Manitowoc ready for heavy lifting

5/26/2008


Don’t be distracted by the merger news that has driven Manitowoc ($40; NYSE: MTW) shares up and down in recent weeks. The maker of cranes, foodservice equipment, and marine vessels is a fine investment with or without the deal.

Manitowoc shares fell in April on the news that it offered $1.89 billion for U.K.-based Enodis, a maker of fryers used in fast-food restaurants. If Manitowoc purchases Enodis, the foodservice business will represent 36% of revenue, up from 11% today, diluting the company’s exposure to worldwide construction spending.

The shares rose in early May when Illinois Tool Works ($54; NYSE: ITW) came in with a higher bid for Enodis, then dipped again after Manitowoc upped the ante to $2.1 billion. Enodis accepted Manitowoc’s revised proposal. At press time, Manitowoc shares were higher than the price at the time of the first purchase offer. Regardless of whether the merger goes through, Manitowoc represents one of our top picks, earning Focus List Buy and Long-Term Buy ratings.

Food and water
The foodservice (11% of 2007 sales, 11% of segment operating profits) unit’s fortunes largely reflect those of the restaurant industry, which is projected to grow sales 4% this year. Manitowoc currently focuses on cooling equipment, such as freezers and ice makers, and the addition of a deep-fryer business should help the company increase its sales to large restaurant chains.

Over the last five years, the marine division (8% of revenue, 5% of profits) saw sales grow at a solid 9% clip. The new Littoral shallow-water combat ship should sell well, and the company sees opportunities for future growth as U.S. fleets age and the country boosts spending on coastal security. In addition, all boats hauling oil in U.S. waters will need to have a double hull by 2015. Shippers’ efforts to comply with that regulation should provide steady business for the marine division over the next several years.

Cranes carry the load
While other divisions deliver decent growth and diversify the revenue base, cranes (81% of sales, 84% of profits) provide Manitowoc’s muscle. Crane sales have grown at a compound annual rate of 37% over the last five years. Management expects the crane business to remain robust through 2010.

Within the crane unit, 23% of revenue comes from commercial construction, 21% industrial and petrochemical customers, 17% power plants, 16% roads and highways, and the rest from residential construction, utilities, and manufacturing. Only 1% of revenue comes from the troubled U.S. residential-construction market.

The company estimates global construction spending will grow about 9% a year to reach $13 trillion in 2016 — and has positioned itself to capture an increasing share of those dollars. With about 50% of total revenue coming from outside the U.S., Manitowoc has opened or expanded factories in Eastern Europe and Asia to get closer to end markets.

Conclusion
Despite its strong growth potential (consensus estimates project profit growth of 27% this year and 14% next year), Manitowoc trades at just 10 times the 2008 consensus profit estimate. An annual report for The Manitowoc Co. is available from 2400 S. 44th St., Manitowoc, WI, 54221; (920) 684-4410; www.manitowoc.com.


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