Are Expectations Too High For This Equipment Giant?

By Neha Chamaria - August 2, 2012 | Tickers: CAT, MTW, MCD, TEX | 0 Comments

• Email
• Print

Expectations from Manitowoc (NYSE: MTW), which is about to report its numbers next week, are pretty high especially after peers treated us to some delectable numbers recently. Its second quarter is also typically stronger than the first. But it must not be easy to handle two polar-opposite businesses, particularly in such trying times. Yet, while one is highly cyclical, the other stands on a more stable footing.

So how Manitowoc fares given its unusual business diversity and limited global presence should make for an extremely interesting watch. Analysts are expecting a whopping 56% jump in the crane king’s second-quarter bottom line. Will it deliver?

Busy building
Every cyclical stock has to bear the brunt of economic slowdown, but the problem magnifies in Manitowoc’s case because of its geographic structure. Europe is one of its biggest markets, accounting for a little over 20% of total sales. That’s definitely a concern given the crisis in the region.

Manitowoc is also otherwise highly dependent on developed markets, having a pretty low presence beyond the U.S. and Europe. Now this is where things get interesting. Generally, given the way emerging markets are growing, Manitowoc’s narrow geographic reach has a negative connotation. But the present situation is such that while economic growth in these markets is slowing, the U.S. is ramping up—a factor particularly evidenced in the case of equipment makers.

Sales in Caterpillar’s (NYSE: CAT) largest division, construction industries, rose 8% during the second quarter entirely because of higher sales from North America. Similarly, second-quarter sales in Terex’s (NYSE: TEX) largest division, aerial work platforms, climbed an impressive 25% backed by higher demand for equipment from the region. So Manitowoc, which derives 60% sales from the U.S., must have witnessed high demand for its cranes in the last quarter.

Promising other half
Manitowoc’s other business, food-service equipment, should perform well too. Indigo ice machines launched last year, in particular, played a key role in pushing up the division’s revenue in the last two quarters. I am expecting the trend to continue.

Manitowoc has some of the top fast-food chains as its customers, including Yum! Brands and McDonald's (NYSE: MCD). The latter has consistently given rave reviews to Manitowoc’s products, including the ice machines. It earlier even acknowledged how Manitowoc’s Frymaster line helps reduce carbon footprint, adding a big feather to the company’s cap. Most of the food giants have performed decently in their last quarters, and as these companies grow bigger, so will Manitowoc.

Manitowoc even implemented some price increases during the first quarter, effects of which should reflect in its second-quarter top line. Together, both its businesses are likely to do well. Though high sales from the U.S. will most likely be offset by weakness in Europe and other markets, I think the company still stands a fair chance to beat analyst estimates of around 10% growth in top line.

First, or not?
Look out for updates on the progress at Manitowoc’s new rough-terrain crane facility coming up in Brazil in its upcoming earnings call. It’s an important project for the company as it aims to become the first player to make such cranes in Brazil at a time when the nation is preparing to host the 2014 World Cup and 2016 Summer Olympics. Interestingly though, in late May, Terex too delivered their first ‘Brazilian built rough-terrain crane’, suggesting that Manitowoc might not have actually been the first one to do so. There were reports of the first crane being launched from Manitowoc’s factory in mid-June, well ahead of schedule. Details and further clarity should be available in the earnings call.

Foolish wrap-up
Manitowoc has been focusing on two important fronts-- increasing global presence and reducing debt burden. How much debt it repaid during the second quarter will also give us an idea if the company can attain its target of reducing total debt by around $200 million by the end of the year.

But ultimately, even if Manitowoc beats on the top line, I feel estimates on its bottom line growth might be a tad high. Yet, whatever be the case, Manitowoc doesn’t look like one that will fail you in the long run. Why—I’ll tell you when I wrap up its earnings in details next week. To make sure you do not miss it, click here to add Manitowoc to your personalized stock watchlist. 

• Email
• Print
• Feedback