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We reiterate our Neutral recommendation on Manitowoc Company, Inc. (MTW - Analyst Report) following its mixed second-quarter 2012 results. The company’s adjusted earnings were 32 cents per share for the quarter, beating the Zacks Consensus Estimate of 25 cents. Total sales increased 5.9% year over year to $1.006 billion, but missed the Zacks Consensus Estimate of $1.045 billion.

Margins in the Foodservice segment are expected to improve significantly in fiscal 2013, as the company focuses on introducing new products in the second half of fiscal 2012. Moreover, soaring demand in the existing facilities and cost reduction initiatives will add to the margins moving ahead.

The Architecture Billing Index of American Institute of Architects became positive at 50.2 in August this year after remaining in the negative territory for four consecutive months since April. Any reading above 50 indicates an increase in demand for architect’s services.

In addition to the Billing index, the new projects inquiry index was 57.2 in August, up from 56.3 in July. Moreover, the new highway bill will also improve demand for construction equipment in the U.S. market. This, in turn, will favor Manitowoc’s construction equipment sales in the forthcoming quarters.

Backlog in the Cranes segment increased 13% year over year to $944 million as of June 30, 2012. Orders improved 7% year over year in the second quarter.

Expansion in the Americas region along with the emerging markets helped orders to ramp up in the second quarter. The demand for Cranes will further increase in the remainder of 2012, driven by ramp up in the energy and infrastructure projects.

However, Manitowoc’s high debt level remains a major concern. The debt-to-capitalization ratio remained high at 80.5% as of June 30, 2012, compared with 80.4% as of March 31, 2012.

Cash and cash equivalents went down to $59.4 million as of June 30, 2012, compared with $71.3 million as of December 31, 2011. Therefore, it will be a difficult task for the company to reach its debt reduction target of $150 million to $200 million for fiscal 2012.

In addition, Manitowoc faces growing competition from a number of crane manufacturers in the Chinese market including Zoomlion, Sany and Fushun Excavator. Therefore, the company must increase its share in the Chinese market to maintain its market leading position in the emerging markets of China. The company also faces stiff competition from leading crane companies like Terex Corp. (TEX - Analyst Report) among others.

Based in Manitowoc, Wisconsin, Manitowoc is a capital goods manufacturer with over 115 manufacturing, distribution, and service facilities in 25 countries. The company provides crawler cranes, tower cranes, and mobile cranes for the heavy construction industry, which are complemented by a slate of industry-leading product support services. The company also manufactures commercial foodservice equipment, which includes 25 market-leading brands of hot- and cold-focused equipment.

Our long-term recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).
 

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