Welbilt (WBT) Tops Q2 EPS by 20c, Revenues Beat

Welbilt (NYSE: WBT) reported Q2 EPS of $0.07, $0.20 better than the analyst estimate of ($0.13). Revenue for the quarter came in at $206 million versus the consensus estimate of $205.2 million.

2020 Second Quarter Highlights (1)

• Net sales were $206.0 million, a decrease of 51.7 percent from the prior year; Organic Net Sales (a non-GAAP measure) decreased 51.2 percent from the prior year
• Earnings from operations were $0.7 million compared to $57.2 million in the prior year; as a percentage of net sales, earnings from operations were 0.3 percent compared to 13.4 percent in the prior year
• Adjusted Operating EBITDA (a non-GAAP measure) was $19.8 million compared to $82.8 million in the prior year; Adjusted Operating EBITDA margin was 9.6 percent compared to 19.4 percent in the prior year
• Net loss was $17.4 million compared to net earnings of $20.0 million in the prior year; Adjusted Net Loss (a non-GAAP measure) was $9.9 million compared to Adjusted Net Earnings of $30.8 million in the prior year
• Diluted net loss per share was $0.12 compared to diluted net earnings per share of $0.14 in the prior year; Adjusted Diluted Net Loss Per Share (a non-GAAP measure) was $0.07 compared to Adjusted Diluted Net Earnings Per Share of $0.22 in the prior year
• Net cash provided by operating activities was $8.1 million, compared to net cash used in operating activities of $25.0 million in last year's second quarter; Free Cash Flow (a non-GAAP measure) was $3.2 million compared to $54.4 million in last year's second quarter
• Total liquidity was $298.3 million on June 30, 2020 and consisted of $139.5 million of cash and cash equivalents and $158.8 million of availability on the Revolving Credit Facility

Additional Management Commentary
"We are pleased with our second quarter results in the face of a historic drop in demand for commercial foodservice equipment, driven by the COVID-19 pandemic," said Bill Johnson. "Net sales declined year-over-year by approximately 60 percent in April but improved each month sequentially throughout the quarter as stay-at-home orders were gradually eased beginning in May in the U.S. and later in EMEA. APAC saw sequential improvement in China, Japan and Australia during the quarter but saw other parts of the region shut down during the quarter. By the end of the quarter, most of the countries in the regions where we operate had either reopened or were in the process of reopening. While improvement in demand in the U.S. plateaued in early July due to rising COVID-19 cases, we believe overall demand will continue to gradually improve over the next several quarters assuming widespread stay-at-home orders are not reimposed."

"The aggressive cost containment actions we implemented at the end of the first quarter allowed us to deliver a 9.6 percent Adjusted Operating EBITDA margin in the second quarter. We remained very focused on protecting the health and safety of our employees and have been fortunate to have experienced very few COVID-19 cases worldwide. With the tools we've developed as part of our Business Transformation Program, we were able to run our plants generally in-line with demand as the quarter progressed. We had one-to-three week temporary closures at 50 percent of our Americas and EMEA plants early in the quarter and a few continued sporadically throughout the quarter to balance demand with productivity. At the end of the first quarter, we implemented a reduction in force impacting both production and salaried employees in the Americas and at Corporate - these were expected to take place later in the year due to productivity gains and process improvements made through our Transformation Program but were pulled forward due to the business downturn. In addition, we had temporary furloughs and salary reductions in place for some employees in the Americas and EMEA and compressed discretionary spending throughout the quarter. We have plans for other narrower actions in the third quarter. We remain committed to managing our production levels and cost structure to match demand for as long as necessary."

"Our liquidity position at the end of the second quarter was virtually unchanged from the beginning of the quarter, reinforcing our confidence that our liquidity resources are sufficient to meet our working capital needs and cash requirements for the foreseeable future. Our accounts receivable and accounts payable were well managed in the quarter. Our finished goods inventory increased due to some delayed and canceled orders by customers and for certain targeted initiatives. Raw materials inventory increased due to purchased materials that were already in transit as demand dropped and decisions we made to carry some additional safety stock from certain suppliers. We are continuing to advance our key strategic initiatives, such as the Transformation Program, our common controller project and new product innovation, and will continue to adjust their timelines as necessary to manage our costs and liquidity while we focus our resources on initiatives that are likely to become more prominent due to social distancing, such as ghost kitchens and enhanced sanitation features."

"The resiliency of our Welbilt team to remain focused on executing our strategy while dealing with the most difficult conditions ever faced by our industry continues to amaze me. I am very proud of this team and remain confident that we will emerge as a stronger company once business conditions begin to normalize," concluded Johnson.

2020 Guidance
Due to the COVID-19 pandemic and the resulting impact on the commercial foodservice industry and uncertainty of demand for our products, we previously withdrew our 2020 guidance on March 20, 2020. Today we are only providing guidance related to our third quarter sales expectations, which we expect to decrease between 30 and 35 percent from the prior year. We do not plan to reinstate additional guidance until macroeconomic and commercial foodservice industry conditions have sufficiently stabilized.

For earnings history and earnings-related data on Welbilt (WBT) click here.

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