an adjusted basis, diluted income per share was $0.08, a decrease of $0.17 year over year. Please turn to slide six. Networking capital ended the quarter at $580 million, up $63 million year over year, of which $43 million was due to the payment of the EPA matter in April. Additionally, foreign currency accounted for $14 million of the increase. Moving to cash flows, we used $68 million of cash in operating activities during the quarter, which includes the $43 million payment to resolve the EPA matter. Capital expenditures were $6 million, of which $3 million was for our rental fleet. Our cash balance was $33 million, and total liquidity was $238 million at the end of the quarter. As anticipated, our net leverage ratio increased to approximately 4 times. We are focused on bringing our leverage back below our targeted 3 times by year-end.

Looking to the full year, between the tariffs and the bill plan reductions mentioned by Aaron, we have line of sight to achieving the low end of our previously issued adjusted EBITDA guidance of $120 million to $145 million. With that, I'll now turn the call back to Aaron.

Speaker 4

Thank you, Brian. Please turn to slide seven. While we anxiously wait to see how the global trade reset plays out, we remain steadfast in our Cranes Plus 50 strategy. During the quarter, we continued executing our strategy to strengthen our aftermarket business. We opened a new service branch near Warsaw, Poland, and we expanded locations in Sydney, Australia, Nantes, France, and Nashville. Our culture continues to evolve from being product-focused to customer-oriented. A good example of this is in Australia, where we started to offer aftermarket tires, outrigger pads, and rigging hardware to our customers, providing more of a one-stop shop. Every day, we get better at servicing our customers. In terms of improving our effectiveness as an aftermarket organization, we recently went live with ServiceMax. This system replaces over a dozen different legacy systems.

It enhances technician productivity, significantly upgrades our ability to manage service contracts, and reduces administrative overhead. My favorite part of the tool is that it provides us global asset management so we can track every machine we manufacture from cradle to grave. It's a great repository for all of the maintenance and service work on any crane we sell, and it will keep us more closely connected to the iron when it gets traded or sold into the secondary market. Needless to say, ServiceMax is a big leap forward from the legacy ad hoc Excel-based systems our teams previously used. Our Cranes Plus 50 strategy is driving growth and higher margin, recurring revenue streams, and creating long-term value for our business. While the turbulent second quarter was hard on the ROE business, our MGX business in the U.S. posted great results. This is proof that our strategy is working.

In closing, while the global political and economic situation remains unpredictable, our focus stays squarely on servicing our customers. The better we serve them, the stronger our partnerships become. When conditions improve, we'll be ready. In the meantime, we remain committed to executing our Cranes Plus 50 strategy and creating long-term shareholder value. With that, we'll open the line for questions.

Speaker 0

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your headset before pressing the keys. To withdraw a question, you may press star, then two. At this time, we will pause just momentarily to assemble our roster. Our first question here will come from Steven Michael Fisher with UBS Investment Bank. Please go ahead.

Speaker 1

Morning, Steve. Thanks. Good morning. It sounds like a very challenging overall backdrop, but just wanted to ask you about the backlog and the cadence of EBITDA for the next couple of quarters. Within the context of that $730 million roughly of backlog, you know, what's the duration of that? Is that all expected to be shipped within this year? Just curious how much coverage you have on your plan for Q3 and then Q4, and if there's a cadence of the roughly $70 million of EBITDA that you still expect for Q3 versus for Q4.

Speaker 0

Yeah, it's Brian. We always have seasonality with Q3 and Q4, with Q4 being the better of the two quarters. From a backlog standpoint, I'd say most of that backlog is expected to ship this year. That's pretty normal when you look at our backlog with the vast majority of it being for Q3, and then we've got some good coverage in Q4 as well.

Speaker 1

Okay. That's helpful. I just want to understand maybe a little bit more about the regional dynamics on the orders. You know, it sounds like obviously pretty strong orders in Europe. Just kind of curious how to think about the book to bill here in the various regions, you know, within your kind of overall 0.8-ish, 0.9 times. Like was U.S. like an under 0.5 and Europe was kind of a north of 1 times. How do we think about that regional dynamics on orders?

Speaker 0

Yeah, with respect to the orders, to me, the main area to focus on right now is the Americas. We sort of live in two worlds because we have the MGX distribution business, which of course had inventory sitting on the ground that's pre-tariff. Demand there was really good and business was good. On the other side of the, I'll call it legacy Americas portion of the business, which is much more dealer-oriented, that's where we're closing, tracking what our orders are and what the challenge is.

Speaker 1

Okay. On the tariffs, it sounds like a lower overall impact, but I guess lower units. Can you talk a little bit about the per unit tariff impact and kind of price versus cost dynamics you're expecting for both Q3 and Q4?

Speaker 0

It's, we can't speak, we're not going to speak about every single model, but literally every single model varies depending on the, you know, where the crane's coming from and where the parts are coming from. That's quite the mix. Likewise, most of our competitors are either in Japan or Germany. There's a lot to shake out in terms of the way that the tariffs flow through and then actually hit the customer in the end.

Speaker 1

Okay. Lastly for me on the U.S. market, can you talk about some of the puts and takes? It seems like your general message from the broad value chain we're hearing is the public sector is still pretty good in terms of demand. On the private side, still lots of structural investment in terms of data centers and various other projects. Are you seeing those areas of strength? Is that what's sort of causing people to buy the units that are pre-tariff, but there's just not enough confidence in that demand going forward to put new orders in, without knowing really what kind of the pricing dynamics are going to be? Is that how to think about it?

Speaker 0

The other element you have to consider is people managing their fleets. They can choose to wait and see where pricing ends up. That's what we're really seeing is folks managing their day-to-day. In terms of actual activity, crane rental houses are busy and positive, and that all looks good. There's so much uncertainty around what the price of a crane is going to be. As I said on a call, if you got a machine that's $2 million or $3 million, and all of a sudden it's 15%, and you were hoping it's going to be 5%. That's a pretty dramatic change in terms of expectations. Likewise, in order to financially justify it, you're going to have to have rental rates go up. The market needs to play out in the next six months before we really get a good feel for where we land.

Speaker 1

Okay, thanks very much for the time.

Speaker 0

Thanks, Steve. Thank you.

If you have a question, you may press star and one to join the queue. Our next question will come from Mircea Dobre with Robert W. Baird & Co. Incorporated. Please go ahead.

Speaker 1

Morning, Meg.

Speaker 0

Hi, Meg.

Speaker 1

Good morning. Thank you for the time. Just to pick up where Steve sort of left it here with his questions, what's interesting to me is that in the U.S. market, right, I mean, if you're talking about this uncertainty around pricing that is impacting customers, wouldn't that create an incentive for customers to actually order ahead of these price increases and try to be a little more proactive at securing whatever units they have at pre-tariff levels? To me, it would have seemed like Q2 would have been a quarter in which a bunch of that activity could have occurred so that people can actually lock in prices before you really kind of start making your adjustments as the year progresses.

Speaker 0

If you're shipping from Germany, I mean, and not in the instance of like all-terrain cranes, everyone is, from my point of view, I think customers were hoping that we wouldn't end up with even the 10% tariff, and now it's turned out to be 15%. People were holding off there. You know, anytime you're shipping something from that far away, that creates more reluctance and concern because you don't really lock yourself into a price whenever you cut the deal. For the vast majority of our orders, you know, they're going to include the price adjustment because we knew during the quarter that there was going to be some level of tariffs.

Speaker 1

Okay. Now we have 15% in tariffs. What does that do for demand? Is that, because your commentary is obviously more cautious than it was three months ago. Are these tariffs, and within the framework that you provided, you're saying $35 million as opposed to something that was much larger previously. In terms of these offsets, first, I guess, how are you offsetting the tariffs? Then, as the customers now know that there's a 15% tariff, does that imply that demand here is going to be curtailed for a prolonged period of time, or do you think this is just a function of we need a near-term adjustment and, eventually, they're going to digest that and we're back to the races in 2026?

Speaker 0

I think there's two dynamics here. One is relative to dealer inventory, and then one is relative to what the crane rental houses want to buy. In terms of our dealers, they've hit the pause button, and at a certain point, they're not going to have any inventory. They're going to have to make some decisions. From my point of view, this is probably, I think it's six months to sort it out. Even if I look at July, July was roughly the same as the previous three months. Folks are making the purchases that they need to make or have to make. If they have any more flexibility in terms of timing, which most crane rental houses do, given the nature of cranes, they're being a little more cautious.

Don't forget, from a pricing standpoint, when you got the yen at 150, there's room for folks to eat potentially their tariffs. We don't know exactly how that's going to play out in the long run.

Speaker 1

How are you offsetting these tariffs? The $35 million, you say you're going to mitigate it 90%. How are you doing that?

Speaker 0

Price increases.

Speaker 1

You're doing that with price increases. Just mathematically, if I'm looking at your Americas revenue and I'm looking at, call it $30 million of incremental tariff headwind, that does not appear to be very significant. We're only talking like 2.5%. I recognize that I'm basically spreading it across the entire business while only certain products are impacted here. My question to you would be, does it make sense to spread the tariff impact across all your products and try to sort of minimize the drag on demand, or are you being sort of very targeted and saying, "Hey, you know, this model's coming from Europe. We're going to put the full-built tariff pricing on this one as opposed to something that's manufactured domestically"?

Speaker 0

We're very targeted. You have to remember we have to go through piles of HTS codes for every component that goes on to the local unit. We have to go unit by unit.

Speaker 1

Remember, there's different tariffs. We talked about in Q1, you've got the reciprocal tariffs that are coming from whole goods that we produce in Europe that we're bringing to customers in the U.S. There's that aspect of it. There's also tariffs, like the steel tariffs that we're getting, that are in our product. How we're addressing it and the percentage of impact, obviously, the ones that the reciprocal tariff is on, it's going to be that 15% on those products. For the other stuff, it's less of a direct offset of the tariff. It's a price increase. Okay. I guess lastly for me, and I don't know if this is a question, maybe it's a comment, and you can comment back. When I'm looking at your updated tariff view, it's less bad than it was three months ago. Again, your commentary is more cautious.

There's a divergence here that I think is, at least to me personally, a little bit surprising. I guess I'll leave it at that.

Speaker 0

I said on the last call that I'm always nervous about price elasticity in the crane business. That's what we're seeing right now: folks are hitting the brakes because the tariffs are 15% on the reciprocals. Of course, we have all the 232 and 301s that are impacting our locally produced stuff. From my point of view, it's, yep, we're in the middle of the, we're in the eye of the storm, and we're seeing exactly how folks are behaving. On the last call, it was more of a sort of guess at that point because we didn't have enough data to know how they would respond.

Speaker 1

When we gave the information last quarter, we said, "Hey, this is our expectation based on current demand. We don't know what it's going to do to demand." We've seen impacts on demand during Q2, which is going to impact our full year.

Speaker 0

Fair enough. Appreciate the time.

Speaker 1

Our next question will come from Clifford F. Ransom with Ransom Research. Please go ahead.

Speaker 2

Morning, Chris. Good morning, folks. Thank you again for the opportunity to work with your folks in Italy. It was very instructive. After 50 years around that damned lift business, these recovery from cycles and the going into downstrokes is very difficult. Let me ask a 35,000-foot question. If you look back, say, three to five years at The Manitowoc Company and the institution of the Manitowoc Way, what about lean thinking has enhanced your ability to respond to rapidly changing exterior events? What do you think has happened to your culture?

Speaker 0

Yeah, I think a big part of what we've done, if you look back historically, we were very, very vertically integrated. We didn't have the flexibility to go up or go down, quite frankly, very easily or fast. We've done a lot of work on our supply chain in order to have more access to more parts to continue to move. If we go up 10% or 20%, we can react way faster than we could have, say, five years ago or 10 years ago.

Speaker 2

I was really thinking more about what happens internally. Maybe I'm asking a mindset question, which is too hard to answer. One of the things about lean thinking is that the whole, what's the right word? The whole review process is so disciplined. You tend to discover trends faster than companies that don't exercise that methodology. Am I barking up the wrong tree here, or is that something real?

Speaker 0

No, I think it's 100% real. What we talk about a lot of times is that feedback from our customers is almost instant. We're in a lot of industry, you know, because we talk to the owners of the people that own the crane rental houses or the CEOs because everyone's so involved in their big purchases. In terms of how we build our build schedules and start tech times and how to run the lines, I think getting that input, we get it pretty instantly. I mean, even this morning, I was getting feedback from customers. I think that makes a big difference in terms of how we look out the next six months and how we see the dynamics play out.

Speaker 2

Got it. You talked about making adjustments in the second half of the year to, let's call it, protect cash flow. Specific things, what you'd be doing.

Speaker 0

Yeah, we took down our build schedules at a couple of different locations. It's Shady Grove and Wilhelmshaven specifically. It just depended on the product line relative. We track our backlog, we track the orders, we track the trends, and how much dealer inventory is out there to try to guess where we think demand will be six months from now. Based on where current rates are, we need to start to adjust our build schedules now and make sure that our supply chain doesn't get overwhelmed or overheated as we get into the back end of the year.

Speaker 2

I got cut off the call twice, but I got reconnected. When you talk about getting your net leverage down, did you at some point give us an estimate of free cash flow for the year?

Speaker 0

Yeah, our free cash flow for the year is expected to be on the low end of our original range. We're thinking that $10 to $15 million for the full year.

Speaker 2

Okay. What was your best expectation in the year for free cash flow?

Speaker 0

When we gave our plan, I think it was $45.

Speaker 2

Okay, I got it. That's fine. I remember that number. Thanks. I have one last question. I just have to find it. No, that'll do it. Thanks, guys. Appreciate it.

Speaker 0

Thanks, Ben. Have a good day.

This concludes our question and answer session. I'd like to turn the conference back over to Ion Warner for any closing remarks.

Speaker 4

Thank you. Please note that a replay of our second quarter 2025 earnings call will be available later this morning by accessing the investor relations section of our website at manitowoc.com. Thank you, everyone, for joining us today and for your continued interest in The Manitowoc Company. We look forward to speaking with you again next quarter.

Speaker 0

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.