The Manitowoc Company’s MTW focus on product innovation, solid aftermarket business, cost control, improving productivity and pricing actions are commendable. However, shares of the company have lost 16.8% year to date compared with the industry’s decline of 7.3%. This downside can be primarily attributed to muted customer spending on account of the ongoing trade disputes and geopolitical uncertainties.
Let’s delve deeper.
What Dragged the Stock Down?
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. Manitowoc’s backlog as of second quarter end was $561 million, down 19% year over year. Trade disputes and other macro-economic factors continue to create uncertainty in global markets. Additionally, the U.S. and European construction markets are slowing and U.S. rate counts have declined. All these factors are affecting customer sentiment.
Further, 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.
Additionally, Manitowoc continues to witness inflation in material costs, which includes the impact of tariffs. This is affecting the company’s margins. Further, supply chain challenges continue to be a headwind.
Factors Likely to Drive Growth
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.
Manitowoc’s aftermarket business continues to perform well. Growth is primarily stemming from 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 strengthen 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.
We believe that these factors will eventually benefit Manitowoc’s results and drive a turnaround in its share price.
Zacks Rank & Key Picks
Manitowoc currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the Industrial Products sector are Zebra Technologies Corp. ZBRA, Avery Dennison Corp. AVY and Tetra Tech, Inc. TTEK. While Zebra Technologies currently sports a Zacks Rank #1 (Strong Buy), Avery Dennison and Tetra Tech carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Zebra Technologies has a projected earnings growth rate of 16.71% for the current year. The stock has gained 21% in a year.
Avery Dennison has an estimated earnings growth rate of 8.42% for 2019. The company’s shares have gone up 9.3% in the past year.
Tetra Tech has an expected earnings growth rate of 15.97% for the ongoing year. The stock has appreciated 15.6% over the past year.
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