Manitowoc Company Inc (MTW) 2005 Q3 法說會逐字稿

Good day everyone and welcome to the Manitowac Company Incorporated Third Quarter Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introduction I would like to turn the call over to Mr. Khail; please go ahead sir.

Good morning everyone and thank you for joining us for our third quarter earnings conference call. Participating in today's call will be Terry Growcock, our Chairman and Chief Executive Officer; Carl Laurino, Senior Vice President and Chief Financial Officer; Glen Tellock, President of Manitowac Crane Group and Bob Herre, President of Manitowac Marine Group. Tim Kraus, President of Manitowac Foodservice Group will also join us for a question-and-answer session.

Carl will open the call with an overview of our financial results for the quarter including a brief reporting on each operating segment. Glen and Bob will follow with updates of our Crane and Marine segments and Terry will conclude with the strategic commentary. Following these remarks, we will open the call to your questions. For any of you who are not able to stay in the line for today's entire call you can hear a replay beginning at 1:00 p.m. Eastern Time today until 1:00 a.m. eastern time on November 10. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 3664267. You can also access an archived version of this call by visiting the Investor Relations section of our corporate website at www.manitowoc.com.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 Carl begins his financial commentary, I would like to review our Safe Harbor Statement this call is taking place on November 3, 2005. During the course of today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 maybe made during the speakers' remarks and during our question-and-answer session. Such comments are based in the company's current assessment of its markets and other factors that affect our business. Actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc'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, 2004. With that I'll now turn the call over to Carl Laurino.

Thanks, Steve and good morning everyone. Yesterday, we reported third quarter net sales of $565 million, a 23% increase over the third quarter of 2004. We also reported net earnings of $17.1 million or 55 cents per diluted share for the quarter compared with net earnings of $12.7 million or 47 cents per diluted share for the same period last year. Our reported net earnings for both periods include special charges and the effects of discontinued operations. Excluding these items, third quarter 2005 earnings per share totaled 74 cents, an increase of 68% from adjusted EPS last year.

Please refer to our press release for a reconciliation between the reported GAAP earnings and earnings from continuing operation before special items. For the first nine months, net sales increased 24% to $1.7 billion from 1.3 billion in 2004. Net earnings were $47.6 or $1.55 per diluted share compared with $33.7 million or $1.24 per diluted share. Excluding special item diluted earnings per share from continuing operations for the first nine months of 2005 or $1.93 of 82% from the first nine months of 2004.

Although we are pleased with our strong financial performance, we continue to seek ways to improve our operating efficiency. We plan to sell the Foodservice segment's contract manufacturing business, diversified refrigeration also known as DRI. The sale would eliminate an operation that has few reaming synergies with our other foodservice businesses. As a result, we classified the DRI as a discontinued operation for the purpose of third quarter financial reporting. Quarterly sales for DRI had been above $20 million range with operating margins in the high single-digit percentage range.

As of foodservice, we are focusing marine on its core business by closing the Toledo repair yard. Suitable dry-dock and repair facilities to meet our customers needs are available at our Sturgeon Bay and Cleveland ship yards. We will continue to serve our repair customers in the lower grade rate to our repair side in Cleveland.

Total estimated costs of closure of $5.2 million were taken to discontinued operations in the quarter net of taxes. Of these costs, $2.8 million of cash and $2.4 million are non-cash. We are also consolidating our walk-in refrigerator manufacturing facility in River Falls, Wisconsin and are transferring that site's production to a larger more modern and existing facility in Parsons, Tennessee. The move to the Parsons plant, transfers the production to a more efficiently facility, which has benefited from our demand flow and Lean manufacturing initiatives. While, there are significant synergies in fix overheads, the move will have little impact on direct labor headcount. Total costs of this restructuring of $3.2 million were taken in the third quarter, which included $920,000 of cash costs and $2.2 million of non-cash cost. We expect to realize a total annual cost savings of approximately $3 million from this consolidation.

Our tax rate was 14% for the quarter and 20% year-to-date. This quarter's tax rate declined from 21% in the prior quarter as we were able to utilize research and development tax credit generated through investments in our Marine segment. We now anticipate an effective tax rate for the full fiscal year in the low 20% range. We believe that Manitowac will realize an effective tax rate of between 25 and 30% in 2006.

Now I will review our segment financial results. Crane segment sales for the third quarter were $405 million, an increase of 32% compared to the same quarter last year. Operating earnings were $29.6 million of 119%, and operating margin improved to 7.3% from 4.4% a year ago. This improved performance illustrates a significant operating leverage of our crane business on a global basis.

Foodservice sales of $108.9 million increased 9% from the 2004 quarter as hotter then normal weather in July and August drove sales of replacement equipment, especially ice machines. That weather-related performance more then made up for weak sales in the second quarter when cold damp weather affected much of the country.

Our beverage business continues to gain momentum posting strong double-digit year-to-date growth. The strong performance at ice and beverage, whose sales are primarily driven by the replacement market, was partially offset by lower sales volumes of commercial refrigeration equipment, especially walk-in refrigerators and freezers. This equipment category is more dependent on new store construction.

During the quarter, we saw a decline in the rate of new restaurant construction in the U.S. as key customers focus on driving same-store sales to [reflect] programs and menu expansion.

We also experienced a deferral and cancellation of foodservice equipment orders in the Gulf Coast region due to widespread hurricane damage. Foodservice operating earnings of $18.5 million represent a 3% increase over the third quarter last year. The margin reduction of 1% was primarily attributable to increased cost of our ERP implementation, new product development costs and sales and marketing expenses.

Our new factory in Hangzhou,, China now is fully operational. All production lines have been relocated from our previous facility and we are ramping productions starting with our new residential ice machine line. The Hangzhou plant is an important component of our global strategy and it will bring more [men] to our product, closer to your customers.

In our marine segment, revenues totaled $51.2 million, a 7% decline from a year ago. Operating results were essentially breakeven with a loss of $92,000 versus a loss of $600,000 adjusted for the discontinued Toledo operation in the previous quarter and operating earnings of $3.5 million a year ago.

Marine’s financial performance this quarter is primarily a hold-over from three challenging projects that have now been delivered but continue to affect third quarter results. Bob will address the current status and outlook for marine later in the call.

The adverse affect of key commodity pricing is lessening and we expect the multi-front approach we have been using to combat this challenge for over a year to bring full-year 2005 benefits in access of the cost impact. These approaches have included sourcing initiatives, existing product costs take-out, new product introduction and pricing actions.

Cash from operations in the quarter will be solid $61.3 million compared with $7.4 million a year ago. The strong cash generation reflects our diligent focus on working capital and strong profit performance. Manitowoc's normal seasonal pattern is to use cash in the first half of the year followed by strong cash generation in the second half. We remain confident that we will achieve our objective of generating net debt reduction of $50 million for the full year.

Manitowoc also include EVA performance during the third quarter reflecting strong profitability as well as more efficient use of our capital. At September 30, EVA was more than nine folds greater than last year and up more than 70% from June 30, 2005.

My final comments will address earnings guidance which we are raising to a range of $2.25 to $2.35 per share. This higher range reflects the consolidation in our walk-in and refrigeration and Toledo shipyard facilities as well as the benefits from our tax strategies. The successes we are seeing in crane are expected to continue for several quarters, but the margin benefit we are now seeing from the pickup in the North American crawler crane industry will not have a meaningful effect on Q4 2005 margins.

I will now turn the call over to Terry Growcock to introduce our other speakers. Terry,

Thanks Carl. As many of our listeners know we typically use each quarters call to highlight one of our segment and give its President a chance to discuss its business in greater detail. It's Marine's turn this quarter and Bob Herre will join us in a few minutes to discuss what’s happening in our shipyard. However, I am going to deviate a bit today. Everyone who follows Manitowoc is very interested in the crane segment. So, I’m going first ask Glen to comment on some of the positive factors driving the construction industry and what they mean for Manitowoc. Glen?

Thanks, Terry. Good morning. Conditions in the crane industry are certainly better than we have seen for several years. In the United States, we are seeing multiple factors boost demand for lifting equipment. The recently enacted $286 billion Highway Bill would be the largest near-term driver of demand for construction equipment.

Another domestic driver is the Energy Bill which contains incentives for construction of power plants, improvements to the electric distribution grid as well as development of alternative energy sources, more specifically wind towers. Obviously, these projects will all require the use of specialized lifting equipment.

Related to the energy industry are the effect of the hurricanes on the refineries and petrochemical facilities along the Gulf Coast. Our nation certainly needs that capacity to come back on line and lifting equipment will be needed to restore this capacity. With utilization rates running quite high for mobile telescopic and crawler cranes in the United States and rental rates improving, more cranes will be required to meet the growing demand.

International crane demand is strong as well. In Southern Europe, the market for all terrain, rough terrain, crawler and tower cranes remains brisk. On the other hand, the Northern parts of Europe continue to see very little economic expansion. We are also seeing strong activity for many of our products in Middle-East and Russia. Higher energy prices are certainly giving this market a real boost.

Any discussion of international growth must also include China and Asia. Our new tower crane manufacturing plants in China will be operational in the first quarter of 2006 to better serve the high growth rates in this region. Infrastructure projects such as power plant construction in China and India alone will require all types of lifting solutions, while large tower cranes will continue to be used in hydroelectric projects.

Reflecting these positive trends our crane build backlog totaled $633 million on September 30th, which was up more than $100 million from June 30th and is more than double the year ago backlog. It's worth noting that our crane backlog is not dependent on any one geography or product line. The growth in backlog during the third quarter was well balanced from the geographic perspective. In most markets, demand for all of our product is increasing as construction activity increase.

Some of our peers in the construction equipment sector have commented recently on tightening capacity availability and production bottlenecks caused by robust product demand. We are confident that our production facilities in the United States, Europe and China will be able to handle the growing backlog of products and more significant production challenges steam from the supply chain and that in our manufacturing facilities.

In summary, the tower and mobile hydraulic crane markets continue to perform in line with our expectation. The only change from prior reviews is that we are now more confident that the North American crawler crane market is gaining momentum. With leading brands and rebounding markets, complemented by our worldwide Manitowoc crane care aftermarket support, you can understand why we believe conditions for the Manitowoc crane group are better than we have seen for quite some time.

Glen thanks for those comments about the improving crane industry. I'll now introduce Bob Herre, the President of Manitowoc Marine. Bob joined us this spring from Trinity Industries where he managed multiple shipyards. He has a long history in marine fabrication and has assembled an excellent team to drive improvements at our three shipyards. Bob.

Thanks Terry. You made an excellent point when you mentioned the team, because having an outstanding team of managers, driving an integrated planning and production process is the only way that a multiple shipyards operation can prosper. Since joining Manitowoc, I have focused significant energy toward building a team including new recruits in the areas of general management, production and process control, cost control and safety and blending those individuals with key legacy members of the Marine management team. Together we are beginning to sculpt the future of the Manitowoc Marine group.

I have found the work ethic of our managerial employees to be second to none and the craftsmanship of our production employees to be excellent. We are successfully booking our backlog with good margins, so with these elements in place we are positioned to execute a successful 2006 operating plan.

The biggest different between Marine and the other two segments isn't the product, it's the process. Almost every vessel that we build is based on a third party design, and a series of two or three identical units is generally as good as it gets in terms of establishing a learning curve.

In an order to improve controls that will allow us to carefully monitor the progress and budget conformance of our projects, our team is breaking the process down to its most basic elements, thereby being able to treat those elements as repetitive. We’re using principals of Six Sigma to manage a larger number of smaller tasks. Big problems have a hard time hiding in small work orders, so we’re breaking the process down to their smallest reasonable size.

Two factors are going to make Manitowoc Marine a big success going forward. Getting the right jobs, on the right terms and placing those jobs in to the right shipyards. We formalized our bidding process to include a front-end selection rating system, a hierarchy of financial reviews and carefully structured contracts that include escalation clauses in which we share the commodity price risk with our customers.

In addition, we’re targeting projects that suit the core competencies of each of our facilities. Marinette is now dedicated to complex ship building and government projects such as the Littoral Combat Ship, options for the INLS lightering system that we just successfully delivered to the Navy, as well as Coast Guard projects and complex commercial projects. The documentation standards required by government programs are highly specialized and that expertise will be housed at Marinette.

The LCS program is proceeding well and feedback from Navy officials at the [Freedom's] kneel laying ceremony earlier this year reinforced their support for both the program and Marinette Marine.

Bay Shipbuilding will focus on new construction and repairs for the commercial market. We are building a commercial backlog and those projects have prices at which a fair return can be earned by both our customer and by our shipyard. In addition to new construction, Phase II dry docks provide sufficient capacity to accommodate multiple large repair jobs simultaneously and our order book for the winter repair season is solid.

With the closure of Toledo, Cleveland will supplement our repair business by providing topside work and voyage repair services and by serving as a base in the lower Great Lakes for our customers who also use Bay for their larger repair jobs.

My closing comment is that Manitowoc Marine has good people executing a good plan and I am confident that it can and will produce good results for our shareholders.

I’ll now turn the call back to Terry for his strategic commentary. Terry.

Thank you Bob. The benefits of our global strategy are paying huge dividends for the crane group. The segments operating margin and EVA are up substantially for both the quarter and the year. We intend to continue to optimize cross-selling within our global crane businesses and we are making investments directed to that end. Investments such as our expanded facilities in Italy to meet growing demand for mobile telescopic cranes in that region and our new 586,000 square foot manufacturing facility in Hangzhou, China are two recent examples. We then back that up with Crane Care, by far the industry's most comprehensive after market support programs.

In foodservice our profitability remains quite strong while at the same time we invest heavily for the future with a plethora of new products over the past several years, the new ERP system segment wide, the new 190,000 square foot manufacturing facility recently opened in Hangzhou, China are just a few of these examples. You just heard from Bob many of the fine things now underway in marine which we are confident will return that segment to an acceptable level of profitability. I share Bob's assessment and I am pleased with the progress he and his team are making towards this goal.

Let's now look at our strategic priorities as we have been reporting on over the past few years. The first priority has been to increase crane sales and market penetration on a global scale. We continue to address this with the broadest product line of lift solutions in the world and we are utilizing this leverage in cross-selling throughout all regions as well as focusing on new products to fill critical product voids such as the mammoth [walk] model 16,000, our new 400 metric ton capacity crawler crane that was introduced earlier this year. Our second priority is to strengthen the foodservice business and market share. Foodservice has a commanding presence on the cold side with the broadest product offering of any manufacturer. We continue to introduce new products to maintain and grow our leadership position.

During the [Natham] show in late September our booths with standing room only for much of the show included among these new product was a flake ice dispenser that will further our penetration into the healthcare field. Another exciting development was the launch of the [SM50] line of undercounter ice machines, our first entry into the growing residential market. You will see even more new products later this month in the National Association of Convenient stores trade show in Las Vegas. These are all good examples of our commitment to maintaining and expanding the industry leading position in the foodservice market. Foodservice also benefits from having product designs that incorporate greater energy efficiency. Manitowoc’s line of energy efficient ice machines and refrigeration products help improve our customers bottom line. As an example, California’s new energy bill offers cash rebates to purchasers of energy efficient equipment and we have more than twice as many products that qualify for the rebate program from our closest competitor.

Leveraging the strengths of our multiple shipyards is our third priority. We have taken firm steps to correct the recent operational issues and are bidding only those new projects that compliment the capabilities and capacities of our facilities. We have further narrowed our focus with the decision to exit the Toledo yard and concentrate our resources on the two remaining major yards in Marinette and Sturgeon Bay.

Finally we are focused on improving cash flow and reducing our debt leverage. We are on track to reduce net debt by $15 million this year while maintaining one of the largest capital spending programs in the company's history. I will conclude my comments by saying that I am pleased with the progress to date and excited about the outlook. We have a diversified portfolio of world class products that we deliver on global basis. We continue to focus on EVA to ensure that we stay true to our goal of building long-term shareholder value. I think you can see these strategies are working. I look forward to sharing our growth and progress in the quarters to come. With that I will now turn the call over to the operator for questions and answers. Jeff.

Thank you gentlemen. Our question and answer session will be conducted electronically. If you would like to ask a question or make a comment please press "*" "1" on your touchtone telephone. If you are using a speakerphone please make sure that your mute function is turned off to allow your signal to reach our equipment. We also ask that you initially limit yourself to one question and one follow-up question to give everyone a chance to ask their question. Once again to ask a question please press "*" "1" at this time and we will take our first question from Gary McManus with JP Morgan.

Good morning everybody.

Good morning Gary.

On the crane side, you talked about having, I guess, supplier bottlenecks you being short of certain components and so forth, are you hitting your planned or desire production targets, are you kind of -- or are you being constrained in raising production because of these issues?

Gary, I am going to let Glen give you some more specifics on that but let me first say that, you know, the signal was that we do not have any of the constraints within our manufacturing facilities and basically the area that we’re working hardest on would be the supply chain. I don’t think we characterize that as really being a bottle neck. It's something that I think our leverage with our global sourcing capability has overcome in the past year and we are overcoming this year, and I'm confident of our ability to continue to overcome in the future. Now that doesn’t mean that it doesn’t create some opportunities for us in other aspects. But I think overall we’re doing a very fine job on that. Now I'll let Glen kind of give you a little bit more color to that.

Good morning Gary. The only area that's really a supplier constrained of anything is really the tires and I think you are hearing that from everybody. So, I don’t think that's a surprise. But we are getting tires and it's a matter of how we get them, and Terry is right, it's the matter of sourcing the right initiatives to get those. But on the other side, really we can get what we need to meet our manufacturing needs and our customer needs. It's a matter of how fast you may get it and when do we get it. So, it's really not that it's not there, it's just a matter of making sure that the supply chain, we can work together to get it all functioning in the same area in working with those suppliers because much of it does come from the outside.

Okay. I'm just going to interpret this thing is not really a big negative issue or a big constraint on producing right now. My follow-up question is just, looking at the backlog on the crane side, you know, very strong of course, can you talk a little bit about the composition of the backlog in terms of both, the mix when you talked about the U.S. crawler market coming back, you have a richer mix in your backlog going forward than what you’ve been showing in revenues and also to the lead times, if I look at the backlog compared to the revenues for four and a half months, were some of these orders you’ve been getting you know out well beyond that four and half month average, I mean?

There is a whole bunch of questions in there. Let me address lead times on some of the products. I would say generally it's certainly not our past what you just talked about. Now there maybe specific products, you know, one product line or two product lines and various items that goes out a little bit further than that but it's certainly not the entire backlog. The other item that I wanted to address is yes about the crawler crane market. We do not disclose generally the make up of our backlog, what it is by product line but I would tell you that what we are seeing in the crawler crane market what gives us some optimism is our order rate right now is probably double what -- almost nearly double what it was last year at the same time for crawler cranes in North America.

Okay, great. Thank you.

We'll now take a question from Charlie Rentschler with Foresight Research.

Yes following up on Gary’s question on commodity prices, can you hear me okay?

Charlie we can't hear you, Charlie.

Hang on. Hello can you hear me now.

Yes.

In your press release you talked about commodity price pressures and shortages has a potential to effect profitability. I mean it's kind of an ominous state and it's kind of open ended but Terry, I guess you just said we are overcoming these issues but looking into '06 will the Company as a whole across the three segments be ahead of the curve on material costs or not?

I am going to let Carl answer that, Carl

Yes, Charlie. I think the reason for the text in the press release is really obviously, you are dealing with certain amount of uncertainties in some these commodity categories and a recognition of that fact but as we have been talking about this issue over the last several quarters really the outlook that we had with our [view] on the right side of the curve relative to the multi fund approach that I talked about in my comments and that is certainly the expectation for where we are going to be full year in 2005 as well as our present outlook.

Charlie, if I could, just one other bit of comment on that is, you know, about 18 months ago we launched our global sourcing in reaction to the growing insurance we had with commodity prices and material availability and it allowed us to I think, function very well in the past year and a half. We have taken steps this year to further strengthen our global sourcing, we have officers in other parts of the world reporting to our global sourcing, we have commodity managers reporting to our global sourcing, and I think that strengthening effort in that side will continue to keep us in good position in this current environment.

Okay, thank you and for my follow up, you are projecting a $50 million drop in net debt for the year, can you give us an estimate for free cash flow for ‘05 and including where do you think capital expenditures will end up and how ‘06 look for CapEx?

Well Charlie, the [old business] is something that we would differ, obviously we have given some indications on some issues relative to ‘06, but we'll really wait until our next conference call before we start getting you know real granular on the old fixed outlook.

But the two new China plants are heavily in ‘05.

We have been we then think that we expect to realize a free cash flow of in excess of $50 million and obviously we're on target to achieve net debt reductions that is same thing. And we're on track to achieve that and that would be net of probably in the $50 million range of capital expenditures.

And I mean, would it be fair to conclude that ‘05 has borne the brunt of the CapEx for the two big China projects so ‘06 would see a trailing off on that?

We have done that.

Okay thank you.

We’ll now take a question from Joel Tiss with Lehman Brothers.

How’s it going?

Joel, good morning.

I wonder I want to ask Gary McManus’s question about the marine business can you talk about what's in the backlog and if you can give us any highlights I guess to try to put the pieces together for 2006 without giving us guidance, but just what some of the moving parts are in terms of the restructuring and what's in the backlog and how things are trending there?

Well I’m going to ask Bob to give you some detail on that obviously we do not have quite the same level of reporting in the past on the backlog, but I will tell you that as came out in our press release and in the conference call, we are working on several key projects. Obviously, the most important key project from the ship building at this point in time would be the Littoral Combat Ship that we are underway on at this time, but we also have some options and some of the other projects. We have the ongoing [inaudible] legislations, opportunities on the double hull tank barges that we have been building in the Sturgeon Bay facility. And we have a very solid winter season lined up for the repair and inspection work in Sturgeon Bay. So, Bob can you give any further on that.

On the commercial side, there -- we have a couple of projects in final stages of contract definition that are integrated tank barge type projects that had reasonably good margin or allow us to make a good return. On the government side, there are couple of new projects coming down that we had bids in place for and we've got suddenly informal feedback on those. Those projects are also developing very well. So on both counts I've realized on [inaudible] specific for on both counts. The backlog is in good shape and growing and with good margins.

The one caveat I would extend relative to that is obviously, the Littoral Combat Ship is floated type vessel. And we have mentioned that, that tends to be a low margin because we are obviously in the development phase on that type of work.

Okay. And I'm going to try to glue two questions together here, but your corporate expense looked like it jumped a little higher then we would have thought in the quarter, you know, above trend, I wonder if you can talk a little bit about that and also your guidance for 2005, the new guidance, is that based on the 74 cents, or is that based on the 55 cents? I wasn’t clear on that. Thank you.

The key one relative to the corporate expense would be the – on the – side that would be if the increasing effect of that – some effect again this could benefit in a general category, and then what relative to – what was the second part of your --.

I wondered if the guidance for –

It's based on the 74 cents.

Okay. Thank you.

We’ll now take a question from Nigel Coe with Deutsche Bank.

Hi guys. Just a follow-up on the last question, what is the actual fourth quarter guidance for EPS?

The translation would be in the – from the year-to-date results to be in the 32-42 cents range for the quarter. That obviously is a pretty significant increase from our outlook at the beginning of the year at the top end of our guidance. When we started the year, it was $2.20 per share. With the – adding back the effect of the discontinued operations was a pretty net neutral through the first three quarters of the year. About 1 cent negative to that 74-cent number I mentioned, but for the fourth quarter it is having that profitable DRI business out of our operations, arguably would add a nickel to the penny to the top end of the guidance. So, going from a $2.20 outlook at the beginning of the year-end, placed in the top end of our guidance to $2.40, obviously is being driven by the successes that we've had in the crane business.

The other thing I would say about guidance and the reconciliation of the tax benefit that we have seen and also has obviously have been very helpful for us this year is that a significant amount of that is due to the R&D tax credit that we're able to realize. That -- those expenses on the R&D side hit the Marine results pretty significantly in 2005 and you know when we get the credit obviously it goes to the tax line, but arguably if you would assign it to the segment level, it would benefit the Marine business. That was about a 6 cent benefit of the overall tax benefit that we've received this year.

Okay, thanks for that and you obviously mentioned that Katrina resulted in some order cancellations in the food equipments segments. Could you just put some numbers around that, give us some sense of the materiality of that and maybe some color on you know any likely benefits in 2006 in crane and also food?

I would say relative to the foodservice effect of Katrina, obviously we did show a pretty decent top-line growth you know driven by the replacement business that I talked about. Certainly it tempered the amount of growth that we would have delivered, that just was not the case. You know, we obviously would have shown better results but I don’t have any specific numbers to provide you other than obviously it was a pretty dramatic impact relative to the number of facilities that were affected and obviously that effected the distribution center at the same time.

This is Tim. By the end of the fourth quarter we will have say specific data that we also look at, Mississippi, Louisiana, and Texas [inaudible]. We know as a fact but we can't quantify it.

Okay and 2006? Worth a try.

Really, on the next call we would historically give a very complete outlook on each of the three segments by the three segment precedence and the lay out what our yearly guidance will be then as far as the revenue, the earnings, and the cash generation, the net debt reduction goals that we have this year and we like to hold off on that until that time when we really have everything together that we believe we can give you some very tangible information now.

Fair enough. Just a quick follow on in the marine segment, it looks like you might have a substantially comp coming up in the fourth quarter. You mentioned that as the decent backlog of maintenance coming up, should we be looking for a sequential increase in the fourth quarter in marine or flat?

Certainly wouldn’t expect to see an increase in the marine business due to a lot things that I referenced earlier. Our overall expectation is that, you know, and this would be net of the effect of the Toledo removal into discontinued operation that the marine business for the year would be a break even.

Okay, on revenues you’re saying flat Q-on-Q? Okay, thanks.

Moving on, we will now hear from John McGinty with CSFB.

Good morning. I wonder if I could start with a clarification. Carl am I a -- we're raising the earnings guidance but we're doing with a tax rate in the low 20’s as opposed to a tax rate that was something substantially higher than that previously 26-27%, we're actually lowering the pre-tax guidance and can you just clarify where things are lower than they were before on a pre-tax basis?

Yeah, I would say that the -- there obviously is a bit of a bridge there relative to the discontinuation of DRI.

That's $0.5.

And there is also I think, a pretty holistic sense on the tax that really is relative to the R&D tax advantage and then I think when you look at the beginning of your outlook, I think there was an expectation for some better contribution from the food service business and those will be the elements.

Okay. With regard to the marine business, you don’t want to talk about '06 thus far and I understand that but you made the point that you have now just waiting for the actual verbiage but you basically have the three troubled jobs that you have now finished. Can you help us out by saying what was the -- looking back, what was the cost in '05 of the three troubled jobs, how much money did -- what did that cost you that presumably those will be gone so at least we have a better picture what that true starting point will be on an adjusted basis for '05 as we look at '06? How much money did you loose in those three projects in '‘05, cumulatively on the three?

It was certainly in the 10 -- over the $10 million.

At least 10 million on an operating basis?

Right.

Okay and then if I could I just -- the question for Glen, you made a point that the backlog was balanced, very nicely balanced both by product type and by geography, and you kind of reiterated that when you were talking to Gary about it, all of which makes sense? And you also said that the crawler crane, domestic crawler crane orders are twice what they were, again that makes sense, what I am not sure I understand is given all that why are we not -- you may, you are absolutely clear in making a point that we weren’t going to see any benefit from that starting in the fourth quarter, so could you explain why if obviously crawler crane orders have started to pick up, they are double where they were why we are not seeing -- why we are not seeing that in terms of output?

Yeah, John this is Terry. I am going to let Glen give you a some more flavor to it but initially my first reaction on that would be that, we said we’ve been growing because of our cross-selling capabilities and our global strategy that we put in place back in 2002. What we now have is the ability to sell a lot more crawler crane in other parts of the world. And so what you're seeing is that we have been growing our crawler crane business and I think the key is – that the backlog is now a lot more evenly spread around the world, and it's also a different mix of models that we have. We’re talking, you know, the new 16,000, the 18,000 that was introduced a year ago, etcetera. So I think that's a key part of it. Now Glen, if you could give us some more on that.

I would have hit probably primarily just on the mix of the models right now than what you're seeing. While the order rates are good, we have the traditional, you know, the 999s and the 2250s, that they’re going out but you are starting to see a lot more of the 16,000, the 18,000, you call the 18,000 we introduced a couple of years ago. And for those -- those are more towards the back -- it's late December and then a lot of it goes into the next part of the first quarter of next year than in the backlog for some of those. That's why we said you're not going to see the benefit substantially in the fourth quarter. And that's really what it is. Again, what we’re looking at is, you know, through the United States, we go through distribution, and that's where a lot of this is coming from, and then talking with our distributors, and believe it or not actually some of them having orders that are going, into the other parts of 2006 which is unusual for what we’ve seen over the past few years.

Well, let me just get a clarification. When you talked about your order rate double what it was a year ago, was that all crawler cranes globally or was that -- I thought that was the domestic crawler crane?

Just domestic.

Alright. Just domestic. But what's happening is some of that -- the 1,600, 1,800 which would be per delivery later in the year rather than some of the ones that might be closer up?

And if you look at the order rate, the reason if you go back to what we said pretty much most of the year and look at the order trend it has been in the last three to four months, I mean a lot of it was people waiting to see what was happening with the Energy Bill, people waiting to see what was happening with the Transportation Bill, and now that those are behind us you are going to see people are much more comfortable. The other things that's happened in the last three or four months is with those same trends is the rental rate. People cannot invest in these new products unless they consider [the rental rate is going to] return economically what they want out of this product and rental rates have begun to solidly and move up across the United States pretty much in most regions, and again that optimism puts people in a better position to order and look at the project they have next year.

Great thanks very much.

We'll now take a question from Edmond Griffin with BlackRock.

Yes, just a follow-up, not to beat a dead horse, but on the Marine segment, you made the comments that going forward the backlog should have better margins and I think you said you actually implemented escalation clauses that share the price risk with customer. So, I was wondering is that -- are you sharing the escalation or are you actually passing any raw material price increases on?

The way the contracts are structured is that the four major commodities, the steel, several other major components of the vessel those are indexed and those are fully passed on to the customer, minor items may not be.

Okay. I wasn’t sure that was shared or fully passed on. Okay. Let's see -- and then just on DRI, how much in sales and profit was it on a year-over-year basis, that’s in discontinued operations right?

That’s correct, we have been running in roughly a $20 million quarterly revenue side and a high single digit operating margins pre-tax.

Okay. All right, that’s it. I'll await for the next quarter for the guidance, thanks.

We will now take a question from Scott Matt (phonetic) with Robert W. Baird.

Good morning gentlemen.

Good morning Scott.

Hi Scott.

I just wanted to hopefully kind of follow up or close a loop on a couple of these questions. One, you mentioned that these three problem projects in Marine may be more than a $10 million operating loss just with respect to those three projects. How much of that 10 million plus is now in discontinued operations year-to-date?

Probably about 3 to 4 million

Okay. And -- but with those projects closed excluding the costs of projects in Toledo, again talking about those projects -- problem products, then were there costs associated with those projects in the third quarter and what the impact of those projects were in the third quarter, did or not in discontinued operations now?

Probably about $2 million that was impacted in the existing operations that was not -- not have gone to discontinued operations.

Thank you. I just wanted to make sure on this tax rate, so we're talking about for the fourth quarter we should be thinking about modeling something in the low 20s for an effective tax rate?

That's correct.

Okay. And I guess I’m just trying to think through things that might be -- might change or might be affecting the operating income forecast for the fourth quarter. The first thing we've got this 7 cents per share charge for restructuring and plant consolidation in the third quarter, that is all in foodservice, is that correct?

That is correct.

Okay. Are you expecting additional costs that are not included in that charge to appear in food?

No.

Okay. Essentially the same thing with Marine? In the Marine segment in reshuffling operations and repair operations, are you expecting additional income in the fourth quarter?”

No we're not.

Okay. And then just in terms of steel costs. The comment that 2005 -- for the full year you’ll be on the right side of all the different pricing actions operation -- improving actions relative to commodity price increases, relative to the third quarter is that -- I take that to mean that your pricing actions and all the other actions relative to incremental cost that relationship improves in the fourth quarter in your forecast relative to the third quarter?

It's about a [inaudible] received in the third quarter.

Okay. Thank you very much. I appreciate it.

And we do have time for one final question and that question will come from Charles LoCastro with Caxton.

Hi. I have actually couple of questions. With the backlog up $100 million sequentially from Q2 to Q3, would it be reasonable to assume that crane revenues are going to be up in Q4 versus Q3?

No Charlie the crane business has a seasonal skew to it and the first and the fourth quarter will be the lowest in terms of revenue. Given that dynamic [which] the second quarter will be the best and the third quarter little lower than the second is the normal seasonal pattern.

Okay. And than a could you talk about what specific initiatives if any you have taken in terms of crane pricing. What is North American crawler crane pricing likely to do in 2006 versus 2005?

Charlie with respect to pricing in North America, we have been announcing different price increases since that middle of last year and moving forward. I think -- what we have done is we put our pricing through our North American distributors answer which includes small price increase on January 1 for product that was going to be delivered between January and June. And we have not solidified pricing after June 30 of next year. Just because of the instability of the some of the main commodities we are not sure whether they are headed. So, we have price increases that go into effect on January 1 for most of the products, but I don’t think again they are out of the industry norm with our competition.

Okay. And then just lastly Carl, in your prepared remarks, I thought that you said that the guidance included the restructuring and plant consolidation costs?

No.

Okay. Okay. Thanks a lot.

Thanks Charlie.

Bye.

That is all the time we have for questions. I would like to turn the call over to Mr. Carl for closing remarks.

Before we conclude today's call, I would like to remind everyone that a replay of our call will be available beginning at 1 PM Eastern Time today, until 1 AM Eastern Time on November 10th. The number to dial for the replay is area code 719-457-0820. When calling for the replay, please use confirmation code 3664267. You may also access an archive version of today's call on our website at www.manitowoc.com. Thanks again for joining us everyone. Have a good day.

And that does conclude today's conference call. I'd like to thank everyone for their participation and have a great day.