Manitowoc Misses Zacks Estimates

Zacks

Manitowoc Company, Inc. (MTW) reported first-quarter 2012 adjusted earnings of 1 cent per share, lagging behind the Zacks Consensus Estimate of 9 cents. Results improved compared to the year-ago quarter's adjusted loss of 10 cents per share. On the reported basis, the company’s earnings broke even in the quarter reversing the year ago quarter’s loss per share of 40 cents.

Total sales increased 17.5% to $860.1 million, driven by higher sales in the Crane segment as well as in the Foodservice segment. Results, however, fell short of the Zacks Consensus Estimate of $866 million.

Cost and Margins

Cost of sales increased 18.5% to $653.9 million in the quarter. Gross profit rose 14.2% to $206.2 million. However, gross margin fell 70 basis-points (bps) to 24% in the quarter.

Engineering, selling and administrative expenses soared 5.8% to $148.4 million. Adjusted operating income increased 17.5% to $57.8 million. Consequently, operating margin increased 120 bps to 6.7%.

Segment Performance

Crane Segment: Total sales increased 29.3% to $507.9 million in the quarter. Improvement was due to higher growth in the American region, constant demand in the emerging markets offsetting the weakness prevailing in the European markets. Operating profit increased at a whopping rate of 81.5% to $22.5 million. Consequently, operating margin rose 120 bps to 4.4%.

Foodservice segment: Total sales increased 3.8% to $352.2 million in the quarter. Growth was attributable to strong sales of new products and dissemination in some end markets and geographical areas. Operating profit increased 24.2% to $51.3 million. Operating margin, too, increased 240 bps to 14.6%.

Backlog

Backlog in the Crane segment was $931 million as of March 31, 2012, versus $800 in the year-ago quarter. Total orders were reported at $675 million, being 10% more than the prior-year quarter.

Financial Updates

Cash and temporary investments were $73.5 million as of March 31, 2012, compared with $71.3 million as of December 31, 2011. Long-term debt amounted to $1.99 billion as of March 31, 2012, compared to $1.81 billion as of December 31, 2011.

Cash used in operating activities was $129.9 million in the quarter versus $154.3 million in the prior-year quarter. Capital expenditure was $14.2 million in the quarter compared with $7.6 million in the year-ago quarter.

Looking Ahead

For the full year 2012, the company expects crane revenue to grow year over year in the range of 10%-15%, while foodservice revenue is expected to grow in a high-single digit percentage. Operating income in the crane segment is expected to rise in the band of 30%-40% and in the foodservice segment in the range of 10%-15%.

Capital expenditure is projected to be $80 million.  Depreciation and amortization is predicted to be $120 million. Interest expenses are expected to reduce by $25-$30 million as compared with the 2011 levels. Debt reduction has been targeted in the range of $150-$200 million.      

Our Take

The Crane business of Manitowoc now has a strong market position. The company introduced 12 new crane products in 2011 expanding its existing product portfolio. It has also increased its manufacturing capabilities in the emerging markets of India, China and Brazil.

However, the company faces challenges from higher commodity costs.It has experienced significant increases in steel, aluminum, foam, and copper prices in the recent periods, which has increased its expenses.  Its high debt level also remains a concern. It competes with companies like Terex Corp. (TEX) and privately held Altec Industries Inc. and American Panel Corporation and faces.

Currently, we have a long-term Neutral recommendation on Manitowoc. The stock retains a short-term Zacks #3 Rank (“Hold”).

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