Manitowoc Company Inc (MTW) 2008 Q1 法說會逐字稿

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

Good morning, everyone and thank you for joining our first 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 Cranes.

Glen will open with commentary on our markets. Carl will discuss the financial results for the quarter and Eric will discuss the recent operations and future outlook for the crane segment. We will then conclude with a question and answer session following our prepared remarks. Mike Kachmer, president of Manitowoc Foodservice, and Bob Herre President of Manitowoc Marine, will also be available to address questions at that time.

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 12 noon central time today until 12 midnight central time on May 6. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 7403292. You may also access an archived version of this call by visiting the investor relations section of our corporate website at www.manitowoc.com.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 Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on April 29th, 2008. During the course of today's call forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 may be made during the speakers' remarks and during our question-and-answer session. Such comments are based on 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, 2007.

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

Thanks Steve. Good morning. We announced strong financial results yesterday as all three of our business segments show solid improvement in sales and earnings. Posting strong earnings is good but doing it consistently is even better. We are able to consistently drive improvement because of our success in executing our key growth strategies of product expansion and geographic penetration. This philosophy has fueled our success in crane and we expect to continue to utilize these two primary growth strategies in both foodservice and cranes. The benefit of our growth strategy in cranes are obvious today.

Our largest segment is growing at more than 20% per year with margins expanding at the same time. What makes those numbers possible wasn't the addition of new assets, it was the combination of businesses that added to each other. We moved from a North American crawler crane company to a global provider of complex lift solutions. Today we are largely a North American provider of ice machines and cold storage equipment. With the planned acquisition of Enodis we will be a global provider of both hot and cold foodservice equipment capable of servicing the world's largest customers and much broader product categories. We are continuing to leverage our leadership position in Crane in high growth markets like India, Eastern Europe, the Middle East, Latin America, and China through advanced technology and customer support.

All of the experience we are gaining in new markets and in product development can be applied to foodservice as well. The opportunity to follow the same path in foodservice that we have in Crane is what makes this such as defining and pivotal time for Manitowoc. Before Eric describes the ongoing progress within the crane segment ,Carl will give some commentary on the financial results. Carl?

Thanks Glen and good morning, everyone. Yesterday we reported first quarter 2008 net sales of $1.1 billion, a 25% increase over the first quarter of 2007. We also reported net earnings for the quarter of $102.7 million or $0.78 per diluted share compared with net earnings of $64.1 million or $0.50 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 2007. There were no unusual items in either period so the reported earnings also represent earnings from continuing operations.

Turning to the segments, crane segment sales for the quarter were $884 million, an increase of 30% from the first quarter of last year. Operating earnings were $134.6 million, up 40% resulting in an operating margin of 15.2% compared to 14.1% a year ago. That solid operating margin for the quarter reflects our investment in operating efficiencies and an improving product mix toward our larger and more complex products. We remain confident in our ability to achieve sales growth for the crane segment in excess of 20% in 2008 with margins in the mid-teens.

We expect our ability to increase our incremental margins from the teens in the first half of the year to over 20% in the second half to be dependent in part on our ability to minimize the impact of pronounced rising input cost. Our initiatives to minimize these costs increases include but are not limited to pricing actions and improving operational efficiencies. Crane backlog at March 31st totalled $3.3 billion, up 72% from a year ago. Growth in backlog was strong across all of our geographic markets and in virtually all product categories. As we said for several quarters on these calls, backlog is just one element of our performance and Eric will discuss some other indicators of market conditions in his comments.

Moving to foodservice. Sales increased 7% to $104 million from $97 million in the first quarter of 2007. Operating earnings rose 13% and margins improved to 11.9%. Mike Kachmer and his team are doing an outstanding job driving improved performance through leaner operations and leveraging new products with new customers. Economic trends in our core North American market point to little if any growth in consumer driven spending which makes the performance in foodservice even more impressive. It also points out the importance of gaining better access to global customers, thereby lessening the dependence on any specific geographic region. Marine sales for the quarter were $88 million, up 7% from last year and operating earnings nearly doubled to $10.2 million. The high number of repeat projects in our backlog, both government and commercial, helps increase operating efficiencies and we are now ahead of schedule on several commercial projects. We also completed a very strong winter repair season and a 15-vessel service in our yard are now back sailing on the lakes.

The outlook for our marine segment remains favorable as the Coast Guard's response boat medium program is ramping up and our work on the improved naval lighterage system and our Littoral Combat Ship are both proceeding at full manning levels. Improved operating performance in all of our segments obviously translated to the bottom line.

Compared to the first quarter of 2007, net income from continuing operations in the first quarter of 2008 increased more than 60%. We also generated positive cash from operations of $11.8 million in the quarter when we are historically a user of cash. All of these factors impacted our EVA performance which increased more than 58% from last year. We continue to expect our full year EVA to increase by more than $90 million in 2008. The main driver of our strong financial performance is the crane segment and we plan to deploy a significant portion of our free cash flow back into our businesses.

Given the continued strength we see in most of the global crane markets, we expect to continue to make measured investments in our crane production capacity. Our CapEx target of $120 million for 2008 will provide additional capacity for crawler and mobile telescopic cranes here in the U.S. and around the world. Combined with our recent entries in India, Slovakia and China, we are making the right investments to be able to capitalize on continued strong global crane demand. We are also continuing to incorporate significant outsource manufacturing into our plant so that we can quickly respond to forecast changes for specific components.

I'll conclude my comments by affirming our EPS guidance of $3.20 to $3.40 per share, which excludes any unusual items and does not include any impact from the Enodis acquisition which we expect to close in the fourth quarter.

Our next speaker is Eric Etchart who will describe the progress at Cranes. Eric.

Thanks Carl. Good morning, everyone. Yesterday's press release showed the continuing strength of our crane business and I'd like to share our views on where we think this business is headed.

Our results last quarter were very good. Sales were up in all of our markets and operating margin is the highest since we made the Grove acquisition back in 2002. We were able to achieve these results because of a very good efficiency at our plants and a better mix of higher capacity and more innovative cranes. We will see some pressure on our costs in 2008 as higher fuel prices will offset some of the improvements we make in efficiencies. We will seek to offset these cost increases with the benefits of our capacity expansions as well as pricing actions and escalator clauses that product (inaudible) highest in prices. Carl discussed how backlog has set another record at $3.3 billion. Many people tried to gauge this strength of the crane market by analyzing backlog (trains).

This quarter, backlog growth was good, but there are other factors that are equally helpful in discerning the crane market. This include fleet utilization rates and the rental fees charged for the different classes of equipment. Two other important factors that we track are (inaudible) for delayed deliveries from our existing customers and cancellations of large construction projects. Currently, the positive trend in all of these factors strongly support our industry outlook of continuing growth at least through the end of the decade. We saw this positive outlook at ConExpo last month. All of our employees agree that this was the most active ConExpo they have ever witnessed. We had more traffic through our booth than even the 2005 show with visits from existing customers as well as new prospects in emerging markets like Latin America. One of the reasons we had such great interest is because Manitowoc had the biggest new product introduction of all at ConExpo. We introduced the model 31,000, which will be our largest crawler crane, with at least capacity of 2,500 tons, it will be one of the world's largest crawler cranes and it has several features that make it much more advanced than the competitions.

Along with the 31,000, we also introduced 11 other new models so we have something new for everyone. The model 31,000 is a huge crane and the first unit will be ready for delivery in 2010. We have initially planned to build three units and we have already sold the first two units to American customers. That says a lot about the state of the lifting market. With the decline in U.S. housing constructions, demand for self-directing tower cranes and boom truck is soft in the U.S., but the demand for large complex cranes has not slowed.

The model 31,000 and our other large crawlers are well suited for large infrastructures and energy projects. A good example is the nuclear power industry. According to the World Nuclear Association, there are 21 proposals for new or expanding nuclear power plants in the U.S. alone and the global total of 228 reactors. Because of the size and weight of the components, these projects all require many cranes with high lift and reach capabilities. These complex cranes are in the sweet spot for our crane segment and the demand forecast confirm our decision to expand production capacity in our U.S. manufacturing sites.

Outside of the United States, we see crane demand remaining very strong especially in the emerging markets. Large infrastructure projects, energy facilities and refineries and commercial development to support the growing middle classes by driving broad demand for all of our lift solutions. Our investments in India and Slovakia show how we've been able to meet that demand quickly and at a reasonable cost. They also show our philosophy on how to succeed in new market. We have acquired India's largest (inaudible) distributor so we could be an Indian company in that market, not a Western company exporting to India. We are now the largest tower crane manufacturer in one of the world's fastest growing construction markets. We have retained the Indian management team and they are driving good results. We'll use the same model in China where we acquired a joint venture in a local manufacturer to handle heavy machinery. It's one of the China's top producers of truck cranes. About 70% of all new truck cranes are sold in China, so this is another great growth market and an extension of our existing product line in China.

By operating as a joint venture, we get the experience of a local management team and we can provide them with access to our products. In time, we will share technologies that improve their products and create the same customer advantage that Manitowoc enjoy in our larger lifting products.

That concludes my remarks. I now turn the call over to Glen.

Thanks Eric for the update on the crane segment. Before we take your questions, I'd like to review our strategic priorities. With our continued record results and the Enodis announcement two weeks ago, it's possible to lose sight of how we got in this position and what we are doing to keep succeeding. The Enodis acquisition addresses our top strategic priority of profitable growth. Foodservice has historically been a consistent high margin business with stable top-line growth.

In order to let us build a global platform that is uniquely positioned to serve the industry largest and fastest growing customers by further diversifying our product line and expanding our geographic markets, we can deliver increases in sales and profit growth faster than we could have on a stand-alone basis. Innovation is also a growth driver, and both our crane and foodservice segment have a strong commitment to innovation. The model 31,000 that Eric described joins the GTK1100 as two of the most important lifting products of the past several years. And our Foodservice Group is working with global customers on some ground breaking new products that take it into new categories. I'm very confident that the new products and innovative technologies will be a hallmark of Manitowoc for many years. Our products have to be more than innovative. They have to be what the customer wants. We asked our customers what features they value and we include their voice into our new products. That's how we develop the most energy efficient line of foodservice equipment long before higher energy standards were issued.

We operated three very different businesses but we all pride ourselves on being very skilled manufacturers. We share best practices across regions and across businesses and we constantly look for ways to take out cost and drive efficiencies. We drive that culture in efficiency by training our people and giving them the tools to produce great results. They have multiple levels of internal training and in 2008 we'll bring new skills to hundreds of our employees.

As we expand into emerging markets we'll develop more leaders who understand our business and our culture. The acquisition of Enodis will also provide infusion of talent into our company. We've competed against Enodis for many years and we have a high opinion of their skills and capabilities. I think our teams have complementary cultures, and are going to mesh extremely well.

Another exciting aspect of the Enodis acquisition is the ability to replicate the after-market service offering we have created in the lifting industry. Crane care is one of the main reasons that customers choose our products over established competitors. We've made the investment in parts, training and a global network of service centers and realtime support that no one can match. The needs of the foodservice customers are similar and we are convinced that a crane care style offering will be a great competitive advantage.

I'll close with some comments on value creation. Our businesses are providing excellent returns whether measured by EPS, EVA or free cash flow. Our job as managers is to utilize those returns for projects that drive even greater value. It took time before our investments in Grove and Potain began to reach their potential. At Enodis, we expect it to be EPS accretive in the first full year of ownership, and EVA positive by 2011. We would not have pursued Enodis so persistently if we did not firmly believe it will provide an outstanding return to our shareholders.

This concludes our prepared remarks and we will now open the call to your questions. Yolanda?

(OPERATOR INSTRUCTIONS) We'll hear first from Robert McCarthy with Robert W. Baird.

Good morning, guys.

Good morning.

I wonder if you can spend a little more time talking about the raw material landscape if you will since that's been such an apparent significant change in the overall operating environment for capital goods manufacturers. And what I'm specifically getting at is how your ability to respond to that with pricing and productivity initiatives might vary between cranes and foodservice. Where do you expect to see the larger impact between those two segments?

And I'm tempted to read into this that you have a little bit stronger outlook for operating efficiency this year with an unchanged outlook in given development and raw material market. I wonder if you can comment on that as well.

Sure. I'll do the best I can. A lot of it Rob, but I would say that the biggest obviously spike has been steel and I think that it's all started in January, February. We saw the commodity headwind there and I think it's no different than what you are hearing from a lot of people. We've said before you can hedge out three to six months and our global sourcing people are taking every initiative they can to make sure we have not only the supply but we have it at a reasonable cost. But the steel companies know that there are some pressure there for them.

So with the price increases we have a few things that go into play, price increases are one and some of it is not necessarily just price increases looking at things as surcharges. We are looking at other things that I think the customers are more aware of that they get in other commodities, so it doesn't look like we are just -- I hate to use the word gouging but they don't get that impression because whether it's freight charges or oil, these people in the crane side of the business have seen these other type surcharges. So we are working with it. We've worked with our dealer accounts here in North America which primarily is going to be the biggest market affected.

Now I would say to answer your other question where is the biggest impact, it is on the crane side and not as much on the foodservice side and a lot of it is just because of the volume of products that is made for foodservice industry versus what is made for the crane industry. Again you start getting into those high tensile strengths, Rob, and that's where it comes from because as you know we've said many times there's very few suppliers of that.

So with respect to the impacts on our margins, we are doing a lot of things and that's why you saw some of the capacity expansion projects you see a lot of the things we are doing efficiency with equipment. We are trying as fast as we can to get these things online because of what we saw on the commodity side, but we still believe that there are opportunities for us and Carl mentioned in his comments. The rising commodity cost, price is only one thing. We do have opportunity to take cost out. It can be with different type products. It can be engineering. Changes can be different vendors. We are trying to go through the whole gamut of opportunities to minimize the impact of rising cost.

Thanks that's very helpful. For a follow-up if you will, could you talk about the impressive margin in the marine business? I know it's small, but are we looking at in terms of sort of relative to run rates in the last couple of quarters, are we looking strictly at the traditional impact of the winter repair season and the higher margin business involved in that? Or do we have an improvement underlying run rate as well?

I think what you are seeing just from the macro side of it, Rob, is you do have that repair season, but at the same time you have to remember a lot of these projects have been ongoing now, and you have some of the efficiencies that you get over the long term of doing things like the INLS and now we have the RBM, and those types of barges that we've done before that they are very consistently designed and that's where you get the benefits. But I'll let Carl comment also on the run rate.

Well, since Bob Herre is sitting here, I'll just say it's got to be from good management, right Bob?

Thank you, sir.

There is a calendarization issue that we do have to some extent this year versus last year relative to the repair that Glen talked about inasmuch as there was some spillover into the second quarter last year. Just because of the way the work was done and the type of work that was being done which certainly benefited the second quarter last year, and benefited the first quarter this year.

Okay.

That was certainly a part of it as well.

But if the underlying run rate is improved with as we get deeper into these programs and off the learning curve, that would suggest then that we should expect to see some significant year-to-year margin improvement in the second half of the year without the complication of this timing issue, right?

Our full year guidance is high single digit margins and we're very comfortable with that.

Okay. All right, thanks, guys.

We'll take our next question from Charlie Brady from BMO Capital Markets.

Thanks. Good morning, guys. Could you clarify one of your comments regarding the crane margins in the back half of the year? Did I hear you correctly -- I don't know if you are talking about incremental or just operating margins in excess of 20%?

That was referring to incremental margins, Charlie.

Incremental margins in the second half of this year, correct?

Our guidance was that we would expect the incremental to stay in the teens in the first half of the year. I think everybody is aware of some ongoing capacity increases that we expected to be able to-- that would be ongoing in the first half and we would expect to be able to get some benefit, better benefit out of them in the second half plus you don't have the disruption while you are going through the capacity increases. And we had indicated that we can get back up to a 20% margin, incremental margin in the second half.

I think what we were trying to state is relative to this management of the commodity issue that certainly was most pronounced in the January, February time frame as far as trajectory of the increases that we've seen on the supply side, all things equal to the extent that we are not able to be as successful as we would like to be relative to a lot of the things that Glen articulated and that Eric and his team will be working on, that just by virtue of the way you would expect a lot of the content to go out from a sales perspective would have the most effect for us in the fourth quarter.

So from a pressure on the incremental side, I think that that is where we would probably see it all things equal, but of course we'll continue to work all the issues, pricing and the other element to minimize that impact.

Can you--in the crane, how much are you outsourcing today in terms of percentage of the work that goes into crane and where does that go I guess back half or even looking at '09 once you have this additional capacity coming online?

Charlie, there are different outsourcing strategies depending on the size of the crane.

Let's take for instance just the small crawlers. We have a relationship where they come from Japan so you have almost that 100 percent outsourced and then there are different components when you look at the triple 9 they are all going to the assemblies at Shady Grove and a lot of that is coming from different suppliers and marrying up in the Shady Grove for the assembly and when you get to the 2250, the 16,000s, 18,000s, you have some of the work being done in Port Washington and marries up in Manitowoc. But again some of it also done on the outside and that's to take advantage of the capacity increases that we've seen.

If you go back to the comments that we've made many years ago that when we looked at this market and where we thought the crawlers were going to go at the peak when we were at 2002, at the peak of the next cycle we believed we could manage everything with the current facilities we had and a little bit of outsourcing. Obviously, those projections were low and that's why we are looking at some of the capacity expansions we have. We are also bringing on some additional suppliers on the outside to take advantage of the peak. We don't need to build everything to get that last crane, but we can use the outsourcing as a strategy, and I would say you probably have a third of our hours, are utilized outside of the factory.

Thanks.

(OPERATOR INSTRUCTIONS). We'll take our next question from Nigel Coe with Deutsche Bank.

Good morning. Could you remind to us what extent you are hedged out on steel for cranes currently in the backlog?

Say that again, Nigel?

You obviously made the comments about pricing to help offset some of the innovation but to what extent do you hedge out on your current backlog?

Nigel, it's really something that is part and parcel of the commentary that we've given relative to managing the risk in the backlog with some of these components, in particular the high tensile strength steel, it's very difficult for us to hedge outside of maybe a four- to six-month time frame, and that's obviously a key one in this realm that we are talking about and that's why Eric and his team are certainly going to be working all the initiatives in order to capture as much of the margin that we weren't able to perfectly hedge and the word hedge in quotes essentially from the supply side on making the pricing arrangements.

So it wouldn't be impossible to effectively reprice some of that backlog to reflect some of the innovation?

I don't think it's impossible, but I think you have to-- again I will go back to the fact that historically we have not repriced our backlog with our customers, and you go back to 2004 and we were caught with the same thing. But I think, again I'll say it we are seeing the majority of it being the primary in North America. We have a dealer accounts. We've sat down and we chatted with them about the impact of these and they are very aware of what is happening.

So again I want to be careful that it could be pricing. It could be surcharges. It could be other things. But we are going to do everything we can to minimize some of the impacts of these and our customers are very aware of it and actually have been very understanding of it. I'm certain none of us like it, but they certainly have been very understanding.

Okay. Secondly, we saw a Q-on-Q decline in crane revenue from 4Q '07 to 1 Q '08. Is that just phasing of shipment? Is that some weather impacting it as well? I just want to understand that bit because it's something we haven't seen in the cycle to date.

Again, we certainly looked at that as we were putting many of our projections together and some of it is weather. You recall that in January, there were some issues in China, and the factories were closed for several days. So that impacts the quarter.

We'll make it up certainly by yearend, but then again you got to remember we talked about in the third quarter of last year some of the delayed shipments and as soon as we got into the fourth quarter we had a lot of customers that wanted it by yearend. And the fourth quarter last quarter was probably an anomaly. Sometimes you can be a victim of your own success, and I think that was again making up for some of the delayed shipments we had through the third quarter. But I don't think it's indicative of anything other than the lumpiness in that order rate, but I would say there's one other area of-- I wouldn't call it struggle, but again because of what we do outsource on one of the -- a couple of suppliers, as you stretch them the delay goes from-- if it's a week or two and it crosses your quarter end, again we'll make it up, so I don't put a lot of concern that that lumpiness just happened to cross quarter.

Okay. Great. And then finally of the ConExpo in March, what would you expect that to do to your order rate and backlog? First of all, was there any measurable impact on 1Q bookings and would you expect that to go into Q2 as well?

I'm going to just take that first part and I'll let Eric talk about ConExpo. No, I don't expect a big inflow on the backlog because of ConExpo. A lot of -- it was a great show, but the orders that we have are coming in on a regular basis. So people knew what was going to be introduced, so I don't think the show necessarily bumped anybody into the -- Eric do you want to comment on ConExpo?

Yes. Obviously, we have a couple of great announcement for major orders for several major Reynolds companies opting for Manitoba products. So it was a great announcement at ConExpo, but beyond this ConExpo for us it was only a trade show because it confirmed the strength of the demand and the outlook. I heard so many customers from around the globe coming to ConExpo and asking us when can I get more cranes as a matter of fact. So that was a great confirmation for us and as well as the new products were very very attractive and we only expect to see that positive trends to continue. So no direct impact really on the backlog but highest confidence that the market outlook is very positive for cranes.

(OPERATOR INSTRUCTIONS). We'll hear next from Seth Weber with Bank of America.

Thanks. Good morning, everybody. I guess Glen was there any new capacity that contributed that kicked in this quarter that helped on the crane side, or is that all still to come?

I think if you go back, Slovakia, the factory was full online and India a little bit of ramp up as we kind of get our ducks in a row there, but those are the only two that I think had any impact. And again on the size of the business it is, it's not a real material impact. Obviously we talk about those type things, the strategic advantage that we have in those markets to serve closer to the customer and that is the beauty of what is happening there.

So if you were taking a guess, I mean from the total capacity that you expect to add over the next, you know, 12 to 18 months, you feel you are still less than 20% is completed at this point?

The biggest capacity events that are going to happen are in the crawlers with respect to Manitowoc's Shady Grove and Port Washington and then the other one is going to be that impacts this year is what happens in Germany at our Wilhelmshaven facility, and that will be more towards the third quarter late this year.

Okay. I just wanted to clarify one thing that you said. I think you said that North America will have more of an impact on the steel cost or the pricing. Can you just revisit that?

Yeah. Eric do you want to touch that?

Yeah. Obviously, it's related to the coal, the steel price increase affects particularly the production of (inaudible) cranes. Obviously, Shady Grove is the largest producer of (inaudible) cranes, and the coal price is really impacting Shady Grove more than the other facilities in Europe.

Okay. Thank you. And then just on the European strength that you mentioned, is that split? Is it noticeably stronger in the CIS or Eastern European region or are you seeing strength in the Western European region as well?

It's CIS, but it's also the Middle East and now you are starting to see parts of Africa that are picking up -- much greater than we have seen in the past. Those three areas primarily.

Moving on we'll take our next question from Joel Tiss with Buckingham.

Hi guys.

Hey, Joel.

I just wondered if you are seeing any signs of a prebuy. I guess everyone's on the waiting list anyway. But are you seeing any signs of a prebuy, people trying to squeeze in before all the price increases that everyone is talking about?

Well, I would say we don't believe that with what you have in North America and in other parts of the world is anytime you go through distribution, these people are putting in some of their projections for future years. But when you get into the bigger capacity especially with the last moves, Joel, we are starting to require down payments. So if people want to take that, they are really managing that order board through the fact that it's going to take that money to secure your spot at some later date.

To switch gears on foodservice, can you just talk a little bit about maybe say the next 18 months. It seems like some of the customers are under the stress. What are you guys seeing and thinking about in terms of the customers CapEx budgets and how maybe you can mitigate that?

I'll let Mike answer that.

I think your observation is fairly accurate but what we are doing is we are trying to gain share in all of our categories even when some of the markets are softening. On the (inaudible) side, we are growing as the market is flat to slightly down. That's being achieved primarily by doing a great job on the energy side with our machines, introducing some new products with higher capacities and really engaging with some of the customers that are doing very well. As you probably have observed some of the changes are still having successes in the marketplace even while some others struggle.

On the beverage side, we are benefiting by some of the refresh programs that we talked in the past. Our products have been placed and we are seeing volume improve year-over-year. Probably the only area of softness that we see is in our refrigeration category. Then again, it is not down but essentially flat and that is the one of the three categories that is more tied to new store openings whereas the other two are greatly associated with replenishments, with replacements. So again we are committed to win even as the market struggles in a couple of areas.

Last one as long as I have you here, can you just give us any sense of the overall OEM after market mix with Enodis and the Manitowoc combined?

Joel, the question -- you are fading out. The question is what is the OEM after market mix for Enodis?

Enodis and Manitowoc combined as we get out to '09, 2010.

Joel, from after market service support side, that's not a big element, but I think what you may be referring to is we talked about 80% driven by replacement and renovation in our organic foodservice business, the Manitowoc business. If you combine them together, that same metric would be about two-thirds.

Thank you.

Two-thirds of the revenue driven by replacement and renovation.

Okay. Thank you.

We'll take our next question from [Skip Tate] from (inaudible).

Could you give a little more detail about how the notice acquisition will be accretive in '09 given the premium to your valuation?

Essentially just covering the cost of basically just the EPS and the profit ability of the enterprise and when we would expect it to contribute to the full year, our expectation is that will be in 2009.

Thank you.

Moving on we'll take a follow-up question from Robert McCarthy with Robert W. Baird.

I'm sorry, guys. I just had a couple of little details I wanted to ask about. Other income and expense was a fairly significant number in the quarter. Could you talk about what's in that number?

The key element to that would be foreign exchange benefit. That would be the majority. And then the next highest item would be interest income.

Which would be a pretty small number itself. Okay. Actually it's a good --

More meaningful number than it had been given our debt levels.

Okay. And that's a good segue to what impact currency translation had on the top line and then in the context of your answer what you just said about other income, can you talk about what the net effect was on earnings?

Currency impact was about $0.03 on the EPS line. Obviously driven by the crane business, and from a top line perspective, probably in the $30 million range.

That's a $0.03 positive?

Yes.

So in other words, the-- largely accounted for by the hedging activity? In other words, what I'm trying to get at is if not for that, would you be looking at, and essentially are you getting a neutral effect because you have so much moving in and out of different currency zones? Do you understand my question?

Not really.

If not for your hedging activity, wouldn't you have had something closer to a zero impact?

No. I think the $0.03 would be inclusive of the hedging activity.

Right, so what I'm--my understanding was the hedging was positive right.

Right.

So even though you had -- it's not huge, but you had a positive impact on top line not much positive on bottom line if not for the hedging activity.

I guess that's a fair comment. It's a function of the fact that we tried to manufacture. We have the overall philosophy of trying to manufacture as much as we can as close to the customer as possible.

Thanks.

(OPERATOR INSTRUCTIONS). We'll take another follow up from Seth Weber with Banc of America.

Thanks. I got cut off last time. One quick follow up. Did your cash flow from operations forecast change at all this year or are you still looking at $400 million.

We are still looking for $400 million, Seth.

Thanks very much guys.

(OPERATOR INSTRUCTIONS). We'll take a question from Alex Blanton with Ingalls and Snyder.

I got on a little bit late, but just to review, you take all your price increases for this year, what would you forecast would be your overall price increase for the year, for 2008? What do you think?

Are you talking on a consolidated basis?

Well, yes. Consolidated basis and then if you have an idea of what it would be in the crane business that would be helpful too because that's where your strongest demand is.

I would say that on an overall basis that it's right around the mid single digit, right around 5% or so. And what we've said before on the crane side is it gone anywhere from low single digits to high -- to almost double digits depending on what product line. When you look over at foodservice, you look over at marine, what they have for their winter repair work. I think that mid single digit is probably reasonable.

As for the overall business and a bit higher than the crane business?

It's probably on average. Maybe a little bit higher than that on the crane side on average.

And this is to recover your cost increases that you see so far.

You know, based on what we looked at at the beginning of the year and thought what our-- how commodities would go and what the rest of our costs were taking our manufacturing efficiencies into place, yeah, I would hope that would be a little bit more than just the normal increases.

But Alex we did indicate based on some of the activity on the cost push side that we've seen earlier this year, there's further actions that we need to be taking, not necessarily just from a cost perspective but from a pricing perspective but also from an operational perspective to recapture some of the head winds there.

As you look around at this situation with cost increasing and then prices falling, is there any concern that you have that the inflation numbers might pick up to the point where there would be action by the federal reserve to stop that and interest rate increases that might be coming that could cause changes in your business scenario going forward? Any concern about that? Have you been looking at that?

Well, I would say when you look at some of the things that are driving some of the headwinds that we are experiencing on the cost side, it really is reflective a lot of the benefits that is we are seeing in the largest part of our business being cranes. That is driving a lot of the ability of some of the supply base to enjoy the types of robust prices that they are passing along to us that obviously bodes well for the sales that we are having particularly as you look around the world.

The question as to whether a heated global macroeconomic environment, we'll create rising interest rate environment, we certainly have enjoyed some pretty good results in both a rising and falling interest rate environment. Generally speaking, the business drivers in a rising interest rate environment bode well for our crane business as well. There's a positive correlation in a rising rate environment. Obviously there's a tolerance level based on trajectory and how high they might go.

Well, in my experience in following machinery stocks, they tend to do best when interest rates are rising for the reasons that you just gave, that the things that cause rates to go up also cause your demand to rise.

We would agree.

But unfortunately it also has a counter active effect on the PE, which sometimes is not too pleasant. I just wanted to know if you've done any thinking about that and had any forecast of what might happen in that regard built in to your numbers.

Thanks.

Okay. Thank you.

We'll take our next question from Brian Markovich with UBS.

Good morning, guys.

Good morning Brian.

I'm just wondering if you can talk to us a little bit about seasonality in the crane business. You talked about some weather in the current quarter and followed by, following up on a strong 4Q, and it typically looks like you have a strong 2 Q. Are we setting up for an above seasonal 2Q? I know you guys don't give quarterly guidance but just any commentary around that would be great. Thanks.

Well, I would say there tends to be a seasonal build in the business all things equal that occur in the second and third quarter for both foodservice and cranes. Obviously with the secular trend in the crane business, the seasonal effect has been vastly muted from what it was formerly, but you still tended to see some build up in those second and third quarters. One caveat on that third quarter issue is the fact that we have significant European operations that would have a holiday season in there that would, from an all things equal standpoint, would offset some of that.

And then an overlay on the overlay of the capacity expansion as well? How should we look at that rolling through Q2 and Q3 on the crane side in terms of one, the volume coming out I know you won't give us exact numbers, but how much of an increase on the seasonal are we going to see out of that and then offsetting that any disruptions that are going on during that time.

Yeah. I guess what we've done is provided some annual guidance based on essentially a flat currency assumption of 20-plus%in the crane business overall. We did a little bit better than that in the first quarter. From a margin performance standpoint we talked about that earlier in the call and our overall expectation is mid teens.

I think Brian what is encouraging is this is the time of the disruption in the crane side and you are seeing how strong the margins are and so it tends to give us some comfort that we are getting through some of the disruption whether it be in Germany or the Americas, going online in Slovakia and what is happening in Italy at our Niella facility or India. The disruptions are in there right now, and you can see how strong the margins were in the first quarter.

I have a follow-up here if I don't take too much of your time. The other income line I'm a little bit confused from your comments. Is it correct to say that you are stripping out some of the operating income that is forex-based from your operating income line from the cranes and putting that into the other income line and should we be modeling out a couple of quarters? If the currency stays where it is, should we modeling a couple of quarters of other income?

What you are seeing in the other income line is really from hedging activity that is reflective of a rising Euro environment would be a key for us, and that hedging activity goes into the other income line. Obviously, the interest income component is a function of whatever the interest rate environment is and our cash levels. Those are the two key elements of the other income.

And the last question. I heard the comment from the crane side that it looks like you are going to have growth at least through the end of the decade. Can you talk about that and talk about the drivers, the global infrastructure build up, etcetera, any color around that would be great.

I think it's interesting you picked up on that ,Brian, because that is exactly the message that we are sending out. I'll let Eric give his thoughts, but if you go back when we were here 18, 24 months ago projecting what was happening through the end of the decade, as we sit here we are not too far away from the end of the decade, another 18 months and so I think there's a little bit of comments within our forecast and what we see and going forward that we now -- I mean, we are pretty confident and that's why we say now at least through the end of the decade, and I think we want to spend some more time looking at how far it might go past that. I think what you have is a little more increasing optimism on the part of not only our people internally but customers and projects around the world talking to anybody that is a contractor, a global contractor, a global crane rental company and that kind of thing, that gives us a little more optimism. But Eric do you want to talk about some of your optimism?

No. I just want to confirm what we can hear from the market and what we are tracking are all positive and there are some major projects primarily in North America as well but certainly in emerging countries that give us that confidence level that now -- that strong outlook to go beyond the decade. And again it's driven by infrastructure projects around the globe, more nuclear power plants, more energy programs all related projects, bridges, all these types of projects are there and they are long term and they are plain and certainly finance as well so that give us that level of confidence to say that it should go beyond the end of the decade.

Thank you. And that will conclude our question-and-answer session for today. I will turn the conference at this time back to our host Mr. Khail. Any further remarks or closing remarks?

Yes. Before we conclude today's call I would like to remind everyone that a replay of our call will be available beginning at 12 noon Central time today until 12 midnight Central time on May 6. The number is area code 719-457-0820. Please use confirmation code 7403292. You may also access an archived version of today's call on our website at www.manitowoc.com. Thanks again for joining us everyone. Have a good day.

That does conclude today's conference. Thank you all once again for your participation and have a wonderful day.