2021 Third Quarter Highlights
- Net sales were USD 411.5 million, an increase of 37.9 percent from the prior year; Organic Net Sales (a non-GAAP measure) increased 36.1 percent from the prior year
- Earnings from operations were USD 52.6 million compared to USD 21.2 million in the prior year; as a percentage of net sales, earnings from operations were 12.8 percent compared to 7.1 percent in the prior year
- Adjusted Operating Ebitda (a non-GAAP measure) was USD 75.1 million compared to USD 45.6 million in the prior year; Adjusted Operating Ebitda margin was 18.3 percent compared to 15.3 percent in the prior year
- Net earnings were USD 24.9 million compared to net earnings of USD 4.9 million in the prior year; Adjusted Net Earnings (a non-GAAP measure) were USD 29.9 million compared to Adjusted Net Earnings of USD 9.9 million in the prior year
- Diluted net earnings per share was USD 0.17 compared to diluted net earnings per share of USD 0.03 in the prior year; Adjusted Diluted Net Earnings Per Share (a non-GAAP measure) was USD 0.21 compared to Adjusted Diluted Net Earnings Per Share of USD 0.07 in the prior year
- Net cash provided by operating activities was USD 13.5 million, compared to net cash provided by operating activities of USD 37.5 million in last year’s third quarter; Free Cash Flow (a non-GAAP measure) was USD 6.2 million compared to USD 32.1 million in last year’s third quarter
2021 Third Quarter Year-to-date Highlights
- Net sales were USD 1,123.9 million, an increase of 34.9 percent from the prior year; Organic Net Sales (a non-GAAP measure) increased 31.8 percent from the prior year
- Earnings from operations were USD 134.3 million compared to USD 22.5 million in the prior year; as a percentage of net sales, earnings from operations were 11.9 percent compared to 2.7 percent in the prior year
- Adjusted Operating Ebitda (a non-GAAP measure) was USD 198.4 million compared to USD 110.9 million in the prior year; Adjusted Operating Ebitda margin was 17.7 percent compared to 13.3 percent in the prior year
- Net earnings were USD 56.5 million compared to a net loss of USD 27.6 million in the prior year; Adjusted Net Earnings (a non-GAAP measure) were USD 73.5 million compared to Adjusted Net Earnings of USD 1.4 million in the prior year
- Diluted net earnings per share was USD 0.40 compared to diluted net loss per share of USD 0.20 in the prior year; Adjusted Diluted Net Earnings Per Share (a non-GAAP measure) was USD 0.52 compared to Adjusted Diluted Net Earnings Per Share of USD 0.01 in the prior year
- Net cash provided by operating activities was USD 34.2 million, compared to net cash used in operating activities of USD 26.9 million in the prior year; Free Cash Flow (a non-GAAP measure) was USD 17.0 million compared to a use of USD 42.8 million in the prior year
Summarizing Welbilt’s third quarter performance, Bill Johnson, Welbilt’s President and CEO, stated, «Third-party Net Sales and Organic Net Sales grew substantially this quarter compared to last year’s third quarter, which was materially impacted by the Covid-19 pandemic. We are very pleased with our strong Adjusted Operating Ebitda and Adjusted Operating Ebitda margin performance despite the inflationary impacts from our supply chain and logistics providers. We successfully offset these headwinds with the beneficial impact from increased volume, positive net pricing, and improved productivity attributable to the progress we have made to date as part of our Business Transformation Program and through the cost containment actions we put in place last year that are continuing to benefit us. Industry conditions have improved with the rollout of Covid-19 vaccines and the lifting of restrictions in some locations, although improvements are uneven globally. In response to ongoing supply chain challenges, we built inventory of critical components to help alleviate manufacturing disruptions and shorten order lead times to support our customers. While the investment in higher inventory reduced Free Cash Flow in the quarter, we ended the third quarter with our highest liquidity level since 2018.»
Net sales increased 37.9 percent in the third quarter compared to last year’s third quarter. Excluding the impact from foreign currency translation, Organic Net Sales increased 36.1 percent, with strong growth coming from large chain customers, general market dealers and distributors, and KitchenCare® master parts distributors and factory-authorized service dealers. Over 90 percent of the growth in the third quarter was from higher volume versus increased pricing. This growth is compared against last year’s weak third quarter which was highly impacted by the Covid-19 pandemic.
The third quarter Adjusted Operating Ebitda margin of 18.3 percent was 300 basis points higher than last year’s third quarter driven by the incremental impact on margins from higher volume, positive net pricing and lower manufacturing costs partially offset by increased selling, general and administrative expenses (net of adjustments for the Transformation Program expenses and other adjustments to SG+amp;A that are included in our Adjusted Operating Ebitda reconciliation and higher materials costs. Net SG+amp;A costs increased primarily due to higher compensation expense and commissions reflecting higher incentives, the non-recurrence of government subsidies and other measures taken in the prior year in response to the impact from the pandemic, and increased travel and marketing expenses to support the sales growth in the quarter. The prior year period included government subsidies in various countries, temporary salary reductions, furloughs, reductions in incentive compensation and lower commissions due to the large sales decrease in the quarter.
We continued to make progress on the Transformation Program during the third quarter. We continued to execute on our planned procurement activities related to materials spend and on executing incremental cost savings opportunities through the implementation of Value Analysis Value Engineering (VAVE) initiatives, although we faced challenges in balancing progress on these activities with the need for resources to address component supply issues. We benefited from productivity improvements in our manufacturing plants which provided additional savings in the quarter, even as some plants were impacted by parts shortages that occasionally disrupted production schedules. In summary, the improvements we have made to date with our Transformation Program helped offset a meaningful portion of the inflationary headwinds we experienced in the third quarter.
Liquidity and Debt
Net cash provided by operating activities in the third quarter was USD 13.5 million compared to USD 37.5 million in last year’s third quarter. Net cash used in investing activities in the third quarter was USD 7.3 million compared to USD 5.4 million of net cash used in investing activities in last year’s third quarter. Free Cash Flow (a non-GAAP measure) was USD 6.2 million in the quarter compared to USD 32.1 million in last year’s third quarter. The decrease in Free Cash Flow in the third quarter versus last year’s third quarter reflects an increase in cash used in operating assets and liabilities, primarily to support higher inventory levels to help mitigate ongoing supply chain disruptions, partially offset by increased net earnings. Capital spending was USD 7.3 million in the third quarter compared to USD 5.4 million in last year’s third quarter.
During the quarter, total debt and finance leases (including the current portion) decreased by USD 47.4 million. Our ending cash and cash equivalents was USD 111.9 million, a decrease of USD 41.9 million in the quarter. During the quarter, we repatriated USD 43.0 million of cash from international subsidiaries to the U.S., or USD 40.9 million net of withholding taxes, that contributed to the third quarter’s debt reduction. Total global liquidity was USD 397.3 million as of September 30, 2021, which consisted of the USD 111.9 million of cash and cash equivalents and USD 285.4 million of availability on our Revolving Credit Facility. Total global liquidity increased by USD 5.1 million in the quarter from USD 392.2 million as of June 30, 2021.
On July 8, 2021, we issued a Form 8-K that included Updated Welbilt Management Forecasted Financial Information for 2021 net sales of USD 1,482 million and 2021 Adjusted Operating Ebitda of USD 267 million. We are reiterating this forecast.
Additional Management Commentary
«We are pleased with our third quarter results in light of ongoing supply chain disruptions and inflationary pressure on materials and logistics costs,» said Bill Johnson. «In the Americas, sales to strategic QSRs and fast casual operators increased over last year with improved demand for replacement equipment and stronger rollout activity by large chains across many of our brands. General market sales and KitchenCare aftermarket sales increased in the Americas. Both EMEA and APAC also saw year-over-year growth from strategic QSRs, general market dealers and KitchenCare aftermarket customers. We believe overall demand will remain strong for the next several quarters as our commercial foodservice end markets continue their gradual recovery.»
«The combination of continued aggressive discretionary cost management, improving absorption of fixed costs due to higher volumes, improved net pricing and benefits from our Transformation Program, allowed us to deliver an Adjusted Operating Ebitda margin of 18.3 percent in the third quarter. With the tools we have developed as part of our Transformation Program, the productivity levels in our plants are improved compared to prior year levels, despite some production disruption due to parts shortages from our supply chain. We are continuing to experience rising commodity prices, longer lead times and inflation from our parts suppliers, and continued logistics inefficiencies. We were able to offset some, but not all, of the effect of these pressures in the third quarter with our Transformation Program procurement activities through negotiated price reductions with new and existing suppliers and by executing VAVE initiatives. We implemented additional price increases in the quarter which will also help us offset the effect of these inflationary pressures as we move through the fourth quarter and into early 2022,» concluded Johnson.