Manitowoc Company Inc (MTW) 2015 Q1 法說會逐字稿

Good day and welcome to The Manitowoc Company first-quarter 2015 earnings conference call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Mr. Khail. Please go ahead, sir.

Good morning, everyone, and thank you for joining Manitowoc's first-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 comments related to our quarterly results and business outlook. Carl will then discuss our financial results for the first quarter in greater detail.

Following our prepared remarks, we'll be joined by Larry Weyers, 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 For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 April 30, 2015. During the course of today's call, forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, will be made during each speaker's remarks and during our question-and-answer session. Such statements are based on the Company 's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission which are also available on our website. The Manitowoc Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or other circumstances. With that, I'll now turn the call over to Glen.

Thanks, Steve, and good morning, everyone. As you can see by our results, we remain confronted with a challenging operating environment that has stifled global growth despite positive indicators in certain areas of the business. While our results for cranes were largely in line with our expectations and historical seasonality, Foodservice was negatively impacted by our underperformance in the KitchenCare business amplified by reduced CapEx spending by large chains. We are taking decisive corrective actions to improve performance within Foodservice while we continue to focus on those areas within our control to drive growth.

As we discussed last quarter, the startup of our KitchenCare business has been met with challenges including leadership changes, missteps in our call center operations, and part stocking issues. All this has translated in to higher startup costs, and subsequently a negative impact on operating earnings for the business. While we had some encouraging developments during the quarter in Foodservice, we also experienced some execution issues and soft demand from certain customers.

We have implemented a focused and disciplined approach to improve performance which has already started to yield results. We're seeing improvements in KitchenCare fill rates, speed, and accuracy. We've increased communications with stakeholders and have prioritized improvements with the highest customer impact. We believe we are on the right path but realize there is more work to do. Nevertheless, we expect to have KitchenCare operating consistently with our expectations by the second half of the year.

During the quarter, we also saw reduced CapEx spending by large chains, particularly in Asia as these chains are redefining their expansion priorities. As a result, we continue to focus our efforts on developing our general market opportunities to ensure a more diverse customer mix that longer term should reduce the recent volatility we have seen in our results. When comparing year-over-year results, first-quarter 2014 clearly benefited from two strong rollouts.

On the positive front, we continue to experience strong demand for our Convotherm floor oven, and we are aligning production accordingly. We also received several other solid orders during the quarter, which included broad-based demand for our Merrychef E2 oven, coupled with seasonally improving strength in our Manitowoc and KoolAire brand ice machines. Lastly, as innovation does remain a top priority, we are pleased by the market's response to our new global refrigeration line which created significant interest at the NAFEM trade show in February.

As we look forward, we are extremely cognizant of the need to improve performance across the Foodservice business. We have taken the necessary actions to correct areas within our control and have maintained our commitment to positioning the business as a leading foodservice equipment manufacturer. While we did reduce our full-year 2015 outlook for sales, with the process improvements we have in place, coupled with an improving second half, we feel strongly about achieving our margin targets for the year.

For cranes, our results for the quarter were in line with our expectations. Historically, our first quarter tends to be seasonally weak and improving results as we move through the year, and 2015 has started in a similar manner. As expected, global weakness continued to negatively impact our rough terrain and boom truck markets primarily in North America and Latin America. US permits, rig count, and well starts -- all important drivers for the North American crane market, have been declining since October, 2014 to levels lower than any time since the third quarter of 2009. However, we are seeing pockets of strength in certain product categories including all terrain market share growth complimented by growth in the Middle East driven by rail and infrastructure projects along with improvement in the Asia Pacific region. We re also seeing an uptick in nonresidential construction in North America which is helping crane utilization in non-oil-related markets.

We have not wavered on our commitment to improving the agility of our business or the competitive differentiation of our products. Our disciplined operation strategy has resulted in working capital and free cash flow improvements. In addition, we are on track to achieve our purchasing and manufacturing cost savings for the year.

We are also pleased to see our technological leadership in the marketplace validated by the ITC's recent final determination which underscored the clear differentiation of our patented, variable position counterweight technology. In fact, we shipped our first new 300-ton VPC crane in the first quarter and are on target to deliver increasing VPC orders in the coming quarters.

Before I turn the call over to Carl, I want to briefly update you on our progress in advancing the planned separation of our Cranes and Foodservice businesses. To date, we have established the foundation for executing the separation, including the formation of functional and cross-functional teams and drafting of initial charters for day one readiness. In addition, we have announced that I will become the CEO of Manitowoc Cranes, and we are conducting internal and external searches for the leadership of Foodservice. Simply put, we remain on track to complete our business separation activities in the first quarter of 2016.

In conclusion, there is no doubt that the operating environment during the first quarter remained challenging. However, we are optimistic about the long-term prospects for both of our businesses. As I noted on our last call, our priorities to improve our overall financial strength and stability remain unchanged including optimizing our cost structure to meet the demand levels we are currently experiencing, continuing our investments in innovation and the after-market product support, leveraging favorable market responses for new products, and further paying down debt. With that, let me turn the call over to Carl for a review of the quarter. Carl?

Thanks, Glen, and good morning, everyone. We reported net sales for the first quarter of $752.1 million which is a decrease of 11.5% from a year ago. GAAP net loss for the first quarter was $8.4 million, or $0.06 per diluted share versus a net loss of $8.8 million, or $0.06 per diluted share in the first quarter of 2014. First-quarter 2014 earnings were net of $25.3 million of cost associated with refinancing the Company's credit agreement. Unfavorable currency exchange rates had a $54.3 million negative impact on sales in the first quarter of 2015 but no impact on EPS in the quarter.

Excluding special items, first-quarter 2015 adjusted loss from continuing operations was $6.3 million, or $0.05 per diluted share versus adjusted earnings of $23.7 million, or $0.17 per diluted share last year. We have also made significant progress in implementing the cost-savings initiatives that we announced last year which has generated savings totaling $67 million since midyear 2014. By its completion in 2017, we expect to achieve total savings of $125 million to $170 million.

During the first quarter, cash used for continuing operations was $135.6 million compared to cash flow used for continuing operations of $264.6 million for the first three months of 2014. The decrease in cash flow used for continuing operations was primarily due to improvements in working capital, particularly inventory, as well as reductions in income taxes and bonuses paid.

Turning to the results for our two businesses, Foodservice sales in the first quarter of 2015 totaled $345.4 million from $383.3 million in the prior-year period. The decrease in sales for Foodservice was driven by a combination of fewer chain-driven rollouts during the first quarter compared to the prior year, lower CapEx spending by a few large chains, and unfavorable foreign exchange impacts. First-quarter 2014 operated earnings in Foodservice were $33 million producing operating margins of 9.6% compared to 15.1% for the first quarter of 2014.

Again, this decline was driven by lower volumes as well as higher startup costs for KitchenCare which is only partially offset by savings from purchasing and manufacturing cost-reduction initiatives. We have undertaken certain restructuring activities in Foodservice during the first quarter that we expect to benefit from as we move through the year. The year-over-year decline in first-quarter earnings was led by $13 million in differentiated rollout activity followed by $7.9 million in KitchenCare impact.

Moving to cranes, first-quarter sales totaled $406.7 million, decreasing from $466.7 million from a year ago. Crane operating earnings in the first quarter were $9.7 million verses $22.6 million last year. This resulted in a first-quarter cranes operating margin of 2.4% compared with 4.8% last year. This year-over-year decline was due to absorption levels on lower volumes of rough terrain cranes and boom trucks, along with pricing pressure amplified by the negative impact of foreign currency exchange rates which were only partially offset by ongoing operational efficiencies and cost reductions.

As a reminder, lower oil prices continued to contribute to the climate of caution and lack of confidence among certain customers during the first quarter. From our perspective, many of the projects currently underway are not linked to oil. To provide some context, approximately 30% of our crane segment revenue has some level of exposure to oil prices with 30% of that being upstream, 20% midstream, and the balance, downstream.

Crane backlog at quarter-end was $770 million, an increase of $32 million, or 4.3% from the fourth quarter of 2014, and a decrease of 8.6% from the prior-year period. For the first quarter, new orders totaled $439 million compared to $686 million in the fourth quarter of 2014 and $733 million in the first quarter of 2014. First-quarter 2014 orders included approximately $200 million of orders booked on the VPC Crawler cranes that will largely be delivered in the second half of this year.

As we noted in our press release, we are reiterating our 2015 full-year outlook that we provided on April 16, 2015, including crane revenue to decline mid-single digit percentage, crane operating margins to be in the high single-digit percentage range, Foodservice revenue approximately flat, Foodservice operating margins to be improved from the 2014 mid-teens percentage range, capital expenditures approximately $85 million, depreciation and amortization approximately $110 million, interest expense approximately $80 million, amortization of deferred financing fees approximately $4 million, total leverage below three times debt-to-EBITDA, and effective tax rate in the mid- to high 20% range.

Estimated cost savings in the Crane business from restructuring activities taken in the fourth quarter of 2014 are expected to be approximately $19 million in 2015. Opportunities for margin improvement in Foodservice in 2015 are expected to be driven by full-year benefits from factory consolidations, lean manufacturing initiatives, cost price benefits, improvement in KitchenCare, and workforce staffing reductions. Starting this quarter, we have added a line item to our income statement which tracks costs related to our business separation activities. Through the first quarter of 2015, we have incurred costs of $1.5 million. We anticipate that our total pre-tax separation costs could aggregate $130 million to $140 million including consulting and other professional fees, debt breakage costs, as well as financing fees. I will now turn the call back to Glen for some closing remarks. Glen?

Thanks, Carl. We expect the global growth profile to remain muted throughout 2015 as lower oil prices, currency headwinds, and a general tone of uncertainty among our customers persist. We have, however, implemented a number of corrective actions to improve performance within Foodservice and position each business for long-term success although we do not expect a material improvement in either business until the second half of the year. As we execute the separate of Cranes and Foodservice, we will remain steadfast in the execution of our key initiatives over the remainder of 2015. This concludes our prepared remarks for today. Tim, we will now begin our question-and-answer session.

(Operator Instructions)

Rob Wertheimer, Vertical Research Partners.

Good morning. Really just two questions on cranes and margin. Pricing impacts from currency dislocations at Japan and Europe, is that fully seen right now in the quarter? Do you see competitors taking advantage or thinking about taking advantage or not taking advantage of the currency swings? And, second one assumes that the VPC margin is better. It's a differentiated product. It's unique. [Assuming] that your capturing pricing power, so does that bode well for the back half of the year? Thanks.

Rob, Glen. Good morning. To answer your first question on the pricing, I don't think it's a big significant headwind for us any more. I think what you saw last year still holds true so I think that's baked into our mode of operation.

With respect to the margins on the VPC, obviously when you come out with new products, you expect that especially on the higher capacity cranes, which is definitely the case. I think when you look at the 300-ton -- I think the margins are probably equal or a little bit better than the crane it replaced and the reason for that I think for us is when you looked at that competitive pressures in that category, the 300-ton, our decision was to get this product out in the field and punch some people in the nose with that product. Get the technology, and I think over time you'll see those margins improve.

Got it. Thanks.

Jamie Cook, Credit Suisse.

Hi, good morning. Can you hear me? Hey, sorry, I'm switching between earnings calls so I hope I didn't miss anything. One, I think the concern from looking at the first-quarter earnings and just looking at what you need to do for the implied remaining nine months of the year to make your guidance, I think people are concerned both on the Foodservice side and on the Crane side. So, can you talk to me about your confidence level? How do we think about the cadence of earnings first half versus second half outside of end market stuff? Is there anything in terms of operational initiatives that you feel like can help make your numbers this year? Because we don't want to get into a situation where we're hoping for the back half recovery, or we have to cut in the back half.

Then, I guess my second question just relates to -- and I'm sorry if this has been asked. How do you think about the cadence of orders for cranes as we progress throughout the year? Thank you.

Jamie, I'm going to touch base on your comment on the operational-type things, and I'll let Carl talk to you about the guidance and how that plays out. The one thing I would say on the operational issues, it's few. The problem is they have a big impact, and KitchenCare is that one. And, not only does it impact the top line of the parts that we're shipping and can book the revenues on, thus you have a little bit of a backlog there.

The other thing you have is obviously the customer is irritated. And, that takes a lot of management time. It takes a lot of extra time. It's additional cost to get the business up and running. And so, what I feel good about is you are seeing improvements. In the last 30 days, we've made some decisions to change out some of the parts that we were keeping in Jeffersonville to minimize some disruption. So, I feel good about the plans that we have in place, and now it's simply on our lap that in the next 60 days that all has to change. As I said in my remarks, we expect it to change.

I don't know what else I could say from the operational side on Foodservice. When it comes to them, just the OpEx piece, the things that we have going in cranes and the things we have going in Foodservice when it comes to product cost takeouts, the sourcing initiatives, lean initiatives -- we're well on track to get to the things that we have in place for the year and actually through the first quarter exceeding plans. So, again, those things that we are controlling, I feel very good about.

The one that has the biggest impact obviously has been on KitchenCare. So, that's the one where it's all hands on deck and including myself and people from my staff. And so, I think when you look at that, I believe you'll see with respect to just the normal things you'll see in cranes that they have going in their business with the improvements that need to be made in Foodservice, obviously, the margins will improve. Carl, I'll let you talk about how the guidance comes out.

Sure. Jamie, as you know the first half of the first quarter of the year is seasonally soft for both businesses, and obviously, we see that impact this year. The other elements that I would mention in terms of how we expect the year to play out would be the KitchenCare issue, of course, is something that we are still working on and that will have some impact in Foodservice. I think that the rollout headwind that we had in the first quarter in Foodservice is definitely behind us. We didn't really see that same type of strong rollout activity in the balance of the year in 2014 in Foodservice. And, that certainly would be helpful as you look at it from a year-over-year perspective.

The product cost takeout and the manufacturing initiatives ongoing in both businesses, that will help the balance of the year for us. And, in cranes, the VPC is something that we've talked about. You probably didn't hear the first question. But, the question about that and the margin impact there, that should be helpful in the second half of the year as we get into the serial production of those products and see the impact of those on the P&L. So, as you listen to some of the commentary that we had in the press release and in our prepared remarks, I think the way to think about the margin cadence is certainly improvement in Q2 given the seasonal aspect and other things I mentioned, and then, much stronger results in the second half of the year. (multiple speakers)

Sorry. Go ahead, Glen.

The other item you asked about were the crane orders. I just wanted to touch on that, and I can let Larry add some color if he wants. But, I think when you look at the way we look at the business and some of the things that Larry has implemented over the past 18 months -- in that business we track it by product line. We track it by the orders that we have in hand sold to the business plan, sold to availability, and look at the percentage that we have along the different product lines.

As we talked about, the RTs and the boom trucks are the ones we're seeing the biggest softness in. But, I think when you look at the Crawlers, you look at the APs, we talked about the pickup there. And, you look at the towers. We feel pretty good about where we're at in all those product lines. I think as we sit here at the end of April, knowing our discussions with distributors, our discussions with customers, and [really] what's going on throughout the rest of the year, we feel comfortable with the guidance that we've provided. Larry, I don't know if you have anything to add?

No, Jamie. I think what Glen is talking about -- I think what we see is everybody is talking about the oil and the oil patch impact. We know our dealer inventories this year versus last year is only about 20 units higher year-over-year, and that's specifically to dealers that are dealing in the oil area. But, what we are tracking is the engine utilization on a lot of these cranes in the oil patch area, and it's surprisingly pretty steady which is a strong indication that these fleets are working on either turnaround projects for refineries or they're doing work in nonresidential construction in other areas.

So, we've got to push a little bit of that inventory out from the retail side. But, on the flip side, our tower crane business in North America has picked up quite a bit which is a good leading indicator on the nonresidential construction drive. And, as well, our business just across the board in the Middle East and Saudi Arabia, Oman, Kuwait, Qatar -- it has been much stronger in the first quarter than we expected as well as Korea, Malaysia, Vietnam, Hong Kong. It's helping to offset some of the lag we're seeing in the cranes doing work in the oil patch.

All right. Thanks. I'll get back in queue.

Steve Volkmann, Jefferies.

Good morning. I just wanted to drill down in a similar way on these questions. I guess, specifically, $49 million of crane orders in the first quarter. It looks like you're going to have to average the last three quarters like $100 million higher than that in order to get where you want to be for the year. So, I guess the real question is it's good to see some areas of strength and so forth. But, what gives you the confidence that orders will actually be up that meaningfully sequentially in this type of environment?

I think it's a matter of the -- I think our outlook would probably be different if we didn't see these fleets being utilized. But, clearly, when we look at the utilization data, the engine use on the cranes, we're seeing that the cranes that are destined to the oil patch today are finding other work. And, I think that's a strong indicator followed by the pretty strong strength in the tower crane market here. But, I will also say aside from the oil patchwork, the work in places like Algeria, the nonresidential -- or the residential construction in Germany. The market in the UK has picked up fairly well for us. So, there's a lot of offsets to the current state of the cranes affected in the oil work. And, I think the fact that we are seeing the strong indications in the nonresidential construction, whether it's education or medical or what we call green space hotels, resorts, et cetera. We're going to see that some of this stuff has to push a little bit, but I think the indications are not that we aren't going to see an uptick.

I think one other thing I would throw in there, Steve, is I'm not going to say one auction is a trend. But, I think when you look at the used prices right now, they're very strong and they're holding their values very well. If you were seeing people nervous and dumping equipment, I think you would see a difference in the used crane prices. When you look at what happened in -- there was a large auction in Wyoming. The values that held especially on the Manitowoc equipment, which obviously we track very closely, from very good buyers of, typical buyers of Manitowoc equipment. So, those customers saw the deal, saw the need to have that sooner than later, and I think that holds up well, too. When you look across the globe, the used crane prices are pretty good.

All right. Thanks. Then, just quickly on the Foodservice margin. Carl, you gave us a couple numbers, and I just want to make sure I understood that right. You said something about $30 million-ish of year-over-year comps on the channel fill, I believe it was? And then, [21] or something? Maybe I have my numbers wrong. Maybe I should just ask you to repeat that. You talked about the rollout impact and the KitchenCare impact, I think, on margins?

Correct. Yes, Steve. The operating earnings impact from the rollout -- the year-over-year decline in rollout activity in the first quarter was roughly $13 million, and the impact from KitchenCare, both from a sales perspective, but the margin impact more on the cost side on the remediation is $7.9 million.

Okay, then order of magnitude, does 50% of that go away in the second quarter? Or, how should we think about that?

In terms of the rollout, I think the comparative is behind us. I don't believe that we saw real strong rollout activity in the second quarter, really for the balance of the year, last year. To the magnitude, and this is something we called out in the first quarter announcement last year that we did some see strong rollout activity in a couple of different product lines. So, as far as the KitchenCare, to my earlier comment about the margins, there will be some continuing head winds from KitchenCare this quarter, but it will be at a significantly lower level than it was in the first quarter.

Okay. Thank you.

Jerry Revich, Goldman Sachs.

Hi. Good morning.

Good morning.

I'm wondering if you could just flesh out a little bit more detail in terms of the quoting activity that you're seeing in the Middle East and Asia, I guess, within the context of declining commodity revenues in those regions. It's nice to hear that the business is picking up steam. Maybe some more color there if you don't mind.

Yes, Jerry. This is Larry. I think the strength in the Middle East is coming from what I would call non-oil-related projects. There's a lot of metro rail projects. There's 12 stadiums being built in the region. But, we're also seeing some fleet replenishment in some areas that have been kind of quiet for a while. Kuwait, specifically. Surprisingly Algeria has been strong for us for large AT cranes with some share growth. So, across the board.

And, I think in Asia it's good tower crane business that we're seeing in Korea, Malaysia, Vietnam, Hong Kong. I think it's a strengthening of our AT business in Singapore, and surprisingly, Australia for probably non-mineral-related or commodity-related work. And, also the Small Crawler business has been fairly strong for us in Singapore. Even tower cranes in Venezuela to a certain extent. So, there are different pockets in different areas that are helping us offset some of the other not-so-good stuff that's going on in the market going forward. Hope that helps.

I appreciate it. Thank you. Then, in Foodservice, once we get past the KitchenCare issues. Can you just talk about the opportunities to get that business to -- I think at some point you were looking for high teens margins in the 18%-plus range. Any visibility on the path to get there once we get past the current issues that we should be thinking about?

Jerry, I think it goes back to the things we've talked about for a while. It's the operational pieces that you have, the Monterrey facility. I don't want to bring up -- it's having some of the issues we talked about last year. Cleveland comes to mind. That's behind us. Those startup issues we had. So, you're going to see the improving margins there, but it's continued.

It's further operational-type improvements that we have, whether it's at Trimester, whether it's at the pickup of the Convotherm ovens we talked about in Germany. You see the benefits in the UK. It's really kind of across the spectrum on margin improvements at most of the locations.

I think the other thing that we have is, in fact, the new products. When you look at many of the new product rollouts that we have -- I won't call them rollouts because then you tend to say oh, those are the big ones. But, I think the new products we have and the opportunities with replacements of other new products we had several years ago with many of the chains. That gives us a lot of confidence that we can get to those margins once we get some of the market stabilized behind us and certainly we get the KitchenCare back in order. Bob, I don't know what you want to add to that?

I guess to underscore that. We do have opportunities, the fast casual, casual dining segments are continuing to grow quickly. We also have convenience store growth is out there. As Carl mentioned, some of the largest chains may be suffering right now, but even some of the replacement business in that, particularly in blended ice in the US is a big opportunity for us. And, we've gotten good acceptance from a lot of owner operators in terms of that.

The Convotherm 4 product, which is a major product line made for us made in Germany, we didn't shift hardly at all last year. Now, we're running into as many orders as we can fill. It has been an extremely well accepted oven. All around the world. And, we're producing as many electrics as we can right now. We're ramping up on the gas models which is for the US. There are certain things.

Another one mentioned was in the remarks, the global refrigeration line which is our second line that we're producing in Monterrey. That's had really good interest that came out of the NAFEM show. We start on the shipment of that tomorrow, that line. All the training over the last quarter to all of our buying groups and also our manufacturers' reps has been very positive on what it can do. So, we've got a combination of new products. The markets are there. We just have to once we get through some of these KitchenCare issues, which have been significant. And, if you can imagine, [personally] shipping stuff over next day air versus shipping it ground free, the cost involved with trying to keep the customers happy in those times, that will happen sooner. When we get through that, we'll start to see some improvement.

Okay. And then, lastly, Carl, I don't know if you have any update for us on how to think about corporate costs for the two businesses? Once you spin off, there's quite a range in terms of estimates on the increase in corporate costs. Any framework for how we should think about it?

Well, obviously we're going to start calling out the specific cost items that you would attribute to the split activity. Try to give you some sense of what the pre-tax magnitude of that would be in aggregate, and the majority of those relate to simply the break fees and the financing associated with doing the split. But, the balance on the professional fee side, as far as the increase that we saw year-over-year, it was things like pension true-up and some employee and stock-based compensation that drove the increase in the first quarter. So, I think from a run rate standpoint, that's probably a reasonable expectation.

Thank you.

Eli Lustgarten, Longbow Securities.

Good morning, everyone.

Good morning.

Can we talk a little bit about the split of revenues in the crane business from around the world? How much was North America, Mideast, Latin America, Asia Pacific, Europe. Just to get an idea of what happened in the first quarter, and how that differed from what you might expect for the year?

Eli, the total Americas, roughly 50%. That's probably 40% US. The EME percentage, European portion of that a little under 30%. Then the balance of the EME region, maybe another 10% or so. Maybe a little more than that. Then, the balance of low double-digit percentage in Asia Pacific region.

Okay. And, when we look at it, Latin America has become a basket case. You've got issues down there in product production, what have you. Are we looking at any restructuring or any issues given the basket cases taking on in Latin America, particularly Brazil?

I'll take that. I'll hand it to you. Eli, while it is, in your terms, a basket case, we didn't think it was great last year, and I think many of the initiatives that we took last year addressed what we saw as a slowing market. I think most of that is behind us. When you look at what we've tried to size for our facilities and our people in Latin America, I think our people have done a good job to say hey, we can break even with the facility we have down there. And, that was really the target for 2015. Larry, do you want to talk about the market?

The one comment I would make is that what we are finding is with the exchange rate of the real, we are now shipping more RT cranes from the plant in Brazil to the Middle East. Which has been an advantage for us in that we have the right shipping lanes coming out of Passo Fundo to the key markets there. That has been a positive note for us. But, I think clearly the copper and oil prices for Columbia, Chile, and Peru, have that market collapsed a little bit right now.

But, there's some spots in Mexico that continue to be okay. I think Pemex, which is the big oil company in Mexico, is holding on their CapEx, but we're seeing that our dealer inventory has actually declined in our region there. So, there's activity. Clearly, it's not where anybody would want it to be. But, I think we are sized right for where the market is at right now.

And, one follow-up question on the Foodservice business. We're struggling in mid-teens. We talk about goal of upper teens -- 17.5%, 18%. You have an industry in Foodservice that's a very steady spender. It runs about 4% a year, year in and year out, plus or minus a little bit, and you've got competitive companies that are all showing much higher profitability in the low 20% at this point. Led by the great numbers coming out of ITW at the moment. Can you give us an idea of what is causing the lag that you're so far behind? And, whether the steps you're taking now should get you toward not only talking about high teens, but is there a runway to get you through much stronger profitability compared to your peers?

Eli, this is Carl. There's certainly some differences as you would look at our business versus some competitors' business. As we look at the opportunity for us to get to the targeted level of high teens, full-year margins in our Foodservice business, there's a few things that are obvious that come to mind. 2014 was certainly a setback -- 2014, from the direction we had been moving in Foodservice and the margin progression we've been able to accomplish, since we did the Enodis acquisition. Part of that is what we could call some self-inflicted wounds that we've talked about as we've posted the results, and I think we've got a lot of those at hand or at least visibility as to when we'll get those issues solved.

I think that the other things -- there's certainly been with some organizations that we have a very strong customer position with. There has been some challenges that they've had in their business that have affected their buying habits with us, and that over the short-term has been painful. Over the long-term, we think probably corrects.

And then, the opportunity for us from a cost improvement. We've mentioned the opportunities we that have on the procurement side, on the lean manufacturing side, and on the consolidation side that are bearing fruit for us. That really can't be seen because of some of the other issues that we've had. The other area that I think is a prospect that maybe Bob could expand on, I think we're really starting to get a lot more serious about some product standardization initiatives that I think would really help with our efficiencies as we focus on that.

Yes, I think so. If you look at the strength of our brands and you look at the strength of our customer bases, it is fairly strong. We've always had a close look on lean, taking a closer look at their cost of quality. And then, of course, our purchasing initiative we're doing this year will help.

One further area we're looking at is really taking a very close focus on what we sell and who we sell to and getting into the more granular data on where our profitability is and lack of profitability on certain models and certain customers. I think that will also help. It has helped some of the others in the industry. And, realizing that improved operating margins we can't be everything to everybody. That takes a lot of data analysis, and we're getting into that detail right now.

Thank you.

Mig Dobre, Robert Baird.

Good morning.

Good morning.

Glen, there's something that I find pretty puzzling when I'm looking at the crane margins. If I look in 1Q 2014, so last year. Your organic growth in crane was down something like north of 16%, and you had decremental margins in that business of 11%. This year, organic growth is only down 3%. Decrementals are north of 20%. You've gone through a number of initiatives that have generated cost savings. So, I have a hard time equating how such a small swing in organic can result in such high decrementals after all your efforts.

It's a good question. From where we sit, it's a pretty simple dynamic, and it really is the mix you have between 2015 and 2014. If you go back to the beginning of 2014, Mig, go back and think of what you ended 2013, we got into 2014, people believing what the oil prices where they were. You started to see a lot of optimism in the market. When you looked at what we had, you had the [RT] business going. You had Con Expo coming up. You had a lot of the positives in the industry.

So, it was almost across the board the product lines that we had pretty solid in the RTs, pretty solid in the boom trucks. And, it was a lot of the higher capacity machines you had coming out of the AP business. When you put that all together and you get the absorption out of the factories, you can drive the margins. And, that's where we talked about the initiatives being implemented.

What we had in 2013 as we talked to a lot of people, a lot of the manufacturing initiatives were going into what we had in Europe. Then, in 2014 while you had those pick-ups, we also have a lot of things we're doing at Manitowoc in Shady Grove. So, you see the combinations of those, and we went through some of the reorganization of the businesses at the beginning of 2014. I appreciate -- you look at it that way, but I think when you look at the positives that we've had in the business, especially throughout 2014 on the sourcing side and the manufacturing side in cranes particularly, once we get back to Shady Grove and Manitowoc and Wilhelmshaven and the tower crane business picking back up, you can see what the impact that volumes have on our absorption.

That's why we continue to try to take fixed costs out of that business, and you heard Larry talking about agility. That's what it's all about. That's why we continue to make those moves, and it's a little bit easier to do now when the markets are a little bit less robust than when they go up. So, I think your comments are valid, but I think when you look at where we're at in the business, I think you see a different story.

I can appreciate that. It's just that I was under the understanding that mix has actually gotten better as you've seen some demand for crawlers, for towers and such. Maybe I understand it wrong, and maybe there's also more that you need to be doing perhaps in RTs in order to manage capacity there. Is that a fair point?

Mig, this is Carl. I just wanted to make sure I understood some of the metrics that you threw out there. What were you saying that the decline was in top line?

This is on my numbers, basically, but in 1Q 2014, you've had a pretty significant organic decline in crane. It was double digits. It was north of 15%, and your decremental margins were pretty modest.

It was about 14%.

Right. And, in 2015, we're talking a much smaller organic decline with some pretty significant, north of 20% decrementals. You've had cost savings, and my understanding was that mix has gotten better. I was a little bit puzzled that we're seeing this kind of decrementals at this point.

But, I think some of what you're talking about, Mig, is the fact that it's a 14% decline last year in the first quarter. As you remember, last year was -- it's a seasonally slow quarter for us and probably even more harmful from a weather standpoint last year. Then, you take a leg down from there, that takes -- even going off of that number, down another 13%. I think that's where you get some of the absorption impact that as you think about the infrastructure that you need for the business overall, I think that plays a part in the fact that the decrementals are pretty bad when we're at this level of business.

I'll follow up off line. My followup is a clarification to a question asked earlier. Can you help us understand when it comes to your corporate unallocated costs, how we should be thinking about allocating at crane versus Foodservice? And, is there a view as to what the uptick in cost will be post-split at this point? Or, even a guess of some kind?

We hesitate to provide that last one, Mig, because we're in the midst of the work that's really going to be necessary to determine what the appropriate cost structures will be for the businesses. Until we get through that work, I think it would be premature for us to give a number or even a range at this point because it would circumvent, I think, some of the work that is being done. And, I think that same constraint makes it difficult to determine what the split of corporate costs will be because that really plays into that question as well.

All right. I appreciate it. Thanks.

Charley Brady, BMO Capital Markets.

Thanks. Good morning.

Hi, Charley.

On the crane side for a minute, I hear what you're saying on auction prices and used crane prices, and that the amount of equipment coming out of the energy patch is being redeployed. It strikes me that the redeployment of equipment would translate into a lower demand to have to buy a new piece of equipment. Good for rental companies. Maybe not so good for an OEM like yourselves. I'm just trying to understand while the underlying metrics for the crane rental companies may be improving or certainly stable, particularly in the non-oil patch. What gets that to translate this year -- because we didn't see it last year. What gets that to translate to these guys going out and making a purchase decision to buy a crane now particularly when yourselves and the other two players in the industry certainly have ample capacity? This is not 2008 where if I don't get a slot now, it's 18 months till I get a crane that pushes these guys over the edge to pull the trigger and order a crane.

Charley, I think the difference is from what you've seen in the past when the oil prices went down in 2010 -- 2009 and 2010. Projects were shut off. They just stopped them. And, okay, we can talk about the oil patch. That's North America. That's in the gulf region of North America. What about Canada? What about other places that are around the US and the infrastructure they're putting in place there?

I'll give you an example just recently. Last week, talked to somebody in one of the areas, that customer hadn't bought anything in the first quarter of 2015 because of watching a lot of the projects be delayed, deferred. But, they didn't stop. They basically cut back. And now, they said in April was the first time they've purchased a crane this year which is arguably one of the top five crane rental companies in the US. You have that.

I think a lot of the people have the expectation that oil prices will stabilize somewhere in the high $50s, low $60s. If you get that and it stabilizes there, Charley, people are more confident then to continue their projects. That's where we're getting a lot of feedback from a lot of customers whether it's here or whether it's in Europe whether it's around the Middle East, that's where people are seeing and I think it's purely a matter of confidence.

The other thing that we haven't talked a lot about is just the infrastructure play with a highway bill. When you've got people talking about a highway bill for five and six years, don't know where it's going to come. I don't think that you're going to see it before obviously the end of summer, but I think if there's talk about it and people get confident, that's what they're buying on. They're buying on confidence. And, when you look at the conversations that we have, whether our sales people are having them, whether Larry is having them with customers, whether I am or anybody else. Those are the conversations that are taking place. And, it's not hey, I'm stopping my purchases at all costs.

So, to Larry's point, the good news is the utilizations are still good whereas typically they have gone down dramatically when these projects are being shut off. If they do start bringing people back into the oil rigs, where are they going to get this product? They have to change their fleets. So, it's really -- to Carl's point, when he talked about it in his remarks, he talked about the non-oil-related parts of it, upstream, downstream, middle stream, whatever. So, you have all of that in play. And so, when you look at where we're at and where we need to be from a guidance standpoint, we feel pretty comfortable where we sit today. Larry, I don't know if you want to add to that.

No, I think you touched on all of it. I think the biggest point is I think our concern, and we were even in the first quarter, we were pretty much where we thought things would be. I think if those strains in the oil patch, basically those engine utilizations were down next to nothing, that would be a whole different picture. By the 700, 800 cranes that we've pinged, we see that the engine utilization is at a normal rate. So, in talking with dealers and customers, they're saying, yes, those cranes have gone to other work that were doing oil work. And, that work is still growing.

If you talk with customers or dealers that are not in areas affected by oil, they're saying their businesses and backlog of work is fairly robust. So, when does that trigger the purchasing decision? I think one of the questions people are looking at is 2008 was the big year that we shipped so many cranes, and we're now sitting in 2014 so they're looking at the depreciation schedule on those assets -- 2015, sorry. They're looking at the depreciation of those assets, and when do they start to turn some of that fleet. So, it's going to be watch-and-see. And, I think as Glen mentioned, we've improved our agility to be able to size the plants right so we're not consuming a ton of cash and inventory and raw and whip and we've seen that come to fruition in the first quarter.

Great. Thanks. I appreciate the color on it. Thank you.

Ted Grace, Susquehanna.

Good morning.

Good morning.

I was hoping to come back to a question we asked in the fourth-quarter call. And, that was when you think about the specific financial benefits to the shareholders of affecting a split, can you talk about how you expect Foodservices to be better positioned from an organic growth perspective? You've talked about the structural cost actions you're taking, but I guess what would be helpful is to hear you walk through what do you expect the tangible benefits to be to the business when you separate it? How it will improve the operations beyond what you would do if you kept the Companies together? And, I'm assuming you had to do this analysis because it had to be core to the determination to spin the business off to begin with. I was hoping with three months of time to go through that, you could update us on your thoughts there.

Okay. I think when you look at it, Ted, I think operationally, it doesn't matter whether they're together or apart. So you're going to embark on the same initiatives you have. I'll go back to the numbers that we put out last year midyear on the cost takeouts, and Carl mentioned where we're at on those initiatives. We've said a long time ago that when you look at our direct materials, there's not a lot of overlap in the direct materials, and you can see that as we go through our global sourcing initiative. That's the fact. But, at the same time, as we continue to embark on our global sourcing initiative, we can utilize the spend that we have and use that same savings now as we make the split.

When you look at what are our strategies going forward once you make that separation, I think what you have to look at is what are the opportunities? I think the deciding factor for us, as you look at the markets that we're in, when you look at Foodservice and you believe that those markets have a little bit better growth opportunity than cranes and you look at where they're at, the products they have, it's a much more fragmented market. For them to set up their own capital structure, for them to embark on their own strategies with their own capital structure, it's just Foodservice. That's what you see from many of our competitors.

Then, you turn around and look at cranes. When you look at cranes, as I said back in the fourth quarter, many of the decisions we make, they're not based on a quarter. They're not based on a half a year. We're confident looking three and four years out. If you look at crane strategy three, four years out, it's a little bit less growth, but what we have there is a lot of it is the -- what Larry talked about -- a lot of it is the internal changes that we can make to improve our margins, improve our agility. Yet at the same time if you want to do things within that industry, it is a little more consolidated industry but there's some pretty good opportunities to focus and look at whether it's acquisitions, mergers, or anything else, you have the opportunity to use that capital structure in and of itself to make those decisions.

Basically, when you looked at where you had to go when you got to the path of what do I want to do, they have two different growth strategies. They have two different operational strategies. And, to do that, if I invest in Foodservice, crane people are going to say hey, what about me? If I invest in Cranes, the shareholders of the current business are going to say I thought you had Foodservice just to remain as an in-between. Really that's what it is. It's looking at the capital structure, looking at the strategies, and looking at the shareholder base you have on all three. It's really the same things we said back in January.

Okay. So, before I move to the other question. We shouldn't look for any kind of real difference in organic growth? The strategy is the strategy, and it's now just kind of the ability to execute as stand-alone Companies?

Exactly. We need to execute. It's that simple.

Okay. So, on that note. I think you made comments about changing your strategy within Foodservices. You talked about trying to shift some of the client focus, trying to bifurcate the clients and segment to your more profitable guys. When you think about the inherent execution risks of doing that, can you just give us -- I know it's a work in progress to come up with a strategy and implement it. But, could you just walk through the key factors of your -- we need to be focused on or asking you about over the next 6 to 12 months to understand how you're progressing?

Ted, that's a good question. Glad you brought it up because it's really not a shift in strategy. It's a focus. For instance, I guess what I would say to Bob is when you look at our distribution channels, sometimes it's easier to hunt where the ducks are. You want to hunt elephants, and sometimes with some of our distributors and sometimes the rep groups, they're hunting elephants and they're hunting bigger flocks.

What we're trying to do is get them to say, hey, if we break down our customer base to here's the top 25 customers, then I take it to the next 75, and I say look, this is an opportunity where I walk out, if I go through a restaurant in Manitowoc and I see holy cow, they don't have our equipment. And, the question is why, someone may say, didn't know it. You have a new chain that comes out with five stores. Bob's asking the question. Why don't we know that this new chain came out with five stores? When you start talking from our sales people all the way down through the rest of the distribution channel, we're making them a little more cognizant of some of the areas that I wouldn't say walking away from but they haven't taken the relationship that they have with all these other customers where they have great relationships and gone and hunted in new territories. And, it's more of a focus on a new sales strategy than it is anything else. And, somewhat it's incentivizing them to go do that so it's really an additional focus than it is a strategy change. Does that make sense?

That makes sense. How hard does it actually get your direct and indirect Sales Force to change the way they operate? That to me seems not insignificant.

As I said, it's our job as the OEM and our marketing people to, we should know these opportunities. We have to know what's going on there, and it's our job -- our AVPs and the other people managing these other accounts to say here's some opportunities. Let's go talk to them. I don't think it's new for these people, and I actually think our reps, our dealers -- I think they're looking forward to it because they realize that they can't just do business the way they used to do. I think they're actually looking for encouragement from us to go out and do some of these things. I'll let Bob. He's in the middle of it.

That's exactly right. I've gone out and met with several of these different types of channel partners we've had. You can see it that they may have a specific territory of a state or couple of states. But, when you ask them can we bring you together and target certain small -- say the top 100 chains, and do it more together with us leading in our innovation workshops and all the advantages that Ted you've seen in Tampa and all that, that there is a lot of opportunity. They even admit there's a significant gap between the way we treat our top 25 strategic accounts that we handle and the remaining 75 or the top 100 that they handle. Leading that change and leading with them to get them and with ourselves to team up and penetrate that is an opportunity that not only we see but they see, too.

We have come to the end of our Q&A session. I'll turn it back over to Mr. Khail for any closing remarks.

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

That does conclude today's conference call. We appreciate your participation.