HHakim/E+ via Getty Images
I’m fond of an old Japanese saying that goes, “vision without action is a daydream,” and there are many companies that try to sell credulous investors on turnaround and self-improvement visions only to deliver delays, disappointments, and excuses.
That’s not the case here.
Manitex International (NASDAQ:MNTX) has been executing on its self-improvement plans since my last update, and while it’s hard to know how much is “like for like” improvement (since the addition of the rental business would normally have a positive margin effect on its own), I am pleased to see what managed has done in terms of rebranding and rebuilding the core of the business.
I think Manitex is on track to hit at least the bottom end of the company’s long-standing 2025 performance targets, and if the company doesn’t quite get there (or “only” gets to the low end), I think a lot of that will have to do with macro developments. To that end, while certain markets like utilities are quite healthy right now, general construction equipment has been showing some weakness and further caution on fleet capex in 2024 could create some headwinds for Manitex into 2025.
All of that may sound like a backhanded compliment, but I think Manitex is in better shape since my last update. Unfortunately, the market hasn’t agreed here of late. The shares had been outperforming other loosely comparable companies like Manitou, Oshkosh (OSK), and Terex (TEX) since late 2023, but have skidded from their highs in late 2023. I’m not completely comfortable with the macro situation now, but I think you can argue for a $7 fair value on Manitex shares and more aggressive investors may want to take a closer look.
Encouraging Progress
While there has been some quarter-to-quarter volatility in Manitex’s results, some of that can be attributed to challenging and volatile comps created as the company was trying to fulfill its pandemic backlog. Underlying the noise has been what I consider to be credible progress.
Revenue rose 8% in the first quarter of this year, with balanced growth in the Lifting business (the company’s truck-mounted cranes, including knuckle-boom cranes, aerial work platforms, and other specialty lifting equipment) and the Rental operations. It’s not a “like for like” comparison, but the aerial work platform businesses of Oshkosh and Terex reported 4% and 13% growth, respectively, in the last quarter.
Margin improvement has been a major focus of management since the company changed CEOs in April of 2022. Since my last update on the company, 2022 gross margin was basically in line with my expectations, while 2023 gross margin was over a point better and Q1’24 results saw a nearly two-point improvement from 23.0% to 21.2%. Even allowing that the rental business provides a boost to margins, Manitex has also been improving its manufacturing, go-to-market, and branding, and that is showing up in the results.
Benchmarking Manitex to other companies is challenging, given the differences in mix and reporting structures. Still, with the aerial work platform businesses at Oshkosh and Terex reporting segment-level margins of 17% and 13%, respectively, there’s still work for Manitex to do (operating margin of 6.7% and adjusted EBITDA margin of 11.4% in the last quarter), but there has nevertheless been progress from the low-to-mid single-digit margins that preceded these self-improvement efforts.
In the past, Manitex felt like a company where management would try to excite investors on the potential of discrete drivers – be that an overly-aggressive M&A program, the partnership with Tadano, or the potential of growing knuckle-boom cranes in North America. Now the focus seems to be on a more holistic approach, including a rebranding that better unifies the company’s businesses and should help build some brand value over time. Along the way, management has also drilled out some operational inefficiencies and made progress on deleveraging the company.
Healthy Demand, But The Macro Environment Is Looking Shakier
Whether Manitex can maintain this momentum is an important question looking ahead to the second half of 2024. While reported sales growth has been healthy for the most part, orders have not been keeping pace; the company’s backlog declined 35% year over year and almost 10% quarter over quarter in the first quarter.
Regular readers of my articles will probably recall that I wasn’t too bullish on the construction markets for 2024, with higher rates and increased economic uncertainties being significant drivers. To that end, building permits and housing starts haven’t been very strong of late and the NAHB/Wells Fargo Housing Market Index has been muted, with a May reading of 45 after 51 in April and March of 2024. Non-residential activity has likewise been weaker, and construction has historically been close to half of Manitex’s revenue by end-market.
I think residential construction activity improvement is a “when, not if” situation, and I’m not worried about this market. Non-residential could be trickier, particularly with ongoing pain in segments like office, but then other categories like data centers and industrial have been healthier. Either way, I expect 2025 to be a better year.
I’m bullish on infrastructure activity through at least 2026 and this has historically contributed around 10% to 20% of Manitex’s revenue. Energy sector activity (oil/gas) likewise remains healthy (around 10% to 15% of revenue), and I’m pretty bullish on utility demand as utilities continue to modernize/update their grids and install new generation.
Tying healthy utility or weaker non-resi demand directly back to Manitex isn’t so simple, though, as they often sell to rental/leasing operators. To that end, I’m seeing more caution when it comes capex spending on new construction equipment and the combination of still-high interest rates (relative to the norms of the past decade, at least) and significant nervousness about the health of the economy isn’t going to help coax more spending.
The Outlook
For both 2024 and 2025 I’m in the ballpark of management’s prior guidance. I’m on the lower end of the ranges for both years, but that has much less to do with Manitex execution and more to do with my concerns about the macro environment. To that point, my 11%-plus adjusted EBITDA margin estimates for both ’24 and ’25 put me within management’s guidance range.
Long term, I believe Manitex can generate 4% to 5% annualized revenue growth, albeit with significant year-to-year volatility (construction equipment is still a volatile, cyclical industry), and there’s room to outperform if the company can regain share in straight-mast cranes (where it has seen its share fall from around 40% to 35%) and leverage opportunities like expanded distribution for knuckle-boom cranes and its specialty lifting businesses.
On margins, I’m interested to see just how much further the company can go on gross margin and operating margin/EBITDA margin improvement. I think getting much past the 12%-13% range will be a challenge, but that’s enough to support mid-single-digit free cash flows that are within the norms of similar equipment companies. That said, the nature of the rental business makes estimating D&A and capex more challenging, so there could be more year-to-year variability on top of the cyclicality of the base business.
Between long-term discounted free cash flow and margin-driven EV/EBITDA, I believe there’s an argument for Manitex shares to trade at around $7. Looking specifically at EBITDA, the operating margins I expect in the near term support a 7.5x multiple, and further progress on margin improvement would support a win-win positive rerating of that multiple.
The Bottom Line
Manitex is tiny and not well-followed, and it’s a small player competing against some very large and well-established rivals. It’s also possible that the self-improvement story could peter out and/or that macro pressures could offset whatever internal progress management can achieve from here. All of that said, I think the share price already reflects a lot of those concerns and this is a name worth further due diligence for investors willing to consider small players operating in cyclical end-markets.
