Manitowoc Company Inc (MTW) 2008 Q3 法說會逐字稿

Good day everyone, and welcome to this Manitowoc Company Incorporated third 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. Khail. Please go ahead sir.

Good morning everyone, and thank you for joining Manitowoc's third quarter earnings conference call. Participating in today's call will be Glen Tellock, our President and Chief Executive Officer, and Carl Laurino, Senior Vice President and Chief Financial Officer who will discuss our financial results for the third quarter.

It has been our practice on these calls to feature one of our segment Presidents to provide an in-depth view into their business. We're going to depart from that custom on today's call by asking Glen to be our featured speaker.

The current economic situation is unprecedented, and Glen would like use this opportunity to provide some insights into how external factors are affecting Manitowoc's business, to discuss how the Manitowoc management team is controlling operating costs, as well as sharing his outlook for the future of our Crane and Foodservice businesses.

Glen and Carl will also provide some additional information about the integration of a notice which, as you know, became an official part of the Manitowoc Company on October 27. Following these remarks, we will be joined by Eric Etchart, President of Manitowoc Cranes, Mike Kachmer, President of Manitowoc Foodservice, and Bob Herre, President of Manitowoc Marine, all of whom will participate in our question-and-answer session.

For any of you who 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 November 5. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 4835607. You may also access an archived version of this call by visiting the Investor Relation section of our corporate website at www.manitowoc.com.

Before Carl reviews Manitowoc's third quarter financial performance, I would like to review our Safe Harbor statement. This call is taking place on October 29, 2008. During the course of today's call forward-looking statements, as defined in in the Private Securities Litigation Reform Act of 1995, may be made during each speaker's remarks, and during our question and answer session. Such comments are based on the Company's current assessment of its market 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 Carl Laurino.

Thanks, Steve.

Yesterday, the Manitowoc Company reported third quarter net sales of $1.1 billion, and operating earnings of $140.6 million from continuing operations. Net sales in earnings increased 19.6% and 19.2% respectively. Earnings per diluted share was $0.80 before special items, compared with net earnings of $0.66 cents per diluted share in the third quarter of 2007.

After special items, which included a loss from currency hedges of $198.4 million, or $0.99 cents per diluted share, the Company reported a third quarter 2008 net loss of $26.1 million, or $0.20 cents per diluted share.

The hedge loss represents the market to market accounting treatment of currency hedges that were necessary to remove the risk of currency movement between the U.S. dollar and the great British pound required for the Enodis acquisition, which was concluded on October 27th.

Third quarter 2008 Crane segment sales totaled $991 million, an increase of 22% from the third quarter of 2007. Operating earnings for the latest quarter were $139 million, a 24% increase from the third quarter of 2007. Despite the challenging material costs environment, operating margins in the third quarter of 2008 were 14%, 20 basis points higher than the comparable period last year, driven by control of SG&A spending. As we stated in our Q1 conference call, the biggest impact of commodity pressure is in the fourth quarter.

Crane backlog at September 30, 2008 was $3.3 billion, nearly 26% higher than the third quarter of 2007. In the Foodservice segment, third quarter sales totaled $115.8 million, a 2.6% increase compared to the third quarter of 2007. Operating earnings rose 2.8% to $18.4 million. Operating margins of 15.9% were unchanged quarter over quarter.

The Marine segment, which is being treated as a discontinued operation, pending expected sale in the fourth quarter, generated sales of $103.5 million in the third quarter of 2008, a 28% increase from the third quarter of 2007. Operating earnings grew to $15.8 million from $6.4 million during the previous quarter. This improvement reflects an incentive award payment for the on-time delivery and successful sea-trial of the Littoral combat ship, coupled with other payments related to the settlement of previous contracts. The improved results also reflect continuing on schedule production of double-hull tank barge projects.

I'll conclude my comments by reiterating our revised guidance for 2008, which was lowered less than 5% to a new range of $3.15 to $3.25 per diluted share, including the Marine segment. As mentioned in yesterday's press release, this revision was prompted by the impact of the credit crisis on our markets, and the weakening euro, along with factory absorption and product mix issues This guidance excludes any unusual items, as well as any effects from the Enodis acquisition, which I will address a bit later in today's call.

Now I would like to turn the call over to Glen. Glen?

Thanks, Carl. Good morning.

The last time I was a featured speaker on a quarterly conference call was the second quarter of 2007. That was my first conference call as CEO, and I used that opportunity to describe my approach to managing the Company. I affirm my confidence in Manitowoc's long-term strategic direction.

I also talked about the five management principals that I've learned over time, and promised to follow as CEO. I would like to take a few minutes this morning to reestablish these basics as the foundation of our outlook and plan for the future.

I am more convinced than ever that our long-term strategy is appropriate, not only for the current situation, but it is the right approach to realize the full benefit from the opportunity that we envision for the future. As we maintain our course, those basic management principals are making more sense every day. No surprises, bad news first, full disclosure, no your costs, and my favorite, do what you say you're going to do.

We have a good track record of keeping our stake-holders well informed about the direction and progress of the Company. We have provided full disclosure as a matter of course, and we have not avoided or sugar coated the negatives. During the past few years, rising steel and other raw material prices have sharpened our attention to costs, while also driving some real innovations in what we buy and how we buy it, without compromising quality or value. The following are some examples where we have successfully achieved our 2008 objectives.

First, completion of the Crane capacity expansion on time and on budget. Second, grow the Foodservice business through continued product development and expand the segments global footprint. Third, deliver the Littoral combat ship on time, and optimize our shipyards in both -- in terms of both military and commercial contracts. We have, and won a $1 million award for exceptional performance. Fourth, pursue operational excellence, and we have delivered on this through lean manufacturing initiatives that have lessened the impact of rising material casts. Lastly, we recognize the need to keep our business model flexible, which would enable us to work through difficult economic cycles like we are facing today.

Manitowoc's success has been the result of focusing on the right long-term goals, following the rules, and conducting our business in a disciplined manner in both good and challenging times. And we will take the decisive actions that are warranted in the face of a challenging macroeconomic environment. Most recently, we have rebalanced the production schedules at our factories, eliminated temporary workers in certain factories, reduced the number of shifts at factories where demand has slowed, internalized a variety of previously outsourced manufacturing activities, instituted a global hiring freeze of salary employees, instituted reductions in deferrals of other SG&A costs, and accelerated the ramp up of lean manufacturing initiatives in our global Crane facilities. Furthermore, we are prepared to take additional action as circumstances warrant.

Now let's look at the impact of the global economy had on our third quarter, and then discuss how it's likely to affect our longer range view of the future. Demand for our high-capacity crawler and mobile telescopic cranes remains strong in the Americas, the Middle East, India, and Asia. We're publicly funded investment in large infrastructure and energy projects continues.

Demand has softened in China, consistent with the anticipated post Olympic pause in commercial construction. Even with the lower short term rate of economic growth, China's need for energy, power generation, and broad-based infrastructure continues. Our Zhangjiagang facility is producing the right products for that market, and our tie-end joint venture gives us additional avenues of opportunity to serve China's future growth and development.

A major residential correction in Western Europe, aggravated by reduced availability and higher cost financing, is impacting the demand for our Potain tower Crane products. Incoming orders have softened, and some tower Crane orders have been canceled. However, to date, there have been no cancellations in our crawler Crane and mobile telescopic product lines.

Even though our total September 30th backlog is up significantly year-over-year, it is down about 5% from the record high set in the second quarter this year, due to tower Crane demand. However, another aspect of the backlog decline reflects our decision not to open the 2010 order book until we finalize our pricing decisions based upon steel and other material costs forecast.

The global environment also is affecting the Foodservice industry. Capital investment is down for the 8th month as some base of tightened lending to restaurants in the slowing economy has reduced existing restaurant sales. This pattern is most produced in North America.

The good news for Manitowoc is that we did complete the Enodis acquisition, as expected. This acquisition not only expands our product offering with a complementary array of market leading hot-side equipment, but will enable us to globalize our Foodservice segment following the same successful blueprint that we used to globalize our Crane segment a few years ago. It will contribute approximately 1/3 of our total consolidated revenues, and become a significant component of our corporate growth strategy.

Also during the third quarter, we implement at long-term strategic decision by entering into a definitive agreement to sell our ship-building business. We expect to complete this $120 million transaction during the fourth quarter, which will result in an estimated $0.60 cents per share after tax gain. While it will be emotionally difficult for us to sell our legacy business, this action is good for the Marine business, and its employees, who will become part of a leading designer and builder of ships, and good for Manitowoc, which can focus it's resources and attention on its two growth segments.

That's where we stand today.

Now let's look at how we'll meet the challenges presented by the current period of economic uncertainty. First, we expect to manage our way through the current situation by doing what makes sense, both for the immediate, and longer term future of the Company. Manitowoc is a much stronger and better balanced Company than it was just five years ago. Today we have a broader mix of products, a wider geographic scope, and much higher levels of efficiency.

Meanwhile, out on the shop floor, our operating teams are taking every prudent measure to maximize our performance. For the Crane segment, this takes the form of using our global manufacturing facilities to produce products closer to our customers at more competitive costs. It also means a tight control on SG&A and material costs of all kinds.

At Foodservice, we're managing the cost of materials and taking advantage of the increased demand for replacement parts that accompanies an economic slowdown. As we manage through the rest of 2008 and into 2009, we're making sure that our short term decisions do not compromise our ability for success when the world's economies regain their balance and get back on course.

I'll now ask Carl to update us about the acquisition of Enodis, including the financial benefits that we expect Enodis to bring for the balance of the year, as well as updating our guidance. Carl?

Thanks, Glen.

We are naturally pleased to have been able to bring the Enodis acquisition to fruition. I'll update Enodis's 2008 performance and provide some color about or expectations for the combined business.

For the fiscal year ending September 30, 2008, free exceptional items, sales and operating earnings were up 9% and 15% respectively. This solid performance reflects both the stability of the Foodservice industry, as well as the market leading attributes of Enodis. When we fund the Enodis acquisition, our total leverage ratio, as measured by the our debt to EBITDA, will be 3.1 times. This is more than one full turn of leverage less than we incurred when we completed the Grove acquisition. Despite the fact that the Crane business was contracting at that time, we were able to quickly delever, and we expect to do so once again.

Expected total leverage should be approximately two times by the end of 2009. This reflects our strong cash flow expectations, as well as proceeds from the divestitures of Enodis's global ice business and our Marine segment. We expect the divestiture of Enodis's ice business to be completed by the end of Q1, 2009. We have been fielding inquiries about the business since bid was formally accepted in July. Those discussions have evolved into a formal sales process, which has received robust interest from several qualified and well capitalized buyers. Given the abbrasiveness of the ice business, including stable end markets, the replacement driver to the revenue stream, strong market position, and solid cash generation, we expect to receive a fair price for the business, despite the challenging economic environment.

As stated earlier, we expect the Enodis acquisition to be accretive to our earnings per share in 2009. We expect to realize over $20 million of synergies in year one, and over $80 million in annual synergies and benefits in 2011, which will help us achieve EVA positive results in that year as well.

Cost of synergies, many of which will be incurred this year, are estimated at over $30 million. All of these metrics remain as previously stated, except for our expectation that Enodis's ice business will be sold by Q1, 2009.

Our financing for Enodis is obviously in place, and it is fully syndicated. Given our comfortable leverage profile at closing and our outlook, we reiterate that we do not expect to issue equity. At current market rates, the effective interest rate for the debt will be approximately 6.75%. This assumes a 50% fixed to floating interest rate mix.

While the current economic environment will undoubtedly pose challenges for us in the intermediate term, we expect our strong backlog, diverse end-markets, and geographic breadth to serve us well. Contrasts between Manitowoc today versus the last downturn are worthy of note. Global penetration of our products, spreading economic risk, consolidation within the Crane industry, higher percentage of variable to fixed cost structure, percentage of manufacturing in low-cost countries, notably China, India, and Slovakia, cost take-out initiatives achieved as part of our integration, including five factory consolidations, one in Foodservice and four in Cranes. The development and introduction of dozens of innovative Crane products that are creating broad based demand across the global construction industry, and the scale of our Foodservice business and its stability.

Because of these differences, we expect to be able to generate total Company operating margins at or near 10% in the next trough of the Crane cycle, which again we wouldn't expect to see for at least a couple of years. With that, I'll turn it back over to Glen.

Thanks, Carl.

Before we open the call to your questions, I would like to share a few more thoughts about the road ahead for our business.

A recent report by the CGLA Infrastructure Group examined the future of such projects in light of the current global financial crisis. They noted that global infrastructure projects are obviously critically important to economic growth, however, equally critical to social and political stability. Global spending on such projects is forecast at over $6 trillion over the next five years.

With regard to the Foodservice industry industry, global long-term growth prospects remain solid, especially in the developing worlds. But you notice, we are now a full service provider of innovative solutions for commercial kitchens worldwide.

In conclusion, we are confident in our ability to manage through the current economic challenge while generating significant value from future opportunities. Manitowoc Company is in good shape. Our finances are strong, our credit facilities are solid, and we have the right people in the right jobs to execute our strategies.

Finally, we are responding and we are also prepared to take whatever actions are required by changing market conditions, or that prove to be in the best long-term interest of our shareholders, customers, and and employees.

Lisa, that concludes our prepared remarks. We will now open the call for your questions.

Thank you, sir.

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

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

Thanks, good morning.

Hi, Charlie.

With respect to Enodis and the global ice business, can you give a sense of what size that global -- I know they do $153 million in US, but how much of that is US? Can you quantify on a global basis?

And, also, on the margins. Where are the Enodis margins today, or at least as of the end of September, and how and does divestiture of global ice impact those operating margins?

Well, Charlie, the global ice business in fiscal 2008 was less than $400 million, roughly $350 million, and the EBITDA for the business in the 40s. Call it 45.

Where are you noticing margins today at the end of September? You said they were up, but what is the actual margin number there doing?

A little less than 10% EBIT margin.

And our next question come from Nigel Coe with Deutsche Bank.

Thanks, good morning.

Carl, just to follow up on that question on the notice. Given that has come down since you bought Enodis, assume you got a multiple for the ice machine sale, that -- I'm assuming there will be a taxable loss on that, given the spread in the multiples. How can you use that tax loss? Is there any -- can you only utilize it against further capital gains, or would you be able to absorb that loss elsewhere? If indeed it was a loss.

Nigel, I certainly -- given the, you know, scale and continuing profitability of the Crane business, and an expectation that we divested this business in 2009, we would think that there would be other places for us to put that.

All right. Okay. So you could use against operating earnings, is that right?

Yeah.

Okay. That's good news.

If you could just talk about the way that the -- the bookings and Crane progressed through three Q, can you characterize July, August, and then September, and if you could give some color on October, as well?

Well, Nigel, I think when you look at it, we talk about the backlog being down a bit, but, at the same time, we haven't put anything in, primarily in North America, and for the North American produced products throughout the globe. It was a backlog, as we watch what happens, getting closer to year-end. So the order rates are still good, as we say, in the crawler and the large telescopic crane.

Again, it's the demand for the tower cranes, certainly the self-erecting towers, and the smaller top slewing towers, and a little bit on the low capacity, anything in the mobile side, is really a little bit slower than we've seen in the past, but, again, anything that's in the higher capacity is -- the order rates have still been good, and the inquiries still very strong. So that's -- I think that's what is propping up, as you can see, the backlog at the end of the third quarter.

And our next question comes from Seth Weber with Banc of America Securities. Pleased go ahead.

Thanks. Good morning.

Did the -- does the third quarter back log include any inclusion of the shadow backlog that was out there for '09 that kind of got put into the backlog as you set prices for 09?

No.

Okay. So there's still a shadow back log for '09 and '10 is what you're saying?

Well, not so much for '09. Well, yes, it is for 2009, and nobody, at this point in time, is looking out into 2010 for much of anything.

And could you just remind us what your policy is for taking deposits and/or progress payments on either stuff that goes into backlog, or this -- or these shadow backlog?

Yes, for your reference, and we don't talk much about shadow backlog obviously internally, I know that came up somehow in the industry over the past few quarters, but what I would say is we basically are putting things in that with deposits on those that have the higher contents of the higher strength steels, which are primarily the higher capacity crawler cranes, and then certain large orders that have spread out over the year, and across many of the different product lines.

But on specific individual product lines for whether maybe a dealer or a custom order, the smaller capacities, we don't take deposits.

And our next question comes from Charlie Rentschler with Wall Street Access.

Good morning, everybody.

Hey, Charlie.

Glen, you listed all of the belt-tightening moves you're using in cranes, as if you are expecting a broad down turn, but you're saying you've seen no cancellations in big mobile hydraulic and crawler cranes, but then I thought I heard Carl say something about a trough. Do you guys see this, the Crane market, broadly moving lower over the next couple of years?

Well, I think when we look at the change in any of the outlook that we had, it's primarily the credit market driven. If you go back to history, as an indicator, we wouldn't believe that the trough would be for probably another couple of years, but given the fact that all of a sudden you have a liquidity issue, we're trying to figure out, and I think everybody else is, also, Charlie, is when is credit available, when will these things come back.

When we talked to a lot of the customers, whether it be in the Foodservice or the Cranes, and even in the Marine, people are saying, hey, I have these projects, but I'm backing off of this for right now. The projects are still there. People want to still do these things, but they're just saying time out until I figure out how available the credit is going to be and where we're going to get the money.

So, in the interim, let's take, for instance, in some places in Europe, I mean, if we go from where we've been running a hundred miles an hour, you're going from three shifts down to two, if it's self-erecting towers, where Spain is a big user of some of that product, you may go down to one shift. So we are doing the belt-tightening. We're doing it very quickly, and I think we have to do those things to be prudent, because I don't know when credit is coming back, but I can tell you that what's different now than the last down turn is the projects are still there, it is just a matter of when are they going to get financed.

And a couple of quick questions about Enodis.

How are you going to organize to handle that? Are you going to go to the matrix approach, like you used so successfully for Potain and Grove, or what?

Well, you know, that's a good question, Charlie, and I think what has to happen, since they've now been a part of the family for an entire two days, as part of the integration teams, and Mike had a day one kick off on Monday, and then he spent time with the senior leadership team Monday and Tuesday, that is all part of the integration.

They want to sit town and say, okay, as a team, when we put these together, what is the best organization for the Foodservice group? The reason we went to the regional approach in cranes, way back when, was the majority of the synergies were all within the region. There are not a lot of global customers, you could focus in the region, and it made a lot of sense to do that.

I don't think I'm in an position now to say what the best organization structure is for the Foodservice group, but I know they'll know that in the next 60 to 90 days, they'll get it right. We are all looking forward to how they go about it.

The Enodis organization was a little bit different than ours. Some similarities, but I think what they want to do is get together and pick what the best of both worlds be, get everybody on board, and then move forward with it, and obviously with, not only, what's best for Manitowoc, but keeping the customer absolutely forefront in how they go about it.

Carl, just a small clarification. You said, regarding Enodis in '09, there would be $20 million of synergies, but the costs would be about $30 million? Is that right? So, net $10 million negative?

No, I think that a lot of the negative synergies would probably be realized in 2008.

And our next question comes from Paul Bodnar with Longbow Research.

Yes. A question on the Crane market broadly.

What's the chance that some of these projects do get delayed, and they get pushed out, some of the cranes, do they end up getting redeployed versus what they would have originally had to order a new crane? Is that kind of what you're waiting to see at this point?

That's certainly going to happen every time you have one of these periods of slowdown. People are going to -- you will see more of rental/purchase options, more going into the Crane rental fleets. You'll see people, for instance on on the tower cranes, there just going to defer the purchase.

So you do have people moving cranes from one region to the other. We want to watch that, because where one region may still be pretty good, you want to see who has got available cranes that may take them to another region, but I think that in previous down turns, we've seen a lot of that. Sometimes with used equipment, but the used equipment market has strengthened much better over the last five years than they had in previous down turns.

So, I think you're watching all of that as we go along. So, I think, yes, as the projects are deferred and pushed back, you are going to see customers try to get the best utilization, and that's why we're looking to see where, as Charlie, we just talked about, some of the belt tightening, until we can understand how some of the fallout of the credit comes about.

Okay. Any kind of numbers you can give us in terms of what percent the larger crawlers -- the larger capacity cranes make up of revenue, and more particularly, in operating profit?

Yes, we typically don't give out that type of information publicly to product lines or to, sometimes, the geographic areas.

Okay. And just one last question on the 4Q guidance.

On the revenue side, you implied the Crane was right around 30%, and I'm sure currencies have some impact. What are you looking for on the revenue growth side?

Well, because in part because of the currency headwind, as we look at the overall topline for cranes, we're going to see a much more modest growth level in the fourth quarter than we expected. So you look at full year-over-year increase of mid-20s.

And our next question comes from Robert McCarthy with Robert W. Baird.

Good morning, guys.

Hi, Robb.

My first question has to do with a notice. I just want to make sure that we understand exactly what -- or, well, as close to exact as possible, what we're going to see in the fourth quarter.

The $30 million would be, the number that you were talking about Carl, would be to generate the synergies, but I assume there's a mess of purchase accounting adjustments, and other nonrecurring expenses you'll have to recognize. Is there any way for you to give us an idea of what kind of magnitude -- what kind of overall effect to look for from Enodis, either with or without nonrecurring items?

Well, without nonrecurring items, remember, Rob, that you're at a -- not unlike our own Foodservice business, you are at a seasonal low in the Foodservice business.

Okay.

So we would actually, just from operations, probably expect to see, you know, earnings headwind of roughly $0.10.

Okay.

The $30 million figure that we throw out on the cost of synergies would be inclusive of those purchase --

Oh, the --

That's not all expense.

Yeah, ok. All right.

And can you -- in comparison with the $45 million of EBITDA, roughly, that is represented by the global ice machine business, can you tell us how much the Company reported in total for total EBITDA for the year? This is Enodis.

A little over $200 million for the year, Rob, and I should tell you, also, I'm glad you asked the clarifying question, because I think maybe I was a little low on the ice element of the EBITDA, you could probably push that into the 50s.

And our next question comes from Matt Jones with GeoSphere Capital.

Yes, hi, guys.

I was hoping you could talk a little more geographically on what is happening in certain markets on the Crane side, and what you're seeing specifically Middle East, Asia, you said China was a little bit slower. So I'm curious what's going on there. But more specifically the Middle East, seeing that that was the big boom market.

Matt, when you asked that, we were just in the Middle East, and I'll let Eric give you a little more color, but the take I had on it is they felt pretty insulated for some of the things that were happening around the world.

Unfortunately, when we were there, in some of these liquidity issues were happening, they started to see them a little bit, and so I think they're -- where they're not feeling the impact, many other places around the world are. They're very nervous or cautious about it, but I'll let Eric give a little more color on that.

Yes, we continue to see a lot of projects in the Middle East, and this is going to be, and we will remain, one of a booming area.

Really, the slowdown that we see is definitely in Europe, and I mean the last three months has been very obvious, and, again, it's primarily the tower cranes business that is impacted. But now the French market has slowdown following UK and Southern Europe.

Regarding Russia, there is probably a temporary blip, and again, it's linked to the credit, to tightening. We are of the opinion that this is only temporary, because, obviously, what happened in Russia and the military action in Georgia, you had this -- some investors concerned about the politic of risk, but the projects are there. Russia is only full of reserves and currency, so we believe that Russia, after that slowdown, should pick up again.

If you go to, obviously, Asia, yes, we have a slow down in China. That was expected after are the Olympics. Now it's definitely a decelerating growth. China has again achieved 10% growth in mid-2008. So we expect that slowdown, but, again, it's certainly not going to be a recession in China. So opportunities, again, will remain in China.

Latin America, so far, we have not seen anything happening. Latin America continues to have a strong demand, maybe because of a currency situation, and the strengthening of a (indiscernible) -- we see that a little bit on towers, but again, the demand for more buying more cranes remains very strong. Finally, in the US, again, Glen mentioned that the demand large crawlers, and large cranes is not slowing down. So this is my take away out of all the markets.

Can you guys talk, as you look into these markets, can you talk about your customer base and just who is securing, who is buying these cranes? Because it's obvious that the growth in the emerging markets is very strong, but what's not obvious is the ability to fund that growth, and just who the customers are, and how they're reliant on the banks and what not.

Have you broken down your customers in terms of who might be somewhat susceptible to credit issues, and which clients, on a percentage term, have ample liquidity and are going to continue to work through this global slowdown?

Matt, I mean, that's obviously looking at the end user on a regular basis, and their credit position, we do that even in good times. So, as we go through and talk to many of these people, whether it be in Europe or Asia or the Americas, a lot of what's being said right now is more from the liquidity of the project and financing of the project, than the financing of the customer.

We have our Manitowoc finance, which is, in good types, everyone wants to extend credit, but our Manitowoc finance that -- where we have partnerships with a couple of large financial institutions around the world, and they have continued to tell us that they're open for business, their balance sheets are good, and there are names that don't pop up in some of these other issues.

So, yes, we do look at what's going on with our customers, and a lot of them are very well capitalized customers, they're very well capitalized businesses, and so they're not just a one off or a two off type Crane company. I think if you go back to the 90's, and the ramp up until you got to 2000, 2001, I think primarily in the US, and a little bit in Europe, you saw people getting into the crane rental business that shouldn't have been in, and I think during this last ramp up of crane activity, it's a much better and a much stronger base of customers.

(OPERATOR INSTRUCTIONS) We'll take a follow-up question from Charlie Brady with BMO Capital Markets.

Thanks. With respect to incremental margins, and kind of where your guidance is on Q 4, from a straight operating margin, that guidance would imply a pretty sharp down tick in the margin in Crane in Q4 sequentially year on year, and you've talk about in the past about where you see incremental margins going in the back half of '08.

Can you just speak, sort of, where your expectations are now?

Yes, I would say obviously the issue there, Charlie, would be somewhat currency related would have an impact, as well as the commodities, which we had signaled earlier, and then you have the mix issue.

The tower Crane slowdown is -- we don't provide, to Glen's earlier point, we don't provide product line financial information, but I can tell you that the tower cranes as a general category is above our margin for the segment. We haven't provided any forward guidance yet for the '09 time frame, but I think you know, as we attack these issues on -- from a pricing policy standpoint, from a supplier management standpoint, and the other things that we could do in managing the business, we certainly are expecting to be able to perform well from a margin standpoint. And get on the right side of this, just from the pure commodity impact, and get on the right side of that from a pricing perspective.

How much in the change of your guidance would be related to slowdown in Crane, and how much would be a headwind from foreign exchange, relative to prior expectations?

I would say that the foreign exchange issue for us, looking at the fourth quarter, is a little less than $4 million on the earnings side. And the balance of the rest would be split pretty evenly between the volume absorption issues, and the mix issue.

And our next question comes from Seth Weber with Banc of America Securities.

Hi, thanks. Quick couple of follow-ups.

Have you finished all of your capacity expansions, or is there opportunity to slow that down if you haven't finished anything? And separately, Carl, have you thought about what tax rate would be next year for the combined Company?

Again, we haven't provided anything for the '09. As far as the capacity, I think Glen wanted to answer that question.

Yes, Seth, the capacity expansions that we started are all kind of -- the majority of them are done by the end of the third quarter. We just had the facility opening earlier this month, and the only one that I think remains open is really what's happening here in Manitowoc, and that's the expansion for the crawler cranes.

The large crawler cranes, we have obviously the 31,000 that we've introduced, and that's what that expansion is for, and it's -- to slow that down would be crazy, but everything else is pretty much behind us. But I would tell you those were, you know, still the right decisions. A lot of it is not -- wasn't all that capital intensive when it comes to brick and mortar, but a lot of it was equipment, a lot of it was efficiency improvement to some of the lean manufacturing things we're doing and talking about the volumes through the Wilmshaven factory.

So, in the areas that have slowed down -- it's Slovakia, India, those are the low cost countries, and I said in previous calls, when things did slow down, these expansions, when we turn around, this is where you're going to put the additional volumes through these type factories, and that's -- this is playing out a little sooner than what it think we thought, but this is why we did some of those expansions.

Hey, Seth, just a comment on the tax. There isn't anything that is structurally inherent that would have a big swing by virtue of bringing on a notice.

Okay. Thanks for the clarification, Carl.

And we have a follow-up question from Robert McCarthy with Robert W. Baird. Baird.

It occurs to me -- thanks for taking another question -- it occurs to me that the change in foreign currency translation may have had a negative effect on the backlog numbers of $3.3 billion. Did it? And if so, how much? Or do you know?

It's roughly 4%, Rob.

Okay. And then I have to admit, I'm just confused about the discussion of '09 and 2010 Crane orders. I believe last quarter we had talked about a significant level of potential orders that were not booked into backlog, because you were holding off on pricing them.

The release specifically says something about delaying opening the 2010 order book, yet, Glen, you said that, obviously nobody is really talking about 2010 right now. Can you help us understand what -- I mean is there a piece of business out there that you don't have hooked into backlogs that under I normal circumstances you would have expected to? And what was the effect of the order book that's talked about in the release?

Yeah, you're right, Rob, I misspoke on that. Thanks for pointing that out. It was some of the back end of '09 and into 2010, as you look at what a lot of the dealers are putting out into their projections as we move forward. So you're right.

Okay. All right. And -- okay. That straightens it out. Thanks.

(OPERATOR INSTRUCTIONS) And we'll take a question from Nigel Coe with Deutsche Banc.

Yeah, thanks for the follow up.

Carl, interested in your comments about the 10% trough Crane margins. I remember you used to have in your slides a reconciliation of prior peak Crane margins to the way you thought they would go. Within that you had the impact of commodity price inflation versus price, and I wonder if you have an update on what has been the impact of high steel prices, the high steel cost versus price, and if that were to unwind over the next couple of years, what potential benefit that might have on Crane margins?

Well, I can tell you from the quarter, Nigel, looking at it year-over-year, it was probably in the order of $6 million to $7 million of headwind for us.

Okay. And over the last four or five years, you've got no sense on the basic points?

Well, I think it's a dynamic situation with the customer, the arrangements that we make on the pricing side with customers, and what we can do on the procurement side.

I would say, generally speaking, during this upturn, we had some significant headwind in 2004 when commodity prices started to really go up significantly. But when we got into 2005 time frame, and during most of the upturn until we started talking about it earlier this year, we've really been, at least even, relative to the margin impact from commodities, and then obviously you know that we've got significant impact in 2008 from commodities to the tune of probably around $100 million.

Okay. And then just one more quick one on just the full Q-EPS. It sounds like a notice is fully neutral on earnings, is that correct?

I'm sorry, I didn't understand that.

It sounds like the notice isn't having a big impact on 4Q guidance.

Well, the guidance I gave in my prepared remarks for ex-notice, and we indicated through our Q&A that ex-special items that there would be about a $0.10 headwind from Enodis in 2008, because of the seasonal low that they're in in November and December.

And we have a follow-up question from Paul Bodnar with Longbow Research.

Just a follow up on steel prices for next year.

Are you starting to see a softening at all of the higher strength steel that you use, or is that price -- what's the outlook on it?

The steel -- I think you read a lot about that, and there are, on the mild strength steels, you are seeing things come down. But I think what -- when we look at it, and the latest information that we have, yes, it will come down, but I'm not sure that it comes down much further than what it went up in 2008, and some of the big spikes that you saw in the last half that we talked about in April and May of this year.

So I -- and that's the high tensile strength steels, and again, going back to proving that the high capacity type equipment is still very strong, it's because of that. So, I think we will see a little bit of relief, but I don't think it gets back down to where it was in -- if you want to talk in 2004, 2005, I don't think it gets near that.

Okay. Thanks.

And we have a follow up question from Robert McCarthy with Robert W. Baird. Baird.

Sorry, got a million of them. I'm sorry, I didn't quite catch, the $67 million headwind was for the third quarter?

No, that was inherent in the Q4, in the full year guidance.

I'm sorry, that's what is in the 4Q. And actually, thinking along the same lines as the last two questioners, wondered more on the Foodservice side, if you weren't starting to see, you know, a little bit of softening in material costs there?

We are, Rob. I -- again, I go to the word slight.

It's a matter of for every time you see where there's a softening, read the next paragraph of anything that comes out of the steel people, and then they're going to cut back on the output. So, I I think there's a happy trade-off there, but, yes, we are see something slight benefits on the steel for -- that's being purchased in Foodservice.

But, at the same time, you're seeing a little bit of benefit on and of the commodity costs also.

One thing I will also also bring up, Rob, is that in Foodservice, because you have hedgable commodities, aluminum, copper, the nickel, both Enodis and Manitowoc do have hedging practices, so that obviously takes some of the sting when the markets are moving up, but it just mutes it generally so that you're not seeing huge effects when they move in either direction.

Dually noted. Thanks for the clarification, Carl.

(OPERATOR INSTRUCTIONS) We have a question from George Breese with George Breese.

Good morning, how are you all this morning?

Hey, George.

You clarified the tax benefit of the Enodis situation. Could you also address if there -- clarify if there's any implications of the write down on the good will?

I guess my question, George, would be when you talk about just the specific good will itself, or are you taking about other intangibles?

No, the $198 million.

No, that's not a write down. What's happening is its purely the accounting entry we're going to have to make when we book the transaction, instead of showing the fact that it was $2.7 billion, it will be $2.5 billion, and it so really just reduces the amount of good will that we would have in the transaction.

Okay. Well, thanks for the clarification.

Yep.

And there are no further questions, sir.

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And that concludes today's teleconference. Thank you for your participation.

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