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Business Observer Friday, May 20, 2016 2 years ago

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A company with $1.5 billion in sales tackles what the new top executive considers a pressing problem: The business, he says, has become 'fat and overcomplicated.'
by: Mark Gordon Managing Editor

Executive Summary
Company. Manitowoc Foodservice Industry. Manufacturing, hospitality Key. Company looks to simplify its operations.

Industrial kitchen equipment for restaurants, from icemakers to large vat fryers, seemingly has little in common with construction cranes and boom trucks that have cherry pickers on top.

At least noted activist investor Carl Icahn thought so, and that meant change was coming to Wisconsin-based Manitowoc.

Icahn bought a 7.7% stake in the publicly traded company in late 2014, and he immediately did what he's known best for: agitate for a breakup. In this case, Icahn led a group that wanted the company to split its foodservice and crane divisions. Investors in that camp cited not only the obvious lack of cohesion in product lines. There was also the tug-of-war between divisions, where the high-revenue high-cost construction side banged into better operating margins on the foodservice side.

Company officials eventually agreed to the split, and a little more than a year later a separate publicly traded firm, Manitowoc Foodservice Inc., was born.

The spun-off Manitowoc Foodservice is based in New Port Richey. Manitowoc Foodservice has been in the Pasco County complex, on Welbilt Boulevard, since 2008, when Manitowoc acquired Enodis, a $1.6 billion global foodservice manufacturer that used the facility for a Southeast office. About 125 people work in the Manitowoc Foodservice corporate office, which includes a client training facility and test kitchen.

The new Manitowoc Foodservice Inc. immediately plunks itself into the conversation of largest area companies. With $1.57 billion in revenues in 2015, Manitowoc Foodservice is among the top 10 largest publicly traded companies in Tampa. It would also be in the top 20 of all companies on the Gulf Coast, from Polk to Collier counties, based on the 2015 issue of the Gulf Coast 500, published by the Business Observer. The company has 5,000 employees spread through 20 facilities worldwide, with 3,000 product distributors and customers in at least 100 countries.

The client list includes multiple fast-food chains, such as McDonald's, Chick-fil-A and Subway, up through fine-dining establishments. It also makes kitchen equipment for Starbucks, Wawa, Panera Bread and Cracker Barrel, among many others. Outside hospitality, the company works with hospitals, schools and hotels.

Long list
While Manitowoc Foodservice is huge, there are several challenges, both internally and externally in being a new standalone public company.

To oversee those tasks, the company's board, in anticipation of the spinoff, named global manufacturing executive Hubertus Muehlhaeuser president and CEO of Manitowoc Foodservice in August. “It was clear we needed fresh blood from the outside,” says Muehlhaeuser, in one of his first in-person interviews with Tampa Bay area media since Manitowoc Foodservice went public Feb 18.

Born in Germany, Muehlhaeuser most recently ran the Europe, Africa and Middle East units of AGCO Corp., a farm equipment giant. His division did more than $5 billion in revenues a year.

Muehlhaeuser says he has a long list of priorities at Manitowoc Foodservice, but his main focus to start with is to streamline. “We have to simplify the business,” says Muehlhaeuser. “We got to be too fat and overcomplicated.”

One step toward simplification, says Muehlhaeuser, is to do a better job grasping the 80-20 rule on the firm's product line. For that, he would like to see the company focus on fewer products — the 20% that produce 80% of sales. Layoffs are another step. Two plant closures have already been announced, for a production facility in Cleveland and a distribution warehouse in Irwindale, Calif. Another facility was moved to Mexico.

Muehlhaeuser, in an investor presentation right before the split was official, says the goal with simplification is ambitious: $100 million in savings over the next three years.

Room for more
Muehlhaeuser, who sipped fresh coffee in one hand while chugging Coke Zero in another during the interview, brings a just-do-it, hard-charging mindset to Manitowoc Foodservice. He helped run a family business in Germany, in between corporate gigs, an experience he says was great training in being nimble. He also spent a decade in Switzerland with business consulting firm Arthur D. Little Ltd., where he fine-tuned his global business smarts.

His experience has already been put to use at Manitowoc Foodservice. On margins, for example, Muehlhaeuser wants to make what's good better. Manitowoc Foodservice posted an earnings before interest taxes depreciation and amortization ratio of 15% in fiscal 2014. “That's nice, but there's room for us to grow that,” Muehlhaeuser says. “There is runway there.”

Two of Manitowoc Foodservice's main competitors, Rational AG and Middleby, posted better EBITDA margins in the same time frame, 30.9% and 20.9%, respectively, according to the investor prospectus the firm published in February. Muehlhaeuser says an aspirational EBITDA margin target for Manitowoc Foodservice is at least 20%.

Muehlhaeuser's first move at the company, before simplification, improved margins or any other goal, was to build an executive team. Senior officials already there include Senior Vice President of Innovation Rick Caron, who holds multiple foodservice industry patents, in automated frying and rapid cooking systems.

Caron is on a simplification mission in his department, too. He says that's essential because many of the company's customers also strive for simplicity whenever possible. Chick-fil-A, for example, has plans to open locations in New York City, says Caron, which will require smaller kitchens with equipment that pumps out food faster. That's one challenge his unit is currently working on. One more upcoming challenge: Manitowoc Foodservice client Johnny Rockets, a burger joint chain, plans to open 300 restaurants in China.

“It's not just the equipment,” Caron says. “We look at the food, people and equipment as one system.”
One new hire is Senior Vice President and CFO John Stewart, who helped oversee the 14-month sale and spinoff process when Dr. Pepper Snapple Group split from Cadbury Schweppes in 2008. Stewart was most recently CFO of Twinkie maker Hostess Brands, where helped lead the company through bankruptcy. A second new executive hire is manufacturing veteran Andreas Weishaar, who, like Muehlhaeuser, worked at AGCO and Arthur D. Little. Weishaar was named head of strategy, marketing and human resources last
year.

Muehlhaeuser says his first rule of hiring executives is to religiously avoid egomaniacs. “I want team players,” he says. “I want people who challenge the status quo and people who fight the bureaucracy.”

He looks for one more characteristic: fervor. “I want people with hot blood,” says Muehlhaeuser. “I want people with a passion.”

Chase growth
That passion, says Caron, who has been with the firm since 2005, back when it was Enodis, is already up company-wide since the split. Morale, he says, is as high as he's ever seen it.
“We were competing for capital with the crane segment,” Caron says. “We couldn't focus on the core business we love and enjoy.”

Another major factor in Manitowoc Foodservice's favor going ahead is the sector its end products serve: People like to eat out.

Manitowoc Foodservice is there for that, with 23 brands that cross between hot and cold kitchen equipment. On cold, that includes beverage dispensers, blast chillers and walk-in refrigerators and freezers. For hot there are convection ovens, griddles and countertop frying systems, among other products. About 50% of the company's revenues come from cold products and 35% comes from hot. The rest is service work on its machines and selling aftermarket parts.

On service work, the company does that through its KitchenCare brand and unit. Implementation of KitchenCare, several years before Muehlhaeuser got there, had some hiccups in customer service and other areas. But executives say that unit now provides recurring revenues that are high-margin.

Another factor Muehlhaeuser hopes to capitalize on in the near future is Manitowoc Foodservice's innovation side and how it melds products with technology. The company introduced 10 new products in 2015, and refreshed 20 more. One new one: The Merrychef eikon e2s, a high speed oven the firm says cooks up to 15 times faster than other units. On technology, the race is already on in the industry to build the best Internet-connected kitchen.

Muehlhaeuser will eventually look to chase growth through acquisitions he says, in Europe and Asia. But the current status is to forge ahead on the short-range simplification goals. Says Muehlhaeuser: “It's blocking and tackling status for us right now.”

At a Glance
Manitowoc Foodservice
Headquarters: New Port Richey
CEO: Hubertus Muehlhaeuser
Year Founded: Company was split from crane manufacturer Manitowoc Co. in February. Manitowoc Foodservice made its debut on the NYSE Feb. 18. Manitowoc was founded in 1902.
Employees: 5,000
2015 revenues: $1.57 billion
Symbol: MFS
Recent share price: $15.77
Market capitalization: $2 billion
52-week range: $11.56 - $16.64

Source: Google Finance, Manitowoc Foodservice

Activist mode
One of the newest — and largest — companies in the region, New Port Richey-based Manitowoc Foodservice, exists partially due to prominent activist investor Carl Icahn.

The firm, with $1.57 billion in sales last year, was previously a unit of Wisconsin-based crane manufacturer Manitowoc. Icahn, after he bought a 7.7% stake in the company in late 2014, led a move to split the business into two separate entities.

Icahn is familiar with the activist model, and he's also getting familiar with the Gulf Coast: He's the largest shareholder of Estero-based Hertz, where he's built up his holdings going back more than a year. Icahn's funds own 11.3% of the car rental giant, which has struggled with both internal accounting issues and a rapidly changing industry.

Icahn won three seats on the Hertz board last fall, and he helped find the current CEO, John Tague. Icahn next pushed for Hertz to spin off its equipment rental business, a move put into place late last year.

Icahn also took a big stake in Bonita Springs-based WCI Communities at the end of the real estate boom and tried unsuccessfully to wrestle control of the publicly traded homebuilder and developer. His bid to gain control of the real estate company was ultimately unsuccessful and WCI filed for bankruptcy reorganization during the bust.

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