Manitowoc Company Inc (MTW) 2010 Q1 法說會逐字稿

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

Good morning everyone, and thank you for joining Manitowoc's first quarter earnings conference call.

Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer, Carl Laurino, Senior Vice President and Chief Financial Officer and Eric Etchart, President of Manitowoc Cranes. Glen will open today's call by providing an overview of our quarterly results and business outlook. Carl will then discuss our financial results for the first quarter in greater detail. He will be followed by Eric Etchart, who will offer insight into the market conditions for our Crane segment and to discuss the recent Bauma trade show in Munich.

Following our prepared remarks, we will joined by Mike Kachmer, President of Manitowoc Foodservice, who will also be available to participate in our Q&A session. For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 April 28, 2010. During the course of today's call forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, will be made during each speaker's remarks and during our Q&A session. Such statements are made 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 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. Our first quarter results reflected the challenging market conditions in which we continue to operate. That said, our performance in both our Crane and foodservice segments were in line with our expectations. While we are seeing continued signs of stabilization in the operating environment, 2010 is poised to remain challenging. Nonetheless, the entire Manitowoc teams continues to execute on our objectives. Our ability to improve our business despite these headwinds is a testament to their hard work.

We remain committed to the three priorities -- excuse me -- I have outlined previously which we believe will enable us to expand our leadership position in both Cranes and Foodservice. First, we have continued to make significant progress against our goal of flawlessly executing the Foodservice integration. The additional synergies achieved in the first quarter resulted in further operating expansion in this segment. During the quarter, we continue to focus on all areas where we believe the greatest opportunities exist, which include organic growth, operational cost reductions and procurement savings.

We leveraged the combined knowledge and relationships of the legacy businesses to drive revenues and earnings from new product introductions. We've also realized cost benefits from facility consolidations implemented in 2009 which have already been completed or are in process. In addition, our combined procurement organization is providing additional cost saving benefits by optimizing the cost structure of our larger organization. The continued success in capturing synergies from the Foodservice integration gives us confidence that we should see full integration synergies in excess of $80 million by 2011.

In the Crane segment, we continue to position this business to drive performance as the market recovers. We have taken what was a very efficient and quality-focused infrastructure at the end of the fourth quarter and have targeted additional areas including operational efficiency, product innovation, and our best in class customer service to drive optimal performance in the business. Finally, we continue to remain focused on optimizing our cash generation to achieve both our near and long-term debt reduction goals while concurrently making ongoing investments in our business to drive future growth. We also make solid strides in managing our balance sheet during the quarter as cash management and debt reduction continue to be a major focal point for our team despite the seasonal fluctuations in our working capital.

As we look at our segment performance for the first quarter, our Foodservice business continues to perform well and we are beginning to see meaningful benefits from the Enodis acquisition and the resulting integration efforts. We are pleased with our ability to boost operating margins as a result of the identification and realization of operating synergies with these two businesses. Furthermore, we continue to see significant potential for organic growth in both the hot and cold equipment categories through customer development initiatives like energy savings, speed of delivery, geographic expansion, and menu changes. We have also maintained our focus on innovation and converting projects on the pipeline.

We expect to accomplish this through further integration of our businesses, while at the same time, enhancing our relationships with our customers and strengthening our brands. The assumptions we made prior to the acquisition of Enodis continue to hold true today. As our commitment to product development and technological breakthroughs should enable us to expand the leadership we have across our product line and drive future growth and margin expansion. To that end, we expect to complete the rollout of the new smoothie machine and have received interest from customers internationally to test similar items. In addition, our approved low-oil-volume fryers and new holding products have been well received by customers. We expect to announce several new products at the upcoming NRA show in May, which we will discuss with you during our second quarter call.

Moving to our Crane segment. First quarter results were largely in line with our forecast, as expected. And North American and Western European markets continue to be tough. But, we are encouraged by further signs of strengthening demand in the emerging markets. Additionally, energy and infrastructure-related projects globally continue to drive modest improvements in the demand. As we look toward the remainder of the year and the strong brands, and history of innovation and technological improvements and solid after-market business will help to expand the leadership position as our markets improve.

Long-term, we are encouraged about the opportunities for each of our businesses and we are taking actions now to fully realize these opportunities while challenging economic conditions will continue in the near term. We are tracking with the expectations. We believe we are doing the right thing to prepare for the recovery and position Manitowoc for long-term growth. I will now turn the call over to Carl to discuss our detailed first quarter financial results. Carl?

Thanks, Glen. And good morning everyone.

Reported net sales for the first quarter was $722 million, which is a decline of $306 million or 30% from the first quarter of 2009. Net sales declined $117 million or 14% from the fourth quarter of 2009. The decrease in net sales during the first quarter was driven primarily by a 45% decline in the Crane segment, with flat revenues in the Foodservice segment. Lower revenues in the Crane segment during the quarter were due in part to the timing of deliveries rather than further degradation of demand. And stabilization of new orders can be seen by the first sequential increase in quarterly backlog for the segment since June 2008.

First quarter 2010 consolidated operating margins before amortization and one time items were 5.9% versus 6.9% in the first quarter of 2009 and 6.1% in the fourth quarter of 2009. The year-over-year decline in volume and margins and Cranes was partially offset by strong margins in Foodservice. We expect to see continued improvement in our consolidated margin profile over the long term as we continue to derive benefits from the cost-cutting actions implemented in 2009 plus $125 million of additional cost reduction benefits we expect to realize in 2010.

The GAAP net loss for the first quarter was $23 million or $0.18 per share versus the net loss of $656 million or $5.04 per share in the first quarter of 2009. The first quarter of 2010 loss included $0.10 per share related to special charges including debt extinguishment and adjustments due to changes in US legislation that impacted taxes. Excluding these and other unusual items in both quarters, first quarter of 2010 EPS was a loss of $0.08 per share versus earnings of $0.18 for the first quarter in 2009.

Moving on to the balance sheet, as Glen noted, we remain committed to optimizing our cash flow in order to achieve our debt reduction goals while continuing to invest in our business. During the quarter, we posted negative cash flow from operations of $70 million. This negative cash from operations was adversely impacted by the adoption of new accounting guidance effective as of January 1, 2010, which requires on balance sheet treatment of our securitization facility and treats the proceeds from the facility as cash flow from financing rather than from operating activities. However, this new accounting guidance did not require us to restate prior year cash flow results. On a comparable basis, first quarter 2010 use of cash from operations would have been negative $7 million compared to negative $34 million for the same period last year.

Moving on to our segment results. Foodservice sales in the first quarter of 2010 totaled $355 million, which was flat versus the first quarter of 2009. And down slightly from $359 million in the fourth quarter which is consistent with typical seasonality. Despite flat top line numbers, first quarter 2010 operating earnings in Foodservice were $48 million versus $28 million in the same quarter last year and $42 million in the fourth quarter of 2009. This improvement resulted in strong operating margins of 13.4% in the quarter which increased over both first quarter 2009 margins of 7.8% and the fourth quarter 2009 margins of 11.6%. While we expect solid improvement in Foodservice operating margins for 2010, year-over-year margin improvement will be lower for the balance of the year, due to tougher comparables.

Moving to the Crane segment. First quarter sales totaled $367 million, down 45% from $673 million in the first quarter of 2009, and 24% lower than the fourth quarter 2009 sales of $480 million. While we continued to see positive trends in emerging markets during the quarter, our results were impacted by the timing of deliveries given the production cycle for larger capacity equipment. Cranes segment operating earnings in the first quarter were $5 million versus $57 million in the same quarter last year, and $18 million in the fourth quarter of 2009.

This resulted in first quarter Crane segment operating margins of 1.2% compared to 8.4% in the first quarter of 2009 and 3.8% in the fourth quarter last year. Bring backlog at the end of the quarter was $613 million dollars, an increase of $40 million or 7% over $573 million at the end of December 2009. Net positive orders shall continued stabilization during the quarter with net orders of $407 million bringing the book to bill to 111%. As noted in yesterday's press release, we are reaffirming our guidance for 2010.

We expect Foodservice revenue to improve modestly, and the year-over-year improvement in operating margins. For the Cranes segment, we expect revenues to improve significantly for the balance of the year. While full year operating margins will exceed the 3.5% trough margins that we experienced in 2003. Other expectations for 2010 include capital expenditures of approximately $50 million, appreciation and amortization of roughly $145 million and debt reduction of at least $200 million.

Let me now turn the call over to Eric Etchart to discuss recent events in our Cranes segment, and to share some feedback on the 2010 Bauma trade show.

Thank you, Carl. Following Glen's comments, the last 18 months have been the most difficult business environment for our industry's history. We do believe that the worst is behind us.

And we are seeing strengthening demand in China, India, Australia, and North Africa and Brazil. We are also continuing to see reasonable demand coming from global energy and infrastructure projects, which include two nuclear power plants in Turkey and Tha empthe bidding process, several infrastructure projects in Brazil stemming from its successful Olympic bid, and addition of mega infrastructure projects coming from Saudi Arabia. However, while some bright spots have emerged, North America and Western Europe remained challenged. As expected, (inaudible) commercial construction. Despite these challenges, we remained focused on areas during the downturn have helped us maintain the leadership position, and will position us well as the markets recover.

Our ongoing focus on innovation and technological improvements make our Cranes more valuable to end-users and widen the gap between the equipment and our competitors. In line with our strategy to become a fully integrated Company, we are also making progress on our initiative to establish industry of centers of excellence. And which will act as central plants for additional operation efficiencies. Lean manufacturing is a major initiative for us as we constantly strive to further reduce waste, improve lead times, and become a more efficient and profitable business.

We continue to leverage our key emerging markets and highly focused on capitalizing on the opportunities we have to grow further in these regions. Before turning the call over to Glen for closing remarks, let me spend a few moments discussing about the Bauma trade show which I attended last week in Munich. Despite the travel disruptions that many encountered, I am pleased to report we enjoyed significant activity. Overall, there was a sense of cautious optimism and my conversations with the distributors and customers and others in the industry suggesting that the worse is over and the environment is starting to stabilize.

However, questions linger around the timing and the magnitude of recovery. Generally speaking, our people agree, that we should see an uptick in demand as we enter 2011. However, 2010 will continue to be challenging. Consistent with our call focus and technology call and innovative leadership within the industry. We announce several new products at Bauma last week. Product enhancements include the new Potain and (inaudible) which sets a new standard for operative (inaudible) and productivity. We also premiered an innovative line of high-performance winches for our Potain and our Cranes, which are designed for ultra high speed lifting. These winches nearly double our hoisting speed, and offer our customers significant timing and cost advantages of competitive equipment. Among the new product introductions, we announce two successful Cranes -- the Grove GMK6400 and the GMK6300L. Both of which use technology that provides the strongest, least enriched capabilities in the market today. Our new Cranes were extremely well received at Bauma as the innovation and the technology of these Cranes are clearly creating a new standard in the market. We have a strong track record of successfully navigating through difficult time and operating environments. And while in 2010 remains a challenge, we continue to be an industry leader. And we believe we've implemented the right initiatives but we emerge from this downturn as a stronger, more efficient companies. With that, let me turn the call back over to Glen.

Thanks, Eric. As evidenced by Eric's remarks, you can see that the operating environment for cranes continues to be challenging. However, we are encouraged by signs of improving demand in emerging markets and the reception of new product introductions. We remain focused on correctly positioning the business for future success. As we look towards the remainder of 2010, we're focused on driving innovation throughout our business to expand our leadership positions, and believe that the initiatives we are pursuing in our business segments will spur both revenue and margin growth, as the markets recover. We will now open the call for questions.

Thank you.

(Operator Instructions) We will go first to Meredith Taylor with Barclays Capital. Please go ahead.

Hi, good morning. I'm hoping you can expand a little bit on the comments you made around the timing of deliveries you made on the Crane side of the business? Specifically, can you quantify from a revenue standpoint? Or maybe from a unit standpoint, how much in the way the deliveries were made? And were these deliveries that were supposed to be made -- that were delayed or this just an issue of the timing with the way the order book is built?

Meredith, this is Carl. I'd say the magnitude. I think the guidance we gave in the last conference call really did it by semester.

We talked about the fact that given the size of the backlog as we ended 2008, with some carry-over that spilled into the first half of 2009. First half of 2010 was going to be off by a revenue stand point. Obviously, the biggest -- we didn't give any quarterly break down but the biggest element of it, particularly given where the demand as coming from. Some of the larger lift capacity equipment that has longer production lead time. I think - are there reasons for -- the key reasons for the issue? There are always going to be some things.

Particularly with some the logistics of getting equipment delivered, where the demand is coming from, and the emerging markets probably played a hand in how you would calendarize that semester. But I think the bigger issue is really just a matter of, the higher lift capacity equipment representing more of the demand than in a typical discreet period.

Okay. That's helpful. As I just think about the -- what's been the traditional seasonality between the first and second quarter, it looks like Cranes have typically been up 20%-ish sequentially. Should I look for that seasonal pattern to hold or are you looking for a potentially more pronounced first quarter to second quarter sequential revenue move.

I think it could be a little bit more than that. Just because of the issue I just talked about.

Okay. Got it. One quick follow up and then I will pass it along. In terms of the second half, year-over-year. You've obviously talked about some of the orders that you have seen. And the deliveries pushed into the back half of the year. Could you calibrate a little more closely how you are talking about up over year? Is this up double-digits and what sense do you have from the way the order book is billed?

What I'd have to do is really point to some of the things that we've said. Which is that -- obviously, we expect the full year to be down a lot less than 2009 -- over the 2009. And obviously we have not been on pace to improve upon the 2009 performance in the first half of the year. So, we will cut into some of that -- that deficit from that guidance. And, with the performance in the last three quarters of this year to satisfy that guidance level for this year.

Great. Thank you so much.

We will go next to Charles Brady, with BMO Capital Markets. Pleas go ahead.

Thanks and good morning. Following up on Meredith's question. In terms of going to look at the order rate, would you expect to see sequential increase insist orders as we roll into 2010? And dovetailing with that, would you anticipate the book to bill remaining above one through the remainder of the year?

Charlie, good morning. I think as you look at that, if you think of Eric's comments and some of the things we talk about with 2010, late 2009, 2010 being the trough. You're going to naturally expect the [other] rates to improve as the year goes on and quarter- over-quarter sequentially. That's always a question, but I think improvement is the key factor. And I would let Eric expand on that electrical bit.

We're expecting to continue to see improvement as we move into the year. However, modest overall in 2010 based on what we can perceive in, and the change of move where the users from, what I could see at Bauma uniformly (inaudible) a year ago. (inaudible) And the situation of course may differ by product line. And with maybe Cranes activity mitigated by softening of the Cranes on the book. But again, it's good to reiterate that. We're facing a contraction situation in emerging markets versus the traditional markets.

And the Cranes recovery also lags over the top of construction equipment by an average of 12 months. So there is no doubt that as Cranes demand sinks to bottom, the Cranes utilizations runs the race and use Cranes to a certain extent in different countries remain as they're doing for a major shift in 2010. So, it is too soon for (inaudible) management in North America and Europe. And also, looking at the excavation work, it is still too little. So, there is a lot of [confidence] and visibility in America and in Europe to expect.

And uptick of orders significantly impact our backlog, being driven by contracts, from construction company. Some modest [resource activity] in North America from our distribution network.

Okay. Can you, on that, can you speak to the installed base, and to the age of the installed base? So when demand really does start coming back. Particularly in the more developed markets parts of world. So what that replenishment cycle might look like? There are certainly parts, and Carl, you and I talked about this last week about what Germany and how the age of some of those Cranes -- they are now 20 years old and there is an up cycle there. But I wanted you to expand on that, to other markets as well.

Well, Charlie, I think, again. It depends on where you are at. And it depends on who you are. A lot of these, as we've said before -- a good portion of these goes to the [ Crane rental] companies and what did people do during that period of time. And let's take North America. And you mentioned Germany, so Carl's talked about that before.

But you look at North America. It is what has happened with some the used equipment that was out there. What's the age of the different fleets -- I think as you read other statistics of the Crane rental companies. They have been improving the ages of their fleet by getting rid some of the equipment in other markets. It is hard to tell what the average age of the fleet is out across the world. But we look at it by the regions then the product line and what is, again, what is driving it?

Infrastructure, the energy and it is not commercial construction and it's not the nonrest construction. That's a different Cranethan what you've had in the past. Eric, I don't know if you have anything to add to that.

Well, I generally (inaudible) the self-wrecking cranes and significant boom back 20 years ago with the Berlin wall. And we can see some trends (inaudible) and being renewed. And that gives us a little bit optimism that Germany should be a good market overall. And residential construction is pretty much down and that is a major headwind for us.

Thanks.

We will go to Henry Kirn with UBS. Please go ahead, sir.

Good morning guys.

Hi, Henry.

I was wondering if you could chat on the utilization of the Crane fleet by type and geography, as granular as you can get. And maybe with that, dovetailing, what you are seeing out on Crane care sales at this point.

I will give you as granular as we will give. I would say North America -- if you look at, whether it's the mobile hydraulics or the crawlers or the higher capacity Cranes. That's where you're going to see the higher utilizations. I would say overall in North America, I would say that utilization is 60% to 65%. It's going to be a little higher on the high capacity and obviously, lower, so you get that average.

You go to Europe. It is probably not all that much different. I think that the lower capacity [ATs] are starting to come off a bit. But again, I think it is the higher capacity [ATs] and the higher capacity crawlers. Towers are okay in Europe and not great. And in North America, the towers are probably lowest utilization of any of the product lines. So that and-- then in Asia, it is all over the board. That's the best we would give on a generalized basis, Henry.

Thanks.

As far as crane care, Henry. The business is off year-over-year, as you probably would expect. Not as much as the overall segment. So the contribution on the revenue side from Crane care, it is a little bit higher. Roughly the mid-teen percent than it was in 2009. In the quarter.

That's helpful. And one pricing. Could you talk about how competitive pricing can become? And has pricing declined sequentially or has it flattened out from where it was a quarter or so ago?

No, I think, it has remained relatively flat. We certainly can point to specific instances where people have done some unusual things. But I don't think it's any different than where it was in 2003, or 2004. Maybe the players that are doing it are a little different. But I don't think it's any different than what we've seen in the past. It is relatively stable.

Thanks a lot.

We will go next to Charlie Rentschler of Morgan Joseph.

I'd like to just start out by saying you guys have done a heroic job under very difficult circumstances. And really on the right track. Carl. A question for you. My first question. How do you juggle the need to pay down debt and the ongoing need to pay down the debt and yet provide working capital as your sales hopefully trend up. Can you talk about that a little bit? Are you -- have some leeway here in terms of debt payment so you can service the working capital site?

Well, Charlie, in the management of the working capital, certainly the priority on debt reduction is very high as you'd expect at the current level of leverage we have. I think with the actions that we've taken, both with success in generating cash out of operations last year. Some of the assets and (inaudible) that we did as well as the relief that we've obtained our the covenant certainly put us in a comfortable position. But we are still focused on debt reduction as a priority.

Charlie. This is Glen. Thanks for your comments out of the barn. But I would say if you look at many of the things that happened during the last up turn. And whether it was some of the investments in capital expenditures, some of the lean manufacturing initiatives that we put in place.

Many of the improvements we've made in the factories, the integrations that are going through and Foodservice, let's be honest. Perhaps, it was a little too high in 2007 and 2008. And that's if we can get some benefit. Out of many of the things we did. Knowing we had to go through some of this, whether that's working with the entire supply chain. And we have a lot of opportunity there. And our -- Mike and Eric are looking at it on a regular basis with their teams. So, it is a balance but they also know that managing the balance sheet and when you look at what our incentives are based on, which is EVA, it is not only the bottom line, it's managing the balance sheet too. And I think our people do a very, very good job at it.

My second question was to Mike Kachmer. And let him have a chance to speak. Mike, do you see anything on the horizon in the next few quarters that could keep you from generating operating income at least as good as the first quarter? Anything, any negatives? And any icebergs out there you see sticking up that will be a problem? Or do you keep trucking along as you have been, so beautifully, by the way.

Charlie, thank you for that comment as well. We feel very, very positive about the strategy we put in place that is very consistent with what we anticipated before the acquisition even took place. So the overall trends looking forward remain very positive. Carl has offered some thoughts to seasonality that's still a part of our business.

Some of it, with the base business, others associated with the timing of different rollouts, but overall, the positive trends will continue. We continue to invest in the business. The integration business opportunities are not done. Many are still in front of us. So, again,the overall trend will remain positive.

Let me squeeze in a related follow-up. How is the smoothie machine rollout coming along?

Very well. There's a couple of perspectives there -- number one, we will be completing the first major roll out that occurred in the US with a large, major customer. It started last year and very heavy in the first quarter and it will then slow down as the store rollouts get completed.

The good news is -- that there are international opportunities that will exist with that same customer. And additionally, we will be offering different smoothie-related products over the course of, hopefully the latter part of this year and certainly into 2011 with other customers and with other markets. So the category's going to and mainstay for years to come.

Thank you.

We will go next to Joel Tiss with Buckingham Research. Please go ahead.

Good morning. How's it going?

Hi, Joel.

Two things. One, you haven't talked really at all about the potential for raw material costs to be a headwind in the second half of the year. Is that true or am I just making it up?

No, we haven't talked about it a lot because from materiality standpoint and where we are at and some of things we already have in place, with our contracts and with our forecasted usage -- I think we feel okay about it. And it is going to become a bigger issue as we start getting towards late in the year and in the 2011 depending on what happens in commodity prices at that point in time.

So, you recall, Joel, a lot of times in some of these commodities, more so on the Foodservice and the Crane side we have these hedged. And that takes some of the volatility out as we try to protect the balance sheet. You're probably talking mainly on the steel prices. We have some good contracts in place.

I think what we have to watch for is what happened in late 2007 and 2008 where all of a sudden, the field companies didn't want to talk to you much about going out two, three months, or longer in some of these contracts. But in today's environment in the last six and nine months, it was a little easier conversation.

Okay. I suppose as we get into 2011, the volumes will get better and should be less of an issue. On Foodservice, can you spend a little bit more time going through some of the different end markets and why you are seeing more of a flat result? And if you could just break out casual theft, casual quick-serve, some of the pieces to give us a sense of what all the customers are saying.? Thank you.

I'm going to let Mike speak specifically to each one but I think, Joel, if you just go back to some of our conversations whether it is last year and February this year. We weren't expecting that the Foodservice industry to have much of an uptick.

First of all, from the economy, consumer confidence, that type of thing. So I think it's playing out just the way we saw it. And I know in a lot of things you read, there is a lot of excitement surrounding what could possibly happen in this environment. But I think people, and even Eric uses the word in Cranes as cautiously optimistic, I think some of that is in the Foodservice site. Mike, if you want to talk about the specific end markets.

Right. I would say that there is really three dimensions that we look at. First is the geographical slice and then there is the customer segment slice, and last is the market segment slice. And then within ach of those, there is the product/application slice. You know, the Americas remains trying, as we talked about from some of the earlier comments. And we are starting to see some hope for the latter part of the year as restaurants are experiencing better for themselves. Ultimately, that will lead to more investment. But again, we've had success even in that market.

Some of our major rollouts, such as the smoothie category we referred to earlier. It has been a very, very positive statement in an otherwise flat general market. Europe remains almost challenging environment where we have had tractions in certain countries and certain customer segments. And on the flip side, Asia Pacific market remains very upbeat, very optimistic and very energized. We see US-based chains getting more aggressive with new store growth in the region coupled with Asia-based chains making similar strides.

So again, it is a different story with each of our three markets. That and we are seeing positive news on the most fronts and with the European sector, probably the most cautious at this time.

Okay. Thank you.

We will go next to Ann Duignan with JPMorgan. Please go ahead, Ann.

Hi. Good morning guys, it's Ann Duignan.

Hi, Ann.

Can we take a step back? I want to clarify a couple of things that you said. You expect Cranes to be sequentially up more than normal, which would be more than 20% sequentially. Orders -- you think there is going to become modest improvement? Wouldn't that by its very nature imply it is going to decline going forward?

It is. I think what we are trying to say about 2010. It is, we view it as still a difficult environment. And obviously we have got some challenges in the developed markets specifically. And that can create some vagaries as far as what the pacing of the order flow might be.

So it is really a difficult to predict and what I think, based on everything we said. People would view 2010 as the rough year. It is not atypical.

But book-to-bill declined sequentially before picking up.

We are not making a forecast there. But certainly not inconceivable, obviously, part of -- of the ability to get to -- over a factor of one in the first quarter. The revenue was down quite a bit.

Exactly. That's my whole point. That people tend to focus on book-to-bill. And sometimes it's because it's the bill is going to zero. And so. And that wouldn'surprise us to see book-to-bill start to decline before it starts to increase. I wanted to clarify that because I think people obsess over it a little bit.

Foodservice item. Just curious. Could you tell us a little bit more about the synergies in the first quarter as best you could quantify them? Because I know it's hard to actually pull up what were synergies and integration synergies. And can you talk about how much synergies you did see from organic growth? And how much you did see from cost benefits and how much you did see from procurement?

I think the bulk of what, of the margin expansion that we saw in Foodservice was a function of the synergies. And we -- we probably, when you look at the the guidance we have given for incremental synergies this year. We certainly took a pretty significant step in that direction just in the first quarter, probably $35 million plus in incremental synergies, and ten over nine. And so, that certainly was a pretty big factor.

Some of those would be on the procurement side and we would identify procurement, chronic rollout would fall in there but I think Mike is prepared to give more color on what the actions have done.

I think our estimates through the course of 2009 as we looked forward to synergy opportunity is holding true. We're still roughly seeing about 70% of the synergies on the cost side of the equation, with 30% associated with revenue opportunities and based on cross-selling, pre-existing customers, developing new products based on the knowledge that existed into two separate companies and that is roughly what is holding true.

Can you break out the cost benefits versus the procurement? I'm just trying to get a sense of --

It is about-- on the 70%, it's about half and half.

Okay. That's actually in Q1 and not your goal.

Right.

Thank you, I will get back in line.

We will go next to Seth Weber with RBC Capital Markets. Please go ahead, sir.

Good morning, guys.

Hi, Seth.

Just another clarification. I think, Glen, when you were talking about the competitive environment, you mentioned that the players were different this time versus last. Is that a -- are you trying to make a comment -- are the Chinese becoming more aggressive? Can you expand on that a little bit? Is that what you are alluding to?

I don't know that it is necessarily all the Chinese. There's more players and some of the different large -- large-end capacities that were not around in 2002 and 2003. And certainly not one to go against -- and stay anything bad about the competition or anything. But, I think there's more players in it.

And so you watch what some the other players have done and they haven't been in this situation before. So I do think it does get a little bit different. But it is mostly, it is not in your traditional market that you are seeing it. It's mostly in the emerging markets where some of these deals are taking place.

Okay. Thanks. My question is -- trying to drill down on this -- crane margin being above the 3.5% trough from last cycle. How much of that is dependent on volume recovery and how much is, if it is possible to talk about, how much is dependent on volume versus -- you have these contracts in had already so you know what your profits are going to be on the Cranes you are building through the end of the year.

Well, a lot of it, Seth, is going to be driven on the volume. Big part is that you get the benefit of absorption in the factories and I think the other thing is that you -- people tend to forget about many of the changes that you made in the Cranes infrastructure during 2005, 2006, 2007, 2008. And we -- last trough at 3.5%.

We have much more of an emerging market presence now. We've consolidated many of the operations into other operations. 2003 was -- Right after the consolidation of Grove and Potain and Manitowoc, primarily the traditional markets, so a lot of different factories, the improvements we made. I think that all boils into that -- that projection as to how it can happen.

It is new products. It's a difference of more of the infrastructure energies and in [end] markets than what we've seen in the past. So I think it's all a combination of those that give us a lot of confidence can be where it is. Now, at the flip side. Go back to what commodity costs were in 2003 and they are very different now. So where's your pricing versus back then? But, it's all those things taken in combination that gives us that confidence. It is not necessarily just what we have in our order book right now.

I appreciate that. But If you were to go back, I don't have the quarterly numbers in front of me. But during the quarters for 2003, did the margin get down to the 1% that we saw this quarter?

I think so. I am not looking at it visually. But my recollection is that it is seasonably soft first quarter. We were -- we recovered to the point of 3.5% and our message in this instance -- based upon the things Glen mentioned is that despite a little over 1% in the first quarter will still get over the 3.5% margin.

It would go one step further with a different mix in 2003 than what it is right now.

I am sure. Okay. Just -- a question for Eric. On the last call, you had mentioned a pick-up in Germany in December. And it sounds like that's kind of gone away. Is there some sort of color around that? Do you think that maybe orders just got -- people were just holding off on orders around the Bauma show or is there something that is changed in Germany over the last quarter?

No. There is no change. And, if you look at Western Europe right now. Sovereign Europe is completely dead. There are really free markets which show more and obviously Germany is one of them. France to a certain extent, and Switzerland.

So these are the markets showing resilience in Western Europe. So, I don't think my comment would be different here and Bauma, just to confirm again. The orders that we had on during the show. And some of those orders were coming from those specific countries that I just mentioned.

Okay. Great. Thanks very much, guys.

Thanks.

Robert McCarthy with Robert W. Baird. Your line is open.

Morning, everybody. Can you hear me okay?

Yes, Rob.

Great. I am still a little confused about -- well, more than a little I guess. Confused about what happened Crane in the first quarter. I had thought I understood that you had shipments delayed from the first quarter to the second.

But, it sounds like order intake was a different mix than you expected. It was incrementally weaker on the -- more quick turning Crane business and it was stronger for larger. Is that -- Did I get that right?

Yes, I think so, Rob. I think, the comment about the order flows being modest was really juxtaposed against the backlog that we took into the beginning of 2009. Not necessarily anything sequentially. And then -- then the revenues being modest. And I think, in response to Meredith's question. It did indicate that given the fact as we have been saying, that the demand has been more resilient on the heavy lift side.

Things are going into energy and infrastructure projects. The production throughput is a little bit longer, and there's things that, that we have had in hand as an order and that were just not. And in a level of completion to get out in the first quarter.

Okay.

If that makes sense.

Yes. I think I generally got it. And in terms of your outlook for Crane order activity going forward. We have a couple of quarters now of around $400 million additions to backlog. We have backlog of $600 million. But it seems to me, that generating $500 million a quarter in revenue in the back end of the year. Or at least on average, which is your forecast for up comparison and up in the second half, and will require orders to strengthen from here, I think. And so, can you help me understand. One, whether you can meet those objectives if orders stay at the level they are at today.

And then, if we are going to see acceleration going forward, is any of that, I mean, I heard maybe some inventory replenishment at Grove. In other words, you would be able to lift production schedules closer to retail there.? And maybe some of it going on at Tower. Do you understand my struggle? Your order intake seems to -- it looks like it needs to go up and I'm not clear whether -- where that incremental strength comes from.

Well, there is no doubt. You just look at where it is -- If you ran out the backlog, you are right, your intake has to go up. And then it is a matter of like we had several years ago. It is how much do you get out in the quarter that doesn't go in the backlog.

You start playing that again but when you look at it. And you look at the projects and have the conversations with the customers and you look at the fact that you don't have a backlog that goes out very far. And you see more of this, and this is what I need and this is when I need it. And that period of time, Rob, becomes a shorter piece of the pie than it has in the past.

We seeing much more of that. If you can get it to me by now. By whatever date. You are going to get the order and then that's how it plays out. When you look at the new product introductions we have. When they roll out and you look at some the other -- some the other areas of the world, that we see our production schedules. Yes. It obviously means orders would be perceived to be higher in the back part of the year.

Okay. That is very helpful.

We will go next to David Wells with Thompson Research group. Please go ahead.

Good morning, everyone.

Good morning, David.

With regard to the emerging markets and the relative strength that you are seeing there. What type of work is it that is coming through the pipeline there? I guess. I am trying to get a sense to how much is tied to stimulus that was passed in 2009. So what does the underlying demand looks like in those markets as the stimulus benefits starts to roll off here as we come into the end the year?

Well, David. In the emerging markets -- you know, about the only place that had a meaningful stimulus would have been China. And there's different things surrounding that.

But your other part of the question is where do you see demand. It is in mining and infrastructure. Eric mentioned it in his comments -- the nuclear plants in Turkey, you're seeing infrastructure in Brazil, you go to Australia, a lot of it is mining and again, infrastructure. Middle East, as Eric mentioned, and that's infrastructure work when it comes to hospitals and universities, research centers and that's just -- entire banking, financial community. I mean, it is all for that. And again, I don't think it has anything to do with a stimulus.

And it has to do with the people where they need the infrastructure, energy and petrochem. Eric, I don't know if you have anything to add to that.

No. Well, you look a Brazil. And basically, they have a quarter of a century in four years and what is going to happen in Brazil and the spending would be huge. And irregardless of (inaudible) administrations and the change in the October elections . Brazil has to build infrastructures to big events that are in the Olympics.

And if you look at other things. Chile, for example, with the earthquake, now they had previous plan with $9 billion of infrastructure to be built. And that is going to start at probably at the back ends of 2010. Look at Saudi Arabia. There is huge infrastructure progress, hospitals and (inaudible) center, and Olympic city. And you have all the projects. They are all financed and that's where the demand would be coming from. And China, we expect they would continue with the stimulus and the impetus that we see that the Chinese market will continue in 20 year run on 2012, for

That's very helpful. Appreciate the call there. And the follow up. Continue to hear some chatter out in the market about prizes for used equipment starting to soften somewhat and given the pressure we are seeing in the North American and the rental level. How much of a concern is it in your perspective. That thank you see used equipment come to market that would cannibalize new sales here towards some of the emerging market projects that you referenced?

Well, David, there is always that chance. And it has been there ever since we built the equipment And the used market is an always a channel. And we use that channel also. We take trade-ins or anything else. It is part of the sales process.

Will it cannibalize some things? It does. I do not think it's to a great extent. It depends on what the age is, it depends on what it is going to do, you have newer technologies in some things. And you look at -- if it is going to be a RT, how old is it, and we have new products coming out. When it comes to weight, and it comes to length and lift capacities.

And it's what type of project and it used to be, David, all of the used equipment -- went on the emerging markets as a dumping ground. And they get very good at taking -- international engineering construction firms go throughout the world. They have safety requirements also that it doesn't necessarily. They don't want any "equipment that used to go to some of the places."

So I think you always see the used prices fluctuate. And I think they are softening, and they are certainly not out of the normal what we've seen in prior periods. Eric?

If you look at Spain. And obviously the market is down big time on Towers. And you have a lot of towers idle. And then the initial for that was for landing in Latin America, because it's a traditional full black market for the Spanish manufacturers. This does not happen, all the Cranes stay in Spain.

And the reason is -- the specs are different. They use remote controls in Spain, and if it goes to Latin America, you need a cab. So you need add some money and all these things, and at the end of the day, you have not seen huge traffic of these used Cranes jeopardizing our new Crane sales in Latin America.

Thank you very much.

Next, we will go next to Nigel Coe with Deutsche Bank. Please go ahead.

Hi guys. This is actually Nicole asking questions on Nigel's behalf. I wanted to talk about working capital. It was surprising given the volume declines that working capital built during the first quarter and it was, it looked like it within accounts receivable. If you could talk about that. And then the mix of inventory between work in process, raw, etc.

Sure, Nicole, the issue with the accounts receivable, I think the biggest piece of it, would be depending on whether you're looking at it from the end of the year. Last year -- or the first quarter last year was $63 million just from the accounting impact of the securitization going back onto the balance sheet. That was $63 million versus the end of the year, which was nearly $100 million impact as you look at it year-over-year. That's probably the biggest part of it.

And the other part. It is the fact that we are building working capital is really coming from the expectation that we need to satisfy some of the increase in orders and it is larger equipment that has the longer production lead time that doesn't flow through the income statement until the equipment is delivered. And that's -- those are the two big issues.

Okay. And mix of inventory? Well, probably a little bit more on a work in process.

And that really drives that latter issue. Okay. And I mean.

How do you feel about the rest of the year with the working capital? Are we going to need to see working capital continue to increase or can you reduce that as the year progresses?

I think we are committed to the $200 million in debt reduction and the targeted level we put out there. And to the extent that we have, the curse if you will, from a working capital standpoint of higher demand. We hope to generate more out of the profitability to satisfy the objective.

Got it. That's helpful. Looking at your competitor, Terex. Orders there were down significantly quarter-on-quarter. And you obviously had much better performance. Is that product mix, you believe or something else going on there?

We don't know. We don't know exactly where the orders are coming from or what they are looking at or what their comparison was to last year. And we just. I mean, we don't know. And I don't think we are prepared to comment on something like that. Okay.

Lastly, looking at the backlog. Can you give the impact that FX had?

Pretty minor.

Yes. Minor. You have to take into account for the first quarter that activity is very slow. And from January and February because of the Chinese New Year.

And it started in March. And I think we should expect Q2 obviously to see an uptick in orders. And in APAC because they are not good there. That's all for me. Thanks.

That does conclude the Q&A session. Mr. Steve Khail, I will turn it back to you for any remarks you might have.

Before we conclude today's call. I would like to remind everybody a replay will be available later this morning. You can access the replay by visiting the Investor Relations section of our corporate website at www.Manitowoc.com. Thank you everyone for joining today and for your continuing interest in the Manitowoc Company. Have a good day.

That does conclude the conference call. Thank you for your participation.