On Sep 16, we issued an updated research report on The Manitowoc Company, Inc. MTW. The company is expected to benefit from its innovative product pipeline and expected savings from its incessant focus on cost control and improving productivity. However, the ongoing sluggishness in crane demand remains a headwind.
Weak Crane Markets
The crane market had so far been grappling with softening global market demand amid the protracted U.S-China trade war. It has been further aggravated by COVID-19 this year and the consequent slowdown in global economy. Consequently, the company slipped to loss in first-quarter 2020 after reporting profit for seven straight quarters. It reported a loss again in the second quarter with backlog as of the end of second-quarter 2020 end down 17% year over year. Second-quarter orders also slumped 36% year over year, continuing a trend of relative weakness from fourth-quarter 2019.
This shows that customers became more cautious as a result of uncertain market conditions and this will continue to impact its performance. Further, the company experiences slower purchasing decisions during a U.S. presidential election cycle historically.
Cost Control & Low Debt Sustaining Performance
Owing to weak demand amid the coronavirus pandemic, Manitowoc and other players in the industry including Caterpillar Inc. CAT, Terex Corporation TEX and Astec Industries Inc. ASTE have resorted to cost saving measures to sustain margins. The company has been taking necessary steps to align production with changing levels of demand. It is also cutting down discretionary spending significantly, and eliminating salary increases across the enterprise, including executives and board members. Furloughs and temporary plant shutdowns are also being planned based upon order rates. The company has been committed to increasing productivity and eliminating waste.
In order to proactively manage liquidity, Manitowoc has lowered capital spending this year by 50% and also suspended the share buyback program. Manitowoc’s total debt-to-total capital ratio was at 0.39 as of Jun 30, 2020, much lower than the industry’s 0.74. Moreover, Manitowoc’s total debt-to-total capital ratio has gone down considerably over the years from 0.62 as of 2015 end to the current 0.39. Thus, operational focus, healthy balance sheet and market leading products position it well for growth when end markets recover.
Innovation Provides a Competitive Edge
Manitowoc’s innovation pipeline remains robust. Focus on innovation will continue to aid it in leading the industry by providing differentiated products that add value to customers. The company remains focused on cash preservation and balance sheet management while funding critical programs for future growth.
Manitowoc’s aftermarket business continues to perform well. As a percentage of total sales, aftermarket business was 18% during 2019 and 23% in the first half of 2020. Growth is primarily stemming from higher-margin parts and services. It remains focused on improving this crucial part of the business. Further, the company noted that there is scope of increasing its revenues from the Middle East. It continues to strengthen partnerships with its channel partners in the region to capitalize on the recovery in the markets.
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