Manitowoc Company Inc (MTW) 2009 Q2 法說會逐字稿

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

Good morning, everyone, and thank you for joining Manitowoc's second quarter earnings conference call. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer; and Carl Laurino, Senior Vice President and Chief Financial Officer. Glen will open the call by reviewing our business outlook and Carl will discuss our financial results for the second quarter. Also participating in today's call are Eric Etchart, President of Manitowoc Cranes; and Mike Kachmer, President of Manitowoc Foodservice, both of whom will be available for our question and answer session.

For anyone who is not able to listen to today's entire call, a replay will be available beginning at 12 noon Central time today until 12 midnight Central time on August 4. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 4647656. You may also access an archived version of today's call by visiting the Investor Relations section of our corporate website at www.manitowoc.com.

Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on July 28, 2009. During the course of today's call, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on the company's current assessment of its markets and other factors that affect our business. Actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission, which are also available on our website. The company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or other circumstances.

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

Thanks, Steve, and good morning, everyone. Obviously, demand across our businesses continues to be weak, especially in the crane segment, which is causing us to operate at production levels well below our capacity. Over the past year, we have experienced one of the most dramatic cyclical swings in demand in our long history in the crane industry. In the second quarter of last year, the entire industry was capacity constrained. Now, of course, the industry is demand constrained. Our challenge is to manage the business for optimal results throughout this volatile market cycle.

So the question is, how are we meeting this challenge? We're following strategic plans and proven strategies that we've employed during prior market contractions, although the speed and severity of this particular downturn is requiring quicker and more aggressive cost control and asset management. The fact that this cycle is hampered by a global credit crisis also introduces new challenges for us and our customers.

Nevertheless, we have implemented specific actions that will eliminate approximately $365 million of costs from our businesses annually, with approximately $240 million of those cost reductions to be realized this year. Some specific actions include elimination of temporary labor and outsourced work as well as other steps to reduce variable costs. We have undertaken actions to reduce our work force by 40% in the crane segment, 15% in food service, and 10% in the corporate office. We have reduced SG&A spending in the first half of 2009 by $51 million versus 2008. We have realized $14 million or roughly half of the 2009 targeted Enodis acquisition synergies. We are aggressively implementing the quality improvement initiatives in the current segment worldwide to improve product reliability, reduce our internal costs of quality, and enhance customer satisfaction. And we are benefiting from the continued development of the Manitowoc Finance organization. Manitowoc Finance has proven to be an effective tool for our customers to mitigate the limited credit availability.

It is important to note that these are not just actions for short-term benefit. Instead, we are taking this opportunity to make long-term structural changes that will permanently improve our cost structure. Our initiatives are guided by three essential elements. First, providing our customers with products that are some of the most technically advanced and innovative in the industry; second, providing the highest quality in both in terms of our products as well as our customer service and after-market support programs; and third, ensuring that we have the right capacity and the right locations to optimize the cyclical and geographic swings in demand. So while we are making necessary reductions across the business, our objective is to achieve permanent cost efficiencies and operational improvements, not just temporary fixes.

In our view, these cyclical swings create windows of opportunity to strengthen our competitive position and build market share. This includes allocating resources to areas we -- where the growth -- there are growth opportunities while minimizing investments in reducing resources in areas where we anticipate longer periods of lower end market demand.

As I said, we take a long-term perspective. While our spending has been reduced, we continue to prudently invest in specific R&D projects that will keep us at the forefront of our markets. An example of is our Crane STAR asset management system. This advanced crane tracking system gives customers real-time information on their crane suites anywhere in the world. It was a Gold Award recipient at the recent Value Chain annual conference, which recognizes the best uses of machine to machine technology.

In the food service segment, we're also investing in our exclusive approach to total kitchen solutions, known as Kitchenology. This effort recently garnered three kitchen innovation awards for Frymaster, Garland, and Lincoln at this year's National Restaurant Association trade show.

Furthermore, we are continuing our long term commitment to customer service. Our experience from past cycles showed us that we cannot compromise in areas such as product support and new product development. Our customers can be assured that the quality of our service will remain unmatched, even in difficult times. As you know, our crane care after-market business is a key resource that truly differentiates Manitowoc from the competition. It is a comprehensive and technical resource that customers rely upon to maintain their equipment and train their operators and mechanics. Other crane care services include lift planning solutions and crane rebuilding services.

So what is the outlook going forward? We expect the food service industry to recover sooner than the crane industry. Of course, differentiated business cycles was a fundamental reason behind our strategy to expand our food service operations. That strategy is proving to be successful as the relative stability of food service is helping to mitigate the impact of the more volatile crane cycle. We have begun to see some sequential quarterly growth in revenue in the food service segment. While some of that is due to normal seasonal impacts, it also appears that demand is stabilizing.

In the crane business, demand continues to be weak, as numerous infrastructure and energy projects have been delayed, or in some cases canceled. We believe that there will be a number of quarters before a meaningful increase in Crane demand occurs, although there are pockets of growth. Our operations in Asia, Africa, and Latin America posted growth during the quarter. In addition, although business in the Middle East is down year-over-year, it is down much less than other parts of the world.

Going forward, we will continue to make cost reductions to optimize our operations. Our intention is to build upon our industry-leading positions by becoming even stronger, more efficient, and more innovative when the markets improve.

Before closing, I would like to reiterate that through all of this market turmoil, Manitowoc's ongoing operations will generate positive cash flow, consistent with our past trends. This will enable us to continue reducing debt, which Carl will discuss in greater detail. As you know, we have also successfully negotiated an amendment to our credit agreement, including new financial covenant ratios, giving us added flexibility to manage through this current down cycle.

So now let me turn the call over to Carl to discuss our second quarter financial results. Carl?

Thanks, Glen, and good morning, everyone. For the second quarter, we reported net sales of $1 billion. This is a decline of $156 million or 13% from the second quarter of 2008, with 6 percentage points of this decline due to currency. On a sequential quarter basis, which includes Enodis in both periods, net sales have leveled off in the second quarter, with the increase in food service exceeding the decline in cranes.

Second quarter operating earnings were $52 million, down from $175 million in the second quarter of 2008. Excluding amortization, restructuring charges, and other special items, operating earnings were $84 million, up 18% from $71 million in the first quarter this year. As Glen discussed earlier, we have been aggressive in taking costs out of our business, with an annualized cost savings of approximately $365 million since the second half of 2008. Of the $240 million savings now expected in 2009, about $150 million will be realized in the second half of the year. The crane portion of those reductions is 65%. The food service portion, which includes Enodis acquisition synergies, is 30%, and the remainder represents various corporate headquarters cost reductions and efficiencies.

On a per share basis, we experienced a GAAP loss of $0.14 per diluted share in the second quarter, compared to net income of $1.01 per share in the second quarter of 2008. Excluding restructuring charges and other special items, earnings per diluted share totaled $0.19, a slight increase from $0.18 per share in the first quarter. The special items as shown in the reconciliation table of our press release included a $23 million loss resulting from the sale of the Enodis ice business, $14 million in restructuring expenses, and a $3 million loss from discontinued operations, all on an after-tax basis.

Moving on to our segment results, crane sales in the second quarter totaled $652 million, down 39% from $1.1 billion in the second quarter of 2008 and down 3% from $673 million in the first quarter of this year. 8 percentage points of the year-over-year decline in cranes was due to currency. Operating earnings in the second quarter were $50 million, versus $167 million in 2008 and $57 million in the first quarter this year. This resulted in crane segment operating margins of 7.6%, versus 15.7% last year and 8.4% in the first quarter. Crane backlog at the end of the second quarter was $901 million, down from $1.4 billion at the end of of the first quarter. The decline was driven by order delivery as net order flow, defined as orders net of cancellations, was modestly positive in the quarter.

In the food service segment, sales in the second quarter totaled $383 million, up from $127 million in the second quarter of 2008 and up 8% from the first quarter of this year. On a pro forma basis, including Enodis in both periods, food service revenues were down 19% year-over-year. 4 percentage points of this decline was due to currency. Second quarter operating earnings in food service were $46 million, versus $23 million in the second quarter last year and $28 million in the first quarter of this year. This resulted in food service segment operating margins of 12.1% versus 18% last year.

The 12.1% operating margin is a significant increase from the 7.8% in the first quarter, showing the benefits of some of our integration activity as well as some positive seasonal impact. On a pro forma basis, food service operating earnings were down 12%, although the operating margin was 90 basis points higher than last year. Year to date, we have realized nearly half of our targeted 2009 synergies of $29 million. This is well on our way to the $80 million plus in savings and revenue synergies we expect to realize by 2011. Despite the slow start to the year, we expect to generate double digit full-year operating margins in food service.

Cash flow from operations totaled $16.3 million in the second quarter, and we reduced our debt by $161 million. During the second quarter, we reduced total inventory by $148 million. Year to date, that reduction totaled $120 million, in spite of a one-time $72 million final settlement of a legacy Enodis legal matter and $17 million in one-time fees related to the amendment of our credit agreement.

Given the company's expectations for continued second half cash generation, we are reaffirming our full-year target for $450 million of debt reduction in 2009. This expectation is consistent with our normally strong second half cash generation characteristics.

We were pleased with the outcome of the amended credit agreement. It should provide us with the ability to manage our business and comply with our new financial covenants, even with an expectation for difficult crane markets over the next several quarters. We negotiated the amended financial covenant panel in the context of a cyclical downturn in the crane business, coupled with unprecedented reductions in food service. Our current projection for total leverage and interest coverage, which is based on cash interest as the denominator, give us comfort that we will maintain covenant compliance into the foreseeable future. We are managing our business to navigate the fiscal crane market and to be ready to take full advantage of our market-leading position when it recovers. In the meantime, we will benefit from the relative stability of our food service business, which should recover sooner than the crane end markets. This will buttress our performance to the bottom of the crane cycle.

In closing, we believe that our diversification strategy is working as we build a sustainable business for the long term. Now we will open the call to your questions. Karen?

(Operator Instructions). We will take our first question from Charlie Brady with BMO Capital Markets.

Good morning, guys.

Hi, Charlie.

With respect to margins, first on crane, you've talked previously on margins this down cycle not getting to the level of the last cycle, when we're down to very low single digits. And given your comments on the unprecedented speed and how down things are going, do you still -- that [thing] is still in effect, do you expect it to still be above that? And are we bottomed out from a margin standpoint if we're going to have more of these cost savings kicking in?

Charlie, I think that obviously a difficult question to answer, in the context of where we stand from a guidance standpoint. But I think there should be an ability to improve how we perform at the bottom of the trough still. Obviously, the speed and magnitude of this downturn has made it difficult to adjust quickly, as quickly as you could, if it was maybe a little less abrupt. But as we look at the levers that we can pull, the global manufacturing opportunities that we have, coupled with our reasonable expectations of where these markets take us, we still believe we can perform better than that low single digit margin in cranes than we did in the last trough.

Has the velocity of the downturn in cranes subsided at all in the past three months?

Charlie, this is Glen. I think we see a little bit of that. I mean I think the first -- when you go back to November, December of last year, and then the first three, four months of this year, I think that is where the majority -- and we saw the speed of the downturn. I think it is managing that.

But to also answer your last question, I think when you look at it strategically, many of the investments that we made during the upturn, whether it be in Italy or Portugal or Slovakia or China, many of those things were done with the anticipation that the crane markets are cyclical. And so the strategy that we have in place, it is just a matter of employing those -- whether it is moving product to different factories, or bringing things from -- that were outsourced insourced. I t just -- we have to do it faster. I mean we knew we were going to do these things. We had plans for them. It is just a matter of when do you pull the trigger on those plans.

So I'm comfortable that we're doing all those things, but yes, you have the volumes going down faster than the benefits that we have out there. So that is why we are a little bit comfortable on what -- on some of the things you see in the back half of the year, but again the volumes are the key as you can imagine.

Okay. One more and I will get back in the queue. On the food service margins, how much of that increase in food service margin is due to seasonality?

You're talking about the sequential increase, Charlie?

Yes, sorry.

I would say probably a little less than half of the overall increase would be just pure seasonality.

Thanks.

Our next question comes from Chip Miller with JPMorgan.

Hi, guys. It is Chip Miller for Ann Duignan at JPMorgan. When we're thinking about cash flow in the back half of the year, if I looked at what happened in the quarter, basically net debt changed in line with the proceeds you got from the Scotsman sale. So I know seasonally the second half of the year tends to be better, but what really gives you confidence you can take out the $450 million and how do you think that rolls out between 3Q and 4Q?

Well, I think it really is answered in part by some of what we talked about earlier. When you look at how abrupt some of the impact was from this downturn, the fact that it was driven by finance, which drove some pretty significant order cancellations, which obviously puts pressure where you stand from an inventory standpoint. And all of that I think probably exacerbates the normal seasonal pattern that we would typically see. But we certainly, as we -- with the luxury of being able to rationalize the manufacturing, I think we've already seen some of those benefits that have helped us stay about even, to your point, from a net debt perspective.

But there is further opportunities with the luxury of a little bit more time on rationalizing some of this inventory. As we look at it in total, from overall working capital, we certainly would expect to be able to generate at least a couple hundred million dollars in working capital reductions for the balance of the year.

Okay. And so most of that will come out of inventory?

Correct.

Okay. And if I look at where the crane backlog is right now, crane backlog is about [1.5 quarters] of production right now. So as you're thinking about production rates through the back half of the year, I mean are we coming down significantly from where we were in the second quarter?

There is no doubt that we were working off the backlog from the first part of the year, on inventory that -- projects that are still out there, but it is going to be certainly less than what it was the first half.

Okay. And just one more quick one. Then I will get back in line. What are you seeing with the -- in the larger crane markets where demand had been holding up pretty well? Are you seeing any softness there as well?

Well, this is Eric, Charlie. Yes, we believe there is some sign of softening, but that is really not comparable to the magnitude of what is happening in [our line] of products. The demand is also -- there are some pockets of positive demand coming from [VFC] China, which is very [fine], but also India right now, after the election, you see a lot of things happening on infrastructure and power and other projects as well in Latin America. So overall, the demand is still strong, but a little bit softening considering what is happening in the US market.

Okay. Thanks a lot.

Our next question comes from Barclays Capital, [Meredith Taylor].

Good morning. Can you talk a little bit about the increase in the run rate for cost savings from the $270 million that you were talking about last quarter to the $365 million that you are talking about now? Maybe if you could dovetail that with the comments that you made around having the right capacity in the right location. Does some of the step-up here include footprint reductions anywhere that have been planned since last quarter?

Good morning, Meredith. It is all of the above that you mentioned. When you look at the changes, I think, as we talked at the end of the first quarter, you have your expectations of some of of the things that you're doing. And you have to finish some of the -- you have to finish some of the actions that you've taken before in certain parts of the world, before you can announce additional actions. That is just the way it has to go from a government regulation, and things like that. So when you have now in the second quarter is you do have a second round of, in certain parts of the world, where we're taking additional actions to rightsize the operations to where we believe the markets are going to go. And we're trying to get ahead of that. But as we said, the volumes certainly fall a lot faster than what we can take the actions and the costs out of the business.

Now, your other part of the question is are we -- when we talk about putting the right locations to manufacture, and the right areas -- there is some of that. And that's where I go back to there are strategies to move products out of certain locations when the volumes went down and minimize the footprint of any one area and put it in the other areas where we have the additional capacity. So there is some of that going on. And you got to remember, back in 2002 to 2003, when we went through this before, we took a lot out at that point in time. So there wasn't a lot of excess capacity even in a normal time. But here, we can -- I think it is more the footprint from a product standpoint, more than a factory standpoint. And not that we couldn't do that, but some of the factories just don't have the flexibility to manufacture a lot of the different products. But we can certainly maximize those that can.

Just to clarify, I mean when you talk about the footprint from a product standpoint, should we take that to mean that there are some products that you're just pulling back from at this point?

No, I mean if the demand isn't there, sure, we're going to look at what we can do from a -- I would say a rationalization, whether it be in food service or cranes. I mean we're constantly looking at what we call the cats and dogs, or you can call them whatever you want to do. But we're constantly looking at product lines that don't meet some of the criteria, whether it is taking away some of the various models, and combining certain models, or just completely getting out of some things. But I think you always have to look at that, and this certainly forces your hand at any given time to find out just what is the level of volumes during the downturn.

That's helpful. And then just a quick follow-up. Can you give us a look at what cancellations were in the quarter?

I don't have that number right in front of me, Meredith. But obviously, the imputed net order flow would be the mid [150s], which would be net of the cancellation activity. I can tell you really that the cancellation activity is really nonexistent for any orders that we've taken this year. And anything that would have been canceled would have been things that were in the 2008 timeframe.

Okay. That's great. Thanks so much.

(Operator Instructions). Next, we will go to Henry Kirn with UBS.

Good morning, guys.

Good morning.

Wondering if you could chat a little about price discipline in the market and what you're seeing from your competitors, and the type of headwinds you're seeing out of the [used] market.

Well, let me -- I will start, and if I say something -- because I want to hit both cranes and food service on that. So I think any time you have these markets, you're always going to hear about the, quote, strategic deals. So I think there is some of that that happens out there any time, Henry, and whether it is a good market or a bad market.

But from what I can tell, I mean there are -- generally, the pricing has been okay. I wouldn't -- you don't hear about it as much in certain respects, but I think there is always those pockets of areas where when somebody has inventory, they want to move it, and yes, you're going to get that. And I can certainly cite examples. I'm not going to cite any specific areas on the call and call out anybody. I don't think that do us any good to do that.

But I think for the most part, the prices have held. But again, you're going to see deals where things get a little goofy, and you shake your head, and it is what it is because of the market. And I think that is consistent both in cranes and in food service. I think when you have a competitive position and somebody wants to go into that and hit you between the eyes in that competitive area, sometimes the only thing they can do is with price. And now they have the inventory, and that's before -- what people had was availability and now they have price and availability. So you have both of those factors. I don't know if Mike or Eric would like to add anything to that.

Glen, from a food service perspective, I think you're spot-on. I mean we will see situations where it could be a big rollout opportunity with a large chain that may have some dynamics different than other general market opportunities. In the general market, we will have pockets in certain categories where if capacity utilization is low in that space, there will be more pressures. But on the whole, the organization is managing in a very disciplined unified fashion right now.

Well, for the crane business, there is nothing new to what Glen mentioned. I think the first-year manufacturers keep pricing at a very reasonable level. You would have some strategic deal in some countries once in a while, but overall, there is a lot of discipline in pricing. I think with the used price, it is probably more -- at this point in time.

I would say the used prices on the crane side have softened a bit. But I would say they softened from some pretty high levels, where they probably were over-inflated a little bit, 12 to 18 months ago, which were probably abnormal for a peak. So to soften from that level, I mean it is really -- they have come down, and I think probably to a more normal level.

That's helpful. And with respect to a recovery in food service, what indicators are you looking at that would tell you there is a turn-around around the corner?

Mike, go ahead.

Well, we keep our eye on the CapEx spending that is occurring at the restaurants. We keep focused on foot traffic at restaurants, which tends to be a leading indicator. We talk to our customers and our channel partners frequently. It was stated earlier in the presentation that we hope and expect that food service will recover sooner than cranes. We're still managing the business cautiously from a cost control standpoint. But we're starting to see some blips of additional CapEx spending. So CapEx, discussions with customers, and foot traffic tend to be good leading indicators for us.

Thanks a lot.

Next we will go to Nigel Coe with Deutsche Bank.

This is actually Nicole asking questions on Nigel's behalf. If you could go into a little more depth of China, are you guys actually seeing any order acceleration that you can attribute to the stimulus? And are we seeing year-over-year growth in orders or is China just holding up better relative to your other markets?

Well, obviously, the stimulus package in Chin had immediate impact right after the Chinese New Year. As you probably know, we produce tower cranes and mobile cranes in China, and we've seen our mobile cranes business -- that goes more to the [in processor] business, actually picking up significantly. The tower crane business is also on the upsurge. However, in China, we are more carefully -- on power cranes, we are growing, but at a slower pace, because the recovery of obviously account receivables in China is always a challenge. We think that there are a lot of other opportunities over large [quarters], large [GNP], where we are seeing some benefits. Overall, as we move forward, we expect our sales in China to continue to grow.

And I would say also to that -- believe it or not, there are pockets of opportunity in the very minimal US stimulus package for our food service opportunities, believe it or not, on the institution, and when you get to the schools. We're seeing good order activity, as the schools are being asked for their hot lunch programs and their breakfast programs to upgrade some of the equipment. So it is kind of ironic that we may end up with a bigger stimulus for food service in the United States than perhaps what we will see on the crane side, just because it is not -- it just hasn't taken hold on the crane side right now.

Just to comment also, from me, on the Asia issue on the crane side, while we wouldn't say that we've seen year-over-year growth in Asia-Pacific, we saw some pretty extraordinary sequential growth there that I think had a lot to do with the stimulus.

Okay. Great. That makes sense. And then going back to pricing, if we could dig into this a little bit more, can you talk about maybe possibly quantifying the pricing in raw materials impact in the second quarter, both in crane and food service?

Sure. I think as we would look at it versus our pricing, it is certainly -- I think it is in line. I would say that in the crane side, the manufacturing costs have certainly come off. But not as much as you might expect, as you would look at some of the broad categories of steel. The high tensile has not come off to the same extent as some of those other categories. On the food service side, we tend to be a little bit more muted from an impact from commodity price movement, because some of the key consumptions that we have in food service is in areas where we hedge the categories, like aluminum and copper. So we don't necessarily see real time changes in the costs that are aligned with the market per se.

Okay. But at the margin line, you're seeing a positive impact from net pricing? Pricing net of -- ?

Correct.

And then one last one, if I may. What is a good number to use for run rate cash interest expense?

Well, so the amount in the quarter was $39 million. And what we will see some, as you look at total year, between the impact from interest expense, which was -- the amendment was an increase that came pretty late in the quarter, coupled with our expectations for debt reduction. I think that is still probably a pretty reasonable run rate.

Okay. Great. Thanks.

Next, we will go to Longbow Research's Paul Bodnar.

Hi, good morning. A follow-up on the -- I guess the used market both in crane as well as in food service, and some of the impacts it has had on the new equipment sales?

Well, I don't think it is any different than any other time in the cycle. I mean you always -- whether the cycle is good, people brought the [used] because it was available, and you had people that are trying to upgrade their fleets, maintain the average life of their fleets. And so on the crane side, I mean I'm not sure I would say that it is taking away a lot of the new crane sales. And certainly there is that opportunity, and you pick and choose across the world on a global basis.

And on the food service side, the used equipment market is a market, but when it comes to -- you're going to see that market, as the smallest -- not the smaller regional chains or mom and pop, I mean, struggle through this part. But then you have to find the right buyer for that equipment, and it is not always going to go to some of the rollouts of chains. And it is going to have an impact, I think, on your [ones and twos] sales, but you got to remember, it is going to impact it at the distributor level when we go through that, as opposed to a direct sale.

So I think it is something we always watch. But I haven't had particular conversations with anybody that says hey, we're just getting beat up over the used market because of the current situation in the market.

Okay. And also, just in creating a -- could you talk about I guess either the challenges in Europe versus North America you're facing in cost reduction efforts? Or if you want to approach it s you grow Potain and your Manitowoc branch separately -- can you break down a little bit as well?

Well, the challenge is simply cultural. And certainly you look at the speed that you can make changes, whether it be in Asia, or the Americas, and then the process that you go through and whether it is Western Europe, or the mature markets of Europe. So that is just -- you can do all of the same things, it is just what is the timing and what is the cost.

And then at the same time, when you look at the markets themselves, the mature markets of Europe, you look at Spain and Italy and Western Europe, that's the largest tower crane market in the world. And you can include China in there, if you want to argue, and that's on the lower end. But the markets that we serve, you put those in there. And so it becomes a mix issue from whether it is margins for us, or whether it is top line, and all that kind of thing. So you [marry] all those up and those are the forces that we're trying to deal with, lowering volumes, and then the speed that you can take some of the action.

But again, it is not something that is new to us. It just something that we have to manage and I would say, when we compare some of the things that we're doing throughout the world, and the reductions that we're making, I give our management team a hell of a lot of credit for the way they've managed some of the processes in a very difficult market.

Okay. And if I'm thinking of Europe then, what timing do you think it takes to start winding that down versus North America? Just comparing.

Well, I mean for instance, and I'm not saying how ours goes or anybody else's, but I think if you talk to anybody that is in the construction equipment business that is going through the same process, it can take anywhere from four to six months to go through your retrenchment. I mean you discuss it, you have to identify how many, you give numbers, and you negotiate with the works council, you go back and forth. And so it is a protracted process. And that's just the way it has always been -- versus in North America, if you want to make a change, you look at it, you identify who you think is -- I mean the numbers that you're going to have to do, and you put the necessary severance packages together and it can be done in less than a month.

So I mean there is -- it is a difficult process. But it is again, it is not something we haven't been through. And anybody that manufactures in the mature markets of Europe is going through the same thing. I mean recently, you've heard instances where employees have threatened to blow up product, and they have taken people hostage, and I mean those are tactics you just have to deal with.

But I was going to say, our employees -- and for instance, typically, it takes six months, but we have a [disciplined] work force and -- we have not been facing that kind of reaction that others have been facing.

So we are not going to read about Glen visiting and being held hostage?

I hope not.

Thanks a lot.

And our next question will go to Joel Tiss with Buckingham Research.

Hi, guys, how is it going?

Hey, Joel.

I don't know if you talked about the crane backlog that you expect to ship in the next 12 months or not?

It is essentially current backlog, Joel.

Okay. And then is there more working capital to take out in 2010 beyond what you expect to get in 2009?

Yes.

Okay. That would be seem like it would pass cycles. And just a little color on the food service business, is what you're seeing in the market, is that driven by your new product introductions? Or is there really some pent-up demand in the market, and guys looking to upgrade their kitchens?

Joel, it is really a little bit of both. We will see blips of opportunity surfaces through the general market, but we've got a number of key initiatives driven through innovation focused on chain accounts, so we're seeing both. Cautiously optimistic.

And just last, can you give us the charges on a pre-tax basis? You gave us the net numbers, but it is hard to back into the tax rate.

The tax rate assumption would be 35%.

On those charges? Okay. Thank you.

Next, we will go to Wall Street Access's Charlie Rentschler.

Hi, Carl, in connection with your reiteration of full year debt reduction goal of $450 million, how much is there left to go? And can you give us a preliminary idea of what you think you can accomplish in 2010?

Well, I think what is left to go would really be the balance of about $300 million, roughly. So as far as -- you're asking about 2010, Charlie, was it?

$300 million left to to go this year in the third and fourth quarters is what you're saying?

Right.

And then can you give us your thoughts about 2010? I realize it is preliminary.

It certainly is. We're not really giving guidance for 2009 at this point in time. But to the earlier question that Joel asked, and with an expectation that we will continue to see some benefits of a little bit more resilient food service market, and synergy activity that will go on there, we certainly expect that we will be in a position to continue to focus and aggressively pay down debt.

Okay. And for Mike, I guess, where do we stand with the rollout of the smoothie machine this summer? Is that going to happen?

Well, Charlie, let me answer it in an even broader sense. The goals and objectives and programs that we've laid out for the smoothie category, both the initial version that I believe you saw and our second product style are moving along positively. And the expectations that we laid out for the year, we believe are on pace.

Good.

Our next question will go to Robert McCarthy with Robert W. Baird.

Good morning, guys. I wonder if you could, in regard to, what are the numbers -- $240 million and $365 million. Could you allocate both of those numbers between the two segments? Roughly.

Probably got 65% in crane, and 30% food and the balance in corporate.

And I want to make sure that I understand exactly what this number is. These numbers are based on cost levels at last year's level? Is that what we're talking about?

Correct.

And then I don't think anybody would have -- given the dramatic speed of the decline in the crane business, and you guys have been challenged with, I don't think anybody would have been shocked to hear you back off of your prior forecasts for cyclical trough margin performance in that business. So I just wanted to test that a little bit. You talked about order flow stabilizing around the levels it's at now. So if we assume a $200 million per quarter crane business, is it your expectation that -- I mean if you're faced with that, is it your expectation you're going to be able to deliver at least a 4% to 5% operating margin in that environment?

No, I would say not, Charlie. I mean Rob. That $800 million level would obviously be -- we have added capacity around the world.

Yes.

Under those -- under that scenario, the ability to continue to do a low single digit -- improve upon a low single digit operating margin would not be there.

And I think Rob, you have a lot of things that would play into that. And that would be back -- and I'm speaking with pretty good knowledge of where it was in 2002 and 2003, you're back to those levels. And what would happen at that, if you just take inflation, you're going to get a number that is going to eat into that. If you take some of the investments we've made, you take -- even if you look at crane care, you have globalized this business, and you take the call centers you have in different places, and that would be very difficult to get to. And so I think that is a different wild card.

Now, if -- the other thing that plays into that is the mix of business. If you look at -- if it is a reduction of tower cranes, and crawler cranes together, that is a very different mix than if it is the mobile hydraulics and some lower end products. So I think that whole thing plays into it, and that's why I think it would be a very difficult proposition to say it is going to be double what it was, or something better than that.

And so I mean recognizing that this is a very difficult to forecast industry, have you been working on contingency plans for just such an event?

Well, think that comes into exactly the question earlier, is what changed from your first quarter to your second quarter and the run rate of the costs that were taken out. And that is -- the next set of questions. And even, I think -- even when things were going well, we always had 25% and 50% contingency cuts. What if this business all of a sudden stops and what do you do? You pull that out of the drawer and you have that.

Now, the question is, if it gets down to $1 billion business, or it gets down -- to use your number, $800 million, that is where you say what are the next things you're going to do to protect the bottom line. And yes, we do work on those all the time. And not only in cranes. We have the same contingency plans that we're focused on in the food service business, what they have going right now is the integration. So that's where they have the opportunities to rationalize that business right now.

As we -- I just wanted to ask one more question, as related to the -- as it relates to the price, a follow-up to that price versus cost question earlier. As you look into the third quarter -- because at this point, you should have pretty good visibility based on production rates of what cranes will look like, even if you don't have a really good idea of food service, would it be your expectation that in the third quarter, price would also be -- I mean a net positive, net of raw material cost changes?

Yes.

And by -- but probably by a diminishing amount relative to second quarter?

No, I would say it would be probably similar.

Probably similar. Okay, very helpful. Thank you.

Our next question comes from Michael Boan with BlueBay Assets.

Hi. You have already answered a lot of questions, but I just want to ask a couple of others that haven't been asked. Can you just tell me, how much of the term actually left to be paid and what is the payment date on that if it hasn't already been paid? And have you taken on hedges with respect to the bank debt, in terms of LIBOR?

What's remaining on the term loan after it matures in April 2010 is a little over $30 million.

Okay.

And we do have LIBOR hedges in place.

Okay. And then just help me get a better feeling for how bad things look. Sort of last time around, I mean your backlog has -- as you've already said, has come down dramatically. I mean how does this compare to history? I mean the deceleration in the second quarter seems -- well, it seems a bit accelerating, rather than slowing down. Your natural orders through that quarter look to be about $154 million, against $172 million in the first quarter.

Well, I think if you go back to whether -- if you go back to 2002 and 2003, which is the last downturn we had, the backlogs were significantly less than where they are today. And that was just as we brought the combination of the businesses together. So you didn't have the globalization efforts that we went through in the last six to seven years. So the backlog was in fact lower back then than it is today.

And I'm not quite sure where the calculation came on the order, but first quarter orders actually I think were -- the net orders were actually a little less than they were in the second quarter.

I was just taking the movement on the backlog, looking at the revenue, and basically the difference between the two.

I think that should come to something less than $154 million.

Okay. I will take another look at that. Thank you very much.

And in the interest of time, we will now take our last question from Ben Elias with Sterne Agee.

Thank you. Good morning, gentlemen.

Hello.

I have a question for Eric. Eric, I was wondering if you could comment on the services and short cycle business in the crane side. I think historically, the crane care services have been anywhere from 15% to 20% of margin of revenues, and I was wondering if that was holding in relative terms, or does that hold as a percentage? And also the margins going into the back half of the year?

Well, yes, the after-market is definitely less cyclical than the whole [news], as you probably know, and fortunately, since we have (inaudible) that's really helping. Obviously, as you see, the whole group's declining, the crane care portions obviously of our total sales will mathematically increase.

There is some erosion of the after-market that comes from the set-up side of that business that does get hurt in the cyclical downturn, but much of the parts and service business has some decent stability to it.

Yes, Ben, where we see definitely some services being significantly down is in Europe, because as you know, we're very active in the erection of tower cranes and we are sending a lot of tower cranes attachments, and that portion of the business of crane carriers is significantly down. But the rest of the [normal] parts is down, but to low [double] digits.

Okay. So if I just go back to the previous question or comment of incoming orders, for simplicity's sake, let's say $200 million a quarter -- are we to assume that that is just $200 million and then backlog a quarter and maybe that's $800 million a year -- but do we tack on another$ 400 million for short cycle as well as services? Or how are we supposed to build that out going forward?

We don't really provide the specific product line information on the backlog. But just anecdotally, what you described, and there is certainly some things that are in the crane care business that would be in truck order activity, but I don't think it is to the magnitude that you described.

Okay. And one last follow-up. Just on the paydown of debt, $300 million from working capital, you've paid down what you got from Scotsman. Are there any other assets that you could sell that is possibly going to be a backstop if you don't get some of those inventory reductions?

Yes.

And how big is that portfolio?

I think what you have to look at, Ben, is -- and certainly we don't talk about acquisitions and the flip side, we're certainly not going to talk about divestitures. But as you look at portions of our portfolio, we ask ourselves that all the time -- what is a candidate for abandonment? And we look at those. And I can tell you that your comment was, if we don't get those other things, what do we have to do to get there? I don't look at it as if we don't get those others. It is what will we do in addition to what we're going to have. And so that is -- it is not an if, if we're going to get the working capital reductions. We will go after those, and there are great opportunities in working capital. But those would be over and above any projections we have.

Thank you.

We do have time for one more question. We will go now to Charlie Brady with BMO Capital Markets.

Thanks. Just a quick follow-up on food service and your comments on the stimulus impact to that. Is that likely to change in the seasonality, particularly in Q4, for the food service segment, that you get maybe an unusual boost? You don't get the dip you normally would get in the fourth quarter in food?

No, it wouldn't have a significant impact one quarter to the next.

Okay. Thanks, that's all I had.

That that does conclude our question-and-answer session for today. I would like to turn the conference back over to Mr. Tellock for any additional or closing remarks.

Thanks, Karen. We fully recognize that the past year has been difficult for our investors, as well as for our employees. However, it should be clear to all that we are taking responsive and decisive actions to adjust to the current economic reality, and we're prepared to take further actions as circumstances warrant. Thank you for joining us today and for your continued interest in Manitowoc.

Once again, that does conclude our conference for today. Thank you again for your participation.