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Can Manitowoc (MTW) Grow Despite Weak Crane Demand?

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On May 20, 2016, we issued an updated research report on The Manitowoc Company, Inc. (MTW - Free Report) , a leading global manufacturer of cranes and lift solutions.

Manitowoc reported first-quarter 2016 adjusted loss of 4 cents per share, which was significantly narrower than the prior-year quarter loss of 21 cents. Backlog was $502 million as of Mar 31, 2016, down 2% from $513 million as of the end of fourth-quarter 2015. In the first quarter, new orders were $417 million, down from $424 million in the previous quarter and $439 million in the prior-year quarter, marking the sixth consecutive quarter of decline. Management noted that even though order intake for new products was strong at Bauma, customer spending was mostly restricted, especially in North America in the wake of the global macroeconomic uncertainty.

The company is witnessing particularly soft demand for mobile cranes primarily due to underperformance in the U.S. and the Middle East as a result of weak oil and gas pricing, and unfavorable currency movements. Headwinds from the oil & gas markets, which account for approximately 20% of crane sales, will persist in 2016 as well. Also, Manitowoc expects revenues to remain flat and operating margin to be approximately 4% this year.

The current global economic environment is hurting Manitowoc’s customer demand for cranes like never before. Uncertainty among customers is mounting due to emerging market peers, apprehensions related to China’s growth outlook, persistently depressed oil prices and sluggish domestic growth.

However, innovation will remain critical for Manitowoc’s long-term success. The company recently introduced the new GMK5250L, which lower the use of the traditional braking system by operators significantly by allowing the retarder to brake under many circumstances. This improves maneuverability and handling of the crane, while reducing the amount of routine maintenance that is required to operate the vehicle. This was one of the many hits with regards to innovation that was featured at Bauma.

Manitowoc has successfully completed the spin-off of its Foodservice segment into a stand-alone company, Manitowoc Foodservice, Inc. . The company made great strides in the quarter related to its transition to a stand-alone crane business. It has established a new culture based on The Manitowoc Way, focused on driving Innovation and Velocity across its business processes.

Going forward, the company will focus on four key elements that will help the company deliver double-digit margin growth over the long term. Firstly, it plans to utilize its LEAN strategies (including procurement, factory consolidation, and manufacturing technology) to increase the flexibility of its global manufacturing footprint. Secondly, it will revive development process (including rationalization and standardization), and introduce new products and services that deliver enhanced productivity to generate greater return on investment for customers. Thirdly, it aims to focus on gaining market share as a result of improved competitive position. Lastly, the company will utilize its strengthened balance sheet to allocate capital for most accretive options such as de-leveraging, organic investments, stock buybacks and external growth.

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

Stocks to Consider

A couple of better-ranked stocks in the same sector include Simpson Manufacturing Co., Inc. (SSD - Free Report) and TopBuild Corp. (BLD - Free Report) . Both these stocks sport a Zacks Rank #1 (Strong Buy).

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