The move means Manitowoc will once again be an independent crane company, less than a decade after adding foodservice equipment to its stable in order to stabilize its earnings. The spinoff decision came about after heavy activist pressure, first from Ralph Whitworth’s Relational Investors (which has since shut down) and then from Carl Icahn. The win by activists was surprising to many given the company had a relatively robust arsenal of defenses, but perhaps resisting a good idea is never a wise choice.
Much of the excitement from the spinoff appears to be focused on the foodservice segment and the 2016 guidance provided by the company helps explain this phenomenon:
Manitowoc Foodservice:
- Organic Revenue – up 2% – 4% over 2015 net sales – as adjusted (excludes KPS);
- Organic operating margin – between 16% and 17% (excludes KPS, includes corporate costs);
- Depreciation – between $21 and $24 million;
- Amortization expense – between $30 and $33 million; and
- Capital expenditures – between $23 and $27 million.
and for Manitowoc Cranes:
- Revenue – approximately flat;
- Operating margin – approximately 4%;
- Depreciation – between $45 and $50 million;
- Amortization expense – between $3 and $4 million; and
- Capital expenditures – approximately $55 – $65 million.
Yes, those forecasts include some one-time costs related to the spinoff, but the difference between the two businesses is rather stark. Many are even concerned about the survival of the crane business given its notorious cyclicality, but the coming ‘modest’ leverage and $1.3b ‘dividend’ from the foodservice business should help on that front. Additionally, the company plans on improving performance by becoming, in the words of new CEO Barry Pennypacker, LEAN. Not since George Foreman ruled the airwaves has the word LEAN been tossed around so much. Seriously, read the Q4 transcript. Amusingly, at one point, Mr. Pennypacker was basically asked why he took the job as CEO of the crane company and his response was interesting:
I think this is an operational-turnaround business that requires some leadership with regards to how you implement LEAN principles and drive margin expansion at the same time. And this is a great opportunity. The global footprint is too large, as I think everyone knows…It’s a great business that needs some improvement in a number of areas, which we will continue to recognize and deal with. The brands that we have in the portfolio are very well recognized globally as leaders, which is always a good thing to attract a new CEO with regards to trying to turn the business around. Our dealer network that we have in the U.S. and globally is the envy of all of our competition. And so they are very dedicated to Manitowoc. Most of them are exclusive to Manitowoc. So they are very important to our long-term future. And I’m absolutely convinced that after my first 4 weeks here, that LEAN implementation will, in fact, drive substantial results for the future, which leads to, I think, your final point of my commitment to double-digit earnings growth irregardless of what happens with the top line. I am absolutely convinced that we will have the ability to do that.
Very ambitious and quite specific in those commitments! Lets see if he can deliver. The foodservice company will have a highly leveraged balance sheet and although it saw a pickup during Q4, it too has had recent struggles. Operating earnings have been on the decline for the past several years.
Ultimately, both segments have been challenged and as a result Manitowoc’s stock price has come down quite a bit since the spinoff announcement. Time will tell if the coming independence and focus will change the story.
Disclosure: Author holds no position in any stock mentioned.
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