Manitowoc Company Inc (MTW) 2014 Q2 法說會逐字稿

Ladies and gentlemen please standby, we are about to begin. Good day everyone and welcome to the Manitowoc and Company Incorporated second quarter 2014 earnings conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Mr. Khail. Please go ahead sir.

Morning everyone and thank you for joining Manitowoc's second quarter earnings conference call. Participating in today's conference call will be Glen Tellock, Our Chairman and Chief Executive Officer; Carl Laurino, Senior Vice President and Chief Financial Officer; and Bob Hund, President of Manitowoc Foodservices. Glen will open today's call by providing some introductory remarks about our quarterly results and business outlook.

Following that, Bob will comment on our foodservice segment results for the second quarter as well as sharing his longer term goals and strategies. And Carl will discuss our financial results for the second quarter from an enterprise and segment perspective. Following these prepared remarks, we will be joined by Eric Etchart, President of Manitowoc Cranes for our question-and-answer session. For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 reply. Before Glen begins his commentary, I would like to review our Safe Harbor Statement. This call is taking place on July 31, 2014.

During the course of today's call, forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, will be made during the speakers remarks and during our question-and-answer session. Such statements are based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission, which are also available on our website.

The Manitowoc Company does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or other circumstances.

With that I will now turn the call over to Glen.

Thanks Steve, and good morning everyone. Our second quarter results fell short of our expectations in both segments. Our disappointing performances driven by softer crane revenue as a result of the uncertainty spanning our end markets and the limited margin expansion in foodservice. That said, we continue to manage the business in challenging times by focusing on those areas within our control which will undoubtedly position us well as our end markets improve.

Within the segments, foodservice generated sales growth in the third consecutive quarter with sales up 4% year over year. This increase was driven by growth in the Americas EME that included the successful rollout of blended beverage equipment EME and hot holding, ice and beverage equipment in North America. In addition, KitchenCare, our aftermarket services and support solutions for Foodservice, continue to positively contribute to the segments performance during the quarter. While our operating margins did not expand as we've anticipated, it is important to note that we have made significant strides in realigning the business in such a way that will deliver superior performance over the long term. Bob will discuss our Foodservice segment in more detail momentarily.

Moving onto our Crane segment, our second quarter sales declined 6% year over year, and consistent with last quarter, global demand pressures and widespread customer caution, continue to weigh on our results. In the second quarter, orders were impacted by sluggish market conditions in the North American rough terrain and boom truck product categories.

Softness in Brazil and the Latin American markets, coupled with the on weakness and ongoing delays in Russia, also contributed to the decline. Lastly, while the European economy is improving modestly, end market demand for Crane still remains choppy in this region.

That said, we will continue to see positive dynamics from recent quarters in the Middle East, where performance and growth and tower cranes indicate that activity in that region is strong. While our sales in North America were softer than we anticipated, we are experiencing solid traction with our color crane product line in this region.

In addition, utilization rates have also seen further growth was some product categories at full utilizations while rental rates are experiencing only modest improvement. While we were disappointed by our order intake in the second quarter, there continues to be strong levels of inquiries.

We are encouraged by the prospects and pipeline of projects for our Crane segment. Additionally, our North American dealer inventory for rough terrain cranes is trending in the right direction. After peaking this past February, rough terrain inventory during the quarter decreased to its lowest level since October of 2012, and continues to trend lower. Additionally the ABI, leading into center of construction activity is at its highest level in the past 12 months.

As a result, we expect overall growth to resume in the coming quarters, with stronger demand in North America, where we believe customers will begin to increase their level of activity, after delaying projects for varying reasons. Overall, our market-leading product portfolio in diverse geographic footprint give us confidence both in our strategy and long-term opportunity to drive market share.

Moving on, let me now provide a quick update of our implementation of several strategic priorities that should drive long-term value for the enterprise. First, the ongoing implementation of operational excellence and quality initiatives remain key priorities. These initiatives include sourcing, lean, reliability and organization efficiency gains. Examples include: construction of our multipurpose foodservice plant in Monterey, development of a shared services platform in France to streamline our tower crane operations, expansion of our product verification center processes worldwide, organizational realignment from a regional to product approach, and lastly hiring of a Senior Vice President of Global Sourcing Excellence to accelerate our global sourcing initiatives.

Going forward, these investments will continue as they not only improve the cost structure of the business, but also accelerate our product development processes. Through the first half of the year, we have already realized more than half of our full year $80 million-dollar gross savings targeted for 2014, further underscoring the success of our efforts to identify and execute on discrete areas where we see opportunities for savings.

Second, we continue to further differentiate our aftermarket support business to increase revenue and customer loyalty. Our kitchen care and Crane care support programs provide customers with total lifecycle support for all Manitowoc products.

Third, we continue to emphasize our information imperatives across the enterprise. For example, in foodservice we showcase some of our new and innovative products in both our hot and cold categories at the recent National Restaurant Association Tradeshow. Including our blend-in-cup beverage units, Convotherm 4, convo oven technologies and the US launch of KitchenCare.

In cranes, our new products and technology enhancement continue to be well received as reflected by the continuing strong demand for our new LCD color crane technology introduced at ConExpo. Testing for this product is going well, and we anticipate initial shipments to begin in the second quarter of next year. In addition, this patented technology was recently validated by a preliminary ruling in the US International Trade Commission proceedings.

To conclude, while the first half of the year tracks lower than we had anticipated, our market position remains strong and we are committed to leveraging our core competencies and strengths to drive the performance, including new product introductions and investing in the business to drive enterprise wide growth. Our ability to readily and efficiently adapt to dynamic market conditions will play an important role in our performance for the remainder of 2014 and beyond.

With that, I will turn the call to Bob for discussion on our Foodservice segment. Bob?

Thank you Glen, and good morning everyone. Foodservice experienced another period of growth during the second quarter, which also outpaced overall industry growth projections. This was driven by increased activity in select product categories along with certain end markets. As Glen noted, this included a successful rollout of blended beverage equipment in Europe, as well's momentum with our KitchenCare aftermarket services offering.

Geographically, we saw good growth and the Americans and in the EME regions. And with solid order activity, especially in the hot side of our business, we are encouraged by the opportunities ahead of us. Looking our product categories, the cold side business in America is performed well as we had strong Indigo ice machine orders during the quarter. In addition, our cool air ice machines drew positive momentums towards the end of the quarter. On the hot side, we continue to experience early customer adoption of our new Convotherm 4 oven with the formal rollout of this innovative product line slated for September.

While the performance of our Americas oven consolidation lagged during the quarter, we are confident in the Cleveland facilities long-term contributions once this consolidation is complete and we begin to realize operational benefits from this important initiative. During the National Restaurant Association tradeshow in Chicago we experienced strong booth traffic and our interaction with customers centered on innovation and the new standards of technology that our products are creating across the foodservice industry. This was best exemplified by the kitchen innovation awards that we received for Garland's induction flexing hub technology and the Multiplex manual fill blend-in-cup system. Manitowoc Foodservice also received a sustainable supply award from McDonald's in recognition of our ability to identify opportunities and apply sustainable solutions globally.

Looking forward, our customer centered strategies coupled with the realignment of the organization should provide solutions based synergies while leveraging economies to scale. As a result, we are able to combine leading products and services with unique solutions that improve customer profitability. More specifically, we're diligently focused on the following initiatives which are all consistent with our strategic priorities.

First, through are customer focused approach we are implementing regional growth strategies across key markets. Expanding our KitchenCare offering and continuing our sought after high-performance kitchen innovation workshops directly inside customer kitchens, or in one of our demo kitchens located throughout the world.

For example, in just the last few weeks we've conducted workshops at a growing fast casual chain in India, another fast casual chain in Canada, a US convenience store chain interested in growing their foodservice offering, as well as growing international pizza chain and casual dining breakfast chain. Our ability to provide meaningful solutions for customers challenges and opportunities creates incremental value, that not only differentiates us from our competitors, but also allows us to grow alongside our customers.

Second, we are realizing lean improvements in product cost take outs. This is being done in conjunction with our manufacturing business consolidation strategies, as well as continuous improvement initiatives in other locations.

Third, we are pursuing improvements in our market coverage processes, with guidance from our loyal channel partners organized into councils, we are implementing an automated an online fulfillment process while ensuring broader account coverage and deep channel penetration in a variety of foodservice and food markets. Four, we are committed product and service excellence through our alignment of product strategies with market segment goals. This is exemplified by a recent work with an ingredient supplier, so that individual restaurants, beach bars, hotels or small chains can have wholesale access to pre-bagged ingredients, to take full advantage of our highly productive blended ice machines with the complete selection of beverages.

Another example is the substantial power savings and reduced water consumption in our new Convotherm 4 oven and kitchen connect equipment monitoring solution both of which are welcome by chains focused on protecting the environment and achieving cost reductions. Lastly, our industry-leading reliability and product quality continues to resonate well with our customer base as highlighted by the extensive testing by our new cool airline of mid-tier ice machines which has had an essentially problem free introduction.

Looking forward, we remain on track with our strategies in the foodservice business. The investments that we have made and will continue to make are critical to driving our growth, while further capitalizing on our product development and world-class innovation. When combined with our diverse product offerings across the globe, as well as our ability to leverage existing customer relationships, we are strongly positioned to capture the opportunities to accelerate long-term growth in this segment.

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

Thanks Bob, and good morning everyone. We reported net sales for the second quarter of $1 billion which is a decrease of 2% from a year ago. This topline performance resulted from 4% increase in foodservice revenue on a 6% decrease in cranes. Gap net earnings for the second quarter were $46.6 million or $0.34 per diluted share versus earnings of $57.6 million or $0.43 per diluted share in the second quarter of 2013. Contributing to the year-over-year decline in net earnings is the provision for income taxes of $19.2 million, that is more than double the $9.3 million tax expense incurred in the second quarter 2013 which significantly benefited from certain discrete items.

Excluding special items, second quarter 2014 adjusted earnings from continuing operations was $47.8 million, $0.35 per diluted share versus adjusted earnings of $63 million, $0.47 per diluted share last year. During the second quarter cash provided by continuing operations was $73 million versus $48 million in the prior year quarter. Driven by cash from profitability and partially offset by seasonal working capital requirements in both segments.

For the remainder of 2014, we expect continued cash flow generation which we will allocate to fund various growth and process improvement initiatives as well as debt repayment. We expect the pace of our debt reduction to be similar to the seasonal pattern in prior years, meaning that the bulk of our debt reduction will occur the fourth quarter. As previously communicated we expect to reach total leverage of less than three times debt to EBITDA by the end of the year.

In terms of capital allocation we remain dedicated to maintaining a strong balance sheet while making prudent capital investments. As we continue to pay down debt our lower leverage will enable us to evaluate our capital deployment that generates the highest risk adjustment returns. These include strategic acquisitions to grow our industry-leading position, share repurchases, and/or dividends strategies.

Turning to our segment results, foodservice sales in the second quarter of 2014 totaled $407 million, up 4% from a year ago. Second quarter, 2014 operating earnings in foodservice were $65.9 million. Operating margins of 16.2% we're flat compared to the prior year quarter. Second quarter foodservice margin performance resulted from operating efficiencies driven by key manufacturing strategies that were largely offset by poor absorption and certain factories and unfavorable product mix.

Moving to the Crane segment. Second quarter sales totaled $606 million, year-over-year decrease of 6%. Same segment operating earnings in the second quarter were $54.4 million versus $70 million last year. This resulted in a second quarter Crane segment operating margin of 9% down 180 basis points. This year-over-year decline was a function of lower sales volume that was only partially offset by ongoing operational efficiencies.

Contributing to the margin decline we're year-over-year increases in engineering, tradeshow, and legal expenses. Backlog at quarter end was $728 million essentially equal to the prior year quarter. For the second quarter, new orders totaled $491 million which represented a book to bill ratio of 0.8 times. While new orders during the quarter decreased 19% year-over-year for the first six months of 2014, Crane orders increased 4% compared to the same period in 2013.

Before concluding my remarks, let me now discuss a 2014 outlook. As noted in yesterday's press release, we are updating our guidance for 2014 for Crane segment revenues and Foodservice operating margins, as well as our full year effective tax rate. For the full year, the company now anticipates Crane segment revenues to be flat to slightly down as compared to revenues for the prior year period. This revised outlook is due primarily to weakness in select markets such as greater Asia-Pacific region, Russia, and South America, as well as continuing softness in the rough terrain product category.

In addition, Manitowoc now expects Foodservice operating margins for the full year 2014 to be in the mid-teens or roughly flat to 2013. While the effective tax rate is expected to be in the mid-teens percentage range. The company is reaffirming the remainder of its full-year outlook including Crane segment operating margins and Foodservice revenue. Inherent in our guidance is the expectation for improved demand in cranes as well as progress with our new product and KitchenCare foodservice offerings.

For the full year, we continue to expect mid-single digit revenue gains in foodservice and high single digit operating margin in cranes. Capital expenditures and interest expense in 2014 will approximate $90 million less than $100 million respectively. We also anticipate total leverage will decline to below three times debt to EBITDA, well below half the peak level experience in 2010.

With that, I will return the call to Glen for his closing comments.

Thanks Carl. To conclude, we continue to be faced with a challenging and uncertain global economy. While we can't control the broader markets, we will continue to make important investments where we see the largest opportunities for growth, and focus on the aspects of the business that will drive incremental profitability improvements.

Collectively, these efforts give us confidence that we can achieve our full year profitability objectives. The strength of our product offerings, as well as our commitment to innovation, product quality and reliability, as well as our sourcing and growth initiatives will enable us to drive long-term profitable growth as the markets improve.

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

Thank you, Sir.

(Operator Instructions)

We will take our first question from Andrew Kaplowitz from Barclays.

Good morning.

Bob or Karl, can you give us more color into the Foodservice margin performance? You said you achieved about half of your $80 million in cost cutting for the Company. But now we're talking about a decline in margin year over year in the back half of the year.

So maybe you could give us a little more color of what is going wrong. Maybe can you talk about the negative mix and the lag in the Americas ovens consolidation? If you can quantify any of these pieces for us, that would be helpful.

Andy, this is Glen. Good morning. In simple terms, with respect to that, I want to touch on the $80 million. We haven't broken it down, but it includes two things.

It is the organizational savings from both Cranes and Foodservice, which are both on track. And it includes the sourcing initiatives from both Cranes and Foodservice. And I would say, in Foodservice and Cranes, both sides of that are on track. And that's why it's coming from both sides.

Where the Foodservice margins declined not to our expectation is, first of all, there was the mix issue, which you already talked about; and Bob can talk a little bit about that. I would say the other one, as we mentioned, is what's going on in the ovens consolidation. We expected some things to be done there earlier this year because, you remember, we talked about it late last year.

And so we had forecasted a decent quarter of opportunity there. And it hasn't come to fruition, to the point where a good portion of the management at that facility is no longer there. We've brought in a consultant that we have worked with in the past, and he has worked for us in the past. And at the same time, we have a new General Manager there.

So as one of our people says a lot, we have the boots on the ground there. And I would say within 90 days, we would be back to where we anticipated us to be. Unfortunately, we've lost, I would say, anywhere between four to six months of that expectation. And it won't be made up by the end of the year. Thus, the reduction of the Foodservice forecast in margins.

Bob, I don't know if you want to add onto that.

Yes, just a little bit on the mix. It's just within some product categories.

For instance, we sold some more lower-end fryers and higher-end fryers due to the customer base that's ordering. On the beverage side, we sold more of the carbonated soft drink product than we did the blended ice products. On the walk-ins, a few larger deals and lower-margin categories we're fulfilled in the second quarter than some of the traditional stuff. Those types of things -- and ice, the ramp up of cool air, which is ramping up now pretty well. Those four product categories in particular kind of change the mix of that.

Okay, that's helpful.

Maybe this question is for Eric. If you can step back and talk about the Crane cycle in general. We always seem to have a summer swoon in orders. It's not that surprising.

But how does the environment this summer compare to past summer swoons? Did North America actually get worse in the quarter? I know you mentioned inventories got a little better. But did North America actually get worse the quarter than last quarter? Or was this more pull forward from ConExpo this year, and maybe a little bit of an overhang from that in Q2?

Good morning, Andy.

No I really think that the lag is really coming from North America. It was a very disappointing for us. As you know, we tried to market. And this market was down above 30%, which was very significant for the rough-terrains and a little less for the boom trucks. But I think this is where we were caught by surprise.

And we have, of course, some good signs now. And the inventory of the SUVs is a very good sign because we were fairly unhealthy after a very strong fourth quarter. So after the tough Q1 and due to the winter, then the second quarter was definitely slower than we anticipated.

Now, in terms of the order that we received -- and that was really again driven by the inventory -- now, if we look at the order activity of our distributors in North America, and the amount of projects and tracking the view of the business, we are fairly confident that we should see a much stronger second part of the year.

Okay. And towers and crawlers, where they down in the quarter too? Or just rough-terrain?

No, it's primarily rough-terrains and boom trucks. Crawlers continue to show a lot of strength; and towers, of course, in America is improving. But where we see really upside in the tower cranes is a very strong Middle East activity. And the Middle East activity is on full lag. It's not anymore in Saudi Arabia, as it used to be before. We've seen a very strong demand now in countries like UAE, Qatar, Oman. And so we have a much broader view of what's happening in the Middle East.

Thank you.

Next we move to Charles Brady with BMO Capital Markets.

Hello, this is Patrick Wu standing in for Charlie. How are you?

Hello, Patrick.

Quick question on the crane orders, obviously with the decline. How much of the orders in the second quarter are expected to be recognized in the next 12 months? And how much of that will be expected to be recognized beyond next quarter?

Beyond what was taken at ConExpo last year that we did report, there were some orders that did extend beyond 12 months. Everything that was added in the order book was within 12 months.

Was there any order slippage that drove the crane order number down during the quarter?

I think it's the normal market dynamics that Eric talked about. I think at the same time, in my comments, I made the reference to, I would say, more in the North America dealer inventory when, as we said, it peaked in February. And I think what they're doing is they're selling out of their fleets right now. And so we watch that; it's certainly more normalized now. So I don't think there's anything specifically that made the slippage, other than the market being down, as Eric just said, 30% with the inventories they had.

I think when we talk to our dealer base now, towards the middle and the end of the quarter -- and we have spent a lot of time with them -- to Eric's point, there is a lot of activity out there. And we have watched the retail activity of the inventory from the from the dealers come down substantially.

Okay, got it. Just one quick one on the Foodservice side. The product rollouts for EMEA and also in North America, how much did it boost sales for the second quarter? And do you think that is realistically sustainable for the sustainability of these rollouts moving forward in 2H?

Well, go ahead, Carl.

I just was going to clarify the question for Bob. Just the roll on/roll off effect of new roll off anticipated versus what rolls off going forward in the last back half of the year Is that the question?

Yes.

We've had, I guess, continuous rollouts. I don't think we've had any that we're extraordinary outside of what we usually do. That one in EME finished. We may have another one in EME starting up again. Right now were in the middle of a hot holding rollout in North America, so the rollouts continue.

What we're looking forward to in the back half of the year is the introduction of the Convothermo 4 -- a lot of built-up anticipation for that particular product. And we continue to ramp up on cool air and a few other products. I don't know if that answered your question or not.

Well, I think in the press release, you mentioned that there is a new product rollout in the EMEA region that will boost the sales of hot holding. I am trying to quantify that amount a little bit.

Yes, I think, Patrick, from the quantification of it, we try to stay away from that just because it can -- if it's a product rollout for a specific customer, we don't want to give that out. Other than to say we're trying to give you some color that some of it is, in fact, a rollout and not the normal.

But I can assure you that, to Bob's point, when you look at the funnel of opportunities we have on different projects in different regions of the world, it's hard. We have the product; we have the resources ready; but you have to have the other side of the a equation. Which the customer has to say -- Okay, I'm going to roll this out to my franchisees. And so that's where the challenge comes in.

And we can be here and be told it's going to be in the third quarter or the fourth quarter. And it may get pushed out because other people have market dynamics that they're dealing with within their business. So we're just giving you a little bit of color that those things do impact. And that's sometimes the nature of the beast as we have never had in the past since we acquired Enodis because of these major rollouts.

So we don't want to specifically spell out any number or customer. But if it spans a couple of quarters, or if we know one for sure, we can talk about it. But I would rather not give out what the specific numbers are on any individual rollout.

Thanks.

We do have some more rollouts that are in the hopper that we feel good about that will occur in the end of the year.

Great, thank you, no more questions.

We move next to Jamie Cook with Credit Suisse.

Hello, good morning.

Sorry, I just need to push a little again on your implied guidance for the back half the year for Cranes. Because your commentary you know obviously is more cautious with regards to North America. You're talking about, I think more, constructively in the Middle East. Whereas most other companies are concerned, given political turmoil with the Middle East, what that means for their business longer term.

But you really haven't taken down the back half of your guide that much. I mean, to get to the low end of your range in sales, you still need like 5% to-line growth to get to your numbers. And you need orders in probably the $700 million range each quarter again to get to your numbers, which is up dramatically from the $500 million or so we had a quarter in the first half.

So how much visibility do you have? Have you gotten any orders yet for July? I'm just trying to understand your confidence level there. Because I guess I'm concerned we're going to have the same issue that we had in the first half of the year.

Where are you actually seeing the order activity happen? And then my second question, I guess, is were there any market share losses in the second quarter?

Hi, Jamie. This is Carl. Obviously, much of what you're asking about is for Eric to give you some feedback on. It's driven by what we see in the end market, the touch points that we have. Obviously, we don't disclose monthly order activity.

But when we look at things like the utilization rates, the project flow, the customer inquiry, those would be all taken into consideration as we try to figure out what the outlook is for the intermediate term.

But we had the same sort of positive indicators last quarter. You know what I mean? Again, is there more hard evidence that you can give us to suggest that your orders in the back half of the year should be $700 million or so a quarter?

Again, I have confidence that we will see more order activity in North America. And again, the distributors are very, I would say, up beat with the projects coming online.

To your questions about market share, yes, we've lost big market shares in North America. But this is really driven by the fact that probably at the end of Q4, our inventory level was probably a little bit borderline unhealthy versus the activity. And specially because the activity did not obviously increase in Q2 after Q1 to a certain level. So this was really driven by dealer inventory.

Again, the market share, how we track it is basically similar to distributions, not necessarily to the retail. So to your questions, there was a big swing in the market share between Q4 and Q1 and Q2. But things will normalize back to our normal market share, I would expect, as we move into the year.

Now, for the Middle East, we are seeing a lot of activities, and not only on towers but also on the order in cranes. We suffer from the yen in that part of the world additionally backing our rough-terrain crane product lines. I believe also in Asia we have seen some softness.

I don't think that we will see major rebound in Australia. But we see increased demand in some countries like Korea and Hong Kong and Singapore for the mobile cranes. So overall, this is where we expect to see more activities in the second quarter.

Jamie, I want to point something out. We obviously anticipated these questions, many of the same questions we have internally. And I think when you look at some of the data that we have looked at over the past three years, when you look at the first half versus the second half and you go back the last three years -- And I don't know that I have the numbers specifically exact, but in the last three years, every second half of the year has been better than the first half of the year.

And so like last year, I want to say -- Eric, 19%?

Yes, it was 19%.

19 or 20%. The back half of this year has to be a little bit better than that. So you're exactly right. There's some; but I can tell you that just given the dynamics of the way the markets are working where people are not ordering ahead -- And this is one thing we talked about you 24 months ago. Is there a new norm in the Crane markets? Because people are not comfortable ordering anything long term.

What you have to have is -- people, once they get a project, it's really, price isn't so much the issue anymore; it's the availability. So it's hard to sell out of that anti-cover. But I think if you go back and look at the trends in the last few years, we see that. And we are a little more comfortable on the back half of the year than we would have been, say, five years ago.

But I just give you that little bit of color to help you out also.

Can I ask you another question? Just historically, in the third quarter, what's the most important month? I assume it's not August.

Well, it is for some people in Europe; but not for the same reason.

I'm just trying to get a feel for how you're feeling, given we have July behind us.

No, it's typically September.

Yes, September. July there was Ramadan in the Middle East, obviously. And August is Europe being quite slow. So September is a strong month.

Great, thank you.

We will take our next question from Seth Weber with RBC Capital Markets.

Good morning.

Hello, Seth.

I guess if I could just get a clarification first before my question. The market share loss, that's the rough-terrain market that you're referencing in North America?

Yes.

Okay, so not to beat this to death, but just to go back to Jamie's question. I'm just trying to understand the messaging. The growth that you're anticipating for the second half of the year in the Crane business, is that based on just macro and historical trends? Or do you really feel like you have a line of sight to those orders?

Was July good enough that it has given you that confidence? Because what I'm trying to understand is it seem like your commentary on the first quarter call was things were pretty good. And it sounds like something deteriorated between May and June. And so now I'm just trying to frame how that's getting better all the sudden. Whether you're actually--

This is Carl. I would say the single biggest item is you what we're talking about in the RT category with the inventories. We expected that to swing through the year at a much faster pace. Obviously, weather was a contributor to that not happening in the first quarter.

But we certainly expect that to normalize. The balance of where we have the confidence is really the types of things that Eric is talking about. But the biggest thing that I think has been a detriment that we expect to swing the other way in the second half is in the rough-terrain category, in particular in North America.

But didn't you take a headcount reduction at Grove on the RT production? So I assume that you were anticipating that RT production would be lower this year?

We took that very early in the year. And that was basically to cut the build schedule from where we were at. There's the difference between what we think the market needs, and then you see the actual going forward.

I think that was an early sign that some of our initial forecast that we had back in November/December were not going to come to fruition. So I think you're making those changes in December and January, even before we had the call with you Seth. So, yes, we made those changes; but that was before we talked about anything.

And then the fact that we will stick with the RTs. You have what we had in the third and fourth quarter of last year, which were good RT deliveries. You add that with the dealer inventory, to what Carl just mentioned, with the weather projects were delayed. You didn't see that stuff go out in the first quarter.

And the replenishing of the inventories to the North American dealer fleet. As I mentioned in my remarks, that tops out in February and has gone down considerably since that time. Conversations with our dealers is they know maybe that it's not to the same levels they had last year and this year in February. But as I say, you can't sell out of an empty cupboard.

So that's why you have the distributors. And I think when you look at or talk about some of the distributors and where they think things are going, it's a pretty good story. And we spend a lot of time with them. So I recognize the fact that there do have to be some orders that are taken and shipped within the quarter. But that's pretty normal for us, and that's where the risk is.

But again, I would say the unfortunate disconnect -- and I think you would hear this out of any of our competitors -- is when you talk to the end users, there is a lot of business out there. And people are having great years, whether it's the crane rental companies or the dealers. There's a big disconnect to what the order pattern is though. And it's because of that uncertainty people have of what's going forward.

For instance, you know the Highway Bill. Okay, so they approve one more year. That doesn't give anybody any confidence that there is a five-year bill and they'll spend money for bridges on the ball crawlers or even the bigger RTs.

So it's that kind of thing that people are doing it when they have the cash flow and they have the project. So you have to go a little bit on some of what we talked with on the dealer and the customer base.

And just on the rough-terrain. If you look at the utilization of the rental houses or (inaudible), this is fairly high -- in the 70%s or sometimes over 80%. And they've seen a little bit of traction also on the rental rate.

So these are signs that gives us confidence in the gain, that we should see more activity coming from that product line. So now on top of this, we have very strong activity in the small crawlers. And normally, you don't have this disconnect between the strong activity on the crawlers, and especially the smaller and medium size and the rough-terrains.

So if we were looking at the second half of the year, where you're projecting some growth on a relative basis. should we assume that the RTs will outgrow the other categories? Or do you think crawlers and towers have greater growth relative to the RTs in the second half year over year?

I think the RTs should catch up. But I do not see any slowdown in the order activity for the crawlers.

But from a revenue perspective, do you think that the revenue would be tilted one way or the other?

Versus this quarter?

Versus the second half last year.

Versus second half last year.

I'm just trying to understand which category you think will be growing on the revenue line year over year.

Oh, year over year in the second half?

Right. So your guidance sort of implies year-over-year growth in the second half. I'm just trying to understand which product category that might be coming from.

Small crawlers in North America and rough-terrains. But overall, definitely towers.

Okay. Thank you. If I could just slide and one other clarification. The VPC is now shipping, you think, Q215? Is that the target?

Well, that's what I said. And I think we're trying to -- when Eric said in the first quarter -- and again we've discussed this internally -- Eric said late first quarter. And I still believe there are pieces of the VPC that are going to go in the first quarter. But I think there are some of the larger 650s that will be early second quarter.

So it's not, it's not a big change. It doesn't mean it's later in the second quarter. But I think what we were trying to do internally is not fire up that expectation that everything comes out in the first quarter and blend it between the-- if we get the benefit in the first quarter, it's early second quarter. So it's not that big of a deal.

But I think some of the expectation is the customers. We want to make sure we temper that. Because there's still a lot of testing to go on. Even though we like what's happening, you get into the fall and winter months. But we're still good.

Okay, thank you very much.

Thank you.

We will take our next question from Steve Bookman with Jefferies.

Hello, good morning.

Just a quick follow-up on cranes as well. I think it was Glen, maybe. You were mentioning that the yen was a bit of a headwind for you. And I'm wondering sort of on the other side of the ledger, some of your yen-based competitors that we spoke with at ConExpo sort of said that they were willing to use some of the yen benefits they had to try to gain some share.

I'm wondering if that might be part of the situation on the share side? And maybe directly, what are you seeing in pricing?

Yes, you're touching on a big part of it, Steve -- to the point where, yes, using it to their advantage. And I would say, what we talk about the market shares -- and Eric touched on this a bit -- to look at market shares for a quarter, it's kind of retail activity.

So with us, you look over 12 months, and our market shares are still very solid. But if you look at it quarter over quarter, ours were very good in the third and fourth quarter last year. And that's where we say, yes, we have lost some shares this first half of the year, just because ours were in the dealer inventory.

But it is to some of the Japanese competitors, who are using that exchange rate to their advantage. And there's nothing else you can say. Yes, it is in pricing.

But I think this is more acute in the Middle East, where definitely they are extremely aggressive in using the yen, obviously, to discount their pricing. Again, the market share loss in North America could a little bit be due to the Japanese. But overall, I think the dealer inventory is really the greatest part of it,

Okay, great. That's helpful color.

Glen, just a quick follow-up as well. Have you had any conversations with your newest large shareholder, or is there anything kind of going on there that we should be aware of?

Well, I think as you saw on our newest release after they're filing, we did say that we've had conversations with them. And consistent with our policy of what we always do, they're shareholder; we talk to them; we talk to other people. We just don't necessarily disclose what we talked about or when we talk to them. So that's about all I can say on that.

But we will have conversations with them. We did in the past. We will with other shareholders. And so we keep an open dialogue with them.

Okay, great. And can you just remind us of from your perspective, kind of the industrial logic or financial or whatever management kind of synergies you sort of feel like speaks to the current business model in terms of the two different businesses?

Well, you know, it's not like this is new to us and are surprised by people asking about the businesses better together or apart? We get these questions on a regular basis in one-on-one conversations with shareholders or prospective shareholders.

I think when you look at it, there are three areas that make a lot of sense to us. And one of them is the two businesses are complementary in the fact that you can see the cycles. And you can see how well we can do as an enterprise back and forth between them. And it gives us the opportunity to invest throughout a cycle, whether it's in Cranes or Foodservice.

And a perfect example of that is whether it's the facility in Monterey, the facility in Brazil, or the new product introductions. We have, from an enterprise standpoint, a much stronger pipeline of activity.

The other area, there are synergies such as our sourcing initiatives. You know as a group, when you look at the synergies we get from logistics, from the indirects, there are areas of purchasing with respect to different commodities that we buy. And you get the benefits of those.

And then lastly, you get the benefits of some of the corporate-wide processes, the enterprise-wide processes, of safety, of EDA, of the ability to move people from one side of the business to the other. It's a reduction in the HR costs of trying to recruit talent. We have a very good pipeline of people. It's those types of processes.

So at the end of the day, you put all that together, and you ask yourself, I see what other people say is the sum of the parts. We have our internal calculations as to what the sum of the parts are.

And it's just like the analyst projections out there that get to a consensus. Somebody has a buy; somebody has a sell; somebody has a whole. It's all based on the assumption that you use. And we try to look at what someone's assumptions are versus ours, and try to ask why does it or doesn't it make sense.

And as we sit here today, in perfect honesty, our Board and management are still committed to the fact that this is better together than it is in a different combination.

That's perfect. I appreciate the color.

We will take our next question from Schon Williams with BB&T Capital Markets.

Hello, good morning.

Maybe I will switch gears a little bit and give Bob a chance to talk. I wonder if you could just comment on the progression of the growth rates in food equipment in the last couple of quarters. There's a bit of a deceleration from kind of the high single digits that you did in Q4 and Q1 in terms of the growth.

Seasonally, I would've actually expected a little bit more of a pickup in Q2 volumes versus Q1. Can you just talk about -- I don't know -- were the rollouts helping Q1 and Q4, and now that's fading a little bit? I just want to get a sense of kind of what the overall demand environment feels like.

Like I said before, the rollouts continue. I wouldn't say they extraordinarily helped us in Q4 or Q1. If you look at the restaurant, there's a restaurant performance index that's out there. And it's actually trending a little bit up right now, which is positive for us. The FER, Foodservice Equipment Report, is projecting about a 4.1% industry growth at the moment. We are, like Carl said earlier, about 4.5%; so we feel good about that.

In terms of the weaknesses in the beginning of the year, a lot of it had to do with weather that occurred. We did see a little bit weaker than planned April and May. But we did get more orders coming in. I mentioned in my remarks, especially on the hot side, coming in, in the last couple weeks of June.

It wasn't enough. We couldn't produce it before the end of the quarter. But our order intake near the end of June was at a fairly substantial level. And we actually finished the second quarter with a backlog, which is usually a little bit rare for us to do that. I can't explain 100% why.

But we did have that. And a few of the larger chains had less order projections. We tend to put more orders in, in the earlier spring; and some of those came later.

Nothing more unusual that I can really remark on then that.

Okay. And then could you comment specifically on what you're seeing in Asia? I guess I'm a bit concerned about at least Yum has made some announcements around significant deterioration in their same-store sales in Asia related to kind of a new food supply scare.

Is that something that is affecting you at this point or that you anticipate kind of affecting you in the back half of the year?

Yes, you can read in the press about what's happening with this one company who produced food for McDonald's and Yum. It has affected some orders we've come through; some things of been delayed.

But on the same token, there are other chains in Asia that are starting up. Now in the top three chains is a non-US chain in Asia, which is a good customer of ours. They're expected to grow, to expand their numbers up in the 20,000 range in the next 20 years.

So we are getting closer to some of those more local chains. And one of the strategies around that to be able to do that is to produce more in Asia. We have our factories in Foshan on the hot side and [Hongsho] on the cold side, which are well-suited; and we can produce more.

The more products we can put into Asia to serve the local Asian markets, the more opportunities we're going to get with those newer local chains. So we can satisfy our traditional customers there and some of the newer ones as well.

All right, thanks. I'll hop back in the queue.

Thanks, Schon.

And we will take our next question from Nicole Deblase with Morgan Stanley.

Yes, thanks for taking my question.

Maybe going back to Foodservice a little bit. I think you've talked before about being able to get to kind of high teen margins over time and then maybe upside from their even further into the future. So I'm just curious if the margin result today gives you any hesitance about that longer-term goal?

No, it doesn't Nicole. This is Carl. The issue really that we are experiencing is, I think, not necessarily believing that we're going to turn around some of the mix headwind that we talked about. And when you looked at the opportunity that we believe that we had relative to the consolidation activity, it was definitely compromised with what you saw from us in the second quarter. And unfortunately, we think that that's going to linger.

This second quarter and third quarter were really the two that we expected to make some hay on that front, to get closer to the high-teen level. So that's where we came out with essentially revising the margin guidance for Foodservice.

Yes, I'll just maybe, Nicole, add to that too, what Carl was saying.

Glen had mentioned earlier, and I had mentioned in my remarks, about the progress we're making Cleveland was lower than expected in ovens. And we've made some management changes; things are coming back. Glen had mentioned 90 days. So I think we're getting that back on track.

But then at the same time, we are continuing our cost reduction and consolidation efforts. Right at the moment, were doing two. Our two factories in Shreveport are consolidating down to one. We closed our warehouse in Salem and merged it into Sellersburg.

We're ramping up our ice. We're putting more products with our global refrigeration line into Monterey to get its utilization up and going. So I think that even though it slowed down a little bit, we have all the other initiatives that are in line to continue on that margin growth curve.

Okay, got it. That's really helpful.

And then maybe we could just tick the box on the Crane side on the used Crane market, what you are seeing there with respect to volumes and pricing. Anything to be concerned about?

When you said the huge cranes, do you mean the larger towers?

No, not huge, the used crane market.

Oh, used crane, I thought you said huge, sorry. Yes, I would say -- and I think Eric would confirm -- when you look at the used crane market, it's relatively stable; and I think it's okay.

I mean, there's not a lot of people running to it. I think the prices are holding steady. I think it's obviously a good outlet for people right now if they want to trade out and buy new.

Okay, got it. Thanks, I will pass it on.

And we take our next question from Jerry Revich with Goldman Sachs.

Good morning.

Good morning, Jerry.

Can you gentlemen talk about the additional plant consolidation opportunities in Foodservices heading into next year without obviously talking about specific plans? But is there more room to go?

And also, Bob, perhaps you could touch on the new product side cadence. How does the portfolio stack up in 2015 compared to what you're delivering this year?

Bob somewhat alluded to a couple of the things that we are at looking already on the consolidation side. We talked about the distribution warehouse in Salem, the Shreveport going from two facilities down to one. You have an expansion of more product into the Monterey facility. Again, there are some other things that are going into the China facility or the Asia markets.

There are some opportunities within Asia itself that we are pursuing to build more product there. Again for the Asian market, not to move around the world, but more for India and China. So those things continue to work out as we see fit.

And I think the more you do -- and with Bob's new organization and along with Eric's -- the more the heads of manufacturing continue to do these things and find the lean initiatives, the sourcing initiatives, and everything going together -- every time you do it, you find more and more opportunities.

So stay tuned, and I'm sure there will be more to come. But again, it goes to the core comments on Foodservice and how we get to the high-teen margins.

Bob, I'll let you explain some of the new products.

Maybe I can also just add to Glen's comment too.

With the expansion into Asia, we do have opportunities -- Foshan, [Hongsho]. We also have a small JV in Thailand that we can utilize. When the reduction of import duties -- particularly into India -- are happening, we can leverage some of those facilities that we have today and bring some products in there.

We do have new product introductions coming near the end of the year, the beginning of next year. Refrigeration; there's one in frying; we have one in surface cooking that we have; and some variance in the beverage category, particularly in the blended ice, to make it more attractive to different segments.

So we do have a pretty strong pipeline of NPI's that are happening in the second half of this year and the beginning of next year --as we always do. We're not stagnant.

The biggest one, as I mentioned earlier, is the Combotherm 4, which will be out in September. That's our big launch for the year for that particular product.

And, Bob, just to clarify your sense on new product contribution opportunities in 2015 versus 2014. Are we talking about a similar level of contribution? And I appreciate it might be a bit early to tell, but would love your initial impressions there.

Yes, we do measure the incremental new product contribution over current. And we are exceeding that right now through the midyear, and our plan is to grow that. We will have a greater contribution of new products through the rest of this year and the beginning of next year.

Okay. And then on the Crane side, can you gentlemen just talk about what you're seeing in the European market and also in North America crawler crane and tower crane markets? Just update us how far those markets are off of the [07 ties] at this point? And for some of the longer lead times items, are you seeing any increase inquiries at all outside of the new product launch you had at ConExpo?

Yes, for Europe, obviously the Western Europe is bumping along the bottom. I would say kind of struggling -- France, Italy, Spain or Portugal. We see much increased activity in the UK and Northern Europe -- Denmark, Norway, Switzerland, Germany. So that's really a construction, but that's what we see in Europe. So obviously since we see how things are turning around in Western Europe, it will be a contrasting picture.

As far as the crawlers question, as I said earlier, we continue to see very strong demand for the small crawlers. And we continue, of course, to be seeing good demands for the larger crawlers that we anticipate, of course, will have a bigger impact next year when we start shipping the VPC technology.

But I want to say that since ConExpo, where we picked up the many, many orders, we have seen the orders fully confirmed by the major clients or the end users coming to the plant. The positive side also has been that the orders from our distributors have now been retailed for most of them. So that's a very encouraging sign that we have seen in the latter part of the quarter.

Jerry, to add to your comment to the supply side, I don't think there's any change in any of that -- we've seen an extension of lead times or anything like that.

Okay. And I apologize. Just a clarification on what you're seeing in Europe, Eric. So the activity are seeing in the UK, Switzerland, Germany -- is that enough to have year-over-year growth out of Europe as a whole? Or is it still flattish?

It will be a small growth overall.

Thank you.

Ladies and gentlemen, that does conclude today's question and answer session. I would like to turn the conference over to Mr. Khail for any closing or additional 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 October. Have a good day.

Ladies and gentlemen, that does conclude today's conference. We do thank you for your participation. You may now disconnect. Have a good rest of your day.