Manitowoc Company Inc (MTW) 2008 Q2 法說會逐字稿

Good day everyone and welcome to the Manitowoc Company, Inc. second quarter earnings conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Steve Khail. Please go ahead, sir.

Good morning everyone, and thank you for joining our second quarter earnings conference call. We apologize for the delay in starting this morning's call, due to technical difficulties. Participating in today's call will be Glen Tellock, our President and Chief Executive Officer; and Carl Laurino, Senior Vice President and Chief Financial Officer. Joining Glen and Carl on today's call will be Mike Kachmer, President of Manitowoc's Foodservice segment. Glen will open with an overview of our performance, Carl will discuss the financial results for the quarter, and Mike will discuss the exciting changes that are about to transform our foodservice segment. Following our prepared remarks, we'll conclude the call with a question-and-answer session. Eric Etchart, President of Manitowoc Crane; and Bob Herre, President of Manitowoc Marine will be available to address your questions at that time. If If you are not able to stay on the line for today's entire call, you can listen to a replay of the call beginning at 12:00 noon, Central time today until 12:00 midnight Central time on August 5. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 3047397. You may also access an archived version of the call by visiting the Investor Relations section of our corporate website at www.manitowoc.com.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 July 29, 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 each speakers' remarks and during the question-and-answer section. 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 & Exchange Commission, including but not limited to company's annual report on Form 10-K for the year ended December 31, 2007. With, that I will turn the call over to Glen.

Thanks, Steve. Yesterday we announced another quarter of strong performance and record financial results and once again, we saw continuing evidence that our strategic approach to each of our businesses was generating the kind of results that will ensure Manitowoc's long-term success as a global manufacturing company. During the second quarter our crane segment delivered impressive increases in sales, earnings, and margins by continuing to take advantage of growth opportunities around the world while emphasizing operational excellence in virtually every aspect of its business.

On the last day of the quarter, our foodservice segment was the recommended bidder in the auction for Enodis. We believe that this strategic acquisition will launch our foodservice business on the same path that transformed our crane business from a US builder of crawler cranes to a global leader in the creation of innovative lifting systems. With Enodis as an integral part of Manitowoc, our foodservice business will have a broader portfolio of products that will enable us to expand and deepen Manitowoc's relation with a global customer base, as well as opening the door to a significantly wider range of growth opportunities. I should point out that the addition of Enodis will also change the overall balance of the company. Today, foodservice represents 11% of our consolidated revenue. With Enodis, we expect foodservice to produce about 36% of Manitowoc's total annual revenue.

I also want to acknowledge the continuing success of our Marine segment. Bob Herre and his team delivered solid results this quarter by increasing throughput and efficiency on a number of commercial and government projects. This included the Littoral Combat Ship that successfully completed the dockside testing of its engines and propulsion systems and commenced sea trials yesterday. The Marine group also received praise from the US Coast Guard as the new Response Boat-Medium was premiered to a number of Washington dignitaries attending the debut of the new National Security Cutter. The RBM is the first of a funded order for 30 such vessels. Carl will now review our second quarter results followed by our featured speaker, Mike Kachmer, who will talk about the exciting changes that he is leading in the foodservice segment. Carl?

Good morning everyone. Yesterday we reported second quarter 2008 net sales of $1.3 billion, over 28% higher than the second quarter of 2007. We also reported net earnings of $133.9 million, or $1.01 per diluted share, a 33% increase over the $0.76 per share reported for the second quarter 2007. All per share amounts in my comments today reflect two for one stock split that became effective in September of 2007. Net earnings in the second quarter of 2008 included a $0.02 per share contribution from a special item.

Now let's review the performance of each of our business segments. Second quarter 2008 net sales in the crane segment increased 32% to $1.06 billion, compared with $805.1 million in the second quarter of 2007. Operating earnings of $167 million were 39% higher than the second quarter of 2007, in spite of rising material costs and delays in delivering products to areas of China recently affected by earthquakes and related natural disasters. Crane margins increased to 15.7% for the quarter, up 80 basis points from the same period in 2007 as a result of operational improvements, improved product mix and higher volumes. We continued to see the benefit of the globalization of our crane business during the second quarter as international activity generated strong sales and earnings growth. This trend was reflected in our crane backlog, which stood at $3.5 billion at June 30, an increase of 70% over the same period in 2007. The solid backlog reflects the payback of our innovation strategy, as well as the success of our new products in the marketplace.

Our outlook for the crane segment remains strong through at least the end of 2010, despite the recent declines in US housing market, the softening construction in some mature markets, and slowing residential construction in western Europe. We expect to offset these trends as demand for our higher capacity cranes, particularly those serving infrastructure and energy applications, continues to grow in both developed and emerging economies.

In our foodservice segment, second quarter net sales of $127.3 million decreased slightly compared with the second quarter of 2007. In contrast, operating earnings climbed to $22.9 million, a 2% increase from the second quarter of 2007, reflecting our gains in manufacturing efficiency and effective marketing of new products. Also during the quarter, the company announced a price increase effective July 1st to address the rising cost of materials, especially commodities such as stainless steel, copper and plastics. In addition, Manitowoc foodservice introduced a 0% financing incentive to end users to help to take advantage of the current market's potential. This program, which is supported by one of our global finance partners who fund many of our customers' crane purchases, has been well-received and helpful in driving incremental sales. As Glen noted, the Marine segment had a very strong second quarter, with net sales of $114.2 million, an increase of more than 33% from the 2007 second quarter.

Operating earnings more than doubled to $17.7 million from last year's second quarter of $8.5 million, reflecting higher levels of production efficiencies from repeat orders such as the OPA-90 vessel that comprised the bulk of our commercial backlog. As we noted in our press release, operating earnings also included a one-time positive adjustment of $4.3 million, related to a change in an existing contract which resulted in a forfeited customer deposit.

In addition to the success of the Littoral Combat Ship and Response Boat-Medium, we remain well-positioned to garner additional military and commercial contracts, which we expect will be awarded during the second half of 2008. I would also like to mention our Marine group has established itself in the business of repowering steam vessels with more efficient diesel engines. There are ten older steam-powered vessels on the Great Lakes and rising fuel costs are causing many of their owners to consider installing new, fuel-efficient systems. This trend should result in additional booked business later this year.

I will conclude my remarks commenting on our earnings guidance, which we are tightening to a range of $3.30 to $3.40 per diluted share. This new range increases the lower end of our previous guidance by $0.10 a share and excludes any special items and any effect from the acquisition of Enodis. Like other manufacturers of capital goods and construction equipment, we're facing steel price increases in the third and fourth quarters that are of an unprecedented magnitude. These increases have tempered our expectations for improvements in incremental margins to much more modest levels during the second half of the year. We are implementing a number of actions that will dampen the impact, but will not fully offset these commodity headwinds until early next year. Among these initiatives are material substitutions, product redesigns, efficiency and capital improvements, plus new pricing actions. With that, I will now turn the call over to this quarter's featured speaker, Mike Kachmer. Mike?

Thanks, Carl. I had the pleasure of being the featured conference call speaker almost one year ago. What a difference a year makes. The foodservice group is now on a very exciting path, with the pending acquisition of Enodis and multidimensional growth that accompanies it. As you may recall from previous discussions of this transaction, Enodis is one of the word's leading designers and manufacturers of foodservice equipment, with annual revenues of $1.6 billion. The company has posted like for like sales growth of approximately 36% and like for like operating earnings growth of 51% over the past three fiscal years. Merging the capabilities of Enodis with those of Manitowoc will enable us to pursue a much different growth scenario than we could as an exclusively cold side operation.

The great benefit of the notice is that it will enable Manitowoc to fully equip entire commercial kitchens, including cooking, warming, refrigeration, beverage, food preparation and washing systems. The importance and appeal of this change to our business is that Manitowoc will now be able to better partner with major global restaurant and foodservice companies and their facilities designers in the development of the entire foodservice operation, a level of involvement that was simply not available to us when our capabilities were limited to the cold side of the business.

Enodis will significantly expand our global manufacturing footprint by adding 30 manufacturing facilities in nine countries, along with distribution and service capabilities in more than 120 countries. With 14 leading Enodis brands complemented by our premiere brands, Manitowoc's foodservice business will represent an impressive offering to customers while becoming a major factor in the global restaurant and foodservice business.

The financial benefits of completing the Enodis acquisition and its integration are substantial. Based on 2007 reporting, the combined Manitowoc/Enodis foodservice segment would have annual sales in excess of $2 billion. We expect the transaction will be accretive to earnings in 2009, will produce annual cost and revenue synergies in excess of $80 million, and will be EVA positive in 2011. Reaching these goals will result from efficiencies and economies of scale that our larger and more diverse foodservice segment can achieve through streamlined operations, global sourcing, and expanded cross-selling initiatives.

As you know, innovation is one of Manitowoc's strategic priorities, and adding Enodis to the fold will greatly increase our new product development capabilities. Enodis has one of the most advanced development centers in the industry, located at the company's operational headquarters in Tampa, Florida. Their technology center developed the company's accelerated cooking technology that is used in its commercial ovens. One of our priorities is the integration of our two R&D capabilities to become the industry leader in product innovation coupled with an operational culture that brings top quality products to market quickly. We also plan to field one of the best customer support and service teams in the global industry. Together, these impressive capabilities will make Manitowoc a major player in all aspects of the foodservice business from cook service in fine dining restaurants to hotels, conference centers, universities, resorts, and other high-volume operations.

We are transforming our foodservice segment at the right time. Even though we are experiencing some headwinds from the current domestic economic slowdown, the demand in the US market for food prepared away from the home continues to grow. In fact, the US foodservice industry has experienced only three contractions over the past 40 years. While the industry expectations are for US contraction in 2008, we see the global demand for food preparation Q&A equipment continuing to grow at an average annual rate in excess of 7% for the next 10 years, driven by growing disposable incomes in developing markets and changing consumer lifestyles. Even though the Enodis acquisition will not close until later this year, we are in the process of developing a rigorous plan that will ensure the successful integration of the two business. We'll create a cohesive and focused management team that will execute a powerful approach to global strategic growth for the benefit of all Manitowoc stakeholders. That concludes my remarks. I will now turn the call back over to Glen.

Thanks, Mike, for the update on the exciting outlook for our foodservice segment. Before we take your questions, I would like to mention that the Enodis acquisition satisfies each of our strategic priorities and we're very pleased to bring this new source of value and international growth into our company.

I also want to say a few words how Manitowoc is viewing the challenging economic environment that is most pronounced in the United States. Manitowoc is a global company and operates a diverse set of business. While it's impossible for any company to be completely immune to recessions and cyclical downturns, the strategic actions that Manitowoc has taken during the past eight years were designed to make us far less vulnerable to the changes occurring in any single geographic area or industry. In 2000, over 90% of our sales came from the US, with minimal sales from the emerging markets. Today, the US accounts for only about half of our annual sales, with much higher penetration being driven by the emerging markets. As we face challenges in the US, we also face opportunities in Latin America, the Middle East, the EU, and the Asia-Pacific regions. In 2000 we manufactured our products in primarily US-based facilities. Today, we operate 74 manufacturing and service facilities throughout the world, which is consistent with our strategy of building our products as close as possible to their intended end markets.

I would also like to point out that this fundamental change in our business has altered the way our management team responds to challenges. Today, we have options and points of view that were not available to us in 2000. We're focused on growing our company by taking advantage of global opportunities. Seven or eight years ago we would have been locked into a purely defensive position. Today that is not the case. Our strategies are both sound and proven. More importantly, despite the current state of economic uncertainty, 2008 will be our best year of financial performance in the 106-year history of Manitowoc. Manitowoc's management is focused on continually pursuing improvement in every aspect of our business. This dedication has driven new strategies, controlled our cost, created new products, resulted in new product support services, and made us a better company. We will remain focused on this discipline because it's the chief driver of our ultimate goal -- creating value for our shareholders. This concludes our prepared remarks, and we'll now open the call to your question. Josh?

(OPERATOR INSTRUCTIONS) We'll take our first question from Joel Tiss with Buckingham.

Hi guys, how is it going?

Hey, Joel.

I wonder if you could just talk very quickly the amount of accretion from Enodis. Do you have any sense if it's going to be material or modest -- or any characterization you could give us there?

Modest accretion in 2009, Joel.

Could you talk a little bit -- you said that cranes look strong through the end of 2010. Could you help us build up a couple of end markets and what gives you confidence all the way out? That is pretty far away and I know this is long-lead time business, but could you give us the pieces to give us some confidence in your statements?

Sure, Joel, I think Glen is going to take first crack at that.

Joel, when you look at the end markets that we're serving right now around the world, almost 60% of it is in energy, industrial petrochem, bridges, highways, utilities, power plants. And when you put that together and you look at some of the statistics from not only the US or western Europe, but you look at the rest of the world, we see a lot of the projects already planned, funded, and that type of thing in process or being put in place over the next few years. That is why we talk about saying that we're comfortable through the end of the decade. Now despite that, yes, there are some softness in a couple of end markets. A lot of the lower-capacity type items -- because of those end markets we see, they are using higher-capacity cranes and this is what gives us that comfort.

Are you seeing anything coming out of wind? Is it just talk or are you seeing orders coming through?

I'm going to let Eric speak to that, because he has chatted a lot about the wind energy market.

The wind energy market is a growing segment. Additionally, the introduction of GTK and the large crawlers -- and backlog we have generated is giving us stronger response. So certainly this is a segment that is likely to continue to grow as we move forward.

It's a real end market. That is for sure, Joel.

Thank you very much

Next we'll hear from Paul Bodnar from Longbow Research.

Good morning. Can we get a little clarity on the second-half increment margins, particularly crane? I know last quarter you were thinking 20%. I assume that's changed, and any update there?

Yes, most definitely Paul. I think we made the comment in our prepared remarks that what we're seeing is unprecedented. That really is the case. We certainly saw some material headwinds in the 2004 timeframe, and I think in the recent past that is certainly was an extreme year. We disclosed in that year that was about an $0.11 EPS headwind adjusted for splits that occurred since then. And this current headwind that we're experiencing is beyond those levels -- I mean, it's extreme. We certainly took action early in the year and we expected some continued increases as we had been seeing, but the slope of the curve that has been experienced puts us in the circumstance that we would temper the expectations for incremental margin in the second half of the year. All the way down to about a modest double-digit level, if you look at the second half in total.

Paul, if I could touch base on something that Carl said and reiterate. 2004, it's very consistent with what we saw in 2004 -- only it's opposite halves of the year. In 2004 it happened right away in the beginning of of the year. Our pricing didn't catch up into the second half of the year when we had the price increases in the back half. This time, once again, we have not repriced our backlog, but we'll be looking at what our pricing actions are, and announcing them to customers here in September/October timeframe. So again, it's just like 2004, a little steeper, I think on some of the pricing on the commodity, but it's just a flip of what half of the year that has taken place.

The other thing I would add, Paul, another difference and contrast from 2004 is that the demand levels are continuing to trend towards higher and higher-capacity cranes, and those are cranes with the longest production lead time, which taken alone, puts us in a circumstance where there is a bigger gap and more risk to manage relative to what we're able to arrange on the supply-cost side versus the pricing levels. You know that is something that is a little bit different.

One of your competitors recently implemented a soft backlog type scenario where they're taking the orders and not pricing that. Are you doing something similar at all, and is your backlog understated?

I think we disclosed that previously, that there's this notion of a shadow backlog that's been an ongoing element of the demand levels that we see and the confidence that we have in the intermediate term where we know there is a transaction, a project where one of our crane is going to go on site. It's a rough delivery schedule, but we defer on making the pricing arrangements, and therefore those transactions don't go into our backlog. So that is a real issue.

Any estimate on just what that number might be?

We have not published any indications, but I would call it significant.

All right. I will jump back into queue. Thanks.

Next we'll hear from Charlie Brady with BMO Capital Markets.

Back to the incremental margin question, in the second quarter, can you give some indication -- it looks like incremental margins were about 18% in crane in Q2 -- what the headwind on raw material cost was in Q2?

Actually Charlie, I think as you look at the pricing action that had been taken previously, and the supply that we did have on hand, there really wasn't any appreciable margin headwind for us in the quarter. This really is something that becomes an issue for us in the second half of the year. We certainly had an expectation that material costs were going to be higher, and certainly took that into account as we made our pricing actions late last year for the 2008 pricing, but they have more than doubled from what those expectations.

Okay. Can you give us an update on the capacity expansions, where you are on that today?

We are right on schedule. We really are operational on both the crawler crane expansions related to that in Port Washington and Manitowoc, and Shady Grove as well, which is some crawler but GMK production and I should let Eric add color that he has. We're essentially right where we expected to be from bringing the capacity online.

I would like to add that the capacity expansion that we are having in India also is on track, and so overall, we just are on track on the capacity expansions that we have started since last year.

With regard to the corporate expense as precent revenue, it's trended down and on a dollar basis, do you expect to stay around the same level for the remainder of '08 going into '09?

Roughly the same level, Charlie.

Thanks, I'll get back in queue.

Next we'll hear from Seth Weber with Banc of America Securities.

Good morning everybody. Maybe if we could go back, your comments about the western European market, the low capacity tower business slowing down -- could you give us color on how that manifested itself? Are you seeing cancellations there? Do you feel like you are losing market share to Chinese suppliers? And can you frame for us how big that business is for you in the overall scheme? It sounds like it's not a huge business for you, but could you quantify that for us?

Well, good morning, Seth. It's certainly, when you look at western Europe it's probably one of the three largest markets of cranes in the world traditionally. And I think it's just following some of the patterns that the US has followed, whether it be on the residential side, people looking -- and you have to remember in Europe that is where a majority of our tower cranes go. And you see it on the self-erecting towers and you're seeing it on the small top-slewing towers. So I think it's just a look at some of the residential and the nonresidential projects that are being toned down or trimmed. What that does is move some of our capacity to other geographic regions around the world. It's looking at what our total -- when it come to the market share that you asked, we aren't losing market share. The Chinese are coming into different markets, but again, it's not significant. As we've said in the past, we'll continue to watch them when it comes to distribution, support services and innovation. We are watching them and they are going to be a long-term threat, but it's not significant. I think it's just a little bit of a slowdown in some of these markets, where it's a reflection of what is happening in the US. I don't think there is anymore than that.

Have you seen -- have your rental company customers actually started canceling orders? I am just trying to understand if this is catching people by surprise or as expected? I mean, another way, could you comment on your top-line crane market for the year? Previously you had said 20% plus. Is that still what you are thinking? Has there been -- just any change to your overall thought process?

No, I would say, Seth, that from a revenue perspective, that 20% plus was something that we couched as a currency-neutral number. Obviously we have gotten some currency benefit during the year, but if you look at year-end total, taking all factors into account -- in other words, getting the tailwind from currency -- we're going to have a 30% plus increase in our topline in cranes this year.

Go ahead, Eric.

I would just like to add a comment. It's true that the softening on western Europe for [GME on self-erecting] towers and tower cranes, we continue to see very strong demands [on] emerging markets and you may recall that because of capacity we were not able to [assure] those markets to the extent it warranted. So usually that softening doesn't necessarily imply we're going to throw down [in ourselves in GME] because we have the visibility to redirect the production to market where the demand is still very brisk.

Thanks for that, and just a quick follow-up on the shadow backlog, Carl, that you mentioned, is that a particular crane type or is that across the board?

It's pretty broad. When you get the shorter production throughput, obviously it's not a big issue, so the very light capacity side. But beyond that, it's pretty broad.

Okay. Thanks very much, guys.

Next we'll hear from Nigel Coe with Deutsche Bank.

Good morning. Could you give some color on how the crane revenue -- maybe the backlog breakdown between North America, Western Europe and emerging markets?

It's pretty consistent with the revenue breakdown that we give regionally, Nigel. Nigel. We talked about -- over half of our revenue is coming outside the US. That is a company metric and even a larger percentage in the crane business. So from an emerging market standpoint we had indicated that we expect to realize $1 billion in revenue from the emerging markets this year.

So the backlog would be a little bit greater than the revenue proportion?

I'm not sure, what do you neon by that, Nigel?

As we see weakening in Europe, the proportion of orders coming from emerging markets would naturally be increasing.

I think the thing you have to remember, Nigel, is as we wreak down the regions, we have emerging markets in all three. You have got it in the Americas with Latin and South America, and you have it in the Middle East and Eastern Europe and the EMEA region, and obviously much of APAC would be considered emerging markets for us.

Nigel, I want to point there is a mix issue here at play, as I talked about in the earlier question what our end markets are -- and you get into petrochem and into energy, the strong end of our market is the higher capacity cranes, whether it's the GMK, the larger towers, the crawlers and that is where a lot of capacities was put into play the last 18 months. So while the units can be different, the dollars can also be different because of the mix. So that all plays into whether it's western Europe, the Americas, and the emerging markets. And those end markets are still strong in all of the regions throughout the world.

Okay. Switching gears to the Enodis deal, can you give us some sense of the major hurdles and maybe deadlines between now and getting the deal done in 4Q?

Yes, we can do that. Go ahead, Mike.

I would summarize it this way -- we continue to work with all associative regulatory body and most notably the Department of Justice and US and the European Commission for the European issues. And we're still very much on track and expect to get down in the early October timeframe as we originally expected.

Okay. There are no major landmarks you are looking for between now and then?

No.

I mean the shareholder meeting is here in early August -- August 4th is the date.

Marine is becoming quite meaningful. Can you give us some indication of second half earnings from Marine and how sustainable the current earnings picture is?

We're pretty pleased with the Marine performance overall. Obviously we do know that there was an unusual bottom line effect that occurred because of a foregone deposit by a customer. That was helpful to earnings in the quarter. I would say as you look at the total year for Marine, we'll still have the ability to achieve a double-digit operating margin there, but certainly you are not going to see run rate from what we had in the second quarter.

That deposit is $13 million of income second quarter -- if I multiply that by two, is that a good indication for the second half?

Say that again, Nigel.

$13 million of run rates EBIT for the Marine second quarter -- is that a good run rate for the second half of the year?

No.

Okay. And then just a quick one on the second half incremental margins in crane, there's probably a bit more pension 3Q than 4Q given your pricing actions are coming through in September/October?

Yes, Nigel, that would be correct.

Okay, thanks a lot.

Next we'll hear from Robert McCarthy from Robert W. Baird.

I'm sorry to beat a dead horse, but I want to make sure we don't walk away with the wrong inferences. Carl when you say a modest double digit for expectations for second half incrementals in crane, I infer that means likely below 15%. Is that -- do I have the right takeaway?

Yes, I would -- definitely below 15%. I think you can see the magnitude of the headwind is hampering us from increasing our top end of our guidance, because of the material issues, primarily, and our inability to recapture the margin. We're recapturing the dollars, I would say, which enables us to hold the top end of our guidance, but certainly it's significantly compressed on the incremental side.

Okay, thank you. I would like to also ask about Enodis. Of the $80 million minimum, I guess $80 million plus, of the $80 million in synergies that you all have identified at this point, what proportion of those would impact '09 and your estimate for earnings accretion in '09?

About 30%.

ABout 30%?

Is our expectation. We get to almost the full -- to roughly 90% level in 2010 are our expectations right now.

90% in 2010.

And then full run rate.

Okay. That is good enough. And then is there anything you can tell us -- can you give us any help on even a rough size estimate of what you are anticipating that you will likely divest once you have consummated the acquisition?

The only thing, Rob, we had said publicly and it's in the documents filed is that the [Global Scotsman] as a divesture give up with the regulatory agencies. And other than that, that's still where we think where we can fall out.

Can you give us any idea, Glen, like a maximum revenue number? It's less than $300 million? Less than $500 million, less than $200 million?

Unfortunately, we can't, Rob. We're constrained by the way, that Enodis does their public reporting. Like us, they don't disclose brand financials. So we just can't provide it. I think there has been some public commentary on the point that is out there.

Okay. And lastly, is there any detail you can share -- you talked about both military and commercial programs in the Marine segment where you have an opportunity to put up interesting contract wins in the second half. Could you give us any details, instances, examples?

I will let Bob speak to both the commercial side and some of the things going on and on the government there is some opportunities.

Yes, we're in the final stages of bidding on a fairly major government contract for a series of 150-foot boats. That would be an excellent contract to land. We're also penetrating the energy exploration market with vessels that are in support of drilling rigs.

Okay. Thank you. That is helpful.

Next we'll here from Kent Green with Boston American Asset Management.

Good quarter, gentlemen. My question pertains to the delays you had in China for deliveries -- was that significant and will that spillover to the third or fourth quarter or both?

It's pretty much, Kent, it will spill over mostly to the third quarter. It's significant enough that we wanted to mention it, because as people focused on the incremental margins and that kind of thing, and yet, it washes through pretty quickly in the third quarter.

Several of the machinery companies have talked about buying domestically from China, affecting their sales there. Could you comment on that and your joint venture and bring us up to speed how that new plant in China is progressing?

Kent, would you say that first question again? I am going to let Eric talk about the JV, but what was your point on the first part?

The first part is that the Chinese government is putting in certain programs to encourage people to buy from domestic suppliers in certain machinery areas, several comments by recent announcements. Have you seen any of that coming in cranes? And also, bring us up-to-date on your crane facility there -- what it's operating at capacity? Where it's selling to? Is it just selling into China, et cetera?

I'm going to touch base on that first part and then let Eric give you an update on the JV, but there are certain things that the Chinese government does that puts an onus -- whether it's a VAT tax or an exemption tax or anything else, they put it in on certain -- for us, particularly, they limit capacities of cranes. And so we have seen a movement in the capacity of the crane, where we used to be able to get exemption certificates, those continuing to move up is the Chinese become -- their supply becomes more available, whether it goes from 150-ton to 200-ton. And right now the exemption certificates are at about 300-ton. So anything under that, yes, it's very difficult for us to export into China, but the beauty is that we are a manufacturer in China. So long-term, we're a Chinese manufacturer, if you want to call it that. So So with respect to the JV, I'm going to let Eric give you an update on that.

The JV has been a very long process. We wanted to make sure based on our previous experience with joint ventures, of course, we learned some lessons. And we wanted to make sure that when we selected our JV partner for the truck/cranes that we're going to share the same bed and have the same dreams. I would say that the very first months of operations have proven that we have picked the right partners. So we're very pleased right now what is happening in TaiAn. We have huge opportunities because we have a new factory there, as we deployed our lean manufacturing Six Sigma initiatives, we're going to see really good results out of the factory. So it's a very good start and again the demand for mobile cranes in China is still very, very strong and we have a lot of room to improve our market share.

All right. Just a final question. You talked about verticals. Would you talk specifically of the crane business about countries where you see strength, where you see weaknesses?

The only weaknesses we see on a global basis right now, there is the smaller capacity cranes, a little bit on the mobile side and self-erecting towers here and domestically and then portions of western Europe on again the self-erecting and the smaller capacity mobile hydraulics. But other than that, we don't see anything throughout the rest of the world.

Thank you.

Next we'll hear from Dan Veru with Palisade Capital Management.

Good morning, gentlemen. Most of my questions have been answered, but I wanted to kind of step back and get your general view on -- we have talked a lot about China and the emerging markets, but could you specifically talk about opportunities for growth in Brazil and how you see -- if you look down the road, if you see that as part of the whole composition of the business?

I can speak towards that because the strategy that has been employed there have been going on for a good four or five years. And it's like any other emerging market that we go into. Our sales people are very good and can sell anywhere in the world, and it's really the following up with the product support. So we now have some good strategies in place to break up all of Latin and South America into different regions with service and support, whether it be facilities, whether it be in partnerships. We for a while have had somebody building mass sections for us down in Brazil for our tower cranes going down there. We have some other opportunities that we're looking at in the mobile hydraulics side, and the build-up of our infrastructure in Brazil has been certainly a very extreme path on growth for us. There is a lot of -- when you get into the mines, you look at what is happening in the resources. I mean whether it be northern Brazil, southern Brazil -- I will take all of South America, Argentina and Chile. So they're looking at some of the products that they haven't had previously, and an example of that could be boom trucks. We're trying to look at our crane product and put it on a local carrier. So as we do those types of things, again, it comes out once we have the infrastructure in place, the voice of the customer becomes very powerful and that is where a lot of our strategies come from.

And can opportunities in Brazil over time approach -- China is on a bigger scale, but proportionately, can they be as important and profitable for you?

I think when you look at the growth rates, obviously it's a much smaller base. And you're right, it's not going to get to those total volumes of China, but it's a very important piece of our business and the people in the Americas responsible for it, I mean, yes. It's a significant part of our business. And as we look at what we have done in the crane side, let's take it to the foodservice side. We also have, when you look at financing that we have done on the cranes, we can take some of this infrastructure and put it into place in foodservice. And when you look at what Manitowoc foodservice has and what Enodis has and the opportunities that we have to expand in that area, the growth rates can be extraordinary.

And really, I'm not going to ask you to comment on your stock, but clearly the valuation of the company has changed in the last year, yet some would argue that the balance of the business with foodservice and the progress you have made on the crane side and the Marine side, that clearly, certainly we would view Manitowoc as a better company today than it was a year or two ago, yet that is not necessarily reflected in what Wall Street is valuing the company at. What do you think you need to do to enhance the valuation for shareholders?

I agree with a lot of what you are saying, obviously, but I think if you go back -- whether it's from 1995 or 1998, 2001, 2004, we have made some pretty bold moves during those years, and it's easy to be the pessimist, but I think what we need to do is simply execute. I said it earlier in my remarks, our strategies are good, our plans are good, and it's simply a matter of executing and we have a proven track record of that. So that is really has to happen. I think it's simply a matter of execution.

Thank you.

Next we'll hear from Dan Sundheim with Viking Global Investors.

Hi guys, just a question on capital structure. Can you talk about your comfort with maintaining the three times leverage, given the cyclicality of the business, posting notice and can you talk a little bit about under what circumstances you might raise equity? And also how forgiving the covenants are going to be on the funding?

We certainly have a comfort level. I think that is reflective of the ability to generate cash, very strong cash flow dynamics in the company very consistently over a long period of time. So there is certainly a tolerance for the debt levels that we would expect to be at at the close of the transaction in the fourth quarter of this year. That comfort, I think, has been reiterated by the rating agencies as they've looked at an all-debt structure and their affirmation of our credit rating.

Ladies and gentlemen, we have lost communication with the line at this time. Please stand by while we reconnect. (OPERATOR INSTRUCTIONS) The speakers have been reestablished.

Josh?

Yes sir, you're back online.

Apologies for that disruption and disconnection. So the question was relative to the cap structure comfort level with the leverage -- obviously we have a comfort level based upon a pure debt transaction. We have -- inherent in our expectations is that we would we adopt an all-debt structure, unless there was something that would occur relative to other growth opportunities or something that's unforseen at this level. At this time, we expect to adopt all-debt and quickly delever. As far as the covenants, yes, there's certainly a comfortable cushion with the covenant.

We will now take our next question from Matthew [Clavel] with Silver Point Capital.

Hi, good morning. I was wondering if you could give us a sense of the impact of currency on your topline and [cross WTN] backlog?

Currency is probably somewhere just under 7% on the topline. From a profitability standpoint, it probably contributed about $0.05 to the EPS line. Backlog would be very similar to the revenue at roughly 6%, 6% to 7%.

Okay. Thank you very much.

Next we'll hear from Alex Blanton with Ingalls Snyder.

It's Ingalls and Snyder. I missed part of the call. Did you mention what price increases you might be affecting percentagewise for the entire year, year over year?

Alex, you're talking about for 2008?

Yes.

Basically, with respect to the cranes, it was mid single digits that we announced earlier in the year, and that's what we're realizing for this year. What we did mention -- it was probably in one of the Q&A -- not going back and doing midyear pricing on the backlog. What we have done is instituted in June a 1% surcharge on some models of the cranes that have some higher steel components on the specialty steels, so that will blend itself through for the rest of the year.

But what about -- you mentioned that you were going to raise prices in the fall, I think, didn't you?

Yes.

So I'm asking, for the entire year, what do you anticipate your price increase will be?

But those prices won't go through in 2008. Those will be prices that will start in January 1 of 2009.

But they're big on things that are ordered though, in the fall.

I'm not sure I understand --

Well, when someone orders something in November, they're going to be paying a higher price, correct?

Yes.

So taking that into account, when we get to the end of the year, how much will your prices be up for the year?

It'll be a mid single digit percentage realized for the full year.

I'm sorry, I don't mean what's going to be realized. The price you are charging customers -- how much will it be up across the year?

We haven't determined that, and the reason we haven't determined what we're going to do going forward is because as an example, the price of scrap steel goes up 33% in one month, so that's why we've delayed it to October or November of this year before we announced the price increases for '09.

Right, but do you have an estimate of what your prices will be up? For example, if [Tarex in area] work platform said, we're going to increase our prices 7.5% in October, and I think JLG Oshkosh said the same thing about JLG, 7.5%. So do you have a number like that in mind for next fall?

We do, but we are not going to say it publicly.

I mean, this goes to what revenue we would be looking for in 2009, because it would start in January, right? So you have a number in mind, but you won't share.

No, I think there's a lot that goes into it, and as we contemplate what it is, we have to look at -- our competitors, you mentioned JLG and Tarex on their area work platforms -- that's an end market we don't compete with --

I know, I'm just saying that is an example of a company that told us how much they were going to raise prices.

We have not yet determined what we're going to do across the globe on that.

The second question is sort of related to that, but there are very large price increases being contemplated as I just mentioned. Have you in your planning considered what the response of the monetary authorities around the world might be to these very high rates of inflation that we have had? We have seen a lot of different countries, central banks of many different countries raising interest rates recently because they are concerned about the inflation rate. Is there a chance that this could slow growth down to the point that it would affect your crane business in the next couple years?

I think there's always that opportunity, but we look at all the external risk factors that come into play and economic policy is one of them, whether it be the Middle East or whether -- somebody had asked earlier about what China, when they restrict the exemption certificates and you pay a 17% difference if something is manufactured there or coming in as an import. So that goes into what we're looking at, exchange rates and where we manufacture. And we take all of that together and as I mentioned, try to manufacture manufacture many of these end markets and our products in the markets that we're selling them and to give us the same competitive advantage as a local supplier. We look at all of that and even if it's not economic policy, commodity prices -- as you look at the continuing rise in commodity prices -- that is an external factor that we watch. The price of oil, which can help us and if it gets too high, you wonder where is the breaking point? There is a lot that goes into play. But as I said earlier in the call, if you look at end markets from a crane standpoint -- and I'm going speak to cranes on this -- the volatility that we saw in the '70s, '80s, '90s -- our globalization efforts have tried to take out the impact of these big swings that we have had in our businesses during those previous downturns. And so when you look at this, yes, we're trying to minimize the impacts of any of these localized events that you are talking about. When you look at the foodservice side, you don't have those same inflationary-type pressures and it's a more modest increase. And certainly as we mentioned in the last three years in the US or the last 40 years in the US, only three contractions. So we put that all together as we look at our business model moving forward.

Thank you.

Next we'll take a follow-up question from Charlie Brady.

Thanks, can you just clarify a comment regarding the crane revenues in 2008? Did I hear you correctly, up 30% plus in '08 now?

Correct. Whereas the original metric we put out there was a currency neutral metric, I'm saying in this instance, today, that our expectations are 30%, inclusive of the currency tailwind.

What is the currency impact year-to-date?

It was been similar to what we disclosed for quarter, 6% to 7%.

With the regard to the foodservice segment operating margins, pretty good margins in the quarter despite a revenue decline -- have we moved up to a higher level in the foodservice business or was there something in the core that drove that margin higher that we might see it tick back down?

Well, I think you certainly typically would see the second quarter as the highest margin performing quarter for foodservice, just based upon the order patterns that have been very tried and true over a long period of time. So all in for the year in foodservice, I think that mid-teen margin expectation in food service is still a good metric to look at there.

Ladies and gentlemen, that will conclude today's question-and-answer session. For any additional closing remarks, I would like to turn the call back over to Mr. Khail.

Before we conclude today's call, I would like to remind everyone that a replay of the call is available beginning at 12 noon Central time until 12 midnight Central time on August 5. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 3047397. You may access an archive version of today's call on our website at www.manitowoc.com. Thanks again for joining us, everyone. Have a good day.

Ladies and gentlemen, that does conclude today's teleconference. We do appreciate your participation. Everyone have a good day.