Manitowoc Company Inc (MTW) 2004 Q1 法說會逐字稿

Good day everyone, and welcome to the Manitowoc Company Incorporated first quarter earnings results conference call. Today’s call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Steve Khail. Please go ahead, sir.

Good morning everyone and thank you for joining us today. Participating in today’s call, which is originating from our corporate headquarters in Manitowoc, will be Terry Growcock, our Chairman and CEO, Tim Wood, VP and CFO, Glen Tellock, President of Manitowoc Crane Group, and Dennis McCloskey, President of Manitowoc Marine Group. Tim Kraus, President of Manitowoc Food Service Group is not able to join us.

During our Q&A session please address you Crane questions to Glen, your Food Service questions to Terry, and your Marine questions to Dennis.

Tim Wood will open today’s call with an overview of our financial results for the quarter, including a brief report on each operating segment. Glen will follow with an update of our Crane operations and Terry will conclude with a 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 listen to a replay beginning at 1:00 p.m. Eastern time today, until 1:00 a.m. Eastern time on May 7. The number to dial for the replay is 719-457-0820. Please use confirmation code 484259. You can also access an archived version of this call by visiting the Investor Relations section of our corporate website at www.Manitowoc.com.

Before I turn the call over to our first speaker, I would like to review our Safe Harbor statement. This call is taking place on April 29, 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 each speaker’s remarks and during our Q&A session. Such comments are based on the company’s current assessment of its market and other factors that affect our business.

Actual results could differ materially from any implied projection, due to one or more of the factors explained in Manitowoc’s filings with the SEC, including but not limited to the company’s annual report on form 10-K for the year ended December 31, 2003.

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

Thanks Steve, and good morning everyone. Today we reported first quarter sales of 412m, which is a 14% increase over the first quarter of 2003. The increase reflects sales growth in all three segments.

We reported net earnings of 5.8m, or 21 cents per share for the quarter, compared with net earnings of 535,000, or 2 cents per share for the same period last year. Our EPS includes a 4 cent loss from discontinued operations. EPS from continuing operations were 25 cents, as we recorded growth in operating earnings of all three segments as well.

Excluding special items related principally to a legal settlement, earnings from continuing operations for the first quarter were 22 cents per share, which is 2 cents above the average Wall Street analyst’s estimates.

Now I’ll review each of our segments’ financial results. Crane sales for the first quarter were $253m, an increase of 15% compared to the same quarter last year. Sales of mobile, telescopic and power cranes were up in all regions during the quarter, but Crawler sales continue to be somewhat soft, especially in North America. As we’ve said previously, we still don’t see a rebound in Crawler crane sales until some time next year.

Operating earnings were 10.4m, up 28%, and our operating margin was up a half a percent in Cranes. Strong revenues, the strong Euro and our integration savings, partially offset by continued weak pricing, accounted for the favorable first quarter results.

Foodservice sales of 108m were up 3% for the quarter, while operating earnings of 14m were up 15% over last year. The significant gain in operating earnings reflects the impact of a more favorable product mix and the cost reductions we implemented in recent years. The foodservice industry outlook appears to be improving. Same-store sales at casual dining and quick serve restaurants are rising. Hotels are seeing increases in revenues and convenient stores continue to perform well. As a result, our customers are starting to move forward with projects that had been postponed during recession.

In our ice machine segment, where we have hard data, industry shipments increased nearly 10% in the first quarter. Though not as robust, we would expect the market for refrigeration and beverage equipment lines also to improve throughout the year. With over 50 new products slated for introduction in 2004, we expect to outperform the industry.

At the National Restaurant Association Show in Chicago next month, we’ll review new region lines for McCall, along with several editions of our recently reduced S-Series ice machines.

In Marine, sales rose 45%, up 51.2m, and the increase was due in large part to the Marionette strike during the first quarter last year. Operating earnings rose to 4.1m, from 597,000 last year. We had a short, but profitable repair season and between January and April we had one of the largest fleets in our history dock at our Sturgeon Bay yard.

Numerous contract wins last year have positioned us with a full plate of construction work for 2004 as well. So our priority is winning additional contracts to extend into 2005 and 2006. Though no new ship building contracts were awarded in the first quarter, bidding on commercial projects is still very brisk and we view that as a sign that the economy is improving here, too.

To handle the expected increase in double-hull vessels in response to the OPA-90 legislation, we have broken ground on upgrades to both our Toledo and Sturgeon Bay shipyards.

In the first quarter we incurred moderately negative cash flow from operations as we built in the [fray] to accommodate the huge jump in crane backlog, which Glen will discuss in a minute. In addition, we’re seeing strong growth in foodservice overall.

Our net debt to capital ratio held steady at 65% for the quarter and we’re still targeting a long-term ratio of 55%. The first quarter outflow is not atypical of Manitowoc and we remain confident that we will achieve our goal of generating cash from operations of 100m for the year. We’re also sticking with our 2004 EPS guidance range of $1.30-$1.50.

We are seeing several uplifting signs, but we also have some concerns, particularly on the supply side. As an example, the increase in steel prices could have an impact on our operations. We do have programs in place to recapture the higher cost needs of our segment, but it is too early at this point to see clearly how this will sort out. So again, we’re going to stick with $1.30-$1.50 in EPS for the year.

With that, I’ll turn the call over to Glen Tellock, to talk about our crane business. Glen?

Thank you, Tim and good morning everyone. We posted a very solid quarter, with sales increasing 15% and operating earnings rising nearly 28%. As I said in our fourth quarter conference call, we see early signs of optimism in our market. Our backlog at the end of the quarter was $336m, an increase of 52% from the end of last quarter, and a 66% increase from this same time last year. We are seeing signs in our mobile hydraulics and power crane products across all regions. We are also seeing a small increase in orders for Crawler cranes in Asia, but the overall Crawler market remains weak in the larger markets.

I would characterize our outlook as one of cautious optimism. While our quarter was an excellent one and we entered the second quarter with strong backlog, there are still causes for concern in the market. The ability of manufactures to pass along rising material prices and the industry’s need for end user financing, are some of the things that we need to watch in the coming months. I believe that our first quarter results demonstrates that the strategies we put in place over the past 18-months are working.

Our three core strategies are to protect our traditional market shares by providing the best value in the industry, to grow global market share and to streamline our cost structure. These strategies are very improved as you can see by our first quarter performance.

We introduced 11 new products at the Bauma tradeshow in Germany last month, including new all-terrain, rough-terrain, crawlers and tower cranes. As you know, we expect to introduce 16 new models in 2004, the most in our crane group’s history. Our Crane CARE business recently separated from the whole good sales to increase our focus on customer support, allowing us to maintain and grow share in our traditional markets.

We announced another step in our alliance with Kabelco, in which we will supply all-terrain cranes to be sold under the Kabelco brand name in Japan. Our success in large power crane sales in Asia has been very good, with another $9m of orders awarded in the first quarter. We are building our infrastructure and management strength in this region, so that we can be assured of meeting customer demand in the coming year. This focus on growing into non-traditional markets not only helps our current performance, but it will lay the foundation for continued growth and diversification in the coming year.

We are completing our exit from the AWP business with the announced sale of our Delta Manlift subsidiary to JLG. While we will continue support for those AWP products that our customers have purchased, the exit from this product line allows us to reduce our cost structure and focus on our core products. The consolidation of our Waverly, Nebraska operations into Shady Grove has been essentially completed on time and slightly under budget.

During the quarter our cash flow from operations was a small use of cash. This is significantly better than we typically do in the first quarter, especially in light of our production needs to meet our growing backlog. This effort to better manage our working capital leaves us well positioned to achieve our full year cash objectives.

Our strategy remains unchanged and we are making steady progress towards our goal. Results of our efforts are starting to show up in our bottom line performance. We are globally diversified, have the broadest product offering in the industry and we serve a diversified group of end users.

Attacking our markets geographically rather than by product line, we’ll continue to be successful. We will continue to invest in innovative new products, service and infrastructure that furthers our global growth.

We started the year by saying that we will manage our crane business to provide value to our customers, grow globally, improve our name and generate strong cash flow in 2004. At the end of the first quarter I am confident that we are well on our way to delivering on that promise.

With that, I’ll turn the call over to Terry.

Thank you, Glen. We’re off to a solid start this year, as we’re seeing some recovering demand for crane products worldwide, coupled with strong foodservice performance and a full slate of marine work. In every segment our weight of growth and operating earnings outpaced our growth rate in sales, which is a testament to the excellent management teams running each of our businesses.

Before I talk about our outlook, I want to update our five strategic priorities. First, our focus in Crane is on increasing sales and market penetration globally. Our marketing strategies and new product development efforts are working well, as shown by our higher backlog and success at the Bauma Tradeshow.

The 15 new products launched last year and the 16 new models that we will introduce this year, demonstrate our commitment to internal growth in this segment. This is also supported by our strength in marketing and distribution strategies as well as our global Crane CARE initiatives.

Second, we will continue to narrow our focus on our core Crane products, which were furthered during the quarter by exiting the aerial work platform business with the sale of Delta Manlift. As a result, we are now exclusively focused on crawler cranes, tower cranes, all-terrain cranes, wet-terrain cranes and boom trucks.

Third, we will strengthen our foodservice business by gaining additional market share. In ice machines we continue to gain share by growing at a greater pace than the overall market. One of the keys to our market share growth is the introduction of new products. We expect to introduce 50 new products this year. We will also increase our focus on cross selling [inaudible] with the industry’s broadest product line that is focused exclusively on cold.

Fourth, we will continue to position our marine operations to excel by leveraging the strengths and capabilities of our multiple shipyards to serve commercial and government customers. We are revamping our Toledo shipyard to handle new construction so we’ll be able to gain an increasing share of the commercial work for OPA-90 double-hull vessels. We remain optimistic as well regarding several major government contract awards expected later this year.

Fifth, we continue to focus on generating cash flow and reducing debt. As we’ve said previously, Manitowoc historically uses more cash than it generates in the first half of the year. The minimal usage of cash in the first quarter gives us added confidence in our ability to generate cash of $100m for the year.

While we were guardedly optimistic regarding the outlook for the year, unknown factors that may affect our margins during the year are keeping us conservative at this time. Rising commodity prices, including steel, copper, rubber and others, affect all three of our businesses. Product pricing and the [indecipherable] substitutions are being implemented where and when we can, but the timing and success of these efforts are still unknown. We will continue to assess these uncertainties as the year progresses and we will keep you abreast of our efforts.

With that, I would now like to turn the call over to the operator for our Q&A session.

(Caller Instructions.)

We will take our first question from Charlie Rentschler, with Langenberg. Go ahead, please.

Yes, I have questions for all three segments, but I guess I’d like to start with a couple of questions for Glen, in Cranes. I assume from what Tim said, that the inventory build, Glen, is primarily in Cranes. And corporate wise inventory rose $64m in the first quarter on a $52m corporate increase. I guess Crane sales were up 32m. Maybe the 64 contrasts with the 32m, but could you give some explanation as to what is going on there? It just sounds like an awfully big bulge in inventories.

Charlie, this is Terry. First off I’d like to start. There is inventory needs and this is a seasonal issue that we see every year and that’s why our cash usage – we’re a user of cash typically in the first half and a generator of cash by a significant amount in the second half. And that inventory rise is historic as we grow our inventories to meet both Crane demands and Foodservice demands. Both businesses grow inventory during that time. I don’t know, Glen, if you have anything else on that?

I think that says it all, Charlie. The inventory is being built in anticipation and relates more to the second quarter than it does the first.

Okay. And just a related question then I’ll get back in queue. Can you share with us what the order intake from Bauma was for Cranes?

We have not stated publicly what it was, but it was a very successful show for us. Primarily in the mobile hydraulic and tower crane side of the business were Europe and Asia. Typically it’s not a big selling show for the United States. But what was impressive for us were the number of solid customers that we had from the Americas, including both North and South America and the opportunities that led from that. So it’s not a big selling show as I said, for that. But with respect to the Europe and Asia it was a very, very good show.

Okay, thank you. I’ll get back in the queue.

And our next question comes from Robert McCarthy, with Robert W. Baird. Go ahead, please.

Hi guys. It’s Pete, sitting in for Rob. Tim, I guess this question probably goes to you. You talked about last year, 300 BPs of pricing pressure in the Crane segment. What was the impact in the first quarter?

It hasn’t changed in the first quarter. Our pricing actions that the Crane business is taking, mainly go into effect in the second quarter and I think it’s safe to say that there is certain orders that are carryover from the first quarter at the old pricing, so you’ll see the bulk of it late in the second quarter and the second half.

Okay, so pricing was of net net after the first quarter?

Pricing had the same adverse effect in the first quarter as it did in the latter part of last year that I shared with you.

Okay, fair enough. And in terms of the backlog that you currently have, the big increase in backlog, what should we kind of think of in terms of pricing for that backlog number? Are we still kind of seeing impact year over year or have some of those – and if you could expand on that, some of the pricing actions that you’ve taken, what exactly those are and whether or not those have had any impact on the backlog or whether they’re in backlog.

Well, I’ll defer to Glen on some of those specifics, but from a broad perspective, Pete, I think that you can see that in the second quarter, the pricing actions that we’re taking are not going to catch up with all the orders we have to fill in the second quarter. But the way it is anticipated that it rolls out, the pricing action in the second half will offset the shortfall we have in the second quarter. And I don’t think that it is dramatic in any event. But there will be a little bit of a lag.

Okay. And can you just generally comment on what kind of pricing actions you’ve taken?

I know that we’ve eliminated discounts that were temporary discounts.

On all the product lines, including crawler?

Yes, it’s across all the product lines, Pete.

Okay, fair enough. Thank you.

And our next question comes from John McGinty, with Credit Suisse First Boston. Go ahead, please.

Tim, you mentioned in Cranes that the revenues were up, I think, 15% and in the operating income and you mentioned the impact of currency. Could you just clarify on both revenues and earnings for either Cranes or the entire company, what was the impact of currency both on revenues and earnings in the quarter?

In Cranes, the revenues were up about 8% from coming in from Europe as a result of the currency revaluation.

Let me make sure I understand it. If they’re up 15%, they would have been up 7% if currency exchange rates had been constant?

I think it’s just [indecipherable] the revenues would have been up a little over 8% in the absence of the increased year. This is versus last year.

Exactly, because that’s what the 15% is, right, versus last year?

Right.

Right, okay. So about half of it’s currency?

Yes, a little less than half. And that’s on sales. It has, obviously, an upward effect on operating income too, but the other thing to keep in mind is that it also had an adverse affect on the interest on our 175m Euro debt of a like amount.

But what I’m asking is if you net – we can’t, but if you net those two things out, was it a plus or a negative or a positive to Manitowoc?

I would label it a relatively insignificant positive on EPS.

Not even a couple of cents a share?

Not a biggie, no.

Okay. And then, can you talk, either Glen or whomever wants to take the question, on the increase in backlog that we see, how much of that increase relates to – well, either way you want to look at it, in other words, it’s 336, so it’s an increase of 130m from last year to an increase of 110m from the fourth quarter, whichever way you want to talk about it. Could you talk to us about kind of where that’s from geographically or by type or however you’re comfortable doing it? I assume it’s not across the board. Maybe it is. But I assume it’s not evenly split between towers and rough-terrains with Crawlers going nowhere. And then also what the impact of currency is on a year over year basis?

Yes John, I’ll touch on that. When you look at the backlog, we’re seeing a good portion of it really is in the Americas, with the mobile hydraulics, this year versus last year. And then the rest of it is in towers, but on a worldwide basis. And that’s spread over most of the regions. So it’s a general increase. But I would say the only one that we’re seeing negative is what we mentioned as a negative impact, really Crawlers from a backlog standpoint hasn’t changed much from the end of the first quarter or the end of the year, versus the end of the quarter in 2004.

And then just as a clarification, the mobile hydraulics, is that across the board or is that all-terrain?

All-terrain and rough-terrain and truck crane.

Cool. I’ll get back in queue. Thank you.

And we will take a follow-up from Charlie Rentschler, with Langenberg. Go ahead, please.

Yes, Terry, I guess a couple of questions in the Foodservice area for you, sir. I was struck that Foodservice revenues were up 3%. I’m not looking a gift horse in the mouth, because it was one whale of a quarter for you guys. But Foodservice revenues being up 3%, why not a bit more in view of the S-Series rollout and all of the enthusiasm you guys have around that?

Well really, you have to look at the entire makeup of our Foodservice. And we breakdown our Foodservice into ice, beverage and refrigeration. And beverage was not quite as strong. But I would also point out to you that the S-Series itself is still in a rollout stage. And so, we really haven’t seen the real impact of the S-Series.

And the other thing I should point out is that the first quarter is typically one of our slowest quarters in Foodservice to begin with. And we are seeing typically the demand from historical seasonality in the second and third quarters. And so, we felt good about the 3% growth.

Okay good. And a follow-up on Foodservice. How are you guys coming along with the enterprise planning system in the Foodservice segment?

Of course we’re still in the early stages, but we’re right on our schedule. And we have been doing some of the conference room pilots and we’re on schedule and on budget and feel good about the entire process at this time.

Good. Okay, I’ll jump back in the queue again. Thank you.

We will take our next question from Tom [Klanta], with Credit Suisse First Boston. Go ahead, please.

Good morning. Can you guys talk a little bit more precisely on the impact of commodities? Obviously, steel was important. Can you give us some quantification, either of sort of your best guess gross now of impact, or in terms of tonnage or something like that that we can sort of look at?

Tom, this is Tim. First of all, it’s a tremendously difficult thing to capsulize in a company of this size and this breadth. But if I were to generalize, which I will, steel is the biggest of the commodities that we’re talking about right now and it represents about 15-20% of our overall cost of sales. And as I’m sure you’re aware, we’ve received a wide range or a fairly broad range of price increases throughout the world in surcharges. But in the aggregate, they probably average out to something a little less than 10%.

And our responses are just as Terry said. We’ve taken a look where we can at material substitutions and continue to do that. We’ve also instituted a series of surcharges and permanent price increases. And for the year, as I said earlier, these are designed to offset the cost increases. This will include some catch up in the second half, because of the orders that we have to fill at prices that existed at the beginning of the year. And like I said, we’ve also formed a sourcing counsel company wide to take advantage of whatever economies of scale might be available to us and also particularly strong arrangements that might exist in our individual businesses, to expand those across the board.

But the situation is good. We hear different stuff on where the pricing is going and when and stuff like that every day, so it’s very difficult to get more specific, Tom. I just can’t do that.

Even that helps. And on the Crane side, if you can repeat again, Glen, I know you said some discounting was going away. Was there also some price increases, I guess, that won’t hit until the second half of the year?

Yes, we did have price increases also.

Okay, so just rough perimeters, if you assume steel and that stuff is up 20%, you need roughly a 3% kind of net price increase in order to kind of break even. Obviously there’s time lags and all that. As far as the discounting, is that going to go away right away as far as on new orders, it goes away? And is the market supporting that and are competitors doing the same thing?

I can’t speak for what the competitors are doing other than what we hear on The Street and I know a lot of it’s been in discounting, taking away the discounts. I think some are watching to see what happens with steel. But with respect to our position, if we’re going to be leaders in the industry, the industry’s been down for quite a while and I truly believe that we should act as leader in the industry and that’s what we did. And this segment, I think needs to increase.

With respect to [roll in] across the board and how they’re holding, a lot of it, the price increases as we looked at it, were effective after – let’s use March 31st as a date. So it’s really orders taken as we started – either some during Bauma, some after Bauma. I think that’s insignificant. But the orders that are coming in are under the new pricing strategy and our sales people are told to stand by those standards. And I think we have to force that issue. I would be surprised if our competitors didn’t follow.

And with discounting going away – I’m not sure how bad discounting got over the last couple of years, but that’s an effective price increase. Can you sort of put that in ballpark terms? Was that sort of 2 percentage points going away effective price increase or is it a much larger kind of number?

I think you’re okay with your anticipation. I think that’s probably okay.

Okay. And clearly there’s some moving parts here, but should we be expecting – it seems to me that the Crane backlog is up substantially. It seems like orders are better, I would think, better than expected. Your earnings guidance is the same. Does any of that have to do with the commodities and is this something that we should be sort of expecting some announcement coming forward that oh, you know, we got around to quantifying the impact and it’s going to have a big impact? Or are you guys comfortable that given the substitutions and the price increases, you’re going to be able to offset most of what you’re seeing on the cost side?

Tom, when we take all of it and put it in the hopper, we’re still comfortable with our guidance of $1.30-$1.50. And that includes our upside or our concerns about commodities and everything we see affecting the business. We’re still comfortable in our range.

And how about on the top line? Is that on a higher top line?

I think that that’s something we’ve got to keep track of. Certainly the rate or growth in the first quarter has been very strong. Again, we have to take a look at that and get back to you. At this point in time we think the prudent thing to do is to stay where we are.

And Tim, just quickly, last one from me. Can you just give us what the cap table looks like as far as revolver, the term loan and the Euros?

Sure, I’ve got it. Just one second. Okay, we’ve got $10m left in the term loan, the B. And then if you take a look at our senior debt, in the Euro we’ve got $212m, 150m in the US senior sub debt and 150m in the senior unsecured. It gets us to 555. So we have plenty of long-term.

What was the revolver?

We weren’t into the revolver in the US. We did have in Europe about $30m in debt. Some of that was in our cash overdraft facility.

Okay, so 30 there. Ten on the term loan you said?

And the term B, right.

Okay, good. Thank you.

We will take our next question from James Sanders, with Standard & Poor’s Equity Research. Go ahead, please.

Hi, good morning. I guess to kind of taking the pricing issue, commodity expense, all that together, when you give your guidance range of $1.30-$1.50, what goes into the top end of the range and what goes in at the bottom of that range?

I pretty much discussed what I feel comfortable discussing. We will stick with our range and all these things are considered. But we really don’t break our guidance down on the kind of level that I think you might like to see there.

Okay. Then I guess another question from the Foodservice segment. With 30 new products last year and 50 new products coming out this year, I guess kind of in percentage terms or relative terms, how much of that new product coming out is going after new markets or new opportunities and how much is replacing existing product?

Well, basically what we have in our overall strategy is to say that 80% of our sales will be sales that are products that we previously did not have in the past five years. So in many ways we are continuing to reinvent ourselves and giving people reasons to buy from Manitowoc. So there is a certain amount of the business that is directed to the replacement side. And you have to remember that in Foodservice this is a very heavy replacement driven market. So we do have a significant portion of the new products directed to serve that side.

We are also very compelled to develop products such as the S-Series, which not only will handle the replacement market, but will also be a very strong performer in helping us achieve new entries into chains that we were not in before, as well as into other opportunities such as institutions, cruise ships and other alternatives.

We have also launched a number of new products in the beverage side that are certainly geared for new markets. And we have other products that are on the drawing board that will also be addressing new markets for us as well. So it’s kind of a mix and it’s not very easy for me to really quantify beyond that. But I can tell you we are aggressively pursuing opportunities, both in traditional markets and new markets.

Okay, thank you.

We will take our next question from Manish Somaiya, with JP Morgan. Go ahead, please.

Good morning. In terms of Marine business, you guys had pretty good performance, obviously, because of easier [comps] vis-a-vis last year. I just want to kind of get a sense if that is the level of performance we should be expecting for the balance of the year, in that segment?

I think that the best way to describe Marine performance expectations are that revenues are recovering to the pre-strike levels that you saw on an annual basis in 2002. There is a little bit more mix on new commercial construction, which is going to push the margins down a little bit. And so that Marine might not be quite what you saw in 2002. But for the most part, the business has shown tremendous recovery, as I think we indicated, from last year.

I would also add to that that in the – you always have to remember that the first quarter is the quarter that we do have the highest portion of our service and repair side in the total mix.

Okay. And then secondly, what was the D&A number in the quarter?

Just a second. Together they were $13m.

And then just lastly, I’m still a bit confused about this. One of your primary competitors in Cranes did not really show good numbers, good performance in the same segment, whereas you did. And I’m just trying to reconcile the differences. And perhaps if Glen or someone can kind of chime in and help us out? Is it because you guys are gaining share? I’m just trying to figure out what the differences are.

That’s a pretty wide open question, Manish and we could have a field day with that one. But again, I can’t speak to what the competition is doing. I just know what our strategies are and I’ve laid them out over the past 18-months and said what we’re going to do. And I think it’s a testament to the people that we have in our segment that this is what we were going to do.

We spent an entire year last year going through the transition, putting everything together. And for some of our people in Potain, it was their second year in a row of transition. And now that you’re seeing the year of what we were trying to put in execution, I think this is the benefit we have of a lot of the things that we’ve done. I certainly can’t reconcile what we do to what the competition does. But we said one of our things is to protect our traditional markets and grow our shares globally. And so, obviously, when I say we’re on our way to doing that, we are. And I think you’re seeing some of that.

And the other thing was to cut our infrastructure costs. We have two very mature markets in Europe and the Americas, but we treat the Asian market like we should, a growing market. So it’s a matter of where do we put our capital and how do we manage the capital in the different segments. And we’ve said all along when the volume started coming back you were going to see the benefits of all the things we did last year. I think you’re seeing that in the first quarter. And as the volumes continue, I certainly believe we’ll continue to do what we said we were going to do.

Okay, great. Thank you.

And we will take our next question from Hillel Olshon, with Deutsche Bank. Go ahead, please.

Yes, hi. My only remaining question is on the CapEx line. It looks like you guys did a little over 11m in the quarter. You guys make reference to activity in Foodservice and certainly in Marine. Can you sort of give us your expectations for CapEx for the full year?

Yes, I think that CapEx for the full year will be in the $35m-$40m range, probably pushing $40m this year, because of the big projects we have in Foodservice particularly.

Thanks, Tim.

And your next question comes from Barry Hanes, with Safe Asset Management. Go ahead, please.

Good morning. I wonder if you can just comment on what you’re seeing in two of the end markets. In non-residential construction, I’m wondering if you’re seeing a bottom or you’re starting to see it move up a little or not much? And then second, in the highway market, bridges and so on, has the lack of a new highway build replacement for 221 had an impact or is that market holding up? Thanks.

To address your first question on the non-residential construction, the prediction we had in going into the year, that was going to be pretty much flat, maybe up 1 or 2%. I don’t think that’s changed at all. So far this year I haven’t seen any big changes.

With respect to the highway build, this is purely an opinion on this one. I think it’s more of a consumer confidence issue than it is anything else. I believe that people are – just recently I think it got extended another two months. People know that the money’s out there and that it’s going to happen, but I think people really just from a confidence standpoint, want something to be set in stone and then you’re going to see people do some things that at least they know the money’s going to be available long-term.

I still think the projects are there. I think things are on hold. I think they’re doing what they have to do with the highways, the government and that kind of thing. But I think a lot of it, the majority of that is really going to drive a lot of confidence in the bridge project and the highway project. So we’re certainly hoping that goes through, just to get that as another step behind us. But I don’t see it impacting – when it comes out and it happens, I don’t see everything all the sudden a floodgate’s coming out and you’re going to see all this work. I believe it’s just a normal thing that we continue to focus on.

Great, thank you, appreciate it.

And our next question comes from Martin [Ligzilski], with Bank Austria. Go ahead, please.

Martin Ligzilski; My question has already been answered. Thank you.

Thank you. And our next question comes from Kent [Mortenson], with [Brivent]. Go ahead, please.

Good morning. Terry, you had mentioned earlier about a number of large government Marine contracts available towards the end of the year. Can you just give us an update as to what they are and kind of the status?

I could, but Dennis is sitting over here and I’m going to turn it over to Dennis, who is on top of that every day. Dennis?

Okay, there are two large contracts we’ve talked about basically, for the year. One is for the Littoral Combat ship, which is approximately a $3.2b program. And the other one is for the Response Boat-Medium, which is about a $250m program. The Littoral Combat ship is expected to be awarded this month – in the month of May, I’m sorry. I’ve heard three different dates. I’ve heard the 19th, the 21st and the 27th. One of those three dates. And the Response Boat-Medium is expected to be awarded in the fourth quarter of this year.

Response Boat-Medium is for which?

Homeland Security.

Great, thank you.

Our next question comes from Josh [Lipsheim], with Prudential. Go ahead, please.

Hi. Tim, I was wondering, what kind of working capital impact will higher steel and commodity prices have this year and did you see any of that in that inventory increase in the first quarter?

I guess the answer to your question is that it could have as much as a 10% of inventory impact. And I don't think we saw a lot of it in the first quarter. The book in inventory you see in the first quarter is in anticipation of the orders we have to fill in the second quarter because of our backlog. I suppose there was some. But I’ll be honest with you, this isn’t something that I’ve really focused on. So I would say maybe 10% of inventory by the end of the year, maximum.

Okay, [indecipherable] it sounds like. On the expense line then, when do we feel the full impact of some of the commodity increases we’ve seen so far in the marketplace?

If I could clarify what I just said first. What I meant was 10% of the material content of our inventory, not 10% of all inventory. So we’re talking about maybe well under 5% of total inventory you see on our balance sheet. Now I’m sorry, what was the second part of the question?

Some of the materiel increases that we’ve seen, it sounds like perhaps not all of those have hit your expense line. I don’t know if you purchased material ahead of the increases or had contracts or whatever. But when would you expect to see the full impact of some of those increases?

I think we expect to see the full impact of everything we know now, from a cost side, in the second quarter. And we expect to see the full impact of the pricing actions we’ve taken, a little later in the year. So there will be a little bit of a lag in the second quarter. But again, it’s not a material enough thing to concern us given the outlook for our business in other areas.

Okay. And just to clarify, that 10% would be the full impact on the material side and you haven’t seen all of that in the first quarter yet anyway. So maybe by the second quarter we’ll see that full 10%.

Well yes, if you’re talking 10% of the material content of our inventory and we’ve got a $300m inventory and 20% of it’s material, you’re talking in the $5m-$6m range. You’re not talking a huge number, given the size of the company.

Okay, great. Thank you.

And we will take a follow-up from Pete [Lisnick], with Robert Baird. Go ahead, please.

Hi guys. A question on Marine and specifically, what you can kind of do there to kind of offset the steel costs? Because I would guess there that most of the contracts you’re dealing with are fixed price contracts. So, is it safe to assume or to say that if you feel an impact from increased steel or commodity costs that it will be adversely or more proportionately felt in Marine, relative to Cranes where you could implement price increases and similarly in Foodservice?

First of all, a relatively small portion of the business we’re doing right now, less than half of it, is on a fixed price contract. We do have fixed price contracts. Fortunately, we have purchased most of the steel already that’s required to build the boats. That doesn’t mean we’re not going to have any impact at all, but it won’t be anything that I would label a major impact. And again, this is one of those things that all goes into the pot I was talking about before, that we consider when we say that we’re still comfortable with our guidance range.

Okay, so you’ve basically offset it all in Marine and you’re going to offset it with prices in Cranes and getting out of the discounting.

No, what I said is we have immaterial exposure in Marine, that we’ve basically purchased the material that’s required for most of the fixed price contracts we have. There’s a little exposure. It’s not material.

Okay. And then just one very granular question. The sales and use tax settlement, was that recorded in the tax provision or was that part of other income--?

That was part of headquarters’ corporate costs.

I’m sorry, it’s just that I want to make sure I understand. In the corporate expense line, is that where it is?

It wasn’t income tax. This was an old use tax agreement we reached with the State that didn’t have anything really to do with current operations, so we booked it as part of our corporate expenses.

Okay, I got it. So you’re still looking at like a 30% tax rate for the year, am I kind of right on that?

Maybe even a little bit below that, 28-30. We saw 28 in the first quarter.

Okay. All right, great, thank you.

Can I answer one question in Marine? I don’t want to mislead anybody. The contract that’s going to be awarded in May, the Littoral Combat ship is for only one or two vessels and they’re going to be R&D vessels. Based upon their performance, then the rest of the contract will be let later on. It’s a long-term, 10-year type program.

And our next question comes from John McGinty, as a follow-up, from Credit Suisse First Boston. Go ahead, please.

Yeah, just a couple of quick follow-ups. One, Tim you did a good job of explaining steel and everything there. You didn’t mention copper, which is obviously a big piece of the Foodservice. Can we assume the same kind of comments – not in terms of buying ahead, but at least in terms of protection prices, it’s not anything you’re worried about?

Yes.

Okay. Second question, when, I think it was Terry, or maybe it was you that was giving the overview about the Foodservice, you talked about ice machine shipments where you did have industry data, up 10%. The fact that your own shipments were only up 3%, do you think that was a share issue or were you in ice machines up in line or ahead of the industry and it’s just it was a whole mix of issues in there?

I think it’s the latter. The 3% was for the overall business, to include the refrigeration and the beverage and also the beverage systems, the distribution operations and stuff. And our ice machine business did better than the industry.

It did above the industry.

Yes, it did.

Okay. Then the last question is kind of getting back to a question somebody asked earlier. The other major Crane participant in the United States also breaks out their Crane results on a quarterly basis. And they had substantially lower results. They also had some significant negative issues with regard to the North American rough-terrain Crane, where you talked about one of the areas, Glen, where your orders are picking up.

This competitor has historically in other lines been known as a rather aggressive pricing type person. Maybe the leopard’s changed its spots, but are you, in terms of looking at what happens – one of your goals is to maintain your market share. I think that’s the first one of the goals, in fact.

And the question is, if in fact we see an ugly pricing environment come in, can you just talk for a second about the tradeoff or what that would mean in terms of how important is the goal of protecting or improving market share, versus hitting your profit goals? Because if in fact pricing gets worse instead of better, conceptually then you’ve either got to give up share to hold the margins or just give up share – can you talk to that issue?

Sure. I’m certainly not going to say what we talked about internally when we’re faced with those challenges. But I would say that you have to pick and choose your battles, John. And I hate to – what I would say, is we do not look at our business as a commodity business. And so when we go in, I think there’s a lot of things that we have to sell. We are not going to be the cheapest. And we continue to say that. We’re not going to be the cheapest.

But at the same time, we know what the pressures are from the industry. And as you go in to each independent dealer, I don't know why, if you go into a customer sometimes you do hear of different pricing and that kind of thing. But everything is different. And I would say that what was encouraging from one of the competitors is they said there’s going to be –I forget how they put it – pricing – I forget the word they used, which was good. As we look at it, it’s really – we’ve been through this for the past four years, primarily in the mobile hydraulic business.

If you go back four years, five years with Grove and everything else, there were different pricing points. But again, I think we need to just look at our business and continue to do what we said we’re going to do. And we feel good about what we have. The competition is good and we’ll continue to do what we’ve been doing.

But, I guess the question is, who knows what’s going to happen, but if the issue becomes hitting the margin goals that are implicit in what you’re going for, versus maintaining the share, again those might not occur, but if it does, is share still more important than margin?

John, this is Terry. I’m not sure that we would want to lay out our overall strategies on how we go to the market and how we view the market at this time. We’ve laid out what our goals and our long-term strategies are. And we’ll be true to those and that’s what’s going to guide us.

Fair enough, thank you.

And we will take a follow-up from Charlie Rentschler, with Langenberg. Go ahead, please.

Yes, Dennis, a couple of questions, wrapping up here, for you. You had talked a couple of times about the Littoral Combat ship program. I understand these are prototype vessels that a contract is going to be awarded for. But how do you feel at this point about your group’s chances? Because obviously, the guy that gets to build those prototypes has the lead, I should think, in terms of securing the contract down the road.

Well, I feel extremely confident, because of the partners we have; Lockheed-Martin, Gibbs & Cox, and Bollinger Shipyards. I feel very confident that the ship we’re offering the Navy will not only do the job, it will do the job better than the two competitors. I don’t know what else to say, but we’re giving them an outstanding value and an outstanding ship.

Okay. And then a second question. You’ve been ramping up production I guess at Toledo and Sturgeon Bay and you’ve got a lot of new workers. Are you okay about the productivity of these new people or what can you tell us about that?

I would say, we’ve been ramping up all three yards. Marionette, we’ve added over 100 people there also, because of the programs we have there. Productivity has been acceptable. The productivity at Bay has been very good. First of all, we had a lot of people that we brought back that used to work at Bay. They came back. That’s done very well. Toledo, we’re pleased with what’s going on at Toledo also.

I don’t have any of the major issues that I expected to have, that you normally expect to have when you have brand new people who don’t know how to build ships. We actually put in some great programs to make sure people knew how to weld before we’d hire them, rather than hiring them and then teaching them.

Very good.

(Caller Instructions.)

I think probably that there aren’t any more questions at this time.

No, we have no further questions. Mr. Khail, I’ll turn the call back to you for additional or closing remarks.

Thank you. Before we conclude today’s call, I’d like to remind everyone that a replay of our call will be available beginning at 1:00 p.m. Eastern time today, until 1:00 a.m. Eastern time on May 7. The number to dial for the replay is 719-457-0820. When calling in for the replay, please use confirmation code 484259. You may also access an archived version of today’s call on our website at www.Manitowac.com.

Thanks again everyone for joining us. Have a good day.

And that does conclude today’s conference. We appreciate your participation. You may now disconnect.