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Milacron Plunges 38% in a Year: What's Ailing the Stock?

Zacks Equity Research

Shares of Milacron Holdings Corp. MCRN have fallen 38% over the past year, compared with the industry’s cumulative decline of 27%. This can be attributed to slowdown in orders and inflated costs owing to the implementation of tariffs which have impacted the company’s results.


 
 

Factors Plaguing Milacron

Milacron Holdings’ adjusted earnings per share and revenues declined 31% and 14%, respectively, in the first quarter of 2019. New orders in the quarter declined 11% 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 predicts 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 implemented last year have dented Milacron’s margins and are 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 #4 (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 6% over the past 90 days while the same for 2019 has gone down 8%.

Can the Stock Recover?

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 due to environmental and health concerns.

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

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Chart Industries, Inc. GTLS, Lawson Products, Inc. LAWS and Harsco Corporation HSC, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chart Industries has an estimated earnings growth rate of 52.9% for the ongoing year. The company’s shares have gained 10.1%, in the past year.

Lawson Products has an expected earnings growth rate of 24.5% for the current year. The stock has appreciated 45.5% in a year’s time.

Harsco has a projected earnings growth rate of 9.1% for 2019. The company’s shares have gained 6.5%, over the past year.

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