Morgan Stanley Still Loves Manitowoc; Here's Why

In a report published Tuesday, Morgan Stanley analyst Nicole DeBlase maintained an Overweight rating on

. A recent field trip to Manitowoc Foodservice headquarters in New Port Richey revealed that margins at the company's Foodservice segment could remain challenged in 2Q15, but improve sequentially thereafter. Manitowoc is currently moving all its Foodservice after market parts from its global manufacturing facilities to a single distribution center in Indiana, resulting in significant one-time expenses. "This was a major factor behind weaker than expected 1Q15 Foodservice margin performance (down 580bps Y/Y to 9.7%), but the effort is not expected to be completed until August. As such, we believe it is fair to assume another weak quarter of Foodservice margins in 2Q, followed by sequential improvement in both 3Q and 4Q," analyst Nicole DeBlase mentioned. Manitowoc is currently in the process of consolidating its plants in Louisiana, besides undertaking several other measures aimed at margin improvement. In the report Morgan Stanley noted, "…we see the potential for MTW Foodservice to close the gap with ITW (where Food Equipment segment margins reached 22% in 2014) over time. To this point, MTW Foodservice is currently working with ex ITW consultants to adopt the‘80/20' strategy." The company is also looking to weed out lower margin SKUs which represents a significant margin expansion opportunity. Although the company is expected to face easy comps in 2Q15 and thereafter, it is unlikely to report a significant pickup in restaurant Capex or Foodservice organic growth in the near term, DeBlase noted.