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Milacron (MCRN) Falls 42% in a Year: Dismal Run to Continue?

Zacks Equity Research

Milacron Holdings Corp. MCRN shares haven’t been performing well over the past year. The stock price of global leader in the manufacture, distribution, and service of highly engineered and customized systems utilized in the plastic technology and processing industry has fallen 42% over the past year, compared with the stocks in the industry that posted a cumulative decline of 22%.


Factors Plaguing Milacron

Milacron reported adjusted earnings per share of $1.78 in 2018, down 1.7% from the prior year. In 2018, sales increased 2% year over year to $1.26 billion. In 2018, orders declined 7% year over year to $1211.2 million.  New orders were primarily impacted by a decline in the equipment business in Europe and North America, a slump in hot runner business in China and the impact of product line de-selection within the APPT segment, partially mitigated by an increase in the global fluids business. Backlog at 2018 end was also down to $226 million compared with $257 million at the prior year end owing to its European equipment business. 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 the 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 impacted by $1.7 million.

Will the Struggle Persist?

Analysts have been growing bearish on the stock, currently carrying a Zacks Rank #5 (Strong Sell), as evidenced by the downward revision of the company’s first-quarter 2019 and full-year 2019 estimates. The Zacks Consensus Estimate for first-quarter 2019 earnings has declined 39% over the past 90 days while the same for 2019 has slumped 21%.

The company remains optimistic on mitigating the headwind from tariffs by focusing on pricing actions, negotiations with existing vendors and making supply chain modifications. Milacron is also seeking exemptions on certain materials that are unavailable or are in short supply in the United States. Consequently, the company’s focus on these factors will help lessen the impact of tariffs.

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 continuing 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 due 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

Some better-ranked stocks in the same sector are Lawson Products, Inc. LAWS, DMC Global Inc. BOOM and CECO Environmental Corp. CECE. While Lawson Products sports a Zacks Rank #1 (Strong Buy), DMC Global and CECO Environmental carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Lawson Products has a long-term earnings growth rate of 17.5%. Its shares have moved up 29% in the past year.

DMC Global has a long-term earnings growth rate of 20%. The stock has risen 96% in a year’s time.
 
CECO has a long-term earnings growth rate of 15%. The company’s shares have gained around 62% in the past year.
 
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Milacron Holdings Corp. (MCRN) : Free Stock Analysis Report
 
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CECO Environmental Corp. (CECE) : Free Stock Analysis Report
 
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