Why Wall Street Is Fleeing Manitowoc

Shares of Manitowoc were trading lower by more than 15 percent during Thursday's pre-market session after the company guided its third quarter revenue to be $863 million – short of the $942 million analysts were expecting. Management cited a deteriorating demand environment in the Middle East and Asia Cranes segment for the weak preliminary results. In a report published Thursday, Mircea Dobre of Baird noted that the company's Crane fundamentals are "clearly" deteriorating at a worse than expected rate. In fact, the analyst suggested that the company's guidance was worse than he expected following his own channel checks that clearly pointed to "deteriorating fundamentals across all Crane categories." Dobre continued that the Crane's "reduced earnings profile" adds risk to the proposed business separation. The company also increased its total leverage guidance from 3.5x to 4.0x debt-to-EBITDA and its total debt stands at around $1.5 billion. The analyst pointed out that "minimal" debt will be assigned to CraneCo considering current fundamentals which would leave FoodServiceCo with a leverage exceeding 5x – a high rate (even though the segment could support such a leverage) considering "lender risk appetites appear to be changing" in the current environment. Shares were downgraded to Neutral from Outperform with a price target lowered to $15 from a previous $22.

Stanley Elliott of Stifel also commented on Manitowoc's pre-announcement, noting that this is the second pre-announcement this year alone for the Crane segment that has "rapidly lost steam." Accordingly, the analyst stated there are no identifiable demand catalysts that can boost the Crane business in the near term. Elliott continued that while the company cited deterioration in the Middle East and Asian markets, weakness in the North American Rough Terrain and Boom Truck markets, along with headwinds from unfavorable foreign exchange fluctuations "likely further pressured results." Following the pre-announcement, Elliott revised his earnings estimate for the full year fiscal 2015 and now expects the company to earn $0.56 per share after previously estimating $0.82 per share. The analyst also revised his 2016 earnings per share estimate lower to $0.93 from a previous $1.37. Shares were downgraded to Hold from Buy with no assigned price target (previous price target was $23).