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Neutral on Manitowoc - Analyst Blog
On Mar 1, we maintained our Neutral recommendation on manufacturer of cranes and foodservice equipment, Manitowoc Company, Inc. ( MTW ), given concerns regarding its high debt levels, slowdown in Crane segment's order rate and increased competition in the Chinese market. Manitowoc retains a short-term Zacks Rank #3 (Hold).
Manitowoc reported fourth-quarter 2012 adjusted earnings of 27 cents per share, up 93% from 14 cents earned in the year ago quarter. Total sales increased 10% year over year to $1.1 billion. Both were ahead of the respective Zacks Consensus Estimates.
In 2013, foodservice revenues are expected to grow in a mid single-digit and operating margins to improve in the mid teens percentage.
In 2012, operating earnings for the Crane segment benefited from higher sales volumes, pricing actions and favorable warranty experience, partially offset by higher material costs, labor costs and additional provisions for excess and obsolete inventory.
Management remains focused on expanding crane margins through pricing, product cost takeouts, and manufacturing efficiencies. For 2013, the company expects operating margin in the high single-digit percentage range for the segment. The company expects crane revenues to grow in a high single-digit clip.
However, order growth rates in the crane segment continue to be slow. Orders in the second half of 2012 were essentially flat on a year-over-year basis.
Orders declined 19% to $544 million in the fourth quarter compared with the prior-year quarter due to the impact of macro uncertainty, destocking and pricing. Manitowoc needs to witness order growth to achieve its target of high single-digit percentage growth in the Crane segment. Given the economic uncertainty, this seems to be a challenge.
The Enodis acquisition positioned Manitowoc among the world's leading designers and manufacturers of commercial foodservice equipment and enhanced the foodservice segment's normalized growth and operating margin potential.
Post-acquisition, the company continued to optimize the product portfolio and cost structure of the segment. These initiatives, along with introduction of innovative new products, operational improvements, and Lean initiatives will lead to long-term profitability improvements.
On the flipside, owing to the Enodis acquisition, the company's debt burden increased, constraining its ability to invest in the business or return cash to shareholders. Debt-to-capitalization ratio remained high at 75% as of Dec 31, 2012. The 2012 total debt reduction of $80 million fell short of the company's full-year target of $150 million to $200 million due to the negative impact of a high volume of crane shipments occurring very late in the fourth quarter. The company expects to pay back more than $200 million in debt in 2013, which seems to be a difficult task.
Furthermore, Manitowoc faces growing competition from a number of crane manufacturers in the Chinese market including Zoomlion, Sany and Fushun Excavator. Manitowoc must increase its market share in the Chinese market to maintain its market leading position in the emerging markets of China.
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