Manitowoc Co.: Making Cranes Profitable

The Manitowoc Co. (MTW) makes ice-making, beverage-dispensing, and refrigerating products, as well as cranes and other material-handling equipment. Its ice-making and beverage-dispensing machines serve the restaurant, hospitality, and convenience store markets. Manitowoc sells its boom cranes, tower cranes, telescopic cranes, and related equipment to companies in the construction and mining industries. The company, which began at the turn of the 20th century as a shipbuilder, also has a marine segment with shipyards that build, service, and repair commercial and military vessels.

It's really the crane business that is the focus at the moment for MTW. There's a global building boom going on, requiring lots of cranes. The world construction markets are steaming along. With the many different products MTW offers, and its strong geographic distribution and manufacturing capability, the future in this sector looks very bright. It's the main reason management is so positive in its operating guidance for 2007.

Earnings for 2006 should finish at $2.75 a share, up from $1.07 in 2005. Next year look for $3.95. With eps growth like that, you'd expect the stock to have done well over the last 2 years. You'd be right. In 2005, it was as low as $17.20 (split adjusted for a 2 for 1 split in 2006). After it hit that level, it went almost straight up to where it is now trading at $58 a share. Average annual earnings growth is projected to be 28.5% over the next 5 years, according to analysts.

Other divisions, Foodservice and Marine in particular, are also contributing to the bottom line. While the crane business is subject to cyclicality, foodservice is steady avoids those ups and downs and growing nicely. Revenues and profits are much more dependable. MTW is at the cutting edge of this sector due to its heavy investment in Research and Development. With the strong cash flow and solid balance sheet, the company is looking to acquire companies in the foodservice area, with a preference for those in China. It's also scrutinizing possible purchases for the Crane division.

The Marine group is enjoying good results due to better contract selections and facility optimizations. It goes after repeat government contracts as well as shipbuilding and repair business. While this is not a growth area, its contribution to profitability going forward should be notable.

Other numbers

Return on Equity is growing. In 2005, it was 9%. Last year it registered 18%. This year look for 22%. Revenues have been increasing from $2.254 billion in 2005 to $2.915 billion in 2006 and expected to be $3.4 billion in 2007. There's a small dividend that only takes 5% of earnings. The yield is less than 1/2 of 1% so you can't retire on it. Net profit margin continues to improve: in 2005: 2.9%; 2006: 4.8%; projected to be 7.3% in 2007.

While MTW stock has been on a strong upward swing, so have its earnings. The p/e (price to earnings) ratio is still a relative bargain when you use the forward p/e of 14.6. That's near the low end of its average annual p/e over the last 6 years (ranging from 14.1 to 41.8). If you believe in the strength of the global economy, particularly in China, MTW is one company that will definitely participate in it. Spend some time digging into this stock, and you may like what you find.

MTW 1-yr chart

Disclosure: Author has no position in MTW.