Manitowoc Falls as Q2 Earnings Lags on Lower Crane Demand - Analyst Blog

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Shares of Manitowoc Company, Inc. ( MTW ) slumped over 13% and closed at $26.56 on Jul 31, a day after the reporting sluggish second quarter 2014 results. The manufacturer of cranes as well as commercial foodservice equipment reported adjusted earnings from continuing operations of 35 cents per share, which declined 25.5% year-over-year from 47 cents, primarily impacted by lower crane demand. The bottom line also missed the Zacks Consensus Estimate of 41 cents.

Including discontinuing operations, Manitowoc reported earnings of 34 cents per share compared with 43 cents in the prior-year quarter.

Operational Update

Total revenue was $1.01 billion in the reported quarter, down 2% year over year as a decline in the Crane segment sales offset the increase in Foodservice sales. Revenues fell short of the Zacks Consensus Estimate of $1.04 billion.

Cost of sales decreased 2.7% to $740.5 million from $761 million in the year-ago quarter. Gross profit went down 1.3% year over year to $272 million. While gross margin expanded 30 basis points (bps) to 26.9%.

Engineering, selling and administrative expenses increased 4.7% year over year to $167 million. Adjusted operating income was $96.4 million, down 10.4% year over year, leading to 90-bps contraction in operating margin to 9.5%.

The Manitowoc Company Inc - Earnings Surprise | FindTheBest

Segmental Performance

Revenues from the Crane and Related Products segment decreased 6.4% year over year to $606 million due to a volume decrease primarily in the boom truck and rough-terrain crane markets. The segment's operating income plunged 22% year over year to $54 million affected by lower sales volume, partially offset by improved operational efficiency.

The Foodservice Equipment segment's revenues were up 4.4% year over year to $406.7 million from $389.7 million in the prior-year quarter. The improvement was mainly backed by a new product rollout in the EMEA region boosted by brisk sales of hot holding, ice, and beverage equipment in the Americas. The segment's operating income also improved 4.6% year over year to $65.9 million. The year-over-year increase was driven by improved operating efficiencies from key manufacturing strategies offset by an unfavorable product mix and a lag in Manitowoc's Americas ovens consolidation.

Backlog

Backlog in the Crane segment was $728 million at the end of the second quarter, down 14% sequentially. Total orders were $491 million, which declined 19% from the prior-year quarter, representing a book-to-bill of 0.8x.

Financial Updates

Manitowoc ended the second quarter with cash and cash equivalents of $103.5 million, up from $54.9 million as of 2013-end. Long-term debt was $1.75 billion as of Jun 30, 2014, compared with $1.5 billion as of Dec 31, 2013. Debt-to-capitalization ratio was 68.1% as of Jun 30, 2014, up from 66.1% as of Dec 31, 2013.

Cash flow from operations was $72.2 million in the reported quarter compared with $48 million in the prior-year quarter. Capital expenditure was $18 million compared with $25.6 million in the year-ago quarter.

2014 Guidance

For 2014, Manitowoc cut its guidance for Crane segment revenue and Foodservice operating margins. Manitowoc now expects flat to slightly down top-line results at the Crane segment. The company however reiterated its outlook of high-single-digit improvement in operating margins in the Crane segment.

Further, Manitowoc reaffirmed its view of a mid-single digits gain in the Foodservice segment revenues. However, it trimmed the forecast for operating margins to a mid-teens growth from the previous projection of a high teens improvement for the segment.

The company maintained its earlier forecast for capital expenditure at $90 million for the year. Manitowoc also retained depreciation and amortization projection of $120 million. Interest expenses are predicted at less than $100 million.

Our View

Manitowoc will benefit from the momentum in the Foodservice segment. During the quarter, the company closed the successful rollout of blended beverage equipment in EMEA and a hot holding rollout in the U.S., while expanding the penetration and success of KitchenCare aftermarket services offering. These investments will drive growth while further capitalizing on product development and world-class innovation. Manitowoc remains optimistic regarding its new products.

In addition, implementation of several strategic initiatives including construction of multi-purpose Foodservice plant in Monterrey, development of a shared-services platform in France to streamline tower crane operations, expansion of product verification center processes worldwide and organizational realignment from a regional-to-product approach will improve cost structure as well as accelerate product development processes.

However, the Crane segment performance remains doubtful due to uncertainty in certain end markets. Rising competition from a number of crane manufacturers in the Chinese market also continue to pose as headwind.

Wisconsin-based Manitowoc is one of the world's leading innovators and manufacturers of commercial foodservice equipment. The company is one of the premier innovators and providers of crawler cranes, tower cranes and mobile cranes for the heavy construction industry. These are complemented by industry-leading product support services.

Manitowoc currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the same sector include H&E Equipment Services Inc. ( HEES ), Komatsu Ltd. ( KMTUY ) and Blount International Inc. ( BLT ). All these stocks sport a Zacks Rank #1 (Strong Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: MTW , KMTUY , HEES , BLT

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