Manitowoc Co. Inc. (MTW) reported an adjusted loss per share of 10 cents in its first quarter ended March 31, 2011, flat year over year while revenues increased 7% year over year to notch $732.2 million. Given the recent recovery witnessed in the Crane segment alongside sustained growth in the Foodservice segment, we have upgraded our recommendation from Underperform to Neutral. Manitowoc retains a Zacks #3 Rank (short-term Hold recommendation).
Manitowoc’s Crane segment had been suffering revenue declines since the third quarter of 2008. However, the segment has shown a turnaround in the last couple of quarters reflecting an improving demand environment. The segment’s backlog as of March 31, 2011 was $800 million, a 40% increase compared with December 31, 2010.
The book-to-bill ratio for the first quarter of fiscal 2011 was 1.6, the highest since the third quarter of 2007. These depict the success of the actions taken by the company during the past couple of years to strengthen the segment and position it for growth and enhanced long-term profitability.
The order levels of the first quarter of 2011 are ample testimony of the recovery in the crane market. We foresee significant growth potential in this market over the long term, driven by an increase in global energy consumption and the need for infrastructure upgrade in both the developed as well as developing nations.
The Foodservice segment has been benefitting from introduction of new products by casual and quick-serve restaurants and their expanding retail locations in the emerging markets. Further, growing replacement cycle for equipment, driven by energy efficiency and innovation, is also spurring demand. Demand is strong in most regions, including Asia, North America and select countries in Europe.
With quick service chains like Yum! Brands Inc. (YUM) planning to open 475 new stores in China in 2011, McDonald’s Corp. (MCD) expecting to open 2,000 restaurants in China by 2013 and its Indian franchisee investing over $111 million to double its restaurant footprint in that country over the next 3 to 4 years, the future of the Foodservice segment looks promising.
Manitowoc has improved the strength and flexibility of its capital structure and reduced the interest rate paid on outstanding debt by refinancing its secured credit facilities. The company’s revolving credit facility has increased by $100 million to $500 million and, including updated term loans, the facilities total $1.25 billion. The new credit facility will lead to cash interest savings of $10 million in 2011.
However, Manitowoc’s high debt level still remains a cause of concern. As of March 31, 2011, Manitowoc’s debt-to-capitalization ratio remained high at 81.1%, deteriorating from 80.6% as of December 31, 2010. As of March 31, 2010, Manitowoc had cash and cash equivalents of $75.1 million, down from $86.4 million as of December 31, 2010. Given the statistics, it will be a tall task for the company to fulfill its $200 million debt reduction goal in fiscal 2011.
The company has in recent times experienced significant increases in steel, aluminum, foam, and copper prices. While price increases have been put into place to help offset higher material costs, most of Manitowoc’s existing backlog carries lower prices and, with the pricing environment remaining competitive, margins might suffer in 2011.
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, healthcare and institutional applications. Manitowoc competes with Terex Corp. (TEX) and privately held Altec Industries Inc. and American Panel Corporation.
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