2023-05-05 10:58:24 ET
Summary
- MTW’s revenue should benefit from the healthy order backlog, demand in the Americas and Middle East, and increasing non-new machine sales.
- The weakness in the European market should moderately impact the company’s sales and margins.
- I have a buy rating on the stock.
About the company
The Manitowoc Company ( MTW ) has been on a steady upward trajectory this year, with an impressive 80% rise in its stock price. The key driving force behind this growth has been the company's robust financial performance in 2022 and the first quarter of 2023. As a leading provider of engineered lifting solutions, MTW is well-positioned in the market with a diverse range of products that include mobile hydraulic cranes, lattice-boom crawler cranes, boom trucks, and tower cranes, all under different brand names. MTW has a strong presence in three different reportable segments: the Americas, EURAF, and MEAP. The company caters to various end markets, including energy production/distribution and utility, petrochemical, industrial, and infrastructure, such as road, bridge, and airport construction, as well as commercial and residential construction. This wide-ranging market presence provides MTW with a stable customer base and diverse revenue streams.
MTW's segment distribution (Investor Presentation)
Q1 FY23 Financial Performance
MTW has reported impressive first-quarter financial results for FY23, surpassing expectations. The company's revenue for the quarter rose by 10.7% Y/Y to $508.3 million, exceeding the consensus estimate of $477.3 million. This increase was driven by higher pricing, greater volume in the Americas segment, and increased non-new machine sales, which rose by 17% Y/Y to $151 million. However, the growth was partly offset by an unfavorable impact of $11 million from foreign exchange rates. The company's adjusted EBITDA margin for the quarter increased by 210 basis points Y/Y to 8.9%, driven by an improved business mix and higher price realization. The improvement in adjusted EBITDA margins had a positive impact on adjusted EPS, which stood at $0.46 for the quarter, significantly higher than the consensus estimate of $0.15.
Revenue Outlook
Manitowoc's strong momentum from 2022 carried over into 2023, despite ongoing supply chain, labor, and logistics challenges. The company's sales growth in the first quarter was a testament to its resilience and adaptability. Orders for the quarter increased by 9% Y/Y to $525 million, surpassing management's expectations. The order backlog increased by $19.7 million sequentially, reaching $1.07 billion for the quarter. The increase in orders and backlog was driven by strong demand in the Americas segment, partially offset by softening demand in the EURAF segment. This decline was attributed to macroeconomic conditions, supply chain constraints, and geopolitical uncertainty, which have impacted the European market. The order backlog in Europe has been declining, particularly in the tower crane business, which has seen a decline in machine orders by 20% Y/Y in the first quarter of 2023.
MTW's orders and backlog (Investor Presentation)
As we look ahead, the strong order backlog and healthy demand for cranes in the Americas segment suggest that MTW is well-positioned to drive revenue growth. With the U.S. government's infrastructure and semiconductor programs yet to kick off, there is potential for MTW to capitalize on these opportunities in the future. However, in the EURAF segment, the ongoing conflict between Russia and Ukraine and rising interest rates may continue to weigh on the overall tower crane business in Europe for the remainder of 2023. The company may face some headwinds in this market as a result. In the MEAP segment, MTW is well-positioned to benefit from projects related to Saudi Vision 2030, which primarily involve earthmoving and road-building activities. The company's local dealer has already secured a project related to NEOM, which involves the construction of the island resort Sindalah using Potain Tower. Additionally, Turkey's reconstruction efforts following the earthquake in February 2023 have resulted in increased activity for tower cranes, with orders in the Middle East region increasing by 40% YoY in the first quarter of 2023.
MTW is also focusing on generating recurring revenues through its aftermarket and rental businesses under its Cranes+50 strategy. This strategy aims to grow non-new machine sales by 50%, or approximately $675 million, by 2026. This should be achieved by growing its field service through the addition of new recruits. The company plans to add 50 new recruits in the rest of 2023. By prioritizing aftermarket and rental services, the company is diversifying its revenue streams and positioning itself for long-term success.
Overall, I believe the company's revenue should continue to benefit from healthy order backlogs, aftermarket businesses, aging cranes, and strong demand in the Americas and MEAP regions. However, this should be partially offset by supply chain constraints, labor shortages, and weak demand in the European market. The company is continuing to experience supply chain challenges across its facilities, which should continue for the remainder of 2023.
Margin Outlook
MTW's Adjusted EBITDA margin (Created by DzD Analysis using data from MTW)
MTW's adjusted EBITDA margin has been trending upward over the last few quarters given the improved business mix, higher price realization, increased non-new machine sales, and operational efficiency. Looking ahead to 2023, margins should continue to benefit from the above-mentioned tailwinds. However, it should be partially offset by the lower sale of tower cranes, which is a higher margin product.
Valuation
DCF Valuation (Created by DzD Analysis using Alpha Spread)
In my DCF calculations, I am assuming revenue growth to be in the mid-single-digit in FY23, given the strong first quarter, healthy order backlog, and demand in the Americas and Middle East regions. Beyond FY23, I have assumed growth to be in the low single digits, with a terminal growth rate in the low single digits, as the company will continue to benefit from infrastructure funding, M&As, aftermarket, and rental businesses. I used a discount rate of 6.39% by using the cost of equity of 7.61% and arrived at a fair value of $26.87 for MTW.
Conclusion
In conclusion, Manitowoc has had a strong start to 2023, with its revenue and order backlog showing healthy growth. While the supply chain and labor challenges remain a concern, the company's focus on generating recurring revenues through its aftermarket and rental businesses should help mitigate the impact of these challenges. The demand for cranes in the Americas and MEAP regions is expected to remain strong, driven by infrastructure projects and construction activity, while the European market is likely to continue to face headwinds due to geopolitical uncertainty and rising interest rates. Overall, Manitowoc appears to be well-positioned to benefit from these market trends and deliver strong financial performance in the future. Hence, I have a buy rating on the stock.
For further details see:
The Manitowoc Company: Healthy Demand And Backlog Should Drive Growth