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Milacron (MCRN) Down 34% in a Year: Will It Bounce Back?

Zacks Equity Research

Shares of Milacron Holdings Corp. MCRN has fallen 34% over the past year, compared with the industry’s cumulative decline of 24%. This can be attributed to multiple headwinds plaguing the company.
 


 

Factors Plaguing Milacron

Milacron reported adjusted earnings per share of 27 cents in the first quarter of 2019, down 31% from the prior-year quarter. The company’s revenues fell 13.9% year over year to $248.7 million during the first quarter. New orders in the reported quarter declined 10.8% year over year to $275.3 million, primarily impacted by decline in the equipment business in Europe and North America, slump in hot runner business in China and Europe. Backlog at first-quarter 2019 end was at $226.7 million, down $25.8 million from the prior-year quarter’s end. Milacron projects sales to decline 3-4% in 2019, including an anticipated headwind of 1% from foreign currency translation.

Steel is the primary raw material input for both Milacron’s Advanced Plastic Processing Technologies and Melt Delivery and Control Systems segments. Consequently, tariffs on steel prices will continue to impact Milacron’s margins. It is projected to have an impact of $4.2 million on the company’s results in 2019. The Advanced Plastic Processing Technologies segment will bear the brunt of the impact which is estimated at $2.5 million while the Melt Delivery and Control Systems segment’s results will be affected by $1.7 million.

Analysts have been growing bearish on the stock, as evident from the company’s Zacks Rank #5 (Strong Sell) and downward revision of its second-quarter 2019 and full-year 2019 estimates. The Zacks Consensus Estimate for second-quarter 2019 earnings has declined 36% over the past 90 days while the same for 2019 has plunged 28%.

Will the Stock Rebound?

The company intends to mitigate the headwind from tariffs by focusing on pricing actions, negotiations with existing vendors and making supply chain modifications. Further, since 2014, Milacron has undergone a number of organizational redesign and cost reduction initiatives to improve cost structure and operating flexibility. This includes consolidating manufacturing and back office infrastructure in North America and Europe.  With the restructuring now complete, the company will focus on enhancing operations, optimizing product mix, improving service to customers and augmenting financial performance.

The Advanced Plastic Processing Technologies segment will be supported by enhanced demand in the plastic processing machinery industry driven by the overall expected rise in plastic processing, increasing equipment age and advances in technology. In the Melt Delivery and Control Systems segment, the hot-runner market is likely to grow faster than the overall global economy based on macro-economic drivers involving product life cycles, demographics, technology conversion and greater utilization of plastic.

In the fluids segment, demand for industrial fluids is closely tied to demand for metal products, which are produced on metalworking machinery through cutting, stamping and other processes. As industrial production and demand for metalworking machinery grows, manufacturers will require increased amounts of high-quality coolants, lubricants and cleaners to maximize productivity, and extend the life of equipment and tooling. Market trends indicate elevated demand for technology fluids owing to environmental and health concerns.

We believe that these factors will eventually benefit Milacron results and drive a recovery in its share price.

Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are DMC Global Inc. BOOM, Lawson Products, Inc. LAWS and Roper Technologies, Inc. ROP, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

DMC Global has an estimated earnings growth rate of 79.7% for the ongoing year. The company’s shares have soared 65% in the past year.

Lawson Products has a stellar expected earnings growth rate of 24.5% for the current year. The stock has appreciated 59% in a year’s time.

Roper Technologies has a projected earnings growth rate of 7.9% for 2019. The company’s shares have gained 28% over the past year.

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