Manitowoc Company Inc (MTW) 2006 Q4 法說會逐字稿

Good days, and welcome to this Manitowoc Company Incorporated fourth quarter and year end 2006 earnings conference call. Today's call is being recorded.

At this time, for opening remarks and introductions I'll turn the call over to Mr. Khail.

Good morning, everyone, and thank you for joining our fourth quarter earnings conference call. Participating today's call will be Terry Growcock, our Chairman and Chief Executive Officer, and Carl Laurino, Senior Vice President and Chief Financial Officer. Joining Terry and Carl will be the leader of our three business settlements, Glen Tellock, of Manitowoc Crane Group, Paul Boggs, of Manitowoc Food Service Group, and Bob Herre of Manitowoc Marine Group, they will provide a brief review of 2006 and outlook for 2007, as well as participating our question and answer session. 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 p.m. eastern time today, until 1:00 a.m. eastern time on February 7th. The number for dial for the replay is area code 719 457-0820. Please use confirmation code 184-5251. You may also access an archived version of this call by visiting the investor relations session of www.manitowoc.com. Before Carl begins his financial commentary, I would like to review our Safe Harbor Statement. This call is taking place on January 31, 2007. During the course of today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 may be made during each 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 files 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, and its quarterly report on Form 10-Q for the period ended September 30, 2006. With that, I'll turn the call over to Carl.

Thanks, Steve, and good morning, everyone. Yesterday, we reported fourth quarter 2006 net sales of $775 million, 32% increase over the fourth quarter of 2005. We also reported net earnings for the quarter of $43.9 million, or $0.69 per diluted share, compared with net earnings of $18.2 million or $0.30 per diluted share for the same period last year. Our strong fourth quarter capped outstanding year in which net sales totaled $2.9 billion, an increase of 30% from 2005. Profitability was also strong, with reported earnings per share totaling $2.65 in 2006, up almost 148% from 2005. Our reported net earnings for fiscal 2006 and 2005 in the four quarter of 2005, included special items which are detailed in the table in our press release issued yesterday. Excluding these items, EPS for the four quarter of 2006 increased 188% from the prior year. For full year 2006, EPS totaled $2.81, up 134% from $1.20 per share in 2005. Please refer to our press release for reconciliation between reported GAAP earnings and earnings from continuing operations before special items. As we've seen for the past several quarters, our crane segment generated the majority of this dramatic improvement. Crane segment sales of $605 million were a 6 consecutive record quarter, increased 38% from last year. Our operating earnings were $78 million, up 159% resulting in an operating margin of 12.8%. This margin is an improvement of almost 600 basis points from the fourth quarter of 2005, and reflects increased volumes, favorable sales mix and improved manufacturing efficiencies through our facilities. Backlog at December 31 totaled $1.5 billion, up 10% from the prior quarter, and up 77% from a year ago. Backlog growth was strong across all of our geographic markets, and all product categories. Glen will discuss the backlog in the order book in his comments. Food service sales increased 4% from the fourth quarter of 2005, to $94 million, although operating income decreased 16% to $9.2 million over the same period. Food service operating profitability has been under pressure throughout 2006 and margins in the fourth quarter reflected this. This pressure has several causes, and we have strategies in place to address each of them. Our ice division achieved market share gains during 2006, although much of the progress there was offset by increased commodity costs. Although pricing pressure on some key commodities appears to be lessening, we have employed heading strategies that will limit potential future benefit or risks in these areas. In all, our pricing actions and sourcing initiative should enable recovery in 2007 from 2006 cost pressure. Our beverage group experienced unfavorable sales comparisons to 2005 in each quarter of 2006, as major national beverage equipment refresh programs originally slated for 2006 were delayed in 2007. This decline in sales resulted in overhead absorption issues that negatively affected 2006 results. Paul Boggs will address our 2007 outlook for beverages later in the call. Our third food service product category, refrigeration was hampered by the effect of a major plant consolidation program that was initiated in late 2005. Consolidating our River Falls, Wisconsin production into a more modern facility in Parsons, Tennessee, triggered the need for total production flow redesign and process improvements in the Parsons facility. This effort is nearing completion, and should yield significantly enhanced operating efficiencies in 2007. Finally, I'll point out that 2006 food service results were muted by implementation costs of our global ERP system which is largely complete with the exception of the refrigeration division where implementation has been deferred until 2008. We should expect ERP costs to be lower in 2007 and we anticipate seeing some of the benefits of this new system during the year. Marine sales for the quarter increased 29%, to $76.6 million, and operating profit totaled $3.4 million compared to a loss of $10.1 million in the fourth quarter last year. The higher revenue reflects continued strong activity in our commercial backlog and outfitting work on Littoral Combat Ship FREEDOM to prepare it for delivery later this year. The return to solid sustainable profitability at Marine reflects a strong commitment to improved business practices and manufacturing processes. All contracts at Marine have pricing, timetables and material escalation clauses that protect our interest and enable Marine to focus on building great ships with minimal distraction. We forecast that LCS will represent a lower percentage of our 2007 work load and it will be replaced by commercial projects well suited to our capabilities and by the second generation of INLF modules for the U.S. Navy.

This ability to work on repeat projects should help improve Marine's operating margins in 2007. The LCS program has been under recent scrutiny from the United States Navy and I'll share our perspective on the future of this important program. The Navy recently halted work for 90 days on FREEDOM sister ship under construction in Louisiana, so that a cost of the LCS program can be reviewed and analyzed. Work on FREEDOM is not affected by the order. Historically, the first ship in a new class encounters cost and time line challenges and our experience with FREEDOM was made even more challenging by fundamental changing to the special occasions after the contract was awarded. The situation was complicated by limited availability of specialty steel and delays in the delivery of essential ship equipment. Our team was able to work through the issues and get FREEDOM launched on schedule. I should point out that quality of workmanship on FREEDOM has never been an issue with the Navy. In fact, FREEDOM's post launch inspection report was extremely favorable. We will continue to work with Lockheed Martin team members to resolve any questions regarding of future costs of the LCS program and we will share the results of the Navy's findings when completed. Consolidated corporate perspective, 2006 was a phenomenal year.

Cash generation exceeded $294 million, with operations providing more non $165 million in the fourth quarter alone. Our 2007 forecast calls for $300 million in cash from operations. That strong cash flow will provide ample liquidity for acquisition, capital expenditures, pension funding and general corporate purposes . Any discussion of cash has to include our performance on the basis of economic value added or EDA. We have used EDA since 1993 as an aid in generating consistently strong cash flow and help find the best uses of our cash. Return in our investments in 2006 were solid. EDA totaled $117 million an extraordinary increase from the $16 million we generated in 2005. We expect EDA to increase another 50% in 2007 on the strength of the outstanding operating leverage that our global grand business provides. Final comment I'll share is to tighten EPS guidance form 2007 of $3.75 to $4.00 to a new range of $3.85 to $4.00 per share. That range represents an increase of 37% to 42% from our record 2006 results. All other elements of our 2007 guidance as communicated during our November 28th investor day remain unchanged. With that I'll turn the call over to Terry Growcock.

Thanks, Carl. With the exceptional performance of 2006 behind us, we'll have the leaders of each of our business segments describe the opportunities that will drive continued growth in 2007. We'll start with Glen Tellock of the Crane Group.

Thanks, Terry. 2006 was a solid year for Manitowoc Crane Group. Sales topped $2.2 billion, margins exceeded our targets. Backlog rose every quarter, and demand for our products was strong across the board. Amid these great results of 2006, there is one accomplishment worthy of special mention. Our new facility in Zhangjiagang has exceeded our own expectations. By the end of the year, it was operating at a level that we didn't expect to achieve until the end of 2007. The credit for this performance goes to the China management team which is led by well seasoned Potain, Manitowoc Grove and local managers. Our ability to bring global expertise to a new operation is a great example of what makes Manitowoc a global leader and further exemplifies the benefits in leveraging the opportunities afforded by our global footprint. I believe 2007 will see continued successes for our group; demand for lifting equipment is strong in all of our core markets. Manfredi Associates Forecast that North American Crane Shipment will increase nearly 8% while overall construction equipment shipments will decline more than 3%. That data clearly illustrates the insulation our product have from the volatile residential housing market. International markets are even more robust driving the global forecast of 14% growth in crane sales according to the Association of Equipment Manufacturers. Our outlook is even more bullish. We have forecasted 20% revenue growth over 2006, and will meet that growth forecast by continuing to bring the best, most innovative products to market and by backing them with the best support in the industry. Our production facilities will meet delivery schedules by continuing to secure the necessary material requirements and by the use of six sigma to streamline manufacturing processes. We will continue to attract, develop, and engage the best talent available and to utilize contract and value-added manufacturers as needed while evaluating opportunities to expand manufacturing in key strategic regions. We believe this strategy provides an increased focus in value to our customers and improve flexibility to produce greater value in the market for our customers, partners, and shareholders. Looking ahead to the rest of 2007, one of the highlights of the year will be the Bhombal Construction Equipment Trade Show in Munich this April where we will formally introduce the GTK 1100. We showed a concept video of the GTK at our investor day in late November, and will have a working unit on display at Bhombal. We believe that the GTK is the most innovative development in the lifting industry in decades, combining elements from each of our product lines. It provides a great combination of fast mobilization, lifting height, and capacity all in a small footprint that is unmatched today. The GTK is perfect for jobs that need tall, tight lifts in multiple locations, like refinery upgrades or wind farm installations. It is another example of the commitment to innovation to listening to customer needs that sets the Manitowoc Crane Group apart. As revolutionary as the GTK is, we will also hit a homerun with another new crane, the model 14,000 Crawler Crane. It replaced one of most versatile crawlers' we have ever built, the model 4100. Because of its versatility, reputation and quality, many of these units are still in service today. The new model 14,000 is a 200-ton capacity crane that offers compact size, hydraulic control, and self direct capabilities to appeal to a broad range of customers. It fills a void in our product line and sales have been an immediate success with both rental companies and fleet operators. Our global footprint is also growing. In the second half of 2006, we strengthened our sales and support positions in Latin America to better support both direct and dealer sales because of sales channel differs greatly by country. We have primarily sold hydraulic and truck cranes in Latin America and this change lets us bring Potain tower and self directing cranes into these markets. We've used a similar strategy in other developing region and have achieved increased market penetration. As we expand our reach globally, we are also expanding our abilities to support our customers. I could tell our team that the sales force sells the first crane, but service sells the second, third, and fourth units to that same customer. Crane CARE is the industries most comprehensive aftermarket support system and making it better. The heart of Crane CARE is our 24/7 call center network which puts an equipment operator in direct contact with trained support staff. If it's a technical issue, they can usually find a solution right there on the phone. If the crane needs a new part, we have direct access to our own inventory and online access to dealer inventories. We've expanded Crane CARE to have two 24/7 call centers in Europe in addition to our two established call centers in the United States. We'll also have an Asian call center online later this year. To better support customers in Middle East, we will add a new service center in Dubai this year, that will bring our training, parts inventory and on site repair facility closer to the one of the world's most active lifting markets. Order levels remain strong as shown by our 6 consecutive quarter of increased backlog. I won't speculate on how high shipments or backlog can go, but I'll point out that this cycle is very different from ten years ago. The China and emerging market factors is huge. The proportion of high value crawler, mobile hydraulics, and tower cranes needed for massive infrastructure, power plant and industrial projects is unlike any of our other markets. Eastern Europe, the Middle East, and South America are also experiencing strong growth in their industrial, power, and transportation infrastructure. In addition to these emerging markets, we are seeing renewed strength in some of the most mature lifting markets, especially Germany. I'll close by reminding everyone that success we are having with Crane is the result of investments we made earlier this decade and that are ongoing today. The payoff from those investments has more than increased sales from Potain, Manitowoc, and Grove. It's given us the ability to cross sell products and deliver value globally while having the scale to create and enhance crane care. We are focused on lifting markets, and we believe 2007 will be another exceptional year. Terry.

Thanks for that great update and outlook Glen. Cranes will be the primary growth and EVA driver for Manitowoc in 2007. But we believe that food service will be a platform for additional future growth as well. It's our highest margin business, and one that has great potential for global expansion. I'll turn the call over to Paul Boggs, Food Services, Vice President of Business Development, and Interim Acting Segment President to discuss some of the details of the food service business.

Thanks Terry, good morning. Carl discussed several of the issues that effect food service operating performance in 2006. And I would like to explain how our strategies to address these issues will make food service a stronger business in 2007. The issue of commodities has affected everyone in our industry. Our cost take-outs and pricing actions have helped to offset commodity cost increases. We continue to use new manufacturing, and six sigma to reduce operating costs In our plants, and to find less expensive materials by sourcing through low-cost countries. In addition to looking for ways to take cost out, we also look for ways to put additional value into our products. For several years, our ice and refrigeration equipment have been industry leaders in energy efficiency. That investment will become more valuable to our west coast customers when California phases out its first tier of energy efficiency rebates at the end of 2007. Next year much stricter energy standards will have to be met in order to qualify for rebates. We're ahead of the industry on that issue, and we expect our full product line to be fully compliant with 2010 standards by the end of this year. We are driving energy savings through more efficient compressor configurations and home grown technologies like using compressed air instead of heat to facilitate the ice harvest cycle: In the beverage business, the restaurant refresh programs that have been on hold for several quarters appear to be ready for roll-out in 2007. This should drive improved sales for both beverage and ice products. In preparation for the full roll-out, we have evaluation units out in the field at many sites. We've seen sluggish performance in the beverage industry for some time, so we will remain a bit cautious on the exact timing of the roll-out. Rather than wait for bottler's to drive our business, we are bringing alternative products to the market to take advantage of new retail customer trends. The Flex-Tower is our answer to the consumer's growing taste for non-carbonated beverages such as juice, tea, and sports drinks in a fountain format. Flex-Tower can dispense 16 flavors and is perfect for convenience stores that want to offer multiple drink options in a small space. The Flex-Tower is the only product of its kind and response from C-store operators has been very positive. Another new product that matches the innovation and customer focus of the Flex-Tower is the IcePic. The IcePic gives fountain drink customers a choice between crushed and cubed ice. Giving C-store operators of ability to satisfy customer preference for cubed and crushed ice with a single ice machine versus two is an attractive option. Particularly for the national chains to save money, space, and operating costs. I think these are two good examples of how Manitowoc is proactively managing the beverage business in a challenging market. The refrigeration business had its own challenges in 2006. We have implemented changes call discussed and have begun to see improvements in the metrics such at delivery lead times. The savings that we projected for the consolidation back in 2005 should be realized in 2007. Adding to better operations in 2007 will be the benefits of our new Cool Air Visi-Cooler we introduced in late 2006. This product is a departure from our traditional reach-in units, and designed for smaller retail stores. That's a segment of the market where we had product voids in the past. So the Visi-Cooler gives the dealer network another reason to recommend Manitowoc products. The ice business was our best performer in 2006. We added to our number one market share in North America with new models of our Flake and Nugget Ice products that are popular in hospitals and other institutions. Another growth driver for ice in 2007 will be the residential product we developed last year and began shipping in volume in December. Beyond North America, our Chinese manufacturing team in Zhangjiagang has been re-engineering our core ice product to meet the customer needs and price points of that domestic market. We'll have pilot of these new products in the market during the first quarter. We're also manufacturing counter top and drop in beverage equipment at Zhangjiagang for domestic and export markets. This multi product, multi market strategy gives the Zhangjiagang plant higher utilization and broadens our competitive advantage. Zhangjiagang is also an important piece of our merging market strategy. We continue to get better leveraging the relationships we have in North America with global restaurant chains, so we can grow with their international operations. In conclusion, all three of our food service product categories have solid growth plans and we look forward to 2007. Terry.

That's good news from food service. Paul has been very ably filling the leadership role of food service as we pursue the replacement for Tim Kraus who retired in late 2006. I fully expect to appoint Tim's permanent successor prior to our intersection conference call. Our final business segment is Marine, and Bob Herre will discuss its operations and opportunities. Bob?

Thanks, Terry. Marine showed an improved year in 2006. Revenue for the year was $283 million, with operating profit of more than $11 million. After lackluster performance in 2005, Marine is now on course for improving profitable operations. Of course, the big story at Marine during 2006 was the Littoral Combat Ship. We launched FREEDOM in September of 2006, and will deliver it midyear 2007. Carl described the current state of the LCS program and we are certainly supportive of the Navy's analysis and very interested in its outcome. The good news is that the Navy's review won't have a direct impact on Marine's 2007 plan. About 70% of our total 2006 man hours at Marionette Marine were spent on FREEDOM, whereas only about 35% of our 2000 hours- 2007 hours, will be required to complete her. We will replace the balance of that work in 2007 with the INLS modules we are building for the Navy under options on our original contract. Marionette will complete additional ocean going tugs that are paired with double hull tank barges under construction at Bay's Ship Building. This two yard system is attractive to our customers and let's us maximize our operating synergies. Our backlog at Bay Ship building remains strong, and we have commercial deliveries that extend into 2009. The OPA 90 driven tank barge market is beginning to mature as many of the conversions and new bills needed for compliance are either in services or under construction. However, we continue to have discussions with tank barge operators about new vessels to expands capacity in the oil transportation market. We are also fielding inquiries from domestic and international operators for high value specialty vessels that would be used in the offshore energy industry, which could be one of several significant growth opportunities in the markets that we serve. We remain committed to the future of the LCS program, but we are not dependent on it. Manitowoc Marine Group has established a reputation for innovation, quality and value that will drive our future. Terry?

Thanks for that fine update on Marine, Bob. For the past two years, we've driven to 6 strategic priorities in our efforts to position Manitowoc for the future. We continue to embrace those initiatives in all of our planning, and have expanded the original six with the addition of a seventh priority in 2007. The 7 strategic priorities are; Growth, innovation, customers, excellence in operations, people in organizational development, and the new priority which has been embedded in customers is delivering world-class aftermarket support. The seventh priority then is an outcome of all of the others and that is value creation. Our vision is one of growth, and there is no better illustration of our commitment to growth than the Crane Group. With a 20% top line growth target, it will be the engine that drives our financial performance in 2007. But we're always looking beyond the current year. We have the financial resources to expand the global reach of both food service and cranes. Glenn and Paul discussed how innovation fuels their businesses and we drive innovation with our goal of 80% all products sold to be products introduced within the past five years. We are not afraid to have our customers tell us what they want. We use voice of the customer techniques to develop innovative new products, by defining the value proposition on the front end, we greatly increase the likelihood of success in the marketplace. All of Manitowoc's business segments have a strong focus on excellence and operations. We constantly look for improvement quality. Better manufacturing techniques, additional supply chain partners, any competitive advantage we can find. We use our commitment to six sigma as the catalyst to drive this priority. Our 2006 safety records speak to our commitment to people and organizational development. Not only were total accidents down in a year of record sales and hours worked, but all three of our business segments achieved worker safety rates better than their respective industries.

We are making world class aftermarket support a new strategic priority for 2007. As Glenn and Paul described, Manitowoc has a deep commitment to service and support. Our unique ability to support a global customer base is a strategic differentiator against not only our established competitors but also against new competitors being created in emerging markets. This will be a defining differentiator for all our business segments. This is a great year to conclude with a simple comment about value creation, with record revenue, operating earnings, cash generation, and economic value added we feel the strategies we develop to build a global leadership position are right for the company and our outlook for 2007 is that we are ready for more. With that I'll now turn the call over to the operator for questions and answers.

Thank you, the question and answer session will conducted electronically. [OPERATOR INSTRUCTIONS] We'll pause for a moment to give everyone an opportunity to signal for questions. First we will take Seth Weber from Banc of America.

Thanks, good morning guys.

Good morning, Seth.

I guess Carl or Glen, maybe, can you address the sequential decline that we saw in crane bookings in the quarter? Does that signal anything you heard from customers that would suggest any kind of pull-back or just change in sentiment or was there perhaps something the third quarter that may have made that quarter unusually strong, and then as a follow up, can you talk about what you are seeing the pricing environment.

Good morning Seth, this is Glenn. I think sequentially that-- I don't think there's anything to it. Simply we are not seeing any change in attitudes in our customers primarily in North America, not seeing anything coming out of anybody's attitudes or foresight from Europe or Asia. When you talk to people out in the field right now, it's, the infrastructure projects that are out there, the power plants, refinery work, across the globe is very strong.

The pricing markets, I think we've gone out at the beginning of 2006, we had our price increases, they held most of the year, we are going out with our price increasing in 2007, and we believe they are holding so I'm not seeing any issues with the pricing, so again, I just don't see anything or hear anything from the customers and we are with, I've been on the phone with many of them, just this past week, just to get a feel for that same thing that you are asking about. And I'm just not hearing it. Hopefully that answers your question.

Okay.

Seth, if I could, I would also like to just re-emphasize when we look at the entire crane business, we're seeing strength in all regions of the world, we are extremely well positioned in the merging markets, and that was a plan that we put in place a number of years ago, but we are seeing not just North America staying strong, but seeing Europe, Middle East, Africa, the Asia-Pacific all being very robust.

Getting back to the pricing point, typically you announced prices increasing at the beginning of the year, is that correct? And any precedent for a midyear increase? Is that a possibility we could think about?

Certain, we've had those, when you look at some of the commodities as they go up and that's part of the different strategies in different regions. For example, in one region, we may have gone out in one product line with a full price increase for the full year, about in other regions, our product lines, we may have said they will hold through June, with our customer base knowing if commodities go the way we extend them to go, it will stay where it is. If not, then we have to take some pricing actions. So it different byproduct line by region and-- but that's not saying that we can't make adjustments as we move along.

Have you seen any chance to the competitive environment, any, any new competitors in any of the emerging markets coming in?

I think with respect to new competitors, if anybody attended the Bhombal show in China, there are some competitors that we see, will be potential, you know, long-term competitors as they move forward as they look for exports outside of China. Those are the new competitors we talked about in the emerging markets. Do they have a significant foothold at this point in time? No, but that's why a lot of strategies we put in place and a lot of the things you read, it will take them a while to get that, but we believe that there are opportunities not only for us, but for competitors to come in with maybe a different business model. But our strategies are well positioned to address those.

Okay. Thanks very much, guys.

Thank you. And next we will go to Henry Kim from Lehman Brothers.

Hi, guys, how are you doing today? Hey, question for you, you gave annual guidance for '07, but any way to give some sense as to how the seasonality of the business might be and how it might progress through the year?

Sure. I think obviously with the extremely robust demand that we have been seeing out of the crane business, I think historically, we talked about the dynamic and duration of the backlog extending from a 2 quarter situation, a couple of years ago to a little over 3/4 today. I think that gives a lot more stability to the normal seasonal pattern that we have historically have seen in the crane business. I think that there's still somewhat of a second quarter bulge there for us, that just relates to the delivery schedules of equipment, and you know, construction progress, projects and how they are scheduled.

But by and large, you know, we certainly, you know, expect to see some pretty strong sequential dynamics in the crane business, if you correct for that second quarter increase. Seasonal pattern in food service, you know, is the same as really as it has been where we're strongest in the second and third quarters in food. Marine maybe a little bit of a different pattern as we look at it this year, versus some other years. Where we wouldn't necessarily see the same type of margin impact from the repair business in the first quarter that we have seen in other years, and that's just a matter of how the scheduling has been. So hopefully that gives you some sense, as you know Henry we don't give specific quarterly guidance.

Sure, that was helpful. I guess for my follow up, in terms of the new goal of world class after market support, do you have to do anything from a Cap Ex perspective, or any use of capital there as you start to work on that? How should I view Cap Ex in '07?

I'm going to let Carl handle the overall capital expenditures question, but really, there has been some expansion in capital with regard to putting forth all of our various call centers and our service centers around the world, including the new one in Dubai, but it's been a continuation of capital spending from a year over year perspective, but how we are really accomplishing this is really a true re-dedication of all of our efforts to the aftermarket.

In food service, for example, we train some 12,000 technicians a year on all of the Manitowoc products, and our role there is to be able to deliver the best possible service and warranty fulfillment of any company that can provide that kind of service and detail, and truly our goal is to have all of those service technicians we've trained over the course of the year to be advocates of Manitowoc and we think that's been a pretty successful effort.

On the crane side obviously, getting the ability to service a crane 24 hours a day, 7 days a week and be able to trouble shoot and provide all kind of service capability, by telephone, and then dispatch as needed has been hallmarked with what we were trying to do in crane square. We think that will bode well for us going forward. Carl, if you could --

Sure Henry, as Terry diluted to, obviously aftermarket support has been the hallmark of the company for quite a while, and we've been extending resources over time. We've been seeing the benefits in the marketplace of that to the point where we think that we can call that out as a specific strategy. Inherent in the guidance that wee provided for a Cap Ex level a little over $70 million in 2007, would have included that continued focus in that area.

Okay. Thanks a lot, guys.

Next we will go to Charlie Brady from BMO Capital Markets.

Hi, thanks, good morning guys. [inaudible] Can we just go back quickly to the first question on the crane orders in the sequential decline there. We look over the past 8 quarters, you've had a couple of quarters where you've had sequential decline, and then two quarters after that, pretty good snap-back.

Is this just kind of noise going on here? Should we expect this going forward, that we're going to see an occasional down quarter, but if we were looking at a 3 quarterback log, as long as its backlog is going up, that the underlying industry looks fairly strong on a global construction market? And I'm also wandering as part of that, if you look at a Bhombal trade show coming up in April which happens every three years, do you think there's any sort of hold back on an orders happening in front of the Bhombal or do you think that this is a possibility given that that the Bhombal is not until April?

Charlie, I'm going to take the first part of your question, take a shot at it anyway and Glen can follow up with any caller on that as well as answer your question on Bhombal. I think to some extent, what you are alluding to is probably what our expectation and view is, that despite the fact that you could impute some lessening of the order flow in the quarter, there isn't anything that we have been saying or anything that changes our view from a market perspective and as Glen was trying to allude to from a customer feedback perspective that would lead us to any different conclusion about the length of this upcycle as we see it and how we are positioned to fill it. So I'll let you answer the question on Bhombal.

Charlie, with respect to Bhombal, sometimes it's hard to get a handle on really what the orders are that are taken directly at the shows versus orders that came in hand and the customers want to, you know, come and meet you and let everybody in the-- in our crane group. These are deals we've worked on and that's all come to fruition so-- but there's some of that, I think, typically if you look at any of the timing of the trade shows, our-- the order backlog does in fact spike up a little bit from that and I think that says people hold off.

But I think the biggest thing you'll see, when you went from the second to third quarter, and want to compare the third quarter, that's what people are trying to look at, what's there pricing for next year? Their solidifying their 2007 in the summer of this year they are going to look at 2008, and say where am I going to place those orders, what am I going to do, how am I going to go about doing it. And so as we're working with our dealers and their business plans for 2007, last year, and trying to put our plan together, we are working in conjunction with them, and maybe that's why you see a little bit of seasonality in that third quarter bump up, but I wouldn't read anything into that when you take that aside and just look at the strength of the markets by themselves. It's still very strong and I think that may some dynamics on the way our customers part in their orders for the following year.

Alright thanks and my follow up, can you talk about where you are in crane capacities as far as-- and maybe any constraints on getting parts or supply issues in the supply chain?

I think the biggest constraints are still the-- a lot of the suppliers, in the same things we've talked about in the past can be bearings, I think tires is a non-issue anymore. People including our competitors are getting around that and taking care of that issue, but it's other things, again, the typical supplier ramp-up of some things that we have outsourced, can everything gets the people and it becomes tougher and tougher. Even though you do see a little bit of a slow down in the light construction equipment. The people that were competing for on the-- you know, the subcontractor services, the mining is still good, there's other things out that that we compete for those resources, at the supplier constraints as opposed to in-house manufacturing capabilities. We have plenty of room with many strategies you have in place.

If I could expand on that just a bit, Charlie, our global sourcing efforts have really come to play very strong in this whole process. It's where we take and combine and leverage the entire spend of the corporation and utilize those resources to find new sources to expand on with existing sources and look at alternatives. And that has been in effect since 2004, and really has allowed us to get through to this point in time with not having a supply issue keeping us from meeting our customers' needs and expectations, and I believe that you will continue to see us being very strong and taking a very strong position in the whole global sourcing arena.

Thanks very much.

Next we will go to Robert McCarthy from Robert W Baird.

Good morning, gentlemen. My first question is could you update us on the proportion of crane segment sales accounted for by parts and service in 2006?

I think the 2005 number was 16%.

Right.

the 2006 number is certainly going to be a little bit lower than that. Probably about 14%.

Thank you. And then my other question had to do with food service. Could you talk about what specifically happened in the quarter that made the business come in under your own expectations?

But, I think the things that we're talking about, I think that if you go back to some of the comments we made in the third quarter conference call, I think the slippage to our expectations that we had been experiencing in 2006 relative to the beverage business was something we did have some inkling it was going to turn the corner in the fourth quarter to some degree.

Okay.

Certainly didn't expect to see a huge rebound there. But that, that was a part of the answer there was that that softness really did continue. We mentioned in the third quarter conference call that we expected some head wind in commodity. I think that was a little bit greater than what we expected it to be. And we did reference there, prepared remarks some of the challenges that we experienced in the refrigeration business. Which we certainly believe we are on the right path there for recovery and turning that around in 2007.

So, just a confluence of small things in the quarter?

Yes.

Not things you expect to be ongoing drags throughout all of next year?

That's correct.

Okay. Thank you.

And next we will hear from Steven [Inaudible] from JP Morgan Chase.

Good morning. I guess most of my questions have been answered, but just to follow on with Rob, I thought you had made some comments about the commodities being hedged in food service and just what should we read as kind of the implication of that, going forward if commodity prices back off a little bit here?

I think you should view it as really one of protection has been the key part of the strategy, and by virtue of that, I don't think you should net expect any kind of significant upside from a decline in some of the key areas. Certainly in the areas where you would be able to do some discrete hedging, I think that there would be at least a muting affect of the benefit we would otherwise receive there, because certainly, we want to make sure that some of the head wind we experienced in the back half of 2006 does not recur.

And then just a couple of follow-ups. Carl, I think you made a comment that the normal seasonality in the marine business with respect to margin in the first quarter probably won't happen as much this year? Did I read that right?

That was my comment, yes, and the reason for that is simply, you know, the timing of the inspection repair, and also some of the fall-out with the Littoral Combat Ship work that would be heavier earlier in the year.

And a final one on the crane capacity issue. If you felt comfortable doing it for whatever business planning reasons you might have, could you, instead of up 20%, do you have the capacity to do up 25% or 30% if you chose to do so? Or are you kind of limited in how much further you can go here?

Well Steve, that's a very good question, and I would tell you one of the challenges that has been made to everybody on the Crane Group, is we look at that 20% and then we've had some other action plans that we are looking at and some things we are trying to decide what are some other additional outputs that we could get with changes in maybe little bit more capital, could be a little bit increase in some of the lean things we are doing, what else is happening in China, what else is happening with factories in Europe, here in the United States, does it take more moving some products from one place to another? So we have the strategies in place, certainly for that 20%, and we are constantly working that expanding the out output from that as we move forward and I think to everyone's desire.

The other thing I would say in that vein Steven is that all of those strategies certainly are embarked upon with the recognize that at some point in time, certainly we believe years away from the way we are looking at it today, the market will soften and we want to make sure that as we try to increase the capacity and take advantage of the current demand to greatest extent possible that we are doing so with an eye towards efficiency, when the market does turn down, many quarters down the road. That we wouldn't be saddled with fixed costs that we would not be able to easily extinguish.

That sounds reasonable, thanks very much.

And we have time for one final question and that comes from Charlie Rentschler from Wall Street Access.

My first question is about general corporate expense which was last, in '05 [inaudible] up 71%. Why is that such an increase? Is that the Otis caper or what are we looking at there?

The single largest discrete item Charlie would be the stock option expense that would be a different, that flows through on the corporate line. And notice as you mentioned was certainly a big part of that, and we mentioned a discrete number on that front in the third quarter. There was a little more that spilled into the fourth quarter and obviously, just keeping up with the growth from a-- and from a compensation perspective and corporate infrastructure to support the growth level would be the rest of what we are seeing there, health insurance to some extent. Tax initiative, professional fees that flow from those strategies would all fit into the mix.

Okay. And my main question really is, the last question, if you use the data which you showed us on investor day, the last crane peak was reached in 1998 or five years after the start of the cycle which began in 1993. On this basis, the peak of this cycle, which began in 2003 would reach the high point in 2008, or 2009. If the crane business is still cyclical, and if it is cyclical, what were do you think when the peak will happen?

I think certainly, we did not experience the peak in our business in 1998, at the last peak of the cycle. I think we characterized 2000 as the tale of two halves, where we actually saw some year over year growth in the first half of the year and the decline in the second half of the year in 2000. As we talk about the ten year peak to peak cycle, that is one where we have the best data points, and have the most experience in the North American marketplace.

Obviously we have done a lot to expand our crane business geographically, and we think it certainly won't put us in a position where the business will go from being formally cyclical to non-cyclical, but I think as you think about the duration of this up cycle, and some exciting things going on in the emerging markets, our position to fulfill those, and the magnitude of a future downturn will certainly be muted by where we are from a product perspective from our strategy on crane care and from the more global scope that we have.

Okay. Thank you.

Charlie, if I could just expand a little bit on that. You know, in the '98, 2000 time frame, we are a much different looking company. We were almost all North American, and it was all crow or crane or boom trucks, today, we have global leadership in mobile hydraulics in tower cranes and crawler cranes, we are positioned very well in the emerging markets where we are seeing a lot of opportunities today, and we believe those opportunities will continue to stay with us for a very significant period of time because of the infrastructure work that is out there, so we're not saying that the business is not cyclical, but what we are saying is that we are a totally different company than what we were in the last cycle, and we think that that will help to mute that cyclicality as well as to give us some significant opportunities to explore new markets as we go forward.

This that same vein, Charlie, from a financial perspective and based upon the integration activity that has been done, we would certainly expect to be able to generate significantly higher margins, even at the bottom of the next trough than we did at the prior trough.

Thank you.

That concludes the question and answer session today. At this time, I will turn it back over to our speakers for any additional or closing remarks.

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