Shares of The Manitowoc Company, Inc. MTW dipped over 7.9% to close at $15.07 on Oct 15, as the maker of cranes and food and beverage equipment provided a bleak outlook for the third quarter as well as 2015 due to a dreary crane landscape. Shares of the company have dipped 7% since the announcement.
Manitowoc now expects enterprise net sales to be approximately $863 million in third-quarter 2015, a 13% decline from $986 million in the year-ago comparable period. Lower-than-anticipated tower and crawler crane shipments will hurt revenues in the third quarter. The company expects to report net earnings of approximately $5 million in the quarter compared with $73.1 million in the third quarter of 2014.
Given the lower expectations of earnings for the third quarter and a deteriorating demand environment in the Crane segment, particularly in the Middle East and Asia, Manitowoc trimmed its 2015 guidance for the Crane segment. The company now expects Cranes revenues to be down 15% to 20% year over year and operating margins to be in low single-digits. This cut is worse than the prior guidance of sales decline in double digits and operating margins in the mid-single-digit percentage range for the segment.
The company, however, retained its guidance for Foodservice. Revenues are expected to be approximately flat for 2015, while operating margins are estimated in the mid-teens percentage.
The company estimates capital expenditure for the year to be $70 million and depreciation and amortization of $110 million. Interest expenses are projected to be $90 million (higher than the previous $80 million projection). Manitowoc has set its target for end-of-year debt-to-EBITDA, which is at approximately 4.0.
Manitowoc has cut its outlook the second time this year. During the second-quarter conference call, the company had lowered its 2015 guidance citing a difficult oil and gas market as well as unfavorable foreign exchange rates.
Manitowoc remains prone to the impact of slump in crude oil prices on the crane market. Manitowoc’s products are used in many energy-related industries, and as the price of crude oil drops, the number of projects needing crane lifting activities tends to slow. Moreover, the strengthening of the U.S. dollar against other global currencies remains a headwind. Global weakness continues to negatively impact the rough-terrain and boom-truck markets, primarily in North America and Latin America. U.S. permits, rig count and well starts, all important drivers for the North American crane market, have been declining since the second half of 2014 to levels lower than any time since the third quarter of 2009.
Last month, the world's largest maker of mining and construction equipment, Caterpillar Inc. CAT further cut down its revenue outlook for 2015 citing continued weakness in the mining industry due to global slump in commodities. This paints a gloomy picture for the mining industry as Caterpillar is a global supplier of mining and construction equipment, and often considered a bellwether of economic activities.
Caterpillar and Manitowoc’s competitor, Joy Global Inc. JOY was also not spared from the impact of weak demand in the global mining market. The company recently reported a 32% drop in its adjusted third-quarter earnings and trimmed its earnings and revenue guidance for fiscal 2015. The company now expects fiscal 2015 revenues of $3.1 billion and adjusted earnings per share of $1.80.
Another competitor, Deere & Company DE anticipates equipment sales to decrease around 21% year over year in fiscal 2015 and to be down about 24% year over year in the fourth quarter. Segment-wise, the company estimates Agriculture and Turf equipment sales to decline 25% in fiscal 2015 due to lower commodity prices and falling farm income, which will negatively impact agricultural machinery demand. Deere foresees global sales for Construction & Forestry equipment to be down about 5% in 2015 reflecting weakening conditions in the North American energy sector, as well as lower sales outside the U.S. and Canada.
In this scenario, these companies are left with no other option but to cut down costs to stay afloat. Manitowoc is taking a number of aggressive actions, including plant rationalization and right-sizing the business, to offset this decline in crane demand. The company had undertaken certain restructuring activities in the Foodservice segment and it is evident from the improving trends that these actions are beginning to show results. Further opportunities for margin improvement in Foodservice in 2015 are expected to be driven by factory consolidations, LEAN manufacturing initiatives, cost/price benefits, improvement in KitchenCare and workforce reduction.
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