{"id":107,"date":"2016-04-11T15:47:27","date_gmt":"2016-04-11T15:47:27","guid":{"rendered":"http:\/\/minutes.machine.market\/?p=107"},"modified":"2016-04-11T15:47:27","modified_gmt":"2016-04-11T15:47:27","slug":"challenge-reviving-manitowoc-cranes-the-new-ceo-has-a-plan-to-restructure-the-company-and-improve-margins-which-could-hoist-shares","status":"publish","type":"post","link":"https:\/\/machine.market\/blog\/challenge-reviving-manitowoc-cranes-the-new-ceo-has-a-plan-to-restructure-the-company-and-improve-margins-which-could-hoist-shares\/","title":{"rendered":"Challenge: Reviving Manitowoc Cranes: The new CEO has a plan to restructure the company and improve margins, which could hoist shares."},"content":{"rendered":"
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The heavy crane market, which relies on residential and commercial construction activity, has yet to eclipse its peak level reached in 2007, when construction around the world was booming.While a recovery was apparent for a number of years, the sharp drop in oil prices, along with weak economies around the world, has again dented demand.<\/p>\n
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Manitowoc has been hit by lower oil prices. In the past year, demand has dropped for its rough-terrain cranes and boom trucks from energy-related customers. Photo: Bill Gozansky\/Alamy<\/p><\/div>\n<\/div>\n

Manitowoc has been hit by lower oil prices. In the past year, demand has dropped for its rough-terrain cranes and boom trucks from energy-related customers.Photo: Bill Gozansky\/Alamy<\/span><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

Despite the difficult environment, newly independent Manitowoc <\/a>(ticker: MTW) is worth a look.<\/p>\n

The industrial crane maker was formed about a month ago, when its parent, Manitowoc, broke into two companies, spinning off its food-service equipment business as Manitowoc Foodservice<\/a>(MFS). The breakup, long anticipated, had first been championed by activist firm Relational Investors, and, more recently, by investor Carl Icahn, who owns about 8% of the new Manitowoc.<\/p>\n

In the wake of the March 4 spinoff, shares of the less cyclical food-service business have risen 7%, and Manitowoc has gained 6% to a recent $4.30. While the crane market is expected to log another weak year, Manitowoc\u2019s shares look undervalued. They could shoot higher over the next few years.<\/p>\n

The company\u2019s new CEO, Barry Pennypacker, a turnaround expert, plans to restructure the business and improve margins. His initiatives could lead to higher profitability, even if demand remains subdued. Improving markets would give the shares a lift.<\/p>\n

Manitowoc, based in Manitowoc, Wis., has a strong franchise and generates plenty of cash, even at trough earnings levels. While updated financials won\u2019t be released until later this month, the balance sheet appears manageable.<\/p>\n

Management has guided for debt levels of 2.1 times this year\u2019s depressed Ebitda\u2014earnings before interest, taxes, depreciation, and amortization\u2014which could come in around $120 million. On net debt, leverage might be lower, though Wall Street estimates vary.<\/p>\n

In a March 14 report, one of the few bulls on the stock, Jefferies analyst Stephen Volkmann, estimates net debt at $80 million, or 8% of total capitalization. That reflects a decent cash position.<\/p>\n

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On his estimates, the stock trades for an enterprise value of 30% of sales, well below the 40% that comparable businesses usually fetch in a trough. At a peak, the figure can go as high as 120% for deep cyclical businesses, implying substantial upside as the crane market rebounds. Volkmann values the shares at $5.50.<\/p>\n

THE OLD MANITOWOC <\/strong><\/strong>had operated a couple of businesses. It expanded its food-service equipment operation in 2008, with the purchase of U.K.\u2013based Enodis. The same year, it sold its shipbuilding division.<\/p>\n

Manitowoc is a global leader in cranes and makes about 50% of its sales internationally. It sells mobile telescopic, tower, and lattice-boom crawler cranes under the Manitowoc, Potain, and National Crane brands. With an installed base of 140,000 cranes, the company generates about 20% of its revenue from aftermarket parts and services, which is a less cyclical business.<\/p>\n

In 2013, the last up year, the business generated $2.5 billion in sales, well above this year\u2019s expected $1.8 billion. Most analysts carry a Hold on the shares. For 2016, they see earnings coming in at 10 cents a share before rebounding to 18 cents next year, on better margins and slightly higher sales.<\/p>\n

Manitowoc has been hit by lower oil prices. In the past year, demand has dropped for its rough-terrain cranes and boom trucks from energy-related customers. In the December quarter, sales fell 18%, from the year-earlier level. One bright spot: tower cranes, which have benefited from stronger trends in residential and commercial construction.<\/p>\n

In January, Manitowoc guided for flat revenue in 2016. Still, global crane utilization rates remain low, and most analysts call for a revenue decline.<\/p>\n

CEO Pennypacker, who joined in December, is known for fixing troubled industrial businesses. Notably, from 2008 to 2012, he was the chief executive of industrial-equipment maker Gardner Denver; its operating margins rose significantly during his tenure.<\/p>\n

At Manitowoc, he plans to apply lean manufacturing principles to meet the reduced demand environment, and to introduce new products. Over the next three years, Manitowoc targets taking out $50 million in costs. In January, Pennypacker said that he is aiming to generate \u201cdouble-digit margins in the future, regardless of top-line performance.\u201d\u00a0In 2013, the business reached 9% operating margins, so the goal represents a significant improvement. Barron\u2019s <\/em>couldn\u2019t reach management for comment.<\/p>\n

While debt levels appear manageable, Manitowoc has some high-cost obligations. In February, it borrowed $260 million at 12.75%. Volkmann estimates Manitowoc\u2019s total debt at $314 million and its cash at $234 million. Those levels will be revealed on the earnings release.<\/p>\n

Lately, merger-and-acquisition activity has heated up in the industry. Manitowoc\u2019s U.S.\u2013based competitor, Terex<\/a> (TEX), last year agreed to a merger with Finland\u2019s Konecranes Oyj. In January, Terex received a competing bid from China\u2019s Zoomlion Heavy Industry Science & Technology, for $30 a share. Last month, Zoomlion bumped up its offer by $1 a share.<\/p>\n

In a March report, William Blair analyst Lawrence De Maria notes that the $30-a-share offer values Terex at 12 times Ebitda. At the same multiple, on the company\u2019s implied guidance of $122 million in Ebitda, Manitowoc would fetch $8 a share.<\/p>\n

That\u2019s not to say that Manitowoc will be taken out soon. Still, it\u2019s probably worth much more than its stock price indicates.<\/p>\n

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By<\/span>DAVID ENGLANDER<\/a><\/span><\/p>\n<\/div>\n<\/div>\n<\/div>\n

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April 2, 2016<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The heavy crane market, which relies on residential and commercial construction activity, has yet to eclipse its peak level reached in 2007, when construction around the world was booming.While a recovery was apparent for a number of years, the sharp drop in oil prices, along with weak economies around the world, has again dented demand. 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