Manitowoc Company Inc (MTW) 2003 Q4 法說會逐字稿

Good day, everyone, and welcome to this Manitowoc Co. Inc. fourth-quarter earnings results conference call. Just a reminder, today's conference is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Kyle (ph). Please go ahead, sir.

Good morning, everyone, and thank you for joining us today. Participating in today's call will be Terry Growcock, our Chairman and CEO; Tim Wood, VP and CFO; Glen Tellock, President of Manitowoc Crane group; Tim Kraus President of Manitowoc Foodservice group; and Dennis McCloskey, President of Manitowoc Marine group.

Tim Wood will open the call with an overview of our financial results for the quarter, including a brief report on each operating segment. Then each of our Presidents will provide an outlook for 2004 on their respective operations before Terry concludes with the strategic commentary. Following these remarks, we will open the call for your questions.

For any of you who are not able to stay on the line for the entire conference call, you can hear a replay beginning at 1 PM Eastern time today until 1 AM Eastern time February 13th. The number to dial for the replay is area code 719-70820. Please use confirmation code 789852. You can also access an archived version of this call by visiting the Investor Relations section of our corporate Web site at www.Manitowoc.com.

Before I turn call over to our first Speaker, I would like to review our Safe Harbor statement. This call is taking place on February 5, 2004. 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 speakers' remarks and during our question-and-answer session. Such comments 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 as explained in Manitowoc's filings with the Securities and Exchange Commission, including but not limited to the Company's annual report on form 10-K for the year ended December 31, 2002. With that, I will now turn the call over to Tim Wood.

Thanks, Stephen, and good morning. Last night we reported fourth quarter revenues totaling $396 million, which is a 3 percent gain from the fourth quarter of 2002. The gain mainly reflected increased Crane sales more than offsetting the impact of deferred shipbuilding contracts into (indiscernible) 2004. We reported a net loss for the fourth quarter of 5.5 million or 21 cents per diluted share compared with a net loss of 25.1 million or 94 cents per diluted share for the same period last year. Excluding special items, we reported earnings per share of 11 cents in the fourth quarter, versus 20 cents last year. Special items include charges related to our efforts to rationalize the aerial platform business, Crane restructuring efforts, and our early debt retirement. These were offset in part by a curtailment gain related to revisions to certain postretirement health benefits.

Cash from earnings of 14 million and a 43 million reduction in net operating assets led us to a cash flow from operations of 57 million in the fourth quarter. After capital outlays of 9 million and dividends of 7 million, we reduced net debt by 42 million. And this excludes the foreign currency impact.

For the full year 2003, Manitowoc reported revenues of 1.6 billion, a 17 percent increase over 2002, due mostly to the added revenue from the Grove acquisition. Excluded excluding the Grove acquisition, sales were down 11 percent.

Including special items, the Company posted net earnings of 3.5 million and 13 cents per diluted share. Excluding the special items, earnings for the full year were 20.7 million or 77 cents per diluted share, just over the high-end of our previous guidance range. Also note that our operating loss from continuing operations -- excuse me -- from discontinued operations of 11 cents per share is included in the 77 cents.

Excluding special items, full-year earnings for 2002 totaled 49.2 million or $1.91 per diluted share. We're also very pleased with 151 million we generated in 2003 cash from operations. This is record for the Company and far exceeds our goal of 100 million. It enabled us (technical difficulty) 545 million on December 31. This represents just under 65 percent of capital versus 68 percent going into the year.

Now I'll review our operations briefly by segment. Crane segment sales for the quarter were 255 million an increase of 16 percent from the fourth quarter of 2002 and operating earnings totaled 6 million compared to 7.8 million a year ago. We're seeing indications of increased demand for our crawler, tower and mobile telescopic cranes internationally, particularly in Asia and certain parts of Europe. And that helped drive our topline performance.

An example of this trend in the quarter was the fact that we shipped two large potain (ph) tower cranes to a dam project in Vietnam. We also reported gains in boom trucks and have improved our market share in this product category. Our crawler crane demand in the Americas remains weak. Nearly 70 percent of our 2003 Crane sales came from international markets and this is dramatic increase over the past two years. Our success internationally also highlights the benefits of organizing our business by geography, offering all our products lines in each.

Our integration and restructuring efforts during the year helped us reduce crane costs by $30 million. Which translates into an annual run rate reduction of 36 million going into 2004.

During the quarter, we also completed the consolidation of our national Crane operation into our Shady Grove facility, and we initiated our exit from the aerial work platform business to focus on vertical mass products.

We also continued investing in new products. During the quarter, Grove introduced a new three axle, 55 ton all-terrain Crane -- the model GMK 3055. Potain's Portugal plant ramped up to full production of the new MDT 178 power Crane. Glen Tellock will talk more about what's happening in our crane business later in the call.

Foodservice sales for the fourth quarter 2003 were 102 million which is down slightly from last year, while operating earnings rose about 12 percent. Our foodservice segment continued to demonstrate an ability to outperform the industry this year, holding sales steady in generally declining markets. More importantly, gross margins have improved as a result of our sustained investment product development combined with efficiency gains from previous consolidations and operating initiatives. Tim Kraus will provide further insight into our foodservice business in a few minutes.

Marine sales for the quarter were 39 million, down 38 percent from the fourth quarter of 2002, because of deferrals of major shipbuilding contracts late into the year. However, our marine group won nearly all the major contracts it bid on during the year.

For example, in the fourth quarter we were awarded a contract to build 110,000 barrel double hole tank barge for Hornback (ph) offshore transportation. The contract also provides Hornback with options to purchase three additional barges within the next year.

We're also experiencing strong winter repair season at this point, even though the fleet was late in arriving due to unexpected late-season hauling requirements. That completes my comments on 2003.

Looking forward into 2004, we see sales grow up in the 7 to 8 percent range with EPS in the $1.30 to $1.50 range. We will also continued to target cash from operations of 100 million or more. Now I'll turn the call over to Glen Tellock to discuss the crane industry.

Thank you, Tim. Good morning. Today I will give you an overview of the crane market, as well as giving you a status on our core strategies.

As most of you know, 2003 was not a good year for the industry. With the exception of China, most of our global markets were down in 2003 -- some of them substantially. In particular, the North American crawler market declined by over 50 (ph) percent in 2002. Pricing has been extremely competitive on a global basis, especially North America. The decline in prices accelerated in the second half of 2003. As we head into 2004, we believe that the decline in volumes and prices in general has stabilized.

Overall, we expect 2004 to be flat to slightly up from 2003. We believe we that we have seen the bottom of the market; we're not yet seeing any significant signs of a recovery. We see some very early signs of optimism but nothing that allows us to plan for a meaningful recovery at this point.

In this difficult market, we are very focused on our core strategies. We will protect our traditional market share, by providing our customers with the best value in the industry. We will work to grow our market share globally by leveraging the strengths of our brand names. Finally, we'll continue to streamline our cost structure and generate cash.

We have made very positive strides in executing our core strategies in 2003. In terms of protecting our traditional market share, we grew market share in most product lines in North America and Europe during the year. Growing market share in a down market positions us well for the up cycle.

We have gained share by continuing to invest in new products and product support even while reducing our infrastructure costs. In 2003, we introduced 15 new products -- the most that Manitowoc has ever introduced in one year. We plan an additional 16 new model introductions in 2004.

We increased our investments in the aftermarket supporting service in 2003. This is an area that our customers tell us is critical to them when they make their buying decisions. In 2003, we increased our resources and training, customer service and tactical support.

We're being successful in growing our global market share. We grew market share in most of our Asian markets, and made inroads in South America. We're investing in infrastructure in Asia so that we can continue to grow faster than the marketplace. China and Vietnam are areas I'm especially pleased about. We also formed an alliance with Kobelco (ph), a large Japanese construction equipment manufacturer. This alliance gives us an exciting opportunity to partner with a respected global manufacturer of high-quality products.

Looking to 2004, we'll continue to expand our global reach. We believe that our sales and product support infrastructure in Asia is well positioned against our competition. Our sales team is cross selling our entire product line. We are earning opportunities to core business that we have not previously been able to bid. We will intensify our efforts in China and Asia, and ultimately establish a footprint in Russia.

I believe that the strategy driving all positions of Potain and Grove will become increasingly evident in 2004, as our broad product offerings, worldwide distribution and product support will help us grow our share of the market.

We have made great strides in streamlining our cost structure in 2003. We've essentially completed the integration of the Grove acquisition including the rationalization of our AWP product line and the closure of our Waverly (ph), Nebraska facility. These consolidations and restructuring efforts have resulted in annual savings of $36 million over our 2002 cost bids. We stripped out more than $40 million from working capital during the year, much of it from inventory.

I think that our growth strategy is rock solid. We are globally diversified, our product line is the broadest in the business, and we serve a diversified group of end-users. Attacking our markets geographically, rather than by product line has been, and will continue to be, successful. And despite the difficulties for the crane market in the last three years, we continue to invest in innovative products and services. We'll continue to manage our crane business to provide value to our customers, grow globally, improve earnings and generate strong cash flow in 2004. With that I will now turn the call over to Tim Kraus.

Thanks, Glen. The same factors that drove the foodservice group's strong operating performance in 2003 will continue to drive our business in 2004. As the market improves we also expect to outperform the industry on a topline due to the wide range of new products introduced in '03 and slated for this upcoming year.

Our corporate goal is to generate 80 percent of revenue from products introduced in the previous five years. Food service will easily exceed that goal.

In 2003 we introduced more than 25 new products, with the most significant being the S series ice machines introduced at the Nafum (ph) tradeshow last fall. The first two S series machines are already in production and the entire line will be available by the end of the second quarter.

These products offer a unique set of customer benefits. The S series are the only ice machines that meet the new national sanitation foundation's standard 12 -- 2003 and ANSI sanitation guidelines. They consume up to 30 percent less energy than prior models, and they are much easier to maintain and service than other brands. Including the S series, and other yet to be announced beverage and refrigeration products, we will introduce more than 50 models in 2004.

Our key markets are also improving. Over the past several months we've noted positive year-over-year same-store sales improvements in many customer segments -- including the quick service segment. We see continued strength in the full-service and quick casual segments, and rising occupancy rates in the lodging industry. Industry experts generally predict a 2 to 2.5 percent growth in equipment and supplies for 2004.

Before I conclude my remarks, I want to mention two additional initiatives that add to our optimism about the longer-term prospects for foodservice.

First in the fourth quarter we announced our selection Oracle as our ERP solution for the foodservice group. This single instance, single database system will greatly enhance our ability to service our customers and improve our efficiency.

In January, we also issued a press release on our decision to build a new operations center in China. Our plan is to relocate our existing operation to a high-tech industrial park near our current manufacturing plant in Hangzhou (ph). This 140,000 square foot facility will include manufacturing space, global procurement, an engineering and design center, a regional service and sales training center, and a showroom. Initially, we will manufacture ice machines and beverage equipment in this facility, but quickly expand to other foodservice products.

So, looking forward to 2004, I would have to say we're optimistic. Not just because of the improving conditions in our market. but also because we will continue to benefit from the investments we've made and continue to make in our operations and research and allowance. With that, I will turn the call over to Dennis McCloskey.

Thank you, Tim, and good morning. The marine group comes in at 2004 with a full slate of work in our shipyards because we closed nearly all of the major contracts that we bid during the year. With many of those contracts we could land additional (indiscernible) bidding and options for follow-up contracts. Equally important, we bid on three new contracts and January.

Even though we experienced a delay in contract awards through much of 2003, we're starting to see greater numbers of contracts out for bid at this point in 2004.

We're also working intently on two major contracts that will be announced during 2004. The next phase of the Navy's Latora (ph) combat ship project, which will involve construction of a prototype vessel, will be awarded in July. And we have been selected as a finalist with our partners Lockheed Martin, Gibson Cox and Bollinger shipyards.

Furthermore, we're one of three Companies in running for the 180 vessel response boats medium contract, that the Coast Guard is expected to award in August.

The improving economy is helping our shipbuilding business, and the faster it recovers, the faster new vessels will be built. We're beginning to see more impact from the OPA 90 legislation as ships will be begin to be phased out in 2004 and must be replaced with new double hull tonnage.

Another positive sign is that the charter rates are beginning to increase worldwide. That means additional revenue for commercial customers to build new vessels. Despite these good economic indicators, however, the key issue for our market continues to be financing. Because some customers are still not able to get financing they need to bid these jobs.

We'll stick to our core strategies and we will work with other shipyards as the need arises. We remain committed to building the best quality products on time and on budget in the Great Lakes. With that, I will turn the call over Terry.

Thank you, Dennis. The strong strength of our diversified business model proved itself once again in 2003. The strong performance by our foodservice segment helped offset relatively weaker performance in our crane and marine segments.

Diversification within our business segments has also proved beneficial. In the crane segment for example, strong international performance, particularly in Europe and Asia, helped to lessen the continued impact of a weak crawler crane market in North America.

Our international performance in the crane businesses is a direct result of our discipline acquisition strategy. Over the past three years, the Potain and Grove acquisitions have positioned us extremely well internationally and provided us with a broad, diversified product line, thereby strengthening our crane segment. Both of those acquisitions fulfilled our requirements that the candidate Companies product not only (indiscernible) on to current operations, but fill voids in our product lines and geographic markets.

We continue to focus on operational excellence, which paid huge dividends in our foodservice segment in 2003 as evidenced by its outstanding operating earnings performance. The steps we took in the crane segment during 2003 should also position us for strong margin improvement this year as well.

We have completed the consolidation and rationalization of our crane operations to reduce costs, which will improve our margins and have organized our marketing efforts geographically.

Now we will expand our global market share by aggressively attacking market opportunities with our great brands, and the broadest crane product line in the industry. While continuing to invest in new product development. We have already increased our market share in Europe and Asia using this approach, and we will continue to pursue new markets around the world.

We'll continue to follow our successful foodservice strategy. Improved operating systems have helped us boost margins and new product introductions have helped us drive our market share. We'll maintain our efforts and investments in research and development to keep this strategy on track.

We have also positioned our marine operations by leveraging the strengths and capabilities of our multiple shipyards to serve commercial and government customers. We'll actively and aggressively pursue customers in both arenas. We believe we will see increasing commercial opportunities and double hull vessels required by (indiscernible) 90 legislation, and we fully intend to vigorously compete for contracts in that market sector.

The two highlights of the year, were the outstanding generation of cash from operations, of $151 million -- far exceeding our goal of $100 million. In addition, we reduced our net debt by $126 million before the impact the Euro -- more than doubling our goal and helping us move toward our long-term net debt to capital ratio of 55 percent. As Tim Wood noted, we're now at 65 percent.

In 2004, our management teams in all three segments will intensify their focus on managing working capital -- because cash generation and reducing our debt remain top priorities for us.

In addition to deleveraging, we will aggressively pursue the multiple strategies that I previously outlined for each of our business segments.

In closing, Manitowoc's results demonstrate that our strategies are sound, solid and proven. In the year ahead, an innovative slate of new products will enhance our market share and broaden our competitive advantage. And lastly, we'll continue to emphasize the financial discipline necessary to optimize earnings, cash generation and debt reduction.

With that, I will now turn the call over to the operator for question-and-answer session.

(Operator Instructions). Charlie Rentschiler, Landenberg & Associates.

I had a couple of questions. First, with regard to the guidance for '04 on sales, what you're saying is 7 to 8 percent. I wondered, it seemed to be that was on the conservative side and I wondered what it would take to do better than that?

I will start and I think you heard a little bit with the information from all three of the segments. Basically, we're looking for basically a flat year in cranes, which is obviously an improvement over last year when we saw a decline in the crane business -- in both the international and domestic market. But, at the same time, we're saying that foodservice industry is going to grow at 2, 2.5 percent. And, obviously with the full load that we have in marine, that's where the largest growth is going to be this year. So, what it takes in my mind is the continuing improving economy. We see signs of an improving economy, but as Glenn pointed out, there's optimism but we still don't see the evidence of the recovery yet in the crane side.

Can I can ask an unrelated second question then I'll get off. In the foodservice services segment, looking at third quarter '03 versus fourth quarter '03, with sales down and consequently operating earnings down, is that a seasonal thing or some other things that our involved there?

Ongoing to let Tim answer that but it is definitely seasonal. But I think Tim can give you more information on that. But foodservice has a typically seasonal criteria where they see a strong second and third quarter, typically.

I can't add to that. That's the answer.

Okay. Thank you very much. I'll get back in the queue.

John McGinty, Credit Suisse First Boston Corporation.

Tim, just as a clarification, maybe you can help me out. I'm looking at the operating income that you gave in the four segments in the -- I'm sorry -- the three segments in the fourth quarter. And the corporate expense -- the taxes, interest, expense -- and I essentially get breakeven unless there is a huge tax credit in there. How you do you get to the 11 cents or whatever the number was on a pre-everything basis?

Sorry I didn't get back to you sooner. I got you your call -- we're pretty busy this morning. The answer to your question is that we had a curtailment gain of $12 million that we didn't allocate to the segments because we feel it's unusual an item. And you'll notice in our regulations reconciliation we back that out. But, to give you the 13 cents from continuing operations (inaudible)

So in other words, what was the curtailment gain? I'm sorry. Maybe if you had explained in the past I had missed that, but I'm a little bit confused about that.

We made changes in our postretirement health plans that curtailed some of the benefits in them. And as a result of doing that, our liabilities for post-retirement health went down by about $12 million. After taxes -- excuse me -- went down by about $12 million as a result of that. We have what is called curtailment gain, we can pretty much feel that's a nonrecurring gain. We didn't put into the earnings from the different segments because we've one lined it separately down below. And we did have to put it in consolidated operating income because that's what the rules require. But, it just doesn't show up in your numbers. That's really was throwing you off.

Robert McCarthy, Robert W. Baird.

It's actually Pete sitting in for Robert. Tim, if you could just go over what your tax rate assumption is for next year? It kind of bounced around this year. Should we kind of look for mid 30s type tax rate for next year?

No. I think we should look closer to 30.

Okay 30 percentage-ish? Okay. And then follow-up on what Glen was talking about in terms of the crane being flat to slightly up. Glen, can you talk a little bit about where the pockets of strength are -- it sounds like Asia is going to be ongoing -- but can you maybe talk a little bit you know in terms of what North America might look like? But more importantly, what profitability in the crane segment might do next year in terms of operating margins this year were around the 3 percent range and you're talking about 36 million of annualized cost savings. How much impact does that have next year, and what are we looking at in terms of profitability for cranes next year?

I'm going to take that one, Pete. We're going to see improved profitability from cranes. I'm not going to break down our earnings forecast by segments for you. I think it's a matter of policy (indiscernible) earnings per-share consolidated. But having said that -- we can expect crane profitability to improve next year. There's going to be a 6 million improvement next year. The integration savings due to timing in 2003 -- stuff that came in towards the second half of the year will provide a foliar effect in 2004. That gives you the 6 million.

The other things that are going to help the crane margins. We're getting a little less bullish on. The first of those is the pricing environment, as we mentioned to you in the third quarter conference call, the pricing environment had gotten quite competitive in the crane business, and somewhat intensified towards the second half of the year. We've got to work our way through that in 2004.

The other thing we've got to work our way through is the domestic crawler crane market and its impact on our capacity utilization and our contribution markets. Those are two things that we take a similar conservative-- excuse me I will label it -- we're not taking a real bullish view on those two things. We're planning on working our way through those in 2004. But having said that, we expect crane profitability to improve.

So -- I just want to make sure I'm understanding your answer pricing at least correctly. It sounds like what you're saying is that pricing is still under pressure, and it's probably going to be the same maybe through the first half of next year, or I guess this year. And then maybe improving toward the back half? (multiple speakers) small net improvement?

What I did say, Pete, was that -- we feel pricing hurt our margins by about 3 percent this year. In that the pricing pressures were incurred toward the mid and latter part of the year. As to when we're going to work our way out -- that is something that kind of remains to be seen. But maybe Glen can shed a little bit better light on market conditions for your right now.

Pete, I think as we look at the different markets, you're right. In Asia there is some certainly optimism as to what is happening in Beijing. The Olympics, the infrastructure work and what not -- and we're very comfortable with, as I mentioned, the infrastructure we have to take advantage, and the way we set up our sale and distribution over there, to take advantage of a lot of opportunities.

In Europe, I'm not so sure the markets -- we don't see them getting better than what they currently are. I think every month or two you see a sign of optimism somewhere, but then there's no real tendency to make it a long-term -- it's a spike. So, I don't think we bank on that. But I think what we are doing -- we're putting product in place that are competing with some of our competitors in that area. And that is what we're seen growing our global market share. And it's a tough competition and that's why -- that's where we will talk about the pricing being under pressure there.

If you get into North America, I don't think a lot is changed. What we're looking at is the pricing, as Tim mentioned, started in late second quarter early third quarter last year, and more of a comparison for what as we find our way through the first and second quarter this year, just from a comparison standpoint.

The crawler markets, if you recall last year, we thought it was going to be down quite a bit -- even more than that. We thought some things on the mobile hydraulics would be down just a little bit and it was down more than that. I think the optimism we have this year is -- we believe that some of those have bottomed out, so now when it comes to a planning standpoint, it comes to a manufacturing standpoint, we've put all those things behind us that we did in 2003. We feel a lot better when it comes to just the earnings potential that we can generate with just a flat market.

But I think you're seeing a little bit of optimism, maybe on the construction side that people -- I think just the conversations people have give you a little better feeling. Again, I don't see any significant sign of recovery that people want to talk about in the newspapers and those kinds of thing. We're not seeing it yet, but when we typically trail the (indiscernible) upsides by six to nine months.

But in pockets maybe in some of the mobile hydraulics some of our new product introductions, there are some things happening. But, again, I certainly would hate to call it a recovery at this time. But the optimism we have is that it's just flat. We feel pretty darn good about what we're going to do.

Pete, it's Tim again. I just wanted to add one thing to our comments if I could. I don't know that we see operations unfolding in the crane business a whole lot different than what you do.

One area where I think we've had to take a more conservative posture is interest expense, and the reason for that is twofold.

The biggest reason for it is we've got the $175 million in Euro debt. And you've seen what's happened to the Euro in the last two or three months. So in our plan, and our budget and our guidance we're looking at our Euro debt to be translated in the upper 120's. So that, I think, probably yields an interest expense that's a little higher than what one might expect given the cash flow results we got this year. Also, we try to manage our portfolio so that we have about 50 percent fixed, 50 percent variable debt. And we think that variable rates are going to go up a little bit the second half of the year. So that's something I thought I would point out while you are still question (indiscernible).

Okay, great, thanks for your time.

Eric Brovig (ph), UBS.

Just a couple of quick questions. First -- I don't know if you mentioned it -- the impact of currency on sales and operating income in the quarter?

The impact on sales and operating income for the fourth quarter was slightly positive. The impact on interest expense was negative. And I think that the net amount was immaterial.

Okay. And then, curious what your CapEx forecast is for 2004?

We think it's going to be up a little bit for 2004 -- probably somewhere in the 40 million range.

Okay, great, thanks.

Cliff Ransom, Ransom research Inc.

Terry, tell us what macroeconomic factors we ought to look at -- what economic factors have to pertain to have the crawler crane business get better? And what is the time lag between the change in those indicators and your actual receipt of orders in construction of equipment?

Well, I think this is probably going to be answered with a combination between Glen and myself. First off -- I would say that, obviously, nonresidential or commercial construction increasing has to be one of the drivers. And that is obviously going to be driven by an improving economy. We see a lot of infrastructure needs, whether it's in utilities generation, load building, the bridge and highway infrastructure out there. And then you get to the commercial building of facilities etc. I think that we have seen the need for addressing the electrical side over the last year. And I believe that there is recognized need for improvement in the infrastructure and highway's etc. As far as the rest of it, obviously I'm saying I think it's an improving economy. We are seeing, as we have said in the past, we're seeing some reasonable signs that the dirt side seems to be moving somewhat, and that usually is an indication of crane needs -- some 12 to 18 months following that, as I recall. Glen, could you shed some or on that.

I think Terry mentioned -- some of the macro economic indicators. If you look at government funded things or residential construction and multi-family residential construction. Those trends still have not gone down. Last year maybe 1,2 percent. But the one that's really been off over the past several years has been the nonresidential, private-funded construction. And that's the one that I think we really need to watch. You still see vacancies where they are at. It's the things that are private but that are funded by the private individual. And that's what we want to continue to watch now.

There are some projections -- economic indicators that say that's good. That trend, downtrend, could reverse this year. But, again, I think we're taking a more -- I think a more pessimistic view to that upturn.

Your other question was how long does that happen -- you see these things and they turn? The way the market is right now on the crane side right now is -- these people that are out there doing these jobs -- the contractors, the crane rental Companies -- they are not putting a lot of inventory into their fleet right now, and so they really have that comfort or that confidence that things are turning around.

So, you're seeing a replacement of certain (indiscernible) that all them and that kind of thing. But when contracts are awarded, and they get these deals -- be it a retro fit of a powerplant or it could be some of the highway work, or it could be anything like that. They want the equipment right, away, because that starts within anywhere from -- no more than six months and sometimes as soon as two and three months. So it's a matter of having the product available at that point in time. That's what we're set up with a lot our manufacturing initiatives and things that we're doing -- that's what we are putting them into our strategy.

Glenn, that doesn't imply that you're going to prebuild products in advance of orders, are you?

You know, I think if you look at the way we manage our balance sheet, that certainly would tell you that we wouldn't do that. I think it's a matter of our people -- they are very close to the market. We are not prebuilding for inventory, but we certainly look at what the market is doing, talk to customers, and that kind of thing, and have a pretty good indication at what's going happen. And I will tell you, at the end of last year, we had -- our finished goods was (indiscernible) minimal.

I know, I saw that one. I was out there. Are your planning purposes -- do you figure -- what if you look at nonresidential construction against broken into big groups -- building and nonbuilding, just mostly highway and infrastructure -- which of those will come back first? Not when, but which?

You can ask me, and if you get on another call on today (indiscernible) a different answer. But I think -- just because you hear more about the highway and the infrastructure right now, it's much (indiscernible) that's the one that I think would come back first.

And my last one, and then I will get back in queue-- on the Kobelco alliance are there any -- my sense is that was the last big product category that you needed to fill. Am I right or wrong, or is there another product category that you would still like to have in marketing parlance -- another arrow in the quiver?

It's maybe one of last but certainly not the last. There's a couple other things, I think, that we continue to look for throughout the world, and it certainly helps in North America. And there are other things that the alliance does for us in other parts of the world. I think it's an injury to different areas that we have not had some real strength (indiscernible) the Japanese market.

If I could also add to that, we're also filling the void with product development and creating reasons to buy Manitowoc. I think Glen pointed out, we introduced 50 (ph) new products last year and we're scheduled 60 more this year. So we are continuing to fill product voids internally as well.

Okay thanks, guys. I will get back in queue, otherwise I will see you at Bauma (ph).

Tom Clampto (ph), Credit Suisse First Boston Corporation.

Can you talk about a little bit about the working capital, the changes, the improvement, in the fourth quarter? And it looks like inventories came down but then payables went up -- and I'm not sure what's going on receivables. Can you just kind of walk through the main working capital accounts, and what you guys were able to do in the fourth quarter?

Well, the big number was in the inventories came down substantially in the fourth quarter -- about $35 million. Receivables were up a little bit, and sales were up little bit in the fourth quarter versus last year, so. And in the other big positive number was actually an increase in current liabilities. And part of that results from non-cash charges we made, for restructuring, and building up accruals there. And then payables were up (indiscernible) as well. (multiple speakers) (inaudible) bulk of the (indiscernible).

No, we've got the numbers. I guess I was looking for -- say, in inventories if you're down 40 million from the third quarter. That's a pretty big number. Where did that come out? I'm assuming it was crane's, but was it North America, was it crawler, was a Europe? Where were able to get 40 million out of the system?

All of the above -- and foodservice continues to manage their working capital very well.

Okay.

It was a pretty broad effort.

Is that sustainable going into 2004?

I believe so.

And if (multiple speakers)

I believe this is sustainable inventory, and I believe it's sustainable in receivables -- we will have to see about (indiscernible).

Yes, with that one if it looks like you're up about 50 million in the quarter. If I have got the numbers right -- 427 to 477. How much of that was payables and what exactly is going on there again?

Payables was about -- little under 15 million of that. But the other big ones are -- just one second, Tom, let me look at the (inaudible). I know payables were about half of it, but we also had a fairly big increase in deferred income. Because, if you recall, that we had some of our non U.S. sales were going to be accounted for as capital leases. And then, two other things that went up were our progress billings -- and remember that we got progress billings in the marine business out fairly substantially in the fourth quarter on new orders that we got in. Those are the big ones.

Okay. On the foodservice side. Just -- the profitability has been very strong in the margins, but revenues continue to track down, I guess. It sounds like, Tim, you're more positive for '04. But -- it was just a slow market in the fourth quarter? Or what was going on there versus last year?

Actually, we saw some signs of improvement in the fourth quarter, but the year itself had been slow -- started out down quite a bit in the first and second quarter, with SARS and the war and then a very, cold wet summer. We saw some improvement. The ice machine part of it where we have hard data, shows pretty significant recovery, although it ended the year down -- industry shipments into down around 5 percent. We're pretty soft in beverage, because we had some large products last year that were non-reoccurring this year. So -- refrigeration has also been flat. We're optimistic, the indicators are that the market is going to improve. I think that the numbers the industry are citing are perhaps even conservatives.

Okay.

On the operational improvement piece of it, I would like to point out that most of that is -- if you look at that -- most of the improvement came at the gross margin level, reflected in the consolidation and the operational efficiency initiatives we have in place. That is sustainable. We got a small pickup in SG&A, which would be things to be cut during a recession. But we really didn't cut that much. We continue to invest in R&D, and really, the gains are sustainable at the gross margin level. So we're expecting improvement.

Okay. Now on the crane side, you talk about increasing your Asian infrastructure. Is that really more of sort of a sales and service -- is there going to be any manufacturing or anything done over there?

Tom, we already have a manufacturing plant in Zangzhegang (ph) that manufactures tower cranes for the Asian market. And, so, we do have a sales and infrastructure and some offices in Shanghai, but really the -- and throughout Asia and Singapore and other areas. The whole presence we have over there starts with a manufacturing base and goes throughout there. So that's certainly well ahead of most of our competitors.

Okay, and are you sourcing any components there, imported to the U.S.? Or is it really just manufacturing tower components to be used in Asian towers?

No, we start from all over the world. And we use components that Asia has made for the towers also.

Okay. Glenn, on the crane business, if you look to revenues this quarter, you're up -- it's that 30 million or so. I guess you're still picking up and (indiscernible) month of Grove of this year that you didn't have last year.

Not in the fourth quarter, Tom. It was an August acquisition. Its apples and apples in the fourth quarter.

Right, there was (multiple speakers) it was an August acquisition right? Okay -- so you're apples to apples.

So the dollar increase here with crawlers -- I'm looking at revenue increase versus operating income still down. Obviously, pricing is a big chunk of it. But is that all of it? I mean, your volume is up, or is there still a significant sort of profit margin difference in your mix, whereas crawlers are down and hydraulic has held up better, more recently anyway. That's just a less profitable product.

I think you're right. I think it's a combination of the two. As we mentioned the pricing is in the fourth quarter was still pretty competitive. And the mix is such that we get -- our big margin improvement is going to come on the crawler crane (indiscernible).

Right. Okay. Alright, thank you.

Zehn Olson (ph), Deutsche Bank.

A couple of questions. One -- the weak dollar -- has that had any benefit or as it helped reverse any of the pricing pressure that you're seeing, particularly with Lee Bear (ph) operating in the U.S.? Or is that still a fairly competitive market?

And then on the shipbuilding side, obviously with a fairly full orderbook and a recovery, and the repair and maintenance -- should we be expecting kind of revenue in the 200 million range -- for '04? Or is that kind of a rough number of where we should be?

I think your first question is good one, but I am going to choose not to answer it. I don't think we want to get into what we're doing in pricing right now.

The second question, the answer is, yes. We're looking at a pretty full load in marine for this year and (indiscernible) 200 maybe a little higher than 200 range.

Okay. Would you expect the operating margins in that segment to recover to where they were, say in, 2002?

That might be a little bit of a stretch, because of the mix of business that's coming in as -- what we have coming in 2004 is heavier load of commercial vis-a-vis military, and vis-a-vis the repair business. And also the fact that we're in the early stages of some pretty large contracts. Probably won't be quite what they were.

Okay, great, thank you.

Gazell Guzman (ph), Gabelli (ph).

I have a question regarding your guidance for the free cash flow -- once again -- or, the cash flow from operations you're saying is 100 million -- just as it was in 2004 -- in 2003. Are we to glean from that that you're not as optimistic on the cash flow from operations for next year?

No. I think -- (multiple speakers)

That you have the same goal.

We had the same goal this year as we have for next year. I think the way I prefer to answer your question is that (indiscernible) this year and we're going to stick with the same goal next year despite the fact that we got so much out of working capital. So I would term that -- optimistic and doable.

We still have opportunities in inventory, we still have a couple of advantageous things we've been able to pursue from income tax payments and timing. And we still got some assets. We think there will be some pressure on our working capital because of the upturns in the market. But, if you take a look at the -- if you take a look at the working capital and businesses, you can see what -- as Glenn alluded to a little bit earlier -- we do not invest a whole lot of money in working capital when we increase the sales dollar. In fact, it's quite the contrary in both the foodservice and marine business. It's low in the crane business as well. We think we can do it again, even though the markets are turning around and the fact we've got a lot of working capital.

Okay. But you're not willing to officially raise the bar for your goal?

Well -- let's look at it as a two-year thing. (indiscernible) had $100 million goal and reached this year, and $100 million goal next year -- we got 200 million. We got 150 this year and we're sticking with 100 for next, so we've raised it to 250. That's how I would like to (indiscernible).

Okay, that's fine. And another question, actually, regarding steel and how that is impacting you?

I can speak for the marine business. Steel is up. It's about up 5 cents a pound. That is having an impact and some pressure on us. Going forward in the government contracts, we do have some clauses to help us, but in the commercial contracts, it's a (indiscernible) price. It does have an impact on our business and we're also having deliveries pushed out. So, we are trying to go offshore to get some steel.

Okay. And final question -- actually, regarding the impact of the strong Euro on your interest expense? Could you give that number again, please?

I think that what I said was that we're predicting the high 120s for the Euro this year, which will increase our interest expense on the Euro versus 2003, in the range of 3 to $4 million. I think that's where we are probably a little bit different than where people were looking at us two months ago. We've chosen to be what I hope is conservative in that regard.

John McGinty, Credit Suisse First Boston Corporation.

Just a follow-up. On the cranes, we all talked about when certain businesses are coming back, both for the hydraulic and the crawler, but in the past, you all have made the point, Glen and Terry, that one of the real problems is the crane rental Companies that are not healthy, and maybe the fleets are getting old, but they are financially strapped. And I guess the question is -- even if we see some kinds of pickups, what's the customer base like?

The customer base is not a lot different now than it was at the beginning of last year. And I think what you saw were a lot of people trying to shore up their own infrastructure within their own businesses. I think you might see -- I mean, if you recall last year, there were a few big people that got out of the business. And in it would not surprise me if there are couple more that go out this year. I don't think it's going to be, you know, significant numbers, but I think you may see other people get out of the business. I think we are certainly prepared for that, and I don't have any guesses who it'd be, but I certainly, I think you have to look around.

But I think what also is -- some of the things that we're doing, John, working with -- we have a finance arm that we call crane credit. They're working very, very closely with a lot of the dealers and customers out there, and they are getting to know these people a lot better. And one of the beauties that we have with our product over some of our competitors are the residual values. And they can look at the residual values and they put a lot of faith in that. And so, we've done pretty well with respect to crane credit, which was introduced over a year ago in San Diego at AAD conference. So, I think it's still a very tough environment, from financing, but with our partnering with people out there on the financing side, it's -- we're working through it and we will get through it, but I think there will be some -- there could be some more fallout this year, but I don't think significant.

And then, on the earnings side, you pick up, on an operating basis, 6 million from the full year effect of the 36 million that you only got 30 of last year. But did you also say that included in the 6 million operating profit for cranes was what would've been about 4.5 million -- in other words, 11 cents -- I made up the 11 cents for -- the discontinued operations, so was that, do you actually pick up 4.5 million in addition to that?

Yes.

So, in other words, you're picking up 10 million going into it, but on the other hand, if the pricing costs 3 percent starting at the end of the second quarter, unless pricing gets better, that's got to cost you another 1 percent going the other way if you just take a full year effect, right? Or am I doing something wrong with the math on that?

I think I am going to be silent on price (indiscernible) for the free future. I just feel -- (multiple speakers)

Just mathematically (multiple speakers)

You're right in everything else you said, John. We've got 10 million worth of cost improvements that we have achieved.

But you've got a first quarter and a half of better pricing than you had in the last two and a half quarters so you've either got to -- we may make the assumption or not. But if things don't get better, then that's a negative going the other way.

If they don't get better. it would be a negative going the other way. Correct.

Alright, just -- that's just mathematical, that's not you saying anything about pricing -- alright, thanks very much.

That does conclude the question-and-answer session. I will turn back over to you, Mr. Kyle, for any additional closing remarks.

Before we conclude today's call, I would like to remind everybody that a replay of our call (Operator Instructions). Thanks, every one, for joining us today. Have a good day.

That does conclude today's conference. We thank you for your participation. You may now disconnect.