On Feb 22, we issued an updated research report on Milacron Holdings Corp. . The company will benefit from solid order growth, continued momentum in emerging markets (India, China), introduction of new products as well as cost reduction initiatives. However, input cost inflation and high-debt levels remain headwinds.

 

 

Milacron’s fourth-quarter fiscal 2017 revenues and adjusted earnings per share beat the Zacks Consensus Estimates aided by orders and sales momentum.  Orders grew 9% year over year in 2017 and year-end, backlog was a strong $287 million. This was driven by strong order levels in aftermarket business in North America, China, and particularly in the hot runner business and India-based equipment business. All these areas form the company’s strategic growth businesses. This strong backlog positions the company well for the first quarter of 2018. Majority of the backlog is going to ship in the first quarter.

 

Backed by the recent positive momentum in the global economy, Milacron projects sales growth guidance of 2-4% in 2018. Adjusted EBITDA is forecasted to come in between $237 million and $243 million. The mid-point of the guidance range depicts 6% year-over-year growth. Free cash flow (before restructuring) is anticipated to lie between $80 million and $90 million.

 

 

Demand for a diverse range of finished plastic products is on the rise in many markets, including automotive, construction and consumer products. This is being escalated by global population growth, along with sustained urbanization, increased purchasing power and improved lifestyle in emerging markets. Given its strong global presence, Milacron is well positioned to capture a portion of this growth. The company has made significant investments in China and India, considering the projected growth rates of the plastic business in these markets.

 

Milacron’s strategy is focused on growing revenues and operating profits through selective initiatives that leverage its market position, geographic footprint and core competencies. Management expects profitability to be supported by both revenue growth and margin expansion in the near term. Revenue growth will come from underlying market growth in key segments, geographic expansion of certain product lines, consistent penetration of hot runners, and incremental share gain from new products. New products are focused on solidifying the current market position, expanding addressable market through the introduction of technology that displaces other materials, primarily metal and glass.

 

 

Since the past three years, Milacron has undertaken a number of organizational redesign and cost-reduction initiatives. The main actions include realigning the overall cost structure, consolidating sales offices and call centers, along with optimizing the manufacturing footprint. These actions are expected to yield approximately $35 million of annual run-rate cost savings by the end of 2018.

 

 

In the last six months, the company has outperformed the industry it belongs to. Its shares rose 40%, ahead of the industry’s growth of 25%.

 

 

However, input cost inflation, particularly steel, will continue to be a headwind and impact margins in 2018. Further, Milacron has a substantial debt-to-capital ratio of 64% at the end of 2017. Though the company remains committed to lower debt burden, till then higher interest expenses will hurt  margins.

 

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

 

 

Some better-ranked stocks in the same sector include Komatsu Ltd. (KMTUY Quick QuoteKMTUY - Free Report) , H&E Equipment Services, Inc. (HEES Quick QuoteHEES - Free Report) and Caterpillar Inc. (CAT Quick QuoteCAT - Free Report) . While Komatsu sports a Zacks Rank #1 (Strong Buy), H&E Equipment Services and Caterpillar carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Komatsu has a long-term earnings growth rate of 27%. The stock has appreciated 44% in the past six months

 

H&E Equipment Services has a long-term earnings growth rate of 18.6%. Its shares have soared 87% in the past six months.

 

Caterpillar has a long-term earnings growth rate of 10.3%. Over the last six months, the company’s shares have rallied 38%.

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