Manitowoc Company Inc (MTW) 2011 Q4 法說會逐字稿

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

Good morning, everyone. Thank you for joining us today as we discuss Manitowoc's fourth quarter earnings and our outlook for 2012. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer, Carl Laurino, Senior Vice President and Chief Financial Officer, Mike Kachmer, President of Manitowoc Foodservice, and Eric Etchart, President of Manitowoc Cranes, who is joining us from our offices in Paris.

Glen will open today's call by reviewing our 2011 accomplishments. Carl will then discuss our financial results for the fourth quarter and provide our initial guidance for 2012. Then our segment Presidents will offer insights into the market conditions and outlooks for their Businesses in 2012.

For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 February 1, 2012. 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 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'll now turn the call over to Glen.

Thanks, Steve, and good morning everyone. We are pleased to report strong fourth quarter results that marked an end to what was truly a transitional year for Manitowoc in 2011, culminating with impressive year-over-year sales growth of 25% in the fourth quarter. Despite some unexpected turbulence during the year, our focus on execution, coupled with continued progress against our strategic initiatives, helped us reach most of our full year 2011 expectations.

In fact, both of our industry-leading businesses delivered higher year-over-year sales and operating earnings, a testament to our ability to navigate an increasingly uncertain global economic environment and fluctuating demand levels that lingered across our markets for a large portion of the year.

Looking at our segment performance, Foodservice continued on its stable and consistent trajectory during the fourth quarter, posting year-over-year sales growth while maintaining healthy margins. Contributing to the positive performance was the market success of our Merrychef ovens and Indigo Ice Machines which were launched earlier in the year. The combination of our product offerings within Foodservice, leveraging existing customer relationships, and a diverse global footprint has afforded us significant opportunities to drive continued growth in this segment as we move into 2012.

In our Cranes segment, the fourth quarter represented the highest year-over-year sales growth since 2007. We also experienced strong order intake levels in the quarter, which will further contribute to our growth as we look ahead.

In terms of geographic demand levels, the fourth quarter was similar to previous quarters with the largest increase in demand occurring in the Americas region, complemented by stronger activity in select emerging markets and the greater Asia-Pacific region. We are encouraged by the activity levels in the fourth quarter which underscore our belief that we will see continued growth in 2012.

Turning to the new year, our seven Company-wide strategic imperatives remain unchanged. Over the last 12 months we have spent a fair amount of time providing detail on these initiatives, specifically around innovation, growth, after-market support, and operational excellence. As we close out 2011 I want to quickly touch on our customer focus imperative which remains critical to our positioning in the markets and is a key ingredient for our long-term success.

For example, Project One remains a key initiative in Cranes. While we had curtailed this ERP initiative during the recent recession, this vital project ramps back up to full speed in 2012 with a team of seasoned individuals that will launch implementations for our Crane facilities in Brazil and France, complemented by a global launch spanning our Crane Care operations. In Foodservice, we will open new test kitchens in India and Singapore to support our customer growth aspirations in these key emerging regions.

In support of our strategic imperatives, I want to highlight a few additional initiatives as we move into the new year. First, our new 225,000 square foot manufacturing facility in Brazil, which is expected to begin production by mid-year, will position us well to support the broad-based opportunities throughout Latin America.

Consistent with our first mover advantage with Tower Cranes in China and India, Manitowoc will be the first global Crane manufacturer to produce Rough Terrain Cranes in this part of the world. Innovation continues to be a primary focus across the enterprise, as evidenced by the 12 new Crane products and 50 new Foodservice products in 2011. That said, we continue to work diligently to offset select competitive pressures in areas such as product cost take-outs and factory efficiencies.

For example, we recently introduced a new Crane design with 1,400 fewer parts than its predecessor. These aspects of the business, coupled with our technological improvements, quality initiatives, productivity enhancements, and after-market product support, will continue to be competitive drivers and key components of our strategic emphasis.

Lastly, we remain focused on improving the strength of our capital structure. We have a much stronger balance sheet today as we have repaid over $1 billion of debt since the Enodis acquisition. As a result, our debt to EBITDA ratio has improved by more than one turn of leverage.

This, coupled with the refinance of our bank credit agreement in May, provides us with the flexibility to make the necessary investments in our business and pay down debt as we sustain -- as we drive sustainable long-term growth. In conclusion, 2011 paved the way for continued success in 2012, as we look to capitalize on activity driven by large infrastructure and energy projects in Cranes and momentum from new product launches in Foodservice.

Our proven history to manage the Company through all business cycles positions us extremely well as we move into an expected growth environment in 2012. I will now turn the call over to Carl to discuss our detailed fourth quarter financial results and to share our thoughts on initial guidance for 2012. Carl?

Thanks, Glen, and good morning, everyone. Yesterday we reported net sales for the fourth quarter of $1 billion, which is an increase of over $204 million, or 25%, from the fourth quarter of 2010. The year-over-year increase in net sales during the fourth quarter was driven primarily by a 40% increase in Crane segment sales, coupled with a 2% increase in Foodservice.

Fourth quarter 2011 consolidated operating margin before amortization was 6.4%, versus 7.3% in the fourth quarter of 2010. The year-over-year margin decrease resulted from market pricing issues, material cost increases, equity compensation costs, and a challenging comparable in Cranes, partially offset by favorable product volume benefits.

GAAP net income for the fourth quarter was $15.3 million, or $0.12 per share, versus a net loss of $66 million, or $0.50 per share, in the fourth quarter of 2010. Fourth quarter 2011 EPS, excluding special items, was $0.14 per share, versus $0.10 for the prior year quarter. During the fourth quarter, we posted cash flow from operations of $196 million, versus $157 million in the prior year quarter.

Our cash flow from operations was impacted by higher working capital needs to support increased Crane activity. Looking into 2012, we will remain focused on meeting our cash flow targets as we continue to prioritize debt repayment while also funding strategic growth opportunities.

Moving to the balance sheet, we reduced our debt by $212 million during the quarter, bringing our full year debt reduction total to $140 million. We continue to manage working capital to ensure we maintain an appropriate balance between our ability to meet growing customer demand and our debt reduction goals.

Turning to our segment results, Foodservice sales in the fourth quarter of 2011 totaled $347 million, a 2% increase from a year ago. Fourth quarter 2011 operating earnings in Foodservice were $45 million, up 13% from $40 million in the same quarter last year. Operating margins of 12.9% were 120 basis points higher than fourth quarter 2010, driven by lean initiatives, product mix, and scale economies.

Moving to the Crane segment. Fourth quarter sales totaled $688 million, up 40% from $491 million in the fourth quarter of 2010. This quarter's results reflect continued growth in the America's region and stronger demand in most emerging markets.

Despite the positive momentum experienced in the fourth quarter, we continued to experience broader based supply chain constraints in the Crane segment. As we announced in December, our quality assurance program identified an issue with a specific hydraulic component, which in turn delayed the shipment of some Crane products into the first quarter of 2012.

Our fourth quarter results were in line with our expectations to remediate this issue and we expect all pent-up shipments to be made this quarter. Overall, Crane segment operating earnings in the fourth quarter were $40 million, versus $31 million in the same quarter last year. This resulted in fourth quarter Crane segment operating margins of 5.7%, down 50 basis points from fourth quarter 2010 margins.

The year-over-year comparison was positively impacted by the higher sales volume but fully offset by material cost and production inefficiencies due to the previously mentioned supply issue. Also, fourth quarter 2010 Crane margins benefited from an approximate $5 million inventory revaluation. Crane backlog at quarter end was $761 million, which grew $189 million, or 33%, compared to a year ago.

This was driven by higher order activity throughout 2011 including new orders of $676 million during the fourth quarter, our highest level since the third quarter of 2008. Before concluding my remarks, let me discuss our 2012 outlook. For the full year, we expect Foodservice revenues will grow in the high single digit range and year-over-year operating earnings will increase 10% to 15%. In Cranes, we expect a 10% to 15% year-over-year revenue growth.

We anticipate a benefit from our dealer network in North America in the first half of the year as they prepare for year-end market recovery as the year progresses. As a result, our full year Crane operating earnings are anticipated to grow 30% to 40% over the prior year, while also exhibiting more normal seasonal characteristics.

Our 2012 financial expectations include capital expenditures of approximately $80 million, depreciation and amortization of approximately $120 million, and interest expense reduction between $25 million and $30 million, plus a debt reduction target range of $150 million to $200 million which should reduce our debt to EBITDA by approximately one additional turn. Let me now turn the call over to our next speaker, Mike Kachmer, who will share his thoughts concerning our Foodservice segment, Mike?

Thank you, Carl. 2011 was a promising year for our Foodservice segment, driven by our diverse customer base that includes many of the fastest-growing and most innovative companies in the world. Our customers, who operate in more than 100 countries, come to us for solutions that allow them to improve their menus, enhance their operations, and reduce their cost.

Our long-term vision and strategy continue to take shape enabling our teams to execute on our most critical priorities. From a financial standpoint, our fourth quarter results were solid. Our sales growth was balanced across all markets and geographies and was coupled with year-over-year margin expansion.

From a geographic perspective, North American demand rose during the fourth quarter, primarily driven by our large US chain customers. In addition, demand in the emerging markets, notably China, continued to increase at the end of 2011. We will further deploy resources into that region as domestic customers seek international growth, primarily through new store expansion, as well as new menu initiatives.

In fact, one key initiative for 2012 is the creation of sub-regions in our emerging markets that will result in greater focus and accelerating growth. Specifically, we carved out southeast Asia from north Asia while also investing additional resources in Africa, the Middle East, India, and Latin America. Overall, we believe creating these sub-regions fits our strategy, supports our continued investment in the business, and enhances our trajectory for growth and improved profitability.

In 2011, our investments in new product development and innovation yielded approximately 50 new products including our Indigo Ice Machine platform which received a kitchen innovation award at the NRA trade show and a dealer design award from the news HVAC publication. We also introduced a variety of technological enhancements for our Merrychef ovens and blended beverage product categories.

In addition, our oil conserving fryer by Frymaster continues to gain market share from our leading chains which realize substantial cost savings from reduced oil and energy use. Looking into 2012, our product launch initiatives remain compelling, as we continue to invest in all categories and brands, with specific focus on ice machines, beverage, oil efficient fryers and accelerated cooking products.

The combination of our product offerings, customer and channel relationships, plus an unrivaled global footprint provide significant opportunities to drive additional growth. This year we will also continue implementing lean disciplines to enhance operating efficiencies and create state-of-the-art manufacturing processes.

Our actions on this initiative have been a catalyst behind our results since acquiring Enodis, which has included the closure or sale of five facilities in Europe, the consolidation of three facilities in North America, and one in Asia. While market get pressures remain, we expect moderate growth entering 2012, which will be achieved by gaining market share from our competition with our Best-in-Class brands, embracing key growth areas as customers make new investments in their businesses, enhancing our green sustainability initiatives, and leveraging multiple global opportunities as the market expands.

With that, I'll now hand the call off to Eric Etchart for his views and outlook on the Crane segment.

Thank you, Mike. Although we classified 2011 as a transition year, we made significant progress in the fourth quarter with strong order intake and impressive year-over-year and sequential revenue growth. As Glen highlighted earlier into this call, we experienced strong activity in the America's region, as well as higher demand in emerging markets in the greater Asia-Pacific regions.

As we have seen over the past few quarters, demand has been driven by energy and infrastructure projects, which should continue for the foreseeable future. We also continued to experience weakness in much of Europe and slowing growth in China. From a product line perspective, large rough terrain cranes and all terrain cranes were contributors in the quarter.

In addition, boom trucks in North America were strong, which was driven by new product introductions. Power crane activity remained high in emerging markets and parts of the greater Asia-Pacific region. And, consistent with our views, Crawler Crane's activity continued to remain relatively soft during the fourth quarter.

During 2011, we introduced 12 new Crane products, including the Yaguchi 130 Tower Crane, the Grove [RT9150] Rough Terrain Crane, and the National NBT 55 Boom Truck. We expect to see the benefits of these new products throughout 2012. In addition, we will announce even more products, more new products in the coming year to maintain our innovation initiative and to enhance our competitive position globally.

We firmly believe these new products would be a great investment for the company in terms of quality, reliability, and technical features. On that note, during 2011 customers started to recognize the quality initiative we started roughly three years ago, as our Lean 60-Mile principal drove improved quality and product reliability, as well as greater operational efficiency to help reduce waste, improve lead times, and become a more efficient and profitable business.

As a result of these initiatives, our market share for rough terrain Cranes continues to improve and is now at record levels, most notably in the America's region. Building on that success, we have recently opened a product verification center in Shady Grove. This new facility not only accelerates our speed to market for new products, but will improve our product quality metrics and provide quicker validation of new electrical, hydraulics, and mechanical systems, while also reducing our warranty expense and creating greater customer satisfaction.

Moving on, I want to briefly touch on our Crane Care business, our after-market strategic imperative, as we firmly believe that Crane Care is, and will remain, a key differentiator for Manitowoc. To enhance our current platform, I am proud to say that we recently opened a new call center in India, in Pune, which now brings our call center network to six locations. Each call center is staffed and equipped to provide a full range of service and support solutions for all models of Manitowoc, Potain and Grove cranes.

Crane Care's success was even more evident in the fourth quarter, as our solid year-over-year improvements were driven by more cranes going back to work and customers ordering more spare parts. We believe 2012 will be another year of growth, driven by new product introductions, solid growth in various emerging markets, notably South America and greater Asia-Pacific, coupled with good activity throughout areas of North America.

Despite some general market weakness, particularly in Europe, our sound and strategic focus through all stages of the economic cycle will continue to drive performance and profitability for the Crane business. With that I'll return the call to Glen for his closing comments. Glen?

Thanks, Eric. To conclude, when you look at our strategic accomplishments through what was a transitional year, it is clear that we have the right strategy, the right infrastructure, and the right people in place to drive long-term growth and success. And, we will continue to do so throughout 2012.

We have proven our ability to manage through the cycles. Even with the momentum gained at the end of 2011, a challenging operating environment still remains. However, our actions and strategies implemented over the last several years have set the foundation for balanced growth in 2012 as we continue to deliver on our initiatives throughout our business that will expand our leadership position, drive shareholder value, and enhance our improving financial position. This concludes our prepared remarks. James, we will now begin our question-and-answer session.

Thank you. Today's question-and-answer session will be conducted electronically.

(Operator Instructions)

Seth Weber, RBC Capital Markets.

Hi, it's Adam on for Seth. How are you doing, guys?

Hey, Adam.

Question on the cadence through the quarter of Crane bookings, quite strong, and as you indicated in your December update it looked like you were going to do about 570 for the quarter. So, just wanted to get your thoughts on December's potential pull-forward on getting ahead of pricing and what January looks like so far.

I'll kick that one off. If Eric has got any additional comments -- I would say yes, the cadence was relatively strong throughout the quarter. Obviously, we don't tend to over project what our order flow is going to be and obviously with three weeks left in the year we didn't want to miss that one.

So, we obviously continue to see some pretty good strength through the balance of the quarter as well. Don't have a sense that there was a lot of forward ordering. But, we have tended to see stronger order, from a seasonal standpoint, stronger order flow in both the fourth and first quarters of the year has been our history.

Great. Thanks, guys.

Robert McCarthy, Robert W. Baird.

Good morning, guys.

Hey, Rob, good morning.

Can I ask you to talk a little bit more about what you're seeing in the Crawler market specifically? And, I think it would be useful if you could contrast the US with abroad. I mean, what I'm fishing for is what you're seeing in terms of order prospects, do you expect orders to actually increase this year? Do you have any -- what are your expectations for revenue? Because obviously it affects mix and profit margin.

Yes, I'll touch on that, Rob. I would say, when you look at the Crawler market, it's the one that is the lag when the markets are headed down and it's also the lag when the markets are going up. So, when we talk about the mobile hydraulics, and I think you saw that in the fourth quarter and all of 2011, the Crawlers are still the one -- and, even the US, still lags some of the peaks that we've seen in the past.

So, we haven't seen that order trend upward that significantly. And so, as we've mentioned, the mobile hydraulics being the more robust product line, Towers are okay, but not great. I know that you talk about the US market and that's where you're concerned. I don't think 2012 is a lot different than 2011 when it comes to the Crawler market.

Towers, I think what is nice for us to see is I think the rental utilization of Towers is up, as are the cranes. I think it's just a matter of now the business picking up before the actual -- the rental companies have to pick up a bit in their utilization for longer term and then our business will pick up. But, I see it a lot consistent in 2012 with 2011.

So, I take from that, Glen, that even globally you haven't seen an uptick yet?

Well, you're seeing it, again, it's the emerging markets. I think you still see it in those areas, whether it's in India, whether it's in South America, whether it's in --.

I understand that.

Southeast Asia. You are seeing upticks in other areas. It's just some of the mature markets is where you're not getting as much pickup. Eric, do you have any comment on that?

No, I concur with what you say. I think the Crawler trends overall are a little shy versus the other product lines in general. We've seen a lot of activity on the [wind side] which could be good in the US as well. But, we've seen activity in India and Australia as well for their specific LNG products. But, overall that's a product line which lags the recovery of the other product lines.

I think, Rob, one of the things I would point out, and I mentioned the rental utilizations, I mean, we were at a large rental company last week that their utilization on the Crawler Cranes is in the mid-90%s. So, it's a matter of -- now the rates are still down a bit.

But, I think once that comes back, it's hard sometimes for those guys to make the numbers work right now. But, that's really the critical thing for us to watch is utilization and the rental rates, which are improving.

Okay, thanks. Thanks for that. I'd also like to ask about Foodservice business. It was interesting comments by Mike about plant consolidation activity that's occurred there. As you know, Glen, we've talked about, previously talked about, the potential for Manitowoc to squeeze more efficiency out of its Foodservice platform.

And, have even talked about some fairly heady potential savings numbers. And so, I wonder if you could help reconcile all of that. I mean, is the message that you've been doing that under the covers or do you see a substantial incremental opportunity at some point? Or can we get some update there, Glen?

Let me -- I'll let Mike give some more color on it. But, I think the things, when you look at what Mike talked about, a lot of those -- it goes into two buckets. When we acquired Enodis, we looked at things as integration items and then there becomes strategy items.

Integration obviously is behind us. Now, it's what are the strategies. As we've gotten through some of the low-hanging fruit, you're exactly right. Now, we look at our global footprint, we look at where our customers are going, where are the growth areas.

And, there are opportunities to consolidate areas of our manufacturing operations on a global basis. So, I mean, that's -- I would say we're not trying to do it any under the radar screen, it's just some of them, I would call them low-hanging fruits, now they're always difficult.

But, again, they're not the grand items. I think the bigger ones that you'll see are ones that we certainly consider and look at. And, I think at the right time that's when we'll have conversations about those. But, a lot of it is looking and managing our global footprint right now. Mike, if you want to add to that.

I think, Glen, just cascading off your comments, I mean, we have a multi-year vision that gets refined every quarter. And, it will be a continuum of implementation that won't be a perfectly straight line. But, it will be making sure that we've got plants in the right locations to serve our customer base.

It will make sure that our plants are of a proper scale so that we have a cost structure and an efficiency structure that is very competitive. And, we will deploy lean initiatives and state-of-the-art manufacturing processes everywhere. So, what you should expect is a continued focus on this very important aspect of our business.

Okay. Thanks, Mike.

Charlie Brady, BMO Capital Markets.

Good morning, guys. This is Andrew filling in for Charlie.

Hi, Andrew.

I was -- on your comment with the hydraulic supplier issue, pent-up demand should be in the first quarter. We were wondering how much of the Crane revenue slipped into the first quarter?

Most of what we disclosed in December was the supplier issue. We talked about impact from the work stoppage and the supply issue. And, most of the revenue, I think we said $30 million, that was almost all the supply issue.

Okay. And, what kind of headwind are you guys seeing with a material costs on Cranes? By how much on operating margins? And, are you seeing any effects with material costs on Foodservice?

Well, Andrew, you constantly have that. I think you saw earlier today, was it US Steel came out and announced their fourth quarter yesterday. I forget what it was. And, them talking about price increases in the first quarter because of their losses in the fourth quarter.

I mean, it's a normal process for the steel industry, not that we buy a lot from them, but it's part of that industry. So, as we look at what are our pricing tactics, what are our cost take-out initiatives, I think when you look at normal commodity costs over the course of the year, I mean, I think they're general items that we put in there, whether it's looking at the aluminum commodities or copper. I mean, you can track those.

But, at the same time many of the things that we can hedge, we already have hedged. And, Carl can give you the specifics. But, a good portion of some of the costs, I mean, I wouldn't say certainly t not 100%, but a lot of those commodities we have hedged to protect our cost as we go into 2012. So, there's some insulation there.

But, at the same time as we go into the year, I think we feel pretty good about where we have positioned our businesses, what we have, and some of the benefits we can have over some of the -- whether it's factory efficiencies, product cost take-outs, all those things over and above some of the commodity costs. I think we feel pretty good about that. As we sit here today. Carl, if you have a comment on that.

I think as it relates, it's less of an issue for us in Foodservice because of the hedging programs that we can do in some of the key materials there, copper and aluminum. We have some of that in Cranes but it's to a much lesser extent. You also have more of a lag effect in cranes typically. And, we saw a much greater impact from, if you want to call it the price/cost equation, in Cranes than Foodservice.

About $30 million in total there for the full year. We mentioned on the third quarter call that there would probably be some spillover in that equation in Cranes in the first quarter. But, that we would get on the right side of the equation in the balance of the year as we look at some of the initiatives that Glen talked about and our expectations about where these costs are going.

All right. Thanks, guys.

Andrew Kaplowitz, Barclays Capital.

Hey, guys. It's Vlad on for Andy.

Good morning.

How are you? Can you talk a little bit on what's the status of your -- the tier 4 engine integration into Cranes, whether those have fully been integrated now or whether you're still seeing some headwinds as you integrate the tier 4 engines?

It's certainly not fully integrated. I mean, we have models that will continue to go out through 2013 and '14. What happens is you go into the tier 4 interim and then the rules go into 2013 and '14 and the tier 4 final.

I think what we feel better about is last year, as we sat there in the first quarter, those were the first tier 4 engines, it was a lot of how long does it take to get through a new model, how long does it take to introduce a new model. I think we feel much better about the process.

So, no, there's still a good portion of our engineering time. And, Eric can give you the specific portion of engineering hours that are required for that. But, it is not behind us yet. But, I think the headaches and the headwinds that we had, probably won't see the delays and those kinds of things that we saw in the early part of 2011. Eric, do you want to talk about the engineering side?

Yes, obviously we're certainly not done as you said, Glen. We have many new products that need to have a tier 4 interim engines. But, in terms of engineering, to give you a clue, we have about 30% of our engineering resources just allocated to that tier 4. And, every basically new machinery with tier 4 engine is considered as a prototype. That's a very considerable effort that we need to put in tier 4. For now, we've been through learning curve. So, we feel much more confident as we enter into 2012 to integrate those new type of engines.

Okay. That's very helpful. Thank you. Just a follow-up on the supply chain. I know you said that the issues in Q4 have largely been resolved. Can you talk about any other areas of tightness that you're seeing in your supply chain or any other major areas of concern that are outstanding today?

I don't think there's any glaring issues as we sit here today. I think the challenge is always if you look at how the -- to take advantage and hopefully this would be the case. It's to take advantage if the markets improve. We've given our forecast.

That's what we've gone to our suppliers with and that's where we're at. I think the challenge we always have with our supply base, or anybody in the Crane market, because of the lower volumes versus a lot of the other construction equipment, that's the struggle we have is we're always pretty good at getting what we ask for.

It's that change to get the incremental sometimes that's the bigger challenge. And so, I don't think we, as we sit here today, we have any glaring issues. But, who knows if we sit there in July and August if markets are improving and you look towards 2013, that's the forecast that we're more concerned about.

Okay. That's helpful. Thank you.

Jerry Revich, Goldman Sachs.

Good morning. On the Foodservice business, can you put the 50 new product introductions you had last year into context? How does that compare to the last couple of years and what you have on track for 2012? And, maybe give us a sense for new product sales contribution you're expecting in your forecast this year. Thanks.

I think when you look at -- we talked about the 50 products. I mean, in all honesty, that 50 breaks down into if you take it by models, it goes -- it's a much greater number. We look at it and try some bigger buckets. It's a constant for us.

It's one of the things that we talk about all the time in Foodservice. You have menu changes. You have innovation that's supporting those menu changes. You have the productivity and efficiencies within the restaurants. And then, at the same time you have the food quality and the food health safety.

So, those all go into that. And, I think last year was probably a little above average in the number of new products. But, I think it's more to come in 2012. On the specifics, maybe, Mike, if there's something you want to add in certain areas.

I would say this, I think last year showed an acceleration from the previous two years. Because you need to keep in mind that for the previous periods we were, to a great degree, focused on the integration of the acquisition. While we continued to spend in those periods it did pick up last year. And, while we are always investing in all of our categories and brands, each year brings some additional focus. So, last year there was significant focus around ice machines, fryers, the Merrychef speed ovens, and some other select categories. So, we're really in a good rhythm now where each year there will be an increased focus of human capital and financial capital on a couple select brands.

On the Crane business, wondering if you gentlemen can rank order for us which regions you expect to drive order growth over the next 6 to 12 months? And, specifically can you touch more on Europe and the softness that you're seeing there, considering we're already coming off pretty low levels? Just some more color there would be great. Thanks.

Obviously, as we mentioned in the prepared remarks, you're seeing some nice strength coming out of the Americas. That's not just Latin America which has been robust, really through the financial crisis. But, also contributed by North American -- North America as well. I think the comment that you made in your question about Europe is well-founded. That was the region that was earliest and hardest hit by the financial crisis. And, we see progress from the bottom, driven by more probably Eastern Europe, a little bit of Scandinavia. But, Western Europe continues to be, with the exception of Germany, a pretty difficult environment and outlook. I don't know if Eric --.

Eric, do you want to comment on any of that?

Well, Europe is slow, as you said. We had our winter campaign for Towers. It was slightly above last year. But, from a very low level. So, outside of maybe Germany that we've seen a good level of activity, the rest is pretty sluggish. And, it may stay like this for some months moving forward. Now, the rest, we expect certainly strong activity as we said earlier in North America and the rest of the emerging markets.

I appreciate the color. Thanks.

Ann Duignan, JPMorgan.

Hi, guys. Good morning.

Hi, Ann.

Can you talk a little bit about the pricing environment in Cranes, particularly in North America? We met with SANY last week at World of Concrete. They talked about now having about 10% market share of the US Crawler Crane market. And, they're aggressively adding distributors. Can you talk about whether there is new competition out there, if that's a headwind for pricing or whether you are indeed getting pricing, particularly in the US?

No, Ann, we -- I mean, we've announced the price increases that we had July of last year and in the third quarter of -- actually the start -- late third quarter, early fourth quarter this year. So, I think it's just a matter of what we talked about in the fourth quarter. They weren't taking hold until the beginning of this year. So, I mean, the orders that we have in the backlog, some of them have that pricing, some of them don't. But, I wouldn't say that it's -- I wouldn't say that it's being given away. 10%, your number, not ours.

So, I'm comfortable with where our pricing has been, comfortable with the value proposition that we offer in the Americas. And, comfortable with our market shares, primarily in the United States, especially with Crawlers and the mobile hydraulics. So, really the competition that we see from SANY or Zoomlion, or anybody else, is primarily in the emerging markets. It's still not that significant in the US or in the domestic markets of the more mature markets of Europe. But, like we said for the past three years, they'll be here. They'll be a competitor and we'll deal with accordingly.

Apparently they are here. And, the10% price increase, that's not my number. How much was your price increase?

Eric, do you want to comment on the price increases for North America last year?

It was between 3% to 5%, depending on the product lines.

And that included tier 4 interim engines?

Yes.

Does that cover the cost of the tier 4 interim engine?

The tier 4 is more of a pass-through than it is a price increase.

Okay.

That's part of the battle, Ann, is do you want to get something that's tier 4 and is the customer going to pay for it or are you going to give it away? That's a business model challenge that every manufacturer makes on an independent basis. We feel it's a value-add and if you give something away that has value, you basically tell somebody it has no value. So, that's the choice we make on every different sale that we have. The difference is going to be is at the end of the day when you look at what we have from a Crane Care perspective, you said they've been aggressively adding distributors, there are other competitors that have been longer term competitors that also have distributors.

So, you have to ask yourself what kind of distributors are they getting. You have the after-market support. You have the residual values. You have the financing markets. It's the entire package. It's the whole cost of ownership that we still have a significant advantage as do some of our other competitors over some of the new competitors. Yes, it's -- again, I'll go back to the example.

It's no different than several years ago coming into the United States with tower cranes. It's no different than several years Yongmao coming into the United States with Tower cranes. It's no different than Tadano coming into the United States with boom trucks. I mean, there's different competitors in every different year. It's a matter of there's only so much business that's going to go around and people are very aggressive to get into the markets. It's competition.

It's the power of competitors. Just real quick. I don't mean to hog the call. But, just on the Brazil startup, you'll be starting production mid-2012 but when will you actually report meaningful sales from the Brazil operation?

The production actually will start early in the second quarter. The real products coming off the line will l be in the mid-year. So, it will be that back half of this year.

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

Vance Edelson, Morgan Stanley.

Thanks for taking the questions. When you think about the growth outlook for Cranes over the coming year, could you take a stab at sizing the replacement component of that growth versus new orders? Is there any region in particular where you see replacement demand as a major driver in 2012?

I don't know that it's any different -- probably less obviously in the emerging markets than it is in the domestic, let's say Western Europe or the United States. But, I would say you do hear some comments from customers within the United States that during the last few years, whether it's '08, '09, '10, '11, a lot of product did go to different places. So, there is less equipment in the United States as a lot of the used equipment went out.

Whether it's because of new projects or it's replacement of fleets, some for people that had just -- they aged their fleet over a certain period of time. And then, they flip it every so many years. Some of them have let those fleets get a little bit older so it's a normal replacement cycle. But, I don't think it's anything unusual. I don't think that's driving much of it.

Okay. Makes sense. I'll ask my follow-up on the Foodservice side and in particular the after-market or replacement business for Foodservice. Is there any reason to think that the higher margin replacement work could become a larger part of the mix in regions like China and so forth as we look into the new year?

I think when you -- the whole thing we have on the Foodservice side is the service strategy. And so, when you compare some of the things we do in Cranes versus some of the things we do in Foodservice, there is opportunity there. And, those are all part of, again, it goes from integration to strategy. And, I know Mike's team is diligently working on that one aspect of our strategic imperative is the after-market piece. Mike, do you want to add anything on that?

I think the thing to keep in mind is as new stores are built and we get a larger base of stores and associated equipment in these emerging markets, eventually the part sales are going to pick up. So, it follows our historical strategy and it's going to play out there as well.

Okay. Thanks for that. And, I'll get back in the queue after I ask one more real quick question. Just following the strike, how would you characterize the worker relations right now? Are they worse than normal because of the strike or better than ever because what was decided or is it somewhere in between?

I think it's somewhere in between. I mean, it depends who you are. Everybody's got their own attitude or opinion. But, what I would say is it was very professionally done, wasn't some of the things you typically hear in a mid-western strike force. Both sides handled it very professionally and I give a lot of credit to everybody that was involved.

Speaking of it, obviously, it was -- came to a culmination in the middle of January. Everybody -- it was voted by a 2-1 margin. We have 2% increases over the length of the contract. It goes out to the next four years. And, there is language in there. So, we feel good about what it was. I think given the fact that the vote was 2-1, I think supports that people were satisfied with it.

And, I think the unfortunate part is what gets lost in this a little bit is it's 200 people of our 14,000 members of the Manitowoc Company. So, let's not lose sight of that. We certainly respect what that group does for us. It's a large piece of the cog in our business. But, again, it's trying to -- we've got to take care of the other 13,800 people and make sure everyone is on board with our strategies, with our commitments to the stakeholders that we have and make sure we keep people engaged. So, yes, I think some people are happy, some people aren't so happy. Again, I think it depends where you sit today.

But, we'll get that back. And, again, what I would say is these are very professional people. They have a big passion in what they do. They know they build great cranes and they'll go back to doing it. We've been through this before. Many of these employees have been here a long time. They've been through it before. And, again, I don't see a big disruption from it.

Okay. Appreciate the color. Thanks.

Ted Grace, Susquehanna.

Hey, guys, can you hear me?

Yes.

Great. I was hoping to dig in on the margins, and specifically the incrementals that are embedded in your guidance. If my numbers are right, looking at 14% incremental margins for the Crane business in 2012. So, I was hoping if we could just walk through -- you talked about the difficulty in pricing and the price increases you put through. You talked about the efforts to improve efficiency and costs. You talked a bit about the direct materials. But, I was wondering if you could talk through other elements that underlie that 14% incremental, what the drag from Brazil may be in the first half and just maybe start at that point.

Yes, the other elements that would be headwind, we also mentioned the ERP, the Project One implementation that has been ongoing. Although, obviously slowed down post recession. And, with the ramp-ups and the go lives we expect to put in place this year, that's going to create -- between the combination of that, the incremental cost on Brazil, some of the engineering expense that we're going to have because of tier 4 that Glen and Eric talked about, you're talking about roughly $0.10 of EPS impact to the overall company. So, circa $15 million from those issues.

Could you just give us a perspective, how much of that might be Brazil in isolation?

Obviously, we've had a presence in Brazil. And, it's a matter of just ramping up from an expense perspective, it's really the adds that go into having a manufacturing presence there. It's probably on the order of $3 million, $4 million. It's the incremental expense.

Okay. So, we look for $3 million to $4 million on an annualized basis or quarter of drag in 1Q and 2Q?

That's a full year.

Okay. That's helpful. And then, in terms of just thinking through the same issues, I know that 23% incremental for Foodservice is respectable. Are there any key elements we should also think about that you might not have previously mentioned?

Certainly plenty of variables that would go into whether or not we would be able to achieve that. As we're looking at the year right now, it appears as though the opportunities that we have for new business roll-outs, I call them, seem to be about equivalent to the things that won't recur that we know benefited us this year. And, that our ability to drive margin in Foodservice is really going to come from the things that we can do from a pricing, product cost take-out standpoint that are really the key drivers to the expectation to drive that margin.

Okay. And then, just finally, on the Crane pricing side, I know you talked about the difficult market conditions. Can you talk about what the pricing carry-over into 2012 would be? So, if you look at what -- here analyze your benefits exiting 2011 what that would look like for 2012?

In total, I would say that the benefit that we would get from the existing and anticipated pricing action and based upon our expectations of the cost for 2012 in total is 50 basis points. And again, it's a headwind in the first quarter and then that benefit comes in the last three quarters of the year.

Got it. And, last thing I'll ask is how would you encourage us to think about FX impact for 2012?

Well, it was headwind in the fourth quarter, driven by the US dollar/euro, it was probably about $0.05 on the EPS line in the quarter. That probably is relevant for the first half of 2012. And then, we're pretty flat from a currency as we're looking at it today.

Okay. Great. Well, thanks a lot. Best of luck to you, guys.

Thanks, Ted.

Paul Bodnar, Longbow Research.

Good morning, guys.

Hi, Paul.

Good morning.

I wonder if we could get a little more detail on the growth in Foodservice. I mean, what kind of -- you're seeing from the overall market and then obviously you're benefiting from a series of new product introductions and I'm also guessing from expansion into new markets, wonder if you could give us a little more detail on those latter two? And, how those are benefiting you in '12? Or should benefit you?

Your comment was on the emerging markets?

Yes, how much of this growth is driven by market expansion versus new product growth?

Well, you go to just to general -- I'm going to let Mike talk about some of the specific markets, but when you look at the general industry of what we have in Foodservice, remember that greater -- 50%, 55% of all of our -- of the Foodservice business is replacement business. So, the expansion, the expansion of footprint is the majority of growth in emerging markets. When it comes to the mature markets, again, that's going to be the things you're talking menu changes, productivity, efficiency within the Foodservice location. And, getting more product through the footprint that you have. So, keep that in mind as you go through that. New store construction is not majority of what we have. With that, I'll let Mike talk about emerging markets and new products.

Sure. I think referencing quickly Carl's comment about complexity and the number of variables across the Foodservice space, it really does hold true. There's no single silver bullet. On those two dimensions, I mentioned earlier in my prepared comments creating sub-regions within our organization. And, it really is serving to help.

By having dedicated sales and service regions focused on smaller geographies, like southeast Asia, India, and Latin America, we're putting cost and resources in advance of the growth but we're seeing the dividends already. So, think of resource focus by emerging markets that have to be coupled with great products. And, we again touched earlier on the investments that we've made even through the integration years with an acceleration occurring in 2011. All of the categories that we choose to participate in are getting more than ample investments. So, our products will remain Best-in-Class, the brands resonate everywhere, and when you link that to the resources that we're putting in these regions, our growth will continue to accelerate.

Just a quick housekeeping question. What should we expect in 2012 for corporate expense in terms of a run rate versus '11? I don't know if you can give us some quarterly ranges to think about.

There was obviously quite a ramp in the fourth quarter. And, that was driven by some of the equity compensations, the metrics that need to be trued up as well as some other benefit expenses that drove it. As we look at the full year 2011 to 2012, barring something unusual, it should be roughly flat year over year, full year.

Okay. Thanks a lot. That's helpful.

Robert McCarthy, with Robert W. Baird.

Thanks for letting me sneak in under the wire guys. I didn't hear anybody ask about your $150 million to $200 million target for debt reduction for the year. So, my first question is how much of that do we expect to meet from free cash flow?

All of it.

All of it. And, can you give us some help on tax rate expectations for 2012?

Probably looking a little bit better than full year 2011. Full year, probably roughly 40%. We expect a very high effective tax rate in the first quarter because of some of the jurisdictional aspects of the profit and loss, probably well above 50% in the first quarter. But then, that normalizes throughout the balance of the year. Full year effective tax rate of roughly 40%.

Thanks, Carl.

That will conclude our question-and-answer session. I'll turn the conference over to Mr. Khail for any additional or closing comments.

Before we conclude today's call, I'd like to remind everyone that a replay of our fourth 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 first quarter conference call in May. Have a good day.

That does conclude today's conference call. Thank you for your participation.