Manitowoc (NYSE:MTW) management perhaps knew the company's fourth-quarter numbers would not go down well with Mr. Market, as they were a far cry from estimates. So management made a smart move: coincide its earnings release with an announcement to split the company into two.
Chances are, most investors were stuck on the big news, and overlooked Manitowoc's numbers. If you're one of them, here's what you should know: The numbers not only revealed the company's problems, but also gave an idea about what lies ahead.
Sad numbers, a surprise element, and a wake-up call
Manitowoc's fourth-quarter crane revenue slipped 6% year over year. While currency fluctuation was a headwind, sluggish demand for off-road cranes, especially rough-terrain and boom trucks, was the biggest dampener. That shouldn't be surprising given the recent plunge in oil prices. Energy ranks among Manitowoc's primary crane end market.
What's worrisome is the rapid pace at which lower revenue is eating into Manitowoc's profits -- its Q4 crane operating earnings slumped 17% year over year. With profits under pressure through the year, Manitowoc ended 2014 with 25% lower operating earnings, and operating margin of 7.1% versus 8.7% in 2013.
Amid the gloom, you'd be surprised to know that Manitowoc's fourth-quarter crane orders surged 23% sequentially, and backlog value jumped 28.6% year over year, backed by strong demand for crawler and tower crane products. Unfortunately, strength in these product markets isn't enough -- Manitowoc expects its 2015 crane revenue to decline "mid single-digit percentage." While that proves how vital the off-road crane market (read: oil and gas industry) is for the company, it should be a wake-up call for all those investors who believe that Manitowoc will perform well if the construction markets in the U.S. do well.
Why foodservice is under pressure
With the crane business proving so volatile, investors have started pinning hopes on Manitowoc's foodservice-equipment business to steer the company to growth. But Manitowoc's fourth-quarter numbers left them in the lurch.
While Manitowoc's Q4 foodservice revenue slipped 6% year over year, operating margin for the division dropped dramatically, to 12.9% from 17.2% a year ago. The company had a long list of factors to blame: "lower new product sales, higher discounts, increased warranty costs, higher start-up costs for KitchenCare, unfavorable product mix, as well as cost and efficiency issues for certain hot-side products." Those low sales and cost-efficiency issues tell me all may not be well within Manitowoc's foodservice division.
There's a reason to stay hopeful, though. Unlike the projected decline in full-year crane revenue, Manitowoc expects its full-year foodservice revenue to grow "mid single-digit percentage." That should be a good bump up over the 2.6% rise in revenue that the company saw in 2014.
More notably, management expects cost-reduction efforts initiated in 2014 to "benefit this business's growth and margins in the coming year." In short, Manitowoc foresees a better year ahead for its foodservice business compared to 2014.
Tough road ahead?
It will not be an easy road for Manitowoc, especially since weakness in cranes could cancel out strength in foodservice. While the idea of a spin-off -- separation of the two businesses into independent companies -- has refueled interest in Manitowoc stock, the event could take another year to materialize.
To retain this interest, the company needs to convince investors how valuable its businesses are. In other words, Manitowoc needs to work a lot harder to improve its top and bottom lines this year.