Manitowoc Company Inc (MTW) 2006 Q1 法說會逐字稿

Thank you for standing by, everyone, and welcome to Manitowoc Company First Quarter 2006 Earnings Conference Call. Just a quick reminder, this conference is being recorded. Now at this time for opening remarks and introductions, I'd 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 first 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. Joining Terry and Carl on today's call will be each of our segment presidents including Glen Tellock, who will provide an update on Manitowoc Crane Group, Tim Kraus of Manitowoc Foodservice Group, and Bob Herre of Manitowoc Marine Group are also joining us and will be available for our question-and-answer session.

Carl will open the call with an overview of our financial results for the quarter, including a brief report on each operating segment. Glen will share additional insights into the state of the global crane market, and Terry will conclude a discussion of Vision 2010, our net set of strategic imperatives. 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 p.m. Eastern time today until 1 a.m. Eastern time on May 3. The number to dial for the replay is 719-457-0820. Please use confirmation code 3674586. You may also access the 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 April 26, 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 the speakers' remarks and during our question-and-answer session. Such comments are based on the Company's current assessment of its markets and other factors that affect our business. Actual results could differ materially from any implied projections due to one or more of the factors 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, 2005. With that, I'll turn the call over to Carl Laurino.

Thanks, Steve, and good morning, everyone. Yesterday we reported first quarter 2006 net sales of $633 million, a 24% increase over the first quarter of 2005. We also reported net earnings of $29.7 million, or $0.48 per diluted share for the quarter, compared with net earnings of $6.5 million, or $0.11 per diluted share for the same period last year. Both revenue and earnings are Company records, which is especially impressive when considering our second and third quarter financial results historically outpace those of the first quarter.

Our reported net earnings for both periods include special items which include the effects of discontinued operations, post-acquisition claim settlement and early debt extinguishment. Excluding these items, diluted earnings per share for the quarter total $0.47, an increase of 147% 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. Clearly, the driver of these outstanding results was our Crane segment.

Crane segment sales for the first quarter were $477.5 million, an increase of 33% compared to the same quarter last year. Operating earnings were $51.2 million, up 151%, an operating margin improved to 10.7% from 5.7% a year ago. The Crane segment was able to achieve this margin expansion due to increased absorption to top line growth, material savings, and an improving product mix. The excellent operating leverage of the segment is shown by its 26% incremental margin which we define as the change in operating income over the change in revenue.

Crane group backlog continues to increase. Our backlogs totaled a record $987 million at March 31, up from $866 million at the end of 2005, and 85% higher than a year ago. Backlog growth was strong across all of our geographic markets in all product categories.

Foodservice sales of $93.6 million, decreased 3% from the 2005 quarter, and operating income decreased 14% to $10.6 million. The decrease in both sales and income was anticipated given Foodservice's strong first quarter in 2005, as two large national accounts rolled out, which benefited our beverage division coupled with a spike in sales into our distribution channel. This latter increase occurred due to public knowledge of a second quarter labor contract expiration.

Margins in the current quarter were also negatively affected by unfavorable price movements primarily in copper and aluminum. We've implemented pricing actions this month to reflect the new materials cost environment, and we are hedging key commodities to provide further protection against cost escalation.

The unfavorable comparison to what was an unusual 2005 quarter doesn't diminish Foodservice's solid contribution to our consolidated results. Foodservice is consistently our highest margin business and has made positive EDA contributions for more than 10 consecutive years. First quarter sales for our ice products were very strong in Europe and Asia as our new product offerings a momentum in those markets. In the U.S., we typically see the strongest ice and beverage sales in the warmer months as replacement demand in our large base of installed equipment increases.

Our refrigeration sales are more closely tied to domestic new construction activity, which has been strong particularly in the lodging industry. Our new manufacturing facility in Hangzhou, China, is in full production with our product line for the Asian and European markets. In addition, this facility will serve as a global manufacturing base for our new residential ice machines, as well as all of our other counter icemakers. These smaller units lend themselves to the global sourcing model that both Foodservice and Cranes have adopted with our investment in China manufacturing. We will also begin manufacturing certain beverage products in our new Hangzhou facility later this year.

Marine sales for the quarter increased 10% to $61.9 million, an operating profit more than doubled to $3.7 million due to our process improvement efforts in an attractive winter repair season. Our efforts to improve Marine performance are taking hold and the Marine segment is now booked with projects that extend into 2008. All of the projects have contract terms that should provide continued solid results to position us to achieve our long-term objectives for this segment.

All three of our business segments contributed to our total EDA of $20 million for the quarter, which is already in excess of the total EDA we generated for all of 2005. Once again, Cranes was the largest reason for the strong performance, and higher sales drove increased operating leverage at our facilities. We're also taking steps to increase shareholder value through corporate activities such as the Eurobond redemption we announced earlier this month. By refinancing this high coupon debt and utilizing our existing liquidity will reduce 2006 interest expense by approximate $11 million from 2005 levels.

Net cash used from operations in the quarter was $22 million better than the first quarter of last year. We expect full-year free cash flow from operations to be greater than $90 million in 2006.

I'll conclude my comments by updating our 2006 earnings guidance, which we increased for the second time this year as explained in yesterday's press release. We now estimate that earnings will be in the range of $2.15 to $2.25 per share excluding special items which are comprised primarily of debt extinguishment costs of approximately $0.15 per share. Therefore, we expect 2006 GAAP earnings per share of $2.00 to $2.10. This guidance assumes an effective tax rate in the low 30% range.

That concludes my prepared comments and I'll answer specific questions in the Q&A session. Terry?

Thanks, Carl. As you know, we typically feature one of our segment presidents as a guest speaker during our conference calls. This quarter it is appropriately Manitowoc Crane Group, so I'll turn the call over to its President, Glen Tellock. Glen?

Thanks, Terry. Good morning. Our performance this quarter was outstanding. Sales were up strongly in all of our geographies and in all of our product lines. We have a very strong presence in North America, and the highway and energy bills passed last year, along with hurricane reconstruction efforts, are creating excellent market conditions for the U.S. lifting industry. Orders for our large capacity crawler cranes are strong, as the rental fleet in this segment of the market has been stretched by a combination of high demand and years of minimal equipment replenishment. Operators who require equipment that provides quick transit and fast mobilization, along with high levels of versatility and uptime need premium cranes, and that is our strength.

While the firming of the crawler crane market is the big story this quarter, or other product lines are also performing very well. The EME region has seen strong demand in both traditional and emerging markets for tower cranes and mobile hydraulic equipment. In Asia, we continue to have success in all three of our product categories. Strong demand also puts pressure on the supply chain. We're working to prevent production bottleneck by using a global sourcing strategy for key components, like tires and transmissions. We also acquired a specialty machining subcontractor in Port Washington, Wisconsin, so we could allocate all of its capacity to our backlog.

Backlog at the end of the quarter was nearly $1 billion. I know that everybody wants to use backlog as an insight into our growth potential, and I would caution everyone against using the metrics of past crane cycle peaks as a benchmark. This cycle has different characteristics and the shape and duration of the curve is likely to be different than past cycles. We expect the established markets in North America and Europe to perform as they have historically. The wildcard is the addition of Asia, the demand side of the equation. As you know, China is in the midst of multiple infrastructure and commercial construction programs for the Beijing Olympics in 2008, and the World Expo in 2009. Emerging economies like India are also having a tremendous impact in the region. How these factors will play out over the current cycle is unclear. However, what we do know is that Asia is not dealing with the large installed rental fleet, and the logistics make the fleet there somewhat less flexible to meet demand. That's much different than what we typically see in the U.S. or Europe.

Another factor affecting the current cycle is the demand for higher performance equipment in our traditional markets. Higher lifts, tighter schedules, and environmental regulations have placed a limit on the demand for many of the older pieces of equipment in the rental fleets, which is prompting their replacement. We're not content to let the rising tide that's lifting the Crane segment drive all of our success. Terry will discuss Vision 2010 later in the call, and I'd like to share some of the actions we're taking to capture as much value from this market throughout the entire cycle as possible.

Innovation will continue to be a driver of the Crane segment. The CONEXPO in Las Vegas last year, 12 of our 14 models on display were new. We're keeping that momentum going in 2006 at the Intermat Trade Show in Paris this week, and at the upcoming CONEXPO Asia Trade Show next month will bring another 14 new models to the market in 2006.

Another key driver for the Crane segment is our customer focus. Crane CARE provides the best service and most comprehensive support in the lifting industry, and we're making it even better. A few examples include worldwide network of technical experts on-call 24/7, a preventive maintenance and upgrade program specifically for older equipment, and an innovative inventory tracking program that we share with our dealers. Additionally, we are expanding our crane credit program to include financing and leasing options on a worldwide basis. All of these factors combined to make Manitowoc Crane Group the number one choice for premium equipment and support.

These are great times to be in the crane business. Our management focus is to maximize our ability, to satisfy the very strong customer demand we have presently. We certainly were successful on that front in the first quarter. While we remain optimistic about market conditions, we must keep our eye on balancing the current opportunities with the risk of demand fluctuations as this cycle continues to evolve. I look forward to answering your questions in just a few minutes. Terry?

Thanks, Glen. To you and your team, an excellent performance. I'd like to remind everyone that we're in this great position as a result of the vision and strategies that we executed earlier in this decade to become THE global leader in lift solutions. As we stated in our annual report, what we've said is exactly what we've done. By acquiring Grove and Potain, we created one of the world's most complete crane offerings, and we support this with the services that Glen described. In the next four years, we'll position Manitowoc for continued success by following the strategies that comprise Vision 2010. Our number one strategic imperative will be growth. We intend to maintain and expand our global leadership position in the lifting industry.

In our Foodservice business, we seek to replicate our success in the Crane segment. We intend to leverage our leading market position in North America into a global leadership position in the cold-focused foodservice industry. We will achieve these goals through continued expansion in the new markets, such as Asia, with our two new Chinese manufacturing sites by broadening our product lines into adjacent categories, and by strategic acquisitions.

Our Marine segment is providing better results and will keep its scale for steady, improving and profitable performance.

Glen mentioned innovation. That will continue to be a strategic imperative. In addition to the 14 new models that our Crane segment will introduce this year, Foodservice continues to work with our major accounts to develop new products, such as IcePick, which lets fountain drink customers pick between crushed and cubed ice. That's in addition to the 25 new products launched in 2005, and another dozen new Foodservice products slated to premier in 2006.

Our third strategic imperative is customer focus. The expanded Crane CARE offerings Glen discussed are an excellent example of addressing the customers' needs. In Foodservice, Tim Kraus's group has realigned its sales force into smaller territories to be closer to their customers. When Foodservice's ERP system is fully implemented next year, the sales force will have yet another tool to help cross-sell our three major product lines -- ice, refrigeration and beverage. This creates efficiencies for the customer and simplifies their supplier management efforts.

The next imperative is excellence in operations. All of our segments are using the principles of Six Sigma, lean manufacturing, and design for Six Sigma to streamline their operations. Bob Herre and his teams at Marinette and Bay have done a fine job of installing new systems and procedures that improve our ability to schedule and allocate man hours and materials. Better information lets the managers allocate resources properly and generate predictable results.

It takes people to make a successful organization, and we place a high priority on people and organizational development. Each year we identify and train high potential employees at all levels of the Company from around the world to ensure that we have the next generation of managers.

Beyond providing technical skills, we create a culture of learning and a network for sharing experiences and solutions. I think those are some of the hallmarks of successful global companies. In the end, it's all about value and our final strategic imperative is to increase shareholder value. We will continue to measure our progress and allocate our capital using EPA principles. It's been the singlemost important tool to get us to where we are today.

These are exciting times for our Company, and we look forward to sharing the results of our strategies with you in the coming quarters. With that, I'll now turn the call over to Mike for questions and answers.

Thank you very much, sir. (OPERATOR INSTRUCTIONS) We'll first go to Gary McManus of JPMorgan.

Good morning, everybody. Can you just roughly talk about your full year earnings expectations. What does that imply in terms of Crane revenue growth and margins in '06, because we had a significant revenue growth in margin improvement in the first quarter. Are you assuming those kind of numbers are sustainable?

Well, certainly, Gary, you can see what type of improvement upon the results that we expected to see when we started the year and gave our guidance at the beginning of the year has certainly been exceeded. We were talking about unit increases in Cranes of high team levels, and obviously we've gone well beyond that. We didn't mention anything discretely about pricing impacts, but certainly we expect, if you look at the full year from a unit perspective, to get into certainly a 20-plus area on the increase. As you move forward in time, I think the comparables given the strong performance that we had throughout all of 2005 become a little bit more challenging to continue the type of pace that we saw in first quarter of this year. So, that gives you the expectation on the top line side.

Really, when you look at the announcement that we made at the end of March on the pre-announcement and the rational behind it, and the expectations for the full year, the key story on Cranes was obviously we were able to get to the margin levels, these double digit margin levels quicker than we expected to, but a big reason for it was we were able to transcend some of the normal seasonal downturn that we would see in the first quarter. And so our expectations are that we would see similar margin characteristics as we move forward through the year.

Just as a follow-up, you had a peak Crane margin chart, I'm sure you're aware, and you're not expecting to go back to prior peak levels because of the inclusion of the acquisitions you made five years ago, but you had a 12% margin, so we had 10.7 in the first quarter. Are you going to revisit what you think peak margins are in Cranes? Hopefully, it's higher than the 12%.

Well, you recall that we came out with that margin target at a point in time where we had just come off of a 3.5% operating margin level. I think there were a lot of people who were probably skeptical as to our ability to get there, and we characterized that 12% as next peak of market target. We obviously aren't there yet. Glen and his team, and Glen can maybe talk a little bit about some of the things that might play into this, but there are some initiatives that certainly with the progress that we've made, we've got some confidence that we'll be able to exceed this level, but we haven't established a new target because some of those things are a little bit longer term discussions to develop a new stated target at this point in time, but we certainly have a lot of optimism around exceeding it.

Okay, thanks.

We'll next go to John McGinty with Credit Suisse.

Good morning. Can you hear me? I'm not sure if this phone is working.

It is working.

Okay, thank you. Glen said -- and I think interestingly, that this cycle would be different in Cranes, don't look to the past cycles. Europe and the United States would be the same, but Asia is the wildcard. Could you flush out anything in terms of quantification of potential or what you would expect on the upside, Glen?

John, while Glen is getting ready for that, I would just point out, and I think it's pretty obvious to everyone, we are certainly in a different environment today, not only as a global construction equipment market, but Manitowoc itself has changed significantly, because in the last cycle, 95% of our sales were basically in North America, so today we are truly a global company and taking real advantage of those opportunities that present on both the upside of the cycle as well as at other points during the cycle. So, I think that really clarifies a little bit of why we're saying it's different this time, and then I think the macro cycle itself is different as well, which Glen is now going to go over.

Thanks, Terry. John, when I made that comment, it's really -- when you look at North America and Europe, and you can even throw Japan in there, you can look at 10-year cycles, you can look at the peaks, the valleys, how far it goes from 30 years ago, is I try to quantify what happens in the Asia region. The best thing we have was a pretty good area until 1997, when you had the crash, but when you throw in things in China, let's take the products that we have, such as truck cranes, crawler cranes, you know, ATs, RTs, Towers, even though the market in numbers, in units can be very good, it's still tough to quantify, John, as to how much we're going to participate in. Is it a 25-ton truck crane, because you have several manufacturers in China that make that product. So, do you stay out of that? And what are your units in, let's say it's a 50- or 70-ton truck crane, or crawler crane. You're seeing more and more Chinese competitors at the 50 and 75 ton, so where are you going to draw that line of demarcation to go against that? And I think a good example of that is really what's happening in our tower crane product that we've been manufacturing there since 1995. As you know, we have our grand opening of our new facility in May of this year, in the next couple of weeks.

Most of it when we originally started was four consumption, the product that we were doing there was for the Chinese market. But as you go through China and you see everybody that now makes a 80-ton meter and below tower crane that anybody can weld, we have to pick and choose what markets we want to participate in and use our capacities for what's happening outside of China, in the rest of Asia, and then take advantage of some of the opportunities we have even within China.

So, again, I have a tough time quantifying it other than to say that our strategies are the things that we're doing within China with our factory. You're looking, you know, it can be relationships, alliances that you're going to have in other manufacturing areas in that part of the world to take advantage of the opportunities, and not to have a lot of fixed cost manufacturing, but make sure that we can take care of the swings in that type of an economy that we're certainly very uncertain of right now. I'd hate to give you quantities, because I'm just not sure where some of the competition comes from in the next five or six years, but I certainly believe that our products are well accepted right now, and we do have that opportunity. It's really trying to find that inflection point that I think everybody's going to want to know.

To follow-up and to kind of circle back to Gary's second question, which I think the key, which is where margins go, one of the things that -- the implication of what you're saying, Glen, is that as you focus on the larger type products, staying away from the more commodity type, those have always been things that have been traditionally higher margin products for you, so that's a plus. But what's the trade-off of that with the fact that when the market was 95% U.S. in the past, you guys had 95% of the market in the U.S., and now even in the larger areas there are Japanese and German competitors that you didn't face in the U.S. before. Does that net the larger mix as a plus, the competition is a bit of a minus? Shouldn't that still net out to a plus in terms of what the peak should be?

I think you can net out to a plus, but it's just a matter of how big that plus is and how long the cycle runs. I think when you do put in what we've done in the North American market, as you mentioned, and correctly so, that you see competition coming to this market more so than we had in the '80s or '90s perhaps, because of new product introductions. Let's not forget that the U.S. and Europe are still the biggest construction equipment markets in the world, and that's where people want to participate. So, it's a matter of what's the competition going to do from how do they enter the market? Are they going to enter with new products and features and benefits, or do they enter with the same features and benefits and come in with pricing? I'm not sure I know the answer to that question.

Thank you very much.

We'll next move on to Robert McCarthy with Robert W. Baird.

Morning, guys. Terrific quarter. Can we talk a little bit about the Foodservice segment? I gather from your comments, you expected a decline there. Did you expect it to be as large as they turned out to be? Are there other issues involved here, or is it strictly this noncomparability strong surge of business you had at the beginning of last year?

Rob, this is Tim. How are you this morning?

Oh, hi, Tim.

It was a noncomparability. Last year at the end of the first quarter we had our contract due at Ice. We also had the startup of the ERP system, and so we had a lot of buying ahead in March in anticipation of that. We also had two large rollouts in our beverage segment, which are difficult for us to predict from a timing standpoint; they happen to coincide that. So, we laid the year out. We expected our first quarter to be below last year.

And the rollouts last year, when the comment was made that there were larger sales in the distribution last year, that's what you're talking about?

Yes. The rollouts were product rollouts for chain account business, where our customer secured new chain business, and so we put beverage equipment into those locations.

Okay. So what was the comment about more sold into distribution last year?

That was in anticipation of a potential work stoppage.

Oh, that was the strike, okay. All right.

And the ERP startup.

Okay. So then you face an easier comparison in the second quarter because of that pull ahead last year.

That's what Terry tells me.

And do we have any comparable, even if smaller -- do we have any comparable issues like that the rest of the year?

No. I take that back. We don't in the second quarter. Third and fourth quarters, you remember last year we had a weather turn. Second quarter last year, if you remember, the industry was off like 17%.

Yes, I recall.

Okay. We're not expecting that to occur this year. Early indications are it won't. But then we had a great third and fourth quarter with that heat wave. So, third and fourth quarter, we're watching -- when we mapped it out against historic numbers, over five-year average by quarter, we're expecting the pattern to be very similar to prior five-year --

Historic patterns, okay.

-- historic patterns.

Can we talk a little bit about pricing versus material costs and your confidence in being able to get margin expansion for the full year?

Yes. I can speak to the -- I'll certainly speak to the commodity costs and the pricing. We hedge.

Right.

We did not hedge a couple of commodities at the end of last year because there was a sudden spike that we thought was short-term. We have since hedged those, specifically in copper and aluminum. We've taken pricing actions that offset those commodity increases and the prices stuck. They were all effective first quarter. We've stated publicly to our channel partners last year that we would evaluate commodities on a quarterly basis and take action accordingly. Almost all of this increase in copper and aluminum occurred between, really, late November and early December and end of first quarter. So, we took pricing action effective April 1.

So that means second quarter should fully reflect pricing actions.

Sure. Yes.

And you're hedged for how long?

Well, we're confident we'll overcome any commodities with our pricing action. I really don't want to --

At least for the year, okay. And so, Carl, are you going to tackle my question about margin expansion?

Sure, Rob. I would say that with similar to the metric that I gave for Cranes, on the Foodservice side, we think we'll get to a high single digit revenue increase in 2006, a turnaround from the first quarter performance. We do expect to stay in that mid-teen operating margin level, the high teen, non-time specific number that we have out there is one that we really don't expect to make some significant progress on this year because the big benefits are from when the ERP system --

ERP is done, right. Okay. But you don't want to be on record as expressing confidence that you can beat last year's margin?

I think it will be similar. I think we certainly should be able to do better than last year. Obviously, we're starting off behind, so that would imply some improved performance for the balance of the year.

Okay, that's very helpful. Thanks, guys.

We'll next take a question from Andrew Kaplowitz with Lehman Brothers.

Good morning. Good quarter, guys. Question about Marine. You mentioned you have projects now through 2008. Obviously, the margins look better in the quarter. Can you sustain what you did in the first quarter now? Can you just talk a little bit more about the projects that you've mentioned? Can you sustain the margins going forward, too?

On the margin side in Marine, the first quarter is the seasonal high for repair work, so that tends to be the highest margin quarter that we have. Repair and inspection represent about 20% of the revenue stream and the rest is the project work that we have. With that backlog, we do have a pretty significant portion of it that is represented by some more developmental type projects, where we wouldn't get to -- we do have a long-term target for our operating margin in Marine, which is a double digit operating margin. But in order to get there, we really need to be in an environment where that 80% represented by project work is of a repetitive type of nature where you get over the learning curve and you get through the efficiencies on multiple vessel deliveries. Within that visibility that we have in 2008, we wouldn't expect to see change in kind of mid-single digit margin expectation that we're expecting in 2006.

Okay, that's great. And are you essentially covered now if steel were to pick up again? I mean, do you mostly have cost-plus projects in your stream?

Some of them -- there are very few of them with the exception of some development projects that are cost plus, but we do have in the contracts, in all of the contracts, we do have material escalation clauses in those contracts to protect us against unforeseen circumstances similar to what we saw over the past several years in steel and in others.

Okay, great. Just one related follow-up. You alluded to this a little bit, I guess, but what really changed between end of March and end of April in your business to move pretty dramatically in guidance? I mean, I can guess the answer, but I just kind of want to hear what you guys have to say about it.

I think obviously there's a -- I think the message was build out in portions. There is the message of in excess of $0.20 on the pre-split basis was obviously a bit tepid based upon where things came in. Obviously, things continued to impress us as we got through the end of March, and we got down to brass tacks on how we felt about the sustainability of the dynamics that we were seeing, and that's where it gave us the confidence to increase yet again the outlook for the full year.

Okay. Thank you very much, guys.

We'll move on to Deutsche Bank's Nigel Coe.

Thanks. Great quarter, guys. Looking at the growth in the Crane business, 3% in the first quarter, can you break up that number between volume and price, perhaps even mix?

Nigel, we prefer not to quantify given the few numbers of suppliers in the industry to do that, to get that granular on the increase. What we did say is that we certainly, from a margin perspective, saw benefits from efficiencies and the absorption that we have and the manufacturing efficiency that we realized. We did get some benefit from materials would be two key ones, and we certainly saw some benefit from the mix, and they would be about equal contributions on those three fronts.

Okay, great. And on the backlog, obviously we've seen the fulfillment ratios, your billings to backlog declining 55% last quarter. How should we think about the fulfillment going forward? Is it going to get below 50%? Just trying to get some sense of how the backlog transfer into revenues?

Well, Nigel, what I would tell you is that the backlog itself is made up of what we're seeing as a good mix around all of the geographic areas in which we operate in, as well as the products that we have. What we have consciously done, as Glen pointed out, finding ways to increase our throughput in our factories in order to deliver to our customers' needs at this point in time. This includes the investment in the Port Washington facility last year, which allowed us to take more control of some of the machining and the outsourcing, and we're continuing to utilize all of the leverage we have in our global sourcing, as well as the efficiencies that we've gained out of the factories with the re-engineering and the factories that we've done over the last several years. We feel very confident in our ability to continue to deliver during this time. I think Glen might have a few other comments on that.

Well, Carl, why don't you -- I would say, Nigel, that when we look at just the characteristics of the backlog relative to the duration and timing, we're certainly not seeing significant changes there. We've seen some lengthening as we've increased the backlog so dramatically over time, but it really hasn't been terribly dramatic as it relates to how much of it will likely go out in the subsequent quarter and how much the quarter after that has been pretty consistent.

Okay, great. Just one more question, if I can. You mentioned there's an upcoming CONEXPO show in Europe. Now, we saw a big pickup in orders last year with the CONEXPO show in 1Q '05, I think it was. Would you expect a similar result from the show in Europe? And can you just kind of round out some comments on what you've seen in Europe? You know, we've seen the economy starting to show signs of less over there. Are you seeing [inaudible] pulling through with better trends in your orders?

INTERMAT is occurring in Europe.

Oh, I'm sorry.

That's in France, and then CONEXPO China is a couple of weeks away in Beijing, and obviously we are -- we have a very big presence in both of those shows. As far as the impact, CONEXPO is one of the biggest shows that we have, and [Balma], which is next year, is probably equal in size if not maybe larger from a global standpoint, and Glen says it's larger. So, I would characterize the fact that we have two major shows this quarter, which is unusual, but they are global in nature being in Asia and in Europe. So, Glen, do you want to give some light on what we should expect from that?

I think INTERMET obviously is the largest trade show that's going to take place globally this year, happening started Monday and will end on Friday. I think to compare it to a CONEXPO or [Balma] from an ordering standpoint, I don't think you see that same thing, Nigel. I think you have a different dynamic just in the cycle that you had last year at CONEXPO versus what you have this year at INTERMET. Customers, dealers, people that are looking all certainly know what's happening in the construction equipment industry, and a lot of them, I think, are coming to look at what the new products are, what's looking at later this year and into 2007.

So, one of the dynamics that's a little different now than what happened last year at CONEXPO is people are starting to forecast, I think, their businesses a little bit better because they realize construction equipment is a little tighter as the backlogs, or the lead times change a little bit. So, they are coming to look and talk with the manufacturers all at the same time at this one area. But I think what's interesting to me is, when you look at the quality of the customers the little bit that I was at INTERMAT earlier this week, I think is extremely good, and you have people that are very interested in what's happening throughout not only just Germany, France and, say, Italy and Spain, but it's all over the emerging markets of Europe, Middle East, Africa. It's people coming from Australia and China, and the rest of Asia. But, unfortunately, with respect to the Americas, it coincides with another big event in the lift industry, which is called SC&RA, which is taking place at the same time at Hilton Head, so a lot of our American and U.S.-based customers are at that this week, and so you have to have representation at both. But I don't think it's the same ordering magnitude to go through a long answer to your short question. You won't see that same thing.

Okay. Thanks a lot.

We'll next move to Charlie Rentschler with Foresight Research.

Good morning, everybody. A question for Bob, I guess, about the Littoral combat ship, which I guess is moving along and is going to get launched this summer, if I understand?

September 16.

My question is, can you shed any light on how you feel the Pentagon is thinking about the future of that program? Is it go forward?

Well, Charlie, I would tell you, I think there is a significant amount of discussion on that in the various news channels from the Department of Defense that's out there. It's obviously, in everything that we know, it's a very important piece of the overall strategy that the Navy has, and we're very pleased to be building the very first vessel of this type. So, we're putting all of our effort to making sure that it meets the basic requirements that the Navy has, along with our partner, the prime on this, Lockheed Martin, and I would tell you that we feel very good about the progress that we have made to date, and all of the various discussions we've had.

As far as the ongoing dialogue on that, I would leave that pretty much up to what's out there in the public domain. Again, like I said, I think everything I know about it, it's a very important part of the overall strategy. I don't know, Bob, do you have anything else on that?

Well, in the public domain is the Navy strategic plan. There has been a change of command in the Chief of Naval Operations level in the last year, and this new Chief of Naval Operations continues with the same strategic plan as to the Littoral combat ship, and it is a key element, according to that, in the Navy's plans for the future of the Navy fleet.

Okay, thank you. And my follow-up, can I ask a question of Glen in the Cranes area, to try to drill in a little bit more about Asia. Your new plant, you indicated, is being opened, but can you tell us what are you going to be building there? What is it set up to build? I know you've been building towers in China for years, but big towers and just big towers, or can you shed some light on that?

Charlie, it includes most of the product range of the towers including some of the city-type cranes. I think the new one that's coming out this year or next is the MR225, but it's all the towers for Asia, for China, the rest of Asia, for China, the rest of Asia. We're starting to export some to different countries. But at the same time we're building components for the crawler crane, which include counterweights and boom inserts under the same manufacturing processes that are done in Manitowoc for the crawler cranes. Obviously, you can see that once that takes place and the amount of area that we have, there are certainly other manufacturing strategies and initiative that we will undertake as we move forward.

Charlie, I will also say that Crane CARE and a training center is located there. We also use that, obviously, as a base for a lot of our export strategies into China for our other products depending on where we build them, anywhere in the world, whether it's here in the United States, in Germany, France, etc.

Thank you.

We'll next take a question from Bob [Frenslin] of Prudential Financial.

Hi. A question about the bonds that you called. I don't know if you mentioned. Were you going to pay those off with cash, free cash flow that you said you were going to generate, or are you going to do something else?

We're utilizing existing liquidity represented by our cash and our existing revolving credit facility.

Okay. And then you've got some more bonds coming due, or actually getting callable shortly after that, and would you do the same thing?

We get through the non-call period on the U.S. 10.5% note in August of next year. We have not made any indications of our intentions on those notes at this point, but we would look at what all of our alternatives are and make our decision accordingly.

Okay. And maybe as a follow-up, you mentioned, I think when you were talking about your goals for the future and you were talking about the Foodservice business, you mentioned acquisitions. Can you talk in general about what kind of acquisitions throughout the Company you might be thinking of, what size, things of that sort?

Well, I would say that we've made -- we've been very vocal about our desire to continue to look for acquisitions that are strategic in the Foodservice side. In the Foodservice, as we do in all of our other segments, we operate off of a product voids matrix that allows us to identify both geographic and product voids that we have out there and to find ways to fill those voids to allow us to continue to have our market leadership in the niche markets in which we operate in. We do that, obviously, through acquisitions, through alliances, joint ventures, and through new product development. You've seen us use each one of those vehicles over the last several years throughout the corporation. So, we are still focused on the cold side in the Foodservice industry, and that we feel is the core piece of our business.

Okay. As you look at the voids that you have, are there any large companies out there that you would deem a large acquisition that is potential?

Well, the foodservice industry is really highly fragmented with over 87% of the foodservice companies less than $25 million in the U.S., so there are -- we have significant voids both in product and in geography. We also have opportunities in adjacent space. I guess I'll recall a comment during Terry's commentary about the residential machine, it's an opportunity to use our technology to move into an adjacent space that presents a pretty big growth opportunity for us. We did the same thing with the healthcare, the hospital dispense [inaudible] this last year, targeting healthcare, where we have no presence today. We don't talk about acquisitions before they occur. We've always been opportunistic in acquisitions, but I guess I just leave you with the message that there are lots of opportunities out there, but the industry is highly fragmented.

Okay. Thank you.

And that appears to be all the time we have for questions at this point. I'd like to turn it back to Mr. Khail.

Before we conclude today's call, I'd like to remind everyone that a replay of our call will be available beginning at 1 p.m. Eastern time today, until 1 a.m. Eastern time on May 3. The number to dial for the replay is 719-457-0820. When calling in for the replay, please use confirmation code 3674586. You may also access the archived version of today's call on our website at www.manitowoc.com. Thanks again for joining us this morning. Have a good day.

That does conclude this conference call. Thank you all for joining us. Have a wonderful day.