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Manitowoc to Drive Margin Expansion on Strategic Initiatives

Zacks Equity Research

The Manitowoc Company Inc. MTW is well poised to gain from the rising demand in the Americas’ energy and commercial construction markets. Also, it is making significant progress in the implementation of The Manitowoc Way to boost the four key strategic priorities — margin expansion, growth, innovation and velocity — that are likely to aid in delivering double-digit margin growth in the long term.

After incurring losses for straight three quarters, which bore the brunt of weak crane demand, the company returned to profitability in the second quarter of 2017. The momentum continued in the third quarter as well with the company reporting adjusted earnings of 9 cents per share,as against the prior-year quarter’s loss of 28 cents.

The bottom line also surpassed the Zacks Consensus Estimate of a loss of 4 cents per share. This better-than-expected performance can be attributable to the company’s efforts toward ing the manufacturing footprint and reducing cost of organizational structure.

Manitowoc also witnessed a 14% year-over-year improvement in sales to $399.4 million in the third quarter outpacing the Zacks Consensus Estimate of $381 million. Higher demand in the U.S. markets, partly offset by lower demand in the Asia-Pacific market drove revenues. Approximately 40% of unit revenues in the reported quarter came from Manitowoc’s new products after it became a stand-alone crane company.  

Additionally, third-quarter orders increased 21% year over year to $376 million. The company ended the quarter with a robust backlog of $467.9 million, up 32% year over year.


So far this year, Manitowoc has also outperformed the industry with respect to price performance on the back of its improved results. While the stock gained around 61.9%, the industry recorded growth of 46.1%.

Therefore, we believe this Zacks Rank #2 (Buy) company is well-positioned to carry the momentum ahead, backed by the implementation of The Manitowoc Way. Let’s delve deeper to find out what’s in store for the company ahead.  

Margin Expansion Remains the First Priority: To deliver improvement in margins, the company remains focused on controlling cost, reducing headcount, increasing productivity and eliminating waste. Also, it continues to align manufacturing capacity to match the current levels of demand. The relocation of crawler crane manufacturing from Manitowoc, WI to Shady Grove, PA, is complete as well. This move is anticipated to optimize manufacturing footprint, reduce costs and stretch margins with an estimated pre-tax cost savings in the $25-$30 million band. It will also help eliminate significant excess capacity and consequently, help drive operational efficiency and provide resources to invest in profitable growth.

Improving Competitive Position to Gain Market Share: The company is focusing on not only on designing quality and reliability of it products but also in the process of manufacturing cranes. To drive growth, Manitowoc has also taken efforts to strengthen its distribution network. In September, the company hosted more than 200 Potain tower crane dealers from across Europe and Africa. The meeting was one of the largest dealer summits in the company’s history and covered best practices, market updates, and improvements for products. Additionally, it launched a council forum to improve communication between Manitowoc and its dealers, and to improve partnerships.

Meanwhile, to ensure growth, the company implemented key account management on a global basis this year, which has already started reaping benefits. Evidently, Manitowoc received an order from a large crane operator in Poland that will be shipped in the fourth quarter. Earlier, the company had received an order from this same operator in 2008.

In the military crane business, the company has completed the final stage of the U.S. Army's testing requirements including a rail impact crash and ballistic testing that is anticipated to be complete by year-end. While the program continues as planned, shipments of units are expected to increase in 2018.

Innovation Holds the Key: Manitowoc continues to focus on new product development to remain competitive. It also has hiked production and delivery of its newly developed TMS 9000-2 truck-mounted cranes. The product has received strong customer response and is gaining market share. While the latest product in the company’s pipeline continues to be strong, it remains on track to introduce four new mobile products in June 2018.

Increasing velocity in all business processes: The company is striving to significantly reduce the number of days it takes to complete an activity from design through manufacturing.

Manitowoc’s long-term outlook thus remains strong. In addition, it continues to be committed toward reaching its target of double-digit operating margins with 150 to 200 basis points of 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.

Over the last 30 days, the Zacks Consensus Estimate for Manitowoc’ current-year’s earnings has moved up from loss of 14 cents per share to 4 cents per share, reflecting eight upward revisions versus none downwards. Also, next year’s earnings estimates have surged 86% on the back of six upward revisions versus no downward revision.

All these positive earnings estimate revisions testifies the unwavering confidence that analysts have in the company and further adds to the investors’ optimism in the stock.

Stocks to Consider

Some other top-ranked stocks in the same industry include Caterpillar Inc. CAT, Komatsu Ltd. KMTUY and Terex Corporation TEX. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar has an expected long-term earnings growth rate of 10.33%. The stock has gained 48.3% year to date.

Komatsu has an expected long-term growth rate of 16.20%. The stock has rallied 44.6% year to date.

Terex has an expected long-term growth rate of 11.25%. The stock has been up 35.9% year to date.

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