Manitowoc Company Inc (MTW) 2007 Q3 法說會逐字稿

Good day, everyone. And welcome to this Manitowoc Company, Incorporated, Third-quarter earnings release conference call. Just a reminder, today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Steve Khail, Director of IR. Please go ahead, sir.

Good morning, everyone. And thank you for joining our third-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 Eric Etchart, President of Manitowoc Crane Group.

Carl will open today's call with a brief review of the quarter. Eric will share his thoughts on the crane industry and the Company's perspectives on the global lifting industry. And Glen will conclude with comments on the strategic direction of the Company. This group will be joined by Mike Kachmer, 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 1 p.m. Eastern Time today until 1 a.m. Eastern Time on November 8th. The number to dial for the replay is area code (719) 457-0820. Please use confirmation code 6147645. You may also access an archived version of this call by visiting the Investor Relations section of our corporate website at www.manitowoc.com.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'd like to review our Safe Harbor statement. This call is taking place on November 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 each speaker's remarks and during our question and answer session. Such comments are based on the Company's current assessment of its markets and other factors that affect our business. Actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission, including, but not limited to, the Company's annual report on Form 10-K for the year ended December 31, 2006.

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

Thanks, Steve, and good morning, everyone. Yesterday, we reported third-quarter 2007 net sales of just over $1 billion, a 29% increase over the third quarter of 2006. We also reported net earnings for the quarter of $75.9 million, or $0.59 per diluted share, compared with net earnings of $50.4 million, or $0.40 per diluted share, for the same period last year. All per share amounts in our comments reflect the two-for-one stock split that became effective in mid-September.

Our reported net earnings for the third 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 $0.65, an increase of nearly 59% 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.

The sequential reduction in third-quarter earnings compared to second quarter was largely driven by the nonrecurring nature of three factors that combined to add $0.09 to our second-quarter continuing operations. Last quarter's EPS benefit came from realization of certain tax credits, past due receivable collections, and the favorable impact of foreign currency.

Turning to the segment results, crane segment sales for the quarter were $812 million, an increase of 39% from the third quarter last year, and the 26th consecutive quarter of year-over-year improvement. Operating earnings were $112.3 million, up 48%, resulting in an operating margin of 13.8% compared to 13% a year ago. Our operating margin declined as expected from the prior quarter, due primarily to the impact of European summer holiday shutdowns as well as the nonrecurring nature of previously mentioned items.

Margin headwind was also experienced due to two other factors, cost impact from ramping up production at near-capacity levels, as well as outsourcing costs. We continue to expect our full-year operating margin to be in the mid-teens range.

Crane backlog at September 30th totaled $2.7 billion, up 28% from the prior quarter and up nearly 100% from a year ago. Consistent with the past several quarters, crane backlog growth was strong across all of our geographic markets and in virtually all product categories.

Last quarter, we discussed the relevance of backlog as a tool in predicting growth patterns. I think the best way to view this quarter's increase in backlog is that cost visibility improved, allowing us to commit to contract terms and place a significant number of orders into the backlog. We would continue to advise that backlog is just one metric of the current state of the crane cycle and one that has inherent short-term volatility. Eric will discuss the broader issues of global demand and the outlook for continued order flow in his comments.

Moving to foodservice, sales declined 1% to $113 million from the third quarter last year and operating income decreased nearly 4% to $17.9 million. The decline in sales and profitability was primarily driven by two factors.

With weather being marginally cooler in many of our large markets during the third quarter of 2007 compared to the same period a year ago, demand for replacement ice-making equipment was reduced. With an installed base of ice machines that accounts for a sizable share of the total U.S. market, a small drop in replacement demand can have a meaningful effect on our ice business.

The second factor dampening sales and profitability within our foodservice segment was reduced capital spending by many chain accounts during the third quarter as a result of lower sales and profitability during the second quarter of 2007.

The weaker demand for ice equipment was partially offset by solid performance at our other two foodservice businesses. Beverage continues to reap the benefits of a strong new product development program and is well positioned to participate in a national equipment refresh program that is expected to begin in 2008. Operations at refrigeration are continuing to show the benefits of manufacturing efficiency gains as operating margins in that division were better than a year ago.

Marine sales for the quarter totaled $81 million, essentially identical with the revenue level we achieved in the third quarter of 2006. Operating profit more than doubled to $6.4 million from $2.4 million in the third quarter last year. The higher profits were primarily driven by outstanding performance at our Sturgeon Bay yard, which focuses on commercial ship construction and Great Lakes ship repair work.

Much of the current workload at Sturgeon Bay is focused on OPA-90 tank barge construction, and many of these vessels are repeat projects using common designs. This type of work lends itself to steadily improving man-hour efficiencies, which was reflected in the accelerated deliveries of several tank barges this year. With a solid backlog of OPA-90 vessels, we expect that Sturgeon Bay will continue to be a good performer.

Our Marinette Marine yard is focused on completing Freedom, the nation's first littoral combat ship. Through the various testing underway in preparation for sea trials later this year, Marinette's performance on Freedom has been routinely singled out for praise from the Navy. We value our relationship with the government and look forward to delivering not only Freedom but the INLS Docking System and the Response Boat-Medium programs in the coming years.

Total enterprise financial performance was also strong. Net income from continuing operations increased more than 55% and benefited not only from the strong operating performance described earlier but reduced interest cost and lower corporate expenses. All of these factors also impacted our EVA performance, which has increased more than 76% from last year.

One aspect of EVA is that it measures the effectiveness of capital expenditures. CapEx through September 30th totaled $57 million and we expect to reach a full-year 2007 CapEx level of over $80 million. Although plans for 2008 have not been finalized, we expect continued CapEx investment will be targeted primarily at enhancing manufacturing capacity within the crane segment.

Eric will discuss the market drivers for our expansion program. And we expect the competitive benefits of improved delivery schedules and increased production throughput to provide an excellent payback.

I'll conclude my comments by increasing our EPS guidance for 2007 to a new range of $2.45 to $2.50 per share before special items. Correspondingly, our full-year guidance on a GAAP basis is $2.40 to $2.45 per share. We also expect to announce our preliminary 2008 earnings guidance before the end of this year.

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

Thanks, Carl. Our outstanding performance this quarter is greatly tied to the crane segment. We believe in the value that our diversified product portfolio brings to the shareholder. And our early investments in Potain and Grove are paying big dividends now. Because of the importance of cranes to our near-term results, I've asked Eric Etchart to provide an update on our latest developments in the lifting industry. Eric is joining us by telephone from Shanghai. Eric?

Thanks, Glen. Good morning, everyone. These are great times for the crane business, not only here in Asia, but in the U.S., Europe, and high-growth emerging markets as well. Even though my new home is now in Manitowoc, I'll still be spending plenty of time traveling.

As Carl described, the performance of the crane group continues to be outstanding. Our products and services are in high demand. And we are supporting our customers around the world.

The good news is that I believe it will get even better. Based on what we are seeing and hearing from customers in our established regions and in new markets, demand for lifting equipment, especially non-residential applications, remains very strong for at least the next two years.

We are in great position to remain global leaders in this industry. And this is why we are making increased investments across our product portfolio and in both our traditional geographic markets and in emerging high-growth markets as well.

In North America, we are adding more than 55,000 square feet to our crawler crane facility in Manitowoc to increase production. We are expanding our final assembly and painting capacity as well as adding equipment [that'll allow us to] bring work back in house that was previously handled by subcontractors.

We are also reengineering our machining facility in nearby Port Washington. When finished, Port Washington will produce large structural components for several models of our crawler cranes. That will free up and optimize even more space at our primary crawler crane facility in Manitowoc.

We are also investing in our Shady Grove facility to streamline operations and to improve production of our boom trucks and mobile telescopic crane lines. These are important investments because the U.S. is one of the world's major lifting markets and it is important for us to remain number one in North America.

I should also note that our exposure to the U.S. residential construction market remains very limited. The recent downturn in that market has not had a meaningful impact on our business, nor do we expect it to do so.

We are also expanding our capacity in Europe. We announced our plans to build a tower crane facility in Slovakia that will be in production in early 2008. This new plant does two things for us. First, it gives us additional flexibility to balance production between our four European plants and the new Slovakia factory.

Second, it also puts us closer to key customers in Eastern Europe to reduce delivery cost, enhance delivery times, and better serve the users of our cranes. Russia has become an important market. And this new plant will help us serve customers in that region.

We've also opened a new plant in Portugal that leverages the same strategy in Western Europe. Demand for tower cranes is very brisk in Western Europe, where they are the preferred lift solution. The new Portuguese plant will not only support our French tower cranes factories but will help to accelerate delivery times, maintain our quality standards, and deliver more value to our customers.

Our other expansion project is in India, which is one of the world's great emerging construction markets. We acquired Shirke Construction Equipment, the Potain licensee for over 30 years and consistently the number one tower crane manufacturer in this country. This acquisition gives us an Indian presence and a leadership position in a large and growing construction market, plus a brand-new production facility built by the former owners, where we are ramping up capacity to respond to the bullish demand for tower cranes in India.

The long-term outlook for infrastructure and complex industrial construction in the markets I just mentioned, as well as in other emerging high-growth areas, is reflected in our comments that demand will remain strong at least through the end of this decade.

We are well positioned in all the world's growing markets. To meet demand, we will continue to streamline our manufacturing operations. However, we have limited ability to meet increased demand from improvements in our existing capacity. We have continually invested in our global capacity as warranted given our market outlook throughout this current cycle. The investments we are making today reflect our expectation that the medium-term market trend will continue to be very strong.

There are three other factors in the industry that are a subject of concern among investors and I'd like to share our views on these issues. The first is competition from new markets, primarily China. Having been in China for more than 20 years, Manitowoc knows that the Chinese can be capable manufacturers. We've seen Chinese companies bring a variety of cranes to the marketplace.

However, we also understand that most customers want more than just a crane. They want total delivered value. These customers need the support of an established dealer network and a manufacturer with a commitment to global support.

Our global leadership position and our investment in Crane CARE meets both of those needs and creates a unique business proposition from the Crane Group at Manitowoc. In time, new competitors will try to emulate and match our quality, but not without a significant investment and a proven track record earned by years of delivering value to our customers.

The second issue facing our industry is people. Global demand for skilled engineers and technicians is draining the industry's talent pool and these people are difficult to replace. Manitowoc has a real advantage because we can share the knowledge of our crawler, tower and mobile hydraulic technologies on a global basis. We have a structured program to share best practices across all our products and markets to create the best team in the industry.

This deep base of technical skills lets us excel in new product development. In 2007, we will have introduced 17 new models of lifting equipment, including the most innovative crane in the industry, the GTK1100. We introduced the GTK at Bauma and it earned the top innovation award at the show. It is a uniquely innovative crane that we believe could only have come from an industry leader like Manitowoc.

The third issue I'll mention is the continuing shortage of imported materials and components. This has been a challenge for several quarters. And our global sourcing teams have been very productive in identifying and qualifying suppliers before a crisis develops.

As Carl mentioned earlier, our ability to place customer orders into the backlog is highly dependent on the work of these teams to give us firm commitments on the delivery and pricing of materials. I think our growth in backlog says as much about the work our sourcing people have done as it does about the strength of the global crane market. In a word, they are both excellent.

That concludes my remarks. I'll turn the call back over to Glen.

Eric, we appreciate your efforts to join us from Shanghai. Your being on the other side of the globe reinforces the importance of our global footprint in cranes and how that will be a key to our future growth.

Eric described the global investments we're making in supporting our growth, which is one of the Company's top strategic imperatives. We believe that the demand for lifting equipment in the emerging markets alone could eventually support a base of business that is equal to the size of our crane group immediately after the Potain and Grove acquisitions. We would have little chance to win that business without the global investments we're making around the world.

Of course, a fundamental way to win business is to anticipate customers' needs and give them the products they want. We've developed new products to capitalize on growing demand for wind power and changing consumer taste for beverages. In both of those cases, we were first to market with unique products that capitalize on our established brand leadership. These initiatives will enable us to introduce 17 new crane products and 30 new foodservice products this year as well as delivering a record number of vessels within our marine segment.

Anticipating customer needs is one way to build market share. And another way is to simply ask the customer. Our businesses rely on the voice-of-the-customer approach to better understand what the market really wants.

For example, many of our foodservice customers are bottlers and restaurant chains. Asking them to participate at the front end of the new product development process lets us understand what they truly expect. We couldn't attain that level of end user insight on our own. And voice of the customer enables us to develop products like Ice Pick, which lets fountain beverage customers choose between cubed and crushed ice. Ice Pick is the only product of its type delivering this choice in the industry.

We're a manufacturing company so excellence in operations must be a strategic imperative. This quarter, we saw notable benefits of manufacturing process improvement at two of our manufacturing sites -- the Parsons, Tennessee, refrigeration facility, and our Sturgeon Bay shipyard. At both locations, teams worked to streamline workflow and eliminate wasted labor and materials. As a result of these initiatives, manufacturing efficiency improves and we experienced more demand because high efficiency also means higher quality.

Every company needs trained and motivated people to be successful. Eric mentioned how our global network of crane experts share knowledge and best practices to create a competitive advantage. We use that same philosophy in all of our regions, sharing ideas through advanced leadership training, and partnering with colleges and trade schools to attract top talent.

Aftermarket support is a key element of the value proposition for Manitowoc Crane Group. Our newest crane facility in Portugal was designed to include a Crane CARE presence because it's hard to separate manufacturing from support. Today, being close to the customer means shorter lead times and better aftermarket service. We stand ready to serve both of these critical needs.

Our final strategic imperative is value creation. And once again, all three of our segments were positive contributors to EVA. We'll continue to make investments in our business to support future internal and external growth. Over the long term, this investment strategy should continue to provide strong returns to the shareholder.

With that, I'll now turn the call over to Lisa for questions and answers. Lisa?

(OPERATOR INSTRUCTIONS) Our first question today comes from Seth Weber, Banc of America Securities.

Hi. Thanks. Good morning, everybody. Just first a clarification, Carl, how much of the second-quarter items that you referenced fell into the crane income in that quarter?

We had the currency issue and the customer receivable issue were both solely attributable to cranes.

So all that was in crane?

Right.

Okay. And so then my question is what do you think on the crane business is a reasonable target incremental margin for that segment? And when do you think that would occur?

And I guess as a follow up, how will this initial rollout of new capacity affect that? Will there be kind of a ramp-up period where margins are lower initially? Or will they just be -- kind of come in at Company margin?

And can you give us an idea of how much capacity that new -- as a percentage -- how much the new capacity will add to your production? Thank you.

Seth, on the margin questions, certainly when we looked at it at the beginning of the year, we put an expectation out that full-year 2007 we should be able to experience about in the low-20% incremental margin.

As we've gone through the year and seen the tremendous growth in the top line and the production throughput and getting nearer to our capacity levels sooner than we expected to, that has created some headwind on that front. And I think the notion of our being able to get through -- get all the way to a 20% incremental now in 2007 is certainly compromised.

Looking forward, I think you have to stay tuned on what we think the effect of the capacity might be relative to the incremental margin question in 2008 and the out years.

But I would say that initially, obviously, there's a ramp up that occurs. And it actually creates some headwind on the cost side, just from a production efficiency standpoint as you're going through a lot of these projects to get the facilities to the greater capacity levels. And once you get through that, obviously, you see benefits from both the top line and a profitability perspective.

Seth, I just want to touch on the capacity and margin a little bit. When you look at the projects that are taking place with respect to cranes, let's take, for instance, India. By the time we get to the end of the year, India rolls in and has a much greater impact on an annual basis than some of the things we're doing in, let's say, Shady Grove or Manitowoc because those will be in place mid to late 2008.

You take, for instance, Slovakia. That's going to ramp up during the year because that will all be in place by the end of the year. But then it's a matter of the startup and the efficiencies as we gain experience through the year. So you have a blending of all that.

At the same time, I would tell you that knowing that we are in a cyclical business, some of the things that we're looking at -- and this is what's impacting the margins in the third quarter -- as we try to gain that capacity, and we talk about outsourcing, I think people want to believe that we're just outsourcing an entire crane of whatever model it is. And that's simply not true.

What we're doing is we're getting the efficiencies in the factories through additional output. And then with that additional output, there's certain components we go to the outside to have done. And the more we put to the outside, that cost is getting a little bit greater each time we go to the outside.

And if you heard Carl's and Eric's remarks, at some point in time, when we can bring that back in house, our costs in house are certainly better than what we're getting on the outside. And that's where you're going to get again some more incremental margins.

So I think, as Carl said, you have to stay tuned a little bit as we kind of put that all together. But we have to blend our forecasting model. We have to blend our operational model and put it all together before we go out with any prediction. But all those things that we're doing put it in place to gather the efficiencies and the financial gains that shareholders would expect.

And one other comment there, Seth, is I think our track record is quite good as we look at the evaluations to go through these investments as far as our ability to recapture the cost and get the return on invested capital in a pretty quick turnaround time.

Right. So just so I understand, so India comes on line at the end of this year, Shady Grove and Manitowoc mid '08, and Slovakia by the end of '08. Is that fair?

No, no. India will be -- India is already in place. It'll be part of our certainly fourth-quarter numbers. Slovakia not much in '07, but certainly, you'll see it starting in January of '08. So we have a full year of it. It's just a ramp up of the efficiencies. And then you're correct on the Shady Grove and Manitowoc. It's more mid to late year.

Okay. I mean, so is it possible just to put a number around what incremental production for '08 over '07 you'll be able to bring in house and what these four projects, three or four projects, will give you?

Yes, I think we'll provide a little color on that when we, before the end of the year, provide some guidance for 2008.

Okay. Thanks, guys.

Up next, you'll hear from Charlie Brady, BMO Capital Markets.

Thanks. Good morning. On the foodservice side and national refresh program, can you just maybe talk a little bit about the pushout in that and sort of what you're hearing and what your confidence level is that in fact that when we get into '08 that it's not going to get pushed out again?

Charlie, I'm going to let Mike handle that question.

Charlie, we still feel very positive about the program that's unfolding with a major customer. I would offer that I think they're just being very cautious and careful to make sure that all elements of the systems that will be deployed through the refresh programs are absolutely ready to go. We feel within our own organization, the components that we're participating in, that we're ready today. So again, it's a timing issue, really no more, no less.

Thank you.

And our next question today will come from Joel Tiss, Lehman Brothers.

Good morning. How you doing?

Hi, Joel.

Hi, Joel. How are you?

Just two clarifications -- one, maybe you're going to laugh at me. Would you consider 14%, is that mid teens? Or is that still low teens?

I would consider that mid teens. I would range mid-teen characterization to be in the 14 to 17-plus area. And beyond that would be a high teen in my jargon, Joel.

Okay. And also, based on sort of the very bullish couple sentences in the press release and what we heard today, could we infer that -- I know you guys only give us backlog based on the next 12 months. But could we infer that you're getting inquiries from customers into 2010?

Joel, I haven't heard the 2010 number. I know talk in the industry, it's just talk. But people are -- what I get encouraged about is we've got our customers thinking out into 2009, which I think is a little different situation than we ever had before. A lot of the customers are actually doing, I think, a little bit better planning as they look out at what their order board is longer term.

But there's a lot of long lead time projects out there. And customers are not afraid to talk about past 2008 and go into 2009. But yes, I think when you look at the projects that are onboard and the confidence people have, they're not ordering or doing anything like that into that period you're talking about, but they certainly are discussing it.

Okay. And then my question is just easily can you talk a little bit about pricing and cost, maybe over the next couple of quarters, just generalizing what things look like? Thank you.

I would say, Joel, the cost environment for us, and particularly in cranes, is a challenge. I think you look at all the industry data out there on steel, and there's a lot of bullish expectations for what that will mean.

I think for Manitowoc, we've done a pretty good job of getting the pricing that's necessary for us to be able to recapture those costs. But we would expect, for the categories of steel in particular that we use, continued increases.

Okay. Thank you.

Our next question today comes from Chris Weltzer, Robert W. Baird.

Morning, guys.

Hi, Chris.

I just wanted to clarify a comment you made earlier that some orders were pulled in due to greater pricing visibility. Are you trying to say that there was an extra slug of orders this quarter just because of pricing visibility, not related to demand levels?

I would say that that's a dynamic that on the margin when you just look at backlog as a single metric, Chris, that that factor can be effect on both ends of the equation.

In other words, looking at a modest growth in the backlog could be as much due to just trying to get some clarification on pricing. And there certainly would be instances when that can go the other way, where we do get some of that clarity in place, sufficient for us to firm up some orders. And you could see some -- I don't know -- this isn't the best word to use -- but call it unnatural increases in the backlog.

Okay. So the strong backlog number does reflect really strong demand essentially.

That's true.

That's right.

Okay. And then I was sort of struck by a comment in the press release that North American and European crane market continued to perform as expected. Could you just give us a little detail about what as expected means at this point in the cycle?

Eric, do you want to talk about the market?

Yes, I mean, as far as the U.S. market is concerned, obviously, our products have little exposure to the housing market. So we do not expect to suffer heavily from what happened. And in actual fact, we don't. However, when you look at the level of projects for energy, mining, and power and bridges, the demand is quite bullish. So this is why we say this is what we expected.

As far as Europe is concerned, the European market continues overall to be trending in the right directions and demand being very good. We see contrasting areas. Southern Europe tends to slow down because definitely the construction market has been over-booming in countries like Spain. But we see Western Europe and other markets in Europe, Northern Europe, growing. So basically, overall, this is what was expected, continuous growth in the demand of cranes.

Thank you.

Deutsche Bank, Nigel Coe has the next question.

Thanks. Good morning. Just a quick question on the production capacity increases, I think you called out the expansion in I think Manitowoc with 55,000 square feet. But if you add up all of the four facilities, how much are you actually adding to your production capacity in terms of square footage?

I would say that there isn't a lot in terms of brick and mortar per se when we're looking at a lot of the capacity increase initiatives that we have in place. A lot of them would be more on the equipment and tooling side.

And then there's the -- we did mention the Slovakian facility, which is a brownfield we expect to get online next year. And then the acquisition we made in India we would put in the general category of capacity increase as well.

Okay. All right. And then just a bit more color on the geographic mix of maybe revenues and orders. The last time I saw pie charts, North America and Europe still accounted for the vast bulk of revenues. Obviously, emerging markets account for an increasing portion of that.

Can you just give some sense on where emerging markets are right now? And maybe in terms of the backlog, how much would be mature markets versus emerging markets?

Well, some of the commentary that we had, Nigel, in the script that characterized it as seeing visibility and relatively near-term outlook that we would be seeing contributions from the emerging markets at a size level that is as large as the crane segment was right after we did the Potain and Grove. That's closing in on $1 billion out of the emerging market. And again, that's -- we've got some pretty good visibility that that certainly will be achieved.

All right. And that's on revenues? Or that's on backlog?

That's on revenues.

Revenues.

That's annual revenue metric.

Okay. Great. And then just a quick one on free cash flow -- if you make your operating cash flow targets, you'd be net cash profit by the end of the year. Can you just make some comments on how you're thinking about that?

Obviously, you've seen some of the debt reduction that we've done. We've been very vocal relative to our strategic views in both cranes and foodservice that we view both of those as growth platforms and view the marine segment as simply one that we need to optimize within the capacity levels that we have in that business, not a real candidate for external growth.

We've certainly talked about a lot of the capacity increases that we're bringing online that will create investments for us over time. And then there's an acquisition sandbox, if you will, that we would be looking at in both foodservice and cranes that would be fulfilled -- utilized to fulfill some of the product voids that we have in those two segments, product and geographic voids.

Okay. And how's the M&A backlog looking right now?

I think the general environment you might characterize it as somewhat improved from where it was. I think as much as some of the tumult in the financing markets that may have created some effect on economies generally, I think it maybe incrementally improved the landscape in the M&A realm for strategic buyers.

Okay. Thanks.

Up next, we'll hear from Steve Volkmann, J.P. Morgan.

Hi, guys.

Hi, Steve.

Just a couple of clarifications if we could. Just to clarify on the backlog issue, if we had a little bit extra per se in this quarter just to be real clear, is it reasonable to assume that the next quarter backlog growth might not be quite as impressive?

I think, Steve, maybe is going to be my answer to that. What you have a lot of times at the end of the year is as we're looking at what our 2008 capacities are going to be, we're working with our customers in every one of their product lines. And they're finalizing their capital expenditures for the following year. You get a little bit of that ramp up.

But I think at the same time you get people that maybe as every quarter rolls off, we're trying to get people to look out, as we just talked about earlier, trying to get people to look out 12, 15, 18 quarters. And if we can get a better dynamic with our customers, I think what you're seeing is a little bit of change in how this goes about.

And certainly, Larry Weyers in the Americas, Philippe Cohet in Europe are trying to work with their people closer and closer to say, hey, if we had these capacity issues and we're putting these things in place, you can see what happens if you're not planning with us in doing these things.

And Steve, just made a note -- I may have said 12 to 18 quarters. I meant 12 to 18 months, so apologize for that.

Well, we'll work up to 12 to 18 quarters. Good. I'm just remembering that your fourth-quarter backlog number last year was a little light and sort of spooked the market. And I don't disagree that it's a chunky number. We probably pay more attention than we should. But to the extent we can avoid surprising people, that's obviously helpful.

I think one of the key things on backlog, Steve, is that it is, as you've characterized it, chunky. It can be in the short term. But in the intermediate term, I think it's been pretty much in line when you look at the revenue growth of the Company, it's kind of followed that trend.

Great. And then just kind of back to -- somebody else asked this, Glen. But you had said something about traditional lifting markets, you're quoted in the release, performing as expected. And when I go back to previous cycles, it appears to me that if things kind of go as previous, in North American anyway, that we ought to be thinking about 2009 as kind of a peaky time just based on how the cycles have worked.

And I don't know. Obviously, I certainly don't want to put words in your mouth. But would you disagree with that?

It's hard to disagree with you, Steve. But what I will say --

My wife has no trouble.

What I would say is that we look at -- I think the comment is more very short term when we say as expected. But I think what's happening is, if you go back and look at the traditional North America or European markets, you're going to see a ten-year trend.

The question you have for yourself is, if those markets continue to work as they always have, you want to -- the biggest question is when that cycle goes down, is it a steep cycle? Is it a gradual cycle?

But I think there's a little bit of a dynamic playing in the market today that we didn't have. And, well, we had it in the end of the '90s with -- we were talking about a lot of power things. But you're looking at the energy markets here alone in North America. And you're looking at alternative energies. You're looking at the infrastructure market.

All of these things and the long-term projects we have in place, when you hear some of your customers talking about the rentals they have for two- and three-year rentals versus what it used to be is three or six months. I just saw something from one of the -- a report that came out that North America utilization on the crane side is 85%. That's huge.

And now you're starting to talk about -- there was an article in yesterday's Chicago paper. And I'm sure it was other places. I just happened to be there. It talked about the TVA with putting in now applications for nuclear down in Alabama. You go back to the '70s and things when the -- that markets were abounding, those used a lot of cranes.

So I think we're still watching the market. And I'm not going to buck the trends because I want to watch it very closely. But is the slowdown 2009, 2010? I think when we look at a lot of the things that we're talking about, especially on the higher end of the market, the larger capacity cranes, whether it be the larger RTs, the larger mobiles, the larger towers, we still feel pretty good about what's going on in Western Europe and North America. And I speak to those being the largest markets that we have.

And I think you have to continue to look at that lag effect that we typically have in our crane industry versus some of the other industries. That's still playing into our hand as we look out.

Okay. Great. And then just a final, Glen, Terry talked quite a bit about sort of more balancing his strategic platforms a little better, obviously, with respect to crane and food. And that seemed to be pretty important to him. And I think the last time I remember the charts you guys showed in terms of where you have holes in your product line, there were obviously lots more holes on the food side than on the crane side.

And can you just give us a sense of your priority in terms of adding additional businesses, I'm assuming by acquisition, and whether we ought to be looking sort of more to one area or another?

I think it's fair to say you shouldn't look at one versus the other. I think the strategic imperative, there are two of them that come together in this area -- one, are growth. And the second one is to create value. And when you put those two together, I think as Carl just mentioned a little bit earlier, yes, the focus is going to be in both of those areas.

And in marine, even, I think we continue to optimize that business because of the cash flows and the customers we have. We stick in that niche.

But one of the conversations that Terry and I used to have quite a bit is if the markets continue to grow -- and I understand balancing the platforms -- we used to talk if you continue to grow, how do you balance that platform with foodservice or crane?

I think you're still going to have a little bit higher percentage wise on the crane side. But at the same time, that doesn't mean we don't have geographic opportunities. It doesn't mean we don't have product opportunities.

And what I would say to the foodservice side is it would be great to emulate many of the things that we did in the crane segment over the past five years. And if you look out long term, and we do those things, you'd say, okay, to me, that would be a balancing. But it still doesn't mean it's a 50-50.

I think we just have to take advantage of the opportunities as they present to us and our balance sheet dictates that we can do them.

Thank you very much.

Our next question today will come from Henry Kirn of UBS.

Thanks. Good morning, guys.

Hi, Henry.

When I look at the tax rate for this quarter, it looks like it's the second quarter in a row of mid to high 20s tax rates. Could you talk about how it looks going forward given the current product and geographic mix?

Yes, Henry, for this year, we targeted the 27% and 28% now with the benefits that we received in the second quarter and this quarter. Obviously, that's our outlook for this year. We're coming in right at about at that midpoint between those two is where it looks like it's going to land for this year.

We had a discrete item that we got some resolution to in the third quarter, which drove that effective tax rate this quarter down. And that just occurs.

As we look at the overall landscape and where we'd expect to generate the profitability, which on a trend basis has the biggest impact on what your effective tax rate's going to be, I would say there shouldn't be any kind of sea changes that would occur in my mind.

So the 27%, 28% is sustainable for the next year or so?

As you continue to drive the profitability, you can certainly push that into the lower 30s as you would move forward and you're continuing to increase the profitability. But order of magnitude, I wouldn't expect anything extremely unusual, like dropping down in the low 20s or going up mid 30s or higher.

Okay. And as you look at the supply chain today in cranes, is there anything -- I know you're working internally to alleviate some of the production capacity issues. But is there anything that you're doing that could create a change in your production capacity over the next couple quarters from a supply chain perspective?

Can you give me a little more clarification on your question? I mean --

Sure. If components are holding you up to some extent and causing the backlog to climb, is there anything that you can do in the next few quarters that would alleviate that situation and let you get more cranes out of backlog and into the revenues over the next couple quarters?

I understand it now, Henry. And that's a good question. Yes, there are things we can do and we're working on, on a regular basis, not only from our global sourcing but our regional procurement people.

It's working much closer with some of the suppliers. It's guaranteeing longer-term supply contracts as we look out and see what the business is. I think it's really getting a little bit closer to that supply chain and making sure that approving new suppliers, making sure that we're getting the whole team, whether it be engineers, procurement, and quality involved.

But it's really compressing that time of qualifying new suppliers, working with the current suppliers we have, and giving them maybe some better forecasts that we haven't provided in the last five or six years.

So yes, there are a lot of things we can do. And hopefully, every one of our customers is saying the same thing. I'll take it faster if you can get it to me. So that really is -- it's more to get the crane to the customer certainly than it is to increase our backlog.

Okay. Thanks a lot.

Our next question will come from Charlie Rentschler, Wall Street Access.

Yes, good morning. I --

Charlie.

-- was struck by the comment both in the press release and then one of your executive people that demand will remain very strong for at least the next three years. My question is how do you know? And obviously, adding capacity doesn't ensure sustained orders. But it seems like a strong statement. And maybe you can give us some additional support.

Well, I think the comment there, Charlie, is it's what gives us visibility into those areas. And I would say when -- let's go back six years. Let's go back to 2001 and 2002 when we acquired Potain and Grove. I think you asked yourself what was going to happen in the downturn. And then we sat there and looked and said to ourselves, what's going to happen in the upturn?

I will be honest with you. Our forecasting missed the upside. We thought we had all the capacity we needed to get to the top end of the markets we were going to see before. Now all of a sudden with some of the strategies that we've put in place and the success of our globalization of our -- and cross-selling of everything we've done, we're into areas like the Middle East, into Russia, into Latin America, into China, into India.

And if I go back and I just focus on the last 30 years in Europe and North America, I'm going to assume that those trends still hold.

I don't have a lot of trend visibility in these emerging markets. But what I do have is a lot of information from -- whether it be economists, whether it be government spending, whether it be the customers we're talking to, the longer-term projects. When you look at what some of these countries are trying to do and the infrastructures they're putting in place, these are the types of things that give us a little bit of guidance as to where we see the markets going.

And when you look at the number of cranes that are out there, I mean, you start looking into Africa. You look at the mining business. Charlie, there's so many things that are taking cranes right now that we are asking ourselves, okay, what are the projects that are going out there? And energy is going to continue to drive a lot of these markets certainly for the near term.

As I said, we talk about the applications for nuclear. There was another statistic I'll throw out that was in Engineering News Record that Steve Platts --- Platts is a forecasting group that -- they talk about the number of nuclear energy or other energy capital spending that would take place through the next 30 years. You're talking like $25 trillion.

Now that's an enormous number. And that's easy for some economists to throw out there and say. Well, let's say they miss it by 50%. That's still a large number of what's going to happen over this next period of time. And I think it's our duty as managers of this business to focus on the near term and make sure our strategies are right for the long term.

And when you talk to customers and you fly around the world and get outside of North America, there's a lot going on that I don't think people are giving the rest of the world credit for. And again, in the crane side of the business specifically, almost half of our business is outside of North America. And I think really what's driving, Charlie, gives us a lot of credit or comfort, is really our global footprint and the opportunities we have to take advantage of some of these changes.

That's a long answer to a short question. But I really believe that the improvements that we're making in our businesses are really going to sustain us for the long term.

Okay. And as a follow-up question in the marine area, could you give us an update on the littoral combat ship program and the chances of getting follow-on orders beyond Freedom?

Bob, you want to take that?

All right. Our current status is that the Freedom that we're building now, we intend to put to propulsion trials during this calendar year. At the same time, what's going on in Congress is a debate over how much funding to grant that program for the 2008 budget year. Our best intelligence tells us there probably likely will be another ship for the Lockheed team in that.

Beyond that, visibility's a little bit hard because the Navy's acquisition strategy is still being developed. When they choose to do the runoff between the Lockheed ship and the General Dynamics ship is still in debate. And we don't have good intelligence into that as yet because it's still being developed.

Thank you.

And our final question today will be a follow-up from Charlie Brady. Mr. Brady, your line is open. Please check your mute function.

Thanks. I got it answered on the last couple ones. I'm good. Thanks.

Okay. And at this time, I'll turn the conference back over to our speakers 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 p.m. Eastern Time today until 1 a.m. Eastern Time on November 8. The number to dial for the replay is area code (719) 457-0820. Please use confirmation code 6147645. 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 once again, that does conclude our conference for today. Thank you all for your participation. And have a great day.