Why This Stock Could Continue its Downfall Next Week
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After Caterpillar’s (NYSE: CAT) slashed full-year outlook and Terex’s (NYSE: TEX) beaten down numbers, expectations from Manitowoc ) shouldn’t logically be flying too high. The construction and foodservice equipment maker is set to ring the earnings bell next week Monday. Will it deliver?
The Street expects Manitowoc’s revenue to be 12% higher from the year-ago period, and earnings per share to shoot up a staggering 61%. That seems pretty high for a company that derives 40% of revenue from a business which isn’t at its best right now, and nearly a quarter of sales from a market that’s at its worst.
The Pain Called Europe
Europe is one of Manitowoc’s biggest markets, which is definitely a big concern in present conditions. If the company’s sales suffer, it will be because of this struggling region. So what’s the high top line growth estimates riding on? It’s the U.S. market, from where Manitowoc derives a major chunk of revenue, and which, in present context, is welcome news.
Terex’s third-quarter sales were flattish on a year-over-year basis, but North America played a key role in preventing its top line from crossing over to the negative territory. While sales in other divisions faltered, Terex’s largest division, aerial work platforms, reported a solid 17% jump in revenue as demand from the U.S. markets gathered steam. North America contributed 35% to its total sales during the quarter.
Things were pretty similar at construction-equipment leader Caterpillar. Sales in its largest division, construction industries, did not budge from last year’s levels. Yet, region-wise, sales from North America for the division were up an impressive 23% from the year-ago quarter. This helped offset weaker sales from other global markets. Regions like Latin America and Asia Pacific led the downfall with a double-digit slump in sales each. Overall, North America also proved to be the best market for Caterpillar during the quarter with sales from it growing 9% year-over-year backed by robust demand for construction equipment.
Given that Manitowoc derives nearly 60% of total sales from the U.S., it is likely to have witnessed good demand for its cranes in this past quarter which should reflect positively in its top line growth. But the company’s other division could dampen the excitement.
When Food Doesn’t Taste too Good
I am not expecting much from Manitowoc’s food service equipment business – Europe is the culprit again. The company’s sales from the division remained stagnant in its second quarter despite decent demand from the Asia Pacific region as sales from Europe slid in the high-single digits. With crisis in Europe worsening over the past three months, there’s not much to cheer for Manitowoc. Food chains which buy equipment from Manitowoc didn’t turn up with great numbers either. Case in point: McDonald’s ), which has had a long-standing relationship with Manitowoc and never shied from giving rave reviews for its innovative equipment, plunged on disastrous third-quarter numbers. Its same-store sales climbed an insignificant 2% from the year-ago period – the slowest clip since 2003.
Manitowoc’s business growth depends largely on these fast-food giants, and if they slow down, the equipment maker can’t hope for much. McDonald’s even scaled back spending on cold items like iced beverages this year, at a time when Manitowoc is pinning all hopes on its Indigo ice machines launched last year. These machines and beverage products sold the most in Manitowoc’s second quarter.
If Manitowoc’s full-year forecast of mid-single digit revenue growth for the division needs to hold good, the third quarter should see a mid-to-high single digit rise in revenue (considering that sales from the division grew 4% in the first quarter and remained flat during the second). But given the weak market conditions and the way currency headwinds have surfaced in almost every recent earnings report, it looks difficult to me (though I earnestly hope Manitowoc proves me wrong).
Even if sales might not be consistent, you’ll find one thing in almost every Manitowoc earnings call -- awards bestowed on the foodservice equipment business during the period being discussed. If it won three awards from McDonald’s during the second quarter, the forthcoming earnings call will be replete with details of awards five Manitowoc’s brands won recently in the 2012 Best in Class Survey given by Foodservice Equipment & Supplies magazine (FE&S). Products from two of the brands, FryMaster and Manitowoc Ice, have also earlier been recognised by McDonald’s.
If markets for Manitowoc’s cranes are getting active, its other business isn’t sitting pretty. Uncertainties resounded by weak earnings reports have already pulled its stock down by nearly 10% in the past one week. An earnings miss would just add fuel to the fire. Stay tuned as I tell you how the company balanced its two polar-opposite businesses as I wrap its earnings next week. To make sure you do not miss it, click here to add Manitowoc to your stock watchlist.
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Neha Chamaria has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.