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Manitowoc foodservice segment neutralizes cyclicality of cranes

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Jan. 6 2015, Updated 5:03 p.m. ET

Icahn’s activist position in Manitowoc

Icahn recently disclosed an activist position in Manitowoc. Icahn said in his 13D filing that the MTW shares are “undervalued”. Icahn plans to push a split of Manitowoc’s crane and foodservice segments into two separate companies. In the last part of the series, we discussed Manitowoc’s crane business. Now let’s take a closer look at the foodservice business.

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Foodservice segment

Manitowoc designs and manufactures commercial foodservice equipment. Its foodservice capabilities include refrigeration, ice making, cooking, holding, food preparation, beverage dispensing technologies, and entire commercial kitchen equipment.

Manitowoc markets its foodservice equipment under the Manitowoc, Garland, US Range, Convotherm, Cleveland, Lincoln, Merrychef, Frymaster, Delfield, Kolpak, Kysor Panel, Servend, Multiplex, KitchenCare, Inducs, Koolaire, and Manitowoc Beverage System brand names.

This segment serves top 100 restaurant chains. Manitowoc’s customers include McDonald’s (MCD), Starbucks (SBUX), Yum Brands (YUM), and Subway. Manitowoc generates ~60% of its revenue from the sale of cranes, but operating earnings are greater for the foodservice industry.

3Q14 performance

Manitowoc reported net sales in the foodservice segment of $417.1 million, up 3.8% from $401.9 million in 3Q13. The increase resulted from higher sales of hot side brands and ice and beverage equipment, as well as a favorable foreign exchange rate. This increase was below the guidance given in 2Q14. The management noted that foodservice was weighed down by “flat demand in Asia-Pacific region and macroeconomic factors that impacted the buying patterns of some key US chains.”

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Foodservice operating earnings were $61.9 million, down 10.9% compared to $69.5 million in 3Q13. The operating margin was 14.8%, a 250 basis point decline versus the prior-year quarter. The decline in operating margin was due to efforts Manitowoc is putting in “to improve efficiencies in lower-margin operations combined with unfavorable product and channel mix, as well as weak demand related to US chains operating in the Asia-Pacific region.”

Manitowoc management noted that it expects to benefit from some improved product mix as a result of new product rollouts that occurred earlier in 2014.

2014 outlook

Manitowoc expects revenue from the foodservice business to be up 1% to 5% from 2013 with a 15% margin.

NRA’s Restaurant Performance Index is rising

Foodservice equipment sales depend on the restaurant industry’s outlook. In the month of November, the National Restaurant Association’s Restaurant Performance Index (or RPI) decreased slightly to 102.1 from 102.8 in October.

The RPI has been over 100 or in an expansion period since March 2013, which is positive for the restaurant industry. A release said, “The RPI registered a modest decline in November, as sales and customer traffic results were somewhat softer than their solid October levels.”

These trends will benefit MTW and its foodservice equipment peers Middleby (MIDD) and Illinois Tool Works (ITW). In the next part of the series, we’ll discuss how Manitowoc is trying to improve shareholder value.

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