Activist investor Icahn discloses stake in Manitowoc
Carl Icahn filed a 13D with the SEC on December 29, reporting that he acquired a 7.77% stake in Manitowoc (MTW). The activist investor plans to push Manitowoc to split itself into two separate companies.
According to Icahn, the MTW shares are “undervalued”. He is pushing management and the board of directors to separate Manitowoc’s crane and foodservice segments into two separate companies. In the previous parts of the series, we discussed Manitowoc and its business. In this part of the series, you’ll read about the capital allocation of Manitowoc.
Manitowoc’s capital allocation
During the third quarter, cash from continuing operations was $59.9 million versus $116.1 million in the prior-year quarter. Cash from continuing operations was driven by cash from profitability and partially offset by seasonal working capital requirements in both segments.
In terms of cost savings initiatives, Manitowoc reaped over $12 million worth of product cost benefits, nearly $7 million of lower interest expense and approximately $26 million of tax savings. For the remainder of 2014, the company expects to allocate anticipated cash flow to fund various growth and process improvement initiatives, as well as debt repayment. It expects to reach a total debt-to-EBITDA ratio of approximately 3.5x by the end of 2014.
In terms of capital allocation, Manitowoc expects to maintain a strong balance sheet, while making prudent capital investments. The company continues to pay down debt to lower leverage. Manitowoc expects to evaluate its capital deployment and prioritize investments that generate the highest risk-adjusted returns, which might include investments in organic cost savings or growth initiatives, acquisitions to grow its industry leading positions, share repurchases, and dividend strategies.
Manitowoc’s dividend policy
On October 21, Manitowoc declared an annual cash dividend of $0.08 per share, which is in line with the previous year’s annual dividend. Its dividend yield stands at 0.36%, which is very low among the majority of its peers in construction and food services.
Dividend yield for construction peers Terex Corp (TEX) stands at 0.72%. Construction companies Caterpillar Inc. (CAT) and Joy Global Inc. (JOY) have dividend yields of 2.72% and 1.57%, respectively. Manitowoc’s foodservice business peer Illinois Tool Works (ITW) has a dividend yield of 1.85%.
In the next part of the series, we’ll value Manitowoc against its peers.