Manitowoc Company Inc (MTW) 2009 Q3 法說會逐字稿

Good day, everyone. Welcome to the 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 Chairman and Chief Executive Officer and Carl Laurino, Senior Vice President and Chief Financial Officer. Glen will open today's call by reviewing our business outlook and Carl will discuss our financial results for the third 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For anyone who was not able to listen to today's entire call, an archived version of today's call will be available later this morning. Please visit the investor relations section of our corporate website at www.Manitowoc.com to access the replay. Before Glen begins his commentary I would like to review our Safe Harbor Statement. This call is taking place on October 30, 2009. During the course of today's call forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 may be made during each speaker's remarks and during our question and answer session.

Such comments are based on the company's current assessment of its markets and other factors that affect its business; however 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'll now turn the call over to Glen.

Thanks, Steve, and good morning, everyone. Obviously, our financial results this year continue to be constrained by the global economy, but I think it is important to acknowledge the substantial progress that we are making in managing through one of the most dramatic economic declines in memory. We took decisive steps to reposition our operations for greater efficiency and sustainable growth over the long term.

In particular, we have been focusing on certain key priorities to strengthen the business. Those priorities include the flawless integration in Foodservice, positioning our Crane operations for economic recovery, and the generation of cash to reduce debt. Our performance in all three areas has been excellent and these actions are generating tangible results. We can also point to clear evidence of success in our fundamental strategy to concentrate on two core business segments. A key part of that strategy was to create more balance between the size of the Crane and Foodservice segments. A strategy that lead to the acquisition of Enodis.

Our larger Foodservice segment helps cushion the volatile cycles inherent in our Crane business and this is exactly what is happening. The most obvious evidence of this is the improvement in results in our Foodservice business. We have now posted two quarters of revenue growth in this segment even though the overall industry is still reporting declines in Foodservice equipment spending.

Even more important, however, is the substantial progress that we have achieved and integrated in our two premier organizations. As a result, the combined business is one of the largest, most innovative and customer focused Foodservice equipment companies in the world. Thanks for our restructuring efforts and the synergies that we are achieving, operating margins are improving significantly, and we are well ahead of our forecasted synergy targets. Carl will review these results with you in a few moments.

We have used the opportunity created by our capacity to make structural changes, and other improvements in our production methods that are now resulting in sustainable reductions to our cost structure. For example, we have consolidated facilities and streamlined production flow in a number of plants, something that could not easily be done during peak periods of capacity utilization. Also, we continue to invest in emerging markets which are now leading the economic recovery. In particular, Manitowoc has a solid presence in China, where we've had an established manufacturing sales presence for nearly two decades. Just recently, we've added crawler cranes to our manufacturing capabilities in China.

We have also consolidated and realigned various organizations, including our Crane engineering, procurement and quality teams to eliminate regional and product silos. The business slowdown has provided an excellent opportunity to align these functions to support our long term vision for Manitowoc. We are building on the scale and breadth of our entire global crane business to become more innovative, efficient, and effective. Complimenting our cost reduction efforts, we continue to invest in new product technologies and customer support services that will enhance our market share and increase customer loyalty.

Just last month, we premiered our largest crawler crane ever, the 2500-ton capacity model 31,000. Also during the quarter we commissioned a new 141,000 square foot parts distribution facility near Louisville, Kentucky. This centrally located distribution center consolidates three former warehouses into a multi-brand outlet stocking 65,000 unique part numbers. This enhances our customer support across our entire range of crawler, tower, and mobile telescopic Cranes. In both segments of the business, our excellent customer support is especially valuable during down cycles. Not only for our customers, but also a stable revenue stream for our Company. Our customers are trying to maximize the usable life of their equipment to minimize their need for additional capital investments. Our aftermarket support helps them to do just that while also enhancing the residual value of their Manitowoc equipment and this partnership helps insure that our customers will turn to us for replacement equipment in the future.

We recognize that economic conditions remain difficult but there are reasons for cautious optimism. We are focusing our resources towards areas where demand is expected to remain relatively strong and to improve most quickly. This includes areas that are likely to benefit from infrastructure, energy and transportation stimulus legislation in many parts of the world, particularly in emerging markets. We have confidence that the actions we have taken to reduce our cost structure and develop innovative products will keep us at the forefront of our markets. As we've done in the past, we are positioning the Company to leverage our leadership positions in both Cranes and Foodservice when the markets rebound.

Finally, we will continue to focus on cash flow and steadily reduce our debt. In fact, we have reduced our debt by more than $0.5 billion since the Enodis acquisition about one year ago. So now let me turn the call over to Carl to discuss our third quarter financial results. Carl?

Thanks, Glen, and good morning, everyone. For the third quarter we reported net sales of $881 million. This is a decline of $226 million or 20% from the third quarter of 2008. On a sequential quarter basis, net sales declined 15% in the third quarter with a $20 million increase in Foodservice, offset by a $173 million decline in Cranes.

Third quarter operating earnings were $48 million, down from $141 million in the third quarter of 2008. Excluding intangible asset amortization and restructuring charges, adjusted operating earnings were $69 million versus $82 million in the second quarter of this year. This resulted in an adjusted operating margin of 7.8%, compared to an operating margin of 7.9% in the second quarter. These comparisons do not fully reveal the progress we are making in strengthening the business for the long term, creating solutions and implementing changes we believe are yielding permanent improvement. We are seeing substantial improvements in our expense levels as many cost reduction initiatives are now yielding results.

On last quarter's conference call, I mentioned that $150 million of savings would be realized in the second half of this year. We remain on target to achieve that with over $70 million achieved during the quarter. On a per share basis we had a net loss of $0.14 per diluted share in the third quarter compared to a loss of $0.20 per share in the third quarter of 2008. This year's results included $0.06 per share of restructuring costs and a loss of $0.03 per share from discontinued operations. Excluding those items, we lost $0.04 per diluted share.

Moving on to our segment results, Foodservice sales in the third quarter totaled $402 million up from $116 million in the third quarter of 2008. On a pro forma basis including Enodis in both periods, Foodservice revenues were down 23% year-over-year. On a sequential quarter basis, sales were up for the second consecutive period rising 5.2% from the $382 million recorded in the second quarter of this year. Third quarter operating earnings in Foodservice were $59 million versus $18 million in the third quarter of 2008 and $46 million in the second quarter of this year. This resulted in Foodservice segment operating margins of 14.7%, a significant increase from 12.1% in the second quarter, showing the progress of our integration activity. On a pro forma basis year-over-year, Foodservice operating earnings were down 16%, although the operating margin was 120 basis points higher than last year.

Year-to-date, we have realized approximately $26 million of our integration synergies. This is substantially ahead of plan, and we are now raising our full year 2009 realized synergy savings target to $34 million. We are well on our way to the $80 million-plus in savings and revenue synergies we expect to realize by 2011. As the financial benefits of our integration progress, progress continues to improve, we are on target to generate solid double digit full year operating margins in Foodservice this year.

Moving to the Crane segment, sales in the third quarter totaled $479 million, down 52% from $992 million in the third quarter of 2008. Nearly $30 million of the year-over-year decline in Cranes was due to currency. Crane operating earnings in the third quarter were $21 million versus $139 million in 2008, and $50 million in the second quarter this year. This resulted in Crane segment operating margins of 4.3% versus 14% last year and 7.6% in the second quarter. Crane backlog at the end of the third quarter was $667 million, down from $901 million at the end of the second quarter. The trend in new orders has had a measured increase in each of the first three quarters this year.

At the same time our book-to-bill percentage has increased from 18% in the first quarter to more than 50% this quarter. Relative stability and customer demand leads us to expect increased order flow in the current quarter as well as the first quarter next year. The current backlog is now more in balance with underlying demand and we are no longer experiencing the heavy cancellation activity that appeared almost overnight at the beginning of the downturn. Also, with the reduced backlog and our lean manufacturing initiatives, we are now seeing a higher percentage of our orders received and shipped within the same quarter.

Moving on to the balance sheet, one of our top priorities this year has been debt reduction. As Glen pointed out, we are making excellent progress, especially considering the substantial decline in Cranes this year. Debt reduction has been driven largely from cash flow from operations, which totaled $198 million in the third quarter. Contributing to the strong quarterly cash flow were inventory reductions of $94 million and $111 million from inventory and receivables respectively.

For the quarter, we reduced our debt by more than $140 million on a year-to-date basis. Debt reduction totaled $262 million in spite of one-time cash outlays of $72 million that we disclosed in the second quarter. Given the company's expectations for continued cash generation in the fourth quarter, we are still targeting $450 million of full year debt reduction this year. Just a brief update on our debt covenants. Our current projections for total leverage and interest coverage continue to give us comfort that we will maintain compliance into the foreseeable future. We are benefiting from the improving financial results in our Foodservice segment, coupled with cost reductions and stabilizing the demand in our crane segment. Given this outlook we expect to remain within our required coverage ratios.

In closing we believe that our two segment diversification strategy is working well, as we build market leading positions in both of our core businesses. Now, we will open the call for your questions. Marie?

(Operator Instructions). Our first question will come from the line of Nigel Coe with Deutsche Bank. Your line is open.

You mentioned in both the press release and also in your comments, Carl that you got confidence that the Crane orders will continue to pick up next quarter and Q1 2010. Just want to clarify you expect the net orders to improve from current levels and what gives you confidence to look out two quarters ahead?

Obviously, the activity that we see is a part of that. There's strength in the emerging market and some of the end markets that we're selling into. We made the comment about the traditional construction markets but there's certainly other areas that are supporting some of the order activity that we're seeing right now but I think that's probably something that Glen might want to comment on.

Nigel, I think the other thing that you look at is in a period like this, as you go through the downturn or seasonality becomes a little more pronounced during these periods, so what's going to happen is typically you're seeing people as they're looking out into 2010 right now and you'll start to see what their order patterns are, typically in the fourth quarter and the first quarter of next year, and that just goes with a lot of conversations with customers as we do our planning for 2010 and along with trying to collaborate with the customers and find out what they have going on.

I think the other thing is if you look at the engineering and construction firms that we talk to on a regular basis and they look out to what they have in their backlogs you can see some of their backlogs are picking up. It's a matter of when they start some of these projects.

Okay, great and can you just talk about crane care, just update us on what percentage of revenues that is right now and how that's trending?

It's about a mid-teen percentage, Nigel. It is more resilient than the whole goods part of the business in this environment.

Okay, would you expect that to be stable into 2010?

We would expect so.

Okay, and then just could you just maybe flush out the structural cost savings that you realized in Q3, and how you expect that to be in Q4 and maybe into 2010?

Well, what you see in the restructuring charges, Nigel, isn't all just social. We did some restructuring on the Foodservice side of the business as well, and that would be more in the category, I think it would be more probably characterized as opportunities of the combination that we have taken advantage of so we did some consolidation there, but the balance obviously there's been continuing activity to size the business aggressively to the outlook so that we're at appropriate levels of production given the demand on the crane side.

Okay, but then as we look from Q3 to Q4 could you maybe just quantify the actual cost savings you've realized from the actions and how that changes into Q4?

So, I think the $150 million cost savings metric that we have out there is consistent. I mentioned in my prepared comments that we got about $70 million and that we should get about $80 million in the fourth quarter and then the year-over-year change in the run rate savings, now remember that this is a metric that's based upon 2008 but we said that versus the 2008 cost levels of the business, we would get about $240 million of the total identified savings that we've taken actions on this year so that's the 2009 impact versus 2008 and the total impact versus 2008 is $365 million so there should be some continuing savings realized in 2010 versus what we've realized thus far this year to the tune of about $125 million.

That's helpful. And then just finally for me, the interest expense coming through the income statement this quarter, is that a good run rate going forward?

I think that it's a little bit high, Nigel. Just given some of the calendarization of some of the debt pay down and I think we also had a specific customer transaction that where we had some interest expense flow through our backs for the period that we ended up passing through the customer at a point in time that the total transaction was finalized and that there was an offset to that in our other income category but so a bit high this quarter versus what you would expect just versus the effective interest rate and the debt reduction expectations as well.

Thanks a lot.

Please ask one question and a follow-up. We'll take our next question from the line of Charlie Brady with BMO Capital Markets.

Thanks, good morning guys. Go back to your comment on the percentage that you're in the quarter receiving and booking in the quarter that has increased. Can you give us more granularity on where that percentage is today and how that compares with maybe where it's been a year ago?

Charlie, what we seen, I guess it's probably not as relevant to a year ago but what's more relevant is what happened in the last downturn and as Carl mentioned, I forget the specific percentage, I think it was around 25% or 30% in the quarter, in this quarter, but if you go back to 2003 and 2004, we're upwards of 50 and 60% at that point in time and the reason it's a little bit higher is we didn't have the globalization of the business at that point in time. We were just putting Potain, Grove and Manitowoc together. So when you look at what we have in the emerging markets now and the global footprint we have, I think that's a little different story where some things can get in the backlog, but again, many of the customers know that with their inventory that they don't have the right inventory they know they can get some on a pretty quick basis so it comes in and out just like it's been in the past downturn.

And then just with quickly with respect to the Foodservice operating margin, it was better than what we would have thought it would have been this early. There was nothing unusual in that. Was it just the cost take downs take hold or there was a particular mix issue?

Just a lot of the things we've been working on, and I think you get a little bit of benefit on the seasonality as you go into the second and third quarters but I think that it's again part of what the entire strategy was and I think many of the things are coming together and that's why you saw us talk about the synergies being a little bit higher now than what we originally anticipated at $29 million, higher than that as we move forward.

Thanks very much.

Your next question comes from the line of Ann Duignan with JPMorgan.

Hello. Hello? Operator?

One moment please. Ann, your line is open.

Hi, can you hear me?

Yes.

I just want to go back to the Foodservice margins. Do you think that this is a normalized level or what can we expect for kind of a normalized margin for the Foodservice business?

I think the guidance that we gave for Foodservice margins this year despite the fact that we obviously given the times and where we were in the integration, we had a 7.7% margin in the first quarter guided to an expectation we would get to double digits this year, obviously with the performance in the third quarter, that puts a lot of confidence into that expectation. You do tend to see to Glen's earlier comment, a bit of a seasonal impact Q3 over Q4, you would tend to see some movement in the margin in the downward direction, but obviously as you layer in the total synergy expectations that we have going out to the 2011 time frame of $80 million- plus, that will bode very well for our Foodservice margins.

So you think that it could improve from here as you could layer in those cost savings? Or you hope to anyway?

We'll provide some specific guidance about 2010 when we have our business plan update and year-end conference call.

Okay, great. And then just on the new orders that went sequentially up for the Cranes, what does pricing look like on these new orders?

Well, I think on a majority of the orders I think pricing is holding relatively well. I would say that we are seeing some I'll call it competitive pricing, mainly I would say a majority of it coming out of China with some of the Chinese competitors which I think they're enjoying a pretty robust domestic market but some of the things they're doing outside of China, we're seeing a little aggressiveness come out of there but again, I think it goes back to any time you have this, people call them their strategic deals and they try to protect maybe territories that they've been very good at in the past and it's not unusual, so I would say for the most part it's held up pretty well but you see certain deals where it gets very aggressive.

The one thing I would point out since you bring it up, new pricing I would say we're actually seeing some of the pricing on Manitowoc's used equipment holding up very well. I mean, I know there's been some recent auctions as equipment has gone into there whether it was in Europe or here in the United States and we have been very pleased with the strength of the residual values of our equipment in these auctions so that's been a -- I wouldn't say a surprise but it's certainly been a pleasant affirmation of the things we're trying to do in crane care.

Okay, great. Thanks so much.

Your next question will come from the line of Seth Weber with RBC Capital Markets. Your line is open.

Hello?

Hi, Seth.

Good morning guys. Just going back to the book and ship discussion for a second, are you able to book and ship a crawler crane in the same quarter or is that smaller equipment?

No, we can. It's not going to be the 16 or the 18,000 but certainly it fits the triple seven, triple nine, 2250 range, we certainly can.

Okay. If we could talk about crane margin for a minute, there was a comment in the press release that suggested some of the weakness in the margin could just be due to seasonality, vacation days in Europe. Should we interpret that this is the bottom, you think that this is the bottom for the margin in the business?

Well I think as you look at the business all in, Seth, although I think our main message is we're seeing stability in the markets, I don't think there's anybody trying to convey the fact this is going to be a V-shaped upturn, so it is true that given primarily the European holiday as it has a big effect on the European operations, that effects some of the margin performance traditionally in the third quarter even when the markets are good. It's what will happen to the crane margins going forward is it's obviously going to depend on whether we continue to see that stability and how that translates to things like the production levels in the factories, therefore the absorption as well as the product mix.

Okay, can you give us any color on kind of your four key product categories, towers, crawlers, mobile, et cetera?

Not from a margin standpoint, but I think-- how the markets are, I think we can.

Yes.

Well, Eric speaking. Obviously the tower crane business is still very slow. We haven't seen any major changes from the rental houses. They can stretch the life of their equipment and they would add some cranes based on some projects, particularly in the high level capacity cranes but overall there is no real sign of the recovery for towers, outside of very specific projects that would require large numbers of tower cranes and that would be coming primarily from emerging markets like in Saudi Arabia or Libya or Algeria. Just recently we have been awarded a project requiring 100 units of tower Cranes for a project in Riyadh, Saudi Arabia, but this is more driven by projects related. If you go to crawler Cranes, the demand for large crawler Cranes are well again and we have not seen really signs that this is going to decline so we have good demand for large crawler Cranes and the same comments would be valid for rough-terrain cranes and all-terrain cranes. And really what is still suffering is the middle size cranes in all categories and we do not see any signs of changes quarter-over-quarter on that type of cranes.

Okay, that's helpful, thank you, and then just Carl, is there any input cost relief that you guys each peck next year on steel or high-tensile steel?

Well, I think when you look at that, Seth, you've seen a little bit of it this year, we expect a little bit of it here and we had it in the third and fourth quarters. I think commodities if anything, maybe they go up a bit but I don't think it's anywhere out of anybody, it's not the great wild fluctuations you saw in 2007 and 2008. I think that it's certainly a more moderate commodity market and a lot of things whether it's Cranes, mainly in the Foodservice we actually hedged some of that to protect the Balance Sheet costs and we feel pretty comfortable with that.

Great. Thanks very much guys.

Thanks, Seth.

Your next question comes from the line of Charlie Rentschler with Wall Street Access.

My first question is for Mike. I wonder if you would talk about what pieces of the Foodservice equipment business are accelerating or likely to accelerate in the next quarter or two. Where's the beef?

Well, Charlie, I would be careful to use the word accelerate. I would tell you that if you look at the research firms that we use as reference point, be it Technomics or Foodservice equipment reports and obviously our own connections to customers and distribution partners, we remain cautious about forward volumes. We see some leveling off, but again as most people look to 2010 through the fourth quarter, nobody is anticipating a big uptick. Having said that, our focus remains on really lining up the best distributors and dealers in the marketplace, the continued introduction of new products, and the aftermarket services that connect to those products, so again, and we really focus on those across all categories. There's really no singular focus that I would point to so again, cautious expectations, same-store sales and restaurants appears to be improving as some restaurant chains look out but again, no major uptick expected in Q4 in 2010.

And Carl, a question for you on accounts payable. What can you tell us about suppliers' attitude towards Manitowoc at this point? Is there still an awful lot of pressure to pay down payables or do you think you are through the worst of that?

No, I think that the relationship with suppliers has continued to be good. You certainly see the working capital contributions from payables obviously get difficult when you are consuming inventory for your production purposes which is a big part of how we're generating cash this year so I don't think you should read anything into that relative to our relationships with our suppliers there. They are very solid, obviously Manitowoc has had long term relationships with nearly all of those folks.

Thank you.

Your next question comes from the line of Meredith Taylor with Barclays Capital.

Yes, hi. This is (inaudible) on behalf of Meredith Taylor. Regarding the margins in the Cranes business, I suppose this is a follow-up, can you pinpoint how much of a drag the European production seasonal schedules were on margins?

Well I think it just goes into that general bucket of the volume and the absorption category and if I was going to point to something specific in that realm, it probably would be on the order of 40 to 50 basis points.

And also can you give us sort of more detail on how your net order intakes progress over the course of the quarter? Did they accelerate or were they consistent from month over month and also if you can provide some more detail on a geographic basis, you mentioned pockets of strength, so where the pockets of strength, were they stronger year-over-year or were they just down less than your overall?

Well, I think the pacing is somewhat as we described essentially a measured level, obviously we had the tumult that occurred which the huge net negative order flow cancellations over our order activity and that got to modestly positive and in the Spring of this year and I think we've seen some pretty consistent and steady progress as we've moved forward. I think it's probably appropriate for Eric to talk about where we're seeing some of the relative strength.

Well, obviously, we have an emerging strategy and this is really playing out because we see now orders in countries that we traditionally do not generate any orders and I would mention countries like Brazil or Chile or Libya, Algeria, Africa generally speaking and obviously China where we have a long term presence, so emerging markets are main contributors right now to the order entry.

I would say also and this is Glen, the US about what happened over the quarter, you got to remember the middle of the quarter is August and again, where we talk about it impacts the production side of our business and the absorption and it also impacts obviously the order rates so as you get into September and you come out of the holidays, you come out of whether it's a religious or seasonal holiday or vacation time, you have people coming back and looking at as they get closer to year-end as they start feeling more comfortable. The other thing that's going to impact as we move forward are the credit markets. What is happening with around the world with the availability of credit not only for our customers but some of the engineering construction companies and the other thing that we're watching and people in the United States are very keenly aware of is the transportation infrastructure bill. That doesn't look like it has a great chance of moving forward but the beauty for us is that we don't get big pops when those things happen anyway. I think it's just people feel more comfortable and that's what gives them the impetus to increase their backlogs from an ordering standpoint, so there's a lot of things that we're watching and that's why we feel some of those things as we move forward have a little bit of a better clarity than they did four or six months ago.

Okay. Thank you.

Your next question comes from Henry Kern with UBS.

Hi, good morning.

Hi, Henry.

Actually, this is Eric Crawford on for Henry. Just to follow-up on that last point. How much would you say is it a function of access to credit holding back customers or concern for credit markets and people just holding on on to cash? Do your customers and conversations you've had with E&C firms, is the financing in place? Should they want to move forward?

I think they are linked to some extent because you do have -- obviously the confidence will come in part from the project finance issue and that obviously plays into this and specific transactions, ability to finance sometimes even if the desire is there, is still a constraint. Obviously we're in a better climate than we were when we were talking a year ago, and on that front as well, but still it's not as if those markets are really robust as they were a couple years ago.

And if you could touch upon what you said with respect to your cautious optimism on Cranes and infrastructure and energy related projects, you mentioned the role stimulus would play in that. Is there a way to quantify what extent that optimism is dependent on stimulus coming through be it in emerging markets or here domestically?

It's easy to give you a number on the US stimulus. It's between zero and just a little bit. It hasn't been much. I mean, we go around and talk to a lot of different distributors and ask them what projects they've had, and I can tell you, it's a disappointment at best for most of our customers. There are some specific items that we can pinpoint to but in the US, it's been pretty dismal.

If you get into China or if you get into India, the Middle East, where it's really not an infrastructure stimulus but at least they're putting -- finishing what they stopped, that actually has had some upturn in the Middle East but you've read all about China. India is the same and I think we just mentioned Middle East, but Brazil also, you see what Brazil is trying to do and whether it's infrastructure, whether it's some of the mining. Australia has been a good market. That really market had a little bit of a slow done but then picked right back up, so really we're not seeing the stimulus but I would say jokingly, I said it at the second quarter conference call, we probably saw more in the Foodservice side with what went through the institutions for the hot lunch and programs than we did with a little bit of a boost, not significant, it was a decent boost for some of those businesses.

I guess my question was more with respect to what you were looking at forward, like projects for 2010.

Yes, that's a good question and I think what I'd do is give you a little bit of historical perspective. Every time things like this happen, we tend to want to get excited and put it into our projections and I can tell you we've been more disappointed than we've ever been happy because you think it's all going to come to fruition but you never know where the money is going to get spent so I think what it does is when we look at our forward projections, I think we take everything into account but we don't put any specificity to say that if it's a $6 billion infrastructure bill, what would we get out of that. I think we just look at it as if it does happen, we'll get our fair share and we plan accordingly in our conversations with our customers, but we don't put any specific numbers on any of these things anymore because it's just, it never comes to where you think it should.

Got you, that's great. Thanks so much.

Your next question comes from Robert McCarthy with Robert W. Baird.

Good morning, everybody. Love your answer, Glen, on the stimulus impact. First thing I want to do is just follow-up on a couple things to make sure that I understand exactly what your message is and I apologize if I ask something that's already been asked because I accidentally logged myself off the call earlier. When you say that you expect better orders in Cranes do you mean better like the quarter you just reported was better than the previous one or are you trying to tell us that you think you can build from this level and we should expect higher numbers in the fourth quarter?

Well you saw the quarter-over-quarter inherent order rates that we have and I think as you go into the fourth and the first quarters, you can look at the expectation of orders and what you have with your distribution and what you have with the customers worldwide and the things that we're talking with people about right now. I'm not sure that, I wouldn't throw out an expectation that should be that type of improvement every quarter going forward, but we feel that it's better than what it had been in the past.

Okay, so the sense is that the foundation is a little stronger?

Yes, that's probably true.

Okay. And then as you know, for modeling for us as we look at the Company from the outside, a little hard to understand what our fourth quarter expectations should be for Crane. Traditionally, you would book more revenue in the fourth quarter but these are exceptional days. Are you still cutting back on production in some of your plants or can we look for temporary, call it seasonal improvement in the revenue run rate before it comes off again in the first quarter?

Rob, I would say that obviously we're still constrained because we aren't giving you specific financial guidance but I think the message of, we have seen pretty significant improvement in the order flow that you would impute from the backlog information since the beginning part of this year, obviously pretty pronounced in the third quarter versus the second quarter. Our message of continuing to improve that coupled with the message of the fact that the book-to-bill percentage has continued to increase, kind of the connect the dots that we're trying to provide to give some assistance to the modeling activities for at least the fourth quarter.

Yes, I'm really trying to get at the fourth Carl, so we shouldn't be surprised if you do get a little bit of a bump in the fourth quarter?

I would say so.

Because I think ultimately, everybody is trying to hone in on the idea of where is the bottoming revenue run rate for Crane and I guess one message is it's really hard to tell at this point. Would you agree with that?

Yes, I think that's true, Rob. The other thing you got to remember if you're comparing it to the third quarter you have the month of August in the third quarter and so you get a benefit right there by itself, but I would tell you that the fourth quarter sometimes as you know in any industrial equipment Company, sometimes these customers are going to want it before year-end as they shore up their tax balance sheets, as they try to take advantage of anything that might be out there and again, with a very smaller backlog and a better chance to get it into the quarter and out of the quarter at the same time there's always that possibility. And the fourth quarter in a time like this tends to lend to that and I'll be honest with you, as we look at our balance sheet and we have finished goods inventory we're doing everything we can to convince the customers that this is the right time to do it.

Sure and then I had a couple small follow-ups on things that were talked about earlier. This interest expense increment in the quarter that was related to a customer transaction that affects comparability across periods, can you give us an indication of how big that was?

It was about $3 million.

And can you give us an idea particularly in the Foodservice business how you did the comparison of price increases relative to commodity cost increases in the third quarter maybe relative to the second because as you're probably aware, a lot of manufacturing companies have been able to report a larger positive contribution from that differential in the third that's lead to a little bit stronger margins in some of their businesses and I'm thinking perhaps this contributed a little bit of Foodservice.

As you look at it sequentially, Rob, and in Foodservice generally for us, it's a pretty muted effect to Glen's point, we do use financial hedges to take some of the volatility out of some of the key commodities that we use, so we really haven't seen that as being a significant element of the margin improvement that we demonstrated. It's really much more of an issue of the blocking and tackling that gets done from an operational improvement standpoint as well as the synergies that we've realized.

I'm going to shove one more in here. Mike, you were talking about independent resources that you use for industry outlook in Foodservice. I was wondering if you have any 2010 forecast without attributing them that you could share with us.

Yes, Rob, generally, flat to slightly down across most product categories we participate in and by slightly down, call it a point roughly. So again we do see some flattening but again, the reference points that we check with coupled with our own connections to the marketplace are not showing any major upticks expected in 2010.

But I think the positive there Rob is you take that as opposed to the markets that we saw decline this year, you add in what you're doing from a synergy standpoint this year, what we've said for the synergies next year, and we like where we're headed with the Foodservice segment.

So do I, thanks.

Your next question comes from Ben Elias with Sterne, Agee.

I have a couple questions, I think I'm trying to connect the dots as well and I'm missing a couple. Now you did say we have seen the net orders for Cranes on the 156 odd million in the second quarter to I think $250 million plus this quarter and if that's supposed to get better and you are seeing stability, you are going to see the improvement from not having the month of August in the fourth quarter as you said earlier margins depend on production mix. Surely production is getting better and can we project out further that perhaps as you said, we're not going to see a V-shaped recovery but margins sort of look better for the next two or three quarters?

I guess the only thing that we said about forward margins, Ben, at this point and obviously we will provide a little bit more granular guidance on 2010 when we get through our business planning that's ongoing right now, concludes within the next few weeks, and then gets refined throughout the balance of the year and when we announce our year-end we will give more specific guidance relative to our expectations in 2010. But we have stated and we continue to believe the margin performance in crane in the next trough of the business will be better than they were in the last one, and I think that's reasonable to expect that you'll be able to get, we had a 3.5% margin performance in the last trough year, and we said we should be able to do considerably better despite some of the additional costs that we've taken on since those times.

Okay. And as I look to the debt pay down, you did paid down 140 this quarter, you did pay down 262 through the year if you want to hit your target you have $188 million to go. I think the original earlier in the year you said you were going to get 150 from Scotsman and about $300 million from working capital improvements. Could you just update us on some of the inventory adjustments of receivables as well as free cash flow, sorry, cash flow from ops in the fourth quarter that give you better visibility on that target?

Well, I think the number that we threw out was well in excess of $200 million in working capital. Obviously you saw some of that in the third quarter and I think the metric that you threw out there for Scotsman was correct; that was the $150 million in debt reduction that came from the sale of the Enodis Ice business and we're sticking to the $450 million target so obviously there should be some continued pretty significant reduction in working capital to get there.

Okay, thank you.

Your next question comes from Dick Kindig with QV Asset Management. Your line is open.

Hello?

Your line is open.

Yes, my question has been answered, thank you.

We'll go ahead and take the next question from Alex Blanton with Ingalls & Snyder.

Thank you. Most of my questions have been answered but could you just comment on what do you think is the biggest risk factors for you in the crane business for the next year or two?

I think the biggest risk factor that we have is the credit markets continue to be very constrained. I think when you look at what happened in September of last year in the availability of credit to our customer, that basically stopped everything and whether it was our customers or whether it was people's availability to get credit for their projects, again I'll point back to the engineering construction companies which have some of the biggest backlogs they've ever had. People are just waiting to pull the trigger on some of these projects and so I think that's the comfort people need to see.

I would say the other item is what happens in some of these countries where you have the emerging players coming out of those markets and the pricing of some of this. But you know again, we've seen this before many times. This isn't the first time we've gone through the downturn and people will come out and you only get the pricing bump the one-time. You can be aggressive a couple times once you have to start producing it and you know what your costs are, that's a short-term impact so I don't get that nervous about that, and then it's a matter of what happens in the distribution channel with used equipment.

What equipment is out there versus what equipment is going to be used. If it's a slow return to the residential or non-residential commercial construction, if that's all it is, there's a lot of equipment out there that can take care of that. But if we get the big impact is if we get the energy and the infrastructure projects, that's where the types of cranes that we build on the higher end capacities that are still very good right now, that's where the recovery will lead from, so if you don't see that coming I think that's a risk that we would watch very closely.

Commodity prices, are you, to what extent are you really tied to those? I mean, I'm talking energy commodity prices I guess mainly.

You mean our sales levels versus the commodity prices?

The demand for your products.

Well I think there's some of that. I think when you look at oil prices you look at natural gas. You look at nickel and you look at some of the mines whether they're in Australia or Chile or around the rest of the world, people are not going to invest in some of those projects or continue those projects as prices come down but depending where you believe oil is going to go when you start getting past the $65, $70 a barrel many of these people that's their trigger point to continue to invest in upgrades of facilities and those types of things. So it's certainly tied to it, there's no doubt, but again, it's different all over the world.

Okay, thank you.

Your next question comes from Joel Tiss with Buckingham Research Group.

Good morning guys. This is Alex in for Joel and my questions have been answered, thank you.

Thanks, Alex.

Your next question comes from David Wells with Thompson Research Group.

Good morning everyone. First off I believe you highlighted the currency impact in the quarter was $30 million. That's on a year-over-year basis and I was curious whether that would have been on a quarterly basis just as the dollar has weakened here.

Yes, it was on a year-over-year basis, that metric. I think on a sequential basis I don't know there would have been a significant movement. It probably would have been modestly positive.

That's helpful, thank you. And then looking at the Foodservice cost cuts and the synergies that you're realizing there, how sticky do you feel like those are when you see some improvement, maybe not in 2010 but into 2011, do you anticipate that you'd have to add some of those costs back as the business ramps up?

No, I don't, I think it's probably more pronounced on the crane side of the business than it would be on the Foodservice side of the business, where a lot of it came out of the temporary labor or the fixed labor. But I think when you look at some of the Foodservice, it is a combination where we had duplication of effort, we had as I think Mike goes through whether it's the sales channel or the sourcing of finance or any of those type things, it is permanent cost that we've taken out that we don't see necessary that comes back. Things like just a simple example might be audit fees. That's not going to come back.

Okay, that's helpful and then just one last kind of housekeeping question, is there a good pro forma Foodservice number that we should use when looking back at Q4 2008?

In terms of?

Looking at the Foodservice with the acquisition for the full balance of the quarter so you can get a clean comp number year-over-year?

So from a revenue standpoint?

Correct.

It was about $520 million in revenue last year.

Okay, thank you very much.

You're welcome.

This concludes today's question and answer session. At this time I would like to turn the conference over to Mr. Glen Tellock for closing remarks.

Thanks. Thank you for joining us today and for your continued interest in Manitowoc. While we continue to face short-term challenges, we are aggressively addressing each one of them and we are focused on turning these challenges into opportunities. I look forward to speaking with you again at year-end.

That concludes today's conference. Thank you for your participation.