Manitowoc Company Inc (MTW) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to the Manitowoc Company Incorporated Second Quarter Earnings Conference. Today's call is being recorded. And at this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Khail. Please go ahead, sir.

Good morning, everyone, and thank you for joining our Second Quarter Earnings Conference Call.

Participating in today's call will be Glen Tellock, our President and Chief Executive Officer and Carl Laurino, Senior Vice President and Chief Financial Officer. Joining Glen and Carl on today's call will be Mike Kachmer, President of Manitowoc Foodservice Group. Carl will provide a brief review of the quarter, Mike will offer his assessment of the Foodservice Group and describe some of the initiatives that his team is launching, and Glen will close with comments on the direction of the Company. This group will be joined by Eric Etchart, recently appointed President of Manitowoc Crane 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 1:00 p.m. Eastern Time today until 1:00 a.m. Eastern Time on August 7th. The number to dial for the replay is area code (719)457-0820. Please use confirmation code 6740627. You may also access an archived version of this call by visiting the Investor Relations section of our corporate website at www.Manitowoc.com.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 July 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 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.

Yesterday we reported second quarter 2007 net sales of just over $1 billion, a 37% increase over the second quarter of 2006 and the first time our quarterly sales have topped $1 billion mark. We also reported net earnings for the quarter of $98 million, or $1.53 per diluted share, compared with net earnings of $42 million, or $0.67 per diluted share for the same period last year.

Our reported net earnings for the seconds quarters of both 2007 and 2006 include special items which are detailed in a table in the press release. Excluding these items, EPS for the 2007 quarter totaled $1.52 and increased more than 85% from the prior year. The press release also describes several non-recurring items that favorably affected our second quarter 2007 results. Let me take a few minutes to add a bit of color to each of these.

We had mentioned several quarters ago that the Company would proactively manage its tax situation, and our realization of a form tax credit carryforward of more than $4 million is proof of that effort. We're continually looking for ways to reduce the double taxation that can result from foreign-sourced income. The tax realization of this credit and other global tax planning initiatives had an $0.08 positive impact on EPS. We expect our full-year effective tax rate to be 29%.

Another item that boosted reported earnings was the positive resolution of two contingencies. These included collection of a past due receivable coupled with a favorable settlement of a 2005 vendor issue. Collectively, these two settlements added $0.05 to EPS.

The third item was a favorable shift in the value of foreign currencies, primarily the Euro. In prior quarters, a favorable move in the Euro would have been offset by an increase in the interest expense from our Euro Bonds. Now that those bonds have been retired, the favorable Euro movement was not offset by increased interest expense. The EPS impact from the strengthening Euro was $0.05 this quarter.

Without those unusual factors, our underlying financial performance was still quite strong. We generated double digit top-line sales growth in all three segments, with a 230 basis point increase in consolidated operating margins. Of course, the bulk of the increase in operating profits came from the Crane segment, but Foodservice and Marine demonstrated solid improvements, as well.

Crane segment sales for the quarter totaled $805 million, an increase of 41% from the second quarter of last year. Operating earnings were $120 million, up 59%, resulting in an operating margin of 14.9%. We had previously given guidance that the Crane operating margin for 2007 would be in the low teen range. Based on our recent performance and the outlook for the rest of the year, we are confident in raising that range to the mid-teens, similar to our Foodservice segment.

Backlog at June 30 totaled more than $2 billion, up 85% from a year ago. As we've seen over the past several quarters, the growth was strong across all of our geographic markets and in all product categories. Yesterday's press release included some commentary on backlog, but I'd like to address in more detail.

We believe that the current backlog, as a pure metric, understates the underlying strength in global demand. The reason for this is that there are customer discussions about specific projects and equipment where we are not fully negotiated on price or delivery date. While we know that we will be producing equipment for a given customer, as well as the approximate time of delivery, we don't book these "orders" until we are firm on price.

While we have customers willing to take deliveries into 2009, we have been deferring some of our product pricing and, therefore, backlog until we have proper material and subcontractor supply arrangements in place. Therefore, in the current market environment, backlog has become a somewhat less valuable tool to analyze the demand outlook than in previous times.

Moving to Foodservice, sales increased 13% to $128 million from the second quarter of last year, and operating income increased 26% to $22 million. Higher Foodservice sales reflect solid progress in all three divisions -- Ice, Beverage and Refrigeration -- as well as our 2007 pricing action. Even with higher prices, we remain very competitive because of our value-added features, higher energy efficiency and strong service network.

Margin expansion is coming on the manufacturing floor as we pursued cost take-outs through aggressive supply chain management and better plant operations. Mike Kachmer will give additional details on Foodservice and its outlook later in the call. Overall, we remain on track for our full-year guidance of operating margins in the mid-teen levels.

Marine sales for the quarter totaled $85.5 million, up 36% from a year ago. Operating profit was very strong at $8.5 million, compared to less than $2 million in the second quarter of last year. The higher revenue reflects commercial construction and repair revenues at our Sturgeon Bay yard, as well as continued work on the INLS project for the U.S. Navy.

In addition, our work on the Littoral combat ship, FREEDOM, continues which is being ready for sea trials. Our work on LCS was always viewed as an investment and the opportunity to be part of the Navy's next generation of ship building. While there are many questions to be answered regarding the LCS program, a recent GAO report has reinforced that many of the cost issues on FREEDOM were not tied to shipyard performance. The upcoming sea trials should validate our view that FREEDOM will be well-received by the Navy and her crew.

The operating profit increase at Marine was a function of great performance on our commercial contracts, as well as a winter repair season that continued well into the second quarter. As commercial projects near completion, we can recognize operating profits with a higher degree of confidence that they will be delivered on schedule and within budget. With a commercial backlog of mainly repeat projects that extends well into 2009, we expect continued strong performance for the Marine Group.

On a consolidated basis, Manitowoc had yet another outstanding quarter. Net income nearly doubled from the second quarter of 2006, and EVA through the first six months of 2007 more than doubled, as well. Our cash flow from operations in both quarters of 2007 reflects significant pension contributions and an increase in cash taxes. These two items totaled $75 million in the first half of 2007, yet we remain very confident that we can achieve our full-year cash from operations objective of more than $300 million.

I'll conclude my comments by raising our EPS guidance for 2007 to a pre-split range of $4.70 to $4.90 per share. This new range and our recently increased dividend reflect our positive view of our end-markets and our confidence in continuing to drive manufacturing efficiencies in all of our business segments.

With that, I'll turn the call over to Glen.

Thanks, Carl. Good morning. I've been involved with these quarterly calls since 1998. This is my first call as CEO. As I'll discuss later, the transition in leadership won't bring a lot of strategic changes, but I would like to take a few minutes to introduce the newest members of our executive management team.

I've worked closely with Eric Etchart for several years. When I took my position as President of the Manitowoc Crane Group in 2002, we were in the midst of integrating Potain and Grove acquisitions and working through the trough of a crane cycle. My background as CFO was a good fit for what the job required, and we built a great team that has brought us to where we are today.

Eric's background is a perfect fit for where Manitowoc Crane Group is headed next. Not only do we have a strong global footprint, we just announced a significant acquisition in India. Talk to Eric for five minutes and you know he's international. Not just European, but international. Eric joined us with the Potain acquisition and has headed up our Asia-Pacific operations since 2001. He understands the global dynamic of the industry and the nuances of customer and employee needs around the world.

Mike Kachmer is also the right person to lead Manitowoc Foodservice Group, but for much different reasons. Mike joined us five months ago from Culligan International, where he was Chief Operating Officer. Mike doesn't have a long history in the Foodservice equipment industry, and I think that will be a good thing. This is an industry that has been slow to adopt change, moving more in increments than large steps.

In addition to his background in operations, Mike brings fresh ideas on product involvement, go-to-market strategies, distribution networks and customer service that could be a real opportunities for Manitowoc. We've been very public in saying that Foodservice would be our next growth platform, and I'm confident that Mike is the right person for that job.

As we have in the past, we'll now give some time to a segment President to discuss his business. Mike?

Thanks for that kind introduction, Glen.

In my short time here, I've learned that Manitowoc Foodservice products enjoy one of the best reputations for quality and performance in the industry. And as Glen mentioned, I've also seen that our customers are ready for meaningful changes from the equipment companies.

I've had the good fortune of working for some world-class companies before joining Manitowoc. Each had its own culture and a way of driving performance, and I think that our set of strategic priorities is equal to any one of them. I'll use these to describe what I see in the future for Manitowoc Foodservice.

Like Terry before him, Glen is focused on growing the Company. We have the number one market position in our core segment, which is the North American ice machine market. That position provides us with a great replacement opportunity, but real growth will have to come from new areas. We can grow organically by leveraging our Chinese manufacturing base and by strengthening our position in Europe. We also have the opportunity to add new products or enter new markets through acquisitions, and we will pursue this path aggressively.

Innovation is another path to grow. We're on track to introduce 30 new products this year, with several slated to be unveiled at the NAFEM and NACS trade shows later this year. These new products refresh our lineup and protect our competitive position.

But, innovation can do much more than hold our position. The same process that brought Flex-Tower to the sea store market can be leveraged to create the large step opportunities that Glen mentioned. We have formed an advanced engineering group to focus on how to leverage the best technologies that touch our industry and bring them into our products. Doing that creates a start of a value chain that really separates us from the competition.

One of my first actions here has been to refocus how we deal with our customers. We recently completed a restructuring of the sales and marketing organization that will align more of our resources with the needs of national restaurant chain accounts. The benefits of a strong national chain account relationship are enormous, but building and maintaining that relationship requires a large investment. We're increasing that investment, and there is no reason why we can't generate better performance.

Much work was done prior to my arrival on improving our manufacturing processes, and we have additional opportunities for further operating improvements. Consolidating the refrigeration facilities, streamlining the domestic ice manufacturing, and building a world-class plant in China are keeping Foodservice competitive.

I expect to drive operating margins higher through improved sourcing and supply agreements, additional manufacturing efficiencies, greater SG&A skill and reaping the full benefits of our ERP initiative.

The other way to make excellent products is with excellent people, and we do have excellent people. With the organizational structure now set, we will shift the focus to talent development. We'll need additional people to meet our growth plans, and we'll fill those needs from both within our organization and by infusing new external talent.

Aftermarket support is another area where we can bring significant change. Right now, Manitowoc has a strong relationship with its distributors, independent dealers and technicians, all of whom serve as our advocates with the customer. I think we can redefine service to mean more than a trained technician and a quick replacement part. We have the opportunity to expand what service means, much like the Crane Group did with Crane CARE. To Crane customers, we provide not only training and parts, but real-time diagnostics, financing and remanufacturing. Where it makes sense, we can leverage these concepts to build out that value chain across our food service platform.

All of these factors point to good value creation from Foodservice. It has historically been our highest margin business, although the Crane Group is giving it a good run right now. I think we can recreate some of the success of the Crane Group through acquisitions, international expansion and improved aftermarket support. I am looking forward to working with the entire Foodservice team to accelerate the progress already taking place in this solid business.

Glen?

Thanks, Mike. Mike gave a good review of how our strategic priorities will help shape the direction of the Foodservice Group. As the new CEO, I have no intention of changing our strategic direction just for the sake of change. These priorities serve Terry very well, just as his predecessor Fred Butler used them during his tenure.

In addition to our corporate strategic imperatives, which were noted in our press release, I also rely on five management principles that I've developed over the years. I've learned these from my mentors, and I believe they will help us continue to shape the culture of the Company.

My number one rule is no surprises. I've rarely had a good surprise as a manager, and I bet most investors feel the same way. Rule number two is bad news comes first. Fixing problems takes time, and we need to identify and address small problems as soon as possible before they become bigger issues. My third rule is full disclosure. I won't accept anything less. My fourth rule is know your costs. Carl mentioned this when he talked about Crane backlog, but this concept applies to all of our businesses. Finally, rule number five is do what you say you're going to do. Our strategies and plans are just words if we don't back them up with productive actions and accountability. I hold myself equally accountable to these rules, as any of our shareholders would expect.

This concludes our prepared remarks. So, we'll know turn the call over to [Janelle] for our question and answer session. Janelle?

Thank you. The question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS).

And we'll pause for just a moment. Charlie Brady, BMO Capital Markets.

Hi, thanks. Good morning.

Morning.

Could you guys, just on the Crane side of the business -- and you talked about this last quarter about what you guys are doing for capacity, expansion, and you didn't want to give too many details on that. But, can you provide us sort of any more update on where you are on adding additional Crane capacity, particularly in light of your comments about the underlying strength of the market may be actually being stronger than what's reflected in the backlog?

Good morning, Charlie. When it comes to talking about some of the strategies within the Crane side, you can imagine the combination of what we can do from an outsourcing standpoint to what we're going to do to put fixed costs into the business. So, we're looking around the world saying -- looking at our strategy from a manufacturing standpoint, putting things closer to the customer, not only from a manufacturing, but product support and sales and marketing.

So, when we looked at -- five years ago -- looked at where we thought the markets were going to go and we look at them again today, I think there is a little more strength because of some of the emerging markets that we've talked about in the past. And that's lead us to the direction we're headed, in putting some capital investments in different places around the world.

The capacity that will be brought online or anywhere starting later this year through the middle to the latter part of next year -- and those are all certainly going to increase our ability to bring the -- I guess adhere to some of the demand we see out there, but not necessarily -- I don't think we're ever going to say we're going to get to the peak.

So, when you look at that and you bring it all together, it's a matter of not only us having the capacity, it's the supply chain. It's getting the people on board. There's a whole realm of things that are in there.

But, when you look at it, and then compare that to where our backlog is and say that we're looking at things before we price it, I'm not so sure it's so much as to what we think our internal fixed cost -- if you take that additional capacity, what are your sub-contracting costs? What are your vendor costs? What are your material costs?

And I think when you look at some of the fluctuations we see in steel, for instance, it makes us a little nervous to say that we're going to put a price increase of X for -- in an order and somebody wants it to be in 2009, when we still are looking at and talking to some of our suppliers about what their pricing is going to be for 2008.

But, could you not put -- I'm assuming you put price escalators in your contractual terms to kind of cover you from that?

We do on some of the long-term projects for the Marine side of the business. What gets a little more difficult on the Crane side of the business is you have to have a lot of different price escalators on some different things, and it gets a little more difficult. And as a customer from the inside, it gets to be a competitive environment, or what are we doing to do versus what is the competition going to do.

So, I think it's a matter of when we say that people are ready to give us orders for 2009, that's helpful from where they're predicting where the market's going to go and gives us the ability to be the strength of the market. But, I think people are willing, that we can sit and talk pricing. It's just a matter of we haven't firmed anything up.

Okay. And then, as a follow-up to my question, regarding the acquisition you made recently in India, obviously that gives you a little more manufacturing capacity. Is there -- does that manufacturing capacity allow you to produce product that would go outside the Indian market, or strictly within India?

Good morning. It's Eric. Well, we have a growth that we anticipate in the Indian market. We believe that this facility will be fully devoted to fill the market in India. This acquisition, really, is a milestone for the Company because we see the Indian market growing at a very high pace. The construction sector grew at 15% in 2006, and we anticipate that kind of growth to continue in the long-term. So, to address specifically your questions, we believe this factory will be fully devoted to serving the Indian market.

If I could add one thing to that, though, Charlie, it does open up capacity from our Chinese facility because we currently build kits there and send them to India, so that gives us the additional capacity in China to build capacity that will go around the world.

Will happen on the margin side, too? Now, you'll have to ship them from China to India, so you should get some--.

--Yes.

Yes, okay. Thanks. I'll get back in the queue.

Seth Weber, Banc of America.

Thanks, good morning everybody. Going back to the Crane topic, I mean can you tell us how current is the backlog? In previous calls, you've talked about the backlog being current through two or three quarters. In other words, if I come to you today to order a crawler crane, when would I get it?

And maybe Glen, could you give us an idea -- I mean, it sounds like customers are willing to absorb some price increases here? Is that a fair characterization? And you're just kind of holding off to wait and see what the supply chain looks like, but there is a willingness on the customer side to take some pricing here? And then, I have a follow-up question.

Okay, Seth. Good morning. There's a couple of things there, and I'm going to address the first one on how far the backlog goes out. I think when you look at just the nominal value of it, it's still out that three quarters or in that approximation.

But, what I would say -- now, you asked if you're a customer and you come in, I'm going to tell you that it depends on what region of the world you're in. If you're in North America, you've got to remember most of our business goes through distribution. So, these people that are coming in are working with their local distributors, and those are the ones that are ordering product that's going to go to the end user. Now, if you get into Europe and Asia, there's some distributions, some direct, so you have a combination of what's in there.

So, it depends where you're at and what you're looking for to come in and say when can I get this. If you're in a region or a territory where somebody has already got the equipment, they know it's scheduled from a production standpoint and all through a good portion of 2008, it could be exactly when you need it, so then pricing is a little less of a factor.

But, I think people understand the situation as it is today. I don't think any of our customers are happy about some of the price increases. I think they understand them, but I would say they're not opposed a lot of times to the price increases either because it helps with the use market. It helps with their asset values. It helps in a lot of different areas. And so, they kind of -- if you're in one region, you're still watching what's happening around the world because it does impact the value of your equipment.

Okay. I mean, do you feel like that this is across the industry, that you're not necessarily losing any business, that it's tight everywhere?

Well, I'm not going to say we're not losing some business just because of the long lead times. I think there are some competitors, not necessarily the main ones that you would think of, but I think there is the opportunity for perhaps some of the Chinese manufacturers to sell some of their product in an area that is I would say more of an emerging market than it is your traditional markets. But, I think it does open up that opportunity for someone.

The other one you might see is there could be an area that -- we're not trying to flood any one traditional market or anyplace in particular because it is a global market, but I think in areas where maybe traditionally we've had extremely high market shares, and maybe there's an opportunity again for a competitor to come in. But, I think, overall, we're certainly not losing market shares on a global basis in this upturn.

Okay. And just one follow-up question for Carl. I guess in previous quarters, you've given a Crane revenue forecast. Is there any update to that this quarter?

No. We've increased it throughout the year from 20% plus at the beginning of the year. I've indicated we can probably push it to in excess of 30% this year, but no change.

Okay. Thanks very much, guys.

Nigel Coe, Deutsche Bank.

Hi there, good morning. Glen, you mentioned that problems and issues, top of your list of priorities, and they get dealt with first. Obviously, a great quarter. But, what are the current problems that you're grappling with?

That's a good question, Nigel. I think it comes -- the first one really comes from that customer standpoint, is how do we put some of these initiatives online quicker to get them the equipment that they have or need sooner? I think the biggest thing our sales people and reps will list is where the production is in any one time and the delivery of equipment when it's needed.

I think the other thing that probably keeps us all awake at night, certainly myself, is the market going to continue to improve, or finding that inflection point? Because everybody's curious about when that is. And I think that's where it becomes so important. And I realize we talk about backlog a lot, but there's a lot of other things that we look at from a metrics standpoint. And it's really trying to become as good as we can become at forecasting our businesses through a lot of different areas. And the other things, then, I think when you look at Foodservice, I'd say -- that's Cranes.

When it comes to Foodservice, it's really taking the new organization that Mike has laid out and aggressively pursuing some of the opportunities that he's identified. And then, on the Marine side, it's really expanding and executing on the work we have in front of us and filling up some of the holes as we look out longer term with some of the government and commercial work, pretty much the things Carl talked about.

So, I think it's execution on the Marine side, it's forecasting on the Crane side, and aggressively taking opportunities on the Foodservice side.

Okay. So, these are all good problems to have, I guess. Then, looking at the Crane margin, we've seen a little bit of decline in the conversion margins within Crane. Maybe could you just give a bit more color on is this all due to supply chain inefficiencies perhaps, or is there any element of dilution from geographic mix or maybe even product mix?

Well, Nigel, I guess I'll take that one. As I mentioned on my answer to Seth's question, we certainly increased the expectation for revenue in Cranes as we've gone throughout the year, expecting 20% plus up to now 30% plus percent. At the same time, even at the beginning of the year, we had indicated we expected the incremental margins to drop a bit from where they had been running in 2006, near 30% levels, and tempered those expectations down to the low 20's.

With what we've seen in the market and the reason why we got it down was an expectation that we were going to get nearer and nearer to our capacity, ramping up as we go, trying to take on some of the initiatives that Glen articulated. I think all of that plays into what we have been seeing. And from an outlook perspective, obviously our success in bringing some of those initiatives online is going to determine how we're able to perform going forward.

Great. Thanks, Carl.

Rob McCarthy, Robert W. Baird.

Good morning, guys. This is actually Chris Weltzer in for Rob.

Just turning to the Foodservice Group, you had talked about in the past couple of quarters a large upcoming beverage system rollout. Did any of that hit in the second quarter, or is that all still on the come?

Chris, we've realized some of the benefits associated with refreshed type programs that have existed and taken place in the first half of the year with our beverage customers and their beverage customers. But, we still expect more activity to take place in the second half of the year.

Okay. Sort of quarter of magnitude maybe? Is this a large -- should we expect the same sort of I guess year-over-year comparisons, then, revenue-wise, in the second half of the year?

I would say our earlier guidance on Foodservice top-line was to be able to get to a high single digit increase. And I think you can expect us to certainly push that into a double digit increase, which is certainly not necessarily all just the rollout effect, or the refresh I should say, but some of the other things that Mike talked about earlier, as well.

Okay, that's helpful. And then, going back to the -- if I'm pronouncing this right -- Shirke acquisition, what sort of impact do you expect on your financial results from that acquisition? And what are sort of your longer term plans for maybe moving other types of cranes into their manufacturing capacity or things like that?

Well, Chris, the financial impact at the outset certainly will be modest. As we look at the size of the business today, we're up -- I think we disclosed in our press release about a 350-employee operation. It's not going to be a [C] change from just -- even just looking at the APAC results, let alone the segment in total. Strategically, Shirke is a very important acquisition for us. And Eric, I think, can probably provide a little extra color on that one.

Yes. We believe that acquisition is very critical to continuing our leadership in the tower crane business. Right now, we see the Indian market really being very beneficial to our Cranes. This is driven by, of course, major (inaudible) projects. But, there is a new phenomenal work. Mechanizations of the job site is now coming in a big way, and there is a rush to complete the projects on time. So, the demand for tower cranes now is extremely on the up-rise.

So, as we continue, we have a management team, we have implied, that has been used to work for Potain for the licensing agreement we had. We believe that we will be able to ramp up capacity significantly in the foreseeable future.

Just to give you some sense, Chris, that -- the revenue side of the companies, probably roughly $40 million U.S. with -- and it is a profitable business.

Okay, thank you. That's helpful.

Sarah Thompson, Lehman Brothers.

Hi, good morning. This is actually [Dory Conan] for Sarah Thompson.

I just had a very quick question on working capital. I was just hoping that you could provide us with a little more color on what's going on there. It looks like you were a major user of the cash in the second quarter, and I'm just trying to understand why.

Sure. Dory, the working capital, as we're dealing with some of these supply chain issues, certainly gets stressed with the revenue performance in Crane and making sure that -- given the fact that probably the biggest single challenge that the Company has is on the supply side. We certainly want to make sure that we're meeting our commitments to the best of our ability from a customer perspective. And I think that stresses the working capital. In particular, obviously, I'm talking about the inventory.

The other thing I think to mention there is the pension true-ups that we did. We've been pretty active managers of our pension liability over time, freezing those types of plans into 401K type of plans when we make acquisitions and discontinuing our legacy ones.

And we've taken the opportunity of the current financial success that we've had to really put ourself in a position where any forward variability, from a funding perspective or from a profitability perspective, that might come from pension liability really off the table in matching the investment strategy with the underlying liabilities. And that has put us in a position where we've got about $75 million year-to-date of headwind when you look at the cash from operations. When you look at it from a year-over-year, it looks a little funny in 2007.

I would also add to that, Dory, if I could, certainly when you look at some of the working cap -- and we focus that as an EVA company very highly. And some of the metrics that I watch on a top level -- we have what's called a days in working capital. And we look at DSOs, and DPOs, and inventory turns, and the whole nine yards, and our metrics continue to improve in a lot of those categories.

And so, we feel good about it. We don't feel good that just the number by itself is high. But, I think when you look at the metrics in themselves, they are improving, and that gives us a lot of confidence as we move forward to hit some of those numbers that Carl is talking about in the total cash flow.

So, again -- and just looking at what we have from a cash GAAP standpoint, we're currently at 56 days, which is down from 62 days last year. So, again, we've focused on those, and everybody has their initiatives to get to those numbers that Carl is forecasting for the rest of the year.

Got you. Okay, that's very helpful. Thank you.

Kent Green, Boston American Asset Management.

Yes. You've been most helpful in the past talking about new products, and I think that you had a record number of new products, particularly in the Crane division in Bauma with your new, very much more efficient crane that you've highlighted at your Investor Days. Could you give us an update on, say, orders, new product contributions, that kind of thing, and whether, because of Bauma, this will accelerate in the second half of the year? And what's its current status?

Okay. I will let Carl talk about what's happening in the second half of the year from a top-line standpoint. But, what I would say is we're a little hesitant to talk about the numbers of products that we sell, especially when they're the large magnitudes of some of the cranes you did see at Bauma.

But, I think it's fair to say that we are extremely pleased with the number of units that we're selling on the new products that you saw at Bauma. And I'm not just talking about the GTK. That's the one everybody's saw. But, when you look at the 14000, you look at the tower cranes we had there, the idle range, you look at the GMKs that we had there, we're extremely happy with all the forward-looking sales that we have there. And those are going to be baked into all the numbers.

And I would say, at the same time, you look at the things that are happening in Foodservice. We are coming out, as Mike said, with nearly 30 new products this year. And again, I think it just goes to show that new product introductions, innovation, couple that with our aftermarket support, those are really two core competencies and strategic comparatives that we focus on quite a bit, and are basically ones that have stayed with this Company for a long time.

And Kent, from just a financial perspective, I think all of that certainly plays into the very strong guidance that we're giving from a top-line perspective, in excess of 30% revenue growth in Cranes. Obviously, the markets are good across the board.

But, a lot of that, our ability to maintain the market leadership position is driven by new products, and maintaining and growing our share positions. And certainly, that is the story in the Foodservice, as we've already talked about.

Just a brief follow-up question. People have limited the Company's margins just (inaudible) from the low teens in Cranes. And then, in the Foodservices, you've always had pretty high margins there. The new products, will this help you to maintain or increase those margins in the future?

Kent, we do have a good track record of having new product launches. Certainly, we, like anybody else, probably have a few duds out there. But, overall, our track record over a long period of time, in having new product introductions be additive to margins, is a good track record.

Joel Tiss, Lehman Brothers.

Hey, guys. Most of them have been answered. Just two quick cleanups. Have you guys updated your Crane margin guidance longer-term? Because I know, well, last time I remember sort of 12-ish, and you're way beyond that.

Joel, we have not given a -- I think that 12 number was legacy back to the trough level, when we were looking at what we expected the current up-cycle to be. We have not put any new long-term metrics, other than just the 2007 expectation that we can now hit a mid-teen margin level in Crane.

Okay. And the other one is can you just talk a little bit about the prices for acquisitions? There are obviously a lot of things in the paper everyday. And I just wondered, out there in the world, what you're seeing, and if you're maybe a little more optimistic that you'll be able to find more things like your Indian acquisition and maybe some other stuff? Thank you.

Joel, good morning. I think it varies on the price of acquisitions. I think you know better than a lot of people in our organization that there's a lot of money around the world right now chasing good assets. So, a lot of times, you can -- we try to go in and do the best we can in a privately negotiated deal. And sometimes, you get into something that might be a little more public or whatnot. I think it tends to raise the bar.

So, there are opportunities, like India, around the world. And I think when you look at our global footprint, we have a very active group of people that realize where we're at, how people grow their businesses, and there's always that kind of dialogue. So, there's always a pipeline of information for us.

But, I think it ranges anywhere from nice little niche business -- I'll talk about the -- we did the shuttle lift business earlier this year. You do something like that, or Shirke, and then there's other large ones that you read about in the press all the time. As most recently, it could be Ingersoll Rand or Bobcat. So, I mean, it really is a wide range of prices that you're looking at.

Okay, thank you.

Joel, if I can, also, just since you got on the subject of acquisitions, I probably should update on the impact, and this will be the last update, for the McCann's acquisition that we did in the second quarter last year. That was additive to the top-line for food service of about $4 million, and to the operating profit line of about $1 million.

Okay, thank you very much.

Charlie Brady, BMO Capital Markets.

Hi, thanks. Just on the Marine segment and your commentary about the extended winter repair season and sort of the margin performance there that you saw, it's a pretty good doubt there, just from what you had on first quarter, when you had a strong winter season.

I'm just wondering, sort of embedded in that margin performance, which is the best you've had in about five years, I think, going forward into the second half, as we're modeling out the second half, what expectations should be sort of on a margin? I would expect that we don't have that strength of the winter repair season, so we have some sort of decline sequentially, but -- sort of the magnitude. Is there something embedded within that business that's changed, that brings the overall margin in sort of off-season higher than it might otherwise have been previously?

Well, certainly, in the second quarter, we did indicate that we did have pretty good performance and benefit from the commercial yard project work that we had been doing. And as you get to the final stages of -- or later in the delivery schedules for those projects, you get the clarity and the confidence that the margin levels -- and in any discrete period of time, that certainly can help you.

Just overall, for the Marine segment, I think at the beginning of the year, we guided to a mid to high teen operating margin, expectation. And certainly, given where we are year-to-date, I think we could probably err closer to the higher single digit. Excuse me, I said mid-teen. I beg your pardon. I meant mid to high single digit. Certainly, have an expectation now that we'd be to the higher end of that range.

But, I'd also mention that, obviously, in late 2006, we had a pretty significant work going on the LCS project. That is -- and we have an expectation that that -- in the beginning of the year, had an expectation that that certainly would be tempered in the back half of this year. And that brings you closer to that expectation that we had for flattish revenue year-over-year this year over last year in Marine.

Thanks, that helps.

And at this time, we have one question remaining in the queue. (OPERATOR INSTRUCTIONS). Kent Green, Boston American Asset Management.

Yes. Littoral Combat Ship, since we're talking about Marine, has that total project been an expensive project to you so far? And use of the Marine project, such as this or government projects, are -- people have tried to break even on -- or lose money, as less money as possible on the first shipment, to get it to full production of it.

Yes, Kent. Expensive, obviously, is different things to different people. Obviously, you do have, on any first-of-class vessel, learning curve issues and efficiencies that you have to get over. We also had the unusual circumstance in the instance of LCS of a -- really being in kind of a design/build mode for that vessel, which is additive to costs, as well, as you've seen in a lot of press reports.

So, I guess, in my mind, the LCS has been an expensive project for those reasons. We do have a cost plus structure in place for the LCS. It's a prototype. And certainly, wanted to make sure that we were not exposed to getting into a loss position in that type of a first-of-kind prototype project.

But, you're right. When you look at the long-term opportunities for LCS, being 55 vessels by many reports, when you get into the second and third, and you're not in a design/build mode and the efficiencies that you gain in that environment, certainly are all the things that we were attracted to when we looked at the opportunity.

I've talked a lot about it, and maybe Bob's got some comments, as well.

Yes. I think Carl hit on the most important thing, that it is a cost plus structure. And so, despite the fact that it has been expensive in terms of occupying our yard for a longer period than we had originally anticipated, it still has that longer term potential.

And the Navy, every flag officer, every high-ranking naval official that we've run through the yard to see the ship, has come away praising the workmanship and the quality of the vessel. So, I -- and the program, as to the Navy's long-term plan, still is quite viable.

And I'm showing we have time for one more question. Seth Weber, Banc of America.

Thanks. Carl, I guess you guys raised your dividend recently for the first time since I can remember. And so, given the financial performance here -- and this is turning into a pretty strong and emerging free cash flow story -- can you maybe just give us your view on, outside of acquisitions, how you see capital deployment or allocation?

Sure. The -- obviously, it's a -- to your point, it's been a very long time since we've changed the cash dividend. We've always adjusted it to the split price when we've done splits, historically, and chose to do a modest increase in this instance. So, that obviously is kind of a change from what we've done historically. But, we're a lot different company than we used to be from a size, cash flow expectation, etc.

The ramp up that we're seeing in Cranes is certainly extending some resources. We talked about that a little bit on the last call and this call, as far as bringing on additional capacity and making sure that we're able to exploit as much of this current up-cycle as possible, and get through some of the capacity constraints that we're enduring right now in some of the product lines, in some of the regions.

The other thing that's key, and we've talked about it many times, is the growth imperative that we have in Foodservice, the other growth -- what we view as the growth vehicle outside of Cranes. There's myriad opportunities for us, from an organic standpoint, but then, also, an expectation that we're going to have some success in making some investments in Foodservice to round out both the product array that we have there, as well the geographic scope of that business.

Okay. Thanks very much, guys.

And this concludes the question and answer session today. At this time, Mr. Khail, I'll turn it back over to you for any additional or closing remarks.

Before we conclude today's call, I'd like to remind everyone that a replay of our call will be available beginning at 1:00 p.m. Eastern Time today until 1:00 a.m. Eastern Time on August 7th. The number to dial for the replay is area code (719)457-0820. Please use confirmation code 6740627. 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.

And this does conclude today's conference. Again, we thank you for joining, and have a great day.