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Manitowoc (MTW) Down 63% in 2018: Can It Rebound This Year?

Zacks Equity Research

The announcement of tariffs on steel imports into the United States in the last year was a big blow to the manufacturing sector. Given that steel is one of the primary raw materials, every manufacturing company bore the brunt of rising steel prices, owing to the tariffs. This also weighed on shares of The Manitowoc Company Inc. MTW that plunged 62.5% in 2018, wider than the industry’s decline of 21.1%.




What’s Affecting Manitowoc?


The company’s third-quarter earnings slumped 45% year over year to 20 cents. Notably, it witnessed 13% rise in its cost of sales in the reported quarter.


Incremental input costs primarily due to the imposition of tariffs on steel imports will continue to impact Manitowoc’s margins in the near term. Further, supply-chain challenges continue to be a headwind.


Moreover, fluctuating foreign exchange rates are weighing on the company's margins, particularly on the European-produced cranes that it sells in the United States. The Middle East market remains challenging due to geopolitical uncertainties and market competitions.


Even though rough terrain markets have turned positive but it still remains well below historical highs. Manitowoc does not anticipate a substantial increase in rough terrain markets in 2019.


Notably, the company’s ROE of 1.8% compares unfavorably with the industry’s 43.7%. This reflects its inefficiency to use shareholders’ funds.


Nonetheless, we believe that Manitowoc, which currently carries a Zacks Rank #3 (Hold), enjoys multiple tailwinds, which are likely to lift the stock eventually. Hence, investors should consider retaining this stock for long-term prospects.


Factors to Buoy Manitowoc in 2019


Manitowoc continues to execute its strategy to cover cost inflation through pricing actions. The company remains focused on cost controls, reducing headcount, increasing productivity and eliminating waste. It is also taking steps to support supply-chain partners to ensure timely delivery of components, combined with alternative sourcing strategies.


The general crane market is displaying signs of improvement as evident from the recent development in order activity. Manitowoc witnessed 13% year-over-year growth in orders in the third quarter of 2018, thanks to new products and favorable market conditions.


In the Americas, demand is being led by the commercial construction and energy end markets. The North American oil and gas environment continues to improve, with investment in upstream well completions continuing to drive crane utilization and replacement demand. In the Asia Pacific, growth is being driven by India, Australia and China.


The company also noted overall stable demand in Europe, with moderate demand in Western Europe. Further, backlog at the end of the quarter was $700 million, up 50% from the prior-year quarter, providing improved revenue visibility over the remainder of the year.


Bottom Line


Despite inflated material costs, the recent pickup in crane order, product innovation and pricing actions raise hope for Manitowoc.


Meanwhile, investors interested in the industrial products space can consider better-ranked players like Enersys ENS, Brady Corp. BRC and Heritage-Crystal Clean, Inc. HCCI. All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Enersys has a projected long-term growth rate of 10%. Its shares have rallied 14% over the past year.


Brady has a long-term earnings growth rate of 7.5%. The company’s shares have gained 17% over the past year.


Heritage-Crystal Clean has a projected long-term growth rate of 15%. Its shares have gained 8% over the past year.


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