Improving Crane Markets Aid Manitowoc, Higher Costs Ail

On May 31, we issued an updated research report on The Manitowoc Company Inc. MTW. The company will benefit from the improvement in the cranes market, focus on consolidating manufacturing footprint and reducing cost of organizational structure as well as pricing actions. However, increased labor coats, material costs, particularly steel as well as constraints in the supply chain are likely to affect Manitowoc’s results in the near term.

Manitowoc reported a loss of 12 cents in first-quarter 2018. However, the figure was narrower than the year-ago quarter’s loss of 69 cents and the Zacks Consensus Estimate of a loss of 23 cents per share. Its top-line increased 26% on a year-over-year basis to $386 million driven by improved crane shipments across all regions, surpassing the Zacks Consensus Estimate of $374 million.

Manitowoc revised full-year 2018 financial guidance to reflect the changing macroeconomic environment and benefits from the recently enacted U.S. tax law change. Revenues for the year are projected within $1.775 billion and $1.85 billion. Adjusted EBITDA is anticipated to lie between $100 million and $120 million. Compared with the adjusted EBITDA of $67.4 million in 2017, the mid-point of the guidance reflects an increase of 63%.

Manitowoc’s first-quarter orders were pegged at $536 million, up 10% year over year. The crane market is recovering with strength in commercial construction and energy end markets. The company is witnessing higher year-over-year demand in the Americas and European regions. Revenues are also being driven by new products. New and innovative products introduced since Manitowoc became a stand-alone crane company, now generate around 40% of its revenues. Backlog at the quarter-end came in at $756.6 million, up 49% from the prior-year quarter. Currently, over 90% of the year-end backlog is scheduled to be shipped by the end of 2018.

The company will continue to gain from its focus on consolidating manufacturing footprint and reducing cost of organizational structure as well as pricing actions. The Americas is showing emerging momentum in demand from energy and commercial construction markets. Europe has been stable and continues to grow in residential and commercial construction markets. The winter campaign resulted in stronger-than-anticipated order intake levels, positioning the company well for the upcoming construction season in Western Europe. In Australia, there has been a rebound in mining, along with large infrastructure, residential and commercial projects, driving crane demand.

Despite near-term headwinds, the company is poised well for the long term as evident from its significant progress in the implementation of The Manitowoc Way to boost the four key strategic priorities — margin expansion, growth, innovation and velocity — that are likely to aid in delivering double-digit margin growth in the long term.

Margin expansion remains the first priority. Manitowoc continues to align manufacturing capacity to match the current levels of demand. The company remains focused on cost controls, reducing headcount, increasing productivity and eliminating waste. To drive growth — the second component, the company among other initiatives, has taken efforts to strengthen its distribution network. To ensure growth, Manitowoc implemented key account management on a global basis this year, which has already started to reap benefits.

Innovation is the company’s third key priority. Manitowoc’s new product pipeline continues to be strong. Approximately 40% of its third-quarter revenues stemmed from new products introduced since Manitowoc became a standalone crane company. The fourth key strategic priority is velocity. The company applied these tools to grow its boom truck business, which is a highly customized crane with a variety of commercial truck configurations.

Increased labor coats, material costs, particularly steel as well as constraints in the supply chain are likely affect Manitowoc’s results in the near term.The imposition of the 25% tariff on steel will affect its results. The company might not be able to raise prices to counter increased steel prices given the weak demand.

Despite the recent improvements noted in the United States and European markets, other key international APAC markets remain weak, except Australia. A pull back in investment in the Middle East, due to ongoing structural changes further delayed an eventual recovery. Moreover, the Middle East remains challenging due to geopolitical uncertainties as well as market competitions. Further, fluctuating foreign exchange rates are putting pressure on Manitowoc’s margins, particularly on European-produced cranes that it sells in the United States.

Manitowoc's stock has gained 4.5% in the past one year, falling way behind the industry’s growth of 42.8%.

Manitowoc currently has a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Caterpillar Inc. CAT, Axon Enterprise, Inc AAXN and Ashtead Group PLC ASHTY. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar has a long-term earnings growth rate of 12%. The company’s shares have been up 44% in a year’s time.

Axon Enterprise has a long-term earnings growth rate of 25%. The stock has appreciated 160% in a year’s time.

Ashtead has a long-term earnings growth rate of 15%. The company’s shares have been up 50% in the past year.

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