Why Manitowoc Company Stock Has Taken a Roller-Coaster Ride in 2014

Source: Manitowoc.

The construction industry has been one of the most turbulent sectors of the global economy in recent years, as various parts of the developed and emerging world move in and out of expansions and recessions. Yet, since late 2011, crane-maker Manitowoc (MTW 0.39%) has navigated the topsy-turvy world of construction equipment well; its shares almost quintupled at their high point this year. Yet, in the past few months, Manitowoc has given up ground and, while it's still up on the year, the impressive gains it enjoyed earlier in 2014 have all but evaporated.

Manitowoc is an interesting company with two very different business segments. On one hand, Manitowoc makes cranes for large-scale commercial construction projects. Yet, the company also produces foodservice equipment for major restaurant chains, giving it some level of diversification outside the construction industry. Let's take a closer look at Manitowoc to see what's in store for its future.

Stats on Manitowoc

Source: Yahoo! Finance.

The rise and fall of Manitowoc stock
Manitowoc's fortunes have been closely linked with other major players in the construction equipment industry, especially Caterpillar (CAT -0.55%). When Caterpillar reported strong first-quarter numbers in April, Manitowoc stock followed suit as investors interpreted Caterpillar's news as being bullish for the entire industry. Given Manitowoc's launch of 10 new products at a major convention earlier in the year, shareholders assumed that the company would be successful in producing sales gains.

Yet, Manitowoc hasn't been able to follow entirely in Caterpillar's footsteps. In contrast to its rival's 20% sales gain, Manitowoc's crane sales fell 14% in its first quarter and, despite huge gains in backlog values and new orders, the stock fell in response.

Source: Manitowoc.

Following that episode, though, investors got excited about Manitowoc's prospects after activist investment firm Relational Investors bought more than 8% of the company's shares, and recommended splitting up its crane segment from its foodservice segment. The prospects for a spinoff drew the interest of special-situations investors, but many analysts argued that breaking up Manitowoc would take away the diversification value of having two separate businesses under one corporate umbrella, leaving the crane business fully exposed to the ups and downs of the business cycle.

Moreover, foodservice has been a major area of innovation for Manitowoc, and its impressive customer list includes many of the top names in the industry. Meanwhile, in the months since the Relational Investors news first broke, Manitowoc shares have given up most of their gains, as the company's second quarter earnings report wasn't well received by investors.

Will Manitowoc bounce back?
Looking forward, there are many reasons to be bullish on Manitowoc's prospects. The foodservice business has produced solid growth in revenue and operating earnings, contributing more than half of Manitowoc's overall operating income last year despite making up less than 40% of its revenue. As many restaurants seek to expand their store networks, demand for Manitowoc equipment is poised to strengthen.

Source: Manitowoc.

Nevertheless, Manitowoc needs a recovery in the global economy in order to reach its full potential. Given the strength of the U.S. dollar, Manitowoc will face some challenges in selling equipment in areas of the world where construction activity has the most room to grow. Although the domestic market has heated up lately, Manitowoc needs emerging markets to recapture their lost strength in order to maximize its profit potential. With China, Brazil, and other key emerging markets struggling to sustain their slowing growth rates, Manitowoc will continue to rely on its heavy crane-sales exposure to the North American region for the foreseeable future.

Manitowoc's 7% gain this year isn't shabby; but compared to the much greater gains earlier in the year, shareholders have to be disappointed with the company's recent performance. In the long run, though, Manitowoc has the potential to regain its lost glory, and take full advantage of new construction activity throughout the world.