Manitowoc Company Inc (MTW) 2010 Q3 法說會逐字稿

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

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

Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer; and Carl Laurino, Senior Vice President and Chief Financial Officer. Glen will open today's call by providing an overview of our quarterly results and business outlook. Carl will then discuss our financial results for the third quarter in greater detail. Following our prepared remarks, we will be joined by Eric Etchart, President of Manitowoc Cranes; and Mike Kachmer, President of Manitowoc Foodservice, 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For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 Glenn begins his commentary, I would like to review our Safe Harbor Statement. This call is taking place on October 29, 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 statement, whether as a result of new information, future events, or other circumstances. With that, I'll now turn the call over to Glen.

Thanks, Steve, and good morning, everyone.

The third quarter proved to be challenging, and the effects of enduring economic weakness and uncertainty were felt across our businesses, most notably in the Crane segment. We were disappointed in our overall performance for the quarter as the year-over-year growth that we had anticipated simply didn't materialize. That said, our Foodservice business delivered strong results during the quarter, accounting for 50% of quarterly revenue and 80% of segment earnings. This segment's ability to moderate the cyclical nature of Crane was a driving force behind our investment in this business two years ago, and it continues to be a stabilizing force and meaningful growth engine.

Despite the challenges of the third quarter, we remain committed to achieving the full-year targets established at the beginning of the year, due to the execution of both our Crane and Foodservice teams. At the same time, we've made progress against our strategic initiatives, which are vital to enhancing the long-term health and competitiveness of our businesses. As we look to the remainder of the year and into 2011, indicators still point to recovery, albeit slightly delayed and at a slower pace than we had expected. Crane utilization rates are increasing and dealer inventories remain at lower levels. That said, rental rates have not bounced back yet and financing remains difficult.

In the face of these continuing challenges, executing on our strategic initiatives has remained a steadfast priority as we look to further extend our leadership position in both of our businesses. First, the execution of the Foodservice integration has gone extremely well, and the team continues to launch innovative new products, implement improved processes to enhance efficiencies, cut costs, and identify new opportunities for organic growth. Secondly, we continue to make operational improvements and embrace lean manufacturing principles. Sustained margins above those witnessed in previous trough years for Cranes are a testament to the progress we've made in the last cycle and the cost reductions we have implemented over the last two years, even with the significant investments that we've made in emerging markets. And finally, cash generation remains a top priority.

During the quarter we paid down $41 million in debt, and we continue to target our 2010 debt-reduction objective, largely due to our team's diligent management of working capital. As we close out the fourth quarter and move into 2011, we will continue to focus on maximizing cash generation and prioritizing debt reduction as we position the Company for long-term growth and success. We're pleased with the progress we've made in our initiatives to-date and are confident these strategies will drive enhanced long-term profitability, which will become increasingly apparent as demand strengthens and volumes increase.

As we look at our segment performance for the third quarter, Foodservice, once again, posted strong top-line growth, helping moderate weaker results in Cranes. Revenue growth in Foodservice was driven by strong performance in the US and Asia and additional opportunities arising from our customer relationships. These are both positive long-term trends that bode well for our future business outlook. Foodservice margins were strong once again. However, year-over-year improvements were offset in-part by temporary ramp-up costs associated with a new product launch.

Geographically, our North American Foodservice business exhibited strong growth, as did Asia Pacific; though, it's growing off a smaller base. Europe continues to be challenging, but we've been very thoughtful about our cost structure while maintaining the necessary investments to position ourselves for future growth. Third quarter results in the Crane segment were largely consistent with prior quarters, as we experienced increasing demand in emerging markets, particularly in Asia and Latin America, but saw extended weakness in developed economies, including the US and Western Europe. Additionally, operating earnings were negatively impacted by the expected seasonality in Europe as well as the consolidation of various tower crane facilities in France, which we expect to improve operating earnings over the long-term.

Though we were disappointed with our Crane segment results in the third quarter, market indicators are becoming more positive, and we have growing confidence for an improving demand environment as we move into 2011. During the quarter, we saw steadily-increasing utilization rates, favorable dealer inventory trends, and growth in Crane Care parts orders, which signal growing confidence in the recovery. Additionally, the US Architecture Billings Index registered its fourth consecutive month of improving conditions, and at 50.4, it now points to expansion for the first time since January 2008, which is a positive sign for future demand.

We are also encouraged by two recent customer events; Crane Days in Shady Grove, which had an excellent turnout of dealers and customers with nearly 900 people in attendance, plus a smaller event in Germany that attracted 150 customers. At these events, we demonstrated over a dozen innovative cranes spanning our entire product line and offered a firsthand look at our facilities to showcase the results of our lean manufacturing initiatives. The feedback during and immediately following these events was extremely positive, and we're excited about the opportunities that exist with many of these customers going forward.

In the fourth quarter, continued execution will be key as we strive to achieve our full-year goals and make continued progress in preparing our business for economic recovery. We have built two world-class businesses, and we're confident in the long-term growth opportunities for each of these segments. Further, we believe that we'd be rewarded for these actions we've taken over the past few years with revenue, earnings, and EVA expansion, as end-markets recover and economic growth returns.

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

Thanks, Glenn, and good morning, everyone.

Reported net sales for the third quarter were $878 million, which is essentially flat from the third quarter of 2009, as well as the second quarter of 2010. The year-over-year third quarter sales decline in Cranes moderated to 8.5% from the 38% drop in the first half of year, while Foodservice sales increased 9% during the quarter, driven by strong performance in North America as well as a significant increase in our Retail Refrigeration business.

Third quarter 2010 consolidated operating margins before amortization and one-time items were 6.8% versus 6.9% in the third quarter of 2009, and 9.5% in the second quarter of 2010. The year-over-year margin decline was driven by lower volumes in the Crane segment coupled with an unfavorable mix in Foodservice. The sequential drop in margins resulted from seasonal weakness in Europe, as well as a non-recurring benefit we received from collection of a fully-reserved Crane segment account receivable in the second quarter.

GAAP net income for the third quarter was $1.4 million or $0.01 per share, versus a net loss of $12.6 million or $0.10 per share in the third quarter of 2009. Third quarter 2010 earnings included a $6.6 million benefit for a prior period adjustment related to finalization of the 2009 tax return in 2010, and $4.2 million of losses from the sale of two operations. Excluding these and other unusual items in both quarters, third quarter 2010 EPS was $0.01 per share ,versus breakeven for the third quarter in 2009.

Turning to the cash flow, we reduced our debt position by $41 million during the quarter, and we remain committed to our debt-reduction goal of $200 million for the full year. In order to achieve this goal, we continue to be highly focused on diligent management of working capital. To give some perspective on this goal, we have historically been a user of cash in the first half of the year and a cash generator in the second half. Consistent with this experience, and coupled with September inventory and accounts receivable balances, as well as fourth quarter earnings and other cash management opportunities, we believe our $200 million debt-reduction target is achievable.

During the third quarter, we posted cash flow from operations of $39 million, versus $198 million in the prior-year quarter. The contrast in year-over-year cash from operations resulted from the tremendous success we had in reducing working capital last year when inventory and receivable levels were higher, and the top line was contracting much faster.

Moving on to our segment results, Foodservice sales in the third quarter of 2010 totaled $439 million, which increased 9.2% from the third quarter of 2009, and up 3% from the second quarter of 2010. Third quarter 2010 operating earnings in Foodservice were $64 million, versus $59 million in the same quarter last year, and $57 million in the second quarter of 2010. Strong operating margins of 14.6% for the quarter were consistent with third quarter 2009 margins, and higher than second quarter 2010 margins of 13.4%. The sequential improvement was due to the continued recovery in demand for replacement products and new product rollouts, while the year-over-year comparison was tempered due to material cost increases and by our food retail business, which has experienced inefficiencies due to an extraordinary ramp-up in volume during the quarter.

That said, we are in the process of remediating these issues and, once resolved, we should see improvement in the margins for this product category. In addition, we continue to expect solid improvement in our overall Foodservice segment margins for 2010. However, as we have noted in prior quarters, margin improvement in the second half of the year faced challenging comparables.

Moving to the Crane segment, third quarter sales totaled $439 million, down 8.5% from $480 million in the third quarter of 2009, and down 3% from the second quarter 2010 sales of $452 million. Third quarter results were negatively impacted by prolonged weakness in certain mature markets, which was offset in-part by the continuation of strong demand trends in emerging markets. Crane segment operating earnings in the second quarter were $16 million, versus $21 million in the same quarter last year, and $39 million in the second quarter of 2010. This resulted in third quarter Crane segment operating margins of 3.7%, compared to 4.3% in the third quarter of 2009, and 8.6% in the second quarter.

Margin performance for the quarter was negatively impacted by the consolidation of our tower crane facilities in France, which resulted in the temporary headwind which should result in long-term cost savings and enhanced profitability. Sequential margin impact also resulted from seasonality, as well as the fact that profitability in the second quarter of 2010 was enhanced by collection of a previously reserved account receivable.

Crane backlog at the end of the Third quarter was $448 million, a decrease of $83 million or 16% from $531 million at June 30, 2010. Even though our backlog declined during the third quarter, we were encouraged by the attendance and interest at our recent Crane Days event at Shady Grove, which we believe negatively affected third quarter order activity.

Two weeks ago, we announced the approval of an amendment to our credit facility, and closed a public offering of $600 million of senior unsecured notes with an 8.5% coupon. These actions improve our capital structure and provide us with increased flexibility as we continue to navigate the challenges posed by the current economic environment.

As noted in yesterday's press release, we are reaffirming our full-year guidance for 2010. We expect year-over-year improvements in Foodservice revenues and operating margins despite a third consecutive year of contraction in the US restaurant industry. We are also continuing to target higher Crane revenues for the second half of 2010. Additionally, we expect full year operating margins in our Crane segment to exceed the 3.5% trough margin that we experienced in 2003. Other expectations for 2010 include capital expenditures of approximately $50 million and depreciation and amortization of roughly $140 million.

Let me now return the call to Glen for closing comments. Glen?

Thanks, Carl.

While this quarter's results did not meet our expectations, we still expect 2010 will be the trough year for Cranes. Conversely, Foodservice is not only delivering the synergies and new product pipeline we expected, it is a stable and solid generator of revenue, earnings, and cash. As a result, our diversified business model is enabling us to better navigate this economic downturn, while allowing us to continue investing in our future. When our markets ultimately recover, I am confident Manitowoc will emerge as a stronger, leaner, and more profitable enterprise.

We will now open the call for questions. [Allen]?

Thank you.

(Operator Instructions)

The first question comes from Mr. Robert Wertheimer with Morgan Stanley. Please go ahead.

Hi, good morning guys. How are you?

Hi, Rob.

First question, I wonder if -- I don't know whether you've had the Crane Days every year, or how often you do that. I wonder if you could just give us a sense of what the either bidding or quoting or sort of casual inquiry environment is like. Is it definitely better than it has been the last couple of quarters or is it flat lining?

Well, Rob, the Crane Days is held -- this year the decision was made to hold it because of what happened at Balmo with all of the trouble with everybody trying to get there and people backing out, we decided to hold it in Shady Grove this year. We've done it about every two or three years. So again, it's the North American side of the business but the activity, I mean it was good. The conversations were good. I think there's anybody from when -- you talk to the dealers, anybody that's 100% utilized and re-renting Cranes from other people, to people that are at the 50% and 60% utilized.

So, it was very positive for us and again, I think there is that trepidation as we move into 2011, but I can tell you the mood right now is a heck of a lot better than it was a year ago. I'm going to let Eric talk a little bit about some of his comments on that and where he saw the order book come out.

Perfect.

Yes, I would certainly concur. And we have a lot of customers coming from Latin America as well, and the market [inaudible] in Latin America, as you know. But I concur. I mean, the people are more happy than they were. They stop asking for delivery. So, these are positive signs. As Glen mentioned, we have also a very good turnaround of people, probably unexpected, and who want to have these Cranes because many customers could not attend the Balmo show. The last Crane Days in Shady Grove were back in 2005.

2007.

Oh, okay, 2007. Right, but anyway, this was, I think, a very successful event and a way to gauge the markets and the mindset of the people. We had a similar even in Germany, as well. That was a smaller event, more targeted at German and Western Europe customers. But again, that feeling is certainly better, although the markets are very challenging in Western Europe. But you know, the utilization rate is better. They just confirmed that by the customers, so these are positive signs.

Okay, perfect. And Carl, if I can ask a follow-up. I think you said the food retail was seeing a demand surge, if I heard that right, and was that an innovation surge or is there something else going on there?

No, it's primarily driven by a new product that customers are excited about. Probably a better question for Mike Kachmer, who is also here.

Yes, multiple factors led by the launch of a new product line that has been extremely well-received by our customer base. But in addition to that, the market is up year-over-year and we're gaining more than our fair share of that opportunity based on our recent performance over the last couple years. So, three factors led by the technology change.

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

Next question comes from Seth Weber with RBC Capital.

Hi, good morning, guys. I guess first, I'd like to, I think, clarify what I think I just heard, is that you were getting orders at this Crane Days event that are going to book and ship in the fourth quarter? I'm trying to understand what you're seeing out there that is keeping your second half Crane sales growth guidance intact given the third quarter. And it looks like you would need about $100 million delta third quarter to fourth quarter, so just given the backlog, and given what we know, did you book orders at this Crane Days show that give you confidence in the fourth quarter? I'm just trying to triangulate all that stuff.

Seth, obviously we did have some orders coming out of Crane Days, but I don't think it's all necessarily just for the fourth quarter. I mean, there's a few things that are driving some of the fourth quarter confidence that we have, and some of it is the tax play that people are looking at. How can they take advantage of the tax advantages of getting something by year-end or signing orders that go into 2011? I mean, that's playing a little bit into it. There's -- as we had some things out of Asia or the rest of Latin America, it's not just Crane Days itself, but it's certainly helps in that matter.

So, I mean, it's a combination of a bunch of things. It's a combination that, as we mentioned, the utilization rates are better. We've talked about the rental rates aren't as good, but I think what's happening is people are looking out and they say, okay, if I have any confidence whatsoever in 2011, is now the time to get it and I'm not going to be getting in queue, the backlogs will start stretching a bit. I don't think that's all of it, but I think it goes through their mind and a lot of people have been sitting on the sidelines watching and waiting. So it's a combination of all of those factors, but I think when you look at where -- what we see on a daily basis and when we head into the fourth quarter I think there's a lot of confidence in the comments that we make that we can hit that back half of the six months versus the last six months of last year.

Okay, I mean, I'm just looking at where the backlog ended up though in the historical change from third quarter to fourth quarter. It usually isn't that great, so I'm just -- my assumption was that you got a lot of orders at the show or something.

Again, I think Carl said it many times, I've said it many times, even back in 2003, 2004. Be careful to put a lot of weight on the backlog in these type of times. Because, for instance, and I'll give an example here, is we said we thought that the middle of the year this third quarter would be a little bit better. The miss that we've had is in the Crane side of the business. If we had some opportunities and the people are projecting where they think this is going to go, we have some things in inventory. You don't need that in backlog, but if you have your customers that are saying, hey, what do you have, I mean, what's there? Is it 2250 or is it RTs, is it tower cranes, is it ATs? Sometimes the shift or the order and shipment takes within the quarter and that's -- I would expect that to happen a lot more in the fourth quarter than we've seen before, just because of the fact that it's there.

Okay, no, that's helpful. Just -- and then a couple follow-ups. One of your competitors has talked about, recently, some weakening in the crawler segment. Can you comment on that? And then I have one other quick follow-up.

I think that's -- that was probably -- and I'll let Eric go a little bit further, but if there were two areas that we thought there could be a little bit better in the third quarter, it was probably the ATs and the crawlers. So I don't dispute that, but that was probably where we saw the weakness in the third quarter.

Okay.

Yes, the European market in terms of ordering cranes has been significantly down since the beginning of the year, and we see a similar feature for crawler cranes. But again, that's mitigated by the demand that we see in the emerging markets, to some extent.

Okay. And then just lastly, the France consolidation, is that -- will that be a head wind again in the fourth quarter to margin? And separately, are there more opportunities like that out there to think about for the next couple quarters if conditions stay the same?

Yes, I think you'll see some headwinds in the margin on that, because it will be completed in the fourth quarter. Everything will happen probably by the end of November and the ramp up will start, I would say, more towards the beginning of 2011. So, that's where the benefits will come in. Are there other opportunities? I don't think so, much on the Crane side. If you go back to again 2002, 2003 we made a lot of consolidations. And some of it is just typical as we look out at the product lines. I think Mike is going through some of that, but those are strategic type moves and I don't think there are just initiatives that are off the cuff, just plant closures or anything like that. I think it's more strategic.

Okay, great. I'll get back in queue. Thanks, guys.

Yes.

Our next question comes from Charlie Brady with BMO Capital Markets.

Thanks, good morning, guys.

Hi, Charlie.

With respect to Foodservice, and I guess, more specifically on the hot side there, did you see any weakness in the quarter, or I guess, post the third quarter on the hot side? One of your competitors in that business has come out and said that they saw some weakness. I'm just wondering if that had -- if you saw the same thing or not.

Charlie, actually, the opposite. In a quarter-to-quarter comparison, we actually have done well across most of our hot side categories, and I think it's attributable to a variety of reasons, including the continued upgrading of our product line. So no, we saw the opposite.

Okay, great. And then switching to Cranes, can we just dig a little bit more into the emerging markets, specifically China. Were you doing -- how the joint venture and your expansion into the crawler market there is going, and then what the Indian market looks like right now?

Charlie, it's Eric. China market is definitely very, very strong and we continue to see a lot of activities there. It's fair to say that the products that you do not produce in China now are very difficult to sell. So, we have to really produce more products into our facility and then, this is why we are launching these crawler crane product lines.

We see a lot of activities on the tower crane side and also we are successfully getting, I think, more business because we see more private rental companies now in China versus some years back. And that's very good for us, because we have good [rent]. They starting understanding the value of the brands and [residuals], so that's driving our business up for towers. And I believe we are seeing our market share improving and we are ramping up, actually, within the tower crane manufacturing because we expect 2011 to also be good for towers. On the truck rent side, it's a difficult market. It's very competitive. I think we have a lot of work to do before we can definitely improve our market share and we kind of each play on track Cranes right now in China.

Moving to India, India has definitely rebounded and thanks to the acquisition of Shirke two years back, we are now really benefiting for our local manufacturing facility. So again, we've seen, definitely, improvements in the Indian markets and our total crane sales are definitely going up.

Thanks very much.

Thanks, Charlie.

Our next question comes from Ann Duignan from JP Morgan. Go ahead.

Good morning, it's Ingrid Aja standing in for Ann. I wonder if we could circle back to -- you mentioned utilization rates were improving, so I was wondering if you could talk about the key metrics you're watching globally to indicate the recovery is taking place? In addition to that, and maybe just give a little more color on the utilization rates?

Well, Ingrid, the best information we have is typically from our dealer base, either in North America or in Europe. We also have any of the customer conversations you have around the world in -- whether it's Asia, South America, here in the US. But really, you look at the utilization rates -- and that's on the crane rental companies. That's one thing.

The other thing we're watching is our dealer inventories. What's out there in the inventory of people that are going to be selling that we've partnered with to sell our products, and when you look at the levels of inventory that they have, we track it and then you go back to the middle of 2008 and look at the trend of how little they have in inventory now. They look at it and say, I need to either have some of this, whether it's one product or another, our inventory levels are down probably 65% from where they were at the peak levels.

When you look at used pricing, that's another thing. That's stabilized, so people just aren't picking up any old piece of product at a great price. You're looking at some of the used pricing that's in there. The other thing that we're looking at is the backlogs of the engineering and construction companies, E&Cs. You talk to the -- any of the large contractors around the world, they have some of the biggest backlogs they've ever had. It's just a matter of when they are going to pull the trigger on some of these projects. That was a lot of the discussion we had at Crane Days in Shady Grove, and some of these people that came in. As Eric mentioned, they are asking, where are your deliveries, how fast can you get some of these things? It's a lot of it is -- and this is back to, I think, Seth's point. If you don't have something in inventory right now, when a person calls because they are buying known projects, if you don't have it, they are calling somebody else. And so, it's a matter of having the right product in your cupboard to sell.

And so, we're looking at all those things as factors for our equipment. And then the last thing is, we do look at some of the credit. We talk to our customers all the time and -- what's the access to their credit? And it has been very difficult, and people don't want to believe it because they hear some other things from the financial institutions, but the people that are getting money are great credit risks. So, that all factors into it, but those are the types of things we're looking at.

Okay, thanks. That's helpful. And then if you could switch to the Foodservice. You've maintained your outlook, but it seems actually that Foodservice through the first three quarters has done better than anticipated, so it's just kind of -- give us an idea of what you're looking for in the fourth quarter. Is it more a seasonality issue?

I think that's typically what it is, Ingrid. It's seasonality, so we just stayed by our comments that, as we said at the beginning of the year, this is what we're looking at for the full year. You have some of that seasonality and I think it's -- it has the opportunity to be better, but I think it's an approach that certainly worked for us all year long, and I think that's pretty much why we were sticking with it.

Just one other comment on that one, Ingrid. We did have what I would call a meaningful contribution from a new product rollout in the fourth quarter last year that, obviously, may or may not occur as we're working on other initiatives for this year.

Oh, okay, thank you. That's helpful color. Thanks so much.

The next question comes from Henry Kirn with UBS.

Good morning, guys.

Good morning Henry.

You mentioned Crane Care getting better. Could you talk about some of the applications of your customer base that may be doing better? What parts of the economy we're seeing a little bit of a rebound in?

I would say, Henry, that if you look at -- if you think of some of the presentations we do, and we show the different end markets and over 60% of it is power and energy, I would say it's probably even higher than that today. The majority of it is all power and energy.

That's helpful. And on the Foodservice side, how much of the business is after market parts and service, and what can you glean out of that part of the business? Thank you.

I'm going to let Mike answer the what can we glean from it, but when it comes out of the Foodservice side, it's a small percentage of our revenues because a lot of that business with the distribution side of the business goes through contracted service reps, and it's just not a big parts business. But I'm going to let Mike talk about what we can get from it.

Well, it varies substantially by product category to product category, but it's generally the smaller part of our revenue base. We are seeing comparable growth trends in our parts business to what we're seeing in our finished goods business right now. So again, the growth has been fairly positive as stated earlier in Glen's and Carl's comments, and we see both advancing in unison.

Thanks a lot.

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

Good morning guys.

Morning Rob.

I wanted to follow-up on a couple things out of the Foodservice business. You've put up very attractive year-on-year growth the last couple of quarters, 9% and 11%, respectively. You point out that you have new product launch in the fourth quarter of last year that will be an obstacle to sustaining that kind of a growth rate in the fourth quarter. On the other hand, you have, apparently, significant production ramp up going on at, I guess, [Kaiser], so can you talk to your ability to sustain that kind of growth rate in the fourth quarter in the context of which of these two issues is the more important?

Rob, first of all, good morning to you.

Good morning.

I would offer you this. We are seeing growth in multiple categories. I commented earlier that, year-over-year, we've seen our outside categories advance almost across all of those hot categories. In the press release we referred to the significant growth that we've realized in our refrigeration-based business. You commented on Kaiser. That has been the most dramatic. And I think it's important to reemphasize, it's a result of good news. We're having some inefficiencies as a result of good news. The market is up to a degree. We're gaining share based on our performance, and the new product launch that we've had has gone even better than expected and our expectations were high, so what we're dealing with right now is, we're dealing with a plant that has two product platforms going through it at the same time.

So these inefficiencies will pass. We believe our position has been strengthened, and we could see that going forward in a very effective fashion in 2011. Our growth elsewhere in the business is being managed very easily. We're not having any other similar type impacts because the growth hasn't been as dramatic as we realized on the refrigeration side. And on the new product side, the year-over-year comparison fourth quarter 2010 to fourth quarter 2009 is not bad news. These major rollouts, these new products that we're launching sometimes have delays with the change that we're dealing with, but it's not at all diminishing the size of the opportunity that lies in front of us.

So if I try to net all of that out, Mike, it sounds to me like you don't want us to expect this kind of a number in the fourth quarter because it turns out that the retail business was already contributing significantly in the third.

I think that's a good characterization, Rob. Sorry to jump in.

No, I appreciate that. I just want to make sure we didn't get our expectations too fevered. And then I just wanted a couple clarifications, if that's okay. I'm afraid I might have misunderstood something. When you all talk about your $200 million debt reduction goal for the year, is that just a gross number, or is that net of change in cash position as well?

It's actually a gross number, but the year-on-year change in cash shouldn't necessarily be significant.

Okay, and I wondered if -- you have had a second Model 31,000 crane in production where you had the original buyer unfortunately had to back out for one reason or another. Have you found another customer for that crane, and is this the key swing factor in achieving your second half objective of a flat crane business on a year-over-year basis?

No to both.

No to both. Okay, thank you very much.

Our next question comes from Nicole DeBlase from Deutsche Bank.

Good morning, guys. Just a couple for you. On the Crane margins, could you possibly walk us through and attempt to quantify the impacts from the France consolidation and the European seasonality? I'm just trying to get an idea of how margins could move from 3Q to 4Q in that business.

Well, as we mentioned before, Nicole, we think we've got some lingering effect of the consolidation. That's certainly a factor. I think the other thing that comes to play as it relates to Crane margins, in this environment, we're talking about a firming of the business. That does require some investments. So, those types of things that are focused on innovation initiatives, new product introductions, things like that. I think as you would look at it sequentially, it probably would create some headwind for us. You're always going to have the vagary of mix in any discrete quarter over another, and I don't know that we would necessarily expect to see a lot on that front. And as you look at it Q3 versus Q4, as an example.

The other area that I think is potentially a little bit of a compression effect on margin is the material cost issue. That also could -- despite the fact that inherent in what we said about the Crane top line is a fairly robust year-over-year increase in the revenue. The resulting margins, I think, could be compressed a little bit by that as far as the cost versus price equation.

And I would add one other thing, Nicole. As we get to the end of the year and you start getting to the holidays, we are going to take advantage of some of the holidays. For the factories that don't have a big amount of activity, we'll have shut downs in some of those facilities and plant shut downs for maintenance and that type of thing in the fourth quarter where we don't have the activity.

Okay, that's helpful. And then if we could talk a little bit about the debt pay down target. Getting to the $200 million implies a pretty big step up in working capital in flows from the third quarter to the fourth quarter. Inventory was up a little bit in the third quarter, which surprised me a little bit. If you could just talk about what gives you the confidence that you'll be able to reduce working capital enough to get to that $200 million debt pay down target?

It's very consistent with our historical seasonal patterns, Nicole. We tend to generate a lot of cash in the fourth quarter. We don't expect the fourth quarter this year to be any exception to that. That's really the key one. Obviously, we've got the specific visibility into specific inventory reduction initiatives. That's probably the biggest single part of it, and that's where it comes from.

Okay, thanks. That's helpful.

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

Good morning, everyone.

Good morning, David.

Just to press on that last question a little further, given some of the feedback you're hearing in the marketplace, and we continue to hear as well, with regards to financing being difficult, do you feel like your customer base is effectively shifting balance sheet risk to you, and forcing you to carry higher inventories? And does that shift then become a headwind to that normal seasonal pattern of inventory working down in the fourth quarter that you've seen in the past?

Yes, I think that, David, I think there's a little bit of that where the customer is saying, you know, I'm not buying on anything that I don't -- on spec on anything. So, there is a little bit of that, but I think what's helpful from the dealer or the customer level is, we're asking them what types of projects are out there, what types of cranes they're looking for. You look at the event that we had in Germany, the event that we had in Shady Grove. That's what they are asking about, that's what they're saying. What are the availabilities of this, what are the availabilities of that? And I think what's helpful is, we don't have to necessarily build everything, but if you have a reasonable delivery date, and when we call hedge packages, it's a manufacturing process that we use and so we'll go out there and we can get things done. We don't have to have everything in finished goods as long as we know our supply base is with us on this, it's the entire supply chain in working with that.

So yes, there's a little bit of risk that's being shifted to that so they don't have to carry it, but I think what also helps for us is the Manitowoc Finance. We have a great reputation within the industry for the group that we have that leads Manitowoc Finance and our private label relationships with DLL. The reason we put that in place as a strategy in 2002 and 2003 was specifically for this type of atmosphere. When times are good, our customers can get their own financing. It's not that they're bad credits, it's just that our Manitowoc Finance people understand nothing but equipment financing. That's the benefit we have. So I think you're a little bit right, but I think we have a lot of strategies in place to mitigate that.

That's helpful. I appreciate the additional color there. And then just following up on the Foodservice business. Can you help us get a sense of the rate of increase relative to the business overall that you're seeing in some of the segments where you're having margin difficulty, and if we are seeing that already coming off of fairly low levels as we get into 2011 and beyond, does that make you rethink some of the synergy targets that you've put into place and should we expect similar type headwinds on a production basis for some of the other segments that begin to rebound?

No, I don't think, David, I don't think -- the one area that we're talking about was a significant increase. We knew that we had a good product launch. We knew we had a good product, good technology. It was a significant increase and to try to ramp up at the levels we were in the short period of time we were just caused a bunch of inefficiencies. And it was -- it's just one of those things, it's no different than anybody that's in a seasonal business, whether it's lawn mowers or air conditioners or anything like that. You can have that and I think that's what happened.

When it comes to synergies and we talk about that, I would be honest with you, I'll let Mike talk about some of the rest of the things on the manufacturing side, but when it comes to the synergies, from here on out, we get into the end of 2010 and we're done talking about synergies for the most part, because that's really laid out. We're on track, as I mentioned in my comments, the Foodservice team has done a great job in getting what they said. But I think your point is, are there opportunities to do better than what we did? Yes, you should expect margin improvement, and that's what we talked about for every quarter. So Mike, if you want to talk about some of the ramp ups?

Yes, I would just restate what Glen just offered, that the one scenario where we had trouble was the result of multiple pieces of good news, and so we're dealing with it. Every place else, we're in good shape, and the vision that we have will still come true. We see opportunities to combine operating companies in a very thoughtful fashion to get scale economies that are very positive in many ways. We also see opportunities to continue to advance the manufacturing strategy that will also generate scale economies in the future. A lot has been accomplished to date in the two years since we made the acquisition. There's still a good deal more in front of us, a bunch of good news.

That's very helpful, thank you.

The next question comes from Phillip [inaudible] from Deutsche Bank.

Good morning. I'm going to drill down a little further on that guidance question about the debt reduction goal. In 2009, in December, you had debt of $2.172 million, so if you're really able to reduce it by $200 million are you implying you'll have $972 million of debt at the end of the year, is that what you're saying?

Yes, the $200 million metric is basically full year gross debt reduction.

Versus December 2009's number?

Correct.

Okay, and then you also mentioned $50 million of guidance for CapEx for the year, or approximately $50 million. Year-to-date you've only spent $24.8 million. Are we expecting a very large CapEx increase in the fourth quarter, or are you just being conservative with that guidance?

I think it's probably a little high.

Okay. Can you quantify that? Are we going to - you've been kind of high single digits in CapEx. Is that a good number to continue to run with?

You shave it back $5 million or so. There's probably some significant CapEx in the quarter, but it's not going to be significantly less.

Okay, and are those towards expanding capacity -- what would those be? It sounds like it's more than just maintenance CapEx during the quarter.

A lot of it is the new products, a lot of it is some of the capital that's required on a lot of the lien initiatives, it's some of the capital that we have in the consolidation of facilities in France. So again, it spans all of the strategy that we have. It's just a matter of the timing of some of these things.

Great. Thank you.

Next question comes from Joel Tiss with Buckingham Research Group.

Hi guys, how are you doing?

Hi, Joel.

Just on your CapEx spending, some of your Foodservice competitors are saying or hinting that you're skimping a little too much on the CapEx, and we might feel some effects of that in terms of new product introductions as we get later 2011 and into 2012. Can you give us a sense of some of the new product introductions you have slated for then, and any sort of defense on that point?

I'd be happy to comment on that. I would say just the opposite is what's occurring. I would give our teams incredible credit for thoughtfully investing across almost every one of our segments to continue to advance our product line. And we've done it within the constraints that we're living within a very positive fashion, so the results that we're generating are greatly due to our ongoing emphasis on innovation, the investments that we're making in our manufacturing operations in areas like metal fabrication, so I think we're doing a great job of investing thoughtfully across all of our categories, and I think the results are proving out.

Anything you can point to that could be maybe a game changer or at least incremental as we get, say 12 months from now or 18 months from now?

Sure. We've talked often about the smoothie category. We've mentioned out we started out with essentially a single product line that's been launched through a major chain across the Americas and about to launch globally. We've also emphasized that the smoothie category is much broader and additional products will be coming forward over the next couple years for other chain accounts.

Shifting to the hot side, we're placing a lot of emphasis on what we call advanced cooking technologies, or accelerated cooking technologies, and these would be around our speed ovens and combi-ovens. So, we're investing internally for organic growth. We took a minority stake in a company in late '09 that focuses on a really up-and-coming technology called induction. We move from a minority stake in a speed oven company to a wholly-owned position in February of this year. Again, so real thoughtful, significant investment in categories that are going to prove out to be great growth opportunities for us.

Okay. And then before, you guys have talked about ENC companies' backlogs as a good indicator, a future indicator of your Crane business, and some of those companies backlogs look like they are flattening out a little bit. Is there anything you can add -- is that still a good indicator, or should we start to look to something else?

No, Joel, I think it's still a good indicator because, when you look at the size of those backlogs, there's some of the -- when you talk to some of these contractors, these are some record backlogs for them. They're as high as they've ever been, and I don't want to give any names of them, but it's in Europe, it's in Asia, it's in the United States. I mean yes, they're flattening out but again, they haven't started many of these projects and it's a matter of -- they have to also look internally to say, how do we get all of our work done that we have on our books? So, I'm not so worried about the flattening of it. I think it's a matter of when they start.

And the other thing I mentioned is that architectural billing index. I think it just points well to long term, the residential and commercial construction. We don't see that as a big pick up, obviously, in 2011 or probably even 2012, because that takes a while to go through that system. But again, it's just an indicator.

Okay.

It's an indicator for us to be able to say we believe the worst is behind us.

Okay, that's very helpful, thank you.

The next question comes from Paul Bodnar with Longbow Research.

Good morning.

Hi, Paul.

Just a question on, not so much next year's numbers, but just what mix might look like in Crane. And if that might be -- as we maybe see a shift away, or are we seeing a shift away from the higher capacity cranes towards smaller ones, where volume could be up, could be a headwind on the revenue side, obviously, but more so -- you associate lower margins with some of the earlier cycle type Cranes. Is that something we see going forward?

I think in -- my initial comment is, the worst is behind us. But when we say we look towards the recovery, but I wouldn't call it a significant recovery. I think it's marginal, is what we're expecting for 2011. But I think the mix, when you look at historical recoveries is exactly what you said. It was the boom trucks, the smaller equipment, but that was commercial construction and residential. I think this recovery is still lead by some of the larger type projects. It's energy and some of the large government type projects, whether it's in some of the emerging markets' infrastructure, and that takes a mix and a blend of the light construction versus the heavy equipment. So, I think it's a general mix more than it's led by one or the other. Eric I don't know if you have any comment on that?

No, I do concur.

So, it sounds like you think it's a little bit different this time than in prior cycles, basically?

Agreed. I do believe that.

And then just another follow-up. Sorry if I missed this, but I think you talked a little bit about the $200 million debt reduction and how you get there and some of that comes through inventory reduction. How much of that could easily just come right back in 1Q, and would you end up having to draw on the revolver in order to ramp inventory back up, or is that potential risk here? You just -- it pays down quickly and you don't need to worry it again as you get into 1Q, 2Q next year?

Well, I think there's -- that's a good question because ask, are you giving up what's going to happen in January? And we certainly don't want to manage the business like that. That is not our intention whatsoever. What the intention is, when you look at many of the things that Mike is working on or Eric are working on, some of the lien initiatives, some of the consolidations, the process improvements that we're making, those are all of the things that are leading to the reductions. For instance, as you go through your lien initiatives and you have a process for every part, you look at some of the terms that we're getting at some of the factories, it's upwards of 15 and 20 times on some of these parts that we're turning as we have the vendors manage them for us, as we put some of these processes in place, that will lead us to when the market returns. We don't have to restock to those levels, so there's a lot of things.

We're not trying to do this just to hit a metric. We realize there's no longer a business to run on this. So, it's really a message to the people that are out in our businesses and our leaders that we can do this and there's opportunity out there to keep some of these costs out of the business when it ramps back up, but you're always going to have working capital changes in either one of the businesses as it goes up.

The other thing I might add to that, Paul, is we do have that pattern of consumption of working capital in the first half of the year. That's not unusual, and I think as we look at the markets and what we expect in terms of activity, we certainly don't see a V-shaped bounce off the bottom. It's more of a modest and I don't think that we are really projecting anything unusual in the first half of the year.

Okay, thanks a lot.

Our next question comes from Ben Elias with Sterne, Agee. Please go ahead.

Thank you, good morning.

Hi, Ben.

Hi. I was wondering if you could just walk us through pricing on Cranes as you come out of two years of pretty weak sales. Sales are weak and, as you said, used crane pricing is getting better. How should we think of pricing, is it that you're trying to price comparatively to the used product? Does it go up? Are you trying to incentivize some of the fleets?

Well I think when you look at pricing in these markets, it's obviously difficult if a competitor wants to do whatever a competitor wants to do. I mean, the market will dictate the price, and the thing that we have is many of the relationships and many of the customers and some of the services and benefits that we offer, some of the after market services.

We aren't always the cheapest in the market. I mean we've said that before and we'll say it again, because there's a -- we think there's a value proposition all the way from the initial cost of the product to the end residual, so -- so that in essence, yes, pricing pressures remain. I think you'll see what happens with commodities. You'll see what happens with some of the rest of the competitors, but I would say, other than maybe one competitor, I think most of the people that I would look at have managed their inventories to levels where, again, if you get the order it's not just sitting there in inventory and you're giving it away. I think a lot of the competitors in this downturn have reacted swiftly and I think that's been confirmed by some of the customers that I've talked to. Eric?

Yes, the competitive landscape is there. You have to be competitive today in this environment, but there is also the trading price. That's part of the equations, and some people could be more aggressive in the trading than others and it depends on what you anticipate, how fast and at what kind of price you can resell those used cranes. We typically tend to be conservative in that aspect. But again, it's competitive but customers, they know the value of the brands and you can still justify the premium, especially in some markets.

Thanks. My second question just revolves around a interest expense, a cash interest expense. Is this something we can keep going forward? I know we have to adjust it down when you pay down another $160 million in this fourth quarter, but how should we be modeling interest expense going forward?

Unfortunately, Ben, we did adjust to the top tier of the pricing grid on the revolving credit facility in the quarter, in the third quarter. So that impact will linger. And then whatever the effect of the -- taking the little less than $600 million pay down on the bond at the 8.5% coupon will be the -- essentially the effect on the interest pricing. The other thing that should be mentioned is, with the pay down of the bank notes or the bank senior debt, we will have about a $19 million, obviously, acceleration on the debt finance piece because of the early pay down of the bank debt and that will occur this quarter.

Okay. So that's going to be in the fourth quarter, the $19 million fee and the deferred financing line?

Right.

And $19 million in addition to what you've been trending at?

Correct. The run rate on the referred financing fees now will go down to about $3.9 million a quarter.

Okay. Thank you.

The final question comes from Meredith Taylor with Barclays Capital. Go ahead, please. Go ahead please.

Good morning guys. It's actually Mark [Mahalo] taking the place of Meredith today. Just two quick questions. One, you talked about pricing pressure for the Crane segment. Can you just talk about how you think that will affect margins as we move forward into 4Q as well as into 2011?

Well, the pricing pressure started in July of 2008, so I think it's been there for a long time. I don't think it swings. Our anticipated margins, one way or the other, I think that's the environment we're in and that's where it becomes -- if that's what the market dictates that you're going to be able to sell your product, you have to find ways to take cost out of your product. So it's really about the cost and the quality and the support services that we offer. I think the other thing is that impacts our margins or can improve them, to an extent we're not sure yet, but is the Crane Care side of the business, the parts area. But on the pricing pressures, it's been there for over the what? 10 quarters.

I think we do a good job in the long term of making sure we get the requisite pricing to capture our costs, but obviously, in the short-term you can have some impact from the steep slope of the curve on the cost side that it takes you awhile to recapture, especially in this market.

Okay, thanks. And then just switching to Foodservices really quick, just the trends that you're seeing, specifically for your refrigeration business.

The one that we mentioned earlier?

Just some more color around that area.

Okay. Well again, our -- in total, all of the product lines that would be refrigeration-based have done well, consistent with our overall trends. The one sub-category focused on the retail market segment has really spiked up year-over-year again, for the reasons described earlier. Market generally up, our gaining share, coupled with a completely new product launch that's been received favorably by the customers. The forward advancing of volumes will not mimic what we've seen year-over-year 2010 versus 2009, but it should still be positive.

Great. Thanks for taking my question.

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

Before we conclude today's call, I would like to remind everyone a replay of our third 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.

This concludes today's conference call. Thank you for your participation.