On Jun 6, 2014, we issued an updated research report on Manitowoc Company, Inc. (MTW), manufacturer of cranes as well as commercial foodservice equipment.
Manitowoc reported adjusted earnings from continuing operations of 17 cents per share, a year-over-year increase of 55% aided by sound performance in the Foodservice segment and new product introductions. The bottom line, however, fell short of the Zacks Consensus Estimate of 22 cents.
The Foodservice segment reported year-over-year sales growth of 9% in the first quarter, outperforming the mid single-digit rise forecasted for 2014. Introduction of new technologies, innovation in brands, and growth in the Americas, Europe and Middle East drove the sales growth and will continue to do so in 2014. Margins will also benefit from new products, prior restructuring actions, and execution of manufacturing initiatives. For 2014, Manitowoc expects Foodservice revenues to rise in mid-single digits and projects high-teens gain in operating margins in the Foodservice segment.
Revenues from the Crane and Related Products segment decreased 14% year over year to $467 million in the first quarter due to a lower backlog level at the beginning of the year along with some customer-related project delays. However, backlog in the Crane segment was $842 million at the end of the first quarter of 2014, up 47% sequentially.
Total orders were $733 million; up 29% year over year mainly due to the ConExpo trade show. But orders received after the show were below expectations. This includes all confirmed orders that were placed at ConExpo. Approximately 26% of this backlog will be delivered in 2015 or later. Furthermore, another concern is that Manitowoc is facing stronger Japanese competition on mobile cranes, since the weaker yen allows competitors to be more price competitive.
The ongoing implementation of Operation Excellence and quality initiatives remain a key priority for Manitowoc in 2014. These initiatives include sourcing, lean, reliability and organization efficiency gains which will lead to over $80 million of gross savings for the full year.
Going forward, demand from the wind sector as well as from oil and gas markets are expected to grow. Manitowoc also remains optimistic regarding its new products. The company has a wide range of both hot and cold product offerings lined up for introduction in the Foodservice segment in 2014. These new products will help the segment outdo the industry growth in 2014. During the first quarter, Manitowoc launched KitchenCare ??? its aftermarket service and support solutions for Foodservice. Going forward, it is expected to contribute positively to the segment’s growth profile.
Among the reasons weighing the company down are its debt-to-capitalization ratio which was high at 69.9% as of Mar 31, 2014, up from 66.1% as of Dec 31, 2013. The Architectural Billing Index (ABI), a leading indicator of construction activity, remained below 50 for March and April after two consecutive months of expansion. An ABI Index score below 50 implies a decline in billings. The uncertainty in the sector remains an overhang for the sector and consequently for Manitowoc.
Estimates for Manitowoc have undergone negative revisions, given weak performance of the Cranes Segment. Over the last 60 days, 9 of the 10 estimates available for fiscal 2014 have moved south. For 2015, 4 of the 11 estimates have followed a similar course. The Zacks Consensus Estimate for 2014 has gone down 4% to $1.62, while the same for 2014 has declined 2% to $2.02.
Other Stocks to Consider
At present, Manitowoc carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Komatsu Ltd. (KMTUY), Caterpillar Inc. (CAT) and Kubota Corporation (KUBTY). While Komatsu sports a Zacks Rank #1 (Strong Buy), Kubota and Caterpillar carry a Zacks Rank #2 (Buy).