Manitowoc's EPS Tops, Misses Revs

Zacks

Manitowoc Company, Inc. (MTW) reported second-quarter 2012 adjusted earnings of 32 cents per share, beating the Zacks Consensus Estimate of 25 cents. Results improved significantly from the year-ago quarter’s 15 cents per share.

On a reported basis, the company’s earnings were 32 cents per share in the quarter compared with 2 cents in the year-ago quarter.

Total sales increased 5.9% to $1.006 billion, 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 $1.045 billion by a small margin.
 
Cost and Margins
 
Cost of sales increased 4.3% to $756.2 million in the quarter. Gross profit rose 11% to $249.7 million. Consequently, gross margin increased 110 basis-points (bps) to 24.8% in the quarter.
 
Engineering, selling and administrative expenses soared 3.9% to $151.1 million. Adjusted operating income increased 23.9% to $98.6 million. Consequently, operating margin increased 140 bps to 9.8%.
 
Segment Performance
 
Crane and related products segment: Total sales increased 10.1% to $610.7 million in the quarter. Improvement was due to higher growth in the American region and constant demand in the emerging markets, offsetting the negative impacts of foreign currency. Operating profit jumped 47.7% to $48 million. Consequently, operating margin rose 200 bps to 7.9%.
 
Foodservice equipment segment: Total sales increased marginally to $395.2 million in the quarter. Growth was attributable to innovation of new products and dissemination in some end markets and geographical areas, offset by weakness in the European markets and slower growth in hot-side equipment in North America. Operating profit increased 7.2% to $67.1 million. Operating margin, too, increased 120 bps to 17%.
 
Backlog
 
Backlog in the Crane segment was $944 million as of June 30, 2012, versus $839 in the year-ago quarter. Total orders were reported at $629 million, being 7% more than the prior-year quarter.
 
Financial Updates
 
Cash and temporary investments were $59.4 million as of June 30, 2012, compared with $71.3 million as of December 31, 2011. Long-term debt amounted to $1.95 billion as of June 30, 2012, compared to $1.81 billion as of December 31, 2011.
 
Cash flow from operating activities was $8.3 million in the quarter versus usage of $34.3 million in the prior-year quarter. Capital expenditure was $20.6 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 mid-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 in the range of $125-$130 million. Debt reduction has been targeted in the range of $150-$200 million. 
 
Our View     
 
Manitowoc opened a new production facility called the Passo Fundo facility in Brazil supporting the energy and infrastructure activities in Latin America. With this facility, Manitowoc became the first global crane manufacturer of rough-terrain cranes in Latin America. 
 
However, Manitowoc uses raw materials like steel, aluminum, foam and copper. Increase in raw material prices may create margin headwinds moving forward. Manitowoc also faces tough competition from companies like Terex Corp. (TEX).
 
Terex’s second-quarter 2012 adjusted earnings of 75 cents per share comfortably surpassed the Zacks Consensus Estimate of 49 cents. Total revenues increased 35.2% year over year to $2.012 billion, beating the Zacks Consensus Estimate of $2.008 billion.
 
Manitowoc retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.
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