Manitowoc (MTW -3.12%) shares were holding up strong this month until disappointing economic data out of China last week snapped the company's winning streak. The stock lost 9% in just five trading days, leaving investors wondering whether there's more to the drop, especially since construction equipment heavyweight Caterpillar (CAT -2.41%) lost just about 5%, despite having greater exposure to the Middle Kingdom.

Will good numbers lift Manitowoc shares? Source: Company website.

But with Caterpillar having just reported a bumper quarter, especially for its construction business, will Manitowoc's fourth-quarter report, slated for release later this week, also offer a happy surprise and dispel fears to push the stock higher?

Are analysts too pessimistic?
Caterpillar's construction business sales climbed 20% year over year. Notably, sales from North America and the Europe, Middle East, and Africa region surged 21% and 17%, respectively. That's an excellent pointer for Manitowoc investors since the two geographies alone contribute nearly 80% to its crane business sales.

Now here's the interesting part: Analysts expect Manitowoc's fourth-quarter revenue to drop 2% year over year. If you're already laughing at the Street's naivete, hold on. Construction activity may have picked up, but the end market for Manitowoc's equally important food service equipment business remains sluggish. Key customer McDonald's just confirmed this with 1.4% drop in its fourth-quarter comparable-store sales from the U.S. Unfortunately, as much as 70% of Manitowoc's food service equipment sales come from North America.

Will Manitowoc prove the market wrong?
Yet, going by Caterpillar's great set of numbers, the chances of Manitowoc beating the Street on the top line even with weak food service equipment sales have gone up. Better yet, analysts expect the company's fourth-quarter earnings per share to jump 26% year over year despite the lower revenue. That clearly means Manitowoc's cost-cutting efforts are bearing fruit.

In fact, when Manitowoc lowered its revenue guidance for full-year 2013 during its last earnings call, it left its margin guidance unchanged. Its crane segment operating margin nearly doubled to 9.1% in the third quarter even as its food service business margin fell by one percentage point. With the company expecting to end the year with a "high single-digit percentage" margin for the crane business, investors can expect to see good margin growth from the company in its upcoming report.

Four factors to track the future course
While that sums up the fourth-quarter performance, the following four key factors will decide what lies ahead for Manitowoc, so keep an eye on:

  • Order rate: Manitowoc's third-quarter orders were 23% lower year over year. If the downward trend continues into the fourth quarter, it could indicate low crane use rates, which could slow its revenue growth and deplete backlog value in the near future.
  • Updates on China: Manitowoc has had some major setbacks from the nation in recent months, which could put its growth in the high-potential market on the backburner.
  • Moves to deleverage: Manitowoc shoulders a huge debt burden but generates little free cash flow for support. Earlier this month, Manitowoc refinanced part of its debt, which could save the company nearly $20 million in interest in 2014. Look for more such plans that the company might have lined up for the year to strengthen financials.
  • Outlook for 2014: With Caterpillar guiding financial year 2014 over and above Street estimates despite tackling a struggling mining equipment market, Manitowoc's outlook should ideally leave investors impressed.

Foolish takeaway
Manitowoc shares could zoom if the company delivers on expectations. But handling polar-opposite businesses is never easy, and investors have been watching the operational disparity between Manitowoc's two businesses for several quarters. That has also prevented the company from taking full advantage of the uptick in the construction market.

So look for any signs of improvement in the company's food service equipment business in the upcoming earnings call, since that will be critical for future growth. Meanwhile, Manitowoc's cost-reduction efforts should help maintain margins. Stay tuned for more analysis on Manitowoc's earnings next week.