Shares of Manitowoc Company, Inc. (MTW) went up 8.4% during aftermarket trading as the market favorably reacted toward its decision to spin off the food service equipment business. The upside came despite the company’s muted fourth-quarter earnings, which not only declined year over year but also missed estimates due to macroeconomic headwinds that affected demand for its products.
Earnings Highlights
The company’s fourth-quarter earnings per share of 27 cents dipped 43% year over year, falling short of the Zacks Consensus Estimate of 33 cents. Shares of the company increased 0.89% and closed at $19.24 on Jan 29 following the announcement.
Including special items, Manitowoc reported earnings of 25 cents compared with 15 cents in the year-ago quarter. Earnings in the reported quarter gained from a benefit for income taxes of $18.1 million due to discrete items in the quarter compared with income tax expense of $17 million in the prior-year quarter.
Operational Update
Total revenue was $1.037 billion in the reported quarter, down 6.1% year over year as a decline in the Crane segment sales offset increase in the Foodservice sales. Revenues fell short of the Zacks Consensus Estimate of $1.069 billion.
Cost of sales decreased 6% to $796 million from $843 million in the year-ago quarter. Gross profit went down 8% year over year to $241 million. This led to a 40 basis points contraction in gross profit to 23.3%.
Engineering, selling and administrative expenses increased 4% year over year to $158 million. Adjusted operating income was $74 million, down 26% year over year, leading to 190-bps contraction in operating margin to 7.2%.
Segment Performance
Revenues from the Crane and Related Products segment decreased 6% year over year to $663 million due to volume decrease, primarily in the boom truck and rough-terrain crane markets. Moreover, negative impact of foreign currency exchange rates between the Euro and US dollar as well as higher price discounting led to the decline. The segment’s operating income plunged 17% year over year to $45.3 million affected by lower production volumes and pricing pressure that were partially offset by ongoing operational efficiencies and cost savings.
The Foodservice Equipment segment’s revenues went down 6% year over year to $374 million from $400 million in the prior-year quarter due to fewer new product rollouts and unfavorable foreign exchange rates. The segment’s operating income plunged 30% year over year to $48.3 million. Lower new product sales, higher discounts, increased warranty costs, higher start-up costs for KitchenCare, unfavorable product mix, as well as cost and efficiency issues for certain hot-side products were partially offset by sourcing and procurement initiatives..
Backlog
Backlog in the Crane segment was $738 million at 2014-end, up 29% year over year and 3% sequentially. Total orders were $686 million, which increased 23% sequentially but declined 3% year over year, representing a book-to-bill of 1.0x.
Fiscal 2014 Performance
Manitowoc’s adjusted earnings per share in fiscal 2014 were $1.16, down 20% from $1.45 in fiscal 2013 and short of the Zacks Consensus Estimate of $1.22. Including one-time items, earnings in fiscal 2014 stood at $1.05, flat with the prior fiscal. Revenues dipped 4% year over year to $3.887 billion, a 4% drop from $3.908 billion in fiscal 2013.
Financial Updates
Manitowoc ended the year with cash and cash equivalents of $68 million, up from $54.9 million as of 2013-end. Long-term debt was $1.44 billion as of Dec 31, 2014, compared with $1.5 billion as of Dec 31, 2013. Debt-to-capitalization ratio was 64.9% as of Dec 31, 2014, up from 66.1% as of Dec 31, 2013.
Cash flow from operations was $105 million in fiscal 2014 compared with $334 million in the prior year. Capital expenditure was $85 million compared with $11 million in fiscal 2013.
2015 Guidance
Manitowoc projects Crane segment revenues to decline by mid single-digit percentages year over year. Segment operating margin is projected to be in the high-single digit percentage. Foodservice segment revenues are expected to exhibit mid single-digit percentages growth from 2014 levels. Segment operating margin is projected to be in the mid-teens percentage.
The company estimates capital expenditure to be $85 million for the year and depreciation and amortization of $110 million. Interest expenses are projected in the $80 million range. Manitowoc also initiated its guidance for end-of-year debt-to-EBITDA, which is projected to be approximately 3.0 times.
Moreover, the company’s board of directors has approved a plan to separate its Cranes and Foodservice businesses into two independent, publicly-traded companies as it faces increasing pressure from investors and tough business conditions. The tax-free spin-off of the Foodservice business is expected to be completed by the first quarter of 2016.
The Foodservice business is a leading manufacturer of commercial foodservice equipment, serving the ice, beverage, refrigeration, food preparation and cooking needs of restaurants, convenience stores, hotels, healthcare and institutional applications. Its Foodservice products are marketed under the Manitowoc, SerVend, Kolpak, Cleveland, Delfield, Frymaster, Garland, Lincoln and other brand names. The business generated revenues of $1.6 billion in fiscal 2014, contributing 41% to Manitowoc’s revenues.
The Crane business is a global provider of engineered lift solutions, offering one of the broadest lines of lifting equipment in the industry. It reported revenues of $2.3 billion in fiscal 2014.
Our View
Ongoing global softness in the rough-terrain and boom truck markets along with declining oil prices will continue to affect the Crane segment. Nevertheless, the company will benefit from its cost optimization strategies which include lean initiatives and capturing savings through sourcing and purchasing initiatives. Moreover, an improving order intake, a strengthening backlog, and the strong market acceptance of its VPC crawler crane technology bode well for the segment. The company also continues to focus on key investments to facilitate product innovation, new product introductions and aftermarket product support initiatives. The separation of the Foodservice business will allow Manitowoc to pursue its growth strategy as market conditions improve.
The Foodservice segment will benefit from the organizational restructuring undertaken by the company to better align its business in order to efficiently serve its growing customer base, while identifying new areas of opportunity. Manitowoc also strives to improve efficiencies across its manufacturing footprint.
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.
Peer Performance
Mining and equipment behemoth Caterpillar Inc. (CAT) reported a 20% decline in its fourth-quarter 2014 adjusted earnings to $1.35 per share due to a muted mining environment, and lower prices of oil and key mined commodities, particularly copper, coal and iron ore.
Manitowoc currently has a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the sector include Briggs & Stratton Corp. (BGG) and Kubota Corp. (KUBTY). While Briggs & Stratton sports a Zacks Rank #1 (Strong Buy), Kubota holds a Zacks Rank #2 (Buy).
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