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Manitowoc Up 18% YTD After 63% Drop in 2018: What's Next?

Zacks Equity Research

The year 2019 has been so far so good for The Manitowoc Company Inc. MTW with the stock gaining on the back of upbeat results and strong order activity. The stock had suffered a setback in 2018 primarily owing to the incremental input costs as a result of the imposition of tariffs on steel imports.

Shares of the company have tanked 62.5% in 2018, compared with the industry’s decline of 21.5%. However, the stock staged a comeback this year, having rallied 18.1% year to date, outperforming the industry’s growth of 5.3%.



What Dragged the Stock Down in 2018?

The announcement of tariffs on steel imports into the United States last year was a big blow to the manufacturing sector. Given that steel is one of the primary raw materials, every manufacturing     company bore the brunt of rising steel prices owing to the tariffs, and Manitowoc was no exception.   Further, supply-chain challenges remained a headwind.
 
Manitowoc also witnessed an order slowdown in the back half of 2018 in Europe after a healthy demand environment in prior years. Construction data in France and Germany has shown signs of deceleration. Notably, the company generates around 57% of its total sales outside the United States, with various European countries generating the largest percentage (36%). Fluctuating foreign exchange rates are putting pressure on Manitowoc’s margins, particularly on European-produced cranes that it sells in the United States. The Middle East market also remained challenging owing to geopolitical uncertainties and intense competition.

Factors Favoring the Stock in 2019

The stock has recovered so far this year driven by investors’ optimism in the company’s ability to counter the input cost inflation through pricing actions, recent trends in crane order and product innovation and pricing actions. The company’s restructuring actions have also aided the stock.

The company delivered improved results in 2018, raising hopes for 2019 as well. Manitowoc reported adjusted earnings per share of 64 cents in 2018, reversing its prior year loss per share of 27 cents. Revenues rose 17% year over year in 2018 to $1.85 billion aided by higher crane shipments across all regions.

The general crane market is displaying signs of improvement as evident from the recent improvement in order activity. Full-year 2018 orders totaled $1,910.7 million, a year-over-year increase of 3%. The increase in orders can be attributed to new products and favorable market conditions. In Americas, demand is being led by the commercial construction and energy end markets. The North American oil and gas environment continues to improve and investment in upstream well completions will continue to  drive crane utilization and replacement demand.

Manitowoc’s backlog totaled $670.6 million as on Dec 31, 2018, an increase of 11% year over year. Currently, over 75% of the year-end backlog is scheduled to ship in the first half of 2019. This provides improved revenue visibility for the year.

Manitowoc continues to execute its strategy to cover cost inflation through pricing actions. The company also remains focused on cost controls, reducing headcount, increasing productivity and eliminating waste. It is also taking steps to support supply-chain partners to ensure timely delivery of components, combined with alternative sourcing strategies.
 
The company’s focus on innovation will continue to aid it in leading the industry by providing differentiated products that add value to its customers. The company introduced the tower crane at Bauma, China, called the MCT 565 for the Asian market. Following the positive reception, the company is now developing an entire range of tower cranes in China for the Asian market, which will enable it to grow organically in the region. Manitowoc is also set to introduce six new cranes at the upcoming Bauma Trade Show in Munich, Germany in April.

Zacks Rank and Stocks to Consider

Manitowoc currently carries a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the Industrial Products sector can consider better-ranked players like Mueller Industries, Inc. MLI, Albany International Corp. AIN and Avery Dennison Corporation AVY. While Mueller Industries and Albany International sport a Zacks Rank #1 (Strong Buy), Avery Dennison carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mueller Industries has expected earnings growth rate of 2.2% for 2019. The company’s shares have rallied 38% year to date.
 
Avery Dennison has projected earnings growth rate of 8.4% for the current year. The stock has appreciated 24% year to date.
 
Albany International has estimated earnings growth rate of 44.7% for the ongoing year. The company’s shares have gained 18% year to date.

Zacks' Top 10 Stocks for 2019

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The Manitowoc Company, Inc. (MTW) : Free Stock Analysis Report
 
Mueller Industries, Inc. (MLI) : Free Stock Analysis Report
 
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Albany International Corporation (AIN) : Free Stock Analysis Report
 
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