Manitowoc Company Inc (MTW) 2003 Q1 法說會逐字稿

Good day everyone and welcome to the Manitowoc Company Incorporated's First Quarter Earnings Conference Call. Today's call is being recorded. At this point I would like to turn the call over to Mr. Kyle Please go ahead sir.

Good morning everyone and thank you for joining us today. Participating in today's call is Terry Growcock, our Chairman and Chief Executive Officer, Tim Wood, Vice President and Chief Financial Officer and Dennis McCloskey, President of Manitowoc's Marine Group. Glen Tellock, President of Manitowoc's Crane Group and Tim Kraus, President of Manitowoc's Food Service Group, are also on the line to participate in our question and answer session.

Tim Wood will open the call with an overview of our financial results for the quarter, including a brief report on each operating segment. Dennis will follow with an update of our Marine Operations and then Terry will conclude with a strategic commentary and updated earnings guidance. Following these remarks, we will open the call for your questions. I want to remind you that if any of you were not able to stay in the line for the entire conference call, you can hear a replay of our call, beginning at 1p.m. Eastern Time today, until 1a.m. Eastern Time, May 7th. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 606430. You can also access an archived version of this call by visiting our website at www.manitowoc.com.

Before we get started, I would like to review our Safe Harbor Statement. This call is taking place on April 30, 2003. During the course of today's call, forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995 may be made during the speakers remarks and during our question and answer session. Such comment are based on the company's current assessment of its markets and other factors that affect our business. Actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc filings with the Securities and Exchange Commission, including, but not limited, the company's annual report on form 10-K for the year-ended December 31, 2002.

With that, I'll now turn the call over Tim Wood.

Thank you Steven. Good morning everyone. We're very pleased with our First Quarter Results and saw overall sales increase 34%, our food service operating earnings jumped 30% and our cash flow from continuing operations, hitting a record $25m. The latter is particularly noteworthy, because historically, we use more cash for working capital in the first quarter, than any other quarter. This result, and combined with the proceeds form the sale of Femco, has enabled us to reduce net dept by $28m in the quarter.

As you know, our first quarter results were (inaudible) by the strike at Marinette Marine and the continued difficulty happening in our domestic Crane Markets. We did achieve record sales of $379.2m, again, a 34% increase, which was boosted by the acquisition of Grove. Net income was $535,000, or 2 cents per diluted share, versus earnings of 27 cents per diluted share in the same quarter last year, excluding the charges related to a change in accounting for goodwill.

The $5.3m decline in Marine Operating earnings equated to 13 cents per share. This is was due principally to a Marinette strike. Crane segment earnings of $6.9m, were $5.7m lower than last year and conversely, Food Service earnings of $12.2m, were up $2.9m. Even though it doesn't mean a lot in the first quarter, our effective tax rate is moving down into the low 30%-range, due to non-US restructuring activities and we expect this help us as the year progresses.

I'll now comment on our segment performance, beginning with an overview of the Crane Market. Global demand for cranes remains weak, due in large part to low, non-residential construction activity and deferrals in spending for power plant renovations. Following two years of double-digit declines, the worldwide crawler market is expected to decline again this year and maybe by more than 25%. Both the Mobile Telescopic and the Tele Crane categories are expected to decline between 5% and 10% this year worldwide, which more than cancel the increases in those categories last year. The good news is that we're retaining and in some cases, improving our domestic market share, while increasing our non-US sales.

Our Crane segment reported net sales of $239m, which is an 85% increase over the same quarter of 2002, excluding acquisition sales - declined 32%, as very slow demand for US Crawler Cranes Depressed revenues. Crane reported operating earnings of $6.9m, a 45% reduction from2002. Earnings were reduced by lowered Crawler Crane volumes, a shift in product mix towards smaller cranes and in some places, competitive pricing.

Despite this environment, we have continued to invest in new product development and in addition to this, operating efficiencies, driven by the savings from the Crane integration program are expected to contribute more to the bottom line as the year progresses, and Terry will discuss this in more detail later in the call.

We'll also increase -- seeing increased order activity, leading to a growing Crane backlog (inaudible). Our Crane backlog at the end of the quarter was $202.1m, which is up from $133.8m at year-end. Switching to Food Service, sales rose 2% to $105m. We increased our operating margins by more than 2 percentage points as a result of new products introductions, together with improved performance by DRI and ongoing cost improvements. We're particularly pleased with these accomplishments in the face of a slight decline in the overall Food Service equipment market, which we think is going to continue throughout the year. Despite this decline, we continue to outperform the industry due to the breadth of offerings and our focus on new product development.

During the quarter, Manitowoc's Ice and Beverage shipments increased, while over industry shipments decreased, indicating that we continue to gain market share. Turning to main operations, the strike at Marinette was a primary factor and it caused segment sales to drop 31% to $35.3m and operating earnings to slip 90%.

While the long-term outlook continues to be very promising for both commercial and defense-related projects, we do anticipate some near-term pressure and new ship-building projects as customers face -- may face the delays in obtaining funding. Dennis will provide a more complete update on the marine segment in a few minutes, but first, let me make a couple of quick comments on the balance sheet.

As I said earlier, we were able to reduce debt by $28m during the quarter during the quarter from cash flow. The stronger Euro offset this by about $7m, including our debt-to-Cap ratio; our net dept-Cap cap ratio hit about 67.5%. Our operating cash flow is off to a great start this year and we believe there is a whole lot more opportunity in this area and we will manage our business for optimum cash flow generation (inaudible) throughout the year. As a result of this and despite maintained fixed spending at published previously indicated levels, we expect to exceed $100m in cash from operations for the year. Now I'll turn the call over to Dennis McCloskey for a report on the Marine segment, Dennis?

Thank you Tim. As you know the strike at Marinette adversely affected our net sales, earnings and margins during the quarter. Fortunately the work stoppage was resolved on March 7th and in less than two weeks Marinnette Marine was up and running at pre-strike production levels. Turning to the repair market, we are expecting a full slate of repairs during the first quarter of this year to most of the ships that had planned to dock (inaudible), with the exception of three ships owned by one of our customers. That customer had to postpone their scheduled repair work due to economic conditions. Even with that deferral, our repair season was up slightly, compared to last year.

If economy improves throughout the year, we think the repair market will follow suit. Therefore, we are cautiously optimistic that next year's repair season should improve over this year's. We already have one ship signed up for repair work next winter and there are several other ships that are due for regular inspections and maintenance.

In terms of contract work, we are bidding on several new construction projects for a variety of government customers. As part of a consortium with Lockheed Martin, Gibbs & Cox and Bollinger Shipyards, we've submitted a proposal for the navy's $3.6 billion Littoral Combat Ship Project. We expect a $10m engineering portion of this project to be awarded some time this summer. If our consortium is selected, $1m of the total will be earmarked for the two shipyards, of which approximately $600,000 will go to Marinette Marine. We have also submitted a proposal for a 45-foot ground water vessel for the United States Coast Guard called the Response Boat Medium (ph) and we are bidding on the Littorage(ph) system, or floating causeway for the United States Navy called the INLF. For the smaller coastguard vessel, we had teamed with Kvichak Marine of Seattle, with production likely to begin later this year.

The two navy projects are longer-term; both in start date and length of contract. All of these projects involve smaller, more nimble and responsive vessels, which are in line with the future goals of our government. Commercial projects on the other hand, grew quite quiet during the quarter. We had anticipated that a number of projects would be awarded during the past three months, but we know of only one new construction project that was awarded to a US shipyard. It appears that many of our commercial customers have delayed projects due to economic uncertainty, the war in Iraq and the ability/inability to secure financing. In fact, the government agency Mirad (ph), zeroed out its remaining funds for the present fiscal year and will make financing even more difficult to obtain. Currently, we are pursuing three of four projects that could be awarded in the second quarter if financing becomes available.

We do expect demand for commercial construction to increase over the next few years, due to OPA 90 legislation, which requires all petroleum holding vessels to have double holes within the next ten years or so. Beginning in 2004, several single-hole ships will be identified each year for removal from services that double hold equipment can be added. The amount of fuel that needs to be transport each year will not change, but the number of available vessels to transport fuel will decrease, closing the gap that will widen to a point or contracts will have to be placed in ship holders. Our integrated tug-barge configuration like the two VMS vessels we delivered last year, are ideal solutions to service need.

We are also exploring a number of initiatives to maintain growth and profitability during the down economy. We are biding on as many new projects has we can, and we are teaming with other providers where necessary to pursue a wider variety of larger contracts. Our consortium of Lockheed Martin is a good example of that. We are expanding the ray of services we offer. For example, we are working with the city of Toledo with the federal government to convert our Toledo ship repair facility into a full service shipyard that will offer industrial and new construction services as well as repair work. And we are actively pursuing alliances with other similar opportunity outside the Great Lakes area.

In summary we are doing everything we can to make up for the current slow down of contract work and the effects of the Marinette strike, and we will update you on our programs as the year unfolds. Now I will turn the call over to Terry Growcock for an update on our strategic direction and guidance. Terry.

Thank you Dennis. In terms of current economic conditions, global demand for cranes, particularly crawler cranes, continues to be adversely affected by weak non-residential construction as well as deferrals in spending for power plant renovation. While appears that the bottom of the cycle is either upon us or as quite near for Tower Cranes and Mobile Telescopic Cranes, the Crawler Crane market as expected to decline further this year. Helping us to offset some of this decline is our increased global presence throughout Europe and Asia along with our continued commitment to new product development. Next month Manitowoc Crane Group will exhibit six new cranes at the Intermat Trade Show in Paris. Not only will Intermat will the first major trade show to future the diverse product lines of Manitowoc, Grove and Potain, additional products will also be formerly introduced to the European Market.

Leading the way will be Manitowoc's largest dual track crawler crane, the 600 metric ton capacity model 18,000. Since its introduction late last year, three 18,000 have already been sold. And sharing the spotlight at Intermat will be Grove's largest All Terrain crane, the 450 metric ton GMK 7450. In addition four Potain crawler cranes will be unveiled including two top smoothing models and two self erecting models.

Lastly, Manitowoc will be announcing a new Lattice-Boom Crawler Crane that will be manufactured in Europe and designs specifically for the European and Middle Eastern market. Besides new cranes Manitowoc will launch its crane care product support program at Intermat. This comprehensive program will span each of our crane lines and will provide customers with parts, service, technical support and training programs that are unmatched in the industry. Intermat also gives us a unique opportunity to demonstrate how successfully Glen and his team have integrated our three market leading crane companies into a comprehensive global provider of lift solutions. In combination Manitowoc, Grove and Potain provides us with opportunities, efficiencies, synergies and (inaudible) and capabilities that weren't feasible for any of these companies on a stand-alone basis.

In the food service industry, we foresee a flat to slightly decline in market led by the expansion cut backs at Quick Serve restaurants and within the hospitality industry. Manitowoc Food Service Group is extremely well positioned in this market with our strategic and exclusive focus on commercial refrigeration equipment. With 50 new products launched in 2002 and another set of new products scheduled for launch in 2003. We have been able to offset the industry decline with solid improvements in both revenue and operating earnings. We are well positioned to meet the replacement and renovation segments of this market, which drives the majority of this industry. At the same time our new products are strongly positioning in new store construction with innovative ice machines, ice beverage dispensers, walk-in coolers and freezers and reach-in refrigerators and freezers.

Over the past three years, we have established a new and more powerful sales and marketing organization to focus on this market. Our efforts at cross selling and leveraging the various strengths of our marketing leading brands have shown tremendous success. Thus coupled with our new products and operational excellence efforts including facility consolidation, demand flow, six sigma initiatives and others give us confidence that the improvement we have seen over the past 15 months will continue into the future.

As for our marine operations, the first quarter was adversely affected by the strike at Marinette Marine. This strike has been settled and the economic impact going forward as a result of the new four-year contract should be negligible. Unfortunately, some of the projects that we had hoped would fill our building schedule for 2003 have not yet been placed, partly has a result of the strike and partly has a result of current economic uncertainties. The good news is that we have not lost any of the contracts that we are attempting to close. We continue to be very optimistic about the long-term prospect for our marine business. Our multi project backlog gives us a sound foundation to build upon. This coupled with our repair and inspection capabilities assures us of the solid base going forward. The number of opportunities in both commercial and military homeland security are plentiful.

Our recent partnership with Lockheed Martin, Gibbs and Cox and Bollinger to form a team to compete for the Navy's Littoral combat ship shows that even our smaller segments which represent which represents only 10% of our business has a solid slate of opportunities. Therefore, with an eye toward long-term performance, we are continuing to focus on our proven strategies of operational excellence and new product development to grow market share and to position our business to excel when the economy improves. In the shorter term, we are focusing on five strategic objectives this year. First, we will bolster or extend our market leadership in the global lifting market and will increase margins. We will continue expanding our cross-selling initiatives in Europe and the United States to boost sales. Our penetration of the Chinese and Southeast Asian market is helping to lessen the impact of the on going decline in the US market.

We expect margin improvements as worldwide integration and reorganization efforts continue to move ahead as planned. Those efforts have already put us in position to realize the $20m in savings that we've previously announced and in light of the current market conditions we've identified an additional $10m in savings that we expect to achieve this year.

Our second objective is to strengthen and our core food service operations by continuing to improve our operations and maintaining the strong momentum we have gained with new product introductions. The plant consolidations that we begin a few years are complete and we will now reap the benefits of those initiatives while we focus on further improvements to our existing operations.

Third, we will continue to grow our marine operations by leveraging the strengths and capabilities of our shipyards to enhance our backlog with additional commercial, government and military ship building opportunities.

Fourth, with the successful sale of (inaudible) as an example, we will continue to evaluate a number of potential divestitures of non-core operations or redundant facilities.

Finally. We will strengthen our financial structure. We will exceed our target of $100m in cash flow from continuing operations this year. We will use this cash as well as cash from future divestments to help reduce debt and achieve a debt to capitalization ratio of 55% within the next 18 to 24 months.

We are confident that these strategies will help us to improve our performance; however, due to the effect of the strike at Marinette Marine on our first quarter earnings as well as the continued sluggish demand for Crawler Cranes, we find it necessary to revise the guidance that we gave earlier this year.

We are now targeting a full year diluted EPS range of a $1.50 to $1.75. These earnings expectations assume the crane market to continue at its soft level as discussed earlier, obviously, an improving picture in the Middle East to brighten this outlook. In the food service, we are not expecting any improvement in this market for the balance of 2003 but our roll out of new products will allow us to continue to grow in these challenging times.

In the marine segment, we will not be able to recover the business setbacks from the first quarter. This will reduce our projected sale in this segment by as much as 20% from 2002 levels.

In closing, despite our lower than average earnings this quarter, we are optimistic about the future of the Manitowoc company. We believe that our sound and time proven strategies will enable us to weather the near term challenges in our markets. Our efforts to minimize cost, to maximize new product opportunities, to drive new sales with aggressive cross-selling and to shed non-core assets should help us maintain profitability and optimize cash flow today while we position ourselves for growth tomorrow. Manitowoc's diversified model continues to perform in these challenging markets.

I will now turn the call over to the operator to conduct your question and answer session.

Thank you gentlemen. Today's question and answer session will be conducted electronically. If you would like to ask a question, please press the star key followed by the digit one on your touch-tone telephone. We ask that you please limit yourself to one initial question and follow-up. And again, if you would like to ask a question, please press star one on your telephone. We'll pause just a moment to give everyone a chance to signal. We'll take our first question from Aaron Ravenscoft with Janney Montgomery Scott.

Good morning gentlemen.

Morning Aaron.

Could you provide an update on the reorganization of the cranes business? Where does Europe and Asia stand at this point? I know you're pretty much finish with North America than the last quarter. How is the reorganization of those three areas in the world coming?

Well, I can tell you Aaron that we're right on our schedule that we had laid out. We --- I have completed the process with the discretions that have to be undertaken with the various agencies in Europe and as I said, that process as been completed. We had said that Europe would trail about a half a year and we are in process now of been able to finalize those plans and many of the announcements have been out. Glen, you may have a few other comments you might want to offer on that?

Aaron I ---- with respect to our plans and everything we've done, one of the last things was in fact some of the things that happen in Europe and --- our time frame with everything been done in our plans that we set out in August and September of last year, the last things we would roll out, it will be done, basically by June - July and as Terry said, we're right on track and I think that's why some of the things that we're seeing and the opportunities we have gives us the comfort for Terry to make the comments but we have seen the additional savings out of some of the actions we've taken. And --- so we feel pretty good about the plan.

And I know outsourcing was one of the big opportunities. How is that coming? I know that's normally a slow initiative.

That's certainly a part of it, when you getting to all the purchasing and what not. It's again, we feel very good about what we've done in a lot of areas and the purchasing where the only, I think, the set back that we've seen is if the volumes in crawler crane industries and wherefore some of the inventories that we had and ready to build and some of the stuff on consignment with suppliers, that's just taking a little more time to come out of the pipeline, but when it comes into the whole grand scheme of the savings -- we have the, you know, we've done a lot with the suppliers, we're working on the engineering side, you know, everything there is just a matter of I think --- some of the ---in no specific instances you won't realize some of the savings we thought initially back in August and September of last year, but again we've found other areas to make up for that little bit of a short fall we had in that--- but that's really the only set back that we really had and it's because of the volumes in the tower crane market.

Okay. And with respect to the marine business how quickly do you think you'll ramp back up to your operating margins being in that 8 to 10% range?

Aaron we'll answer that, but then we'll have to go on to the next question because of the one question follow up but Tim do you want to answer that?

Well to ramp back up to previous operating levels is just probably going to work beyond the end of 2003 because the contract with deferrals that you get -- these are longer term deferrals you can't just turn around in a three to six months period Aaron. So we are looking certainly for recovery from our existing (inaudible) in the second half but it'll be next year before we are all the way back.

Before we move on to our next I would like to remind everyone to please limit yourself to one question and one follow up. We'll move on to Pete Lisnick (ph.) with Robert W. Baird.

Hi good morning everyone --- house keeping item I guess first. Quantify the impact of foreign exchange on sales and or earnings per share during the quarter?

There was about 1% impact on sales and operating earnings as well.

Okay, then in terms of the new forecast that you've come out with, you were basically I guess somewhere around $2 using mid points before now you're around a $1.63, let's call it. You know, that the strike in first quarter was 13 cents, I'm trying to get an understanding of where the rest of the incremental decline is, whether that's all marine or whether some of it is from the crane segment. Can you help me understand how you're getting from the 2 to $1.63?

It's both issues. It's both issues -- the 13-cent decline from marine in the first quarter, you're not going to see that kind of an impact --- relative impact going out for the rest of the year, but because of the contract deferrals we're going to see a negative impact. And that the 13 cents plus some additional impact from marine entered into our thinking. And in the crane business, I think what you're seeing is--- it is a proper market in -domestically than we anticipated at the time of the plan. We think we can offset a good chunk of that because of the penetration we're making outside the U.S, but we also factored similar (inaudible) business as well. You didn't ask about those services we think it continue to do extremely well.

By your comment there, I guess food service is doing better than you expected so that's a positive in --- I guess the difference between the change in previous and current forecast.

Actually we've expected food service to do well ever since the planning phase and they're doing it.

Okay, okay fair enough. Thanks.

Sure.

We'll take our next question from John McGinty with Credit Suisse First Boston.

Hi good morning if I could just start with a clarification for that I just want to make sure I heard you were talking about the Lattice-boom crane, the Crawler crane market being down perhaps more than 25% this year. What did you say about mobile and are the tower, did you say up or down 5%, I'm sorry.

We said down in about 5 or 10% in the whole business unit.

Okay --- then

John that was up last year and so it's basically back to about the level from about 3 years ago.

Okay my question is --- I remain totally confused by the Lattice-boom crane market. You said at peaked in 1999 and is down 30 or 40% you actually didn't say what it did in the year 2000, but you said it went down 2001, 2002. Your Lattice- boom crane sales had held up, the things you site don't make sense to me with all due respect. In other words non-residential construction has been down 20% a year for three years, so there's nothing new about that. And in the second phase of it there were no power plant rehabs that are out there, I mean we built a hell of a lot power plants to the combined cycle gas turban power plants into the second quarter of last year and then it stopped dead but there're no spending any money of rehab. I mean I follow the EMC companies that are doing that it hasn't been happening so I don't understand why the Lattice-boom market had tanked at this point unless it was being driven by the new power construction and that's gone. Can you explain that to me cause that's obviously a crucial part of what's going on and I don't understand it at all?

John, I'll take a first of this and then I'll ask Glen to see if he can add any further color to that. But really if you recall about two thirds of our sales go into the large crane rental leasing firms. And you know these are the value added crane rental firms that we have historically sold into and that market in the --- in the second half of last year softened significantly. We were able to hold pretty strong in the North American Market up until the third quarter of last year as you well know and several things have brought that about. One has been basically the ability for that base of our business to continue to grow and that was further hampered when --- with the reduction or the slow down in the Crane Iraq, which I think allowed some of the cranes that were anticipated to be used to be bought off of lease. We think that that's a big portion of it and of course the other portion is you've well identified is the continuing new construction of our power plants. Glen do you have?

Good morning John. Some of the --- I think what you see in comparing our numbers to some of the other people that you're familiar with, is the fact that, that we did have a first six months last year. So we talk about the slow down we had in the second half of last year, I think a lot of the people were having the slow down in the first half of last year. Remember correctly, we were pretty much, I think when we went back 2002 to 2001, we were still flat (inaudible) in 2001, whereas we weren't seeing declines in the market that other people saw because of some new products that we introduced. In late 2001, we had some things that were being rolled out in the first part of last year, before ConExpo (ph.) and so we saw the bigger drops in the latter half of last year, than some of our competitors did. And I think that's what skewed the data (inaudible) that now you look in the first quarter, first quarter for us isn't a lot different than the fourth quarter of last year 2002, but when you start comparing, what we're looking at as the entire market for Lattice-boom car cranes greater than 68 metric tons. You got --- you have to impact, what we had in the first half of last year that's why we see declines that we're having. I agree with a lot of the things you're saying, we've seen these things for quite awhile and I would say, since July of 2002, is really when you saw the first (inaudible) to slowdown in that market. But I think it's just a matter of when everybody experienced that slowdown that's making it a little bit different, that's what I have add to that and you know all the reasons why, that market is suffering and it's the power plant, it's stadiums, it's the States that don't have any money to team up with Federal money available in T21, to let that come out at the availability of credit. It's a fact, that is really a lot of inventory out in the United States in the crawler cranes and it has been a lot of our customers are doing the same things that businesses, bigger businesses are doing and that's cutting back on capital spending. So you know all that together, gives you what we're seeing in the industry right now.

Follow-up would be, if we work from the bottom up, if we take the low end and work -- you've us guidance for essentially every piece of it, you end up at the low end, with cranes of $60m. I assume that's the third and fourth quarter--- the fourth quarter of last, the first quarter of this year, staying at that rate, plus the $30m Tim that you're expecting to get, I assume you've got none of it, is that essentially how you get to the low end of your number?

I'm not sure John, that I understand the question. Will you expand cranes at $60m, what does that mean?

What I'm saying is, if I do a $1.50, take the shares, the tax rate, the interest, put Marine at essentially last year's rate after the first quarter. Keep food where it was, if you divide it out, what's left over is Crane as to earn, about what it did last year, but the question is you're running it about a $6m or $7m quarterly rate. So the only way you can get up to $60m I assume, is that $30m all comes in Crane, it all comes in the last nine months of the year, in order to get to kind of numbers you're talking about essentially (multiple speakers). Cranes stays where it is, plus the $30m you guys are going for, is that the way to look at it?

Yes, let me speak it to directionally as opposed to (inaudible) specific number, John. Your point is right on, two things are happening in the second half that we're looking for from Cranes to increase the quarterly trend on earnings per share very significantly in the second half. One of them is that there's a heavier dose of the savings in the second half, for a couple of reasons, (technical difficulties) some of this stuff that is in the $30m is relatively new and will have bigger impact in the second half of the year. And secondly as Glen earlier, to date, the European savings are rolling out in the second half, you take those two things and that's what Terry is talking about when he says our margins will improve.

And secondly if you notice again - if you're following the backlog build up we have toward tail end of the first quarter, I think this is going to have a more positive impact on the second half of the year, in relative terms and it will even the second quarter. You can correct me if I'm wrong here as I think this kind of helps rolling out. So John to your claim, you know, from a timing standpoint, we do look or things to start improving in the second quarter, clearly picking up in the second half.

I'll get back in queue.

We'll move on to Maniesh Simeyer (ph.) with JP Morgan.

Good morning, a lot have my questions have been answered ---(inaudible)

Excuse me Mr. Simeyer if you please pick up your handset, if you're on a speakerphone, we cannot hear your questions.

Good morning, how's that? Okay, sorry about that. A lot of my questions have been answered. Just two quick questions, first one is, the EPS guidance that should be about $1.50 to $1.75, what does that equate to in terms of EBITDA?

In terms of EBITDA? Give me one minute to back into that and there's no (inaudible). I'll answer just in a minute.

Okay and in terms of Capex, I guess Capex is still at $26m right, $26m to $m28 for the year?

More in the $30m to $35m range.

Okay $30m to $35m.

Depreciation is about the same.

And, working capital did quite well in the first quarter and I guess, (technical difficulties) --- what we had implying from the operating cash flow guidance for the year is the fact that, that's going to continue?

Yes, we've got some significant opportunities in working capital, particularly in inventory as the year unfolds and particularly in the Crane business and so we feel real good about our ability to generate this $100m in operating cash flow that we targeted. In fact, we're hoping to do better.

Okay, that - -

The new EBITDA numbers in the depict a mid-point in a range - - is in above the $160m level

160?

Yes

Okay, Thank you.

Sure.

We'll take our next question from Hillel Olshen (ph.) with Deutsche Bank.

Hi, good morning gentlemen. I just wanted to just dig a little deeper on that working capital question, first can you give some color in terms of, I guess, you know the payables rose by north of $40m in the quarter can you give us some color there? And also, you know, in '02 we saw the complete $100m of cash flow from operations come in the second half of the year, are we - - should we expect sort of like a pull-back in the second quarter, and then the full generation in the second half of the year or should we still see some operating cash flow in this second quarter?

I think that you're going to see - - seasonally you will see, a tremendous push on working capital reduction towards the tail end of the year, you know, because the seasonal part of the business winds down, and that's going to happen again this year.

Right.

But we are targeting, I think the words were using is, "we're not leaving any stones unturned," we're targeting positive cash flow in every quarter for the remainder of the year. But from a seasonal standpoint you're right, you can expect it to be a little heavier towards the tail end of the year.

Okay. And on the accounts payable, any color there?

Yeah, there's a couple of things, you know that some of it's income tax level, some of it's accrued interest and we do have about $15m worth of differed revenue on some European contracts, lease contracts, that become current is re-classed from long-term to current, you'll see that a little bit long-term liability has gone down a little bit. So that - - part of that stuff is just foreign in the nature of accruals and reclassification in the normal course of the business, the only other things we got about a $9m increase in the receivables factory.

Okay, great thanks. And just a follow-up with - - Terry, when you were looking at the food service business, stripping away changes in DRI, you know, how - - what type of growth in margins did the company see in food service?

Here's the, just a second I do have that here. You - - go ahead Tim, if you've got that.

Actually the overall sales increased 2.2%, but the contract refrigeration sales were off a little bit in the first quarter, so were sales - - without that business we're up about 4%, again I think that's why we made the comment on the strength of the ice and beverage business earlier. And, so I think that the--- and the gross margin is probably, you know, slightly higher without it.

Okay great, thank you.

Sure

We'll take - -

It is becoming our less significant event as time passes, because as we indicated before, you know, the problems are pretty well resolved.

We'll take our next question from Keith Hogan with Ethan Bants (ph.).

Hi, good morning gentleman how you doing. Just a follow on to the EBITDA question Maniesh had asked, I think you said about 160 mid range for the EBITDA for the year. Can you refresh my memory, I don't know if my notes are accurate because I have these minimum EBITDA numbers that you have to maintain for the bank. Whats the minimum EBITDA you have to maintain for the bank? I though it was 155.

It's 155.

And are you, talking to the banks to give yourselves some breathing room there or are you comfortable enough with the numbers to leave it as it is at this point?

We're not having a discussion with our bank on this topic at this point, no.

Okay.

In the first quarter, just let me just add in the first quarter we exceeded our covenant requirements by a very comfortable margin despite, you know, the fact it was not our best EBITDA quarter of the year.

Right, you and - - I assume you were able to add some pro-forma numbers into that to for Grove for the bank covenant, which kind of roll off - -

There's a special calculation, that's right. That's a good point.

Great, I guess that's all I have, I'm limited to one right?

I thought that was a follow-up on growth too.

We'll move on to Sarah Thompson with Lehman Brothers.

Yeah, just a couple of quick questions on that last question, I think if you ran your EPS guidance at the low end of a $1.50, you would do it right at 155 of the EBITDA. Are there still add-backs that you get at the end of the year or would you have - - is it a pure EBITDA calculation for you bank covenant? And can we get to it or are there add-backs you had to add?

I take it if we had done as $155m range, you're looking at the performance versus the EBITDA covenant, get pretty marginal without the, you know, terribly significant yet (inaudible).

Okay, so at the low end of your EPS range we're right at the minimum EBITDA covenant then?

Yes, we're - - actually we're a little - - we're above it, but not dramatically.

Okay.

That - - that's the EBITDA covenant. The same comment does not apply to any of the other covenants as far as the leverage covenant and the coverage covenants. We're in very good shape and will continue to get better because of the cash flow, we are and will continue to generate. And if you take a look at it overall you have to consider that part of it as well.

Okay, and then just one follow-up question on the cash flow, I'm sorry if I missed this earlier but it looks like your accrued expenses and accounts payable were up a fair bit at the end of the quarter. I assume part of that has to do with interest expense, is ther anything else in there?

Yeah, the accrued interest is up some and the actual trade payable themselves were only up about $5m, but if you take a look at the reclassification of differed revenues and lease contracts that's becoming permanent next year, that's the single biggest reason, and then there's also about a 9 million or so increase in the factored receivables, those are the big reasons.

Okay. And the lease payments, those are in all of 2003 then or 2004?

Well no, some of them will carry over in 2004 because the rule is 12 months from March 31st.

Okay, but that's quarterly payments? I'm just trying to figure out as the cash - - how much cash was at the door from then in 2003.

These are lease receivables. These are contracts that the - - they're European contracts where the sales were such that they were recorded as operating leases to the buyer with the income and the assets deferred and written off over the term of the lease, so what you end up with is - - you end up receiving the cash and recording the income to offset the reduction in the payable, conversely you end up writing off the fixed asset we've got on the books in accordance to the operating lease accounting. So, but you ---

Okay, I got it. Thank you.

We'll take a follow-up question from Robert McCarthy (ph) with Robert W. Baird (ph).

Morning gentlemen.

Morning Robert.

First question I think, or two. To follow-up on the question about food service performance, Tim, I wonder if I could ask it this way. In terms of the $2.9m in income improvement compared with last year's first quarter, you talked about three contributors to that, new product introductions, improved production efficiencies and the improvement of DRIs in DRIs performance. I wonder if you could just rank those in order of importance? I'm going to have a follow-up.

I think its something of a (inaudible) personal. I would refer to you , Tim.

It's probably about half DRI versus over all operational improvement. On the operational improvement side, in May our business (inaudible) we saw good improvement in gross margin, that was off set some what by mixed of product--- distributor product versus the manufacturing, but the only way duck micro analyzing it would be about half and half.

That's very helpful, thank you Tim. And my other question I just wonder if what if you could be a little more specific in your comments about tax rates for the year? Did I understand you to say that your targeting number might gathered like 32 to 34% or something like that?

That's exactly right --- or probably --- I think the --- it depends of course (inaudible) defending the level of pretax incomes that ---

And where it comes from---

We're holding that at a rate as low as 32%.

Okay, terrific. Okay, thank you.

We'll move on to Aaron Ravenscoft of Janney Montgomery Scott.

Good morning gentlemen.

Morning Aaron.

With respect to the divestiture program, is there any thing sizeable in the pipeline at this point? Or are you just in the beginning of looking into these assets?

Aaron we --- we would not normally comment on I think any of the specifics and suffice it to say that with the review we look at all of the opportunities, but we wouldn't be able to get anymore specific than that.

Okay. Would you say you are at the beginning of the evaluation process? Or have you already begin to evaluate all of your assets?

Well we were at various stages. There's several things that we are evaluating and there is --- we may be getting very close to the decision in a couple and were --- I would say that you're right we still kind of at the beginning. And there is a degree of difficulty in the decision processes varies between you know the stuff we're working up to. So, that's my non-answer, its fairly public.

Okay, that's great. Thank you very much.

We'll move on to John McGinty with Credit Suisse First Boston.

Can I --- just one question (technical difficulty)

(Technical difficulty) we've got $7m in asset (technical difficulty) because right now we've got a $7m give or take dividend level, those two tend to wipe each other out. So the only other thing that you got to look at right now with spending which we are targeting it about $35m.

So in other words that's --- I'm sorry --- so that is a number before capital? That's all I was trying to understand.

Yes, take out --- take $35m off of that for capital expenditures and then--

$65m for debt paid out?

Yes.

Okay, I just wanted a clarification on that. Second clarification, and it was absolutely unclear to me so, let me just ask the question. If we take the marine earnings for the last nine months of last year, where you know, there was no strike impact, there'll be no strike impact this year. Were you saying that even though the strike impact is gone, that earnings in the last nine months of this year per ship per marine, will be less than the last nine months of --- this year's last nine months will be less than the last nine months of last year, because or the deferral of contracts?

That's right Jack and yes I am.

Okay, just want to make sure on that. First question, the backlog. What was the increase in the backlog, it was a huge increase, was it was it (inaudible), was it Lattice-boom, was it power, was it hydraulic, was it US, was it overseas, was it all the above (inaudible)?

I will address this question with in the confines I've been given by our operating people relative to competitive advantage that aren't a lot. You know I'll tell you that half of the increase ---let me talk about the 200 million, over half of that was a result of acquisitions we've made in the last two years. And so you can kind of draw your own conclusions from there. And over half of it is outside of the United States right now. Those are the two ---and we got a fairly significant piece of Southeast Asia and Asia, so that's kind of where the growth is coming from, by type of crane I----

But didn't you say it was just up from the end of the year? I mean wasn't that ---?

That's correct.

I mean it was --- what was it --- it was 200 versus --- what was it the end of the year, I'm sorry I just can't find it ---

It was 133 at the end of the year, and just ----

So 6 to 7 million increase?

What I was just trying letting on was the overall increase --- excuse me, the overall level.

Just the level. Okay, but I'm trying to see where the increase was.

I think the bulk of the increase that you're going to see is clearly outside the United States and progress we are making in our efforts in Asia are significant factor there.

And okay my other question, you other --- the other crane manufacturer talked about a 30% decline in first quarter sales for of a mobile hydraulic, was much more pessimistic than you were about the course of the year. And the --- I'm talking about at least a 15% increase and you may be right, they maybe right. But the pricing environment is a little bit scary. Are you assuming in your forecast that the mobile hydraulic market does not get any worse in terms of price, does not get any worse in terms of down the 5% that you are looking for or can you at least talk to that (inaudible), as there are only two of you that have about 80-85% of the market?

I think on that I would ask Glen to give his comments. Glen?

John on the pricing side of it, its very competitive as you well know and I don't see any of the things that Tim has talked to you about --- we see no easing off of the pricing issues that we've had in the first quarter of this year or even the last quarter of last year. So, but there is no benefit there in price.

And the market, if the market's worse that --- you'll still come close to what you are supposed to do.

Fine, I believe that.

We'll take a next question from Robert McCarthy with Robert W. Baird.

Hi again, just to sort of in a way follow up what John was asking about backlog. I was very impress with the sales number you got out of Grove in the quarter. I was wondering if you could talk about that in general terms as to. first of all was there - I would assume some modest at least help from currency translation, was there anything on (technical difficulties) new sales contribution? In other words were you perhaps benefiting a little bit from liquidating excess inventory or something like that? Or are we instead seeing simply, you know down payment on what you think is close to a sustainable run rate for the business?

Well in answer to the run question I can tell you that it certainly wasn't because of getting rid of and having fire sale on inventory, that is not the case. But Glen would you like to --.

Rob I think we saw late last year at least a flattening in some of the Grove business line that certainly didn't have the declines that they had in the prior quarters or prior years. And I think some of that has sustained itself through the first quarter and that's why it's a matter of John just ask, do we see pricing what do you see. I think you'll see this and that's why we're saying it could still go down 5, 10%. But what we have is at the same time last year two of our, well one of our businesses was in the midst of a - with the department of justice there was and I think - maybe some of our competitors rightfully so said there was a lack of focus. But that lack of focus is gone and now we have certainly taken everything back that was rightfully ours.

And so I think what you have is you have that and at the same time as we've gone out and taken the regional focus and then put people in the different places. I think what you have is we are past the, as I keep telling our people, we are past the transition. And now we've been executing our business plans for 2003. So once we got past that December 31st time line, you know, it's full (inaudible) ahead as one man saw crane group. And everybody has shed the previous notion of what they worked for so I think what you are seeing is that we are much better focused than what we have had in the past, you know since August 8th through December 31st.

Yeah and if I could a similar question. Your very strong performance on the order front in Asia, that of course in a car crane industry is traditionally a pretty tough market to make gains in because of local Asian producers. And I'm wondering if you can talk a little bit about, you know, how you are capturing that opportunity? Are we selling superior product performance? Are you selling more rapid availability? Are you benefiting from some of the on going strategic changes in the Japanese industry, being able to take advantage of that? I just wonder if you could talk about, you know, what's driving your success in Asia?

Well, Rob one of the real key points in that is that as I said earlier in my discussions, individually all three companies, none of them were well positioned in Asia. Today we go to the Asian market as one company with Manitowoc, with Grove and with Potain We have manufacturing facilities in China, we have major repair and service facilities in Singapore. And we are developing a stronger position in Asia. And I think that's one of the real key points to that. Glen would you like to shed anything further on that?

I think as you Rob, I think with sells itself is our factory in China. People come over there and they see what we do and think about the quality of the product that's in China and now they see that support they will have in China. And people see the opportunities there and I think a lot of it sells itself when people get over there. And the fact of the matter is we are starting to - Potain has a factory there as a joint venture before, but now that we are one of the 100% we can manage it the way we want to manage it. And some of the things and some of the changes we've made are starting to reap the benefits via contact, via knowing how to do business in China. And actually in all honesty utilizing some of the things that we have learn. In context we have for the food service people because we have been on a joint venture there since 1994. And using some of the management people there and asking them how we can work together, really is - has really taken on a new opportunity for us and we were really having a success in the power crane business. To work on large dams over there. We had equipment on the 3 gorges dam. The success that we have had in some of those projects and word of mouth is starting to get around that we are - you know we are there to stay and we have the facilities and support. And I think we are gaining on some of that. So we are - unfortunately these (inaudible) that is a bright spot for us, hopefully that's temporary and we continue to work off some of the success we have already have.

Robert McCarthy. Okay thank you.

Gentlemen due to the interest of time that does conclude our question and answer session today. Mr. Kyle I would like to turn it back over to you for any additional or closing statements.

Thank you, before we conclude today's call, I would like to remind every one that a replay of today's call will be available beginning at 1 p.m. eastern time today until 1 a.m. eastern time May 7th. The number to dial for the Manitowoc replay is area code 719-457-0820 using confirmation code 606430. You may also access the archived version of today's conference call on our website at www.manitowoc.com. Thanks again for joining us have a good day.

This does conclude today's conference call you may disconnect at this time.