What happened
Shares in crane manufacturer The Manitowoc Company (MTW -1.17%) slumped 25.2% in December, according to data provided by S&P Global Market Intelligence. It capped off a disappointing year for the company -- the stock declined around 60% in 2018 on the whole.
It all looked so different a year ago when the company was riding a wave of optimism for a boom in infrastructure spending stimulated by the Tax Cuts and Jobs Act. There was a real sense that the crane market would finally turn up again after what Manitowoc CEO Barry Pennypacker describes as a "deep trough" it's been in for "quite some time." Throw in a recovery in oil and gas spending, buoyed by $70 oil prices, and Manitowoc looked well positioned.
Image source: Getty Images.
Unfortunately, infrastructure spending didn't receive the boost that many expected, and construction equipment manufacturers, including Manitowoc, also faced pressure from rising raw material costs and supply chain challenges in the first half of the year.
It's not that Manitowoc had a particularly bad year relative to management's expectations, but rather that the market had priced in so much more. For example, management started the year predicting full-year non-GAAP adjusted EBITDA in the range of $96 million to $116 million, and come the third quarter, guidance was for $105 million to $115 million -- an increase at the midpoint of the range.
In December, the market started getting jittery about global growth prospects thanks to weakening data out of China. And with the price of oil now sporting a $40 handle, it looks like there will be, at the least, a delay in the recovery in the crane market.
So what
Clearly, investors were hoping for a whole lot more out of Manitowoc and the construction equipment sector last year, and there needs to be a reset in expectations. However, given the significant fall in the stock price, there's a possibility that investors have now undershot matters on the downside.
That said, if oil prices remain weak and construction markets roll over with weaker economic growth, then the stock could fall even further.
Now what
All told, investors in Manitowoc will be hoping that the weakness in China and Europe will prove to be temporary and a near-term reaction to the trade conflict and a periodic bout of political uncertainty in Europe. If so, then the dip in the stock price is providing a decent entry point into an industry that is long overdue for a bounce.
Check out the latest Manitowoc earnings call transcript.
