Manitowoc Company Inc (MTW) 2010 Q2 法說會逐字稿

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

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

Good morning, everyone, and thank you for joining Manitowoc's second quarter earnings conference call. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer, Carl Laurino, Senior Vice President and Chief Financial Officer, and Mike Kachmer, President of Manitowoc Foodservice. 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 second quarter in greater detail. Mike Kachmer is our guest speaker this quarter, and he will offer insights into the market conditions for our Foodservice segment and will also discuss the 2010 National Restaurant show. Following our prepared remarks, we will be be joined by Eric Etchart, President of Manitowoc Cranes, who will participate in our usual question-and-answer 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For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 July 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 question-and-answer session. Such statements 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 will now turn the call over to Glen.

Thanks, Steve, and good morning, everyone.

Yesterday we reported second quarter results that were consistent with our expectations, in spite of the many external challenges resulting from the prolonged weakness in the global economy. The operating environment during the second quarter was largely a continuation of prior quarters, with signs of further stabilization in more mature markets, complimented by sustained demand in emerging geographies. While these improvements are encouraging, given the market volatility of the past several months, we are mindful of the uncertainties and remain focused on those factors that are within our control.

During the second quarter, we made further progress against our three near-term strategic priorities that we believe are fundamental to protecting and enhancing our leadership position in both of our businesses. First, we made great strides toward our goal of smoothly integrating the Foodservices businesses. As we move forward with this market-leading business, our dedicated focus on innovative technologies and new products has created organic growth opportunities with new and existing customers globally. We also continue to leverage various economies of scale, which include operational cost reductions, lean initiatives, as well as procurement savings.

Secondly, even with the significant challenges that the economic environment continues to pose for our Crane segment, we continue to invest in operational efficiency improvements and lean manufacturing principles. In addition, we remain focused on emerging market opportunities, building on our previous investments in China, India, the Middle East, and Latin America. Our success in achieving these initiatives is illustrated by the improvement we reported in the second quarter and operating margins for this segment. We are confident that the hard work we've put over the last several quarters will pay dividends as the economy improves and this segment returns to growth.

And finally, prudently managing our cash position and optimizing cash generation remain essential as we reduce leverage, improve our overall financial health, and position the Company for long-term growth and success. We will continue to make this a priority for the balance of the year.

As we look at our segment performance for the second quarter, Foodservice posted strong performance once again, and we continued to extend our global leadership position in this business. We have a very positive outlook for Foodservice and are encouraged by the top and bottom line benefits that continue to emerge from the Enodis acquisition, and our ongoing integration work. Our sustained focus on innovation and the breadth of our product offering are not only key advantages, but they are also points of differentiation that make us a vital partner in our customers' success. The combination of our product offerings, existing relationships, and a global footprint has afforded us significant opportunities for further growth in international markets. Mike will give you a deeper look into this segment, including an update on the rollout of our new smoothie machine, along with some of the recognition we received at the National Restaurant Show in May.

Second quarter results in our Crane segment were in line with our expectations, as sales were once again driven by emerging markets, which helped offset continued weakness in North America and Europe. While we are seeing some indications of stabilization in certain mature markets, such as modest improvements in utilization rates and significant reductions in dealer inventory levels, rental rates remain soft, and we expect the economic environment to remain challenging for the balance of 2010. During the quarter, we saw a decline in our backlog, which was primarily driven by foreign exchange, as well as our removal of a significant order due to financing issues. However, it is notable that gross orders totaled nearly $400 million in the quarter, similar to the level experienced in the first quarter of this year.

In the face of weaker sales levels compared to the second quarter of 2009, continued execution of our operational improvements and cost savings initiatives drove significant improvements in operating margins. In the second half of the year, execution will continue to be the number one focus for both of our businesses. Longer term, we are confident in the growth opportunities, and we are positioning ourselves to enhance our leadership position and capitalize on opportunities in the future. While challenging economic conditions will remain in the near term, we are tracking with our expectations. We believe we are doing the right things to prepare for the recovery and to position Manitowoc for long-term growth.

I will now turn the call over to Carl to discuss our detailed second quarter financial results. Carl?

Thanks, Glen, and good morning, everyone. Reported net sales for the second quarter were $877 million, which is an increase of $155 million or 21% from the first quarter of 2010. Net sales declined by $158 million or 15% from the second quarter 2009. The year-over-year decrease in net sales during the second quarter was driven primarily by a 31% decline in the Crane segment, which was partially offset by an 11% increase in Foodservice. The sequential sales increase reflects signs of further stabilization, as well as the positive impact of seasonality in both businesses.

Second quarter 2010 consolidated operating margins before amortization and one-time items were 9.5% versus 8.1% in the second quarter of 2009 and 5.9% in the first quarter of 2010. Sequential margin improvement was driven by the Crane segment, which experienced higher volumes, a positive product mix, and the impact of favorable receivable collection activity in the second quarter. Year-over-year operating margin improvements were largely a result of the cost cutting actions implemented in 2009 and the realization of synergies resulting from the integration of the Enodis acquisition.

Moving forward, we continue to target additional actions to further reduce our cost structure and improve operating efficiency. GAAP net income for the second quarter was $14.1 million or $0.11 per share versus a net loss of $12.3 million or $0.09 per share in the second quarter of 2009. Second quarter 2010 earnings included $0.01 per share related to special charges. Excluding these and other unusual items in both quarters, second quarter 2010 EPS was $0.12 per share versus $0.23 for the second quarter in 2009.

Looking at the balance sheet, we reduced our net debt position by $12 million during the quarter, and we remain committed to our debt reduction goal of $200 million for full year. In order to achieve this target, we are highly focused on cash flow generation. During the second quarter, we posted positive cash flow from operations of $83 million. This positive cash from operations was impacted by the change in the structure of our securitization facility, which resulted in reinstatement of off balance sheet treatment and classified the proceeds from the facility as cash flow from operating, rather than financing activities, which is different than the first quarter but consistent with last year. The new accounting guidance that facilitated the first quarter change in accounting treatment did not require us to restate prior year cash flows. Therefore, the year-to-date 2010 and 2009 cash flow results are comparable. Year-to-date 2010 cash from operations was $13 million versus a use of cash in the first half of 2009 of $18 million. This was a good result given our typical first half use of cash characteristics.

Moving on to our segment results, Foodservice sales in the second quarter of 2010 totaled $425 million, which increased 11% from the second quarter of 2009 and 20% from the first quarter of 2010. Second quarter 2010 operating earnings in Foodservice were $57 million versus $46 million in the same quarter last year and $47 million in the first quarter of 2010. Strong operating margins of 13.4% for the quarter were an increase over second quarter 2009 margins of 12.1% and flat from first quarter 2010 margins, due in part to a less favorable product mix and higher employee costs in the second quarter.

With regard to our Crane segment, second quarter sales totaled $452 million, down 31% from $652 million in the second quarter of 2009, and up 23% from the first quarter of 2010 sales of $360 million. While the second quarter yielded positive trends in emerging markets once again, top line results were impacted by continued weakness in certain mature markets and a lengthening sales cycle amid financing-related project delays. Crane segment operating earnings in the second quarter were $39 million versus $50 million in the same quarter of last year and $5 million in the first quarter of 2010. This resulted in second quarter crane segment operating margins of 8.6%, compared to 7.6% in the second quarter of 2009 and 1.2% in the first quarter of 2010.

Crane backlog at the end of the second quarter was $531 million, a decrease of $82 million or 13% from $613 million at March 31, 2010. Despite this contraction, new orders showed resilience during the quarter, as gross orders tallied nearly $400 million, roughly equal to those in the first quarter, with over 40% of our newest orders coming from emerging markets.

As noted in yesterday's press release, we are reaffirming our full-year guidance for 2010. We expect modest year-over-year improvements in Foodservice revenues and operating margins, with tempered year-over-year margin expansion for the balance of 2010 versus the first half. Additionally, we expect an increase in Crane revenues in the second half of the year and full-year operating margins exceeding the 3.5% trough margin that we generated in 2003. Other expectations for 2010 include capital expenditures of approximately $50 million, and depreciation and amortization of approximately $140 million.

Let me now turn the call over to Mike Kachmer to discuss recent events in our Foodservice segment and to share some feedback on the 2010 NRA show. Mike?

Thank you, Carl. When I last spoke to you at the end of the fourth quarter, I said that we had entered the new year in a very strong position. And as Glen suggested, we are on track with our full-year expectations while generating greater momentum with each passing quarter. Despite the market volatility we continue to see across several global business sectors, the overall restaurant industry is showing positive improvement this year after two consecutive years of contraction. While Europe remains challenging, we are nearing double-digit growth in Asia Pacific and high single-digit growth in North America.

The most recent forecast by Technomic, a leading independent organization which tracks the US food service industry, projects an approximate 1% nominal increase in sales, with higher growth in limited service restaurants, convenience stores, and supermarkets. With our focus in these stronger growth areas, Manitowoc is well-positioned to capitalize on these opportunities.

Through our acquisition of Enodis, we solidified our position as a global industry leader, and as we further integrate our combined Foodservice businesses, we continue to identify and accelerate synergies, leading to more efficient operations and significant new opportunities for growth. One of the fundamental points of our strategy is to build strong relationships with customers while offering a broad range of innovative products which allow them to enhance their profitability, create new menu items, expand their footprint, and enact sustainability initiatives. We are clearly viewed as a key partner in helping them reach their goals.

In the first two quarters of 2010 alone, we have launched 20 new products, including three at the recent NRA show which garnered Kitchen Innovation honors. Since its inception, KI has recognized Manitowoc Foodservice with 18 Innovation Awards, more than twice the number of awards than any other manufacturer in the industry.

This year, our award-winning entries included the Multiplex smoothie machine. This unit produces a wide variety of high-quality smoothies and dairy-based beverages with all of the ingredients, including the ice machine, contained within this compact unit. Earlier this year, we completed a nationwide roll out for a major quick service chain using another variation of our smoothie product lineup. Based on this past success and our ongoing testing with other key customers, we are confident that this new product category will generate significant returns for many years. With more and more emphasis being placed on accelerated cooking, Merrychef was recognized with a Kitchen Innovation Award for its new eikon series of high-speed ovens, which utilize a smart controller to deliver instant menu management, cross-platform compatibility, and labor savings. Our third KI winner was the TRUfill beverage dispenser, which can dispense beverages in 84% less serving time, making it ideal for high-volume applications like stadiums and catering.

As we continue to grow the top line of our Foodservice segment, we are also focused on increasing our operating efficiency. Toward that goal, we are confident that we will exceed our 2011 synergy target of $80 million. As we look to the remainder of 2010 and beyond, our strategy will be consistent. We will continue the work of integrating our Foodservice organization and extend our industry-leading position for the long term. While the economic environment remains tenuous in the short term, we believe that we are positioned for a successful year and will continue to execute on our goals as we move Manitowoc Foodservice forward.

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

Thanks, Mike. To reiterate Mike's comments, we continue to see significant opportunities for growth in our Foodservice segment through increasing global demand for our products, as well as opportunities for driving enhanced operational efficiency. Further stabilization across our geographies, as well as increasing demand in emerging markets, gives us a feeling of encouragement as we move through the balance of this year. Our focus continues to be on controlling the areas of our business that we can, and driving innovation throughout our business to expand our leadership position. We are confident that the initiatives we are pursuing in our business segments will spur significant revenue in margin growth as the markets recover.

We will now open the call for questions. Christy?

Thank you, sir.

(Operator Instructions)

And our first question comes from Robert Wertheimer from Morgan Stanley. Your line is open.

Hello. Good morning, everybody.

Good morning.

So, my first question on the margin in the cranes segment -- was the contribution from favorable receivables collections material to the margin, or could you quantify that, please?

It was meaningful, Rob, I would say about 100 basis points.

Okay. Still pretty good. The order cancellation was that -- you know, let's say under 50? Under 20? And was it US, and do you feel like it's widespread or was it a particular issue with the customer?

It's -- Rob, obviously, this is one of those areas where we don't talk about specific customers. But it was one customer, and I think it's notable that the cancellation was done by management, by us. This is not the customer's desire to cancel the order, and still hasn't. Still wants the Crane, but I think when you look at the credit markets as they are today, we felt that there was a chance that this may not get financed. I think when you look at the resiliency of the rest of the backlog, it's still good. I don't think this is any reflection on that, and I would also say it's not a reflection on the customer's current financial condition. I think this is a victim of the credit markets as they've evolved to today. But the number in the backlog was -- it was closer to your second number, which was around the $20 million area.

Yes. And you are able to -- I don't know whether you have started production, but you are able to remarket if you have?

Oh, yes. We are definitely -- there's other customers that are looking at it, and the current customer has said if there's -- somebody else comes along, I mean, he's been working with us very closely. So it's a good relationship. But we felt that at this point in time, it was more prudent to take it out of the backlog.

Okay. I have a few more, but I'll get back in line. Thank you.

Thanks, Rob.

And our next question comes from Ann Duignan with JPMorgan. Your line is open.

Hello. Good morning, guys.

Good morning, Ann.

Can you talk again about the collections -- better receivables collection on the crane side? Isn't that just pulling forward our reported revenues, and shouldn't we anticipate that you'd get back that 100 basis points of margin in the next couple of quarters?

Yes. I think the -- it was an unusual situation that was a fully-reserved receivable, because of the location of the equipment, difficulty in getting it dispositioned, and conservatism, I guess, as it relates to, how we carry our receivables. But, you know, it was collected. We got the cash, and therefore it benefited the quarter to the side level that I mentioned. Obviously the performance in the -- if you exclude that specific benefit, we were still in the mid-sevens from a margin performance standpoint in cranes, which is obviously very good. From an incremental margin standpoint in cranes, it takes it down from about 40 to the mid-30s.

Okay. And in the context, or leveraging on to that -- can you talk in more detail about your plan for debt reduction? I mean, it looks like you've got a huge hole in the back half. I know you said operating cash flow is a key focus point, but I don't see much leverage there. I don't see many opportunities to really drive operating cash flow up. Can -- I am just kind of scratching my head on you're going to pay down $200 million in debt for the full year.

I think, Ann -- I think people were scratching their head at this same time last year trying to figure out how we were going to get to the additional $450 million. And I think if you go back historically, the back half of the year, it's exactly when we generate the most cash. So, when you look at what we have done to date, we feel very comfortable that we have. I mean, we have a list of items that -- there's several things that people are working on, whether it's speeding up the inventory turns, whether it's forwarding some of the collection on the receivables. I mean, there's a lot of things you can do to manage the working capital, and there's also other things you have to do with "other assets," whether it's some of the properties that we have for sale around the United States or the rest of the world. I mean, everybody is working toward that same objective. So, I wouldn't shake your head and think there's no way to do it, because this is typically when we are at our best, is the second half of the year.

But you may consider other options, like did you just say selling assets?

I had -- selling idle assets. We have done some consolidations around the world in the different factories, and we have factory sales, we have land sales, and we have, I mean, there's a lot of things we picked up in the Enodis acquisition that were still -- that are on the market. So it's those types of things, it's not anything significant from that standpoint, to get to the $200 million.

Okay. And just finally real quick -- you didn't generate any incremental profits in the food service segment quarter-over-quarter, sequentially. Can you just talk about why not? Is there a mix, is there a seasonality? What's going on there?

Yes, I would say that -- it's not seasonality, but mix definitely played a factor. We had a benefit of a sizable rollout in the first quarter of a very successful product that was helpful to the quarter, that was difficult to replicate in the second quarter. So, we certainly have product cost increases that has put pressure on the margin from a pricing versus cost standpoint. That also, and then the employee cost that we mentioned in our prepared remarks that has an effect for us second quarter over first quarter to some extent and also for the balance of the year, which is part of the reason for the comment about the tempering of the year-over-year margin improvement in the back half.

Okay. I'll get back in line. Thank you.

And our next question comes from Charlie Brady with BMO Capital. Your line is open.

Hi. Thanks. Morning, guys.

Hello, Charlie.

Could we just talk for a minute on the Crane margin? I don't want to beat a dead horse here, but even backing out that receivable, 7.5% margin at this volume level is pretty impressive, and I guess I am trying to look toward the back half of the year. Your guidance is, quite frankly, a little bit vague given the above 3.5% last trough. Can you give me more granularity about what the Crane margins might look at in the back half, and really, how much of the 7.5% was driven by mix as opposed to just volumes going through the plant?

Well, Charlie, I think the -- when you reconcile for the unusual item, obviously, that knocks it down a bit, to the level, kind of the mid seven's, as I described in the earlier question. As you look at the back half of the year, you are thinking about the ability to sustain that. I think the impact, as you know, from the significant European operations that we have, and the European holiday -- traditionally, you'd see compression in the margin results. There would be no reason to expect why we wouldn't see that again this year, and then the fourth quarter tends to be seasonally softer. So you would have that impact as well. I would say obviously, with the tremendous performance we had in the second quarter, juxtaposed against a very difficult first quarter, from both the volume and the mix standpoint and efficiency standpoint, that's -- lends a lot of credibility, I think, to that 3.5% and makes it pretty easy to achieve.

But, Charlie, you also have to recognize -- last year we talked about the significant costs we have taken out of the business, and in last year, we only got three-quarters of that because of the annualized basis, and you are starting to see some of that come through. And I think that's sustainable. So, when you look at the objectives that we've had from a cost cutting standpoint, whether it was in the United States or you headed to Europe, I mean, Europe has -- it's a much tougher, it's a much longer process, to take some of those costs out. And so you are seeing some of those benefits as they come through, and as business and volumes come back, that's the type of incremental margin that you would expect to see as volumes come back.

Would you expect -- if Q2 (inaudible) receivable was around a mid-30% incremental, would you expect that kind of incremental in the second half?

Again, I would say -- the thing that would work against us in our ability to be able to deliver on that kind of margin performance would be things like the European activity being significantly down in the third quarter, which hurts us from an absorption standpoint pretty significantly, and the seasonal impact in the fourth quarter would be the two discrete items. As well as the fact that we did get some decent mix in the second quarter as well.

All right. And just as another quick -- on the other expense line, at some odd $5 million, is that mostly currency related?

Yes.

And then CapEx in the second half of this year looks like it's about the -- it looks, from your guidance, it takes a step up. Anything specific in why that would be up?

I think just to regular scheduling of the projects as we see them. And obviously, the modest levels of CapEx that we have been investing in over the last year or so.

Okay. Thanks.

And our next question comes from Meredith Taylor with Barclays Capital. Your line is open.

Hello, good morning. I'm hoping I can follow on Charlie's line of questioning about the margins in the backlog for Cranes. I mean, can you kind of compare and contrast the backlog and how the margin mix shakes out relative to what we saw in the second quarter?

Maybe tempered a little bit from what we saw in the second quarter.

Okay. And then maybe if you can just give us a little color -- I appreciated your comments about the gross margins being relatively or excuse me, gross orders, relatively flat first -- second quarter relative to first quarter, but should we take that to mean that the cadence of orders was pretty steady over the course of the quarter? Or, maybe you can give us a little bit more color as to how it trended on a month-by-month basis, and maybe layer on top of that where you saw ebbs and flows from a geographic standpoint as well.

I think, Meredith, I don't think it's noteworthy to go month-by-month, but what I would say is that it's lumpy. I think that's the word Carl used in the first quarter -- that is, as we go through this period, in 2010, that's exactly what we are going to see. And I think, even as we said here at the end of the first quarter and you looked forward, it's -- sometimes you get significant orders, whether it's 20 tower cranes or it's ten ATs or it's a different order of crawlers, that just -- it's just the timing of the customer. And I think when you read anything in the financial papers today, sometimes it's the availability to credit and it's a matter of, do you have the equipment when the project kicks off? And so that can go over the quarter, or it can be something that comes in and actually goes out in the quarter. So I think that the best word we have for that is it's lumpy. But I would say that -- and I think in Carl's comments, that in the backlog you see, I think it's like 40% of the orders are coming from the emerging markets of what's out of that total. So again, it stays with what we have been seeing since the early part of the year.

Okay. And just one quick follow-up -- how should we think about the volume of book and ship in the quarter and of services revenues in the quarter on the Cranes side?

I -- with that the question about book to bill in the first quarter, and obviously there's -- my answer, I think, was -- held true when we reported this quarter. In the trough year, there are certainly no guarantees that you are going to be able to continue to build backlog in any discrete quarter. But we're -- I think we're pleased generally with the tone and tenor and have a belief that the worst is behind us from a crisis level. Pleased that we were able to get to that growth level of orders that we did realize in the second quarter. And to Eric's comment, that there's a -- reasonable activity out there.

Sorry, I was actually -- I was wondering the volume service revenues in the quarter on the Cranes side.

Service revenues about mid-teen percentage.

Okay. Thanks.

That's parts and service.

And our next question comes from Robert McCarthy with Robert W. Baird. Your line is open.

Good morning, gentlemen. I don't remember who made the comment but -- I guess it was Charlie -- even without the minor items terrific performance in Cranes -- and I did hear you say, Carl, that mix did contribute. So I was just playing around with numbers, and to have incremental -- the first quarter incremental margin was a solid performance, and to put up a number even remotely in the same territory in the second quarter would have implied operating earnings maybe as much as $10 million below where they were in Cranes. So my question is, can mix have had that big an effect, or is there -- is looking at it this way, comparing first quarter and second quarter incrementals the wrong way to do it because of the significant seasonal, if you will, step up in second quarter production?

I think that the answer is much closer to the latter notion.

Okay.

That you proffered, Rob. You are at the traditional strongest quarter. You get the mix benefit. I talked about some of the things that is are headwind for us in the back half of the year. So the volume certainly plays -- especially when you are at this level of business, changes in the volume have a pretty significant impact, and at -- as you look at the, when you are going to -- this close, when you look at the conversion margin, historically, recently, it's obviously been a negative number. We've gone to a huge positive number. So, it's volatile at this point in the cycle.

Yes. Okay. Thank you. That's helpful. And then I wanted to pick up on a comment that Mike made. Right near the end of his comments about Foodservice and the outlook, et cetera, he said something along the lines of the still tenuous second half outlook. Tenuous being the word that I picked up on.

And it strikes me that the second quarter number, of course, very strong, and raises the question of what is the market doing and what is Manitowoc doing relative to that? And if there's a fairly large gap and it's been created by some first half introductions, does that mean in the second half that one of the reasons that the outlook is tenuous is because Foodservice's growth profile is likely to look a lot more like the rest of the industry in the second half? Can you help us there?

Well, Rob, what I would say there is -- one thing that we'll start to see I think as we continue to do more and more business in the chains -- comparables get tougher, as Mike mentioned, when you have some rollouts in one quarter to the next and you don't have them, and they come out. I think that's always a challenge, and Mike mentioned some of that in his reports. But I think when you look at where some of the markets have been, the positions that we have in a lot of the markets -- you have heard us say before, any time that we want to be growing, certainly greater than the market. But with the specific comments that you made on the individual markets, I'll have Mike talk to those.

And I think it's really important to look at on a couple of dimensions. As noted, the Americas, specifically North America, has done well. Asia Pacific is growing at a very healthy rate on a low base, given its portion of our overall business. The toughest market that we face is Europe. It is what it is. The team is absolutely taking the right actions, simplifying the business, delayering the business, still investing in the core products that we produce and sell out of Europe. But the Americas trend will remain positive. It'll be a little bit lumpy as it relates to things like the rollouts. It's just tenuous as it relates to spending in areas like projects, for example.

Yes.

So, some caution, but overall, we still feel very favorable about the future trends.

Did you have a lot of -- did you have a specifically incremental contribution from new product rollouts in the second half of last year that you have to compete with?

Nothing that would be unusual, Rob.

All right. And then when you -- to clarify what you said about Europe -- at first, I thought you were just talking about revenue being down, in part, because of, it almost sounds like strategic decisions about product lines and customers and the like. But then I hear you talking about investing, and that tells me that the business is a drag on profitability. So am I getting that right? It's really both issues?

I would say that the upside opportunity as it relates to a market beginning to expand has probably been delayed versus earlier expectations. I wouldn't consider it to be a major drag on profitability, but we're not seeing the uptick as early as we might have anticipated a few months ago.

And with the investments that you've already made, you are not able to absorb them quite as well as yet. Okay. Got it. Thank you.

Okay.

And our next question comes from Seth Weber from RBC Capital Markets. Your line is open.

Hello. Good morning, guys.

Hello, Seth.

Just going again -- going back to Charlie's question -- I mean, I appreciate that there's seasonality in the business, in the Crane business, but in order for you guys to hit your second half Crane revenue target up year-over-year, your revenues would have to expand in the second half relative to the second quarter. So why wouldn't there be better absorption then?

I think it's because of the magnitude of the operations that are coming out of the European base, and not necessarily being able to absorb those with the other factories around the world would be the key, the reason for that.

How much of the production is done in Europe at this point?

Well, there's -- the majority of the AT business is done in Europe, and the majority of the self-erecting and large tower cranes. So, the facilities in Portugal, Italy, and the ones in France. So that does have -- that does play a part in what Carl is talking about. The other side of it is, some of the lattice-boom crawler cranes, you have that in the mix that comes through in the first part of the year. And then also you have some of the opportunities that we've had in China with the tower cranes and the truck cranes. So, the truck crane business in China, while still good, is -- there's really not a big change there, but the tower crane business and -- in China is expanding, given the markets that we have there. So, your comments are valid with what you see from a volume standpoint. Some of that goes out up ahead of what you've already had in the current backlog, but again, the month of August becomes a drag on many of the operations. And I think that's consistent with what we have had for many, many years, ever since we've acquired Potain.

Okay. One of your competitors recently was talking -- out talking about and they said it's taking relatively longer for them to, I guess, get crawler orders or get high-capacity orders on paper. Have you seen that as well, where it's just taking longer to get deals done for the higher-capacity cranes?

Eric, you want to address that?

Yes. It's correct that we have seen some kind of slowdown of the larger mobile cranes, particularly in Europe. This being said, we have also seen an uptick in demand for tower cranes. And you may recall that the tower cranes was the first product line to collapse back in early 2008. So, I mean, we already have like eight or nine quarters in trough for tower cranes, and we have seen some uptick in demand, a little bit in Europe, but also from the emerging markets and development standpoints. I think we are seeing better, better signs.

Okay. And then just a couple of clarifications. Was there any deposit or progress payments that you guys were able to keep on the order that was canceled?

What we did is we had every opportunity to do that, but again, a very good customer, and the decision was done on a collective basis to let -- to remove the deposits, to give them back, and continue to working on different options for the order.

Okay. So that didn't contribute to the margin?

Correct.

Okay. And then just lastly on the issue, the order where the financing came into play -- was that -- the financing that you are talking about, is that related to the crane or financing related to the project?

It's specific to the equipment.

The equipment. Okay. Okay. Great. Thanks. I'll get back in queue. Thanks, guys.

Thanks, Seth.

And our next question comes from Henry Kirn with UBS. Your line is open.

Hello. Good morning, guys.

Hello, Henry. Good morning.

How much more runway do you have to take out costs and find revenue synergies in Foodservices?

Henry, you went out right at the end. In what segment?

In Foodservice. In the notes.

Well I think that there's always opportunities. I would hate to say that we've gotten to the end of the runway on that. We have -- as you heard Mike say, we certainly feel comfortable with the $80 million year-to-date. I think the number is right around $40 million, is what we have on an annualized basis. So, there's a lot of things that we have to do, and I think when you -- what I'd like to say now is it doesn't become part of that synergy number anymore. As we start getting into the last quarter of this year, I mean, when Mike starts putting things together, it's part of his plan. It's just part of operating the business. So, it's not part of integration. It becomes part of a strategy. And so, I think there's still some things that aren't part of that first 18 months when you acquire a company. And now there's some other things that come to life as you get into the business more and more. So, there's still a lot of opportunities in the Foodservice segment, on a consolidated basis, whether you want to call it synergies, or whether you want to call it just managing the business better. Mike, do you have any additional comments?

No, I would just extend those points, Glen. I think that we are pursuing scale economies in a very logical way across many categories, be it related to manufacturing strategies, the sourcing of key materials globally, and also the way that we manage customers. And we have not run out of opportunities as it relates to scale economies. And it's part of the strategy, and it will continue to be the strategy for the next few years.

Great. Is there any way to quantify where we are today versus normal restaurant buying activity? Sort of as a percentage of normal.

It's still depressed versus what would have been considered norms. If you take a look at the National Restaurant Association indexes that track same-store sales, and anticipated capital spend, we're starting to see movement back towards normal levels. But we are still depressed versus normal levels in the US. The European markets have taken a bigger hit, as I mentioned earlier, responding to a question. And those have a bit further to go, and probably will lag the recovery in the US.

Asia continues to really move forward very positively for us with the double-digit growth that was referenced earlier.

Is there any way to quantify that?

Which portion of it?

Well, I guess, each of the markets -- are we at 25% below normal, 50% below normal, 5% below normal, just so we can frame it?

Based upon, just looking at some of the industry metrics, 2009 was obviously the biggest year-over-year shift, and that was circa 20%.

All right. Perfect. Thank you very much.

And our next question comes from David Wells with Thompson Research Group. Your line is open.

Good morning, everyone.

Good morning, David.

First off, just kind of going back to the crane business -- I'm trying to get a sense, I mean, it sounds like you're feeling more conservative about operating margins in the second half of the year. But looking at the top line, I'm trying to get a sense of -- certainly, you've given some directional color about being up versus last year, but has the magnitude of that direction changed appreciably in your thinking from where we are today versus two or three months ago, the last time we spoke? And especially in light of your commentary about orders picking up for towers, do you feel more comfortable with that part of the forecast and its margins that you're more concerned on? Or any help on that would be great. Thanks.

Well, I think when you look at that, how do we feel about it, Dave, and I can let Eric add some more to it. But I don't think that outlook and the top line has changed, as Carl said. You know, we have given our guidance which kept it right where it is. I think, as you said here three months ago, different things change all the time. You went through some things in Europe. People were certainly more concerned on what's happening in Greece, and then what does that do to everyplace else? But then there's other pockets that show up. So I think overall, that's why we're talking about the guidance that Carl has given on the top line. So, I think that's where it becomes that lumpiness that we talked about in the margin. I don't know that we are necessarily concerned about it, because we still believe that the margins will exceed the prior trough levels, but yes, you are right. You say, "Boy, that was a nice quarter for all the right reasons, what continues the back half of the year?"

Eric, you want to talk about some of the year outlook?

Yes. I think we, not changing the outlook. We have to meet signs from the market. I did mention towers is only in good signs, but on the other end, I mentioned higher mobile cranes being down in Europe. You look at North America, we have seen a slight improvement in utilization rate, and the rental fleet. We have seen our views continuing to deplete our inventory, and this is encouraging. But again, however, we do not foresee a substantial restocking of a dealers until we see a better outlook in the construction and in North America.

So it's a kind of mixed feelings and overall, we believe rental rates are still not at -- rental rates are still at the trough. And again, that's not going to trigger massive investment in the rental houses for the time being. So it's a mixed feelings and that isn't really -- when you put that together, that doesn't change, really, the outlook that we gave in previous quarters.

Okay. That's helpful. And I guess, secondly -- inventory is up a little bit from the first quarter. As you look at the second half of the year, do you anticipate inventories being a source of cash? In any kind of metrics and ranges you can put around that would be helpful.

Yes, David, we do. Obviously, whatever happens from a demand level will affect things one way or the other, but based upon the guidance that we've given and the outlook that we have, we expect to generate some cash out of inventory. And it's in keeping with the comment that Glen made about the debt reduction -- we tend to be consumers of cash in the first half of the year and generators of cash in the second half. And a lot of that is due to the seasonality in both businesses and the order patterns and our delivery schedules. And from that perspective, we would expect to generate cash out of working capital in the second half of the year.

All right. Great. Thanks. I will hop back in the queue.

And our next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.

Yes, good morning, guys.

Good morning.

So, a couple for you. First of all, a clarification on your asset sale comments. Do you plan to step up asset sales from historical levels?

Say that again, Nicole.

When you're talking about selling some assets, do you plan to step up your asset sales from what we've seen historically?

No, not at all. I mean that's -- again, the comment is idle or unused or unneeded assets. It's not things we are currently using. For instance, land in the UK. There's properties in -- here in the US that are idle, basically, from consolidations we have. And you can imagine trying to sell real estate in these markets. People aren't just knocking down our doors to get at it. But I think there's some things we can do, and those are the types of other items -- I was trying to get to Ann's comment -- that you don't just see in working capital.

Okay, that's helpful.

My point is, it's -- when you look at the incentives that we have for our people and our businesses, when it comes to capital and working capital and EVA and everybody is incentivized by it, everybody is focused on getting it done. And they know that they have to get it done by the end of the year. So those are the kinds of things that I wanted to talk about that are other than typical operating initiatives.

Okay. Got it. And then, on working capital, I hate to beat a dead horse here, but I understand that you typically have seasonally stronger cash flow in second half. But given that we're seeing embedded in your guidance a pretty big sequential step up in crane volumes in the second half, what gives you confidence that you'll be able to see much improvement in working capital in the second half?

Well, it's the focus on it, as Glen said, the delivery schedules that we know about tend to be consistent over time, year-over-year. And they're -- that's the reason for it. And I would make a comment relative to what we said was, year-over-year increase in the revenue from cranes in the second half versus the second half of last year. But I don't think we characterized it the same way you did in your question.

Okay. And then on finished goods inventory, can you give the balance at the end of the quarter?

Finished goods inventory?

Yes.

It is about $180 million.

Okay. Thank you.

I would mention, Nicole, to just follow up on that -- the other thing is, when you are seeing some of the orders come in, many in the cranes side of the business, particularly, and many of the lean initiatives that we have had, have reduced the lead times of a lot of the equipment that we sell. Whether it's in Shady Grove or whether it's in Manitowoc or whether it's in (inaudible) -- there are many initiatives that we have taken, and I mentioned them over the 2007, 2008, 2009 -- the ability to get things through the production process today as long as the material is available is a lot quicker than it was three, four years ago.

And our next question comes from Joel Tiss with Buckingham Research Group. Your line is open.

Hello, guys. How's it going?

Hello, Joel.

Just, can you give us a sense when you look at the ENT company's backlogs and you start to think about the flow of business longer term, and I am not trying to pin you down on 2011, but just to look at the flow of businesses -- are things, in your view, are we past the bottom here? Are you starting to see some improvement, or is it just going to be steady as she goes for a little while because there's a lot of global inventory that needs to be absorbed?

Well, there's a couple things in there, Joel, that I think you are getting at. One is the [NC] companies. When you look at the backlogs of the [NC] companies, they're substantial, and you combine that with what I think one of the articles in the USA Today was, the amount of cash that's sitting on the sidelines.

I had a conversation with a customer yesterday that said this is the first time in his 40-year career that all of the projects that his equipment -- the equipment that's working that's on -- not one of them is privately funded. It's either a stimulus package job or is something for the government. And he said he has never seen that, but the people he talks to and the people he works with -- the backlog is there, the demand is there, they're just waiting to see what is going to happen from an economic standpoint. So there's a lot of things that is are out there, the cash is available. And so I think there's this pent-up demand.

Now, what does that do for us? I think you will see pockets of the equipment that's being used. It's a slower trajectory than it has been in prior upturns, and the reason because it's more on the large-scale projects, which is the larger type of equipment, the higher capacity equipment versus the residential and commercial construction, which used a lot of the small RTs, the small self-erecting tower cranes, and the boom trucks. So when you take those out of the equation, you are going to see the higher capacity cranes.

I think the other thing that comes into play here is why -- it will be used out of the inventory, but what gives us a little bit of advantage in North America, and I'll put it to North America, is the comment that Eric or Carl made. When you -- we track our dealer inventory and utilization rates on a weekly basis. And when you see the levels of the dealer inventory right now, they aren't carrying some of the amounts that they had in the past, and I think some of it's because they're just tenuous.

And so that gives us as we look across the, our entire dealer inventory in North America, we have some indications where we think some of the strength is going to be. So, I think again that creates an uptick in one project as it comes about, but it doesn't necessarily mean their restocking their inventories. So I think to your -- it's a long-winded answer to your question -- yes, I think the [NC] have big backlogs and they're ready to go. I think they're holding off, but at the same time, I think our customers are holding off also, until they absolutely have the project in hand. And that leads to a little bit of a slower recovery, I think, than you have seen in the past.

Also, is it fair to say that as the market becomes -- like the availability of cranes gets a lot better and all of the different suppliers have availability -- that the customers would want to trade up? Because I think there's some confusion. You know, Terex made a comment that they're a little bit worried about their fourth quarter, and it doesn't seem like we are seeing the same trends out of you guys. So, would that explain it?

Well, it depends what product it is. And I would say that you are seeing people, as you mentioned, trading up. Yes, there are certain customers that have -- whether it's in the UK, whether it's in the United States, the crane rental companies -- they are saying, "I don't need this many of three-axle 50-year 70-ton small capacity cranes. I'd rather have two of the larger capacity cranes."

Now, does that mean that some of these become available and on the used market? It does, but I don't think it dilutes it any different than we've seen in the past in any different upturn. This is a normal pattern that we see every time, but it does -- the bigger thing, concept there is, every time we're in a downturn when people want to upgrade their fleets, they do want to get rid of something they don't need in their fleets. And that's just a general dynamic of an upturn.

Okay. And just last quick cleanup -- how come the share count is up by 2 million shares in the quarter?

Just because of the earnings having the impact on the dilutions and option exercises.

Okay. All right. Thank you.

And our next question comes from Ben Elias with Sterne, Agee. Your line is open.

Thank you. Good morning.

Good morning.

I just wanted to follow up slightly on the last question. Your competitor has had two quarters of pretty weak orders, down 30% sequentially. And your orders, at least the gross orders, continues to be, was relatively flat. It has increased.

What's that mean in terms of market share? I think the last time we met you said you captured share in five of seven segments. Is it product market share? Is it the geographical, different markets that you have exposure to? Can you just walk us through that?

Ben, it's Eric. I believe we continue to hold strong market sharing in most markets, particularly in emerging markets. We have developed our pricing since 2003, you've heard probably of the up cycle in view of the anticipated infrastructure development in those emerging markets. So that's -- we have a global footprint. We have that presence. We have built that infrastructure, and I think we are reaping the results of, to some extent of that.

I would be telling you that I -- we certainly lost market share in China, and market share doesn't feed the family. And sometimes collection is also very difficult, it's more critical -- and the Chinese market is having the strong growth. And probably that scenario where we have lost market share to some extent and you also know that the Chinese are producing larger cranes right now. And for us, it's more difficult now to sell this imported cranes that we don't produce in China, for the time being. And that explains also the potential loss of market share in China. But outside of China, I think we hold market share.

Ben -- I would also add to that, Ben, and Eric's probably being a little modest -- I think that when you look at the strategies that we've employed, once we've had the global footprint that we do with the towers and the mobiles and the crawlers -- our strategy, sometimes people have different business models, different strategies. And I think when you look at what we get out of our Crane Care side of the business from a support standpoint, sometimes that helps in a down market. And I would say another thing that's helping us a lot is the Manitowoc finance area. We -- it's a strategy that we implemented in back 2003, I think it was, after we saw in the last downturn that many of the customers couldn't get credit. And so with our relationship with DLL and some others throughout the world, it's been a differentiator. And that's what we had hoped for. So, that's why I think maybe there's a difference.

So that would explain the variance over the last two quarters?

It should explain the variance over the last five years.

Okay. Second question -- what have been the impacts of your global purchasing program, that's kind of new -- it's a new initiative, and how do we sort of factor that in going forward? On the crane side.

I would say enterprise-wide, Ben, it's certainly a component of the $125 million in year-over-year savings that we expected to realize and will realize in 2010 overnight. It is a component, another significant component is the synergies in Foodservice which procurement is probably the single largest piece of that, among others. So, that's --

Okay.

The best description I can give you.

And finally, in the Foodservices, did I hear correctly -- there was a second launch in the smoothies, or was that a mistake?

Yes, Ben, let me clarify that. What I mentioned was that we are currently in the process of testing a second variation of our smoothie product lineup. We had a major launch beginning last year that continued on into this year. We were simultaneously developing additional smoothie-related machines that are being tested for other markets and other customers. It's going be a growing category for us. We feel very positive about it.

Okay. So it's not the same customer?

No.

Thank you.

And that's all the time we have for questions today. I now turn the call back to Mr. Khail for any closing or further remarks.

Before we conclude today's call, I would like to remind everyone that a replay of our second quarter conference call 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 us today and for your continued interest in the Manitowoc Company. Have a good day.

That concludes our call today. Thank you for your participation.