Manitowoc Company Inc (MTW) 2011 Q1 法說會逐字稿

Good day everyone and welcome to this Manitowoc Company Incorporated first quarter 2011 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 first-quarter earnings conference call. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer; Carl Laurino, Senior Vice President and Chief Financial Officer; and Eric Etchart, President of Manitowoc Cranes.

Glen will open today's call by providing an overview of our quarterly results and business outlook. Carl will then discuss our financial results for the first quarter in greater detail. He will be followed by Eric Etchart, who will offer insight into the market conditions for our crane segment, and will also discuss the recent CONEXPO trade show in Las Vegas. Following our prepared remarks, we will be joined by Mike Kachmer, President of Manitowoc Foodservice, for our 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For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 April 29, 2011. 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'll now turn the call over to Glen.

Thanks, Steve, and good morning everyone. Our first quarter 2011 results were in line with our expectations as year-over-year sales growth in our Crane and Foodservice segments reflects signs of continuing improvement in several end markets across both of our businesses. During the quarter each of our segments participated in major industry trade shows, which were highly successful, and supported our increasing confidence in our full-year outlook and long-term positioning.

For several years we have frequently discussed the seven Company-wide strategic imperatives that have played a vital role in strengthening our business segments and better positioning them for long-term growth. Two of these initiatives are focused on innovation and after-market product support are key ingredients in our success. As such, during the downturn, we intensified our focus on these initiatives and we are starting to see those bear fruit as the market strengthens. At the CONEXPO and NAFEM trade shows, our interaction and engagement with customers pended on these key strategic strengths and now I'd like to highlight a few examples that illustrate the results of our investments and efforts in these initiatives.

At NAFEM, we demonstrated our continued focus and push toward increasing -- increasingly user-friendly products that consume less energy and water, cook foods faster while improving flavor, and offer multiple cooking platforms within one piece of equipment. Two of the products that we exhibited, the new Indigo Ice Machine and the mini 2-in-1 Combi Oven, will be receiving the 2011 Kitchen Innovation Awards at the National Restaurant Association Trade Show in May. In addition, Manitowoc Foodservice was also recently named an Energy Star Partner of the Year for the second consecutive year, reflecting our commitment to sustainability and energy efficiency.

Similarly, our Crane segment continues to be in the forefront of product innovation. At CONEXPO, we launched several new products as well as various enhancements to existing products, which Eric will tell you more about later. We also took the opportunity to highlight our quality initiatives and new EnCORE program within crane care, which are competitive advantages as customers focus on the total cost of ownership, an area where Manitowoc excels.

In addition to our investments in new product development, we continue to improve and streamline our operations through lien initiatives, technology enhancements, and facility consolidations that will drive enhanced long-term profitability. However, we know that these operational improvements are only effective if we continue to build industry-leading products that our customers want. Therefore, we will continue to drive improvements in both the product offerings that we present to our customers as well as the way we build, deliver, and service those products.

Turning to our segment performance for the first quarter, Foodservice performed in line with our expectations once again, posting sales growth and healthy operating margins in the seasonally soft quarter. We also continued to see increasing demand in most regions including Asia, North America, and select countries in Europe. This includes a quick service chain that is planning to open 475 new stores in China this year, another quick service chain that expects to have 2,000 restaurants open in China by 2013, and a quick service franchisee based in India that is investing over $111 million to double its restaurant footprint in that country over the next three to four years.

Since attending the last NAFEM show in 2009, our Foodservice segment has undergone significant change with the integration of a notice. Just two years later, it was exciting to see the remarkable changes at NAFEM 2011, as Manitowoc Foodservice is now a cohesive industry-leading enterprise.

During the show we also spent considerable time with several current and prospective customers and the feedback we received in Orlando, and in the subsequent weeks following NAFEM 2011, has been extremely positive. It's very clear that our strategy is resonating with customers who are beginning to understand the value and benefits of our full product offering and the power of presenting multiple products with one face.

Moving to our crane segment, our first quarter results represented a continuation of the improving demand environment that we experienced in the fourth quarter of 2010, highlighted by strong growth in the Americas and the successful CONEXPO show in March. Year-over-year sales growth and margin improvement, coupled with the backlog of $800 million, a 40% increase, are early signs of the actions taken during the past two years to strengthen this segment and position it for growth and enhanced long-term profitability.

With the first quarter behind us, we're happy on how both of our segments performed and have increased confidence in our full-year outlook. However, we continue to believe that 2011 will be a year of transition and we're mindful of the challenges ahead.

In addition to managing our business through uneven demand levels, we are also taking proactive steps to counteract the increasing commodity costs faced by the entire industry. Despite these challenges, we're comfortable where we stand today and believe that we are in an excellent position to drive year-over-year growth in 2011 and accelerated growth as we move into 2012. I will now turn the call over to Carl to discuss our detailed first quarter financial results. Carl?

Thanks, Glen, and good morning, everyone. We reported net sales for the first quarter of $732 million, which is an increase of $48 million, or 7%, from the first quarter of 2010. On a sequential quarter basis, net sales decreased $99 million, or 12%, due primarily to delayed shipments of mobile hydraulic units due to tier four engine challenges that have now been resolved. First quarter 2011 consolidated operating margin before amortization and onetime items was 5.5% versus 6.1% in the first quarter of 2010. The year-over-year margin decline was driven by challenging comparables associated with a new product launch for Foodservice in the prior year quarter, the reimplementation of some employee benefits and other costs that were suspended during 2009 and 2010 as well as rising commodity costs. The GAAP net loss for the first quarter was $52 million, or $0.40 per share versus a net loss of $23 million or $0.18 per share in the first quarter of 2010. First quarter 2011 special items were primarily comprised of the impact from discontinued operations driven by the tax expense from the sale of Kysor/Warren of over $33 million. Excluding these and other unusual items in both quarters, the first quarter of 2011 net loss was $0.10 per share, equivalent to the first quarter of 2010.

During the first quarter we also experienced an unusual tax provision with the recognition of approximately $1 million of income tax expense against a pretax loss of $16 million. This was the result of first quarter losses experienced in certain foreign jurisdictions, primarily in France, which are fully impaired for GAAP reporting purposes. The result that the impairments that these net operating losses had on the first quarter tax provision totaled about $6 million or $0.04, of diluted EPS.

Moving onto the balance sheet, debt was relatively flat at the end of the first quarter compared to year-end 2010. This is the net result of the term loan paydown from the proceeds of the Kysor/Warren sale, offset by a use of cash for the seasonal working capital build. Additionally, we recently announced we are taking action to further improve the strength and flexibility of our capital structure by refinancing our senior secured credit facilities. The proposed changes should result in a 200-plus basis point reduction in interest rates and extend our current maturities. These amendments should become effective within the next few weeks.

During the first quarter, cash flow used for continuing operations was $137 million, driven mostly by the seasonal increases in accounts receivable and inventory that were only partially offset by an increase in accounts payable.

Moving onto our segment results, Foodservice sales in the first quarter of 2011 totaled $339 million, which increased 7% from the first quarter of 2010. First quarter 2011 operating earnings in Foodservice were $41 million versus $47 million in the same quarter last year. The year-over-year comparison was negatively impacted by first quarter 2010 earnings strength resulting from the launch of our smoothie machine in North America for our major customer as well as first quarter 2011 investments in various emerging market opportunities and expenses for the biannual NAFEM trade show.

Moving to the Crane segment, first quarter sales totaled $393 million, up 7% from $366 million in the first quarter of 2010. First quarter results were favorably impacted by a sustained increase in orders from the fourth quarter as well as an improved backlog. Crane segment operating earnings in the first quarter were $13 million versus $5 million in the same quarter last year. This resulted in first quarter Crane segment operating margins of 3.2%, compared to 1.2% in the first quarter of 2010. Crane backlog at the end of the first quarter was $800 million, an increase of $228 million from December 31, 2010. The increase in backlog was due to solid order levels throughout the quarter that were enhanced by orders placed at the CONEXPO trade show. The backlog build was also enhanced by the temporary delay in product shipments, resulting from the previously mentioned supply issue with tier four engines. Our book-to-bill ratio of 1.6 is the highest level for this metric since the third quarter of 2007.

As noted in yesterday's press release, we are reaffirming our guidance for 2011 and updating certain items for the impact of our pending refinancing of our senior credit facilities. Based on the order levels we have seen during the first quarter, we have increased confidence about our ability to reach our goals of low double digit year-over-year percentage growth in Crane segment revenue as well as improved margins building off 2010 trough levels, despite a rising commodity price environment.

For the Foodservice segment we expect high single digit percentage revenue growth and improving mid-teen margins versus 2010. Other expectations for 2011 include capital expenditures of approximately $70 million, depreciation and amortization of roughly $125 million, approximately $150 million in interest expense, and approximately $10 million in amortization of deferred financing fees.

In addition, during the second quarter of 2011 as a result of our credit facility's refinancing, we expect to incur a non-cash write-off of approximately $25 million in deferred financing fees from the existing facility. Let me now turn the call over to Eric Etchart to discuss recent events in our Crane segment and to share some feedback on the 2010 CONEXPO Trade Show. Eric?

Thank you, Carl. In the months since I last spoke to you on the fourth quarter conference call, we've seen sustained improvement in demand for cranes, driving increased confidence that we have emerged from the trough of the cycle and are on track to reach both our full-year and long-term targets. In the first quarter of 2011, we experienced sustained order intake levels compared to the fourth quarter, driving year-over-year sales growth and the sequence of increasing backlog. First quarter sales benefited from strong demand in North America, driven primarily by energy projects as well as continuing strength in Asia, the Middle East and Latin America.

While parts of Northern Europe are showing modest signs of recovery, Southern and Eastern Europe continue to show very little activity. During the quarter, we saw additional positive signs such as improved rental utilizations and in inventory decreasing distribution channels which drove some restocking and rental fleet replacement orders.

Our first quarter order intake also benefited from the CONEXPO show, which included over 120,000 attendees from across the globe. The event not only enabled us to showcase our industry-leading product lines, but allowed customers a sustainable opportunity to witness the results of our investments in innovation and new product development.

As Glen noted, we launched several new products at CONEXPO, including the world's highest capacity rough-terrain crane. We also featured various upgrades for current models, including the wing attachment for the Manitowoc 16,000, which puts the crane's capacity by up to 49% and makes it increasingly powerful and an essential piece of equipment for this industry.

Additionally, Crane care highlighted its new encore program, which is the latest example of Manitowoc's commitment to helping its crane customers reduce the license cost of crane ownership and operation. These programs reflect the longevity and quality of our products as we are able to fully remanufacture older Manitowoc cranes to standards that can even exceed their original date of manufacture, a capability that is unmatched in the industry. Our dedication to delivering superior products and providing best in-class support is a key differentiator that sets us apart from the competition and it is clear that customers care about these capabilities.

While we are pleased with the quarter and growing signs of improvements, we are also focused on managing operational challenges associated with fluctuating demand levels and extend our factors, such as rising input costs, which impacts our margins. We will continue to diligently manage our supply chain and we have already taken action to offset increasing costs through strategic pricing adjustments, productivity initiatives, and greater efficiency. And we will continue to proactively manage these issues as they evolve throughout the year.

In closing, I am proud of the progress we have made over the last year and I am excited about what the future holds for us. We are very pleased with the demand levels in emerging markets such as China and India, coupled with our recent announcement to build a 25,000 square meter manufacturing facility in Brazil. The new plant, which will begin producing mobile cranes in 2012, not only give us first mover advantage in the Latin American market, but continues a tradition of Manitowoc being a pioneer in emerging markets. And as the global economy continues to improve, Manitowoc is ideally positioned to compete for and win high-profile projects given our broad global footprint which brings us closer to our customers and their needs. With that, I will return the call to Glen for his closing comments.

Thanks, Eric. In conclusion, we are pleased with our first quarter results and are equally encouraged by the positive signs of recovery across both of our segments, which also validates the strategy and investments that we've made in expanding and globalizing our Crane and Foodservice operations. As I noted before, we expect 2011 to be a transition year for Manitowoc in terms of challenges and opportunities. Furthermore, we continue to expect year-over-year growth in both of our operating segments and we remain focused on making the right investments and taking the appropriate actions that should drive significant top-line growth and bottom-line profitability in 2012 and beyond. This concludes our prepared remarks. Nicole, we will now begin our question-and-answer session.

Thank you.

(Operator Instructions).

And, we will take our first question from Robert Wertheimer from Morgan Stanley.

Good morning, everybody. So, my first question is, just to the extent you're able, could you elaborate on what the tier four issues were and help us understand how they are in the past?

Well, the amount of that is around $50 million, Rob, and the issues were trying to get a lot of the software synchronized with the rest of the engine and everything else with the trucks, basically, and the chassis. So, that is behind us, from that set of factors in the current model that we have, and so those did begin shipping in the second quarter.

Okay. So, there wasn't anything physical with the engine or the way that you've designed it to fit? It was just pure software?

No, it was just getting it to match up with all the software and the capabilities of the rest of the truck and chassis.

Okay. And, then, the second question, I guess, would be that you and one of your competitors over at Terex have now posted two quarters of very good crane orders. Each of you. Internally, does it feel to you like there's a solid bottom and robust recovery or does it feel like the orders are still coming in patchy and spotty? I would imagine a lot of your customers are still not making much money given where rental rates are. So, I just wanted to see if you feel like it's on a gradual upswing from here or you still think it's uncertain.

I don't like -- I wouldn't call it robust. I like the patchy and spotty. We've mentioned that before that it's kind of an uneven demand. And, I think if you look at the first quarter, the CONEXPO was good for North America and it gave you the confidence in what's happening in North America, but what I would say is where it is robust it stays robust, it has maintained its robustness, I guess is the best phase, in the emerging markets. That's where we continue to see good levels of activity.

And, are you seeing any impact from the emerging Chinese competitors in emerging markets on your demand or pricing ability? And, I'll stop there, thanks.

We are. I'll let Eric elaborate a little bit more on the Chinese competition.

Well, Rob, I think the Chinese continue to dominate, obviously, in China. Even if we are and other first-year manufacturers are competing in China, obviously, honestly, there is a lot of smoke but not a lot of fire. I think if we have time for the Chinese competition to build up their brand, distribution, and resell value, and the best in class reliability that they need to crack the domestic market. So, overall, yes. Chinese competition outside of China is certainly a long-term threat, but again, we don't see an immediate threat short-term.

That's great. Thank you.

And, ladies and gentlemen, we would just like to remind you if you could keep your questions to one question with maybe a follow-up question in order to be able to get through all of the questions today. You are welcome, of course, to requeue. And, we'll take our next question from Nicole DeBlase from Deutsche Bank.

Good morning guys. So, the first question I have is, if you could provide the FX impact to the Crane backlog this quarter?

Nominal.

Okay and that's on a Q-on-Q basis it was a nominal impact?

Q-on-Q and year-over-year.

Okay got it. And, then just a modeling question, what are you guys expecting for the tax rate for the full year or the remaining three quarters?

That's a very good question. Obviously, we've had the unusual circumstances and I think it probably is something that revisits us. If we get the normal seasonal pattern and softness in the fourth quarter of this year, we'll probably have a very unusual effective tax rate in the fourth quarter. The remaining quarters in total, you are still looking at probably a high effective tax rate because of those two quarters. And, if you take them altogether, you're probably close to a 50% effective tax rate because of the ineffectiveness of the losses in some of the foreign jurisdictions. If you take out that issue, that, obviously, we expect to get through once we get into a little bit better times in the cycle, we're at about a 25% effective tax rate, but since we expect that to linger and be most pronounced in the fourth quarter, it's probably about 50% effective tax rate for the balance of the year.

Okay, that's helpful. I will get back in queue. Thanks.

And, our next question comes from Charlie Brady from BMO Capital Markets.

Can you -- on the quick service opportunity you guys talked about in Foodservice with China and India, can you quantify what that opportunity might be over the next few years? And, given the size of what I imagine those orders might be, is there a margin differential on -- that might impact the Foodservice business over that time period?

Well, I'm going to take the first part of that and then I'm going to let Mike give you a little better flavor just overall on the emerging markets with Foodservice. Yes, it's -- to quantify it, Charlie, is very difficult. I think what we're trying to get across is to say the emerging markets are more and more a bigger part of the Foodservice strategy that we put in place to capture a lot more of that market and show that there is growth in that market outside of North America.

So, it's the normal opportunities we have any time anybody expands in any market, given the product breadth that we have and the global footprint that we have. Now, when it comes to the margins, it's going to be on a normalized basis. Again, it goes -- it's a mix issue. It depends if they are using one product versus another and so that just depends on what they're rolling out at what given time. I'm going to let Mike step in and give you a little more flavor on some of the opportunities in emerging markets.

Yes, Glen, let me extend your comments there on margin. If you look at the categories right now that we're focused on with the targeted chains, we believe that our cost position is extremely competitive. First of all, due to the operations that we have in the APAC region to begin with, but also with our continued focus on reducing our cost structure going forward. So, we believe that, again, for the categories that we're focused on, our margin situation is good.

The other thing I would say, depending on your time horizon on this, Charlie, is that, obviously, a key driver for us in Foodservice is the replacement. And, it takes a while for you to get to that critical mass to have that driver be as relevant in the emerging markets, but certainly helpful to us in the near-term on some of the new store activity.

Is it fair to say though that products sold into emerging market doesn't have a meaningfully lower margin than something sold into, say, the North American market?

Yes.

Thanks. I'll hop back in the queue.

And, our next question comes from Ann Duignan from JPMorgan.

Hi. Good morning, guys.

Hi, Ann.

Could you just first address the $800 million backlog -- Crane backlog, how are those products priced? Are those priced at old prices and, therefore, will carry lower margins as we go through that backlog? When do price increases take effect and when will they hit the P&L?

Well, Ann, I would say, yes. I think much of the activity that's ongoing today would be at pricing arrangements that obviously go back, depending on the type of product sometimes even several months, and our overall message, as it relates to price versus commodities in Cranes, is that it's a difficult story for us this year. We're just coming off the trough and there's still, despite some of the order -- the recent order activities, still capacity available in the industry where the pricing environment is not as robust as we would expect it to be when you get a little bit longer into recovery.

By virtue of that, we think that it's going to be difficult for us to get the requisite type of pricing and maybe even some other product cost takeout to be able to overcome some of the steep increases that we're seeing on the commodity cost side. Obviously, we'll get other benefits from the expected volume growth and, overall, our message is that we'll see year-over-year margin enhancements and margin growth in Cranes. But, price versus commodity costs is pretty tough in '11.

What I would add to that though, Ann, historically we've been a price leader and we're going to continue to be that in the future. And, we're going to do that and if people don't follow that, that's a challenge for us and everything that Carl said. But, I can tell you that we aren't going to sit back and wait. I mean, we will continue to do what we've done in the past.

So, I'm a little confused. Have you raised prices yet or not?

We have.

Yes, we have, Ann. And we had to because it was a tier four. There are additional costs associated with tier four engines and we had already passed some pricings. But, given what we see on the material costs coming in front of us, we need to be more aggressive in passing pricing.

And I think answering your other question, Ann, what you said is what does it do to the near term versus long term, yes, some of the near-term things that are going on are based on pricing that was in the fourth quarter of last year. And, as you know, historically again, we have not changed the prices in our backlogs and we don't intend to change that policy either. So, it's what we have to get around and that's where it comes to the lean manufacturing initiatives, comes to additional pricing that we'll do and some of the benefits we have to get out of our manufacturing environment.

Okay, so when would you expect to be price cost neutral?

We don't expect to be able to achieve that, in all likelihood, until probably next year.

Okay, that's what I was trying to get at. And, then, just my follow-up question on Foodservice. Should we be concerned that that segment has already past peak operating margins? You know, just given your commentary that you say it's very tough comparables based on last year's product launches. Are we looking at 2010 as having been peak for Foodservice margins?

No, I don't think you should infer that, Ann. Obviously, the first quarter is typically, as I mentioned in my comments, it's a soft seasonal quarter. Typically, the second and third quarters are our best. I wouldn't make that assumption.

Sorry, I do need to make sure that we do one and one follow-up because we do have a -- I think a pretty big queue of questions.

Yes, I apologize. Sorry. Thanks.

And, we'll take our next question from Jerry Revich from Goldman Sachs.

Good morning. Eric can you talk about inquiries you're seeing, rank order for us, which regions you expect to drive order growth over the next six to 12 months? You mentioned the Americas were a big driver over the past couple of quarters. Is that continuing or any other markets that are looking more or less interesting? Thanks.

Well, obviously the activity has been, as we anticipate in the emerging market, very, very strong, especially Latin America I would say. Asia -- typically the Q1 is not the best quarter in terms of order activity because you have the Chinese New Year. This year, you had the water flood in Australia. So, Asia has been over what we have seen last year, but slightly obviously down compared to the last quarter. Now, in -- I must tell you that in Europe, we've seen the towers picking up a little bit of steam and we are coming from a low base but that's quite encouraging.

And, the Middle East has not been impacted, which is where we do business, with the recent geopolitics even. So the business in Saudi Arabia, as an example, continue to be very strong. So, overall, it's a good outlook. We've got to be careful now to see it. We can confirm all of these order activities in North America. Definitely there have been some refitting activities. There have been some restocking activities. We need to see how this retail. Actually the customer are more positive and optimistic. But, I think we have to be a little bit cautious in North America.

And, can you talk about the timing of customer delivery requirements for the past two quarters, even adding back into the tier four issue? You still would have underproduced versus order transfer the past two quarters? Is it a function of customers want a big chunk of the deliveries in 2Q or 3Q? And, how should we think about production rates from here? Thanks.

It's -- most of it's in for delivery in the next six to nine months. I mean, it doesn't -- a lot of it doesn't stretch out to next year but there is some.

So, we should think of a pretty meaningful production pickup as early as 2Q?

We've been in that mode already, yes.

Okay. Thank you.

And, our next question comes from Chris Welter from Robert W. Baird.

Morning guys. Just a little bit of a clarification on the answer to the last question. Do you expect to recognize or catch up with that $50 million in revenue in the second quarter? Or should we still expect sort of a normal 2Q is good, 3Q might be a little bit better, and then a big 4Q in Crane for this year?

We should get most of that delay in the second quarter.

Okay. Thank you. That's helpful. And, are you guys seeing any impact, or can you parse what you're seeing as far as any impact from the Japanese disasters? I know you guys have a relationship with Kobelco for some small crawlers -- just a little bit of color on what you're seeing there.

Well, overall I wouldn't call it significant, Chris. There are some things -- we have -- you mentioned the Kobelco relationship. There are the timing of some shipments on that. But, there also is a steal supplier that we have in Japan which, again, that's one of those, quote, supplier issues that we talk about. And, then, on the Foodservice side, it's not as -- we haven't seen a big significant impact on that. So, we're not looking at it as a great impact and certainly, in the month of tragedy, don't want to talk about opportunities yet but I think that's much longer-term. Eric, do you have anything to add on that?

No. You mentioned Kobelco. What is the unknown because there are still unfolding issues in Japan is a tier two and tier three suppliers of our on suppliers. This is still very unknown. So, we have still some question marks. But, typically, we have to look at suppliers as generally because they are ramping up and probably some electronic companies coming from there, but that's all we can say at this point of time.

Okay, that very helpful. Then one real quick one -- any idea how much CONEXPO expenses might have been in the quarter and what line item they'll show up in?

Well, it's going to show up in SG&A and it's -- go ahead.

About $2 million.

Okay. And unallocated or after the segments?

It's only in cranes.

Okay. Thank you, guys.

I should add that we also had probably about $1.5 million in NAFEM in the quarter on the Foodservice side. And, that doesn't -- that's not a year-over-year recurrence because that's every two years.

And, our next question comes from David Wells from Thompson Research Group.

Good morning, everyone.

Hi, David.

First off, guys, I was wondering if you could quantify a little bit of your verbiage about the investments that you made in the emerging markets in the quarter? And, I guess, trying to get a sense of -- if that's head count additions and kind of the drivers behind the choice to make those investments right now?

I think you're talking about the Foodservice? Go ahead, Mike.

Okay. I think there are a couple of great examples that highlight what we're talking about. If you think of the blended ice movie category, that is a very important new market for us. Southeast Asia is a market that one of our largest customers is pursuing their next rollout. And, so, while we believe that the steady-state margins will be fine, we do put resources in place in advance of the rollout to support it. They'll come in the form of product managers, sales resources, service resources, et cetera. So, we will have headcount and some associated costs like that. Separately, for a different large global chain in China, we have put people into the region to develop products conducive for the region. And, again, those resources are placed in advance of the revenue occurring. Long-term, it's going to be great. In a quarter like the first, there'll be expenses not linked to direct revenue. Two examples.

That's helpful thanks. And, then, I guess as a follow-up, I'm just trying to get a sense of looking back over the last couple of years, there was a fair amount of discussion on these calls about the cost takeout that you've done on a broader basis. Given what you are seeing now, I guess as orders begin to return on the Crane side of things and certainly some of the opportunities on Foodservice, as you look at the cost takeout that you've done out of the business and look at kind of the permanency and kind of the fixed versus variable side of the equation, has your thinking on that changed appreciably? And, any thoughts about that would be helpful as we think about the business heading into '12 and beyond.

One thing I would mention is that's definitely the case. I think part of the benefit that we saw from some of the actions that we took in building capacity in the last peak certainly are not realizable as you go through the trough years that we saw. The other thing that comes into play as far as having an ability to leverage now that we are in growth mode is some of the reinstitution of some of the austerity measures that are taking that have to flow back into place. But, we do have -- as we look at getting through to a profitable margin growth in 2011 despite the commodity challenges, that's a big part of the way that we get there is through some of those operational excellence initiatives.

What I would say on that, David, when you look at some of the infrastructure things that took cost out, whether it was in Foodservice during their integration over the last two years or Cranes. For instance, the Slovakia investments that we made in Italy or what we're doing now in India or China or some different consolidations in France, you take those together -- what we're going to be bringing back are people. And, so, we've made a lot of investments in machinery, technology, that kind of thing. As we ramp up, we should start seeing the impact of those investments from an efficiency standpoint and so instead of bringing back as many people as we did in the last upturn, we're not going to need that same headcount on a lower capacity base of manufacturing. So, those are the opportunities we have. We're just too early into the upturn to see the benefits of those right now.

That's helpful. Thank you.

And, we will take a question from Ted Grace from Susquehanna.

Thank you. Hi, guys, how are you doing? On the Crane orders -- just wondering if you can give us a little more color on the 1Q order book itself. Total order book up 51% year-over-year. Could you just help us understand how North America performed versus Europe and Latin America? Asia Pacific would be helpful or just the broader EM? Just so we understand what drove it regionally?

Well, North America had a very strong order intake in Q4 already. And, that order rate sustained very well in Q1 as well. So, that has been impressive in terms of growth. And, comparing with Q1 last year, basically America backlog orders, basically, has doubled -- just to give you the magnitude of what it is.

Okay, so it's doubled year-over-year?

Yes.

That's great. And, in Europe, it would be helpful to understand that.

Well, Europe is -- again, is definitely growing as well, in terms of order intake and backlogs primarily driven by the GMK product range and the end towers, again, as I said earlier -- picking up really steam in Europe as well. So, again, year-over-year, you see an improvement in Europe as well. Of course, if you take the total backlog, America now -- the Americas became a heavyweight compared to Europe, which traditionally was not the case.

Okay. And, then in -- so is it fair to assume what you're saying is you're probably punched below the 51% average for the segment year-over-year?

In Europe?

Yes, so the European orders were, I'm guessing, up but not as great as the 51% we saw for the whole Crane business?

Yes.

Okay. And, for Latin America, could you give us a little more color there?

I think when we get down to the specifics, when we get that granular, we would rather keep it on a higher level. But, what I would say is the order intake, it certainly didn't double like it did in the Americas but it was certainly impressive.

Okay. So, fair to assume that's above 51%? Is that fair to say, Glen?

That's a reasonable expectation.

Okay. Great. And, then, just the second kind of follow-on question is, can you just remind us what your mix was in 2010 for Crane revenues between -- I know you reported the Americas, EAME and then all other? Could you just give us a sense for how big each region is, that would be helpful?

In the quarter you mean?

No, for 2010. I would be more curious to benchmark it against last year.

We only give the regional split, Ted. So, you've got Europe, Middle East, Africa, bunched together. That's south of 40%. The Americas is more kind of mid-40% range and then you've got Asia Pacific, that's in the mid-teen level.

Okay. Yes, I was just wondering if you might be able to give us the country stuff. And, then -- and this will be the last thing -- can you just talk on the split between new Crane orders and attachment orders and help us understand if there was a material difference between attachments and new cranes and I'll leave it there? So, best of luck this quarter, guys.

No, there's the -- you know, the interesting thing is some of the attachments cost more than what some of the -- on product mix, some of the smaller products that we have. So when we say attachments, it still can be a significant part of the business and it is. So, it's not a big breakout.

There's not normally a wild swing between the whole goods and the attachments.

Okay. That's helpful. Like I said, best of luck this quarter, guys.

Thank you.

And, our next question comes from Paul Bodnar from Longbow.

Good morning. Just to follow up on pricing. You guys have obviously -- sounds like you've taken some actions -- how's the competition reacted? Is there anyone kind of lagging out there or being a bit more aggressive?

Well, yes. I think there are some that are lagging. And, I think we made comments about it late last year. People that had inventory, I think one of our competitors announced some things that they saw from a common competitor we all had in Southern Germany, big construction equipment company in Southern Germany, and it's in various publications as you look at whether people have for pricing in that market. And, so I don't think it's -- I think it's improving in all honesty. Because, as Carl mentioned, the inventories and, I think the capacities, are getting back to normal. You're seeing pricing stabilize on used equipment.

I think that's a positive. And, then, in Mike's industry, or the Foodservice industry, again it's -- I liked Mike's comments where he said, hey, look, our position is very competitive. When you have major chains that are going out and you're competing for certain pieces of business around the world, it's competitive, but the beauty that we have is we have a very good cost position. So, I mean you can get it through to the customers that pricing through when you can verify that, hey, it's specifically this, it's commodities, it's rising this, rising that, but that still doesn't mean that all competition is rational. But we've been dealing with that forever so it's -- that's where we play in the positions of the markets that we're in.

Okay. And, then I guess along those lines, are you concerned or have you had any kind of commentary if some customers come in ahead of these price increases at all? Or they're kind of saying, hey, it hasn't moved up that much and maybe the price of power's not going to be that strong so they're still taking a wait-and-see approach in terms of buying? And, it applies more to Crane than Foodservice.

I mean I think it's -- I can't speak for anybody else. I think it's all on a case-by-case basis.

But, the buying decision on that type of equipment is going to be much more predicated on what is the need and what is the availability of that type of lift equipment. The idea of deferring because there's a price or accelerating because there's a price increase coming is, I don't think, a real driver.

Okay. Thanks a lot.

And, we have a question from Henry Kirn from UBS.

Hi, good morning, guys.

Hi, Henry.

Could you chat a little bit about where the supply-chain in Cranes stands today outside of Japan?

Well, obviously, Henry, tires is becoming a problem and everything directing to hydraulics, pumps, is becoming something that you have to watch carefully. And, also your outsourcing, they have to ramp up and it's tough for them. So, that's the overall supply-chain that is stretched right now.

That's helpful. And, is it possible to quantify the CONEXPO order intake in the quarter?

It is possible to quantify it, but we aren't going to -- we're not going to disclose it. It was good. It was a good order intake show for us. And, as we mentioned, we had some good products that were new. You talk about the new RT, some of the encore products, you had the tower cranes, the wind attachment, the GMKs, the 6300 to 6400. I would characterize it as good as other CONEXPOs. So, I mean there was no decrease or anything like that. But, it was good for us.

Okay. Thanks a lot.

And, we will take a question from Seth Weber from RBC Capital Markets.

Hey, guys. Good morning. Just a quick follow-up on Henry's question. Do you feel like CONEXPO pulled orders forward from the second quarter or can you comment on how trends in North America -- the order book has trended in North America thus far into April?

No, I don't think it pulled anything forward, Seth. I think it -- you know, a lot of times people know -- our salespeople and other people know what's going to happen there and people just want to touch it, they want to see it. And, our people have been talking to customers and prospective customers for a long time about these things. And, so the orders are there. Again, the price of some of this stuff is not where they just buy it haphazardly, especially in today's environment. So, I don't think it pulled it forward, I think because -- for instance, the 6300 and the 6400, some of that will ship later this year, the 6400 doesn't ship -- start shipping until next year. So, it's not pulling anything forward, I think it's just a normal position that people have. Sometimes it's just a number of quantities and how far they stretch out. So I -- again, it's a normal show for us and doesn't change the dynamics any.

But, so safe to say that trends have continued into April then?

Well, certainly with CONEXPO, you're not going to have the same number of units you're going to have in April. But, yes, I think it continues to tell us that the worst is behind us.

Okay.

And, I just want to add to these comments that we see also the increase of a parts business. Which, again, is a sign that 2010 was a trough and then we have repeatedly say that parts is a good indicator of what's moving forward. So, we continue to see parts business increasing.

Right. Okay, thank you. And, then, I'd like to drill down a little bit on the Foodservice margin guidance. You're talking about up year-over-year for 2011 which would suggest something like a 15% margin. But, the first quarter was down year-over-year about 250 basis points. I'm just trying to understand -- I mean I appreciate some of the commentary that you gave earlier about some improvements and enhancements but it would suggest the second through fourth quarters have to be up pretty strongly over the balance of the year, year-over-year. So, I'm just trying to understand what you're seeing there that gives you confidence that those margins will be up versus last year?

Well, it's really, the biggest part is, the unusually high margin that we had in Foodservice in the first quarter last year. Given the success of a rollout that we didn't have this year, and the normal seasonal pattern is that you do have some pretty solid quarters in the second and third quarters and then more of a muted type of margin performance in the first and the fourth, just because of the normal seasonal pattern there.

Okay. So, you're not assuming there's any kind of -- you know, you're going to get a benefit from new product introductions or anything like that and through the balance of this year that would juice your margins this year versus last year then? It's just kind of volumes getting better --

Those will always factor into every year, it's just a matter of the calendarization and what is the order of magnitude of that type of activity in any -- comparing any two quarters. But, it's not anything that we can foresee that would be as significant as what we saw in the Q1 comparison.

Okay. I mean just as a -- from a quarterly comparison perspective, do you expect -- I mean, were there any quarters last year that were weak that the comps would be easier this year? Or is it just going to be strength across the board going forward year-over-year? Does that make sense? Just kind of business getting better, better leverage? Okay. All right. Thanks very much, guys.

And, we'll take our next question from Charlie Rentschler from Boenning and Scattergood.

Yes, I wanted to ask another question about the Fukushima disaster, but not your possible role in reconstruction. But, Eric, what the consequences on the industry as people look at -- or relook at nuclear power versus alternatives, what can you tell us? What's going on short-term, long-term in people's thinking in the industry?

Well, Charlie, I think that's -- you can debate that a long time. But, what I would say when this happened, and we had a lot of conversations internally about it, is does it get people to look at more of the renewable energies? Is it wind? Is it solar? Is it water, hydro, all that kind of thing? And, I think a very good response that we had internally is, look if we build nuclear, we're going to use a lot of cranes. If we don't build nuclear and we have to build something else that is in the renewable side, we're going to use probably even more cranes. Because you're not going to get the same effective, efficient energy that you get out of nuclear from some of the renewables. So, it's still going to -- no matter what they do, the thirst for energy worldwide is still going to use a lot of cranes.

Okay, that's helpful. And, I wanted to ask Mike a question about his product portfolio. Do you see anything you'd like to prune out of what you've got, Mike? Or anything that you really long to have, other products? Can you talk about that a little bit?

First, let's talk about the pruning side. I think what's taken place since the acquisition of '08 was some forced pruning and then some selective pruning ending with the Kysor/Warren divestiture that occurred at the very start of this year. Right now, we believe that we're greatly positioned with long-standing brands that are either one and two in their marketplaces. And, where we have twos, we're working on strengthening them. But, by and large, we like the lineup that we have today. There are categories that, as we look forward, and we have more flexibility and more stable environments, that we'd like to add to our current portfolio. In most cases, probably be geographical place that support our emerging market growth or some categories that would be new to us.

Thank you.

Does that answer your questions, sir?

Yes.

He said thank you.

I'm sorry. Alright. Well then at this point we -- I will turn the call back over to Mr. Khail for any closing remarks.

Before we conclude today's call, I'd like to remind everyone that a replay of our first 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 continuing interest in the Manitowoc Company. We look forward to speaking with you again during our second quarter conference call in July. Have a good day.

And, once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.