30.03.2009

Manitowoc warns on earnings

Manitowoc has issued a warning that first quarter earnings may be 50% below estimates as it sells the Enodis ice business.

The company says that global demand for the company's cranes has not stabilised and continues to decline further than previously anticipated due to the continuing global recession.

Based on this it no longer believes that it will be able to achieve its previous guidance for sales, earnings per share, or cash flow. The company's first-quarter earnings are anticipated to be more than 50 percent below the current Wall Street average estimate.

It adds that it has taken aggressive action to reduce the impact of lower revenues while designed to preserve the company's long-term opportunities and its ability to capture business when markets improve. These include: global workforce reductions and a hiring freeze; capital expenditures limited primarily to new product development, production efficiencies, and safety; temporary production shutdowns; in-sourcing of previously outsourced production activities; shifting certain crane production to lower cost areas; travel expense reductions; deferral of salary increases and reductions in benefits.

As a result of the uncertainty Manitowoc has withdrawn its original forecasts and says that it will not be issuing any new guidance, at least until the economic environment becomes more settled and predictable.

The company also confirms it has sold the Enodis ice machine operations to Warburg Pincus Private Equity for $160 million, the sale is expected to be completed in May 2009. It will use the proceeds to reduce some of the debt incurred to acquire Enodis but it will lead to an extra $30 million non-cash write off in the first quarter.

The lower-than-expected proceeds from Enodis Ice increases the possibility that Manitowoc could violate some of its debt covenants during the second half of 2009. Although at the moment it is meeting all of its covenants, it says that if it becomes necessary, it will work with its lender group to obtain covenant relief. However that is likely to involve upfront fees and higher interest costs.

Chief executive Glen Tellock said:” We have reached an agreement to fulfil our obligation to sell the Enodis ice business and can now focus entirely on operating our two strategic lines of business: cranes and commercial foodservice equipment. This is an important event for the company that provides an additional deleveraging opportunity. Manitowoc has been through downturns before. Our management team successfully navigated the company through those times. Although the pathway out of this downturn will be challenging, I am confident that Manitowoc will emerge as the leader in its industries, stronger than it was before."

Vertikal Comment

Manitowoc joins most other major companies in our industry in withdrawing revenue and earnings forecasts or guidance. There are simply too many uncertainties at the moment for such projections to have any real meaning.

Manitowoc has moved as fast, if not faster, than most to significantly reduce its capacity and adjust to the slower market. Unlike some others though, it has clearly taken a longer term view in its adjustments. The reduced capacity could be brought back on line quite quickly and it continues to develop its products lines and its services, while working to maintain its profile and image.

Given that many economists are predicting a V shaped recession and that there is still a significant underlying demand for new cranes, it should be in good shape to benefit when the availability of credit starts to ease and when the upturn comes, especially if this is within the next nine to 12 months.