Manitowoc Company Inc (MTW) 2007 Q1 法說會逐字稿

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

Good afternoon, everyone. Thanks for joining our first quarter earnings conference call. Participating in today's call will be Terry Growcock, our Chairman and recently-retired Chief Executive Officer, and Carl Laurino, Senior Vice President and Chief Financial Officer. Joining Terry and Carl on today's call will be our newly appointed Chief Executive Officer, Glen Tellock. As you know, Glen most recently served as President of Manitowoc Crane Group. Carl will begin today's call with a brief review of the quarter. Glen will comment on the recent Bauma trade show and trends in the lifting industry, and Terry will provide an overview of our strategic priorities. This group will be joined by Michael Kachmer, recently appointed President of Manitowoc Foodservice Group, and Bob Herre, President of Manitowoc Marine Group for a question and answer session following our prepared comments.

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 6:00 p.m. Eastern Time today until 1:00 a.m. Eastern Time on May 8th. The number to dial for the replay is area code (719)457-0820. Please use confirmation code 6446635. You may also access an archived version of this call by visiting the Investor Relations section of our corporate website at www.Manitowoc.com.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 May 1, 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 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 10K for the year ended December 31, 2006.

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

Thanks, Steve and good morning, everyone, good afternoon, everyone. Yesterday we reported record first quarter 2007 net sales of $862 million, a 36% increase over the first quarter of 2006. We also reported net earnings for the quarter of $64.1 million, or $1.01 per diluted share, compared with net earnings of $29.7 million, or $0.48 per diluted share for the same period last year.

Our reported net earnings for the first quarter of 2006 included special items which are detailed in a table in our press release. Excluding these items, EPS for the 2007 quarter increased more than 115% from the prior year. Please refer to our press release for a reconciliation between reported GAAP earnings, and earnings from continuing operations before special items.

Once again, our Crane segment is is the primary driver of this dramatic improvement. Crane segment sales for the quarter totaled $683 million, an increase of 43% from the first quarter of last year. Operating earnings were $96.2 million, up 88% over the first quarter of 2006, resulting in an operating margin of 14.1%.

Backlog at March 31 totaled $1.9 billion, up 24% from the prior quarter, and up 92% from a year ago. The growth was strong across all of our geographic markets, and in all product categories. The backlog performance is especially impressive considering our extraordinary sales growth. Glen will further discuss backlog and the order book in his comments.

Foodservice sales increased 4% to $97 million from the first quarter of 2006, and operating income increased 3% to $10.9 million. The first and fourth quarters are seasonally lower in sales for Foodservice because demand for ice and beverage products peaks during the warmer months. We continue to expect improved full year 2007 margins. We believe that three factors will drive improved performance in the Foodservice business segment in 2007. Improved cost structure, success in new product introductions, and improved beverage industry conditions.

Manufacturing efficiencies should improve in 2007 as we realize the benefits of plant consolidation and redesign at our Parsons, Tennessee refrigeration plant. We are also protected against rising costs for key commodities, such as copper, aluminum and nickel, through our on-going systematic heading program. This program has also enabled stable product pricing to the dealer channel. Additionally, our cost structure will benefit from significantly lower Foodservice ERP costs in 2007.

The second factor that should drive improved performance is our new product pipeline. We will bring more than 30 new products to market this year. These new products will add to the momentum of the FlexTower and Visi-Kooler products that we brought out in the second half of 2006. Our market meeting ice product line is also gaining share in the healthcare and residential markets.

The third factor to look for in 2007 is the start of the beverage refresh programs that are expected to launch in the second half of the year. We have numerous beverage products in field trials, and a rollout of these programs should drive strong Foodservice performance in 2007, and well into 2008. Marine sales for the quarter increased 33% to $82 million, compared to the first quarter of 2006, while operating profit totaled $5.5 million, compared to $3.7 million in the third quarter last year.

The higher revenue reflects increased activity on option 1 of the Improved Navy Lighterage System, or INLS. The increased operating profit was driven by our strong backlog of commercial construction projects, and a very good winter repair season. We are paying close attention to the status of the LPS program. Manitowoc has made a significant commitment to the success of LPS, and our performance on FREEDOM has been remarkable. The accommodated delays and delivery of components and materials, as well as significant design changes, yet we had FREEDOM in the water on schedule.

We believe our team at Marinette is providing the Navy with the level of performance and accountability that they rarely receive. We won't comment on Lockheed Martin's negotiations with the Navy, but we will reinforce that LCS is a key element of the Navy's long-term strategic plan.

Regardless of LCS, Manitowoc Marine Group has a solid outlook well into 2009. Our backlog consists primarily of follow-on commercial tugs and barges, the next generation of modules for the Navy's INLS system, and the Coast Guard's Response Boat - Medium program. Because of the repeat nature of these projects, we have a high degree of confidence in our outlook for continued improvement and profitability at Marine.

The Company's consolidated performance continues to be outstanding. Net income and EVA more than doubled from the first quarter of 2006. On a cash basis, the first quarter of the year is when our seasonal build and working capital occurs. We previously guided that we would incur approximately $50 million in cash usage for pension liability true-up during 2007.

During the first quarter, we contributed $27 million to our domestic pension plan. We also expect that with the strong outlook from our Crane segment, our 2007 cash from operations target of more than $300 million will be attained. I will conclude my comments by raising our EPS guidance for 2007 to a range of $4.40 to $4.50 per share. This new range reflects our view of our solid end markets and our confidence in continuing to drive manufacturing efficiencies in all of our business segments.

With that, I will turn the call over to Terry Growcock. Terry?

Thanks, Carl, for that great report. Each quarter we highlight one of our business segments, and Manitowoc Crane Groups certainly deserves that spotlight. With this group's stellar performance at the Bauma show in Munich last week, Glen Tellock, our new CEO, will share the business drivers and outlook for this important segment. Glen?

Thanks, Terry. Good afternoon. The Manitowoc Crane Group continues to deliver outstanding performance. Sales and backlog are at previously unmatched levels and the momentum continues to build.

The mood at Bauma, which is the construction industry's most influential event and biggest showcase, unlike anything we have ever seen. Bauma guest amounts attendance was over the 0.5 million mark, and an increase of 20% from the prior show in 2004. Even more impressive is that nearly a third of the attendees came from outside of Germany. Visitors came from 190 countries, which is another indication of the broad international interest in the construction and lifting markets.

And it is because of that optimism, and the long-term health of the lifting industry, that we are raising our 2007 revenue growth target for the Crane Group, from 20% to approximately 30%, or to $2.9 billion. Delivering that growth will be a challenge. We have the right team in place to accomplish this. For the past two years, we have identified and qualified new members of our supply chain, in both our established markets and in new geographies. These efforts will pay dividends as the continued global demand for capital equipment, will push the industries and common supply chain to the limit. I am very confident that we have the resources in place to meet our production forecast.

Our efforts to meet our production schedules are supported by incorporating the best of Six Sigma and Lean manufacturing processes in all of our facilities. Our commitment to achieve our production forecast also includes continued capital investments, that support our strategy of moving manufacturing closer to the customer. Through this strategy, we continue to expand our manufacturing presence worldwide. Our goal is maximum flexible and on-time delivery.

Without a doubt, the highlight of Bauma was our formal introduction of the GTK1100, the most innovative development in the lifting industry in more than a development in the lifting industry in more than a decade. In fact, it was voted as the 2007 innovation of the year by ESTA, the European Crane and Transport organization. The product that few companies could have created, and we are the only ones in the world with this type of crane. It involves features of our crawler, tower, and hydraulic crane technologies, and brings higher lifting capacities to jobs that require a small footprint and fast erection times.

Initial interest has been very strong from the refinery, petrochemical sector, and for the installation and maintenance of wind turbines. Because of these end markets and strong growth outlooks and I believe that, as the benefits of the GTK become better known, we will see it applied to many new markets. The GTK was definitely a show-stopper, we also had 10 other new models on display at Bauma. I think that really speaks to our cultural commitment to innovation as a means to deliver more value to our customers, and to serve as a [variant] to competitive threats. We will continue to broaden our product lines, not only through R&D, but also through acquisitions that fit our objective in filling voids on a product or a geographic basis.

All of this is good news and raises the question of backlog and delivery schedules. Our growth in backlog is being driven by our core customers and the established lifting markets and by large infrastructure and industrial products in emerging markets. Project engineers in Russia, Eastern Europe, Asia, Africa, Latin America, for example, are incorporating efficient lifting equipment into their plans. We met scores of current and potential customers at this year's Bauma, who probably didn't attend the event in 2004.

That third wave of demand is another example of why the current crane cycle is unlike anything we have ever experienced in the past. As a value-driven company, we must have the capacity to meet demand and delivery commitments to our current customer base, and be able to capitalize on future opportunities. Our Board of Directors has recently approved significant capital expansion programs that will increase production capacity in key product categories.

Five years ago, we made a commitment to be the world leader in lifting solutions, and today we are seeing the continued results of that commitment. Manitowoc has created the most complete line of lift solutions in the industry, and we can deliver and service our products anywhere in the world. Our factories share Best Practices and engineering resources, and our sales teams leverage cross-selling opportunities.

The additional capital commitments we are making today should keep Manitowoc Crane Group in a market leadership position through the end of the decade. Consistent with our plan back in 2002, the creation of our Crane CARE after-market support system has given customers a compelling reason to choose Manitowoc. The fact that we have taken that strategy from paper to reality tells you how solid our team really is.

We know that this is a great time to be in the lifting industry, and we intend to fully capitalize on this opportunity. Just like in 2002, we are looking several years ahead. We see continued strong demand carrying this level of performance well into 2008 and beyond in many of our end markets.

With that, I will now turn the call back over to Terry.

Thanks for the update on our biggest and fastest-growing segment, Glen. Your team had a strong showing at Bauma, and we look to the crane segment to continue to serve as a key growth driver for several years. While we will not break down the level of investment county the locations or the products, Manitowoc has launched a significant capital expansion program to increase our output of lifting products in 2008, to meet what we see now as a substantial, longer-term demand for cranes on a global basis.

I mention growth because that is our #1 strategic imperative. As Glen said, we are raising the 2007 growth target for cranes to approximately 30%, to reflect global demand for our core product portfolio, and our ability to expand the portfolio through innovations and acquisitions. It is hard to describe the excitement that GTK caused at Bauma, but imagine being the Company to develop, announce, and supply your industry's most innovative product. The Crane Group is perfectly positioned to serve as our near-term growth driver. As Glen said we are always looking ahead.

Foodservice is also in excellent position to expand its relationships with restaurants, C-stores, bottlers, and institutions. We remain committed to growing Foodservice by leveraging cross-selling opportunities, and acquiring products to complement our portfolio.

We will also grow Cranes and Foodservice by keeping our new product pipeline full. In addition to the 11 new crane models we introduced at Bauma, we will roll out more than 30 innovative new Foodservice products at the NRA and NAFEM Trade shows in the coming months. Based on the success of our Flex-Tower, non-carbonated beverage dispenser and the Visi-Kooler in-store refrigeration unit, we should have several more hits on our hands in Foodservice this year and next. The reason our new products are successful is simple. We give our customers what they ask for.

We use the voice of the customer approach early in the product development process to define the need. Then our engineering and manufacturing teams can develop the designs and production programs to make sure that we deliver a product that performs like a Manitowoc. That is the best way I know to make certain you remain a market leader. As our manufacturing footprint and customer base grows more global, we need to make investments in IT systems, and keep pace with the opportunities.

Foodservice is well under way in implementing an ERP system that will support its ice, beverage, and refrigeration product lines. The experience gained from Foodservice will be applied at the Crane Group, which will launch an ERP implementation later this year. These are complex and time-consuming projects, but they are necessary if we are to continue to expand our global footprint.

Our commitment to infrastructure is matched by our commitment to people and processes. The third class of our accelerated leadership development program will graduate during the second quarter, and we are already seeing the benefits of this extensive program. As an example, Larry Wires, a graduate of the first ALDP class, was recently named EVP of the Americas for the Crane Group, and we expect to fill our management ranks with members of these classes.

We recently added a new strategic imperative, world class after market support. Our new service and parts center in Dubai, which will have its Grand Opening on May 9th and 10th, puts Manitowoc Crane Group at the center of the one of the world's most active lifting markets. This is another example of how Crane CARE helps differentiate us from our competition. I will conclude with my strategic comments with a few words on value creation.

This is the fifth consecutive quarter that all three business segments were positive EVA contributors. While our three segments are very different businesses, they are all successful at the same time, because we manage them with the goal of creating value. Many companies may say they do that, but very few deliver as we have done. As I announced at our Annual Shareholders Meeting this morning, I am pleased that Glen Tellock is succeeding me as CEO. This is the perfect time for a change in senior leadership. Manitowoc's performance has never been stronger nor its future any brighter.

As a former CFO, and then as President of our largest segment, Glen has a thorough understanding of the value drivers of our business. I look forward to continuing to serve our shareholders as Chairman, but I will always cherish the past nine years as CEO. I am fortunate to have had the opportunity to lead our 9,500 employees and to grow the Company into a truly global enterprise. As we move forward, I can only reiterate the theme of our Annual Report, Ready for more. Because that is exactly where Manitowoc is positioned.

With that, I will now turn the call over to Erica for questions and answers.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Robert McCarthy with Robert W. Baird.

Good morning, it's actually [Chris Welser] for Rob today. I was wondering if you could maybe give us a little more detail on the capacity expansion plans. I know you didn't want to reveal too much, but it sort of sounded like the spending really happens in the second half of '07, and the benefits start to accrue in 2008. Am I understanding that correctly?

Well, obviously for competitive reasons we want to keep a lot of our plans confidential on this. We will launch the spending toward the end of the second quarter, and I think the second half, and then you will see some spending into 2008. And, again, we are really excited about the opportunity that we see in front of us, and pleased that we have the full support of the Board in this effort. Glen, do you want to add anything to that?

I would only add that some of the commitments that we are looking at across all of our product lines in the Crane side, and also I would say tend to skew towards the higher capacity-size cranes for that type of work. As you see what happens in the markets today, a lot of the cranes that we're building are getting bigger and bigger. It's really the focus on some of the higher end of the market.

Can you give us an update on how you are doing on supplier constraints in the crane segment? I am trying to figure out, is that the reason why your big jump in crane segment expectations? Or is it more this CapEx plan?

No, I think the CapEx certainly helps, but I don't think you get any boost from that this year. Really what it is, looking at where we are at and some of the improvements and the things we have put in place over the past couple of years and just the normal CapEx, and you know, technologies that go into the factories on a regular basis, and trying to look at the efficiencies that we have, you know, some of it with the factory in China. We have done some things in Italy.

The normal items that happen in Shady Grove or Manitowoc, our Tower crane facilities, you put all of that together and we come out with a plan, and if our efficiencies and the suppliers get us the material we need, I think that gives us the ability to ramp up a little bit higher. We have certain constraints, obviously, in the supply chain. Again, it's no different than any of our competitors when you talk about bearings or some electrical components, but I think we believe that some of the numbers that we are raising to are, we will be able to achieve that in 2007.

(OPERATOR INSTRUCTIONS) Next we will hear from Seth Weber with Banc of America.

Thanks. Good afternoon, everybody.

Hello, Seth.

Congratulations, Glen.

Thank you.

Just following up on that past question. Would you guys have been able to make this 30% crane revenue growth without the capacity additions you are talking about for this year?

Yes. I think what as I mentioned, you know, a lot of this stuff is really as we ramp up and look out in 2008, '09 and '10, in the next five years.

Okay. And then just to follow up. I mean can you take us back -- you raised guidance on March 15th, and then the numbers you reported last night were significantly above that. Can you talk about what, if anything, changed in the last couple weeks of the quarter? There was any incremental, any real shift in activity? Or is it just, you know, you just got better visibility at this point?

One of the things that we hadn't, you know, fully understood is where we would end up. Even from the unless you over the 15th, I am not sure it was the 15th, but from that date forward, where we were from a currency standpoint, we actually received about a $0.04 benefit from currency in the quarter all in, total company.

Also the tax rate was certainly sequentially was lower at the 30% level. That provided us with about a $0.03 benefit. That's something that doesn't get tied out until after you finally close the quarter. The rest of it really comes from productivity and what we were able to get out the door beyond our expectations in the quarter.

Next we will hear from Charlie Brady with BMO Capital Markets.

Hi, thanks, good afternoon, guys.

Hello, Charlie.

Can we look at the margins on Foodservice and also on Marine, you commented on the release on the Marine about having a strong winter repair season. I'm wondering if we look at the margins for the remainder of '07, would you still expect margins at the current Q1 level, or maybe better? Or do we get pushed up a little bit because we had a stronger repair season in Marine?

You would typically, Charlie, see the margins drop off a little bit in Marine from the first quarter. Just because of exactly what you mentioned. The height of the winter repair season occurs in the first quarter. And that is the highest margin business that we have, of course. So, we would expect them to be a little softer in the last three quarters of the year.

Opening up in Dubai, any other areas you are targeting for additional service centers?

Yes, we have some facility locations throughout South America. Expanding some of our capabilities in Russia. And I think for the near-term, that pretty much, with Dubai, that pretty much hits it on the head.

Would those additional service centers and expansions be occurring over what timeframe in '07?

Towards the Latin America one, a little bit you know, maybe mid- to late. And then the Russia one, late to early '08.

Next we will hear from Nigel Coe with Deutsche Banc.

Good evening. Congratulations on a great quarter.

Thank you, Nigel.

You talked about, Bauma, can you talk about how the order intake or reception to the new products as compared to maybe previous iterations and previous models?

That is a good question. Nigel, I look back at let's say we go to the late '90s and, yes, the 888 or the 999 at a trade show, it's not the same numbers, because a lot of the cranes are bigger. The GTK is certainly a much higher value crane, and you're not going to get the large volumes you get at some of the others. So, when you look at the 14,000 that was introduced at Bauma, we had a lot of initial interest and expectations and orders up front, even before Bauma, and then the show had a few selling opportunities there. So, obviously I think when at the end of the day it gets to the numbers that you had pre and post-Bauma, were very comparable to any other product offerings that we had.

When you look at the new Igo range, again, that is very comparable to any other introductions we have had within the IGO range. The Tower cranes, if you look at any of the city class cranes and some the ones we had at the show, again, I don't think any different than what we have seen in the past. So, very consistent and actually as you go to the city crane concept, it gets more and more popular and we think that is a great direction for us.

Okay. You mention --

Nigel, if I could, I would just comment -- additionally, our booth, obviously, with the half a million people coming to Bauma, totally, but our booth was just busy from start of the day to the end of the day, every day during Bauma. And that excitement is reflective of, I think, both the excitement in the total industry, as well as the excitement in the products that the Manitowoc Crane Group are bringing to the market.

Terry I hope they were customers and not just analysts and fund managers. (laughter) And, you know, typically we see a pickup in orders following a major trade show. Is there any reason to believe this time won't be the same as previous years?

I think it's --

It's a tough question, I know.

I think it will be comparable. You know, again, it's going to be a matter of when they -- what the delivery dates are. I think it's comparable to what we have seen in the past.

Great. And one more question, maybe for Carl. We saw, I think, the margin conversion in crane falling slightly this quarter versus last year. Could you talk about that quickly?

Well, I think we actually indicated that we expected to see that, you know, with our investor call that we had at the end of last year. Just from the tremendous top line growth. And, you know, the difficulty in it continuing to run to a nearly 30% incremental margin as we do most of last year and indicated we didn't expect to see that in 2007 for that reason. So, you know, I think what we said is what actually occurred, roughly in the low 20% in this quarter.

Next we will hear from Steve Volkmann with JPMorgan.

Hi, guys.

Hi, Steve.

Glen, could you do more than 30% this year? Or is that kind of your capacity at this point?

Did Terry ask you to ask that question? (laughter) We are getting resource constrained, not only from manpower, but a supply chain basis, as we start to get up to this. That is why we are talking about some of those capital investments, which are geared toward the bigger components.

Okay, so we shouldn't probably assume much beyond that 30%. For this year, anyway.

I wouldn't.

Sounds good. And then Carl, I think you mentioned something about currency helping quite a bit. Are you guys exporting a significant amount right now? Is the dollar kind of a real help here?

I don't think it is as much as you would think on that front. I think it is more just a function of, you know, the fact that a good roughly 45% of the crane business is, you know, Euro denominated currency that strengthened quite a bit in the quarter.

Next we will hear from Charlie Rentschler with Wall Street Access.

Glen, congratulations, and Terry, terrific job over the last nine years, and God bless you and have a great future!

Thank you, Charlie.

Thanks, Charlie.

Can you tell us what your total capital spend looks like for the year?

We actually increased the CapEx guidance to roughly an $80 million level for full year 2007.

Okay. And what level of backlog in terms of months' production would Glen be comfortable with? I figure your something, something over eight months here, based on the first quarter. Ship rate. But your big public competitor is about the same level, I suppose, which is important to understand. But do you kind of think about it in terms of months, you know, billed? In terms of your backlog?

We do, Charlie, it's one of the things I mean just an internal metric is the number of cranes in backlog. You know, average monthly shipments in backlog. Again, that can be skewed depending on the size of the machines and what it is, hydraulic crawlers. You know, if I'm speaking from the customer standpoint, I would rather have a smaller backlog and faster deliveries, and just keep giving orders but, unfortunately, it is not that way.

So, whereas the backlog, I think, from a financial perspective is good, because we get a lot of visibility from that, and our customers want that, and it gives the confidence they have. I think even if the backlog went down a little bit, it would mean the throughput times are a little bit quicker, and we are getting things we need through the supply chain, and everything else. So, I would, I certainly, from a customer standpoint, would like to see the backlog go down a little bit more, but I would like to see that order rate come up faster. That just shows that the supply chain and our throughput is much-improved.

As a follow-up, is it fair to assume that the bulk of your CapEx would be basically done through suppliers for dyes and fixtures and stuff like that, as opposed to brick and mortar in your own shops?

Well, Charlie, it's not going to be as much brick and mortar, but it is certainly equipment in the, in our shops. And so I, that's where I would put it more, it's equipment for to us be able to increase our output, as well as increase our efficiencies, and helping us to get more product out.

Charlie, there is a little bit of brick and mortar in these. It is nothing that we are adding a whole bunch of fixed overhead to our manufacturing base.

(OPERATOR INSTRUCTIONS) We will hear next from [Henry Kerr].

Hey, guys. First of all, congratulations to both Terry and Glen. Good job.

Thanks.

Glen, could you talk a little bit about how you view the longer term strategy of Manitowoc going forward as you take over the reins, and sort of how you view acquisitions along with that?

Yes, I can touch on that. I think when we look at our strategic planning process, you know, we have been doing this, you know, since I can remember, 1993 and 1994.

I believe that Terry has communicated the strategies in our organization very clearly, and me being a part of those strategies with a lot of the people that are here on the team, and what not, I think, I would be hard-pressed all of a sudden to say maybe I needed a different strategic direction than Terry had. I think it is a matter of, you know, bringing the teams together and going to get what we need to do and executing. With respect to the cranes, obviously I am very close to that, so, I would hate to think they are going to go on a strategically different direction that be what we set up. On the Foodservice side, I think one of the things we need to do is get a little closer to that, but I have a lot of confidence in what Terry and Mike Kachmer have put together and talked about, and that's where, you know, a lot of our focus is going to be.

We've got a very nice global crane company. I think a lot of the focus from my perspective is how do we get that same global perspective on the Foodservice side? And, again, when you focus on the Marine side, it's really making it the best darn shipyard on the Great Lakes, and focusing on what we do best in those yards. So, I don't think you are going to see any big surprises, hopefully you are just going to see some execution.

Okay, I guess a more narrow-based question, could you talk a little bit about the annual commodity spend, what the big commodities are, and how much you spend on them and sort of touch on the hedging program?

As we pointed out, Henry, on the key commodities in Foodservice, were there is ability to hedge in the financial markets, we have really covered that for the 2007 timeframe and have a strategy in place to, you know, to continue to execute those as appropriate. You know, as we hit our threshold for, you know, continuing to roll it out into future quarters. And those being aluminum, copper, and nickel. In Cranes, well, really the whole company, is the biggest consumption of any single general category of a commodity is steel, as you would expect. It represents about 25% of the cost of goods.

(OPERATOR INSTRUCTIONS) And we do have a follow-up from Charlie Brady.

Thanks. Glen and Terry, you know, when we are over at Bauma, and we sat at your booth and we looked around at literally, you know, dozens and dozens of cranes, and clearly with some Chinese competitors there.

I wonder if you could walk us through your view on the Chinese competitors, and sort of what you pointed out there, about why they are not going to be entrenching on some of your business from a quality standpoint and a production standpoint. Because clearly if you look around the Bauma show, and given the number of companies there, one could possibly get the mixed perception that the competitive landscape had changed significantly.

If I could start, I'm sure Glen is going to give you a lot more specifics, but you know, we have historically, our competition has been global in stature. It has come from Japan and it has come from Germany and so therefore expanding competition on a global basis to China is nothing new to us. We recognize how to compete in the global marketplace, and part of our strategy has obviously been to build closer to the customer. We take every competitor seriously, and we use a couple of formats that we think really drive us, as we go forward to differentiate ourselves and those several things would be our continued effort to innovation, where we have 17 cranes that are in the process of launch this year, after 16 new cranes last year.

And the second one would be obviously the differentiation factor that we have laid out and that is Crane CARE. And the greatest after market support that anyone offers today in the industry, and we believe that we can make that a differentiator for two reasons. One is that, you know, we have always been known for our service support, and our customer support, and engineering support of our products out there. That has helped us maintain the highest retail value in the industry.

But the second reason is the fact that we do have this global footprint. We can service around the world and we can provide 24/7. Again, we are truly the global leader, as far as the commitment to building and having service centers around the world. I think those two things are really key, and I am sure Glen is going to give you some more color on it. Glen?

Yes, Charlie, I would only add two things. One, you mentioned quality. When people say that, the first thing I think of is the automotive industry, and you know, where the Japanese came from. They are going to get there on quality and it is a matter of how are we going to compete with them.

Then the second thing is it depends what product you are talking about when they come out. Are they going to compete on quality? Are they going to compete on price? Are they going to compete on technology? It depends what their business model is, and right now we see it mostly on price. You know, that is something we can compete against, depending on how much that discount is.

But I would say that the bigger you get in these cranes, no matter whether it is towers or mobile hydraulics, or crawlers, they are buying many of the same components from the same people we are, and their component suppliers are outside of China. So what is happening is that starts to squeeze where they have the price advantage, and it is simply on the labor portion. Well, then it becomes the transport, and all of that. So, you see that variable in there. If they are going to come after you on price, it gets lower and lower. So we are watching it very closely. We have things that, as you know, we manufacture in China. We manufacture in Europe. We have that global footprint Terry is talking about.

We will try to move our manufacturing and that is what we continue to say, to move it closer and closer to the customer. I think we can do that a little faster than some of our competitors, including the Chinese, because right now they are just strictly in China. But, again, Eric said they are just another competitor that we have to be very cognizant about.

Our next question will come from Sarah Thompson with Lehman Brothers.

Hi, this is [Cory Conick] for Sarah Thompson. Congratulations on a great quarter.

Thank you.

Just a quick question, looking quarter-over-quarter, it looks like you have used significantly more working capital this quarter. I was hoping you could provide more color around specifically what is driving that increase?

The first quarter does tend to be the largest use of working capital, you know, traditionally for the Company, where we are ramping up, in both Foodservice and cranes. You know, we have tended to be a second half cash generator, and we expect 2007 to follow that same pattern.

One of the discrete issues that was a little bit unusual in the first quarter this year was the true-up of the U.S. pension plans. And you know, putting that on more of a liability-based investing, where we will not have to worry about the forward risk in volatility that we might have to suffer, you know, with a different, in a different environment, with those pensions.

Great, thank you.

That is all the questions we have in queue. I will turn the conference back over to our speakers for additional or closing remarks.

Before we conclude today's call, I would like to remind everyone that a replay of our call will be available beginning at 6:00 p.m. Eastern Time today until 1:00 a.m. Eastern Time on May 8. The number to dial for the replay is area code (719)457-0820. Please use confirmation code 6446635.

You may also access an archived version of today's call on our website at www.Manitowoc.com. Thanks again for joining us, everyone. Have a good day!

That does conclude today's conference We thank you for your participation.