Something's brewing inside Manitowoc Company (NYSE: MTW). The stock has jumped 12% in just a week's time, as of this writing, without any news from the construction-equipment manufacturer. Part of the euphoria can be linked to Caterpillar (NYSE: CAT), which trampled third-quarter estimates on Oct. 24, sending its shares aloft.
As the world's largest construction and mining-equipment manufacturer, Caterpillar has a huge bearing on the other industry players. With optimism coming straight from the horse's mouth, the market's now hoping Manitowoc will follow Caterpillar's footsteps and surprise the market when it announces is third-quarter numbers on Nov. 6, after the market closes.
The question is: Can Manitowoc pull a Caterpillar, or are investors in for a rude shock on Nov. 6?
Exactly three months ago, Manitowoc shares suddenly jumped by double digits just days before earnings, thanks to positive numbers from Caterpillar and a string of analyst upgrades. The scenario playing out right now is strikingly similar.
Image source: Getty Images.
In fact, it's not just Caterpillar. Terex (NYSE: TEX), too, delivered a massive 70% year-over-year jump in its income from continuing operations for the third quarter. Both companies also bumped up their full-year outlook.
What's important is that both Caterpillar and Terex expressed greater confidence in some of the markets Manitowoc serves. Caterpillar, for instance, reported a 37% jump in Q3 sales from its construction industries division, driven largely by stronger demand from oil and gas, residential, and non-residential construction markets in North America. Last quarter, Manitowoc cited weak demand from the oil and gas sector as a key factor behind lower sales for rough-terrain cranes.
Meanwhile, Terex reported 18% year-over-year growth in its third-quarter orders as demand picked up across all its product categories, including cranes and aerial work platforms.
If these statistics from Caterpillar and Terex are encouraging, some of the things that Manitowoc's management said last quarter further hint at a strong possibility of a good earnings report from the company this week.
Manitowoc already gave you a hint of what to expect
While discussing his outlook for the latter half of the year, Manitowoc President and CEO Barry Pennypacker said during the company's second-quarter earnings call, "[I] fully expect that our Q3 orders of this year will be much stronger than our Q3 orders of last year." And its senior vice president and CFO, Dave Antonik, added, "[W]e're in a good position to beat our Q3 of last year on the top line based on where our overall revenue outlook is."
By overall revenue outlook, Antonik was pointing at the company's upgraded full-year guidance, which stood as follows as of the last quarter:
Image source: Manitowoc.
Of course, those top-line expectations don't look too great, and Manitowoc may still end up with losses this year. Remember, this is just the second year for Manitowoc as a standalone crane company, after the parent company that went by the same name split its cranes and foodservice-equipment divisions last year.
Manitowoc has been trying hard to break even since. How fast it can get there depends largely on the health of the construction markets. That's why investors need to keep an eye on orders and backlog when the company reports numbers this week. To that end, Manitowoc sent out encouraging signs in Q2 when its orders and backlog jumped 9% and 25%, respectively, year over year. It's imperative that the trend continues into the third quarter and beyond for the company to turn profitable.
The Foolish bottom line
As the first half of the year was a challenging one, Manitowoc must report strong growth in its third-quarter top line to achieve its fiscal 2017 outlook. Analysts have high expectations, projecting Manitowoc to cut down losses by nearly 90% to $0.02 per share, backed by 10% higher sales and lower costs. If Manitowoc delivers, the stock should be one you'll want back on your radar.
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