Manitowoc Company, Inc. (MTW) reported second-quarter 2012 earnings of 17 cents per share, missing the Zacks Consensus Estimate of 29 cents. Results declined 5.5% from the year-ago quarter’s earnings of 18 cents per share.
Total sales increased 2.2% to $955.7 billion, driven by higher sales in the Crane segment. Results, however, fell short of the Zacks Consensus Estimate of $1.045 billion.
Cost and Margins
Cost of sales increased 1% to $719.7 million in the quarter. Gross profit rose 5.8% to $236 million. Consequently, gross margin increased 80 basis-points (bps) to 24.7% in the quarter.
Engineering, selling and administrative expenses went up 7.5% to $154 million. Adjusted operating income increased 12% to $89.5 million. Consequently, operating margin increased 90 bps to 9.4%.
Segment Performance
Crane and related products: Total sales increased 4.9% to $555.1 million in the quarter. Improvement was due to higher growth in the American region, offsetting the declining demand in Europe and Asia. Operating profit rose 1.5% to $26.5 million. However, operating margin fell 10 bps to 4.8%.
Foodservice equipment: Total sales decreased 1.3% to $400.6 million in the quarter. The decline was attributable to weakness in Europe and unfavorable impacts of foreign currency translation, which was somewhat offset by the continuous penetration in specific emerging markets. Operating profit increased 7% to $72.2 million. Operating margin, too, increased 140 bps to 18%.
Backlog
Backlog in the Crane segment was $976 million as of September 30, 2012, versus $775 in the year-ago quarter. Total orders were reported at $582 million, being 22.3% more than the prior-year quarter.
Financial Updates
Cash and temporary investments were $71 million as of September 30, 2012, compared with $71.3 million as of December 31, 2011. Long-term debt amounted to $1.92 billion as of September 30, 2012, compared to $1.81 billion as of December 31, 2011.
Cash flow from operating activities was $50.9 million in the quarter versus $5 million in the prior-year quarter. Capital expenditure was $15.5 million in the quarter compared with $13.7 million in the year-ago quarter.
Looking Ahead
For the full year 2012, the company expects crane revenue to grow year over year in the range of 10%-12%, while foodservice revenue is expected to grow in a low-single digit percentage. Operating income in the crane segment is expected to rise in the band of 30%-40% and in the foodservice segment, in the range of 10%-15%.
Capital expenditure is projected to be $80 million. Depreciation and amortization is predicted to be $120 million. Interest expenses are expected in the range of $125-$130 million. Debt reduction has been targeted in the range of $150 million.
Our View
Backlog in the Cranes segment increased 25.9% year over year to $976 million as of September 30, 2012. Orders during the third quarter jumped 22.3% from the prior-year quarter. Moreover, Manitowoc aims at increasing its margins in the Foodservice equipment segment by introducing new products in 2012.
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 Terex Corp. (TEX) among others.
Manitowoc retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.
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