Milacron Growth Prospects Bright Despite Currency Volatility

On Jun 10, 2016, we issued an updated research report on Milacron Holdings Corp. (NYSE:MCRN) . Milacron Holdings is a global leader in the manufacture, distribution, and service of highly engineered and customized systems used in the plastic technology and processing industry.

Milacron’s first-quarter fiscal 2016 adjusted earnings per share jumped 29% year over year to 27 cents per share. Backlog as of Mar 31, 2016 was $235.7 million, a $24.1 million increase from Dec 31, 2015. The upside was predominantly driven by strength in the North American equipment and hot runner businesses.

For fiscal 2016, Milacron retained its guidance of flat to 2% organic sales growth and adjusted EBITDA margins between 18.5% and 19.0%. The company expects revenue growth to be supported by underlying market growth in key segments, geographic expansion of certain product lines, continued penetration of hot runners, and incremental share gain from new products.

Demand for a diverse range of finished plastic products is on the rise in many markets. Factors like global population growth, continued urbanization, increased purchasing power and improved lifestyle have resulted in higher demand for automotive, construction and consumer products. Given its strong global presence, Milacron is well positioned to capture a portion of this growth. The company has made significant investments in China and India based on the projected growth rates of the plastic business in these markets. In Central and South America, Southeast Asia and Eastern Europe, the company is building capabilities and working on creating new relationships to support growth.

Management expects profitability to be supported by both revenue growth and margin expansion in the near term. Revenues are expected to improve on the back of underlying market growth in key segments, geographic expansion of certain product lines, consistent penetration of hot runners, and incremental share gain from new products. The company’s new products are focused on solidifying its current market position, as well as expanding addressable market through the introduction of technology that displaces other materials, primarily metal and glass.

Over the past two years, Milacron has undertaken a number of organizational redesigning and cost-reduction initiatives to improve its cost structure and operating flexibility. These actions are expected to yield approximately $35 million of annual run-rate cost savings by the end of 2017.

In the first quarter, new orders were $291.8 million, down 2.3% year over year. New orders were primarily hurt by an increase in European equipment business, offset by lower demand volumes for mold bases.

Notably, approximately 51% and 54% of Milacron’s sales in fiscal 2015 and during the first quarter of 2016, respectively, were attributable to operations outside the U.S. Around 43% of sales in fiscal 2015 were typically denominated in currencies other than the U.S. dollar. Thus, significant changes in foreign currency translations could have an adverse effect on Milacron’s financial condition and results of operations.

Milacron currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include ACCO Brands Corporation (NYSE:ACCO) , General Cable Corporation (NYSE:BGC) and Brady Corp. (NYSE:BRC) . All of these stocks sport a Zacks Rank #1 (Strong Buy).


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