On Sep 16, we issued an updated research report on The Manitowoc Company Inc. MTW. The company is well poised to benefit from product innovation, solid after-market business, persistent focus on cost control, improving productivity and pricing actions. However, inflated raw material costs and muted customer spending owing to the ongoing trade tensions are weighing on the company’s performance.
Impacts of the Trade War
Manitowoc’s orders in the first half of 2019 were $813.0 million, a 16% drop year over year as customers became more cautious as a result of uncertain market conditions. Trade tensions and other macro-economic factors continue to make global markets volatile. Additionally, the U.S. and European construction markets are slowing and U.S. rate counts have declined. All these factors are affecting customer sentiment.
Additionally, Manitowoc continues to witness inflation in material costs, which includes the impact of tariffs. This is affecting the company’s margins. Consequently, over the past year, Manitowoc’s shares have plunged 40% compared with the industry’s decline of 12.6%.
Other Near-Term Headwinds
Fluctuating foreign exchange rates are putting pressure on Manitowoc’s margins, particularly on European-produced cranes that it sells in the United States. The Middle East market also remains challenging owing to geopolitical uncertainties and market competitions. Further, supply chain challenges persists a headwind.
Pricing Actions, Cost Controls to Sustain Margins
Despite the abovementioned headwinds, Manitowoc’s 2019 revenue guidance is at $1.88-$1.92 billion. Compared with revenues of $1.85 billion reported in fiscal 2018, the mid-point of the guidance reflects year-over-year growth of 3%. The company’s 2019 EBITDA guidance is at $140-$160 million. The mid-point of the guidance suggests year-over-year growth of 29%.
Manitowoc continues to execute its strategy to cover cost inflation through pricing actions. The company also remains focused on cost controls, reducing headcount, increasing productivity and eliminating waste. It is also taking proactive steps to support supply chain partners to ensure timely delivery of components, combined with alternative sourcing strategies. Manitowoc has also provided own in-house labor to weld the finished components to keep production lines flowing. This will support its financial goals.
Poised Well for the Long Run
Manitowoc’s aftermarket business continues to perform well. Growth is being fueled by higher-margin parts and services. The company remains focused on improving this crucial part of the business. Further, the company noted that there is scope of improving the Middle East revenues. It continues to strengthen partnerships with its channel partners in the region to capitalize on the recovery in the markets. Manitowoc’s focus on innovation by providing differentiated products that add value to customers will reinforce the company’s industry leading position.
Manitowoc’s long-term outlook remains strong. The company continues to be committed to achieving its target of double-digit operating margins improvement year over year. In fact, the company anticipates achieving long-term target of double-digit operating margins by 2020 through continued streamlining organizational structure.
Zacks Rank & Stocks to Consider
Manitowoc currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector are Albany International Corporation AIN, AGCO Corporation AGCO and UFP Technologies, Inc. UFPT. While Albany International sports a Zacks Rank #1 (Strong Buy), AGCO Corp and UFP Technologies carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Albany International has an estimated earnings growth rate of 33.85% for 2019. The company’s shares have rallied 41%, year to date.
AGCO Corp has a projected earnings growth rate of 31.11% for the current year. The stock has gained 36.2% so far this year.
UFP Technologies has an expected earnings growth rate of 8.10% for the ongoing year. The stock has appreciated 37.4% over the past year.
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