Manitowoc Company Inc (MTW) 2012 Q2 法說會逐字稿

Good day, everyone, and welcome to the Manitowoc Company second quarter 2012 earnings call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Khail. Please go ahead, sir.

Good morning, everyone. And thank you for joining Manitowoc's second quarter earnings conference call. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer, and Carl Laurino, Senior Vice President and Chief Financial Officer. Glen will open today's call by providing an overview of our quarterly results and business outlook. Carl will then discuss our financial results for the second quarter in greater detail. Following our prepared remarks, we will be joined by Eric Etchart, President of Manitowoc Cranes, and Mike Kachmer, President of Manitowoc Foodservice, for our question-and-answer session. For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning. Please visit the investor relations section of our corporate website at www.Manitowoc.com to access the replay.

Before Glenn begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on August 7, 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 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'll now turn the call over to Glen.

Thanks, Steve. And good morning, everyone. We are pleased to report solid performance for the second quarter driven in large part by our unwavering focus on innovation, operational efficiency, and execution of our long-term strategies. Top line growth of 6% underscores our ability to navigate an uncertain global economic environment and fluctuating demand levels, while 120 basis points improvement in operating margins further validates many of the initiatives we had put in place to improve and enhance our operations globally. Specific to each segment, Foodservice experienced another quarter of improved margins driven by a favorable product mix and improved operating efficiencies. While Cranes posted a significant improvement in margins complemented by continued strong order intake that resulted in the highest backlog level since 2009. While a challenging environment persists across the globe, we are well positioned for our long-term, as we leverage growth opportunities from new and existing products in Foodservice, as we benefit from increasing Crane activity in the Americas, and as we capitalize on emerging market opportunities in both segments.

Turning to our segment performance, our Foodservice offering continues to enjoy a very strong position in the global food service equipment industry. Looking at our products across the globe, the cold side of our business, which includes our award winning Indigo ice machines and market leading beverage products, was the strongest performing category during the second quarter. In addition, our chain customers continue to drive the largest amount of growth across our geographic markets in this segment. For example, a leading quick service chain has implemented programs centered on Manitowoc's blended ice product category for the London Olympics. Other core categories also continue to enjoy success with chain customers. One prime example of is our Frymaster oil conserving fryer which has been approved by one of the world's largest quick service chains and is now replacing its large install base of legacy fryers with our equipment throughout their North American operations.

Looking at other product categories, we continue to see considerable interest in our portfolio of advanced cooking technology products, which include our Convotherm combi ovens, Merrychef rapid cook ovens, Garland induction products, and others. Of particular note, we expanded our test sites and enjoyed increased orders from the convenience store segment for our Merrychef ovens which featured our patented planar plume technology. We are experiencing similar interest in growth in the chain restaurant market for these oven products, especially in the sandwich and snack segments. Similarly, our investment in induction technology for our Garland cooking line is gaining traction, as we received formal notice that these products are now the prime specification for a boutique hotel brand of one of the world's largest hotel chains, providing further opportunities within our high end hotels around the world.

During the quarter, we attended the National Restaurant Association Show in Chicago. Throughout the event, we experienced strong booth traffic, which was up 10% from last year. Let me also remind you of the three Kitchen Innovation Awards we received from the NRA which recognize cutting edge kitchen equipment in the food service industry. These awards are given to Frymaster's new large vat fryers, Garland's induction griddle, and Merrychef's planar plume technology. Also during the quarter, we received three awards from the McDonald's -- from McDonald's at their worldwide convention. Manitowoc ice was recognized for the sustainability capabilities of our Indigo ice machine. Multiplex received an innovation award based on our rapid introduction of alternate refrigerants in Europe. In addition, Garland and our Manitowoc China team were recognized for their contributions to McDonald's growth in the Asia-Pacific region.

From a geographic standpoint, diversifying our Foodservice business by increasing our penetration of various emerging markets in Asia continues to be an important growth strategy. As many other companies have reported, we are also witnessing a slower growth environment in China. However, growth by the major chain restaurants in Asia generally, and China in particular, gives us confidence in the long-term growth profile of the region. As a result, we will continue to invest in China and other emerging markets around the world as our customers pursue international growth, primarily through new store construction and new menu initiatives.

This quarter also saw continued progress on our evolving manufacturing strategy on multiple fronts. First, we have announced our plan to build a multipurpose facility in Monterrey, Mexico that will initially focus on a new ice machine line targeted at a new market segment along with certain Indigo products being positioned to serve customers in Latin America. Second, we have begun transitioning beverage equipment production from a plant in Southern California to our existing facility in Tijuana, Mexico. Finally, we have launched a project that will result in a new line of reach-in refrigeration products being produced at our Hangzhou, China factory and targeted at various Asia-Pacific markets. As we've mentioned on previous calls, our manufacturing strategy is focused on many elements of operational excellence including lean and a factory footprint that will be implemented over multiple years.

While our results outperformed the overall industry growth rates during the second quarter in most product categories, we did experience continued softness in Europe given the economic turmoil prevalent in that region, as well as slower growth in the hot side segment of our business in North America. In addition, sales rollouts in the second quarter of 2011 were more than double those in this year's second quarter. As we look to the remainder of 2012 and beyond, our Foodservice segment can leverage multiple global opportunities as customers continue to make new investments in their businesses. Furthermore, we remain focused on increasing our operating efficiency as we grow the top line and strive to enhance margins by building industry-leading businesses for the long-term. We will accomplish this by focusing on our chain customers to boost their efficiency and profitability by creating unique solutions that combine the industry's best brands, products, and services in driving scale economies to reduce cost across our growing global footprint.

Moving to our Cranes segment, our second quarter results were encouraging as we grew revenues by 16%, excluding the impact of foreign exchange rates. Driven by focused execution across all levels of the business, we experienced sizable margin expansion primarily due to increased sales volume on mobile cranes, price discipline, and improving operational efficiencies. Geographically and similar to the previous quarter, the Americas and many emerging markets demonstrated positive momentum while demand in China and Europe remained weak. During the quarter we saw varied demand levels across our product categories in Cranes, with large rough terrain cranes, all-terrain cranes, and boom trucks making strong contributions. The demand in these product lines continue to be driven by energy and infrastructure projects which should continue for the foreseeable future. As with previous quarters, crawler crane activity remained soft across all geographies. Tower crane activity also experienced continuing sluggishness during the quarter in most markets. As a leader in tower cranes, and Europe being our largest market for this product line, we view this as a headwind going forward.

Moving on, let me provide an update on several key strategic initiatives in the Crane segment. Our Project One ERP initiative remains a key focus in Cranes and represents the largest capital project we have undertaken. As we previously announced our team successfully launched Project One in Brazil in April. More recently, our ERP initiative went live across all of our French factories as well as our Crane Care operations located nearly owned and our spare parts network that serves all of [EMEA]. Also contributing to our operational efficiency initiative is our recently opened product verification center in Shady Grove, Pennsylvania, which marks the beginning of an exciting phase in Crane design and testing. With increased activity in boom trucks and rough terrain cranes in the Americas, this new facility not only accelerates our speed to market for new products, but improves our product quality metrics and provides quicker validation of new electrical, hydraulic, and mechanical systems. I'm also pleased to announce that assembly of shipments from our new manufacturing facility in Passo Fundo, Brazil have begun. With this initiative in such an important emerging region, the Passo Fundo facility gives us a competitive advantage as the first dedicated and flexible crane manufacturing facility to produce rough terrain cranes in this part of the world.

In conclusion, the level of activity we have experienced in the first half of this year supports our assertion that 2012 will be a year of sustained growth. Our strong order intake and growing backlog gives us a solid level of confidence as we build on our second quarter results. Looking ahead, our unwavering commitment to our strategic imperatives, Company values, and dedicated workforce position us well to leverage the recovering economy. Regardless of the economic cycle, we will also strive to optimize our cost structure as we seek to enhance Manitowoc's long-term value.

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

Thanks, Glenn. And good morning, everyone. We reported net sales for the second quarter of $1 billion, which is an increase of over $56 million or 6% from the second quarter of 2011. The year over year sales increase was driven primarily by a 10% increase in Crane segment sales coupled with a slight increase in Foodservice. Both segments were negatively impacted by currency, as currency neutral sales were 16% and 1.3% in Cranes and Foodservice respectively. Second quarter 2011 (sic -- see press release"2012") consolidated operating margins before amortization was 9.8% versus 8.4% in the second quarter of 2011. The year over year margin increase was driven by favorable operating efficiencies, higher volumes, improved absorption, and pricing actions. GAAP net income for the second quarter was $42.5 million or $0.32 per share versus net income of $3 million or $0.02 per share in the second quarter of 2011. Second quarter 2012 EPS, excluding special items, was $0.32 per share versus $0.15 for the prior year quarter.

During the second quarter, cash flow provided from operating activities of continuing operations was $8.3 million versus cash flow used of $33 million in the prior year quarter, driven primarily by improved earnings and working capital efficiency. We also continue to target $150 million to $200 million in full year debt reduction. Our current year debt reduction target is driven solely by cash from operating activities versus our 2011 debt reduction which resulted from the sale of the Kysor/Warren business. We continue to manage working capital to ensure an appropriate balance between our ability to meet customer demand as well as our debt reduction goals.

Turning to our segment results, Foodservice sales in the second quarter totaled $395 million, essentially equal to a year ago. Second quarter 2012 operating earnings in Foodservice were $67 million, up 7% from $63 million in the same quarter last year. Operating margins of 17% were 120 basis points higher than second quarter 2011, driven by favorable product sales mix, scale economies, and improved operating efficiencies. Moving to the Crane segment, second quarter sales totaled $611 million, up 10% from $555 million in the second quarter of 2011. Second quarter results were favorably impacted by sustained strength in orders resulting from continued growth in the Americas region and solid levels of demand in select emerging markets. Overall, Crane segment operating earnings in the second quarter were $48 million versus $33 million in the same quarter last year. This resulted in second quarter Crane segment operating margins of 7.9%, up 200 basis points from the second quarter of 2011 margins. The year over year comparison was positively impacted by leverage of the higher sales volume, pricing, and operational efficiencies, partially offset by commodity costs and product sales mix.

Crane backlog at quarter end was $944 million, which grew $105 million or 13% compared to a year ago. For the second quarter, new orders totaled $629 million which also resulted in a book to bill ratio of one time. EVA improved in the second quarter of 2012 by 46% versus the second quarter of 2011. EVA in the Crane segment improved 216%, its first positive quarter for this metric since the second quarter of 2009. Based on our projections, the Crane segment should return to positive full year EVA for the first time since 2008. During the quarter, Foodservice also posted EVA growth with an improvement of 28% compared to the second quarter of 2011.

Before concluding my remarks, let me discuss our 2012 outlook. As noted in yesterday's press release, we expect full year Foodservice revenues will grow in the mid single digit range, and year over year operating earnings will increase by 10% to 15%. In Cranes, we expect year over year revenue growth of 10% to 15%. We anticipate continued demand strength from our North American dealer network, particularly those with customers serving the energy and infrastructure markets. As a result, our full year Crane operating earnings are anticipated to grow 30% to 40% from 2011, while also exhibiting more normal seasonal characteristics. Other 2012 financial expectations include capital expenditures of approximately $80 million, depreciation and amortization of approximately $120 million, interest expense of approximately $130 million, plus a debt reduction target range of $150 million to $200 million, which when combined with our earnings improvement, should reduce our debt to EBITDA ratio by more than one turn.

With that, I'll return the call to Glen for his closing comments. Glen?

Thanks, Carl. The broader global growth environment has clearly created headwinds for our business. We have, however, proven our ability to navigate through tough environments, and we believe the strategies and initiatives that we have put in place will further enhance our operational effectiveness and drive long-term growth. Year over year, we have witnessed substantial improvement in our EVA performance. This improvement, coupled with our second quarter financial results, demonstrates the value of Manitowoc's industry leadership as we expand our footprint in areas that offer significant growth prospects, while at the same time prudently managing the business for long-term profitability. While the global economic uncertainty is likely to persist through the remainder of 2012, we remain confident in our full year outlook and will continue to emphasize the strategic initiatives that position our business for value creation and competitive success.

This concludes our prepared remarks for today. Jennifer, we will now begin our question-and-answer session.

(Operator Instructions)

Andrew Kaplowitz, Barclays.

This is Vlad Bystricky on for Andy. I was wondering on your Crane margins, the implied guidance looks like margins will be down versus Q2, but I felt price costs getting better and other factors that margins should be getting better. Are you seeing anything that would make margins lower in the second half?

Well, I think the biggest impact, at least from the run rate in the second quarter, would be the seasonal aspect that would be referenced. We definitely see a stronger margin performance, really in both segments, in the second and third quarters, and then a drop-off in the fourth quarter. And that's probably the biggest, depending upon which periods that you're looking at, the biggest reason for that.

Okay. And then following up on Crane, can you talk about what you've seen in the Crane demand since the quarter and the prospect for -- your ability to keep book to bill at or above 1Q -- at or above 1 in 3Q, again, given the seasonality that you talked about?

I think we certainly have said several times that the order intake, you look at the fourth and the first quarters as being typically the higher quarters of the order intake. So as Carl mentioned in his remarks, the seasonal characteristics, we would tend to continue that way. And obviously, we only report orders on a quarterly basis, but sequentially the fourth and first are the best. So that -- as you look at what happens in second and third, obviously if it declines it's not going to be unexpected from our standpoint.

Seth Weber, RBC capital.

Just revisiting that first question, typically, I think isn't your fourth quarter a better revenue quarter in the Crane business than third quarter? Typically, I would think the third quarter margin would be a little bit softer, but then the fourth quarter comes back. Isn't that -- or is that not the right way to think about it?

I think a couple of things, if you look at the normal seasonality, Seth, that are at play, obviously you've got Ramadan in the Middle East, you've got the holiday in Europe that can affect the third quarter.

Right.

But the other -- if you go back to -- it's hard to find a period that is the normal seasonal pattern, but we would tend to see, just because of delivery schedules, all things equal, greater sales activity in the -- looking at it from a semester standpoint, the second and third quarter then those first and fourth quarters, and that's what we are anticipating this year, is that you will see a drop-off as opposed to some of the stronger fourth quarters we've had the last couple of years coming off the trough.

Okay. So I guess my questions then are, can you give us little bit more color on where we are in the price cost equation? I think last year you ended up absorbing something like $30 million of extra costs. I would expect that, that should be moving back in your favor here, and the Brazil startup costs I guess should be getting diminished here going forward with that factory now adding production. And presumably, I guess your pricing should be getting better as we work through the year. So I'm just trying to understand if there's some conservatism in your second half margin targets?

I think we got a lot of what's occurred, and the pricing was really from actions that were taken last year. We certainly had some additional actions that had been taken this year, but a big part of what we saw in price/cost benefit was experienced in the second quarter. And barring the seasonal issue that I talked about earlier, I think it's going to be consistent with that benefit for the balance of the year. What I stated, I think in the fourth quarter call last year, was we expected to see about 50 basis points benefit full year from price costs. And I think while we were pretty close to even, slight benefit in the first quarter, the balance of that 50 basis points really comes in the last three quarters of the year.

Okay. Can you characterize what your current bookings look like from a pricing perspective versus what's in the backlog -- versus what you're shipping today? Is your pricing of new orders better than it was -- better than the stuff that you're shipping?

No, I think it's because of what I stated before, that a lot of the benefit that we're seeing this year came from actions last year. There is not a -- there is not any kind of significant sequential benefit that we would see rolling forward this year.

Rob McCarthy, Robert W. Baird.

This is Mig Dobre in for Rob McCarthy. I'd like to focus a little bit on the Foodservice side. And you mentioned different levels of performance on the hot side versus the cold side, so I guess any more color as to what the difference in growth or performance there in the quarter was? And I guess any perspective on what drove the hot side slowdown in North America? Is it a particular vertical or a particular product line that was more problematic?

Mike?

Sure, and I wouldn't use the word problematic. I would just say circumstantial. I would say that there's two elements to it, Mig. First, it would be the customer segment that our hot side products are sold to. While we've had projections that same store sales in most restaurant categories have been increasing, we have not seen the same type of pattern with CapEx spending across those same customer segments. We also sell our hot side products primarily through a different distribution channel than our cold side products. And our cold side products also have more direct relationships with some of the customer bases as well. So it's a mixture of customer segment and channel dynamics, but not a long-term trend. We saw a pause in the second quarter across a couple of those segments, but don't feel that it's any reflection of the long-term positive trends that we're realizing.

I see. And that kind of goes to my next question because the guidance for the segment for mid single digit growth implies that there's going to be some acceleration of growth from what we've seen in the second quarter. And comps, especially in the third quarter, are a little bit tougher especially on a sequential basis, and we still have continued currency headwinds. I'm wondering here what gives you your confidence that growth is going to be able to re-accelerate from here?

We've seen order patterns change in the latter part of the second quarter. Some of the rollout opportunities that were being formulated earlier in the year are now coming to fruition. And we're also seeing some of the geographical softness stabilize a bit across our markets.

Any specific geographies that you'd call out?

That I would call up?

Call out, rather.

Yes, I would say that North America, we would feel a positive trend there versus looking back over the second quarter.

Jerry Revich, Goldman Sachs.

In Cranes, you gentlemen gave some very helpful color on order trends in the quarter by product. I'm wondering if you could talk about which product lines and regions you expect to drive growth over the next 6 to 12 months and just talk about where some of the utilization trends are tracking on the crawler side in particular? Thank you.

I'll let Eric talk a little bit about the utilization rates and some of the others, but I would say we expect I think the same pattern to continue on the product lines. The one that we typically see in the back half of the year that picks up a little bit for us would in fact be the crawler product line. So I think that will contribute I think in the back half of the year. The one that we don't expect to change much would probably be the tower cranes. So I think everything we said previous with the last quarter, this quarter, and then a little bit of a pickup on the crawler crane side in the back half of the year. I think that's where the increases come from. Eric, do you want to talk about the utilization rates?

Typically, Jerry, the utilization rates are pretty good. I would qualify then between the 75% or 80% and that varies of course by product line and by geography, but this is what I would qualify. And in the Americas, for the large RTs, we see the improved also rental rates starting to key in, and obviously, this is very encouraging of course. In terms of tower cranes, this is really our headwinds right now. Europe is extremely slow. As you know and notwithstanding the fact that the utilization rate of tower cranes are again in the 80%, and we see the large rental houses they still have this. Although, they have not and they are not going to invest until the situation clears out. So it's -- the only bright spot for tower cranes would continue to be some emerging markets. India has continued to be a good story for our growth in tower cranes. And again, we are the first ones to produce tower cranes in India. We were the first ones to enter that market and that's really paying off. And we see a lot of new construction company embarking in crawlers -- in towers, sorry. Singapore and Philippines and some countries are very puckish, but overall I would say the tower crane business is really a headwind for us right now. Although, utilization rates are still very high on tower cranes.

That's great color. And just a clarification, the crawler pickup, is that primarily the US or other regions as well?

It could be global. What we've seen as Glen mentioned earlier that our tower crane -- crawler cranes intake is typically stronger the second half of the year. Of course, we are the only producer of crawler cranes in America, so we have headwinds in terms of currency right now compared to what we've seen in previous years, but we expect some activities obviously coming from the Americas and some of the other export markets.

Okay. A question on the margin side, can you talk about how we should expect the cost structure in Brazil to progress over the next couple of quarters? Did we see the maximum impact of the ramp-up cost this quarter and it will get better from here? And also, should we expect material costs to be more favorable over the next couple of quarters? Thanks.

I would say on the Brazil side, the headwind from the lack of production versus the ramp-up is primarily driven by the first half of the year as we are in production and going to get deliveries going forward. So we'll definitely subside. Was your other -- the other half of the question price cost expectations?

Yes, you addressed the price. What about material costs? We've seen fuel costs come down.

Yes, I think where we saw the material cost ramp year over year affect us a little bit in the first half of the year. We probably will get some benefit out of that price cost equation to a little bit greater extent in the second half of the year, but remember that there's some pretty limited suppliers on some of the categories that -- while steel as a general category has come down and not so much on the crane side is the type of steel that we're utilizing on the high tensiles.

Charley Brady, BMO Capital Markets.

I don't mean to beat a dead horse on the Crane margin outlook, but what I'm hearing is Brazil is going to be better in terms of a cost impact in the second half. Material costs are going to be maybe a bit better in the second half. Volume is better in the second half. Crawlers look to be better. That just doesn't square up with some of the margin guidance you're giving for Crane. Is it just some conservatism built in there or is there something else? And can you quantify what the ERP impact was on first half and what you see in the second half?

I think if you look at ERP, Brazil, and some incremental engineering expense, we had indicated that would be probably in the mid-teens million in aggregate full year. The cost doesn't go away on the Brazil side. It's just that we -- it's not affecting us as you look at the margin as you look at the second half of the year. But the balance of those are continuing costs that we expect to affect the full year across the board in the business.

The other big one from a margin standpoint is obviously we are indicating 30% to 40% increase in total operating income. We got off to a little bit of a slower start in the first quarter. We expect to be able to make that up in the last three. So the -- that seasonal component I think is at play when you look at the second and third being stronger than the first and the fourth that I think is -- people are thinking about the strong margins that we generated this quarter -- this past quarter. You don't necessarily see that flowing through in the fourth quarter.

Okay. But your full year Crane margin guidance looks to be roughly about 6% implied for the full year which would -- given that you get a little bit better volume in the second half. I'm just trying to figure out what I'm missing here.

One thing that did you reference in your question, Charley, was crawlers, and I think that Eric's response really related to a little bit more to the order side than necessarily on the sales side late in the year.

Fair enough. And can you quantify, I don't know if I missed it, on the Foodservice side, how much was Europe down in 2Q?

Go ahead, Mike.

High single digits.

Rob Wertheimer, Vertical Research Partners.

So you guys gave a lot of helpful examples of the innovation that you have in the Foodservice business. Is there any more quantification you can put around it on, I don't know, the underlying innovation growth rate maybe being masked by the soft economy or an innovation index, and you can comment on whether that really helped -- your margins were great in both segments -- I'm just curious if the innovation or the mix of new products was higher in the Foodservice segment and therefore helped drift up margins?

Rob, I don't think it's necessarily a change from what we've had in the past. I think as you heard Carl talk and Mike talk about the rollouts that we have, it's when are some of these items introduced in previous years so it impacts the comparisons year over year, but I think we gave pretty good color on the Foodservice side. On the Crane side, there's a lot of new products that have come out, you have the RT150, you have the 6300L on the AT side. Those have all positively impacted our business, and I'll let Eric give a little more color on those. But I think -- you go back to what we've always done, and previous to the acquisition of Enodis, we always focused on 80% of our sales coming from new products generated within the last five years. As we went through 2009 and '10, we kind of tempered that a bit because it was more of an integration than anything else, but that's back to where we want to be. That's the strategic imperative we have for innovation. So it's something that we'll continue to invest in. It's just a pipeline, instead of us giving you that full number of what's in each segment, I can assure that new products continue to be the lifeblood of what we're going to do. But to speak specific to the Crane side, I know he Eric has a couple of examples that he can give.

Rob, it's a new products and the 9150s, our 150-ton capacity rough terrain cranes that we have introduced last year. And this year, it was a 6300L, our GMK out of Germany which has the longest boom in the industry. Those two products as an example have been through our quality initiatives, that is much more structural with more processes and a lot of testing prior to put these machines out on the streets resulting in very high customer acceptance, typically very high market shares, and very low warranty costs. So we're very excited at continuing that momentum with the new products. In the fourth quarter, we would launch our 6400 GMK out of Germany, the foreign return, the crane that we have very high expectations. And the product I just mentioned are really leaders in their categories. So we are very excited to continue the momentum. We have new products and our new quality initiative, what I call the new process that we've been using now since the last three years.

Rob, this is Carl. I know Mike wants to comment on some of the Foodservice innovations as well. But just to give you some quantification on the roll-on and roll-off aspect as you look at 2012 versus 2011, there wasn't anything that was singularly huge on that front in either quarter. But as you look at it in aggregate, we actually had about twice as much magnitude, $15 million of rollout activity that occurred in the second quarter last year versus about 50% of that in the second quarter this year. So it went down.

Okay.

Rob, I'll wrap it up with just a few other comments about Foodservice that we're extremely positive about. If you reflect back on the multi-million dollars investment we made in our Manitowoc ice line with the new Indigo line, our margins have expanded and our share continues to expand in all markets that we're participating in. So the investment is clearly paying off. If you move to beverage and you think of the evolving blended ice category, the fact that we've innovated around two type of products in that, it is putting us in a position to garner most of the market share with the largest user in Europe today. And then fast forward to the fryer category and the investment we're making on oil efficiency and energy efficiency, it's allowing us to regain and establish ourselves as a preeminent supplier of high end fryers to the marketplace. So our investments have been logical. We believe they've been leading in the industry. And they're paying dividends on many fronts.

Vance Edelson, Morgan Stanley.

Hi, this is Vikrum in for Vance. Thanks for taking the questions. Could you just talk about maybe share gains that you saw during the quarter and maybe what you expect going forward? You had strong backlog numbers with some of your peers probably not as strong. So just trying to get a sense of maybe where you're gaining share?

We typically won't talk about shares by product line. Obviously, some of our competitors don't have to do that same thing, so we kind of shy away from that. But I can tell you, just what Eric just said on the new product introductions and what Mike just talked about on the innovation, Mike just said on the Indigo ice machine line we're taking share. Eric just talked about the RT150. There's nobody else globally that has 150-ton rough terrain crane. So that is all of our share.

And then the 6300L has been very, very well accepted in the industry. So that's really the model of what we're trying to do. And I think as you go forward, it's simply not just competing on price, it's competing on features and benefits and lower cost of ownership. And we talked about the manufacturing strategy, we have a new line that we'll manufacture in Monterrey, Mexico. That's to take advantage of an entirely different product line that we don't compete in today. So that will be all market share gains. So we continue to do that, and again, I think some places, yes, we probably are maintaining or competitors may have taken some share, but I think globally around the world, when you look at it in aggregate, we're doing pretty well.

Okay, great. And then could you just maybe talk a bit about cash flow drivers going forward? Maybe and touch a bit on inventory where you think we are currently?

Go ahead Carl.

So on cash flow, obviously it's the enhanced profitability that we're experiencing this year. Cash from profitability will be significantly better and I think some of the working capital efficiencies is the story there. That we'll be able to -- despite the growth, still be able to generate the $150 million plus in debt reduction.

Ann Duignan, JPMorgan.

Can we talk a little bit more about what developments you've seen in Europe on the Foodservice side during the quarter and also in China, which end market was the driver of your lowered outlook? And just within Europe, where are you seeing the incremental weakness?

Go ahead, Mike.

As I commented earlier, and Europe has been our softest market, and that's been a recurring theme for the last few quarters, and we don't see it bouncing back quickly. The decline versus same period last year was high single digit. And we're just being very thoughtful about how we're investing in SG&A and other programs. Asia continues to grow well, albeit it less than expected. It's still mid to high teens growth across most of the region and most of our product categories. And our expectations for future years remains high. We had a bit of a pause in Asia in the general market which is generally a reflection of slowed or delayed projects that are now starting to kick in again.

I guess what I was getting at in Europe is geographically, which countries slowed most and where do you have the most exposure?

From a -- Spain has been difficult for us. Italy, a bit trying. Germany continues to do well for us. But the majority of the pressure has been UK, Spain, and Italy.

Okay, that's good. And then just a point of clarification in the opening remarks, you mentioned that now that you've opened your facility in Brazil that it would give you a competitive advantage as the first dedicated manufacturing facility for cranes. But Terex was very proud to show us their crane when we were down there at the crane show that is also manufactured in Brazil. So I wasn't quite sure I understood why you would have that competitive advantage because you have a dedicated facility.

Well, I think, Ann, what we talked about is it's dedicated and flexible. I don't -- I think there's a plant differentiation there versus what's the majority of product that's going to be there. I think if you look at what we have, while it's dedicated, we will have the benefits of the local content in the cranes that are produced down there, the infrastructure we have for the Crane side of the business. So it is not going to be a cranes and something else business. It's dedicated to the cranes. And so we can -- we got the RTs. We've talked about moving into tower cranes at a later date. So I mean that's why we said it. I didn't say we had the first crane come out in Brazil. I said we had the first crane facility dedicated to that production. So go ahead, Eric, if you want to add anything.

No, Ann, I think we are replicating things that we have done in the past. The rough terrains -- we have done the same localization process in Italy to produce rough terrains in Italy. And if you look at the tower cranes that we plan to produce in Brazil, this is the exactly same business model that we have done in China, then replicating in India, and we're going to replicate these two or three models in Brazil. So I think we have been through the learning curve. I think we have high efficiencies what we do. And again, the cranes are very strong in Brazil whether it's growth or the potential. And I think efforts to localize, I think we should be in pretty good shape.

Okay, so it's more about the brand recognition and now you're localized as opposed to you're the first dedicated facility?

We are the first dedicated facility. We didn't build the first crane, but we have the first dedicated facility just for cranes.

Okay, I'll leave it there. I'll maybe take it offline. Thanks.

Schon Williams, BB&T Capital Markets.

I wanted to just talk a little bit road and highway, I want to say somewhere around 15% to 20% of the Crane business. Have you seen any pickup among US -- in the US market related to the highway bill, and if not when would we start to see some of that?

Well, I think, Schon, when you look at the highway bill, I think there's a couple of things that are in play. A lot of that throughout the US, you're going to get that in the second and third quarter. But I think this is a good point of entry for what happens in November from an election standpoint in the US. I think while people like what happened, and they can get excited about it, and the more I would say the road paving and that kind of business, I think long-term people are waiting I think hesitant a little bit through the rest of the summer and in through the early fall and then 2013 will be -- I think you have a better indication of where things are going at that point in time for the long-term on the transportation bill.

Okay. And then just following up on your comments about you saw the crawlers maybe picking up in the back half. What end markets would that be? What geographies would that be? Is that based on maybe getting through some of these hurdles with the election or is that something else?

I think a little bit of it is that. I certainly have spoke to a lot of the customers in that area that, that is a wait and see mentality, but it's still in the infrastructure. I think you're exactly right. I think the roads and bridges have a lot of opportunities in 2013 in the Americas, but when you get outside the Americas it's still the oil and the gas, it's the infrastructure. You look and see what happened in India recently and the power grid, I think all that comes into play. So obviously, on the crawler side the Americas is our biggest market, but we do have opportunities throughout the rest of the world in other markets. But again, driven mainly by the oil and gas infrastructure and then here in North America, it would be roads and bridges.

Henry Kirn, UBS.

You touched on the currency headwinds in Crane, but could you flesh that out? How do currency changes impact both the competitive dynamics and then also the reported results in that segment?

Well the reported results impact for -- this is primarily a Crane issues as you can tell by the comments that we made. It was about $32 million in top line and pretty minor when you flow through to the operating earnings line, pretty insignificant. From a market standpoint --

From a market standpoint, we're the only crawler crane manufacturer in North America. So yes, if we're going to compete, most of our competitors are either going to be in Europe or some in Asia. And so just with what's happened to the dollar, there's a pricing competition just for us. So it's no different than the benefit we had several years ago and for the last several years. So that's the dynamic. That's all that changes there.

That's helpful. And on credit availability, have you seen any changes in credit or potential buyers, especially in the Crane segment, but also for global Foodservice?

We have really not seen constraints on getting deals done that have been driven by inability to get finance in any general sense at all. Obviously, things were pretty dysfunctional when we were in the dark days and have incrementally improved over time. I think one of the things that is a little bit of constraint around nonresidential construction is some of the availability in that end market, with a lot of these institutions de-emphasizing that sector. That I think is something that has an effect on us that's a negative from a financing standpoint, but as far as customers ability to finance, we haven't seen huge bottlenecks on that front. It certainly, in some of the emerging markets where the ease of getting finance is a little bit more challenging, that does have an effect, but overall, as a general comment, it hasn't been a huge bottleneck for us.

Charlie Rentschler, Butcher Goode Financial.

Charlie Rentschler, thank you. Two questions and they're kind of related, so I'll rattle them both off. First, are we two to three years into a crane cycle that's more or less like we saw in the last couple of cycles? And second, do you see significant deleveraging of your balance sheet in the 2013 and 2014 and how will this be achieved?

Well, Charlie, I would say to your first point, is the uptrend in this cycle similar to what we've seen in the past, and I would say I don't think so. I don't think we see it in the same way. I will use Carl's phrase that he has told me, it's more of a bathtub recovery where I think the bottom goes a little bit longer than what you saw in 2004, '05, '06, and '07. So that's the way we see that playing out and that's what we'll anticipate it. With respect to the deleveraging, I think the -- again, I'll paraphrase what somebody else said to me as we were talking about this. And the comment was, as we pay down our debt through the cash flows, and I think you can see that from an earnings standpoint, we can earn our way out of this. And that's paying down the debt, plus doing the -- getting the earnings up. And when you do that -- Carl mentioned in his comments, if we pay down the debt and get the earnings that we say we're going to get this year, you reduce your leverage by one full turn. So yes, we see substantial deleveraging when you go onto 2013 and '14.

Eli Lustgarten, Longbow Securities.

Just a quick peripheral question. Have you seen a change in mix of your customer base buying your cranes this year, particularly what percentage of your business is going -- of your sales are going to rental companies now versus let's say in the normal times?

No, we haven't seen any real change. The rental channel continued to be a high preeminent in the purchasing activities. I would say that we see probably the customer continue however to wait to the last minute to confirm their orders. And it's probably due to the lack of confidence or the projects, making sure it's well financed before they take that commitment. And that it's probably more acute in this quarter than what we have seen just recently. But in terms of segmentations, their inter channels condition to be the first one by far.

What percentage of your end market sales are to rental channels?

I would say probably around, Eli, it goes anywhere from 70%, 75%, it's a pretty high percentage which is consistent with, heck, the past five, six, seven years. So I don't think there's been a real change in that.

It's been relatively constant as opposed to going up in the last six months?

Oh, no doubt it. Yes, it's the same. Yes, we haven't seen a change in that.

And one more follow-up question. The cost of meeting all of the admission standards here and going around the world, have you been able to pass the world across at this point or are you still a little bit behind on the admissions costs?

Yes, I think that's -- I'm not sure you make that up, Eli. I think we can -- the hard costs of what a new engine is, I think you try to do your best to pass that on and show the benefits of what's happening. But I think when you look at it from an engineering standpoint, and the SG&A that is involved in doing that, I mean there's -- you couldn't pass that on. I mean I don't -- it's substantial. It's taken up 50% of our engineering time, and I don't think that is any different than the other competitors that are having to produce machines for North America. So it's a significant investment, but that comes to an end in 2014, and then we can continue to focus on newer products.

2013 expenditures will be the same as you go to meet final tier four?

Yes, I think it will be consistent.

Charley Brady, BMO Capital Markets.

Just quickly on the corporate expense line, it looks like that's ticked up a little bit. Should we expect run rate second half similar to first half or does it move up and down?

Yes, I think the run rate will be maybe a little bit less. One of the things that is a driver there is the equity compensation, which the corporate expense line picks that up for the entire enterprise. So there can be an ebb and flow to that.

And with no further questions in queue, I would like to turn it back over to Mr. Khail for any additional and closing remarks.

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

And this does conclude today's presentation. Thank you for your participation.