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Manitowoc Bets on Productivity, Pricing Actions Amid Cost Woes

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On Dec 13, we issued an updated research report on The Manitowoc Company Inc. MTW. The company is well poised to benefit from product innovation, solid after-market business, persistent focus on cost control, improving productivity and pricing actions. However, cost-related hurdles and prevailing uncertain market conditions remain near-term headwinds.

Q3 Earnings Up Despite Dip in Orders

Manitowoc reported third-quarter 2019 adjusted earnings per share of 54 cents, beating the Zacks Consensus Estimate of 33 cents by a wide margin. On a year-over-year basis, the bottom line improved an impressive 170%, driven by continued operational improvements and margin expansion.

However, orders in the third quarter were $353 million, declining 23% year over year as customers became more cautious as a result of uncertain market conditions. Trade disputes and other macro-economic factors continue to create uncertainty in global markets. Additionally, the U.S. and European construction markets are slowing and U.S. rate counts have declined. All these factors are negatively impacting customer sentiment and are anticipated to impact the company’s top-line performance in the coming quarters. Moreover, incremental input costs will continue to affect margins in 2019.

Pricing Actions & Cost Control to Sustain Margins

Manitowoc continues to execute strategy to cover cost inflation through pricing actions. The company also remains focused on cost controls, reducing headcount, increasing productivity and eliminating waste. Manitowoc is aligning production levels with current demand. The company is on track to reduce inventory by $80 million by year-end. All these will help sustain margins in the current backdrop.

Poised Well for the Long Run

As of third quarter-end, Manitowoc’s net debt to adjusted EBITDA ratio remains a healthy 1.6. This will enable the company to implement growth strategies while meeting ongoing operational needs. The company also has a strong pipeline of acquisitions.

Manitowoc’s aftermarket business continues to perform well. Higher-margin parts and services are primarily driving growth. The company remains focused on improving this crucial part of the business. Further, the company noted that there is scope of increasing revenues from the Middle East. It continues to strengthen partnerships with channel partners in the region to capitalize on the recovery in the markets. Manitowoc’s focus on innovation, in a bid to provide differentiated products that add value to customers, will aid it in maintaining its industry leading position.

Manitowoc’s long-term outlook remains strong. The company continues to be committed to achieving its target of double-digit operating margins improvement year over year. In fact, the company anticipates achieving long-term target of double-digit operating margins by 2020 through continued streamlining organizational structure.

Price Performance

Manitowoc’s shares have gained 15% compared with the industry’s growth of 14% so far this year.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company (NWPX - Free Report) , Tennant Company TNC and Sharps Compliance Corp SMED All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 46% year to date.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have gained 50% so far this year.

Sharps Compliance has an estimated earnings growth rate of 500% for the ongoing year. So far this year, the company’s shares have gained 24%.

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