Mixed Results for Manitowoc (MTW)

Manitowoc Co. Inc. (MTW) delivered adjusted EPS of 12 cents in its second quarter ended June 30, 2010, outperforming the Zacks Consensus Estimate by 5 cents but plunging 48% from 23 cents reported in the year-ago quarter. Strong results in the Foodservice segment were offset by lackluster performance at the Crane segment.

The reported and year-ago quarters’ EPS exclude restructuring expenses of 1 cent and 11 cents, respectively. The year-ago quarter’s EPS excluded the loss from discontinued operations, loss on sale of discontinued operations and other charges of 2 cents, 18 cents and 2 cents, respectively. Including these items, the company reported EPS of 11 cents in the quarter compared with a loss per share of 9 cents in the year-ago quarter.

Revenues suffered a year-over-year decline of 15% to reach $876.5 million, marginally outpacing the Zacks Consensus Estimate of $872 million. The year-over-year decline can be credited to a 31% drop in the Crane segment. On a positive note, revenues increased 21% sequentially, showing signs of stability as well as the positive impact of seasonality in both businesses.

Cost and Margin Performance

Cost of sales fell 17% to $663.5 million in the quarter. Based on revenues, it improved 140 basis points to 75.7%. Although gross profit dropped 10% year over year to $213 million due to the fall in revenues, gross margin expanded 140 basis points to 24.3%.

Engineering, selling and administrative expenses also declined 16% to $129.4 million in the quarter and based on revenues, remained flat year over year. Manitowoc’s adjusted operating income remained flat year over year at $83.6 million. However, operating margin expanded 140 basis points to 9.5%. Including restructuring and other charges, operating income was $72.3 million compared with $51.6 million in the year-ago quarter. Operating margin surged 320 basis points to 8.2%.

Segment Performance

The Foodservice segment enjoyed a revenue growth of 11% to reach $424.9 million driven by the company’s focus on innovation and the introduction of new products. The segment also saw improved demand in North America and across its emerging markets.

The segment’s operating income increased 23% year over year to $56.9 million with an operating margin of 13.4%, reflecting a 130-basis point expansion. The improvement was due to the above factors as well as a favorable product mix and cost savings from its integration efforts.

However, the Crane segment’s results continued to suffer due to the challenging economic environment with revenues declining 31% year over year to $451.6 million. The company continues to experience growth in Asia, Latin America, Africa, and the Middle East, offset by continued weakness in North America and Europe.

The segment’s operating income dropped 22% to $38.6 million. However, its operating margin expanded 90 basis points to 8.5% facilitated by its focus on operational improvements and execution, which offset the weakness in global demand.

As of June 30, 2010, the segment’s backlog of $531 million decreased 13.4% from $613 million as of March 31, 2010. The decline was due to higher shipment activity, currency impact and a sizable order being removed from the backlog due to persistent financing challenges in the current credit markets.

Financial Position

As of June 30, 2010, Manitowoc had cash and cash equivalents of $117.6 million, up from $101.8 million as of March 31, 2010. During the quarter, the company generated operating cash flows of $83.3 million compared with $19.4 million in the year-ago quarter.

As of June 30, 2010, debt-to-capitalization ratio went up to 81.2% from 80.6% as of March 31, 2010.

The company reduced its debt to the tune of $12 million during the quarter. It remains committed to its debt reduction goal of $200 million in fiscal 2010.


For fiscal 2010, Manitowoc expects the Foodservice segment’s revenues and operating margin to be above 2009 levels. For the second half of fiscal 2010, the Crane segment is expected to deliver a year-over-year growth. This will narrow the segment’s fiscal 2010 year-over-year decline than that suffered in 2009. The Crane segment’s operating margin is expected to remain above the 3.5% trough margin that was experienced in 2003.

The company also projects capital expenditures of approximately $50 million, depreciation and amortization of approximately $140 million and debt reduction of $200 million for fiscal 2010.

Our Take

Cranes are an integral part of energy and infrastructure projects. Manitowoc holds a strong market position in the cranes business. Despite a challenging short-term outlook, we see significant growth potential in this market over the long term, driven by an increase in global energy consumption and the need for infrastructure upgrade in both the developed as well as developing nations.

Further, the acquisition of the British kitchen equipment maker Enodis plc in October 2008 has strengthened Manitowoc’s position significantly in the Foodservice business gaining entry into two major new market segments − hot foodservice and food retail equipment. The company expects to realize more than $80 million in savings and revenue synergies by 2011.

Manitowoc is a multi-industry, capital goods manufacturer with over 100 manufacturing and service facilities in 23 countries. It is one of the world’s largest providers of lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks. It is also a leading innovator and manufacturer of commercial foodservice equipment serving the ice, beverage, refrigeration, food preparation and cooking needs of restaurants, convenience stores, hotels, health care and institutional applications.

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