Manitowoc (NYSE: MTW) manufacturers cranes, food service equipment, and shipping vessels. 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.
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 were 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 downturns. Although Manitowoc has a diverse portfolio of businesses, all of its divisions are heavily exposed to economic cycles.
After the sale of its shipbuilding business, Manitowoc is divided into two operating segments.
In 2009, Manitowoc incurred a net loss of $704.2 million on $3.78 billion in total revenues. This represents a 16.0% decrease in total revenues from 2008, when the company generated a net income of $8.1 million. The company's profitability has been decreasing since 2007.
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. Merrill Lynch forecasts countries like China mobilizing their vast savings into these projects. 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.
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. 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.
In addition to Manitowoc, large companies such as Terex (TEX) and Caterpillar (CAT) have focused attention on expanding operations in these fast growing markets. 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. If supply exceeds demand, profits margins for cranes and after-market service contracts will fall.
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.
Manitowoc's two main businesses are not directly related, and as a result, no single competitor competes with Manitowoc in both 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.
Manitowoc's food service group competes in a $22 billion global market that averages growth of 3-5% per year. Manitowoc has been able to exceed this growth rate by roughly 3% through high replacement sales made to customers.
The marine group of Manitowoc is the largest ship builder and repairer on the Great Lakes. 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. Competitors include Atlantic Marine, Fraser Shipyards, and Port Weller Drydocks.