Manitowoc Company Inc (MTW) 2014 Q3 法說會逐字稿

Good day, everyone, and welcome to the Manitowoc Company Incorporated third-quarter 2014 earnings call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Khail. Please go ahead, sir.

Good morning, everyone, and thank you for joining Manitowoc's third-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 third quarter in greater detail. Following our prepared remarks, we will be joined by Eric Etchart, President of Manitowoc Cranes, and Bob Hund, 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For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 October 28, 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 each speakers remarks and during our question-and-answer session.

Such statements are based on the Company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission, which are also available on our website.

The Manitowoc Company does not undertake any obligation to publicly update or revise any forward-looking statements, 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. Yesterday, we reported our third-quarter results and we were clearly disappointed with our performance. Continue to be faced with a challenging demand environment globally, driven by uncertainty across our end markets and a general lack of customer confidence, particularly in cranes.

During the quarter, our crane revenue was impacted by soft rough terrain and boom truck markets in North America as well as ongoing weakness in Latin America. Additionally, our foodservice segment experienced tepid demand in certain geographic regions, namely Asia-Pacific, coupled with macroeconomic factors that impacted the buying patterns of some key US chains.

Despite these headwinds, and consistent with what we have communicated historically, we are concentrated on the areas of the business that are within our control. As I look back at the difficult times we have faced as a Company throughout various cycles, our team has proven its ability to manage the business without compromising our competitive position in the marketplace.

Our response to these circumstances was to concentrate our attention on becoming a more agile organization through cost optimization, while maintaining our leadership position through innovation and quality, enabling us to maximize our performance in the near-term. This commitment also positions us well to capture growth when the end markets improve.

Last quarter, we updated you on our full $80 million gross savings target, more than half of which we had already realized. In the third quarter, we leveraged additional opportunities for savings.

We remain on track with this initiative, which underscores our ability to execute on key areas that will prove our financial and operational performance. Most importantly, these savings will enable the team to identify other opportunistic investments to better position the enterprise for long-term profitability.

Now, let me spend a few minutes discussing our segment results. During the quarter, our foodservice segment posted its fourth consecutive of top-line growth with sales up 4% year over year. This improvement was driven by a combination of strength in our beverage business as well as solid performance by our recently introduced cool air ice machines in North America.

We also saw strength late in the quarter from the hot side of the business as most brands generated year-over-year sales increases. While 4% growth year over year is respectable, this is below our initial expectations when we guided the market in Q2.

We had expected higher growth in APAC, but the food supplier issues faced by several chains in China stunted that growth expectation. The continuing headwinds in EME, particularly on the hot side, have likewise challenged our initial expectation, and that these changing dynamics led to the change in our top-line outlook for the balance of the year.

On a more specific challenge we discussed in Q2, our 90-day plan to resolve our oven consolidation in Cleveland has progressed according to expectations. We are essentially complete with the core elements of the remediation program and we are pleased with the performance of that business as we moved into the fourth quarter. Indeed, Cleveland had its strongest month to date in September in terms of shipping, reduced inventories, and improved profitability.

Despite some pockets of strength, multiple factors continue to weight on foodservice margins. This is a result of a combination of efforts to improve efficiencies in lower margins operations, unfavorable product and channel mix, as well as weak demand related to US chains operating in the Asia-Pacific region. I am confident the team we have in place to enhance our operational performance bring the best product portfolio to our customers and ultimately drive improved performance for this segment.

Moving to our crane segment, our third-quarter results were disappointing with sales declining 7% year over year. Consistent with previous quarters, ongoing global demand pressures, slower than anticipated recovery in the nonresidential construction markets, and a lack of confidence in macroeconomic improvement continue to negatively impact revenue.

In the third quarter, weak North American rough terrain sales, a significant decline in both the North American and Latin American boom truck markets, and ongoing softness in Europe all contributed to the quarter's decline. There are, however, a few bright spots from a geographical and product standpoint, including the continued strength in mobile and power cranes in the Middle East and ongoing testing progress with our new VPC crawler crane technology.

In addition, new orders during the quarter increased 24% year over year. Crane utilization rates have also remained strong and rental rates showed further improvement in most product categories, all of which are positive signs for this segment's outlook.

While our 2014 results have not demonstrated the improvement we had anticipated at the start of the year, the long-term prospects for the enterprise as we launched new products, intensify operational excellence, and emphasize quality initiatives remain intact. Improving all aspects of the business that we can control during unstable times include sourcing, lean quality and reliability, as well as organizational efficiency remains our number one priority.

Before turning the call over to Carl, I want to spend a few minutes discussing our initiatives to further enhance the business. We continue to realize lean improvements in product cost take outs, which is being done in conjunction with our overall manufacturing consolidation strategy.

An example of these efforts is the recently announced closure of our La Mirada beverage operation, which will be consolidated into our Tijuana facility. We expect this to be completed in the first half of 2015.

From a product development and quality perspective, we remain encouraged by the early customer adoption of our new Convotherm 4 oven in foodservice. We ramped up production of our electric models of this innovative oven and began shipping products earlier this month, while our gas models are slated to begin shipping in December. Testing of these products is ongoing and the field trial results continue to be extremely positive.

Improved customer satisfaction also remains at the forefront of our efforts, and in cranes we have added resources concentrated on reliability and quality in order to deliver the most efficient and cost-effective products to our customers. To this end, our efforts are paying off as our costs of poor quality metrics continue to decrease and remain significantly below last year's levels.

Our aftermarket services, Crane Care and KitchenCare, are providing a key competitive advantage and contributing positively to our performance. For the third quarter, KitchenCare, which was modeled off our success with Crane Care, has reached the anticipated level of year-to-date revenue.

Our investments made to accelerate response times, broaden global capabilities, and strengthen technical support, including a KitchenCare parts warehouse, are beginning to bear fruit. As we move forward, we expect to implement additional programs, expand our overall offering, and realize incremental benefits to our top and bottom lines.

To conclude, our third-quarter results and 2014 outlook are disappointing. However, we remain committed to improving performance through areas within our control. We continue to strategically invest in the business while improving our overall cost structure.

These actions will improve our ability to execute on our initiatives and further enhance our operational agility, fostering development of new products to satisfy our customers' evolving needs. We'll now turn the call over to Carl to discuss our detailed third-quarter financial results. Carl?

Thanks, Glen, and good morning, everyone. We reported net sales for the third quarter of $986.3 million, which is a decrease of 3% from a year ago. This top-line performance resulted from a 4% increase in foodservice revenue and a 7% increase in cranes.

GAAP net earnings for the third quarter were $73.1 million, or $0.53 per diluted share, versus earnings of $52.9 million, or $0.39 per diluted share in the third quarter of 2013. Contributing to the year-over-year increase in net earnings is the benefit for income taxes of $18.1 million, due to discrete items in the quarter, versus income tax expense of $17 million in the third quarter of 2013.

Excluding special items, third-quarter 2014 adjusted earnings from continuing operations was $50.1 million, or $0.36 per diluted share, versus adjusted earnings of $54.5 million, or $0.40 per diluted share last year. During the third quarter, cash provided by continuing operations was $59.9 million versus $116.1 million in the prior-year quarter, driven by cash from profitability and partially offset by seasonal working capital requirements in both segments.

More importantly, we generated excellent results in terms of our cost savings initiatives, which resulted in over $12 million of product cost benefits, nearly $7 million of lower interest expense, and approximately $26 million of tax savings. For the remainder of 2014, anticipated cash flow generation will be allocated to fund various growth and process improvement initiatives as well as debt repayment. As previously communicated, we expect to reach a total debt to EBITDA ratio of approximately 3.5 times 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 and prioritize investments that generate the highest risk-adjusted returns. These might include investments in organic cost savings or growth initiatives, acquisitions to grow our industry-leading positions, share repurchases, and/or dividend strategies.

Turning to our segment results, foodservice sales in the third quarter of 2014 totaled $417 million, up 4% from a year ago. Third-quarter 2014 operating earnings in foodservice were $61.9 million.

Operating margins of 14.8% were down 250 basis points compared to the prior-year quarter. Third-quarter foodservice margin performance resulted from savings from manufacturing cost reduction initiatives that were more than offset by an unfavorable product mix, higher commodity prices, and lack of any new major new product rollouts.

Moving to the crane segment, third-quarter sales totaled $569 million, a year-over-year decrease of 7%. Crane segment operating earnings in the third quarter were $41.6 million versus $59.1 million last year. This resulted in a third-quarter Crane segment operating margins of 7.3%, down 240 basis points.

This year-over-year decline was a function of lower sales volume, which drove lower absorption, and was only partially offset by savings from purchasing cost reduction initiatives and ongoing operational efficiencies. Crane backlog at quarter end was $716 million. For the third quarter, new orders totaled $557 million, which represents an approximate one-time book to bill.

As Glen mentioned, new orders during the quarter increased 24% year over year, primarily driven by the success of our new products including the patented VPC crawler crane technology. Most of our favorable order intake in the third quarter was driven by products that will be delivered this year, which underscores our optimism to achieve our Q4 expectations.

Before concluding my remarks, let me now discuss our 2014 outlook. For the full year, the Company anticipates crane segment revenues to decline mid- to high single-digit percentages as compared to revenues for the prior-year period, while crane operating margins will be in the 7% range.

In addition, Manitowoc expects foodservice segment revenues to be up by low- to mid-single-digit percentages as compared to revenues for the prior-year period, and operating margins for full year 2014 to be in the 15% range. For the full year, we continue to expect capital expenditures and depreciation and amortization will approximate $90 million, $120 million, and $120 million, respectively.

We also anticipate total leverage of approximately 3.5 times debt to EBITDA, roughly half the peak level experienced in 2010, and interest expense to be in the low- to mid-$90 million range. With that, I'll return the call to Glen for his closing comments.

Thanks, Carl. To conclude, we are operating in an unpredictable and stagnant global economy. While we can't control the broader markets, we will make opportunistic investments where we see the best areas for growth.

Additionally, our focus will remain on becoming a more agile business that is able to succeed in the face of a turbulent market environment. The ongoing implementation of our cost initiatives which will help us achieve our goals, will enable the Company to take full advantage of improving demand through increased efficiencies on the manufacturing side as well as on the sourcing side.

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

(Operator Instructions)

Andrew Kaplowitz, Barclays.

Good morning, guys, it's Vlad Bystricky on for Andy. Can you guys talk about how would you characterize channel inventory in North America today?

And maybe more specifically, did you see any incremental weakening in mobile hydraulic and boom truck end markets during the quarter in sense? Or did demand just not pick up as you expected it to?

Yes, Andy, I'll take the first shot at that and if Eric has anything, say anything. You're touching on what's the frustrating part of the whole dynamic here.

As you talk to end users, you talk about the years they're having, you talk to the crane rental companies, and we mentioned it, the utilization rates and rental rates, the utilization. And then we look at the inventory in the channel. And that's where our expectation, when we came out of second quarter, we figured there was opportunity because it was on the low end.

And, I would say, we have a range where we look at, it's anywhere from the middle end to the low end of that range still. And that's the frustrating part, is some of our forecasts are based on what we see, the people we talk to, and the expectations we have.

And I think a lot of the people you talk to, I mean, and Eric and I and our people have had a lot of conversations with different customers over the quarter as it hasn't come to fruition asking why. And a lot of it is, some of it as we say that they're just not confident.

The only thing they can see out is for six months and that's not enough for a lot of them to turn our POs into purchases. So you see in some of the rental fleets that it's pretty much the same. Haven't gone down.

That's why, I'll be honest with you, we sit here and shake our heads sometimes, and you talk to the customers, they're having great years. And even had one customer say to me out of the Midwest, he said, man, we're doing great, you guys must be having a great year. And all you can do is smile and laugh. (laughter)

Because it is a different dynamic than what we've seen in previous cycles. And, Eric, I don't know if you have anything to add.

No, I mean, you hit all the key points on the head. I think on an inventory standpoint, it was still pretty low in the channel. But we haven't seen the traction that we had expected before, Andy.

On the boom truck side, though, we were. The total industry was down in North America by 11% at the end of Q2. And if you look at the end of Q3, it's, year over year, it's down 15%. So we have seen on the boom truck side some kind of deteriorations.

And RT business, total industry North America is down 27%. So, Andy, we haven't seen, again, the tractions. And as Glen mentioned, I mean, there is clearly a disconnect because we see the utilizations in the 80%s for the rough terrains, and still the rental rates are not getting the traction that you should see in that kind of environment with that kind of utilization.

Okay. That's very helpful. Maybe stepping back more broadly and focusing in on the cost initiatives and operational improvement efforts that you have going on.

Do you think that over time, as these take hold, that decrementals can be better than the 30% plus range? And then on the upside when you see growth, could we see incremental margins be better than the mid-20% plus range on the upside as these initiatives take hold?

Yes, Vlad, that's absolutely what we're trying to get to. Make sure that we're sizing the business at a reasonable level. Obviously, this is an industry in our crane businesses that is quite cyclical.

And the trick is to make sure that our capabilities don't necessarily get to the anticipated peak of the cycle, but that they are very efficient at lower levels of the cycles. But then you still have the agility to get. And the byproduct of that, from a margin standpoint, should be that our decrementals will decrease and our incrementals will increase from where they have been.

Okay. That's helpful. Thanks, guys. I'll get back in queue.

Thanks, Vlad.

Charley Brady, BMO Capital Markets.

Hello, thanks. Good morning, guys. Just back on the comment that Eric made a moment ago on the industrywide for RTs down 27% in Q3. What was that in Q2?

Charley, this is for the full year, year to date end of August. In actual factor, we didn't get September yet. So it's 27%, but it's been that this trend has been consistent quarter over quarter, I would say.

Okay. Great. And just can we focus on the new order number for a minute? Obviously, a better number than we were looking for.

But I wonder, can you comment on the duration of those orders? You commented a lot of that is going to get shipped in Q4. Is anything go beyond 12 months?

And can you talk maybe about makeup of that and what you're seeing on the crawlers and the towers? Is that continuing to go up or is it flat lining out or going down?

There really isn't anything that we've received in terms of orders that extend very far at this point. Obviously, when you look at the backlog, that's a different question because we have the VPC in there that's really weighed to the second half of 2015. But the orders we received in quarter were more along the lines as within, delivery within six months.

Yes. And maybe I can chime in, Charley, in terms of the trains. Power is exactly where we thought they were going to be. That means that the activity is still on the low side but exactly as we had forecasted.

Now, you see more demand is coming, definitely North America. If you talk to the rental channel, their rental utilization is extremely high, it's 90%, 95% for towers. And they are going to invest next year. The rental rates are really gone up and they are not very far from previous peak.

Now, in the rest of the world, we have seen very good order intake and activity in the Middle East. And not only coming from Saudi Arabia but coming from the whole core Middle East.

And I would say in Europe, it's where we anticipated. It's flat on a very low level due to the situation in Europe.

Can you just make similar comments on the crawler market?

Yes. Sorry. I forgot that piece of the question.

Crawler has continued to be a fairly good story. The large crawlers, this is definitely a positive for us. While we are not taking more orders right now, most of the orders we have are for the rental channels within users, or whatever our dealers have ordered now, they have retailed those cranes.

So it's pretty good picture and very, again, very exciting to the valuable positioning counterweight and the receptions. Now everyone is expecting to kick the tires out in the field and we have to start shipping, as you know, end of Q1 or starting Q2.

The small crawlers have been very strong overall through North America, and we continue to see good order intake. And including also in APAC regions. So, overall, I would say the crawlers is a decent story.

Great. Thanks.

Seth Weber, RBC Capital Markets.

Hey, good morning, guys. So just on the near term, the Crane revenue outlook, I just want to circle back I guess to Vlad's question. Are you does the fourth quarter, the implied fourth quarter outlook, does that assume that some of the RT dealer restock that we kind of missed in the third quarter happens in the fourth quarter?

And can you talk about your expectations for book and ship in the fourth quarter? And then my other crane question is have you seen any back off or cancellations related to the volatility in the energy markets?

I'll let Carl do a little more on what's translating from the quarter three to quarter four, but I would say to answer your second question, we've had a lot of conversations with customers about that also on the price of oil as it was dropping. And quite honestly, we're not hearing anything back on those types of comments that projects have been delayed.

I think to almost to the contrary, everybody's got their number that they're looking at as to what the price of oil has to be. And at that $80 price, it seems like a very doable number.

There's a lot of projections that are coming out of the Southwest part of the United States right now. And watching a lot of the different studies. And a lot of people talking about maybe not a lot of change in 2015 but the expectations for 2016, but who knows again on that.

I think we've proven pretty well that it's tough to forecast. So I'm not going to jump on that bandwagon.

But what we see in Q3 to Q4, I don't know that you, again, a lot of the dealer inventory, but just because of what we see, as I said in my first comment, Seth, this is the frustrating thing. You would see, if people believe that 2015 was going to pick up, they would be ordering for that part of the cycle. But, which was the anticipation last year.

And so I think the dealer stocking we'll watch very closely. I think some other things that may change the dynamic in the fourth quarter that we've talked to some customers about is what's the confidence after next week's elections?

Does anything change in the tax ramifications of the bonus depreciation? Is there a little more confidence in the direction of things? Don't know that I'm going to hang my hat on any of that, but again, it's conversations that take place. So, Carl, if you want address -- ?

But, Glen, just so you're not assuming any kind of big pickup in the restocking relative to what we've seen here so far in the second half Because I think that was a big part of your adjustment to the guidance for the year, right? Was this restock didn't happen? So I just want to make sure that that's not something that's embedded in your fourth quarter outlook?

No, you're spot on.

Okay.

I mean, and that's what I said. You looked at the second quarter, you believe people had to -- didn't have to, but we expected them to make some of their adjustments to their inventory levels and they basically said, hey, I'm comfortable where it's at --

Okay.

-- on the low end of the spectrum.

So, yes, they haven't made that adjustment. And so that expectation is not there, to your point.

Okay.

And, Seth, I'd chime in for the cancellations. We haven't seen any cancellations.

And I would say to the contrary, in the Gulf area, some projects have studied. When we discuss about so many projects being in the pipe, some projects are studied, okay, maybe they are more gas related, but we have not seen any cancellation.

Okay. Thank you. And if I could ask a question on the foodservice margin, is it possible to put a number around, so you're looking for 15% or so this year?

The number, I think, we started the year at a higher level, I think mid- to upper-teens. Is it possible to quantify how much of a headwind the Cleveland issue was to margin for this year? So we can get an idea what next year's ramp could look like?

Seth, it was over 100 basis points for us this year. When you look at the costs that went in as well as some inefficiencies that the factory was operating.

Okay. Terrific. That's very helpful. Thank you, guys.

Mig Dobre, Robert Baird.

Hello. Good morning, guys. I just want to clarify a little bit from Seth's question that in foodservice, if we assume product mix to remain the same and revenue to remain flat going forward, based on your cost actions and all the headwinds that you had with Cleveland that supposedly go away, how should we be thinking about margin here?

Obviously, we haven't provided any kind of specific guidance yet as we are completing the business plan and typically do that as we announce our fourth-quarter results. But I think the description that you gave of how we're looking at 2015 is appropriate given the earlier comments I made about managing the cyclical business.

To make sure that our expectations about what the markets are going to be are conservative. And that we are taking the cost actions such that we can make the business operate efficiently.

The elements that we saw as some key headwinds for us, you mentioned Cleveland but also product mix was pretty significant for us and foodservice. And then, obviously, you know about the big absorption hit that we took in cranes that perhaps it's going to be a little bit of a wildcard on those two fronts, but the other one-time elements are going to help us in that margin progression. Coupled with some of the things we're focused on on the cost side that will continue.

Yes, Mig, I want Bob to say a few things here because I think we have a pretty decent story on some of the items that we're working on that will be positives, and then I also talk about some of the headwinds. I think what we also didn't talk about on the headwinds right now just in the quarter, I mean, you had -- there's a little bit on some new product costs which we have some room, and I don't want to call them all out. We'll call them new products that are coming out next year to the general market.

And so the cost of that will be behind us. You have some of the benefits you have and the initiatives we've already talked about, and I'll say foodservice because that's a yes about, but it would be cranes also. The savings that we've had from an organization standpoint that we've talked about this year, you get the full-year benefit next year which we only had in certain respects, 50% of those, because they were done over time.

So there are some things that turn into positive next year. Throughout the enterprise on some of the initiatives we've already taken. Bob, if you want to talk about full year.

Yes, I would like to maybe make a few comments. One is, in the release, we talked about absence of any new product rollouts and I just wanted to clear up any confusion. That doesn't mean absence of new product introductions.

When we refer to a rollout, we mean a chain rollout. It could be in existing product. It's an absence.

Right now, there isn't any major change that have a major rollout. Well, actually, we have one that's starting right now. But we had quite a few in the beginning of the year that have slowed down.

There are more tailwinds behind us right now than headwinds in front of us. Glen mentioned earlier that Convotherm 4. That we just started releasing this month and was supposed to be out earlier this year, but it now it's out in the factories at full production.

A majority of our SKUs transferring down to the Monterrey plant on ice are down there, now well over 90% and will be 100% very soon. We announced the closure of our La Mirada foundry in California and moving it to Tijuana, which will be done in the early part of next year.

KitchenCare, Glen mentioned in his remarks, is now all the inbound parts are coming into the warehouse and all the outbound parts will start flowing out within the next 60 days. That will be done by the end of the year.

In terms of products, we do have some exciting new products that are coming out. We have about a dozen big product programs right now, about half of those will be released, and then we'll bring about another six or seven more in next year.

We've got some fryer technologies that are coming out, particularly in some overseas markets. We do have one major rollout with the chain coming out. C stores are up.

And we do have -- and our ice market share is healthy right now. We're not seeing cannibalization from cool air on our Manitowoc Indigo line. It's actually a growth in share.

Cleveland looks like it's behind us in terms of what we've done there, thanks to this 90-day plan we announced on the last call. That's offset a little bit by there's a few headwinds, material costs are a little bit higher forecasted than previous.

And we have, we don't really know what's going to go on with some of the bigger QSRs. We are reliant on some of them. As Glen mentioned at the beginning of the call, we had some delays, particularly in Asia, due to some food scares and things, they're building fewer stores. And that's affected us.

Will that continue into next year? I don't think so. Unless they have some more of that happening, but doesn't look like it.

And another one is on the big box stores. And our panel systems business was a bit of a headwind for us. Big box retailers, who buy the large panel systems, that was a disappointing this year and we don't know if it will continue into next year.

It doesn't look like it. They're not telling us it well. But the all-in-all point is that the tailwinds seem to be stronger than our headwinds at the moment. So --

All right. Well, I appreciate the comment. Then switching back to crane, my understanding from everything that's been said is that we're actually seeing positive mix in terms of the types of cranes that you're getting orders for and are being demanded, crawlers and towers versus DRTs.

Is my interpretation correct? And how should we think about the impact that this alone is going to have on margin going forward?

Well, I mean, you're right, Mig. I think as you look at it historically, that's true. And it still holds true.

But again, I think what you have from the mobile hydraulic side is while those have that, it's the offset of what some of the absorption is on the mobile hydraulic side. And that's where we are looking at the actions in those areas, to impact pricing that we're seeing on the RTs, very aggressive pricing on the RTs. And then also on the ATs in certain areas.

So, yes, I think when you put it all together, we'll still expect those new cranes that are coming out, I think, in 2015 should have a positive effect on margin as any increase in towers do. And we're trying to fight off and make adjustments to the mobile side of the business with respect to some of the other, as we just got them talking, headwinds that you're seeing, I think mostly from a pricing perspective.

All right. Thank you.

Ted Grace, Susquehanna.

Hey, guys, how you doing? So I wanted to actually dovetail right into what you said, Glen, which is pricing has been challenging, particularly in the RT and AT market.

But could you maybe, you and Eric talk about what are really the broader competitive dynamics in the crane market? And maybe isolated to RTs versus boom trucks competitively?

You talked about the market share numbers, is Manitowoc outperforming those are underperforming those? Are you losing share? You look at some the currency dynamics could benefit, whether it's the Japanese or potentially Liebherr, do you see that as a challenge right now that could be impacting your numbers?

Yes, I think the, for the most part, our market shares are holding okay in this market. The one that we have seen a little bit of falloff is is exactly in the RTs, and I think it is a product. Probably that the exchange rate is what we believe, and that gets down to a pricing.

But that's the conversation we've had is we're not going to sit back and just let it happen. I think we are going to take advantage of the areas that we think we need to. And at the same time, our entire organization knows that I tell everybody, you can't feed your family on market share.

I mean, you can see what some of the results are from our competitors who have okay increases in sales in very slim or less increases in operating earnings. And so that's -- there's certain areas where you've got to protect and there's certain areas you're going to let go. Sometimes the best deal you get is the one you don't take.

And we need to be cognizant of that and our people are doing it on a regular basis. But I think with respect to the other market shares, we're doing very well.

And I think what happens, and I was thinking about this just this morning, when you look at some of the dynamics competitively in the crane side of the business, this is like the third year in a row, Ted, where things were okay in the first half of the year and we had a little bit of expectation at that back half, and like the third year in a row, the third quarter for us and every one of our competitors has fallen off in the third quarter.

I think when that happens, people that have a lot more inventory than we do get very aggressive. And that's what you see. Still, I think some of that is, some of that happening again, but we anticipate it.

We watch for it. And we certainly can combat it. But, Eric, I mean, you want to add to that?

Yes, maybe I want to qualify a little bit more. In the Middle East and in Asia, we've lost market share on the rough terrains because of the yen and the presence of the Japanese competition is very strong and they are well established.

We've lost a little bit in North America, but that's not really significant. In the boom trucks, though, while the market has been declining as well, almost 15% year to date, as I said, we have gained market share. And this is thanks to some of the new products like the NBT40 and 50 that we launched.

Okay. And then as a follow on, could you just walk through what the impact of currency was both on revenue and profits for each of the two segments so we understand that?

Sure. From a currency standpoint in foodservice, about $6.3 million on the sales line. And in cranes, not significant.

And on profits?

Total, about $1.5 million.

So, total of $1.5 million? Okay. Great. Listen, I'll get back in queue, but good luck this quarter, guys.

Jerry Revich, Goldman Sachs.

Hello, this is Brandon Jaffe on behalf of Jerry. How should we think about the magnitude of the pricing and mix headwinds in the foodservice business in the coming quarters?

I think as you look at what our track record is, we have, I think, done a pretty good job of getting the requisite pricing to cover at least the material costs, and then try to get that further margin enhancement by operational efficiencies. In the short term, as with some of those steep ramp that we saw, in particularly, in stainless in the quarter, that was a pretty significant headwind.

But over the long term, I would say that we've done a pretty good job of making adjustments. I think that there are some things from an end-market demand standpoint that are going to probably be some challenges for us to work through as we look forward. But from a pure price cost standpoint, market-driven issues, we hold our own.

I think in terms of, I can also add to that. The foodservice markets, in general, are continuing to rise. And with our results this quarter, we exceeded that market demand.

It's just in terms of that product mix, selling more fryers and less hot holding, selling more blended ice and less carbonated soft drink equipment is what's really dependent. And I don't really see any reason why that mix wouldn't continue to shift a little bit upward.

We had a bit of a decline, particularly because some of the rollouts that we had earlier in the year were more skewed towards a higher weighting of those higher-margin products. We're starting to see other areas of the world that are interested in those same products and we're also taking some measures to stimulate demand for the higher-margin products, too.

Yes, thanks. And could you talk about progress made on the foodservice plant integration strategy? And the extent to which there are some duplicative overhead costs in the quarter?

Was it plant? I'm sorry, I couldn't quite understand. Could you repeat?

Yes, the progress made on the foodservice plant integration? And extent to which there any duplicative costs in the quarter?

Well, the initiatives we have going on, I think we've talked about pretty extensively about Cleveland and then we have announced the La Mirada closure into Tijuana, those costs that were minimal, right now, I think you'll see most of it in the fourth quarter. And then the other one that's really what's happening with respect to our facility in Monterrey.

And you still have, while it has gotten significantly better, as we continue to put more product there, we'll get that benefit. So you still have some of the absorption, I would call it, as we keep using the word headwinds. But the more product that we put down there will reduce itself as you head into 2015 and beyond.

But I wouldn't say there's a lot of duplicate costs. This is a bit on the ice side. But Cleveland, that's just what I would call an execution issue and not duplicative costs.

Maybe I can also comment --

Yes, thanks, and --

Go ahead.

Oh yes, sorry, please continue.

I was just going to say I guess there's another one. We are still continuing on our plant consolidation in Shreveport. We have two factories there that we are working on right now.

And then one other area, in terms of that particular topic, is our ability to have additional production in some of our low-cost country factories, particularly in Asia. We're asked to take more of the North American product and build it in Asia and we have the ability to do that in existing factories over there.

And those are continued initiatives. It's not moving the product over there. It's making the product over there so we save on shipping and other costs that could take costs out of the product that is sold in that market.

Great. One final question. What regions do you see as the key geographies expected to drive crane order growth over the next year or so?

I think it's probably the same as it is this year, in all honesty. It's probably going to be North America, I think there could be some in Latin America but I think the Middle East is still okay.

I mean, but I think it's really, you look at the rest of the geographies around the world, whether it's Europe, I think is flattish, I think China stays flattish. I think there maybe some other parts of Asia, the rest of Asia, you talk about Korea or even Philippines, Singapore, some of those, the outlying countries of Asia.

I think there's opportunities there, but again, it's not going to be a big open Russia. That's been a tough area for us this year as it has been for everybody, and I just don't know politically what happens there. So I think it's really kind of where we are seeing the bright spots today.

Great. Thanks a lot.

Vishal Shah, Deutsche Bank.

This is Jerimiah Booream on the line for Vishal. I was just hoping you could touch on the crane segment and order visibility? And also, what kind of quotes or order activities you're seeing in the different categories?

Well, in terms of the order activity, again, we continue to see a lot of tractions or tractions on the crawlers, similarly. And I would say small crawlers, I mean, the large crawlers are doing great.

We expect the same trends in terms of towers. And we continue to be, of course, worried with the rough terrains. And the boom trucks given the trends that we've seen. Shim case is pretty steady overall.

And do you think that you'll be able to see visibility into 2015? Or how much of your backlog do you think could ship into 2015 at this point?

Well, obviously a strong backlog that we have, as you know, is the large crawlers that we start shipping in Q2. That's really the big backlogs that we currently have for 2015.

And the rest then kind of flows into fourth and first or second quarters of next year. And that's what we were saying earlier, doesn't go out much past six, seven months.

But to your point in 2015, I'll say it again. That, look, when you look at where our head is at, and Carl mentioned we are not fully vetted around where we think some of the bottom line stuff is coming out, but I'm not -- when you read a lot of things that are happening, whether it's people in other companies in the construction industry or you read what else is happening, I don't know that we're going to forecast a lot of improvements in the markets.

But what I can assure you of is the things that we've talked about in the cost initiatives and that we've put out there for our long-term targets, I'm very confident in our ability to look at those. So our big focus is we've certainly have a track record in the last few years of struggling to try to forecast for these markets are, and we're not the only one.

I'm not apologizing for it, I'm just telling you, we recognize that, hey, instead of being really good forecasting, we just have to be more agile to be able to focus on getting the incrementals on the upside and minimizing the decrementals on the downside. And historically, we have done a good job of that.

I think we haven't anticipated this flat of market. If somebody would have told me this RT market was going to be down 30% this year at the same time last year, I would have challenged that assumption very heavily.

But what I will tell you is the focus on the gross margins that we have in a lot of the sourcing initiatives, the lean initiatives, our people are laser focused on that and that's where you have everybody's heads around in 2015. And that's why, to Carl's point, we're still trying to find what the right target is for 2015, but we'll get there by the time we have another call.

That's very helpful. Thanks, guys.

(Operator Instructions)

Steven Fisher, UBS.

Hello, thanks for taking the question. This is Cleve Rickard on for Steve. Turning back to the Gulf Coast projects, and looking specifically at the big LNG and ethylene plants, when do those projects need cranes and when do you think they're likely to get ordered?

And I'm just wondering how much of those orders were part of CONEXPO or earlier in 2014?

Yes, I don't think a lots of it was probably at the CONEXPO phase. I think, here are the comments that we get out of the Gulf Coast. It's not a matter of if, it's when, and that doesn't help us much in planning.

So what we're trying to figure out the same thing is, is you want to make sure that our dealers and our customers are being taken care of. And they tell us a lot of times when there are activities that are coming up.

For instance, I think Eric had a call yesterday with somebody that said, hey, this is what's happening, we're seeing some of the dirt business pick up on a bunch of projects down there, and the cranes will follow in I would say six the nine months. What's that?

Yes, that's good.

And so, at the same time, where people used to plan ahead and buy ahead and listen to what we say, and they know that they don't have to put in an order six to nine months, they'll wait three to six months and then it becomes what's the availability? And so, again, we talk to a lot of people that have focused on the energy markets in the Gulf Coast and where they believe the peaks and the valleys are going to be.

And as I said earlier, a lot of people are talking about 2016 and 2017, but as we are told very often, unfortunately, the short term comes before the long term. And that's what we have to focus on right now.

Keep it in mind that we need to position our business to make sure that we take advantage of those things long term. We also know we need to deliver on the short term.

Okay. That's helpful. Thank you for the color there.

And then turning back to non-res construction, the US office construction category has been a pocket of strength this year. And just wondering, how much crane demand has been for that particular market? And is that driving new crane demand or is that construction still relying on the existing fleet?

Yes, and that's a good question because, I mean, you pick up magazines like in our engineering news record and they put out their almost weekly or monthly report on the different markets and, yes, you'll see the non-res picking up a bit. But really it's, to Carl's point and I think Eric's point earlier today, the utilizations are very strong in the tower crane.

A lot of that is using existing tower cranes. Eric, do you have something to add on that?

Yes, I mean, the rental channels are happy with the residential business -- non-residential, because they have seen a lot of their cranes going there. And that's why they came to straight utilization levels which have been good.

And again, as I said, they see the that rental rates getting a little be -- taking headway of tractions, and overall they will see the revenue growing. Now, as in OEM, we feel a little bit frustrated because this has not translated into new crane sales so far. So that's really a frustration for us.

But utilization, if you talk to a regulatory channel, they're very happy. And they have improved from last year and their forecast it's going to be better in 2015.

Yes. You mentioned strong utilization earlier. What do you think is a peak utilization for the rental channel?

Well, typically -- and again, typically we've only seen in the past is anytime you start getting above 80% on the rental side, people are going to be buying for their fleets in the crane rental side of the business, which again, is about 80% of our sales in North America to that channel. So if you see them at those levels, you'll have that.

But I think where the disconnect is a little bit in this channel, even though utilizations are good, the rates started out pretty low. And from the bottom of the market, and to get those rates back, I think that's where people are a little uncomfortable buying and having the confidence that they get the returns that they're looking for on new equipment.

So, we're watching it and I think it just hasn't kept up with the utilization. And you would say to yourself, well, heck, if utilization is high, people should raise their rates, and that's a very legitimate question and that's a lot of what they're asking in that channel themselves.

So I think if you get that combination of higher rental rates, the utilizations continue to climb and the non-res market picks up, that bodes pretty well for us to sell new equipment.

Great. Thank you very much. That's very helpful.

And this concludes the question-and-answer portion. I would now like to turn the call back over to Mr. Steve Khail for closing comments.

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

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