Manitowoc Company Inc (MTW) 2005 Q4 法說會逐字稿

Good day, everyone. And welcome to this Manitowoc Co. Inc. fourth quarter 2005 earnings conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to your host, Mr. Steve Khail. Please go ahead, sir.

Good morning, everyone. And thank you for joining us for our fourth quarter earnings conference call. Participating in today's call will be Terry Growcock, our Chairman and Chief Executive Officer, and Carl Laurino, Senior Vice President and Chief Financial Officer. We will also have year-end comments from all three of our business segment Presidents; Glen Tellock of Manitowoc Crane Group, Tim Kraus of Manitowoc Food Service Group, and Bob Herre of Manitowoc Marine Group.

Carl will open the call with an overview of our financial results for the quarter, including a brief report on each operating segment. Glen, Tim and Bob will follow with updates and an outlook of their respective segments. 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 today's entire call, you can hear a replay beginning at 1:00 pm Eastern Time today until 1:00 am Eastern Time on February 9. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 248-8214. You may also access an archived version of this call by visiting the Investor Relations section of our corporate website at www.manitowoc.com.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 February 2, 2006. 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 speaker's remarks and during our question-and-answer session. Such comments are based on the Company's current assessment of it's 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, and it's quarterly report on form 10-Q for the quarterly period ended September 30, 2005.

With that, I will now turn the call over to Carl Laurino.

Thanks, Steve. Good morning, everyone. Yesterday, we reported fourth quarter 2005 net sales of $589 million, a 16% increase over the 2004 quarter. We also reported net earnings of $18.2 million or $0.59 per diluted share for the quarter, compared with earnings of $5.4 million or $0.19 per diluted share for the same period last year. Our reported net earnings for both periods include special items, which include the effects of sold and discontinued operations, plant consolidation and restructuring, and the establishment of a reserve in conjunction with a contract claim dispute. Excluding these items, diluted earnings per share for the quarter totaled $0.47, an increase of 34% from our adjusted EPS last year. Please refer to our press release for reconciliation between reported GAAP earnings and earnings from continuing operations before special items.

For 2005, net sales increased 22% to $2.3 billion, from $1.8 million in 2004. Net earnings were $65.8 million or $2.14 per diluted share, compared with $39.1 million or $1.43 per diluted share. Excluding special items, diluted earnings per share from continuing operations for 2005 were $2.40, up 70% from 2004. The 2005 adjusted EPS results were consistent with our prior guidance in early January.

During the quarter, we completed several strategic actions that position Manitowoc for continued strong financial performance. On December 30, we completed the sale of Diversified Refrigeration, also known as DRI. The sale provided a pre-tax gain of approximately $17 million, and eliminates an operation that had few operating synergies with our other Foodservice businesses. DRI was treated as a discontinued operation in our fourth quarter and full-year financial reporting for both 2005 and 2004.

We also entered into a trade receivable securitization agreement that has provided us with an incremental $60 million in available funds. This agreement provides a capital efficient way for us to invest in our strategic vision.

We continue to actively manage our tax burden through multiple tax efficient strategies. The tax rate for 2005 was in line with our forecast of the low 20% range, and we believe that Manitowoc will realize an effective rate between 25 and 30% in 2006. The common theme in all of these actions is that they generate strong returns on an EVA basis. We've used EVA as management tool since 1993 and we will continue to use EVA to drive our businesses going forward.

Now I will continue -- I'll review our segment financial results. Crane segment sales for the fourth quarter were $439 million, an increase of 22% compared to the same quarter last year. Operating earnings were $30 million, up,89%. For the year, Crane revenue totaled $1.6 billion, a 30% increase from 2004. Operating margin for 2005 was 7.1%, compared to 4.6% in 2004. This improved performance illustrates the significant operating leverage of our global Crane business. Crane Group backlog continues to rise.

Our backlog totaled $866 million at year-end, up from $633 at September 30, and more than double 2004's year-end backlog of $340 million. The 2005 year-end backlog is a record for Manitowoc Crane Group and illustrates the broad global demand for our full suite of lifting products. The outlook for the global lifting market continues to be promising. Glen will provide additional insights in his comments.

Foodservice Segment sales for the fourth quarter of 2005 totaled $91 million, a 7% increase over the same quarter last year. Operating earnings were $10.9 million, up 12% from one year ago, while operating margins improved 50 basis points to 12%. We attribute these improved financial results to warmer than normal weather in the second half of the year, which had a favorable impact on the replacement market especially for ice machines.

Our beverage business also continued to gain momentum from both new products and penetration into new accounts, contributing significantly for our overall Foodservice growth rates. We saw strong growth in our ice and beverage segments in the fourth quarter, while sales of commercial refrigeration equipment were essentially flat to last year. Refrigeration and more specifically, walk-ins, are more dependent on new restaurant and sea store construction. New restaurant construction continues to lag historical rates as operators focus their efforts on renovations rather than new construction.

We recently completed the full -- first full quarter of production from our new Foodservice factory in Hangzhou, China. We are consolidating our under-counter ice machine manufacturing in Hangzhou, and this is where we will also produce our new line of residential ice machines. The residential line has some exciting growth strategies that will take full advantage of this new manufacturing site. The Hangzhou plant is a important component in our global sourcing strategy as it will enable us to produce cost-efficient products on a global scale.

In our Marine Segment, net sales totaled $60 million, and 8% decline from a year ago. As previously announced, we established a $10 million reserve during the fourth quarter for a contract claim dispute. Excluding the impact of this reserve, Marine operating results were essentially break-even for the quarter and slightly profitable for the year. We will now focus Marine on becoming a meaningful contributor to our consolidated results in 2006.

Cash from continuing operations in the quarter was an excellent $77.7 million, compared with $57.6 million a year ago. Cash from continuing operations was $119.7 million for the full year. Such 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 greatly exceeded our objective of generating net debt reduction of $50 million for the full year. At year-end, our debt-to-capital ratio stood at 47.6% and our net-debt-to-capital ratio was 32.5%.

We continue to improve EVA performance during the quarter, reflecting greatly improved profitability at the Crane group, as well as more efficient use of our capital. Our full year 2005 EVA contribution was $19 million, which is also part of a $32 million cumulative EVA increase over the past two years.

I will conclude my comments by re-iterating our 2006 earnings guidance, which we issued in a press release on January 10. We estimate that earnings will be in a range of $3.45 to $3.75 per share, net of stock option expense, which is estimated to be $0.15 net of tax. This results in a 2006 GAAP earnings per share of $3.30 to $3.60. This guidance range represents a 44 to 56% increase from 2005. These estimates are based on our market outlook and strong track record of product innovation and manufacturing excellence, which I expect will continue to perform well in 2006.

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

Thank you, Carl. With 2005 now complete, we will give each of our segment Presidents an opportunity to discuss the recent highlights of their business and their outlook for 2006. We will start with Manitowoc Crane Group's, Glen Tellock. Glen?

Thanks, Terry. As Carl described and as our press release states, the Crane Group had an outstanding year in 2005. Revenue and backlog continue to grow, while margins rose from 4.6% to 7.1% for the year as we realized the operating leverage of our global manufacturing base. As good as 2005 was, we expect 2006 to be even better. Forecast for our global markets are strong across the board, with expansions expected in the petrochemical, refining, infrastructure and energy sectors. The global trends mirror the industry benchmarks here in the United States.

Rental rates remain strong and utilization rates in the domestic crane fleet are at levels we haven't seen in many years. Market indicators are also strong for the crawler market in North America. Most customers are abandoning their wait-and-see attitude -- excuse me -- about crane purchases, and are now taking a long-term view on modernizing and expanding their fleets.

At CONEXPO in March of last year, 12 of our 14 cranes on display were new models. In 2006, we will continue to make significant investments in new models to ensure that we remain the industry leader. An example of our committment to innovation is the Model 16000, which fills a gap in the heavy-lift crawler line-up and is ideally suited for new applications such as the installation of wind turbines. Our portfolio of advanced lifting products puts Manitowoc in a strong position. We can offer customers a single source for their varied needs, whether it's tower cranes in Latin America, all-terrain cranes in the Middle East and Russia or mobile telescopic and crawler cranes in China.

We continue to take advantage of our global manufacturing base. Examples include a recently expanded facility in Italy that is supplying rough-terrain mobile cranes to certain markets in Europe, our new 5,000-square-foot manufacturing facility in Zhangjiagang, China and our recently acquired heavy weldment and machining center in Port Washington, Wisconsin. Our focus now is to shorten delivery schedules and improve responsiveness.

Finally, we continue to invest in aftermarket support to further differentiate our position in the global market. With our Crane Care brand, we support our customers with the industry's most comprehensive after-market network of parts and service. In 2006, we will expand the value of Crane Care by making it available whenever and wherever. We are creating additional call center hubs in Europe and Asia to supplement our North American technical experts. Once in place, our customers will have access to our engineers and troubleshooters around the clock. This resource is another example of why Manitowoc Crane Group products are the preferred brand for operators who need high levels of uptime for their equipment. We look forward to an exciting 2006. Terry?

Thanks for that great update on Cranes, Glen. We will now hear from Tim Kraus, President of the Manitowoc Foodservice Group. Tim?

Thanks, Terry. Foodservice also enjoyed a solid year in 2005. And the drivers of our success were both internal and external. Internally, we made significant investments in our infrastructure. We completed a new world-class manufacturing plant in China. This operation will not only help us sustain and grow our industry-leading position in Asia, but will allow us to accelerate innovation and product development for the rest of the world as well. In 2005, we began production of the residential ice machine in China. And in the first quarter of 2006, we will consolidate manufacturing of all under-counter self-contained ice machines there as well. The Hangzhou facility is the key piece of our growth strategy for 2006 and beyond.

Another significant investment was in our segment-wide ERP system in shared services center. This system will facilitate cross-selling, representing a single face to our customer who will help us leverage our spin for raw materials to global procurement and provides us with much greater control over product costs and production planning. This project will be completed in early 2007.

A third step we took to sharpen our internal focus includes the sale of DRI and the consolidation of two of our walk-in plants into a single facility. The sale of DRI allows us to focus our talent and asset investments more clearly and opportunities to grow sales and build brand equity; while the consolidation of two of the three walk-in facilities allows us to leverage overhead, reduce burden and improvement profitability. With the sale of DRI and the consolidation of refrigeration plants, we can now concentrate our management talents on our future opportunities. We saw some early benefits in the fourth quarter of 2005 as operating margins rose by 50 basis points over the fourth quarter last year.

We also responded to external changes in the marketplace and remain customer-focused. During 2005, we introduced 25 new products and plan to launch another dozen more new products in 2006. Innovation, however, is more than developing new products. Sometimes it's adding features and benefits that the customers need to stay competitive. Our long-term focus on improving the energy efficiency of our ice and refrigeration products is paying big dividends as energy prices rise. Foodservice operators can see an immediate payback by choosing Manitowoc. This is especially true now that some states are offering cash rebates for purchase of equipment with high energy efficiency ratings. We have more models of ice machines and reach-ins that meet these standards than any other manufacturer by far, which is one reason we were able to increase our share of the total ice machine market for the tenth consecutive year.

As Carl said, we have high expectations for 2006. I believe that with the investments we made in China, in our domestic infrastructure, and technology in our new products, we will rise to the challenge. Terry?

Thanks, Tim. Our third segment outlook comes from Bob Herre, President of the Manitowoc Marine Group. Bob?

Thank you, Terry. 2005 was a significant year for Manitowoc Marine. We put some problems behind us by delivering three projects that had impaired our operating results. In addition, we closed the Toledo repair yard.

Going into 2006, we now have the right team in place and we are using better shipyard bidding, manufacturing, and yard utilization processes that will improve Marine's performance. We have a growing backlog of projects that match the capabilities of our two shipyards and a build schedule that allows efficient use of our resources. In addition, all current contracts have terms that protect Manitowoc from commodity price escalation and provide a fair return to both the shipyard and our customer.

The outlook for 2006 is very promising. The Marinette shipyard is focused on the Navy's Littoral Combat Ship, Freedom and we continued to reach major construction milestones. Marinette has other solid government contract prospects and options that will keep the yard at high utilization rates.

Our commercial ship-building business also has -- is also growing with a total of five tank barges in backlog, all slated for construction at our Sturgeon Bay shipyard. These projects share enough similarities in design and construction methods that we will realize meaningful economies of scale. Sturgeon Bay is recognized as a leading builder of large ocean-going OPA90 oil barges, earning orders from both new and repeat customers.

I share my colleague's optimism for 2006 and look forward to discussing our future activities.

Thanks, Bob. 2005 was a banner year for Manitowoc and our shareholders. Sales and operating earnings reached record levels, thanks in large part to the investments the Company has made in the past four years in building a global portfolio of products and assets that are focused on our core lifting and foodservice businesses. We all shared in the great success in 2005 and I believe that 2006 will see even more of the same.

The Crane Group is in an outstanding position to continue to excel. Our global portfolio of diverse lifting solutions is well-positioned to participate in construction activity in all of our geographic markets by providing a single source for cranes, ranging from 1000-ton crawlers and tower cranes to smaller RTs and boom trucks; Manitowoc offers strategic advantages to its customers. We build the products in the regions where they are used. We back them with the industry's most comprehensive service and support network. And we offer an Asian manufacturing capability for applications where that's an advantage.

In 2006, I look for the Crane Group to capitalize on the continuing strength in the large crawler crane market, particularly in North America. Manitowoc has a strong position in this important market and 2006 should provide additional opportunities to capture more of the operating leverage that we witnessed in 2005. Our Crane Group has all the ingredients needed for an outstanding year in 2006.

Foodservice should continue to be a strong contributor in 2006, thanks to significant investments made in this segment over the past few years. We will have the full-year benefits of the Hangzhou facility, as well as the efficiencies of a streamline refrigeration business.

Continued roll-out of ERP and other IT platforms during 2006 will also enhance production efficiencies. Marine turned the corner toward profitability in 2005. Its backlog now consists of projects with reasonable contract terms. And the Marine management team has made great strides in improving the efficiency of our two main shipyards. By closing Toledo yard in 2005, our repair business now serves as an appropriate complement to new-build projects.

For the past two years, we have discussed our business in terms of four strategic priorities. These priorities were the road map we used to ensure that we stayed focused on specific goals. They were; expand global penetration of the Crane portfolio, increase market share for Foodservice, leverage the capabilities of our multiple shipyards, and strengthen our financial structure by focusing on cash flow and debt reduction. All 8000 members of the Manitowoc team focused their efforts on these priorities and the results speak for themselves.

Manitowoc now is entering a new stage of growth. We've completed a series of significant strategic investments around the world. Now we were ready for a new vision that matches this evolved Company. The long range business plans for each of our segments incorporate six strategic components that together will form our new vision. The six strategic comparities are; growth, value creation, innovation, customer focus, excellence in operations, and people and organization. We will provide more detail on these strategic comparities when we issue our annual report next month. Until the annual report is available, you can rest assured that the new vision will include a healthy dose of EVA and other sound business management principles that have made Manitowoc a success in our first 103 years. We expect that aggressive pursuit of the six new strategic comparities will result in even greater success in our next century.

With that, I will now turn the call over to the Operator for questions-and-answers. Andrea?

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question this morning comes from Joel Tiss with Lehman Brothers.

How are you doing, guys?

Good morning, Joel.

I have a bunch of questions, but maybe just let me start with one or two. Can you give us some of the thinking behind such a wide range on both the earnings guidance and the tax rate?

I think that one of the key variables for us this year, Joel, is on the production[inaudible] side. To the extent that we are able to get through the challenges that we would see. Certainly believe that the high-end of that range is achievable. If we are not as successful on that front, then we would be looking at something near the lower-end of that range.

The tax side, obviously we have employed a lot of strategies that can move the needle a pretty fair amount in a short -- in a short time frame. And the other thing that is a key element variable, I would say, is the mix of where the income stream is coming from. And obviously, we are guiding to a higher level than we experienced this year and that is -- a big part of that is, we are seeing income coming from higher tax rate jurisdictions.

Okay. Can you talk a little bit about pricing? What kind of pricing you guys are looking for, mostly I guess, in the Crane and the refrigeration businesses? Thank you.

Certainly, we taken a lot of pricing action with the extreme pressure on the [inaudible] side, both in 2004 and 2005. There is a little more of that in 2006. But most of the revenue growth that we are looking at, which -- maybe I should take the opportunity and give a little guidance by segment on the revenue front. I would say for Cranes, we are looking at some solid double-digit growth continuing in 2006. That's obviously off of a pretty high year-over-year change in 2005. Foodservice, high single-digit expectation. And Marine, we would look for that to be flat, but obviously with a better portfolio of business than we have been experiencing in the second half of 2004 and 2005.

Thanks. I will get back in queue. Thank you.

Our following question will come from Robert McCarthy with Robert W. Baird.

Morning, guys.

Morning, Rob.

Just first, a technical issue. Carl, could you tell us what the first quarter of 2005 Foodservice sales and operating income numbers would be without DRI, so that we can use them for comparability on current quarter result?

Let me give you the sales and op earnings for DRI in the first quarter, Rob. $22.5 million on the top line in DRI. And $1.7 on op earnings.

Terrific. Okay. And the throughput is exactly what I wanted to ask about. I was interested to see overall Company inventories basically didn't move. On the one hand, I guess testament to EVA culture. Thought, perhaps, that we would see greater investment in work-in-process inventories to support this huge backlog that you have in the Crane business. Can you talk about where you think your throughput challenges are and the various things you are doing to overcome them, including the Port Washington investment?

Well, Rob, let me first off say that over a year ago, we implemented our global sourcing group. And I think the global sourcing has given us not only the leverage and the pricing, but also some leverage in our ability to maintain the demand flow cycle that we have to have in order to meet our customer's needs. But I think I'm going to go down to Glen and Tim, specifically, on that and let them answer that specifically into the area you are asking.

Terrific.

Good morning, Rob. I would say when Carl talks about the throughput, it's mainly, I think -- what's going to hold some of the things back are really what we can get from our suppliers. It's really how much can we put in place. We have done a lot in 2005 with respect of hiring new people. Bringing on the Port Washington facility, gives us the high-end machining capabilities for a lot of the large weldments and that kind of thing. At the same time, we're going to be constrained by some suppliers. And I don't think it's a secret that tires would be one area such as where that comes into play.

I don't think so much it's going to be held back by some of the things we can do, because we have made a lot of infrastructure changes. We hired a lot of people throughout the world. We have the capacity additions in China. We have some lean initiatives we have taken in Germany. We have done the things in Italy. It's a matter of, can we really get the sourcing from some of our outside suppliers to put the throughput into play. And I think that's why maybe you look at what Carl's range is, and I'm not so sure it's short-term, I think it's more towards the back-end of the year. That's where the question mark is for us right now.

And just basically tires, Glen? Or can you be more expensive about categories?

I think it's the typical commodities you are hearing from everybody else. I don't think the availability is a problem on, say, steel right now. Again, it's going to be some pricing issues. I think you look at some of the electrical components. You look at anything that has some of the -- what am I trying to say? It's right on the tip of my tongue and I'm missing it right now. It will come to me and I will get back to you. Something electrical on the tires right now.

Okay. Thanks.

[OPERATOR INSTRUCTIONS] Our next question comes from Gary McManus from J.P. Morgan.

Good morning, everybody. That revenue forecasting -- Crane saw double-digit growth. That's pretty ague. I want to ask a question -- it looks like demand is not going to be an issue this year. If you assume unlimited demand, how much can you raise production? What kind of percentage revenue growth could we see in Cranes? Again, assuming the demand is there.

Gary, I would say certainly, you could probably push high teens -- certainly push a high teen level.

Okay. And is that volume? Are you including the effects of pricing? Or just kind of a volume-type of number?

That would be a volume.

Okay. The capital spending plans in 2006 -- I mean, do you need to invest a lot to increase capacity in Cranes?

We actually -- for those that follow it closely, I think we a little underspent what we expected in 2005. I think we have a little bit of carry-over that comes into 2006 that had been planned for in '05. We tended to spend right around the depreciation level and came in under that in '05. So I would say, at or maybe above depreciation in '06.

Last question is, can you talk about how Crane orders are looking thus far in 2006? Are we seeing a continuation of real strong trends that occurred in the fourth quarter, just conceptually?

The order trends continue to be very good. I'm not sure -- continuing with the fourth quarter, there are actions we take on a regular basis annually, sometimes in the fourth quarter, but order trend is still pretty good.

Okay. Great. Thank you.

Our next question comes from Mr. Nigel Coe out of Deutsche Bank.

Good morning, guys. Looking at the Crane cycle, if I pro forma your previous peak revenues for the Potain and the Grove acquisitions, it looks like your previous peak revenue is about $1.4 billion. Is that the right number? Roughly?

That's ballpark.

Okay. So if we've seen that this cycle is vaguely similar to the previous two cycles, where would you expect Crane revenues to peak this time?

Certainly, as you can tell by our comments, we are extremely excited about the end-user dynamics. We talked about the capacity to constraints being a bit of a wild card from the perspective of our reliance upon suppliers. It makes pegging a specific number challenging.

If we look at last year's cycle, the revenues more than doubled between trough and peak, would that be -- would you expect a similar [inaudible] this time?

Yes, that's fair if you want to put it in -- you aren't going to hold me to that?

I'm not going to hold it to you.

Nigel if I could -- we are an entirely different Crane company at this point in time. We are global. We have a full line of products. And so therefore, I think it's a little hard to make those comparisons. But what I would tell you is that all of the fundamental drivers in that whole sector are all positive, whether you are looking at infrastructure, energy, all of the growing global needs that support all of those factors I think are key and they are all in plus direction. And that's the point I would make.

Great. Thanks. And just a follow-up question on the big jump in orders in the fourth quarter. Anything to speak of, in terms of changes in the mix -- the crawlers and the other cranes? What is the price increment between the two quarters? And over what period would you expect to realize this into revenues? Thanks.

Nigel, the pricing actions that we took all during 2005 were in place on all of the orders that we took in the fourth quarter. And any pricing actions we have in 2006 really started on January 1. You will see those pricing impacts all during the year. Throughout the roll-out of the backlog -- really, it's going to be more weighted to the first half of the year with some roll-out to the back half of the year. So it's a good backlog.

And the mix between crawlers versus other cranes?

In this year's backlog, you are seeing more of a -- the percentage from 2004, you are seeing it weighed a little more -- the percentage of crawlers is going up. But again, still a lot of the tower and the mobile hydraulic, obviously, the bigger parts of the backlog.

And just a final question, with the orders in the fourth quarter -- anything to speak of in terms of the trends from distributors versus rental companies?

Well, nothing in the way of trends. And the reason I say that is, what you have is the rental companies in the United States, you have direct distribution on certain products in Europe and then you have the products coming out of China. So I don't think it's any different in trends. I just -- really, it's -- anywhere we have both rentals and distribution, I think it's been the same.

Okay. Thanks.

Moving on, our next question will come from Charlie Rentschler with Foresight Research.

Good morning, everybody. As great a year as 2005 was, one of the metrics we look at pretty closely was not so robust, which is free cash flow to sales. Which was, as I calculated, a couple -- just over 2%. And despite the fact that you did a heck of a job of managing working capital -- I think working capital, the way I calculated it, was even a negative. And I'm wondering, go back in history, go back to the last decade -- you were routinely 5, 6, 7% and sometimes north of that, free cash flow to sales. I'm just wondering if you guys would talk about -- you talk about EV, but what can you say about margins, going forward? Is this an area of emphasis? Because I assume your CapEx is going to moderate now that the two Chinese plants are nearing completion. And I realize this Company is a lot different from it was pre-Grove and Potain. But can you talk about where free cash flow to sales kinds of relationships will go in the next two to three years, please?

Charlie, obviously, we -- as you know, we are very focused on EVA, and we believe one of the benefits that we get out of that is consistently strong cash generation. And that's one of the reasons why we focus on it. Obviously, as the crane market was contracting at a very rapid pace, you take advantages of -- we had some particular advantage relative to our integration activities that were helpful to us. And obviously, we are on the opposite end of the curve in the crane marketplace where working capital is a little bit more -- more of a cash flow drain. At the same time, I guess I would point out that the Company has continued to improve the turn characteristics as we have gone through on the upside.

The other thing I will point out is that obviously, we've had some undesirable returns in the Marine segment and we have targets out there for both -- really all three segments, that we have been public with -- without being specific on them. And that target is 12% operating margin in Crane, high teens in Foodservice and double-digit in Marine. And obviously, the cash component of that profitability will serve us well, regardless of which direction we would be in a cycle. We are optimistic about our cash flow expectations.

Thank you.

Our next question will come from Jamie Cook with Credit Suisse.

Hi, Good morning. My first question; on the Crane side, can you add more color on what you are seeing -- or what your expectations are for rental rates and utilization rates in 2006 versus what you saw if 2005?

And then my next question; on the backlog side in 2000 -- I guess in the backlog right now, can you talk a little bit about the change in mix and how we should expect that to impact profitability in '06?

I think, Jamie, obviously the comments that we made on the utilizations -- they have been strong. They continue to be strong. And as you get a little longer of tooth with those very high utilizations -- essentially full utilization across the product line, that will naturally drive the rental rates, which is what we're seeing in the --. Most notably, I think we finally indicated that we were seeing that demonstrably in the third quarter conference call, in the Crane part of the product mix and that's the one that obviously adds the highest profitability for us. I think that's continued. And I think our outlook, given the end market dynamics, is that you continue to see some improvement in the rental rates as the cycle continues. Glen can add some color to that if he wants.

And as far as the backlog change in mix, because of what I talked about, the crawler component of the backlog is not as big as some of the other product lines, but has been growing nicely.

Jamie, the only comment I would make is on the rental rates. I think rental rates continue to improve because -- you can see in some of it -- our distribution -- I will specifically talk about mostly North America right here. You can see that there is a big demand for the product. So it's not only going into the rental companies, but it's going to the contractors, also. And I think you have to keep that in mind, it's not all going to the rental companies. But the people that have the equipment right now -- and you looked at what's out there in used equipment, there is not a lot right now. Used equipment prices have gone up also. And when you put all that together, it really does call for, I think, a further improvement in 2006.

Now, keep in mind that these rental rates went down quite a bit from 1999 and 2000 timeframe and they are reaching back to their -- to the places they were before. And that strengthening, with the utilization and some of the cranes out of service and going to the Gulf Coast or other areas that are needed for some of the disasters -- that puts a concentration in cranes in different areas that still need to be picked up throughout the rest of the United States.

Okay, great. Thank you very much.

Moving on, our next question is from Dan Shedivy with Basswood Partners.

Hi, good morning. There have been a lot of questions about pricing. Could you give us more color about how pricing worked during the last cycle? And what might be different in this cycle? And what I'm trying to get at is, I would think as things get tight, that you have the capacity to increase pricing. If you could give us color on -- if you were to take apples to apples comparison on like units, how big the peak and trough in terms of what the average price could be? And where are we at on that cycle, from a big picture pricing perspective? That's a tough question.

The reason being is because the market is going to set that price, and the customer is going determine where that comes from. And there is a lot different competition, when we came out of the 999 several years ago on the upswing of the peak, and now all of our competitors have 999-sized cranes. It's a matter of, really what is -- what is happening in the different end ranges for any of the cranes and who the competitors are. It's certainly a different landscape and the pricing is a lot different. And consolidation in the industry -- let's take for instance in the United States, has made a change in what some of the pricing is. I'm not sure there is an apples-to-apples of comparison when you look at what our products today versus what they were six, seven years ago. For that matter, there are a lot of different features and attachments and that kind of thing, which you should charge more or can charge more. But again, it's dependent on who our competition is, and how strongly they want to enter a market or exit a market or stay in a market. I think all of those things come into play. And there is not a strong comparison between last time and this time.

So just to summarize, it sounds like there was more potential volatility in pricing because you felt like you had more pricing power, historically. But in the future, if there is actually been consolidation, I would think that would lead to more rational pricing and therefore higher prices at the peak. But you aren't anticipating that, it sounds like.

Again -- I will take pricing now across the world. And you heard me say in the past, that I believe in certain areas there is some irrational pricing. And I'm not sure sometimes we understand it. But that is the competitive landscape. And that's where we have to play.

I think, though, we have always maintained that, with our leadership position in our segments, that we take very seriously that position. And we are definitely the price leader in most of those cases, as well. And I think there are some other reasons, not only because of our leadership, but also going back to the fact that we are regional in how we provide the product. So we can provide the product closer to the customer and quicker to the customer. We had -- we back it with the best service and support network anywhere in the world. And we also are the innovators. -- driving a lot of new products. So we take that position very seriously and I think you will see that we do that.

Fair enough. So I should not necessarily anticipate significant price increases? But at the same time, looking through this cycle, I shouldn't anticipate some significant correction versus current pricing levels, either? Is that a fair statement?

That's fair. And we will certainly will react to cost pressures, as we did when the extreme cost pressures took place in the '04 timeframe -- and try to take advantage of the market leadership position Terry referenced, to price appropriately.

Thank you.

And moving on, we have a question from [Vern Newhouse], a private investor.

Yes. Vern Newhouse here. Related to the boat division, thinking back and looking at it for one year, three year, five year and even ten or 15 -- I'm looking for encouragement that, perhaps things are really in place, that things may go well. You spoke maybe even the boat division having a profit in the teen level, maybe even high teen. I forgot what you just said. Can you give me encouragement in this area?

No, Vern. The teen level was the Foodservice -- the high teen level expectation on op margin was for Foodservice. The Marine segment, if you look back historically, given our dependence on the project side of the business today which represents about 80% of the overall revenue stream, 20% repair and inspection -- the margin characteristics -- when we have repetitive site project works are certainly very attractive. We have had much more of a development work in the Marine Segment in the last couple years. And we hit some periods where we were trying to fill in with some work that we did not do efficiently, as you can see from the shorter-term history.

But our long-term expectation for Marine margin is an environment where we are successful in landing some repetitive work for the yards. And we expect to be able to generate a double-digit operating margin. For 2006, I would think about a mid-teen -- or mid-single digit, excuse me, operating margin expectation, given the mix of project work that we have today.

And I would just go on that, the comparison -- and you were looking for some things. We have shed an underperforming facility. I think that we've implemented with the new Marine management team in place, some process improvements. And obviously, the contract terms that we now have are somewhat more favorable and allow us certainly protection on the material side.

Okay. And you are encouraged from the standpoint -- after 2006, that it should be even better?

We aren't providing any specific guidance beyond '06. But we were optimistic about some of the development projects that we are working on.

Okay. Thank you very much.

We have a follow-up question from Mr. Joel Tiss with Lehman Brothers.

As long as we were getting -- talking philosophy and long-term and that stuff -- can you just talk a little bit about -- Glen, maybe -- if the mix inside of the Crane business -- the early indications in terms of the mix, give you any reason to think that the 12% peak operating margin that you guys are hoping for over the course of the cycle is unachievable? Or actually, if it's too low? Just any clues you are getting, in terms of the mix? Thank you.

I know you want know me talk about it, but I think Carl is just itching to talk about it.

Joel, if the price is in confidence, you don't think Glen would let me keep saying it, do you? We think that's actually an appropriate target for us to have, based upon what we see. And there isn't anything in the existing outlook that tells us that we should be guiding in a different direction.

How about another big picture question, anything that you guys are seeing or hearing from your customers -- or looking at the manufacturing capacity, geographically, globally, that could give you any ballpark on where we could -- how long the crane cycle could last, if we guessed 2009? Or is there anything you can do to help us in that area? Thank you.

The cycle has tended to be ten years, peak-to-peak, Joel. And with the crawler component of our business -- we have seen occasions where our business has performed a little bit better than the broader industry. The last peak right around that '99, 2000 frame -- I think we characterized 2000 as a tail of two halves, with a drop-off coming in the second half of 2000. That is what we see. I don't -- Glen has got any --

And, Joel, I think what the other -- the other thing that we are not real sure about is, in any of the other peaks, we go back 30 years and you can see, as Carl said, the ten-year cycle. There is not a lot of China in any of those numbers. You start taking what's happening in the oil rich countries; Russia, China, let's talk about India; these are different cycles that haven't been part of your traditional mature markets in Europe and the Americas. And that's where the questions that you are bringing into play -- all strategic and philosophical questions, how are we going to address? What will we see in those? And those are the things we talk about on a regular basis, when we have our strategic planning meetings and that kind of thing.

So we are doing that kind of work and looking out and seeing where we were going. And the best we can do is follow some of the economic data and what we get out of the emerging markets, along with the mature markets. And we are going out there eight, nine, ten years to see where nuclear energy is going to be -- or where the oil business is going. Just a lot of the different drivers of our business -- anywhere in construction equipment, and try to listen to what other people in our industry are saying about it.

Okay. And maybe just one more cut at the first question; is there anything internally that you guys can look at -- or that you guys are doing to manage the mix? Like if you are worrying about -- two years ago you worry about cutting capacity or something like that? Can you change your capacity in line with the higher margin -- maximize the higher margin products and minimize the lower margin? Or do you have to keep the whole product lineup available and wait for whatever demand comes forward? Then I'm done. Thank you.

I don't think we are just waiting for things and I don't think you meant it that way. We are taking proactive approaches. But I think -- let's go back to 2002 when we had these conversations, and talk about some of the things that we did to shed excess capacity. And a lot of the changes we made in 2002, 2003 in closing facilities, consolidating facilities -- it was all based on where we thought the market was going to go and where we thought the market was going to peak. And we said, let's look at the trough, let's look at the peak and let's have what we need as an infrastructure to manage that cycle and really focus on where we want to be.

Now there are other opportunities to manufacture in other parts of the world and get capacity. But our efforts are really to look at with what we have and how do we make our throughput better and faster and improve the efficiencies we have in our businesses, without adding the additional fixed costs anywhere else until we really get -- and I don't want to use buzz words, but until you get best in class in every facility. I think with the addition with some of the people we put on in our team, which is very good -- in the last three, four months from the manufacturing perspective, we have a lot of things to do with capacity just within our own facilities. And then we want to look and see what we think the markets are going and find out where best to manufacture some of the other things.

Thank you very much.

And ladies and gentlemen, that does conclude our question-and-answer session. Now for a closing remarks, I'd like turn the call over -- back over to Mr. Khail. Please go ahead, sir.

Before we conclude today's call, I would like to remind everyone that a replay of our call will be available beginning at 1:00 pm Eastern Time today until 1:00 am Eastern Time on February 9. The number to dial for the replay is area code 719-457-0820. When calling in for the replay, please use confirmation code 248-8214. You may also access an archived version of today's call on our website at www.manitowoc.com.

Thanks again for joining us. Have a good day.

That does conclude today's teleconference. Thank you for your participation. [OPERATOR INSTRUCTIONS]