Manitowoc Company, Inc. (MTW): Why You Should Hold Off on This Stock for Now

Manitowoc’s high leverage is a bigger problem because unless operating margins improve, debt servicing will remain a task. Ironically, the foodservice-equipment business is the reason for Manitowoc’s high debt. Manitowoc added more than $2 billion debt when it outbid Illinois ToolWorks to acquire equipment maker Enodis way back in 2008. Four years hence, Manitowoc still shoulders more than $1.9 billion of long-term debt. Worse, its income and cash flows are miniscule in comparison. Take a look.

MTW Free Cash Flow TTM data by YCharts

The situation is unlikely to improve soon as Manitowoc aims to pare down just about $200 million debt this year. What really perturbs me is that the Enodis acquisition hasn’t delivered as expected. You might be surprised to know that Illinois Tool Works (NYSE:ITW) boasts better revenue growth and margins for its food-equipment business. The company has consistently maintained the business’ operating margin above 16% for past several quarters. Last year, it achieved 17.1% margin for the full year, up substantially from 15.7% in 2011. In fact, Manitowoc’s overall performance has been a stark contrast to Illinois Tool Works’ in the past five years.

MTW Net Income TTM data by YCharts

Manitowoc’s bottom line shrunk a whopping 85% during the period when Illinois Tool Works grew its net income by more than 50%. Though the latter’s bigger and diverse business portfolio helps, the question is whether Manitowoc did the right thing by diversifying into the food-equipment business. Manitowoc’s projection of mid-single digit growth in the business’ revenue for the full year isn’t inspiring either. If consumer spending doesn’t improve much, the forecast might even fall flat on its face.

The article Why You Should Hold Off on This Stock for Now originally appeared on Fool.com and is written by Neha Chamaria.

Neha is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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