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Manitowoc Co. Inc. (MTW - Analyst Report)) has delivered an adjusted loss per share of 10 cents in its first quarter ended March 31, 2010, way short of the Zacks Consensus Estimate of a profit per share of 4 cents. The company also reported a prior-year adjusted loss per share of 10 cents.

The EPS reported in the quarter excluded special items viz. loss on early extinguishment of debt of 2 cents, loss from discontinued operations of 2 cents and loss on sale of discontinued operations of 26 cents. The year-ago EPS excluded the loss on early extinguishment of debt of 8 cents. Netting these items, the company reported a loss per share of 40 cents in the quarter compared with a loss of 18 cents in the year-ago quarter.

Revenues increased 7% year over year to notch $732.2 million, missing the Zacks Consensus Estimate of $788 million. Revenue growth was noted across both the segments.

Cost and Margin Performance 

Cost of sales increased 7% to $551.8 million in the quarter, but based on revenues, improved 30 basis points to 75.4%. Accordingly, gross profit upped 8% year over year to $180.4 million and gross margin expanded 30 basis points to 24.6%.

Engineering, selling and administrative expenses increased 13% to $140 million in the quarter and, based on revenues, increased 90 basis points year over year. Manitowoc’s adjusted operating income decreased 6% to $30.4 million with operating margin contracting 50 basis points to 4.2%. Including special items, operating income was $29.6 million, a 8% year-over-year drop and operating margin plunged 70 basis points to 4%.

Segment Performance

The Foodservice segment recorded a revenue growth of 7% to reach $339 million driven by the introduction of new products and continued geographic penetration. The segment’s operating income decreased 12% year over year to $41 million.

Operating margin of 12.1% reflected a 260-basis point contraction hurt by difficult comparables resulting from a major product rollout in the first quarter of 2010, coupled with investments in various emerging markets to support customer growth initiatives.

The Crane segment upped 7% to reach $393 million driven primarily by growth in Americas region and Crane Care business. First-quarter Crane revenues were however impacted by delivery disruptions, primarily due to Tier IV engine challenges, which have now been resolved.

The segment operating income rose an impressive 178% to $12.5 million and operating margin expanded 200 basis points to 3.2%. As of March 31, 2011, the segment backlog increased 40% to $800 million compared to 2010 end due to continued strength in demand.

Financial Position

As of March 31, 2010, Manitowoc had cash and cash equivalents of $75.1 million, down from $86.4 million as of December 31, 2010. During the quarter, the company generated cash flow from operating activities of $136.9 million, up from $67.4 million in the prior year quarter.

As of March 31, 2011, the debt-to-capitalization ratio further worsened to 81.1% from 80.6% as of December 31, 2010. Management remains focused on improving its balance sheet and committed to its debt reduction goal of $200 million in fiscal 2011.

Fiscal 2011 Outlook

For fiscal 2011, Manitowoc expects the Foodservice segment to post revenue growth in the high single digits and margins in the mid teens. The company expects revenues at Crane to grow in the low double digits accompanied by improving margins.

The company plans capital expenditure of $70 million and depreciation and amortization of $125 million for fiscal 2011. Interest expenses are expected to aggregate approximately $150 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 current 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 - Analyst Report)) and privately held Altec Industries Inc. and American Panel Corporation.

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