Manitowoc Company Inc (MTW) 2011 Q2 法說會逐字稿

Good day, everybody. Welcome to the Manitowoc Co. Inc. Q2 2011 conference call. Today's call is being recorded. I would like to turn the call over to Mr. Khail, please go ahead, sir.

Good morning, everyone. Thank you for joining Manitowoc's second quarter earnings conference call. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer; Carl Laurino, Senior Vice President and Chief Financial Officer and Mike Kachmer, President of Manitowoc Foodservice.

Glen will open today's call by providing an overview of our quarterly results and business outlook. Carl will then discuss our financial results for the second quarter in greater detail and will be followed by Mike Kachmer, who will offer insight into the market conditions and recent events in our Foodservice segment.

Following our prepared remarks, we will be joined by Eric Etchart, President of Manitowoc Cranes for our question-and-answer session. For anyone who is not able to stay online for today's entire call, an archived version of this call will be available later this morning. Please visit the Investor Relations section of our corporate website at www.manitowoc.com to access the replay.

Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on July 27, 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 the speakers' 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 Manitowoc 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 will now turn the call over to Glen.

Thanks, Steve and good morning, everyone. The first half of 2011 has played out largely as we had expected. Our second-quarter results underscore the firming demand we are seeing for our products across multiple geographies. In Cranes and Foodservice, we are witnessing pockets of increased confidence across our customer base while some cautiousness remains.

We are also pleased with the balance sales performance across both segments. While we continue to expect growth through the remainder of 2011, the continuing uncertainty in the global economic picture is creating ongoing end-market volatility.

Let me start with a discussion on our segment performance. For the second quarter, Foodservice posted solid results that tracked above the overall industry growth rates. With improved operating efficiencies driving margin expansion, we continue to extend our global leadership position in this business.

Specifically during the quarter, demand in North America and the emerging markets continued to increase. While the marketplace in Europe showed signs of further stabilization. Our sustained focus on innovation and the breadth of our product offering makes us a valued partner in our customers' long-term success.

During the quarter, we completed the successful launch of our Indigo Ice Machine platform, which received a Kitchen Innovation Award at the recent NRA trade show and a Dealer Design award from the newest HVAC publication. We also introduced a variety of technological enhancements for our Merrychef ovens and blended beverage product categories. The combination of our product offerings, existing relationships and global footprint has afforded us significant opportunities to drive continued growth as we move into the second half of 2011.

Moving to our Crane segment, our second-quarter results were solid as we experienced sustained order intake levels, which drove year-over-year sales growth and another sequential increase in backlog. We are experiencing improved quoting activity across multiple geographies and product lines with demand in North America picking up, particularly with large rough-terrain cranes and boom trucks.

We are also experiencing increased activity in Europe, notably in Germany, France, and Switzerland for our tower cranes and all-terrain cranes. And in emerging market, energy and infrastructure projects remains the key sales drivers.

Over the last several years, we have frequently discussed the 7 company-wide strategic imperatives that have played a vital role in strengthening Manitowoc's business segment and better position us for long-term. Last quarter, we discussed our focus on innovation and after market product support. Today, I would like to focus on our growth imperative and, in particular, our strategy of continued investments in emerging markets. We firmly believe this strategic initiative is a source of long-term expansion for our business.

During the quarter, Brazil performed exceptionally well and continues to have a favorable impact on our business. With leading positions in each of our product lines, Brazil is our number one emerging market within the Crane segment. We continue to deliver strong results in this region as our market position and brand strength pay dividends.

The explosive growth in Brazil has been primarily driven by energy and infrastructure projects, as well as various natural resource Industries which we expect will grow for the foreseeable future. To capitalize on the potential of Brazil, we are building a 270,000 square foot crane plant near Passo Fundo, which will initially build mobile telescopic cranes. The project remains on time and on budget for an expected completion in the first half of 2012.

Turning to India, there is significant ongoing development in this market, and we are very well-positioned to capture that growth in both our Crane and Foodservice businesses.

Specifically in the Crane segment, we are replicating the success we have seen in markets such as China with Potain Tower Cranes as being the pioneer in establishing a leadership position. In addition, our manufacturing presence in this region is reaping benefits as we continue to further expand our market position. We continue to see meaningful opportunities for growth to infrastructure projects in the greater Asia-Pacific region, including Singapore, Indonesia, the Philippines, and Australia.

In addition, growth in new restaurant construction by regional and global change remains strong, which further positions us for continued success. Our global distribution, focus on innovation and industry-leading aftermarket product support positions us extremely well, especially in an environment of increased competition.

In addition, with continued higher crane utilization rates and some improvement in rental rates, coupled with early signs of dealer restocking, we believe the year is not only shaping up as we expected, we believe these trends suggest stronger growth opportunities as we look into 2012.

As I mentioned earlier, and with any transition year, our customer base across both segments remains cautious, but increasingly more confident. In addition to managing our business through uneven demand levels, we have taken proactive steps to counteract increasing commodity costs, evidenced by our recent price increases in the Crane segment and the third-quarter price increase in Foodservice.

Despite general market challenges, we are encouraged by end-market demand as we maintain our first-half growth trajectory, the remainder of 2011, and position our two world-class businesses for accelerated growth in 2012. I will now turn the call over to Carl to discuss our detailed second-quarter financial results.

Thanks, Glen. Good morning, everyone. We reported net sales for the second quarter of $950 million, which is an increase of $130 million or 16% from the second quarter of 2010. The year-over-year increase in net sales during the second quarter was driven primarily by a 23% increase in Crane segment sales, coupled with a 7% increase in Foodservice.

While revenue met our expectations during the quarter, we continue to experience broader-based supply chain constraints in the Crane segment. Despite the solid progress we have made over the last several months, we are still experiencing some limitations with Tier 4 engines that we discussed during last quarter's call, as well as select issues with supply chain deliveries.

Second quarter 2011, consolidated operating margin before amortization was 8.3%, versus 10% in the second quarter of 2010. The year-over-year margin decline was primarily driven by general market pricing pressure, a shift in product mix and commodity cost increases.

In addition, challenging comparables associated with the second quarter 2010 collection of fully reserved accounts receivable in the Crane segment enhanced margins in the segment by over 100 basis points a year ago. GAAP net income for the second quarter was $2.7 million or $0.02 per share, versus net income of $14.1 million or $0.11 per share in the second quarter of 2010.

Second quarter 2011, EPS, excluding special items, was $0.16 per share, versus $0.11 for the prior-year quarter. The second quarter 2011 earnings included costs of $0.12 per share, related to our senior credit facility debt refinancing and $0.01 per share related to European restructuring charges.

Moving to the balance sheet, we continue to focus on working capital management to ensure we maintain an appropriate balance between our ability to meet growing customer demand and our debt reduction goals.

While we continue to target $200 million in debt reduction for 2011, we will not compromise our ability to meet an anticipated increase in demand as we move into 2012.

During the second quarter, cash flow used for operations was $34 million. This was primarily driven by increased inventory for second-half 2011 deliveries and accounts receivable levels from higher sequential quarterly sales volumes. Consistent with our seasonal pattern year-to-date, cash usage was on track and anticipates strong second-half cash generation.

Moving on to our segment results, Foodservice sales in the second quarter of 2011 totaled $395 million, which increased 7% from a year ago. Second quarter 2011 operating earnings in Foodservice were 13%, with $62 million versus $55 million in the same quarter last year. Operating margins of 15.7% for the quarter rose 70 basis points from those in the second quarter of 2010. The year-over-year comparisons was favorably impacted by new products, including the ongoing rollout of the Indigo Ice Machine series.

Moving to the Crane segment, the second quarter sales totaled $555 million, up 23% from $451 million in the second quarter of 2010. The quarter's results reflected continued growth in the Americas region, strong demand in the emerging markets, as well as a strengthening backlog.

Crane segment operating earnings in the second quarter was $30 million versus $39 million in the same quarter last year. This resulted in second-quarter Crane segment operating margins of 5.3%, compared to 8.5% a year ago. The year-over-year comparison was negatively impacted by commodity cost increases and the previously mentioned bad debt recovery in the second quarter of 2010.

Crane backlog at quarter end was $840 million, an increase of $40 million or 5% from $800 million at March 31, 2011, and an impressive increase of $309 million or 58% from the prior-year period. The increase in backlog was primarily due to our third consecutive quarter of strong order intakes. Based on the order levels we have seen during the second quarter and our end-market opportunities, we have increased confidence about our ability to reach our goals of double-digit year-over-year percentage growth in Crane segment revenue.

We also expect improved margins building off of 2010 trough levels, despite the difficult second quarter comparison and a challenging commodity price environment. As noted in yesterday's press release, we are reaffirming our guidance for 2011. Let me now turn the call over to Mike Kachmer to discuss market conditions and recent events in our Foodservice segment.

Our Foodservice segment continues to maintain a very strong position in the marketplace as a leading player in the global foodservice equipment industry. As Glen stated, we experienced increased demand in North America in the emerging markets during the quarter while we also made positive strides in Europe as that market begins to stabilize. Our chain customers continue to drive the largest amount of growth in North America and various emerging markets.

During the quarter, we attended the National Restaurant Association Show in Chicago. Our conversations throughout the event with both new and existing customers confirm the growing level of increased confidence in the industry, further validating our strong position in the foodservice equipment industry.

According to a recent NRA survey, reported CapEx spending by restaurant operators during the second quarter and future CapEx plans for spending by the same group are now at their highest levels than any prior quarter in the past 2 years.

Moving on, let me share with you how one of our recent product launches has been tracking in the market. The Indigo Ice Machine platform recently launched at several events including Natham, NRA and several international shows has been well-received in the marketplace.

As a reminder, our Indigo Ice Machines offer industry-leading serviceability and food safety enhancements all geared toward creating a more reliable and efficient ice maker. We also continue to focus our efforts on accelerated cooking and blended beverages as growing disciplines and categories. We will continue to capitalize on growth opportunities within each of these areas.

Our Merrychef ovens continue to evolve and we have recently integrated new technology enhancements into this product line that will be launched to several large chain customers. In addition, our blended beverage line continues to gain positive traction. One of the world's leading quick-service restaurant chains continues to roll out our blended beverage products into additional markets.

As a key partner in helping our customers achieve menu distinction, we are the only company that offers blend-in cup and blend-in pitcher products. We're continuing the development of our full line of blended beverage equipment and demonstrating to a growing list of prospects, the wide array of smoothie, blended ice and dessert-type beverages that can be produced in this flexible product line. We continue to enjoy high interest in the products from large customers.

Our customers, who include many of the fastest-growing chains and most technologically advanced companies in the world, not only appreciate the flexibility of our equipment, but rely on us for innovations that allow them to enhance their menus, streamline their operations, expand their geographic footprint and reduce their overall costs.

For example, our recent introduction of the Oil Conserving Fryer by Frymaster is enjoying strong interest from leading chains, which realize substantial cost-savings from reduced oil and energy use. And our expanded line of Merrychef accelerated cooking ovens, featuring our Smart Control system, continues to gain more placements in sandwich, convenience store, and supermarket chains.

As we look to the remainder of 2011 and beyond, the Foodservice segment is in a strong position to continue to drive growth by gaining additional market share, embracing growth areas as customers make new investments in their businesses, and leveraging multiple global opportunities as the market expands.

In addition, we are diligently focused on increasing our own operating efficiency throughout the business as we continue to grow in the top line. We are confident and we will remain on track with our full-year expectations, and we continue to see meaningful opportunities for further improvements as we build an industry-leading business for the long term. With that, I will return the call to Glen for his closing comments.

Thanks, Mike. As evidenced by Mike's comments, we continue to see significant opportunities for growth in our Foodservice segment through increasing global demand for our products, as well as opportunities for driving enhanced operational efficiency.

To conclude, the performance results we have shared with you today in the Crane and Foodservice segments are indicative of the significant investments and strategic initiatives we have made positioning us well for long-term success. In addition, we continue to invest new product development and technologies to drive performance in the future.

While we continue to believe that 2011 is a transition year from a risk and opportunities perspective, we clearly have momentum and anticipate that we will continue to build on our strong foundation in 2012 and beyond. Evidenced by the further stabilization across our geographies and increasing demand in emerging markets. This concludes our prepared remarks. Danielle, we will now begin our question-and-answer session.

Thank you. (Operator Instructions)

Our first question will come from Charlie Brady with BMO Capital Markets.

Morning, guys. With regard to the cost -- commodity cost pressure can you give me the sense of what kind of headwind that was on Crane and Foodservice in the quarter? And given the price increases that you've put through, are we going to be covering the raw material commodity cost increases in the back half of this year?

Well, the magnitude is certainly significant, Charlie, for us in the Crane segment in the quarter. It was over $12 million in total for the quarter. The full-year expectation for us on that front is probably fully $30 million. So being a transition year, we will get some relief with the pricing increases that we have announced and it's a greater or lesser degree, depending upon product line and region. But it will certainly help in the back half of the year. And I think the wild card as always will be the direction on the cost side in Foodservice. The impact for us, you know, is probably about $5 million in the quarter. Roughly.

Okay.

And I think it's probably a little bit easier issue for us the last six months of the year in Foodservice.

Just a follow up, on your Crane revenue guidance on low double-digit the growth for the full-year, you have -- first half Crane revenues are up 16%, orders up 56%. It would seem to get to a low double-digit revenue rate for the year, the back half would have to come in 9%, 10% or so. Is that, is your guidance a conservative guidance or are you expecting a drop-off in the second half?

Well, I think the guidance reflects transition year. It is obviously -- you know, we never had an expectation this was going to be some v-shaped recovery. There are a lot of issues around the world as we all know. That creates overall caution on the side of the customer base and as we think about the outlook. But we still need to see some pretty good growth in order to achieve that guidance. Again, given the very strong quarter that we had, over 20% growth that does provide us with increased confidence that we will definitely be able to achieve that guidance level. Whereas earlier in the year it is a little bit more of a wild card.

Charlie, I think to Carl's point, I think when you look at the first quarter, you look at the second quarter just those two alone were two different types of quarters from just a confidence standpoint in the end markets. And so to change any of the guidance, given where we sit here today with North America being a big part of that so far right now, what is going to continue to happen in North America when you have all of the political things going on? You have some of the things that are happening in Europe. I think it's a matter of -- I think that there is some cautiousness, as we have used that word in there. Is there an opportunity for some upside? Perhaps, but I think it's kind of silly for us to go and create a different expectation right now for the full-year, given where we sit and looking at where we're at now 6 months into the year and wondering what is going to happen in certain markets for the rest of the 6 months.

Next in queue, we have Seth Weber with RBC Capital Markets.

Thanks. Good morning, everyone. Is it possible to quantify with the price increase that you put through in both the Crane business and the Foodservice recently?

Low single-digit percentage increase.

For both categories?

Yes.

Okay. And I guess can you help us understand what it is in the Crane backlog at this point? How would you characterize the pricing of the orders that are in backlog? I mean, are the orders that have been in there for a quarter or two relatively lower-priced and then the orders that you took this quarter have new pricing? Or how should we think about that?

Yes, Seth as you know, we don't reprice backlog. We have not done that historically and we are not doing that in this instance. So there is a -- part of the reason for my answer to Charlie's question was that there is a lingering impact, from a margin standpoint, that comes from that price commodity equation that will continue to affect us in the back half of the year. The duration of the backlog in aggregate is probably 5 months or so at this stage of the game.

Okay.

And so we'll get that burned off and, obviously, there is some activity that is ordering ship within quarter and certainly within the 6 months that are left in the year.

Seth, the price increases were effective July 1 for Cranes and August 1 for Foodservice.

Okay, that is helpful. Are there -- I know you don't reprice the backlog, but are there escalators with any of those contracts or they are basically just done at the time you sign the deal? That's -- it is what it is.

Generally just done at the time of the deal. There is very select type of orders where we would have an ability to revisit price if it goes beyond an index level and then obviously the customer can step away from the order as well. But by and large, that vast majority is a fixed-price.

The next question will come from Robert McCarthy with Robert W. Baird.

Good morning, everybody. I wonder if we could gain a little more visibility from you on the supply chain issues in the Crane business. You mentioned lingering issues with Tier 4 engines. My memory is that your issues had been really software associated with the engines and less availability. Are you talking about availability now and how much did this constrain Crane revenue in the quarter?

Well, I will speak towards the actual issues, Rob, and you're right. It is on some of the software as you marry up the engine with the rest of the components, you know, that operate the crane. So, there's the complexities there. What I would give our team a lot of credit for is with some of the new reliability and quality initiatives that we have put in place, typically, I would say in the past, maybe we would have made a fix and we would have put the crane out in the field and we would have found a different problem.

Now, every time we make an engineering fix, we put it through a number of different tests, including the number of hours that it has to spend in tests. So you can -- you are trying to get all of the bugs out within the factory as opposed to getting them in the field. Some of it is our own internal processes to make that happen, and I would locate it to some of that with a Tier 4. It is not the engine itself, but there are some other constraints, whether you get into Europe or you stay here in North America, when it comes to whether it is electrical components, or certain motors or it is some chassis. It's getting to be just a few things, but it's kind of a nemesis on certain areas. So, we're working through that.

What the impact is on the quarter and I will let Carl mention -- speak to that.

As it relates to, that issue, you will recall, Rob, we did talk about Tier 4 as a constraint to the Q1 revenue and we framed that at about a $50 million constraint in Q1. We solved it and we got those shipments out. They did benefit Q2. So as we talk about other supply chain issues here now, it didn't outstrip that $50 million calendarization benefit we had. So, depending on how you look at it, there really was not a benefit, if you look at supply chain overall in the second quarter by itself.

You're saying it -- you basically offset any issues you had in the quarter by catching up on the first. And it was, you know, net sort of neutral, is that right?

Exactly.

Okay. My other question had to do with the second half outlook in Foodservice, Mike. You have a price increase coming through. You have the Indigo launch complete. I would think that would involve, you know, a little bit of backlog that would have been built up that you're working off. You have invested to build your presence in Asia and the advance of some new business launching, I believe. And so -- I mean if I add all of that up in factoring in market uncertainty, the kind of thing Glen's talking about, shouldn't we still be expecting to see stronger year-on-year growth comparisons from Foodservice in the second half of the year?

Rob, the general momentum overall, including all those factors that you cited, remains positive. In some cases, all we're seeing is pausing, not stopping. The new initiatives that we're rolling out. But the general momentum remains positive in all geographies and across most categories at this time.

The next question comes from Ted Grace with Susquehanna.

I was hoping to come back to the Crane margin question. In Glen's prepared remarks, it seemed like he said you know, pricing has been challenging, mix was an issue and then commodity. I didn't know if those were intended to be force ranked, Carl obviously led with commodity, focused on commodity and talked about a $12 million hit. But if we back out the one-time item last year, operating profit down $1 million on $103 million of incremental sales, could you bridge the rest of this and help us understand kind of the dynamics?

A, what happened with the pricing in the quarter and also mix? Because I guess we are under the impression that the strength in backlog over the last two or three quarters has been in RTs and boom trucks, which would be above-average products. And some of the higher margin products like tower, you know, haven't really done much. So, we would have anticipated better mix. But if you could help us kind of reconcile those issues that would be great.

I would, Ted. Good morning. I would just -- I'll speak to the pricing side of it and then let Carl get into some of the other details. On the pricing side, it is competitive. You have people still working off a lot of production, inventory and things as we come out of the what we believe 2010 being the trough. So, there are deals. I mean, you can look at other comparisons to competitors we have in this industry and I think you're hearing the same thing. And so I would say probably from a margin standpoint, it is probably 100 basis points of pricing in the second quarter.

And so there are certainly things we will do, and there are certain things we won't do. But I would say that's the competitive pressures that everybody has as we are coming out of the downturn. That is why you look at what do we have from an aftermarket standpoint, what are the efficiencies in the lean and in the operation side we're trying to bring through? Again, some of the things that we're doing are benefits that you will see just like we do in every other upturn, but sometimes the cost, obviously, can get ahead of the initiatives that you have on the savings side. So with that, I will let Carl bridge some of the others.

I guess the really only other key one that I would point out other than the pricing, the commodity issue that we have already talked about, and the receivable issue that we have already talked about is engineering expenses, probably about 50 basis points for us, driven by some innovation initiatives that we have.

Okay, so just as we do think about mix, product mix, should we think about that being a neutral impact? You know, modest tailwind, modest headwind?

In the year-over-year?

Yes.

Not a significant impact.

Well, I want to add something Ted. We have seen our order intake for all-terrain cranes improving very significantly since Q4 last year, and that trend is continuing. We had a very strong order intake actually in Q2 for all-terrain cranes, and so that is going to [chew] a little bit of the mix as well as we start shipping all those cranes.

Ann Duignan with J.P. Morgan.

Hi, good morning. I just wanted to focus on the new orders for a second. While seasonally we would anticipate new orders being done Q2 to Q1, I am just curious about your opening comments. You mentioned that there is a lot of volatility out there in your customer base and then when we look and we see new orders down. Would you have expected new orders to have been a bit stronger? Are customers quoting and asking for pricing but not committing? Is there any hesitancy like that going on in the marketplace, either in Cranes or Foodservice?

No, Ann I think there is -- well, you throw the last comment in about Cranes and Foodservice, I think it's very robust. The quoting activity that we have worldwide is very good. But I think that uncertainty that we watch for is just a simple -- people don't know where the economy is going. Whether you -- and I know Mike and Eric, myself, travel a lot of different customers. People have wants and they have needs, and they have the cash to buy some things. But, they're sitting on their hands and they are watching whether it's in foodservice or cranes. But I don't think it's so much that the business isn't there. I think people are just delaying some of their decisions.

And so, to be down seasonally the way it is, I don't think is a real concern for us. But I think that is something we watch on a weekly basis. And I think we're comfortable, by -- again, continuing with some of the guidance that we have for the year I think gives you the indication that we're okay with what we have. But I don't think it's so much that the work is not out there but a lot of it is just people are delaying the decisions, whether it's in Europe or whether it's the United States. What we are seeing though in a lot of the new products, both on Foodservice and Cranes, those are creating a lot of interest and that gets a little bit to the mix issue we that we just talked about with Ted.

You will start to see some changes there because the new products are -- you see more on the Crane side. It's more capacity-driven, it's the larger cranes, and so you have fewer of them. But typically the margins are better. And then on some of the new products in Foodservice, obviously expanded margins there. So I don't think that we're all concerned about what happened in the second quarter. But we certainly want to watch, with eyes wide open what is going to happen in the third and fourth quarter.

Okay, that is good color, I appreciate that. Just one follow-up question. $12 million, Q2 Crane headwind from input costs, $30 million for the full year, what was it in Q1, please or what will it be in half 2? Is it the full $18 million in half 2 or was there headwind in Q1 also?

There was some headwind in Q1 as well, but it was not as pronounced as it was in the second quarter.

Can you quantify it or can you give us a back half headwind?

I don't have that in front of me, Ann, I'm sorry. But I will get back with you on that.

Okay. No problem. That is just really for modeling. I'll get back in line. Thanks very much.

Next we'll hear from Henry Kirn with UBS.

Hi, good morning guys. With all the concern about growth slowing in China, what can you tell us about what you saw there as you went through the second quarter? And how did your Crane sales in emerging markets compare to last year overall?

I'll speak to the market stuff then let Eric talk a little bit about that, if he wants. But I think where you're seeing it is mostly in some of the light construction equipment for us, it's more of the truck cranes. The slowdown in China, a lot of it is directed towards the commercial and residential type construction. The energy and infrastructure power is still very active, so what we did is we did see a slowdown in the truck crane, the joint venture we have. Not pronounced, but certainly slowing as opposed to growing what it did last year. But the comparisons year-over-year from a revenue standpoint, I think it's marginal from what we saw at the same time last year in the second quarter. Eric, do you have any comments on China's market?

No, that is the second or really the third month in a row that we see that slow down. I think every manufacturer in construction equipment I've seen the slowdown. [Can be] healthy to see that kind of slowdown for what it is. I think some other emerging markets, like Vietnam has taken the same type of major [throughput] inflation to control. I think that is also unhealthy measures. But overall again the emerging market outlook is still pretty good and I think we continue to overall foresee an increase in our sales in the emerging market versus last year.

I think that I mentioned in my comments if you look at the greater Asia Pacific with Singapore and Australia, and Indonesia, I mean, that has had some significant growth year-over-year from last year.

Yes and with India continuing to grow for us and especially on towers as Glen mentioned in his earlier comments, I mean, we are already reaping the benefits of being the first manufacturers really producing towers in India. And now expanding distributions, really, we see very good results -- we are pleased with that.

That is helpful. And on the Foodservice side, as the CapEx plans are improving could you talk about how much of that is new investment because of the customers having increased confidence and how much of that is the return of pushed off replacement demand that was delayed during the downturn? Thanks.

It is difficult to put a precise percentage on it because in some cases it's going through multiple layers of distribution. But I think it's a fair split between the pent-up demand that's resulting in replacement sales, coupled with very strong interest in new rollouts associated with either a new store or a new category. So, very balanced and I think fairly balanced across the geographies that we serve as well.

Yes Henry I think that you go back to what we have shown in many of our presentations. Over 55%, 60% of the business in the Foodservice side is replacement business, and I think those trends, you know, continue to hold water.

Our next question will come from David Wells with Thompson Research Group.

Good morning, everyone. I guess first off, just looking at the free cash flow generation year-to-date -- use of cash of close to $200 million and given your debt reduction targets for the full year, it implies some pretty hearty acceleration in free cash flow generation in the second half of the year. Just looking at the balance sheet, can you walk us through some of the opportunities there especially given your commentary about wanting to maintain the right amount of inventories to have in place for likely continued acceleration in revenue growth next year? I guess that I am just not seeing a lot of leverage to pull to generate that kind of cash flow.

I think, David, if you were on the calls last year at this same time, it's the same thing. We had pretty aggressive goals last year and we sit in the same position again today. But I'll let Carl give the specifics, but the biggest one is just some of the timing that we had versus what we thought and mostly from an AR standpoint. When you look at the way we set our targets initially, and you look at how some of the revenues were generated during the quarter, I think it's just a matter of the air of collections that they're-- that's an easy lever to pull. And that is one that is just a normal activity.

I know you can't see it by just looking at one piece of paper, but that is the simple one for us and there are big opportunities there. There are not bad receivables, it's not that, it's just that's what it is at the end of June. So Carl, I don't know if you have any different comments.

No I think that states it well. The firming of the business, the expectation for 2012 and the calendarization of all of that certainly does put pressure on the target that we still have in front of us of $200 million. We recognize that that is a lot of cash generation in order to get there. That has been our normal seasonal pattern for cash generation, is to generate a lot in the second half of the year. We expect to be able to do that this year, but to some extent it does -- to the extent that we might not be able to achieve that target, it would be for a good reason. That the business was actually stronger than we expect. The levers themselves really are a function of what we can do from a turn perspective in both the AR and the inventory working capital that we have. And we think that opportunity certainly does exist.

That is helpful. And if I look at consensus expectations for 2012, you were seeing implied incrementals in the 25% to 26% range which would certainly be a pickup from this year. I guess as you think about the business model, are we reaching an inflection point where we should see an acceleration in the incrementals? Or if we look -- if 2012 ends up being similar to 2011 where it's kind of a tepid growth environment here in the developed markets, certainly maybe some upside in the developing markets, do the incrementals look more of the same or is that the right way to be thinking about the future of the business?

It is a good question and certainly haven't provided any 2012 guidance at this point in time. But as we looked at 2011 I think it is playing out exactly as we expected it to given the condition of the macro economies that we're dealing with and the late cycle nature of our crane business, almost exactly as we expected. Pretty significant pressure on margins in Cranes in 2011 in particular and some pretty good performance on the Foodservice side given that 2010 was already a growth year for us in Foodservice. It is playing out in exactly that manner.

The commodity cost pressure can be a double-edged sword for us. Because when we've got a lot of cost pressure on us on the commodities side it probably bodes well for the opportunities for us on the crane side. And that hopefully will play out to your point we'll have a return to normalcy from an incremental margin standpoint in 2012. But a lot of it will depend upon the shape and the firming of the demand levels in order to be able to perform at the historic incrementals that we've been able to achieve.

Great, thank you.

The next question will come from Jerry Revich with Goldman Sachs.

Hi, good morning. Mike, can you talk about the margin structure of the Indigo product line relative to the prior ice machine product it's replacing? Particularly, once you are at a full production rate there?

No, Jerry we don't provide specific product line financial information. But I think if you look at the track record of Manitowoc over a period of time, given our engineering initiatives and the innovation that we put into the product, we tend to do pretty well from a margin perspective on any new product that we introduce.

And, Carl, on the Crane side in the prepared remarks, you highlighted strong orders across the crane markets. I'm wondering if you can rank order for us which regions saw the strongest year-over-year order improvement and also touch on whether you expect the same regions to drive growth in bookings in the back half of the year based on inquiries that you're seeing?

We'll let -- again, to your point, we're seeing strength in many areas as we have already talked about the emerging markets and Eric just mentioned that. But I'll let him talk about specifically where the orders and what his feel is for where they come in the back half.

Right. We expect definitely continued strength in North America and we have seen a lot of strength in rough-terrain cranes you've heard that before. Boom trucks is also a product line where we see significant strength. It's not coming from housing obviously, because housing is still in a [recovering] mode. But we see a lot of coming from the oil and gas explorations, utility and maintenance, railroads. And also large rental houses, obviously renewing and refleeting because their equipment is aging.

So, North America and Canada seems to be good. We have to watch, obviously, [this isn't entry] but the retailing activity from what we have seen has been fairly good until now. So, North America and Canada is kind of a [one comp] because if you look at what is happening in the market, the ENC backlog is very strong and continues to be strong on one hand. You have also, the unemployment obviously in the construction is declining, which is kind of a good sign. On the [other hand], you have some risk in the [boom truck] index -- which is down, so it's a mixed picture. But overall, we think that we should continue to track well enough in North America.

Emerging markets should continue to be a good story and we see Europe, again, we -- in the commentary we say that Germany, France, and Switzerland are doing great and we see some kind of recovering that our cranes [are based] from a very low level.

Okay. I appreciate the color and I am wondering if you can talk about how orders shaped up over the course of the quarter? And in response to a prior question you mentioned there's some anxiety around sovereign credit risk. I wonder if you could help us on how that shaped up in terms of booking levels over the past couple of months.

You see what the order rates are that we disclosed, but I would say with respect to the sovereign credit risk, I mean Spain, Italy they have been down and they are still down so there is not a lot of risk to what we have seen. Really as Eric just mentioned whether it's tower cranes or ATs or RTs in those areas it is coming from such a low level that it's more upside than anything so there is really -- that risk is baked into everything that we have already talked about.

Next we'll hear from Joel Tiss from Buckingham Research Group.

I just wanted to go a little further on that, can you just sort of -- instead of talking about which end markets are good, you can give us a sense under the covers there, is the equipment wearing out or did the fleets cut their cranes too far or are we seeing capacity expansion? Can you just sort of give us a sense of what is driving it? What is driving crane demand?

Again, we have talked about the transition to the larger-type capacities and that is what is driving some of this and its new products. You look at the -- on the AT side, the 6300, you look at some of the towers that we have introduced. I think you have a lot add in and at the same time, there were a lot of fleets that were -- the aging of it. A lot of the crane rental fleets in North America they sold off during the downturn and so you see a little bit of replenishing there. But we have also talked about the destocking. So I think there's -- it's a broad spectrum of where this is coming from. Another example I would give, as Eric mentioned on the boom trucks. You know a 50-ton boom truck that wasn't around two years ago. There weren't 50 ton boom trucks. And those are going into the mining or the oil and gas and that kind of thing. Eric, I don't know if you have any other further detail on that or comments?

I would say one market, which has been down in the US over the last two years was the wind and an actual fact the first quarter, you have seen more than 1,000 megawatt of wind power and spread across 12 states. And that is an end market, right now, as an OEM, we do not benefit right now in terms of additional sales because you had a lot of machines [being idle] and the 16,000, which is really well suited for that type of market now is imprudent. We see really positive trends in the wind there and the forecast for this year is 6,000 to 7,000 megawatt and it's anticipated it's going to be the same in 2012. So that part of the market should obviously see some demands definitely from the [rental houses] first, but later we should benefit from that.

Okay, yes, I'm just trying to get a sense of how the demand flows, even if we stay in this kind of slow grinding recovery. And then can you just talk a little more about the pricing that has been put in place and is that the way things look today is that enough to offset a potential negative price cost in 2012 in the crane business also?

If you look at where we're at today and you go out for the next 6 months and you take the first 6 months if you go out 12 months, yes that's -- we feel that is adequate but I think it's -- again, some of the things, if you go back to prior recoveries, the cost side typically gets ahead of this. It gets ahead of the revenue side and where you tried to get ahead of it and there was some opportunity in prior upturns, you have some different competition now that is keeping things, a little -- I think the pricing a little less advantageous. So that is why we come out with the new products.

I think when you look at whether it is Foodservice or Cranes, as Carl mentioned, when we are coming out with new products you do cannibalize a little bit of what the former product was but once you get through that inventory and you get into the new product, obviously we're bringing out things with higher margins than what we have had in the past, whether it's a simpler machine or whether it is more efficient, easier to produce. I mean it goes from the whole supply chain through the end market.

So I think the pricing we have is adequate and, again, just like we said before, we're not the cheapest and we will try to be leaders in this area. What competitors do is their own decision, but I think we have made some pretty good decisions, we have looked at the markets. Again, one thing I would like to say about Foodservice is was not across the board an average, Mike and his team have done a really good job to stay in some places that might be 2% or nothing but other places it might be 7% or 8%. So we gave you what the average number is, but they really took a hard look at some areas that we had opportunities.

We have a question with Ben Elias with Sterne Agee.

Thank you, good morning. A couple of questions. You know, a couple of months ago you mentioned that even with a higher run rate on the Crane side, your margins will be a little low because of the investment you are undertaking. Could you just quantify the dollar amount of the investment and what the margin impact is and when that rolls off? Will we see a margin benefit in 2012 and on?

I think the -- unless there is other investments that maybe Carl has talked about, the investments we're talking about are in the emerging markets. It's Brazil, it's India, it's the things we have done in China, it's Slovakia, Italy -- I mean, those things don't roll off. Some of those are permanent investments. You look at the innovation. It is bringing some of the people back. It's some of the austerity measures that we brought back in. They don't roll off, Ben, they will stay there. So, it is our -- that is up to us to one, if whether it's pricing or taking costs out in other areas. But those certainly are not going to roll off and so it is a matter of volumes and taking costs out and bringing new products to market. That is the same thing you have seen forever.

Okay. Thanks. On the Foodservice side I guess the smoothie machines, your exclusivity deal with McDonald's has ended and I think they're looking to roll out the concept outside the US by the fourth quarter. I think that you are in talks with a lot of the other quick serve and casual dining competitors. Could you just elaborate when these rollouts are and the size of the market? What can we expect in the latter half of the next year with this one particular product that you have?

First of all, we're not quantifying the forward opportunity. We're talking about it in a qualitative sense and it is a very positive situation. And we are having multiple conversations with large chain customers around the world and, really, about both machines. We are the only supplier of this type of product category with two variations. We have the blend-in-pitcher concept which was rolled out in North America. We also have a blend-in-cup version that is really getting a lot of interest from all customers, including the one that rolled out the blend-in-pitcher machine last year. So we think the market potential is very large. It is still gaining momentum. We think it has multiple years of duration and we're capitalizing on that momentum.

The other thing to remember about rollouts, Ben, is that you're always going to have varying degrees that occur in any given quarter that will create some noise from a year-over-year comparison standpoint. And It is really difficult for us to just throw out a number there about an opportunity, because you have to remember that there might have been things that occurred historically that were driven by a single product rollout that creates a lot of unit volume in a short period of time.

Ladies and gentlemen, that is all the time we have for questions today. I would like to turn the call back to Mr. Steve Khail for any additional or closing remarks.

Thank you, Danielle. Before we conclude today's call, I would like to remind everyone that a replay of our second quarter conference call will be available later this morning. You can access the replay by visiting the Investor Relations section of our corporate website at www.manitowoc.com. Thank you everyone for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again during our third quarter conference call in October. Have a good day.

Again, ladies and gentlemen, that is the end of today's teleconference. Thank you for your participation, you may now disconnect.