The Manitowoc Company: The Odd Couple

| About: Manitowoc Company, (MTW)

An investment of $10,000 in Manitowoc (NYSE:MTW) 5 years ago has shrunk to around $5,000 today. Many investors who made such a move probably cut their losses long ago. For the few who didn't, and for new investors looking at MTW, an opportunity is presenting for redemption and profit. The cyclical winds appear to be turning and filling the sails of Manitowoc.

Founded in 1902, the Manitowoc Company began life as a shipbuilder. Manitowoc entered the crane business in the 1920s and built submarines and landing craft during World War 2. With fascism licked in 1945, the market for subs was soon underwater. Underwater, get it? Ahem. Anyway, MTW looked to diversify into manufacturing areas that weren't too capital intensive. They started building dry cleaning units and soon branched out into freezers. Cranes and freezers are an odd pairing, but when taken in context could be the very definition of diversification.

MTW finished fiscal 2012 with sales of $3.9 billion, an 8% increase over 2011. The company earned $.78 a share in 2012 while losing $.08 in 2011. In 2012, the crane division accounted for 62% of sales, 39% of operating profits and 6% of operating margin. The food service division's numbers were 38%, 61% and 16%, respectively. It takes a lot less money to build ice makers than cranes and that fact led Manitowoc to make a costly decision in 2008.

2008 saw MTW buy Enodis PLC, a British manufacturer of equipment for the food service industry. This put Manitiwoc on both sides of the food business. They could freeze the food and cook it too. MTW's strategy seemed sound. For one thing, manufacturing food service equipment provided better margins. Also, the obtainment of a company as large as Enodis would help Manitowoc rid itself of its cyclical albatross. When the battle was joined, however, Manitowoc's tactics left something to be desired. I say battle because MTW became embroiled in a bidding war for Enodis with Illinois Toolworks (NYSE:ITW). That was bad enough, but then MTW really fouled up - they won the battle. First of all, Manitowoc paid $2.7 billion for Enodis, a 30% premium over their original bid. Secondly, in order to satisfy the antitrust folks, MTW had to sell the ice making operations of Enodis. They planned on getting $200 million on the sale and using the proceeds to whittle down the debt they incurred to do the deal in the first place. They came away with $150 million. Thirdly, the timing of the deal was less than propitious. If you have the courage to recall, 2008 was an interesting year. Lehman Brothers leaps to mind. Credit markets tightened and liquidity evaporated. Not surprisingly, the global economy slowed. Manitowoc did keep busy in one respect and that was to answer the phone as the crane cancellations flooded in. MTW started shedding workers and there was some nasty talk in the press about the company missing the old mortgage payment. These newspaper people love doom and gloom, don't they?

The last 4 years have been interesting. In 2008, the company was staggering under a debt load weighing in at $2.4 billion. The following year Manitowoc renegotiated and refinanced its debt. As a result of this return to sanity, today's indebtedness is $1.7 billion; still hefty, but light enough to allow MTW to get its knees locked. The company earned $.61 a share in 2008 and promptly lost nearly $5 a share the following year. 2010 saw a $.50 a share loss. 2011 registered a $.21 per share gain and 2012 came in at $.77 a slice. Things are picking up.

Manitowoc's latest quarterly numbers were impressive. Sales were up 10% and earnings more that doubled. Crane sales though geographically spotty, increased 11.6%, driven by strong demand in the Americas. The food service segment not only chipped in a 6% bump in receipts, but also exhibited a territorial uniformity. People have to eat.

The great unknown in the Manitowoc equation for success is Europe. Europe accounts for 20% of foreign sales which in turn tote up to over half of MTW's annual receipts. Any improvement in the European economic picture could do nothing but help the Manitowoc Company. MTW needs the Continent, and in time Europe will solve its current economic problems, I know that. It's the when that eludes me.

Since last October, shares of MTW have had quite a run. Some might say the easy money has been made. I disagree. The recovery here and around the world is just getting started and Europe will participate. I think MTW is early in its business upturn and you could be looking at a $30 stock in a year's time. Please don't mistake that for a prediction; it's merely a suggestion. Do your research and let me know what you think.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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