On Aug 26, we issued an updated research report on The Manitowoc Company, Inc. MTW. The company is expected to benefit from product innovation, solid aftermarket business, persistent focus on cost control and improving productivity. However, weak demand amid the COVID-19 pandemic, elevated dealer stocking levels and general production slowdowns are likely to hamper near-term results.
Impact of COVID-19
The crane market had so far been bearing the brunt of softening global market demand amid the protracted U.S-China trade war. It has now been impacted further by COVID-19 and the slowing global economy. The company has been witnessing a downward trend in revenues and adjusted EBITDA since second-quarter 2019. After reporting profit for seven straight quarters, the company slipped to loss in first-quarter 2020. It reported a loss again in the second quarter. Also, backlog as of second-quarter 2020 end was $431 million, down 17% year over year. Second-quarter orders slumped 36% year over year to $238 million, continuing a trend of relative weakness from fourth-quarter 2019.
Customers became more cautious as a result of uncertain market conditions and this will continue to impact its performance. Further, Manitowoc pointed out that historically the company has experienced slower purchasing decisions during a U.S. presidential election cycle.
Even though Manitowoc has restarted operations in all its facilities during second-quarter 2020, it will adjust work schedules to align with the weak demand owing to COVID-19. Additionally, government mandates in response to resurgence of COVID-19 cases could result in plant shutdowns or other actions that might impact productivity. This might weigh on the company’s results in the upcoming quarters
Cost Reduction to Sustain Margins
Owing to weak demand amid the coronavirus pandemic, Manitowoc remains focused on sustaining operating margins. It is taking necessary steps to align production with changing levels of demand. The company is also substantially cutting down discretionary spending, and eliminating salary increases across the enterprise, including executives and board members. Furloughs and temporary plant shutdowns are also being planned based upon order rates.
In order to proactively manage liquidity, Manitowoc has lowered capital spending this year by 50% and also suspended the share buyback program. The company has been committed to increasing productivity and eliminating waste. Thus, operational focus, healthy balance sheet and market leading products position it well to capitalize when end markets recover.
Innovation & Growing Aftermarket Business Key to Growth
Manitowoc’s innovation pipeline remains robust. Focus on innovation will continue to aid it in leading the industry by providing differentiated products that add value to customers. The company remains focused on cash preservation and balance sheet management while funding critical programs for future growth.
Manitowoc’s aftermarket business continues to perform well. As a percentage of total sales, aftermarket business was 18% during 2019 and 23% in first half of 2020. Growth is primarily stemming from higher-margin parts and services. The company remains focused on improving this crucial part of the business. Further, the company noted that there is scope of increasing its revenues from the Middle East. It continues to strengthen partnerships with its channel partners in the region to capitalize on the recovery in the markets.
Manitowoc’s shares have fallen 44.8% so far this year compared with the industry’s decline of 5.1%.
Zacks Rank & Key Picks
Manitowoc currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector include Silgan Holdings, Inc. SLGN, IIVI Incorporated IIVI and SiteOne Landscape Supply, Inc. SITE. While Silgan and IIVI sport a Zacks Rank #1 (Strong Buy), SiteOne carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
Silgan has a projected earnings growth rate of 28.7% for 2020. The company’s shares have gained 14.7% so far this year.
IIVI has an estimated earnings growth rate of 29% for the ongoing year. The company’s shares have rallied 37% year to date.
SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has appreciated 41% in the year so far.
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Silgan Holdings Inc. (SLGN): Free Stock Analysis Report
The Manitowoc Company, Inc. (MTW): Free Stock Analysis Report
IIVI Incorporated (IIVI): Free Stock Analysis Report
SiteOne Landscape Supply, Inc. (SITE): Free Stock Analysis Report
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