After Enodis, will Manitowoc lose taste for food?

CHICAGO (Reuters) - Executives at diversified manufacturer Manitowoc Co Inc (MTW.N) have spent a good deal of time in recent years justifying the company's curious mix of businesses, which they admit offer few benefits aside from smoothing out the ups and downs of their earnings.

But now, the need for those explanations may be coming to an end.

While other once-heavily diversified manufacturers such as Ingersoll-Rand Co Ltd (IR.N) have divested units and acquired companies to focus their businesses, Manitowoc has steadfastly retained its unique portfolio of products -- which range from cranes for the construction and mining industries to ships for the U.S. Navy, to ice to beverage dispensers for the fast-food industry.

But after watching its planned purchase of Enodis Plc ENO.L get derailed last week when Illinois Tool Works Inc (ITW.N) offered more money for the U.K. maker of fast-food fryers, Manitowoc's top executive admitted his company was "in the process of retrenching, figuring out what our options are."

Analysts say one option may be to get out of the food service industry altogether -- the very business the Enodis deal would have significantly grown -- and to focus on cranes and shipbuilding, where some modest purchasing and personnel synergies exist.

Ben Elias, an analyst at Sterne, Agee & Leach Inc, points out that, even if the Enodis deal had gone through, Manitowoc probably would have been forced to make some food service- related divestitures to clear antitrust hurdles.

"If they were thinking about disposing of some food service assets if the acquisition went through, maybe they wouldn't be averse to spinning that out completely," he said.

Steve Khail, Manitowoc's spokesman, said the company could not comment on its M&A plans for this story.

NOT IN LOVE WITH FOOD

Manitowoc has another good reason to consider exiting the food service business: Shareholders did not like its decision to bid for Enodis in the first place.

Manitowoc's shares tumbled nearly 19 percent after the bid was announced as investors who had been attracted to the company by its fast-growing crane business balked.

Their distaste is understandable. The National Restaurant Association's index of restaurant activity fell sharply in March, the most recent month for which data is available, to its lowest level on record and further declines are expected because of the correlation between consumer spending and eating out. As a result, Bear Stearns analyst Ann Duignan said she expects "slower growth in the equipment industry in the near term."

Food service used to be Manitowoc's biggest business. But since 2000, its crane business has quadrupled in size, thanks in part to acquisitions and to growth in the market. Food service equipment sales, which accounted for 47.1 percent of the company's total sales in 1999, accounted for less than 11 percent last year.

That has been fine with shareholders, who have come to see the company as a semi-pure play on the global infrastructure build-out story and have more than doubled its share price over the past two years.

"I think a lot of people thought they were diluting their growth getting into a slower growing business," John Kearney an analyst at Morningstar, said of the sell-off that followed word of the bid for Enodis.

"If they were doing this when the crane market wasn't red hot, maybe the market would have reacted differently."

SHIPBUILDING IN FOCUS

Of course another possible option for Manitowoc would be to sell its ship building and repair businesses, which gave the company its start in 1902, but now accounts for about 10 percent of sales.

At the Reuters Manufacturing Summit in February, Glen Tellock, Manitowoc's president and chief executive, said he was "not emotionally attached" to the business.

But Elias thinks Manitowoc should stay in the boat businesses because of the obvious synergies -- both are big purchasers of steel -- and the less obvious ones, such as maintaining a skilled work force in a tight market.

"Skilled welders are hard to find," Elias says. "Even at $22 an hour.

"Shipbuilding is a seasonal business. There is a lot of refurbishment and repair work done during the winter months when the boats are dry docked," Elias added. "During the summer months they have the ability to move the welders to the crane manufacturing facilities."

As a result, Elias says that, while rivals Joy Global Inc (JOYG.O) and Bucyrus International Inc (BUCY.O) have commented on the recruitment, training and retention challenges they face with welders, Manitowoc said they have not had been too pressed on filling their welder channels "because of the synergies with shipbuilding."

"Welding is probably the second most critical part of the construction of cranes, shovels and draglines, after research and design," Elias says. "There are no assembly lines. These machines are put together by men with blow torches."

(Editing by Andre Grenon)