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Manitowoc (NYSE: MTW) manufacturers cranes, food service equipment, and shipping vessels. Crane production and service accounted for 81% of MTW's $4 billion in 2007 sales and 84% of the company's operating earnings.^[1] Thus Manitowoc's value is tied directly to world infrastructure growth, as more heavy construction projects worldwide mean more contracts for MTW's cranes. The sale of the ship building operations in early 2009 and the acquisition of additional food service equipment companies in 2008 may have altered the relative importance of the crane business to some degree. Global economic growth, especially in emerging markets, has worked to Manitowoc's benefit in recent years - in 2007, 51.4% of the company's sales were overseas, and in the past five years, the crane division has a 30% compounded annual growth rate.^[2]

Manitowoc's other two divisions - food service (7%) and marine sales (8.9%) - have also grown in the last five years.^[3] Ship building, repair, and maintenance, like crane construction, is heavily impacted by economic conditions, including shipping volume moving through the Great Lakes and St. Lawrence Seaway (MTW's 3 shipyards are located on the Great Lakes). The ship building business was sold in early 2009. The food service group, which manufactures commercial refrigerators and ice machines, sells mainly to lodging and restaurant customers, whose sales are largely dependent on discretionary consumer spending. The purchase of additional food service equipment companies in 2008 has increased the limited smoothing effect the Food Services Business has during economic down turns. Still, although Manitowoc has a diverse portfolio of businesses, all of its divisions are heavily exposed to economic cycles.

Business Overview

Manitowoc's business is divided into three principal businesses.

• Manitowoc Crane Group: This business segment designs and supports a engineered lifts. Accounting for 81% or approximately $3.2 billion^[5] of MTW's business in 2007, the Crane Group manufactures crawler cranes, mobile telescopic cranes, tower cranes, and boom trucks. These products are used primarily in infrastructure development (building bridges and roads), energy-related projects, and high-rise construction. After-market services (repairing and maintaining crane equipment) are marketed under the Crane CARE name. After-market sales support revenue when demand for new equipment is weak, and thus, plays an important role in reducing the cyclicality of Manitowoc's profits. Manitowoc's Crane Group is also driving product innovation. It released 12 dozen new products in 2007 and has 30 more in its project pipeline^[6].

• Manitowoc Foodservice Group: Generating 11% or $438 million of MTW's 2007 sales, the Foodservice Group markets 'cold side' commercial products. These cold side products include industrial ice makers, walk-in refrigerators and freezers, and beverage dispensing products that are used primarily by restaurants, lodging, and convenience stores. Purchases of additional Food Service Equipment businesses in 2008 increased the relative size of the Foods Services Division. Replacement and upgrade sales account for 80% of this segment's revenue, so dependence on new construction is diminished^[8].

• Manitowoc Marine Group: Using 3 shipyard that are located on the Great Lakes, the Marine Group builds, repairs, and maintains ships for commercial and government customers. The ship building operations were sold in early 2009. The smallest of Manitowoc business segments (8% or $321 million of 2007 sales^[10] manufactures and maintains freshwater and saltwater vessels that are used primarily in shipping activity in the Great Lakes and St. Lawrence Seaway. The United States Navy and Coast Guard also place orders with Manitowoc^[11]. The majority of orders are placed using fixed-price agreements^[12].

Overall Financials

The following charts^[13] show Manitowoc's sales and earnings from operations over the past three years.

One can gather from the above graphs that sales of Cranes and related services have dominated Manitowoc's business, and grown rapidly as between 2006 and 2007 sales increased 45.2%. Manitowoc credits solid demand for global construction, especially from Emerging Markets, for benefiting Manitowoc's crane sales and after-market service. Manitowoc did experience some weakness, because sales of boom truck cranes softened in North America as residential construction in the United States weakened^[14]. Growing at an annual clip of 30% over the past five years, the backlog for the crane segment stood at $2.88 billion (or 90% of 2007 crane sales) at the beginning of 2008^[15].

Growing at a more modest pace between 2006 and 2007, the Foodservice Group delivered a 5.5% rise in revenue. This division benefited from higher sales volume and increased pricing, along with the acquisition of McCann's^[16].

The Marine Group's net revenue grew 13.6% in 2007 compared to 2006. Sales increased primarily due to completion of two Navy projects and construction of several tug and barge combination projects^[17].

Geographic Distribution

Manitowoc operates manufacturing and service sites throughout the globe, with 51.4% of revenue being generated abroad. The following picture^[18] from the company's website highlights the locations of Manitowoc's facilities.

As one can observe, most of the overseas' facilities deal with the Crane Group's operations. The Marine group only operates in the Midwest of the United States and the Foodservice group has a few locations outside North America. Europe has several facilities, and accounted for 30.3% of 2007 sales^[19]. Net sales in Asia were third at 7.5% and the Middle East accounted for 4.6% of net sales in 2007^[20].

Key Trends and Forces

Global spending on infrastructure directly impacts Manitowoc's sales growth.

Rapid economic growth in Emerging Markets has led to new infrastructure projects (power plants, roads, bridges, high-rise buildings, etc.), and this in turn supports demand for cranes. Manitowoc Company expects its crane segment sales to grow by 20% in 2008^[21]. In 2007, Merrill Lynch upped its forecast of infrastructure spending in developing countries over the next three years to $1 trillion dollars from a previous estimate of $705 billion. Merrill Lynch sees countries, especially China, mobilizing their vast savings into these projects.^[22]

More mature markets, such as the United States and countries in Western Europe, are more focused on rebuilding and maintaining their infrastructures, but this still represents a significant amount of spending. In 2007, the United States passed a bill to spend $284 billion over the next six years for highway, energy, and mass transit infrastructure^[23]. These developed governments help maintain a constant demand for equipment and after-market services for Manitowoc.

Demand for Commercial and Residential Construction affects Manitowoc's revenue and income.

Expanding growth in economies tends to boost demand for construction of residential and/or commercial properties. An upswing in construction helps Manitowoc sell more equipment, but an economic downturn hurts Manitowoc. As the housing market softened in the United States, Manitowoc's boom truck crane sales suffered a decline in domestic revenue from 2006 to 2007^[24]. However, commercial construction remained relatively steady and prevented a further drop in revenue. Manitowoc reported that U.S. nonresidential construction grew 9% in 2007 and believes the upswing in commercial construction should continue through at least 2009^[25]. Manitowoc's business plan is to increase its geographic distribution of sales and increase after-market service revenue in order to diminish the cyclical swings in profits.^[26]

Competition for Emerging Markets is increasing

In addition to Manitowoc, large companies such as Terex (TEX) and Caterpillar (CAT) have focused attention on expanding operations in these fast growing markets. Terex added its second crane manufacturing sites in China during 2007^[27]. In addition, local companies in the Emerging Markets are expanding operations. Companies like state-owned China National Building Materials Group manufactures cranes that compete with Manitowoc's equipment^[28]. If supply exceeds demand, profits margins for cranes and after-market service contracts will fall.

Demand for Bulk Commodities and Consumer Discretionary Spending impacts Manitowoc's other business interests.

MTW's food service equipment customers are restaurants and hotels. Should consumers dine out less due to a weak economy or less discretionary funds, then Manitowoc's customers will be less inclined to upgrade or buy a new freezer and/or ice maker. However, changing demographics could boost demand for restaurants and travel. Retiring baby boomers will want to eat out and stay in hotels more often, which promotes expansions in restaurants and lodging. In turn, this growth helps increase sales by Manitowoc's food service group.

Meanwhile, slowing consumer spending translates to less goods being shipped and a reduction in steel demand (sales of appliances and cars fall). If less trade volume is moving through the United States ports then there will decreased demand for ship maintenance and repair as fewer ships operate. Manitowoc is specifically exposed to volume passing through the Mid West ports as all three of its shipyards are located on the Great Lakes. Increased need for bulk commodities, such as iron ore (used in steel) and coal improves shipping volume on the Great Lakes^[29].

Competition

Manitowoc's three main businesses are not directly related, and as a result, no single competitor competes with Manitowoc in all three business segments. The crane group accounts for the largest portion of MTW's revenue and competes with the large equipment manufacturer, Terex (TEX). This business segment also faces competition from several smaller private firms, like Tadano and Manitex. Manitowoc has earned the #1 global market share for several types of cranes, such as rough terrain and high-capacity lattice boom crawler cranes^[30].

Manitowoc's food service group competes in a $22 billion global market that averages growth of 3-5% per year^[31]. Manitowoc has been able to exceed this growth rate by roughly 3% through high replacement sales made to customers^[32].

The marine group of Manitowoc is the largest ship builder and repairer on the Great Lakes^[33]. Manitowoc competes primarily with firms that have shipyards that are also located on the Great Lakes and St. Lawrence Seaway system for commercial contracts. Government contracts are less geographically restricted^[34]. Competitors include Atlantic Marine, Fraser Shipyards, and Port Weller Drydocks^[35].

Sales and International Growth

This table^[36] compares sales and markets for large companies in the Farm and Construction Machinery Industry.

References

1. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Financial Information about Business Segments" Page 3
2. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Financial Information about Business Segments" Page 3
3. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Selected Financial Data" Page 32
4. ↑ Manitowoc Company Website
5. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Financial Information about Business Segments" Page 3
6. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Market Conditions and Outlook" Page 31-33
7. ↑ Manitowoc Company Website
8. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Market Conditions and Outlook" Page 31-33
9. ↑ Manitowoc Company Website
10. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Financial Information About Business Segments" Page 3
11. ↑ Manitowoc Company Fact Sheet
12. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Risks" Page 14
13. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Selected Financial Data" Page 32
14. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "2007 Compared to 2006" Page 26-30
15. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Selected Financial Data" Page 22
16. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "2007 Compared to 2006" Page 26-30
17. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "2007 Compared to 2006" Page 26-30
18. ↑ Manitowoc Company Website
19. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Geographic Areas" Page 12
20. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Geographic Areas" Page 12
21. ↑ Street Investing
22. ↑ Stanford University Research Site
23. ↑ Manitowoc's Fact Sheet
24. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "2007 Compared to 2006" Page 26-30
25. ↑ Manitowoc's Fact Sheet
26. ↑ Manitowoc's Fact Sheet
27. ↑ Terex (NYSE: TEX) Form 10-K, FY 2007, "2007 compared with 2006" Page 37
28. ↑ CNBM Company Website
29. ↑ Manitowoc's Fact Sheet
30. ↑ Manitowoc's Fact Sheet
31. ↑ Manitowoc's Fact Sheet
32. ↑ Manitowoc's Fact Sheet
33. ↑ Manitowoc's Fact Sheet
34. ↑ Manitowoc's Fact Sheet
35. ↑ Manitowoc (NYSE:MTW) Form 10-K, FY 2007, "Competition" Page 10
36. ↑ Collection of Form 10-K, Fiscal Year 2007, for each company in the table