We reiterate our Neutral recommendation on
Manitowoc Company, Inc.
) following its mixed second-quarter 2012 results. The company's
adjusted earnings were 32 cents per share for the quarter, beating
the Zacks Consensus Estimate of 25 cents. Total sales increased
5.9% year over year to $1.006 billion, but missed the Zacks
Consensus Estimate of $1.045 billion.
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Margins in the Foodservice segment are expected to improve
significantly in fiscal 2013, as the company focuses on introducing
new products in the second half of fiscal 2012. Moreover, soaring
demand in the existing facilities and cost reduction initiatives
will add to the margins moving ahead.
The Architecture Billing Index of American Institute of Architects
became positive at 50.2 in August this year after remaining in the
negative territory for four consecutive months since April. Any
reading above 50 indicates an increase in demand for architect's
In addition to the Billing index, the new projects inquiry index
was 57.2 in August, up from 56.3 in July. Moreover, the new highway
bill will also improve demand for construction equipment in the
U.S. market. This, in turn, will favor Manitowoc's construction
equipment sales in the forthcoming quarters.
Backlog in the Cranes segment increased 13% year over year to $944
million as of June 30, 2012. Orders improved 7% year over year in
the second quarter.
Expansion in the Americas region along with the emerging markets
helped orders to ramp up in the second quarter. The demand for
Cranes will further increase in the remainder of 2012, driven by
ramp up in the energy and infrastructure projects.
However, Manitowoc's high debt level remains a major concern. The
debt-to-capitalization ratio remained high at 80.5% as of June 30,
2012, compared with 80.4% as of March 31, 2012.
Cash and cash equivalents went down to $59.4 million as of June 30,
2012, compared with $71.3 million as of December 31, 2011.
Therefore, it will be a difficult task for the company to reach its
debt reduction target of $150 million to $200 million for fiscal
In addition, Manitowoc faces growing competition from a number of
crane manufacturers in the Chinese market including Zoomlion, Sany
and Fushun Excavator. Therefore, the company must increase its
share in the Chinese market to maintain its market leading position
in the emerging markets of China. The company also faces stiff
competition from leading crane companies like
) among others.
Based in Manitowoc, Wisconsin, Manitowoc is a capital goods
manufacturer with over 115 manufacturing, distribution, and service
facilities in 25 countries. The company provides crawler cranes,
tower cranes, and mobile cranes for the heavy construction
industry, which are complemented by a slate of industry-leading
product support services. The company also manufactures commercial
foodservice equipment, which includes 25 market-leading brands of
hot- and cold-focused equipment.
Our long-term recommendation on the stock is supported by a
short-term Zacks #3 Rank (Hold).