Manitowoc Company Inc (MTW) 2013 Q2 法說會逐字稿

Welcome to the Manitowoc second-quarter 2013 earnings call. Today's call is being recorded.

At this time, I would like to turn the call over to Steve Khail, Director of Investor Relations. Please begin.

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 Bob Hund, our newly appointed President of Manitowoc Foodservice, for our question-and-answer session.

For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning. Please visit the investor relations section of our corporate website at www.manitowoc.com to access the replay.

Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on July 30, 2013. 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 market, 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. The second quarter marked another period of solid results for Manitowoc, driven by the strength of our diverse and innovative product portfolio, as well as our steadfast execution across several key strategies including our manufacturing and lean initiatives. While macroeconomic conditions continue causing headwinds, we are encouraged by the conversations and outlooks across our global customer base. Additionally, we are confident about Manitowoc's opportunities for growth through the remainder of 2013.

During the quarter, our foodservice segment posted modest sales growth despite some customers deferring CapEx spending related to new store openings and other growth initiatives. However, several of these customers have accelerated their pace of spending as we've entered the third quarter. Based on recent customer discussions, we expect this trend to continue for the remainder of 2013.

While we maintained a healthy margin profile in the Business, we did experience a year-over-year decline during the quarter, driven by the execution of our manufacturing strategies in Tijuana, Mexico and Cleveland, Ohio, which are now virtually complete and will provide an incremental benefit to margins in the fourth quarter of this year. Positive sales performance in foodservice was driven by our success in various product categories, including results from the new products such as the NEO, our newest ice machine.

In addition, the rollout of our multiplex blend-in-cup units in the UK was completed during the second quarter, and I am pleased to report that additional opportunities for this product line have begun to gain traction across several key EMEA markets. This performance is testament to our diverse product offerings across the globe, as well of our ability to leverage existing customer relationships, all of which affords us with opportunities to accelerate long-term growth in this segment.

Before I discuss our crane business, I wanted to take a moment to introduce our new President of Manitowoc's Foodservice segment, Bob Hund. We are pleased to welcome Bob to his new position, and we are confident that his contributions to the Business will be a valuable asset within the segment. While Bob does not begin his position as Foodservice President until August 1, he has joined our call today. Bob has been instrumental in helping to drive our financial success and operational improvements within the crane segment, and brings demonstrated global leadership to Manitowoc Foodservice. Under Bob's leadership, his top priority will be accelerating long-term profitable growth by leveraging our competitive strengths in the segment. Consistent with our strategic imperatives, we will also aggressively invest in innovation by launching new product spending on ice, brine, refrigeration and accelerated cooking categories over the next 12 months. In addition, based on previously initiated plans in leveraging the success of our crane care business, we are pursuing growth initiatives in our after-market services and solutions for foodservice.

Moving on to our crane segment, our second-quarter results were encouraging, as we witnessed a 7.6% year-over-year increase in sales, and generated the highest operating margins in cranes since 2008. We are seeing the benefit of the initiatives we have put in place to improve and enhance our operations globally. While we experienced solid order intake around recent attendance at the Bauma Trade show, overall new orders increased sequentially but were down year over year. While the Q2 order intake was as strong as we've seen in the last few quarters, the year-over-year shortfall was reflective of the cautious CapEx spending environment within some end markets and geographic areas.

Overall, crane performance was driven by solid demand in the Americas region, as higher crane utilization rates and improving rental rates spurred orders across this region. In addition, we experienced continuing demand in certain emerging markets. Consistent with previous quarters, demand in western Europe, China and Australia remained weak.

From a product line perspective, demand across a variety of our product categories in cranes led to our improved second-quarter performance; which included increased activity in crawler cranes and large, rough-terrain cranes in the Americas, complemented by all-terrain cranes on a global basis. With another quarter of improving activity in crawler cranes, we believe we have hit the inflection point in crawler demand. Most of our product lines continue to be driven by strength in the energy and infrastructure markets, as well as a pickup in both residential and nonresidential construction.

Lastly, tower crane activity exhibits staying strength in parts of the greater Asia-Pacific region, as well as select emerging markets such as India, Turkey and Russia. However, this product line experienced ongoing softness in Europe, the Middle East, Africa and China.

More broadly speaking, conversations with our crane customers are increasingly positive, which suggests stronger growth opportunities as we look into the remainder of 2013. While a fair amount of uncertainty remains given the broader macroeconomic environment, we will continue to invest in the areas that will accelerate our growth, such as new product introductions and initiatives related to emerging market infrastructure.

We firmly believe that our recent and future product introductions are great investments for us and our customers because they offer exceptional quality, dependable performance, and optimal residual value. A few highlights are illustrated by the recent successes of our Grove RT770, a new 70-ton capacity rough-terrain crane, and the GMK 6400, a unique 400-ton capacity all-terrain crane that we displayed at the recent Bauma Trade show. We expect to continue to announce multiple new products over the coming months, including several new products that will premiere at CONEXPO 2014.

Moving on, let me provide a quick update on the implementation of several manufacturing and operational excellence initiatives that have been completed, or continue to take hold. As I mentioned earlier, the foodservice facility consolidations remain on track, in addition to the construction of our multipurpose foodservice manufacturing facility in Monterrey, Mexico. We expect customer shipments from this new facility to begin in the latter part of 2013. In cranes, our focus on reliability and product quality continues to resonate well with our customer base, as exemplified by our latest customer satisfaction index. With the release of our new products, the quality initiatives that we routinely undertake as part of our R&D efforts not only enhance our crane designs, but also ensure optimal product reliability.

In addition, we continue to deploy our Project One initiative across Europe and Asia. When fully implemented in 2015, our new ERP system will reunite and streamline numerous information functions across all of our crane operations, while also providing cost and efficiency benefits.

To conclude, Manitowoc's progress on several fronts further demonstrates our commitment to position the Company for long-term profitable growth. We will continue to pursue a consistent strategy that is centered on our global manufacturing network, process improvements, product innovation, and after-market services that all offer significant opportunities for continued growth.

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

Thanks, Glen, and good morning, everyone. We reported net sales for the second quarter of just over $1 billion, which is an increase of 5% from a year ago. GAAP net earnings for the second quarter were $57.6 million or $0.43 per diluted share, versus earnings of $45.3 million or $0.34 per diluted share in the second quarter of 2012. EPS excluding special items was $0.45 per diluted share in the second quarter of 2013, versus $0.34 per diluted share last year. EVA in the second quarter of 2013 increased by 37% versus the second quarter of 2012. This increase was driven by contributions from both segments, but more heavily weighed toward those generated by our crane segment.

During the second quarter, cash provided by continuing operations was $47.5 million versus $6.6 million in the prior-year quarter, driven by improved earnings, and partially offset by the seasonal working capital requirements in both segments. For the balance of 2013, we will remain focused on achieving our cash flow targets as we continue to prioritize debt repayment while also funding our growth and process improvement initiatives. We remain on target to deliver at least $200 million in full-year debt reduction led by cash from profitability. We expect the pace of our debt reduction to be similar to the normal seasonal pattern, which is to say that the bulk of the debt reduction will occur in the fourth quarter.

Turning to our segment results, foodservice sales in the second quarter of 2013 totaled $390 million, up 1% from a year ago. Second-quarter 2013 operating earnings in foodservice were $63 million. Operating margins of 16.2% were 90 basis points lower than the prior-year quarter. We continue to expect 2013 full-year margins to be in line with 2012 full-year margins. The second-quarter foodservice margin comparisons were driven by flat sales, material and labor cost increases, negative product mix, and the ongoing manufacturing initiatives in our key brands and product categories.

Moving to the crane segment, second-quarter sales totaled $657 million, a year-over-year increase of 7.6%. Crane segment operating earnings in the second quarter were $65 million versus $52 million last year, which is a 25% increase. This resulted in the second-quarter crane segment operating margin of nearly 10%, up 138 basis points. This year-over-year comparison was positively impacted by higher sales volumes, operational efficiencies, and favorable material cost realization. Crane backlog at quarter end was $726 million, a decrease from $944 million in the prior-year quarter. For the second quarter, new orders totaled $604 million, which represents a book-to-bill ratio of 0.92 times. Overall, new orders during the quarter declined 4% year over year, but increased 6% sequentially.

Before concluding my remarks, let me now discuss our 2013 outlook. As noted in yesterday's press release, we are reaffirming our guidance for 2013. For the full year, we expect mid-single-digit revenue gains in foodservice, and high-single-digit revenue growth in cranes. We expect to achieve a continuing mid-teen operating margin in foodservice, and a high-single-digit operating margin in cranes. We view full-year 2013 as a transition year for foodservice margins, where improvements in the core business will roughly offset investments designed to help achieve our long-term high-teen margin target.

Other guidance expectations include capital expenditures and interest expense of approximately $100 million and $125 million, respectively. Debt to EBITDA will once again decline more than 1 full turn to 4 times -- to below 4 times, approximately 50% of the peak level experienced in 2010.

Finally, we expect the full-year effective tax rate to be near 30%. This is a reduction in our original mid-30% guidance, primarily due to second-quarter favorable discrete items that drove the Q2 effective tax rate to 14.1%.

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

Thanks, Carl. To conclude, our second-quarter performance reflects benefits from strategic initiatives we have implemented over several years that position us well for long-term success. These include new product introductions, lean and six sigma implementations, and leveraging our global scale to drive improved performance. As a result of these strategies, coupled with the improvements we see in our end markets, we remain optimistic in Manitowoc's full-year outlook. Put another way, we remain confident in the areas of the Business that we can control, as well as in our ability to execute and improve the entire Manitowoc Enterprise, further positioning us for greater value creation and competitive success.

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

Thank you.

(Operator Instructions)

Andy Kaplowitz, Barclays.

Morning, guys this is Vlad Bystricky on for Andy, how are you?

Hi Vlad.

So, I just wanted to ask you about crane orders and your outlook, and so revenue through the first half is about $1.2 billion and orders are at a similar level but your guidance implies something around $2.6 billion in revenue for the year. So can you help us understand how you get to the implied second half revenue of around $1.4 billion given recent order levels? Are we missing anything?

Well, I think, Vlad it's always the same thing. You have units that our in finished goods that either are waiting, could be financing, could be shipment, boats, it can be a lot of different things. We talked about, I think in the first quarter, there's a certain shipments that we've held up due to manufacturing inefficiencies or quality issues that we just don't feel comfortable shipping the product right now and as we go through some of the new product introductions. So a lot of that comes into play when you look at the inventory levels, I mean I think you can see if there.

The other thing is, when you look left towards the back half of the year in certain product lines, there's still are incentives for customers as they look towards the back end of the year. And I would say primarily in the last few years you've seen crawler crane pick up like in the fourth quarter and especially towards the end of the year as people look and see where their balance sheets are at where their tax situations are at. And if you have it on hand you see that happened late November and in December. So, I think when you put all together, the orders that we expect, the conversations we've had, we're pretty comfortable with what we see in the crane side of the business.

Flipping it over then to the foodservice side, I think it again you look at flat where some of the guidance is implies a pretty strong second half. And that just the way the business has been trending and we're comfortable with what we've seen as we've entered the third quarter we have -- we've talked about the shipments out of Mexico for the new product line. We have some new product introductions that are coming out late third quarter and then to the fourth quarter. Just some of the things that we know with certain customers assuming they make the expenditures as they said, it's doable. So we certainly understand the concern but we also feel pretty good that we say we would confirm our guidance.

That's great, that's very helpful. Just a follow-up then on cranes can you update us on sort of what you're seeing in Brazil today? And whether your expectations for that market have changed versus what you were thinking coming into the year?

I'll let Eric talk to Brazil.

Andy, thanks for asking. Brazil is actually slowing down. This being said, our overall Latin America business is slightly up compared to last year. And it's offset by, of our economies in Latin America.

However, on Brazil we see the cost with our strategy we have now three products rough terrain cranes which are I would say localized, [bresin and artiste] so [a little bone] to the [synergy] finance. And we do intend to continue to have the products in our Passo Fundo facility so some two additional rough terrain cranes would be produced in that facility and plus we'll save the cost with our tower cranes because we believe tower cranes demand in Brazil will slowly grow.

So, we see the cost yes the economy is now were talking about 3% growth it's not what we expected, but we have our example that demonstrates it is nice to see the cost of these kinds of initiatives. For example in India we have a very difficult market right now. The Indian rupee has devalued 30%, we stayed the costs with our tower cranes factory, we have localized we're Indian tower cranes and we are seeing growth year-over-year now in India despite the very challenging economy. I think Brazil is exactly the same thing.

Okay, great that's good color, thank you.

Charley Brady, BMO Capital Markets.

Thanks, good morning, guys. Just wanted to go back on the crane orders for a second. Crane orders first half over first half are down about 10%.

Your guidance implies around $2.6 billion-ish for the year say, if you make the assumption that everything book gets shipped in the year which I know is not -- doesn't always happen stuff slips out beyond that I mean it implies a very, very strong second half order period relative to the last half, second half of last year. I mean is that in order of like 25%- 30% second half over second half. I mean is that math correct or am I missing something on that?

Carl? And then Eric, go ahead.

Well, Charlie as you know there's a certain amount that of activity that does get booked and shipped within the quarter. So there is some noise it can be created in just the straight math that I think you walked through. But directionally, I think you're right I think some of the optimism that were seeing and bringing some of the orders to fruition that we know about will be a component of what we expect to see in the second half of the year.

And maybe Charlie I can add a little bit of color. I mean on the new products, the GM K6 400 and the RT770 those products are being really tested in and out they are ready to ship and we start shipping in Q3. So we expect those products really to be a big champion and to drive significant order intake as we move forward that people can keep the tires in the field.

Number two we have seen this year so far a very soft business in the Middle East and in Africa. And we expect to see growing demand and we start seeing growing demand right now in countries like Saudi Arabia for example, or Kuwait, or Qatar, and even Iraq. So the softness we've seen in those countries we expect to see more activity moving forward into the year. And then North America we continue to see positive demand for our products so overall that's how we feel confident about our guidance.

Okay that's very helpful and can you just comment on the tower market? Any change since last quarter? I'm assuming not but just your comments would be appreciated.

Well, Charlie, the tower crane business continues to be very challenging in Europe maybe with the exception of Germany that's not a real surprise. Although we can see moving pieces like some customization of our rental houses. However, we are seeing very, very strong demand in some of our energy market Russia is one, one of the countries where we see very, very strong demand for tower cranes, India as I mentioned earlier and overall, greater Asia-Pacific.

Korea for example, is now a strong market for tower cranes. Singapore continues to be very, very strong and a lot of countries in South East Asia are strong so with the footprint we have in China with our factory of that service, this marketplace and again India where we produce, I think we are in a very good position to serve those markets.

Great, thanks very much.

Jerry Revich, Goldman Sachs.

Hi, good morning this is Ravi Gill on for Jerry. Glen or Carl can you talk about the actual impact that restructuring charges had into 2Q for the foodservice business? And then can you talk more about the margin expansion potential in 2014 from all the lean initiative that you're implementing in this year?

Well, as I think I mentioned on the earlier call the expectation is that we'll probably be really realizing the uptick in the margins that will enable us to be year-over-year flat as a fourth quarter issue for us in foodservice. And that's a function of exactly the first part of your question is asking about what was the impact in quarter from the manufacturing items which for us in the quarter was circle $4 million.

Okay, thank you. And then, Glen, in the crane business in the prior cycle you were able to achieve low- teens margins even before peak sales levels in 2008 when should we expect the crane business to deliver similar type margins this cycle? And to what extent is the driver going to be volume versus pricing?

Well, I think what you had in the last uptick I would say we didn't have some of the investments that we made such as; the PDC, such as the factory in India, the new factory in China, there were some --Brazil. So you do have a little bit of added fixed cost in some of the investments we made in emerging markets. So, that's one area, you really have to have.

But I would say I think you can see the impact that the manufacturing initiatives that we have had, just in the manufacturing changes that we've made for instance like right now in Europe whether it's in Williams Avnet our AT factory or some of the tower crane factories. I think you are seeing the benefits of the manufacturing initiatives, that you're starting to see the benefits of the manufacturing initiatives we put in place in 2007, say in Shady Grove or Manitowoc from an equipment stand point or welding equipment and so those the more value they come through the greater throughput we get to the bottom line because of those initiatives.

So the big thing is going to come from volume to grab the margins as they go up from where they are right now and almost to double-digit to get them to the low- teens a lot of it's going to -- I would say majority is going to come from volumes. The other thing is the mix has to change a little bit you've got to get a little bit better mix on towers and crawlers than what you have in the mobile hydraulics. So I think once those things take hold you're starting to get back to the margins that we've seen in the past.

Okay, thank you very much.

Schon Williams, BB&T capital markets.

Hi, good morning. Wonder if you could just update us on the status of the new China crane joint venture?

Go ahead, Eric.

Well, Schon, we have not yet gotten the formal approval from the Chinese authorities. We have got the trust approval from Beijing, we are expecting now the approval from the Month Kong and Chengdu province it should come any day. So I think we are making progress I would expect this approval to come in Q3. Of course we don't control this, this is in the hands of a government but we are confident that we should see it coming very soon.

Okay. And then just on kind of stay on crane's incremental margins picked up nicely in the quarter running in the high 30s here I'm just trying to get a sense of, I mean, it sounds like the mix is helping the margin profile in cranes. But I'm just try to get a sense of how sustainable is incremental margins in the kind of mid- to high 30s should we expect something more like Q1 kind of a low 20s? Can you just give a little clarity there?

Yes, Schon I'm not sure what you may have been looking at a legacy Q2 number for 2012 I think the math on the reported Q2 is closer to low 30s in this environment. We did get some benefit from the mix, probably a little bit more than what we would've expected with some additional year-over-year crawler contribution in the second quarter. So that's in terms of our expectations for the year again you got to go back to the original guidance that we gave as you look at it from the full-year it would put you somewhere in that 25% to 30% incremental.

Okay, but you would expect that mix benefit should at least maintain or accelerate over the coming quarters is that right?

I would think that there would be opportunity for us to push that to Glen's point, when we start to get a little bit better overall product mix with contribution from towers and crawlers. Coupled with a continuing improvements that we're making on our efficiencies which we're experiencing real-time.

All right, thanks for the color gentlemen.

Mick Dobray, Robert W. Baird.

Good morning, gentlemen. Just sort of sticking with crane and this question has been asked several ways this morning. But I guess I'm wondering looking at orders in the quarter can you maybe give us some color about conversion of orders that you might have gotten from Bauma was that pretty much in line with what you expected initially? And how did that order trends progress through the quarter?

I would say back to the Bauma orders, we obviously had a lot of discussion about that on the last quarter and I would say again we were pleased with the order intake that we had in the quarter. But as I said, last time you -- the reason we don't report some of those because you're not sure how many people brought in orders to the show that would have made them and made the order in May or June. So I would in all honesty the orders weren't as robust in the back half of the quarter as they were in the front half of the quarter. It's really that simple.

But I think as you look at the normalized pattern that we have in the first half of the year I mean it's certainly acceptable to us as we move forward. Eric do you have anything to add to that?

Glen, just to be clear one of your competitors has said they've had a bit of a harder time converting some of the opportunities at Bauma 's into actual orders. I'm trying to understand whether or not you saw something similar or maybe you've done frankly better than that?

I'm not -- I don't necessarily know. I think there's if I -- I guess I wouldn't categorize it as having trouble converting if there are one or two deals that didn't convert I don't throw those couple deals as bad eggs on the whole group, so I don't know but I would characterize as that.

Eric? Do you --?

No coming to my mind we had one large order coming from the Middle East that we could not convert into a firm order this quarter. But that's the only one that comes to my mind.

Great, that's helpful. And I guess my last question here is, maybe a little bit of color on the competitive environment overall in crane. Have you seen any changes year-to-date? Any color there would be helpful.

No I think -- I don't think it's any different. People -- it's a competitive environment you have to sell your features and benefits again we aren't the cheapest on the market sometimes we're not the most expensive either. So, I'm not sure that I see a big change.

I think the one area that maybe you see is with the strengthening of the dollar the maybe some of the European customers are been a little more aggressive. But I don't know that's really any different than what you see over a normal course of 24 months - 36 months.

Great, thank you.

Seth Weber, RBC Capital Markets.

Good morning, guys. Just following up again on some of these questions, I mean can you comment on whether net pricing is positive for the crane business? And I guess for foodservice as well?

Yes on both.

Okay. And how much of that is just a related to input costs going down or are you actually getting absolute price increases?

I think you have the benefit of both on that Seth. The pricing, where it can is holding a bit, but I think we are having some pretty good success whether its product cost, take outs, or the sourcing initiatives. Commodities have held pretty well this year.

And the way I might describe it Seth, I think given some of the earlier pressure that we saw as we were coming out of the cross environment we took some pretty aggressive pricing action when we saw steep slope of the curb on the cost. And I think we've had the luxury of not needing to raise prices to the same degree recently because we have seen a little bit more cooperation on the cost side of the equation.

And Seth the investment we have made on the quality of our products since now three or four years is also kicking in and we see really improvement in our cost of poor quality as well.

Okay, thank you. And I guess just going back to the crane margin the China JV hasn't closed so are you still absorbing the cost from the original partner there? Does the second quarter margin reflect a loss from the original agreement then, in China?

It's apples to apples, yes.

Okay so that should get better than?

We will just continue to absorb that cost.

You're absorbing that cost and that should, you think that, that reverses out then here in the third quarter?

That's our expectation. I will be honest, we thought we were hoping to get that late in the second quarter.

Sure.

But there's really one last approval we need we're down to it and I certainly would expect it would happen on the third quarter.

Okay.

To be clear Seth from an EPS standpoint, we'll make a big difference it will make a difference in the crane operating margin I think to the point of your question.

Right. So, the margin should get a tailwind going forward, then?

Once we get a close point, not until that point.

Correct. And I guess just lastly, anything on the financing side -- are you seeing anything with crane financing getting easier, harder across the board?

I think it's pretty consistent. We obviously have probably more challenges in emerging markets just because of the development of finance availability in those types of markets that can be difficult. But I would say overall it's been pretty consistent at a reasonably healthy level. What we might want to see a little bit more aggressiveness from the financial community would be in some of the real estate type projects that would probably come online faster if there was greater availability of finance in that end market.

Okay, thanks for the color, guys.

Ted Grace, Susquehanna.

How are you doing. Either Carl or Eric is there any chance you could provide kind of an EBIT bridge if you will for cranes? I think we've all been really impressed with incrementals, particularly in light of the fact that the China JV is still being consolidated. So, one thing that might help us on the call is if you could maybe say look, pricing is X, better costed Y and ERP was X and Brazil was Z. And just help us bridge how you got $46 million of revenue growth, $17 million of incremental operating profits?

Well obviously, we do get the benefit of growth that you combine that with a little bit of pricing that's well into over $10 million on that front. We talked about the manufacturing efficiencies and cost benefits, that's on the order of not quite as high, but still pretty impressive, close to $10 million.

We talked about cost reduction on the material cost side, that was a benefit of certainly several million dollars. We talked about the quality enhancements that's another handful of million or so. And obviously we've got some things on the cost push side, and inflation side that offset some of those benefits that we've seen, that bring it to the reconciled level of year-over-year operating income.

And the offsets are labor and benefits and things of that sort? Or what particulars should we be thinking about that regard?

Yes, a little bit of overhead, some engineering expense, that's -- we've got a little bit of ERP year-over-year, not a lot because we've been investing last year as well, but there's a little bit of increase on that front this year over last year.

Okay. And the next question hopefully I don't embarrass myself asking this but, I guess the way I typically thought about the business is, customers place orders, cranes get built according to those orders. Just to understand Glen's prior comments on inventories, should we assume that the Company actually builds product kind of to hold an inventory so kind of at risk, so that it can fulfill expected orders faster?

Yes. I mean that's true. Let's be honest it's not -- when you have some of the lead times that you have on some of the components, Ted, you have to be buying some components based on at least a reasonable forecast. So, what we try to do on some of the bigger units and longer lead times, we have what we call hedge packages on certain items and that's what you're trying to get and then you can get the rest and get the throughput.

So it's really a matter of when we were back in the days when you had 14 month lead times that's a competitive disadvantage of somebody trying to get into the market. So I think the market's changing a bit because I think customers know they don't have to pull trigger as early as they have in the past. And so if you have it available that's exactly what you're going to do. So I wouldn't say that we just build to stock, that's certainly not what we're doing but you do have a little combination of what are hedge packages versus what are build-to-order.

And so, I think --

Now I just wanted to add one thing that has not changed in the market dynamics is that the crane's end users they really wait till the last minute to place their orders whether it's through the distribution channel or elsewhere out, depends on how we go to the market. So that's really something that has not changed it's probably goes everyone is very cautious, so that triggers a little bit of how we have to manage inventory.

A big maybe being a little modest their because I think part of the also may come from our efficiencies that we've improved efficiencies that enable customers to have that luxury to wait a little longer.

We've been working very hard with our supply chain and we have a lot of unique initiatives in that respect to obviously improve availability as much as we can in the plants.

So then the last question on the back in queue is can you help illustrate kind of what's the time to wait would be if I were to place an order for a crawler today just say a midsize crawler. Could you start manufacturing now and how long would it take to actually get that unit out the door? And then maybe if we could just understand the same kind of time frames for call it RT's and AT's?

The thing is, Ted the answer is and I know you don't want to hear it, it depends. If you are in the US you got to remember our distribution base that's exactly what it's for. So if you're going to buy direct if you're a national car or whatever their our things that we have conversations going with those customers on a regular basis.

And so again I hate to say it depends but the throughputs are a lot different for a 16,000 crawler crane than it is for a 90 ton RT or a 50 ton boom truck or a self erecting tower crane. And so I mean it's a different cycle for everything but I can tell you that based on what we have and the flexibility we have around the globe. If there are certain customers that say hey, like my job may have got pushed back go ahead and take that one I'll take the next one and it can be within two weeks. So, again I hate to say it depends but when we try to it as fast as we can.

I was just trying to see if there's any kind of illustration in that to go back to Vlad's question if you were to get an order for a crawler in November is it conceivable that it could translate into incremental revenue in December without being like hey we are going to trade slots with somebody who wants a later so net-net is actually incremental revenue to the Company more units?

And the answer is yes. Some of that is based on what we, we look at seasonal patterns, we look at trends, we look at discussions with customers. And that's why we end up at the end of December or the end of any quarter we do have finished goods on hand. Which we can use the term orphan which means there's a crane that sitting there that doesn't have a name on it but I can tell you that it's not a significant amount in inventory that's an orphaned item.

Eric, whispered to me that he could get you that crane before the end of the year Ted, we'll talk price after the end of the call.

You take IOU's? Okay great, thanks a lot guy's good luck this quarter.

Thanks.

Rob Wertheimer, Vertical Research partners.

Good morning, it's Joe O'Dea on for Rob. First question is just you called out the positive contribution from crane care in the quarter, just curious if sort of sequentially that, that's stepping up and if it's a sign of more equipment going back to work? Or on the flip side if there's any indication of customers may be extending equipment life and doing a little bit more servicing side?

Certainly we don't give specific financial information by product line or category but we certainly have called out the crane care existing growth there it tends to be I would say a good concurrent indicator of what's going on in the marketplace when we do see improvements. It does reflect typically that the utilization rates are driving some of that crane care there business for us.

Okay on foodservice typically 4Q will must see a sequential decline from 3Q on the margins. It sounds a little bit different this year. So just looking for maybe a breakdown of how much of that difference is going to be driven by product introduction timing? How much is unique demand pattern in the year and how much is just based on the new manufacturing coming online?

Obviously when you look at the last year margin you would, to stay at that flat level you'd have to see some incremental improvement in the margin, and I think that opportunities certainly exists. Where we expect to see a little bit greater benefit to make up for the first half of the year, to get to that flat margin is a fourth-quarter benefit.

Okay, thanks very much.

Ann Duignan, JPMorgan.

Hi good morning, this is Damian on for Ann.

Hi, Damian.

First on cranes can give us a little color on how the crane orders look in July? Have there been any significant changes since the end of the quarter?

We typically report the backlog and the order flow on a quarterly basis. But I think the ability for us to call out our expectations for the full year guidance I think reflect what we've been saying real-time in the business some decent activity.

Okay. And then I guess just turning quickly to foodservices should we expect the majority of the benefits from your initiatives for margin improvement to materialize in the fourth quarter? Or are we going to see the lion share of the show up in 2014?

Well you will start to see it in the fourth quarter. It will impact the margins in the fourth quarter but then obviously you're going to get the full-year run rate in 2014 and that will be full-year run rate.

Okay, great.

Both Tijuana -- well all Tijuana, Cleveland and the Nevada product line.

Great, thanks very much.

Steven Fisher, UBS.

Hi, good morning. Just on the foodservices you mentioned that several customers have accelerated their spending going into Q3 could you just give a little more color on what's driving that spending acceleration?

Well, when you look at any year -- anytime you have certain customers that you're talking with and they kind of plan their spend for the year. And I think they watch what happens during the year, they watch what their franchisees are telling him, they watch what other investments their franchisees have to make in the business and then they pull the trigger when they feel it's necessary.

So, we make our best guesses as to when we might have these expenditures and I think some of it was -- not think, we know a bunch was deferred in the first half. So you have these conversations, the relationships you have and many of them have committed and that's what I'm going to say, committed to doing what they said they were going to do on a full-year run rate which means they've said hey, make sure your supplier base is on, make sure you're manufacturing is there. So we expect that to happen and as we said in the commentary, we've seen some of these already happen in July back to the last comment what have you seen happen in July and we've seen that ramp up.

So as long as the spigots is not turned off we believe some of the deferral's will be made up over the back half of the year. So I won't give specifics, I don't want to lay out any customer names or anything like that but, as I said earlier you look at whether it's the, our Nevada product line you look at some of the prime things that are going on. It's really some of the beverage products, it's really across all product lines and different various customers so that's really what, how we base our commentary on what we see.

Okay, thank you very much.

(Operator Instructions)

And there are no further questions. I will now turn the call back over to Mr. Khail for closing remarks.

Before we conclude today's call I'd 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 that concludes today's conference. You may now disconnect.