MTW Manitowoc Company

Manitowoc Co. Inc. (MTW) has reported an adjusted EPS of 18 cents in the fiscal 2011 third quarter results, compared with 1 cent in the year-earlier quarter. EPS in the quarter beat the Zacks Consensus Estimate by a penny.

Total revenue during the quarter increased 16% year over year to $935.4 million, driven by sales improvement in both the business segments. Revenue in the quarter was ahead of the Zacks Consensus Estimate of $929 million.

Costs and Margins

Costs of goods sold increased to $711.9 million during the quarter from $606.9 million in the year-earlier quarter. Gross profit soared 12% to $223.5 million from $200.2 million in the year-ago quarter. However, gross margins declined 90 basis points year over year to 23.9%.

Engineering, selling and administrative expenses also increased to $143.2 million from $133.4 million in the year-earlier quarter. Adjusted operating income increased to $70.4 million from $57.3 million in the prior-year quarter, thereby expanding operating margins by 40 basis points year over year to 7.5%.

Segment performance

Net sales in Crane segment were up 21% year over year to $529.4 million. The improvement is mainly due to continued growth in the Americas region and strong demand in emerging markets.

Operating earnings of the segment upped 58% to $25.4 million from the year-earlier quarter. Operating margins improved 110 basis points year over year to 4.8% due to higher volume leverage, partially offset by commodity cost and pricing pressures.

Total revenue of Foodservice Segment was $406.0 million, up 10% on the year-over-year basis driven by new Foodservice products and strengthening demand.

Operating income of the segment was up 10% year over year to $67.6 million. Operating margin remained flat at 16.7% as improved operating efficiencies were offset by commodity cost pressures.

Backlog

The Crane segment’s backlog totaled $775 million as of September 30, 2011 compared with $839 million as of June 30, 2011. The segment also reported total orders of $464 million, a 35% increase year over year despite the third quarter being a seasonally soft quarter for orders.

Financial Position

As of September 30, 2011, cash and cash equivalents totaled $92.8 million, up from $86.4 million as of June 30, 2011. Cash from operations was $4.5 million in the end of the quarter, down substantially from $41.8 million at the end of the prior year quarter.

As of September 30, 2011, the debt-to-capitalization ratio further worsened to 81.6% from 80.9% as of June 30, 2010.

Outlook

Manitowoc updated its full-year guidance, which projects Crane revenue to grow in the range of 20% to 25% year over year and foodservice revenue in high single-digit percentage. The Crane segment’s margins are expected to be in the mid single-digit percentage range, while operating margins at the Foodservice segment are expected to be flat at mid-teens.

Capital expenditure is expected to be approximately $70 million; depreciation & amortization of approximately $125 million; interest expense of approximately $150 million; amortization of deferred financing fees of approximately $15 million. Debt reduction is targeted at $150 to $200 million.

Our Take

Manitowoc holds a strong market position in the Cranes business. After suffering repeated revenue declines ever since the third quarter of 2008, the segment finally did a turnaround in the fourth quarter last year. The momentum has been maintained since then. The segment is witnessing continued strength in several emerging markets, including Asia, Latin America, India, and the Middle East.

We see significant long-term growth potential in this market, driven by an increase in global energy consumption and the need for infrastructure upgrade in both the developed as well as developing nations. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.

Manitowoc is a multi-industry, capital goods manufacturer with over 100 manufacturing and service facilities in 26 countries. It is one of the world's largest providers of lifting equipment for the global construction industry.

It is also a leading manufacturer of commercial foodservice equipment serving the ice, beverage, refrigeration, food preparation and cooking needs of restaurants, convenience stores, hotels, health care and institutional applications. Manitowoc competes with Terex Corp. (TEX) and privately held Altec Industries Inc. and American Panel Corporation.

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