Manitowoc Co. Inc. (MTW) has reported an EPS of 2 cents in the fiscal 2011 second quarter results, compared with 11 cents in the year-earlier quarter. The quarter noted some special items including 12 cents pertaining to early extinguishment of debt and restructuring expenses of 1 cent.
Excluding these special items adjusted EPS amounted to 16 cents, up from 11 cents in the year-ago quarter.
Total revenue during the quarter increased 15.9% year over year to $949.8 million. The improvement is attributable to a substantial increase in sales across all business segments.
Costs and Margins
Costs of goods sold increased to $725.2 million during the quarter from $613.1 million in the year-earlier quarter. Gross profit soared to $224.6 million from $206.2 million in the year-ago quarter. However, gross margins declined 160 basis points year over year to 23.6%.
Engineering, selling and administrative expenses also increased to $145.4 million from $124.5 million in the year-earlier quarter. Operating income declined slightly to $67.5 million from $70.7 million in the prior-year quarter, thereby contracting operating margins 150 basis points year over year to 7.1%.
Segmental performance
Net sales in Crane segment were up 22.9% year over year to $554.8 million. The improvement is mainly due to continued growth in the Americas region and strong demand in emerging markets.
Operating earnings of the segment declined to $29.5 million from $38.5 million in the year-earlier quarter. Consequently, operating margins also declined 320 basis points year over year to 5.3%. The decline was mainly due to commodity cost pressure, as well as an unusually high margin in 2010 that resulted from the collection of fully reserved accounts receivable totaling over $6 million.
The segment’s backlog totaled $839 million as of June 30, 2011, increasing at a whopping 58.0% on the year-over-year basis. The segment also reported total orders of $588.0 million, leading to a book-to-bill ratio of 1.1.
Total revenue of Foodservice Segment was $395.0 million, up 7.4% on the year-over-year basis. The increase in sales was driven by the development and introduction of new Foodservice products and strengthening demand in certain end-markets and regions.
Operating income of the segment was up 12.9% year over year to $62.2 million, thereby increasing operating margins by 70 basis points year over year to 15.7%. The improvement in margins was largely attributable to a favorable product mix, new product rollouts, and improved operating efficiencies, but was somewhat offset by customer mix and commodity cost pressure.
Financial Position
As of June 30, 2011, cash and cash equivalents totaled $83.8 million, declining slightly from $86.4 million as of December 31, 2011.
As of June 30, 2011, the debt-to-capitalization ratio improved to 80.1% after declining to 81.1% as of March 31, 2011 and 80.6% as of December 31, 2010.
Cash from operations was an outflow of $34.3 million at the end of the quarter compared with an inflow of $79.9 million at the end of prior year quarter.
Outlook
Manitowoc reaffirmed its full year guidance which projects Crane revenue to grow at low double-digit year-over-year; foodservice revenue in high single-digit; capital expenditure of approximately $70 million; depreciation & amortization of approximately $125 million; interest expense of approximately $150 million; amortization of deferred financing fees of approximately $15 million and a debt reduction of $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 and has maintained the momentum in the reported quarter.
Though 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, it remains to be seen whether the segment can sustain its growth revival over the short term. Furthermore, Manitowoc’s high debt level remains a point of concern. We currently have a Zacks #3 Rank (short-term Hold 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.
