Manitowoc Company Inc (MTW) 2015 Q4 法說會逐字稿

Good day, everyone, and welcome to this Manitowoc Company Q4 2015 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Khail. Please go ahead, sir.

Good morning, everyone, and thank you for joining Manitowoc's fourth-quarter and full-year earnings conference call. Participating in today's call will be Ken Krueger, our Chairman and Interim Chief Executive Officer, Carl Laurino, Senior Vice President and Chief Financial Officer, Hubertus Muehlhaeuser, President and Chief Executive Officer of Manitowoc Foodservice, and Barry Pennypacker, President and Chief Executive Officer of Manitowoc Cranes.

Ken will open today's call by providing comments related to our quarterly results and business outlook. Hubertus and Barry will then provide detailed overviews of their respective segments' performance and outlook. Finally, Carl will discuss our financial results for the fourth quarter in greater detail as well as providing initial 2016 guidance. Following our prepared remarks, we will be joined by Larry Weyers, Executive Vice President of Manitowoc Cranes for our question-and-answer session.

For anyone who was not able to listen to today's entire call, an archived version of this call will be available later this morning.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 Ken begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on January 29, 2016. During the course of today's call, forward-looking statements, as defined in the Private Litigations 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 impact 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 it's a result of new information, future events, or other circumstances.

With that, I'll now turn the call over to Ken.

Thanks, Steve, and good morning, everyone. Before I discuss the results for the quarter, I'd like to update you on our progress toward the planned separation of our Crane and Foodservice businesses. We continue to make significant progress toward implementing the spin and remain on-track to complete the separation during the quarter. Operationally, we are ready for this separation, with the sole remaining challenge being continued weakness in the credit markets. Carl will update you in a few minutes on our activities in those markets.

I would also like to highlight the recent appointment of Barry Pennypacker as CEO of Manitowoc Cranes. Barry brings three decades of global industrial leadership to his new post at Manitowoc. His results-focused leadership style has transform several complex businesses. Through continuous process improvements, it delivers significant operational and financial performance improvement and increased shareholder value.

Now let me shift gears and turn to our fourth-quarter and full-year results. For the full year, revenues declined 11.6% to $3.4 billion. On a GAAP basis, we reported net earnings of $63.5 million or $0.47 per diluted share. Excluding special items, adjusted earnings from continuing operations in 2015 were $96.8 million or $0.70 per share.

Performance within Foodservice during the fourth quarter significantly improved. Fourth-quarter operating margins were the highest since the mid-90s, when we were an approximately $100 million sales company.

The business has decidedly turned the corner and we have a much stronger foundation on which to build as we move into 2016. Hubertus will provide more color in a few minutes.

In Cranes, tough macro-economic conditions, particularly in oil and gas, continue to put downward pressure on demand for our products. While we are seeing some stabilization in certain markets and product lines, our 2016 outlook assumes a relatively static environment, given the uncertainty that exists globally.

That said, as we've stated last quarter, we believe operating margins have bottomed and the corrective actions we've taken over the past 12 months position us well to generate improved profitability, even with the flat top-line expectation. These actions should also position the Company for improved operating margins as sales rebound.

In summary, we are very pleased with the progress we are making in Foodservice. In addition, we expect the aggressive actions we've taken in Cranes, as well as the execution of various strategy that you'll hear about shortly, will drive significant improvement in profitability. With that, I'll turn it over to Hubertus and Barry to discuss their respective businesses in more detail. Hubertus?

Thank you, Ken, and good morning, everyone. As Ken mentioned, our fourth-quarter results were pretty encouraging. The strong operating momentum we saw in the third quarter continued well into the fourth quarter and the announced simplification actions and right side initiatives improvements in kitchen care have begun to finally generate meaningful results. In the aggregate, these initiatives fueled the impressive 570 basis points year after year and 200 basis point sequential improvement in our operating margins.

From a sales perspective, we exceeded our internal expectations during the fourth quarter, driven by improvements in our KitchenCare business but also continued strength in cold side sales, particularly in North America and Asia, resulting from strong ice machine and blended beverage results.

The soft [raises] on the hot side of our business that we experienced earlier in 2015 seems to be largely behind us as we generated significant traction with our key new products, the award-winning Frymaster, our low oil volume fryer, which made very strong inroads in North America and Europe; the Merrychef eikon e2s, which is geared towards convenience stores and quick service restaurants [offer user some] smaller footprints; and the Convotherm 4, which is the best performing combi element on the market.

As a side note, we are also very pleased that our Frymaster low oil volume fryer was recently chosen as the exclusive fryer to serve the Japanese market for major [QSRJ]. This success demonstrates our ability to provide customers with truly innovative and differentiated products, which help them lower cost, reduce waste, and deliver a better meal to their customers.

A last word on the top line. We are very encouraged by the recent trends within large chain restaurants in Asia, which are finally showing signs of stabilizing as their capital expenditures are beginning to return to more normal levels.

Now let's switch over to the operational perspective. We are on target with our announced right siding initiatives: the shutdown of our higher facility and the relocation of all products currently manufactured there is very well underway. At the end of December, we also completed the consolidation of our Urbandale distribution center into our facility in Covington, and we finalized the sale of our non-core Kysor Panel Systems business.

Also, the announced headcount reductions are mostly in [tremendous] and adds to the improved operating margin profile. Further, our 80/20 product simplification initiative is well underway and we are also seeing progress in our strategic source initiative. The totality of savings from all our initiatives is reflected in our improved operating margin guidance that Carl is going to discuss in a second. As we move forward with these and other initiatives, we will continue to spend in important areas supporting top- and bottom-line growth, such as product and system innovations.

Last but not least, we have also now completed our Senior Leadership Team with industry-leading talent. John Stewart has been hired as our Chief Financial Officer and John brings a wealth of knowledge to the Foodservice business, with more than 20 years of experience in the food and beverage industries. John also led the Dr Pepper group IPO as Chief Financial Officer. His expertise will be invaluable in driving improved financial performance for the business.

We are also very pleased that Rich Sheppard had joined John's Team as Vice President of Investor Relations and Treasury. Rich brings deep experience to both functions, having previously served in the same role at Donaldson Company for 40 years and many of you will know him. In addition to John and Rich, we have also hired Andreas Visa as Senior Vice President to lead our strategy, marketing and HR functions.

I have personally worked with Andreas around the globe for more than 15 years and I'm truly excited about him joining Manitowoc Foodservice. So in summary, we have made significant progress executing our strategy to drive margin improvement and gain market share.

We continue to work on additional areas to improve efficiency and reduce cost as we proceed with our business simplification and right siding initiatives, all of which will position us to grow profitably. As we move towards separating the two businesses, we are pretty optimistic about our future. With that, I'll hand it over to Barry.

Thank you, Hubertus, and good morning, everyone. I'm excited to participate in my first earnings call as CEO of Manitowoc Cranes. Although I've been with the Company less than a month, it is already clear to me that the Cranes business has a great potential and there is significant opportunity to improve it's performance. There's no question in my mind that while we continue to face some tough market conditions, there are still opportunities for growth and earnings.

I've already begun to communicate what I refer to as Manitowoc way. This strategy focuses on our three key stakeholders, those being customers, shareholders and employees. The goal is to create a culture that is driven by innovation and velocity at the core of every aspect of our business. Our lean initiatives are in their infancy strange, but rest assured, in the coming months, it will become obvious what we are doing and we will communicate the impact of this program on our results for all to see.

While improving the margin profile of the business, we need to ensure that our industry-leading position with regards to innovation remains in place, and in a number of cases, accelerated to stay ahead of the competition. We'll be introducing multiple new products and technologies at the Bauma Show in Munich in April that will underscore Manitowoc's technical leadership.

Going forward, we will sharpen our focus on developing new products to deliver fundamentally more value to our customers and enhance our brand. This culture of innovation will result in a strengthened competitive position and more compelling growth opportunities for our Crane business, both from an end market and customer standpoint.

In fact, let me tell you about an effort that we began this week. We have formed a team of 10 full time people to develop a next-generation Crane in three months and bring it to market three months later. So a total of six months to develop and deliver this game changing product. We have listened to our customers and we will incorporate all of their feedback into this new design.

In fact, a number of them will be asked to participate throughout the six months to make sure that we are on the right track. But more importantly, allowing them a sense of ownership upon the introduction. This is product development the Manitowoc way.

There's a significant opportunity for us to further apply lean principles and in doing so become a more agile organization that's able to react more quickly to our customers' changing needs and operate profitably in any demand environment. To that end, we will pursue key initiatives to enhance operational efficiency, rationalize our capacity and leverage our procurement.

As result of these efforts, we expect to generate double-digit margins in the future, regardless of top-line performance. I know you are wondering when this will occur. Give me a few more months to develop the plan, at which time, I will provide a road map to our future earnings expectations.

Over the last few weeks, I have had the opportunity to visit with a number of our customers to personally listen to their needs and to get their feedback on how we are doing. I've a great deal of optimism and enthusiasm and firmly believe in the long-term growth opportunities that lie ahead.

I am confident that we are on the right track and look forward to executing on the necessary changes to bring about long-term sustainable earnings growth and shareholder value. Now let me turn the call over to Carl for a review of Manitowoc's financial performance. Carl?

Thanks, Barry, and good morning, everyone. We've reported that sales for the fourth quarter of $935 million, which is a decrease of 9.9% from a year ago. GAAP net income for the fourth quarter was $43.8 million or $0.32 per diluted share versus net income of $33.6 million or $0.25 per diluted share in the fourth quarter of 2014.

Our fourth-quarter results included restructuring and asset impairment charges associated with our efforts to improve performance, building $12.4 million and $24.4 million respectively. These charges have resulted from consolidation and rationalization efforts in both segments as well as corporate encompassing our global operations.

Excluding special items, fourth-quarter 2015 adjusted earnings from continuing operations were $59.7 million or $0.43 per diluted share versus adjusted earnings of $37.5 million or $0.27 per diluted share last year. During the fourth quarter, cash generated from continuing operations was $171.8 million compared to cash generated from continuing operations of $237.6 million for the fourth quarter of 2014.

The decline was primarily due to lower sales, product mix and resulting lower profitability. Total debt reduction of $223.6 million was enhanced by $78.2 million in cash from the sale of Kysor Panel Systems.

Turning to the results of our two businesses, fourth-quarter Crane sales totaled $543.1 million, down 18.1% from $663.2 million a year ago. The decline was most pronounced within several mobile crane categories, most notably our rough terrain cranes and boom truck product lines.

Conversely, we saw tower crane demand improve in Europe, fueled by improving residential and commercial construction trends. Crane operating earnings in the fourth quarter were $24.1 million versus $45.3 million last year. This resulted in a fourth-quarter operating margin of 4.4% compared to 6.8% last year. The margin decline was fueled by continued under absorption as well as ongoing pricing pressure driven largely by currency headwinds.

These factors were only partially offset by ongoing operational efficiencies and cost reductions. As Ken mentioned, operating margins improved from third-quarter levels as a result of the cost-cutting initiatives we have undertaken and will continue to implement. We expect further improvement in our operating margins, even in the face of flat sales.

Crane backlog at quarter end was $513 million, down from the fourth quarter 2014 backlog of $738 million, reflecting a book-to-bill of 0.8 times. Fourth-quarter new orders of $424 million decreased from $686 million in the year-ago period but improved sequentially by 26% over the third quarter.

Foodservice sales in the fourth quarter of 2015 totaled $391.7 million up 4.7% from the prior-year period's $374.2 million. Sales were driven primary by continued strength in cold side products, particularly ice, as well as in KitchenCare. We also saw a modest uptick in hot side sales and large chain sales firming.

Fourth-quarter 2015 operating earnings in Foodservice grew an impressive 51% from the prior year to $72.7 million, which resulted in an operating margin of 18.6% compared to 12.9% for the fourth quarter of 2014. The improvement was largely driven by the impact of right sizing initiatives, product line simplification and improved KitchenCare efforts previously discussed.

As we noted in our press release, our full-year outlook is as follows, beginning with Cranes: Revenue approximately flat, operating margin approximately 4%, depreciation between $45 million and $50 million, amortization expense between $3 million and $4 million, capital expenditures approximately $55 million to $65 million.

For Foodservice, revenue of 2% to 4% on an organic basis, operating margin 16% to 17% on an organic basis, depreciation $21 million to $24 million, amortization expense $30 million to $33 million, capital expenditures $23 million to $27 million. The guidance figures included incremental costs associated with separating into publicly traded Companies of approximately $30 million for each Company on an annual run rate basis.

For Foodservice, this outlook also nets out 2015 sales of $122.1 million and operating income of $12.8 million from the divestiture of Kysor Panel. Thus the 2015 pro forma operating margin for Foodservice would be approximately 13.6%, factoring in the KPS removal and corporate dis-synergies addition. Similarly, within Cranes, adjusting for the incremental cost, the operating margin in 2016, which show more than 200 basis points of expansion over 2015.

We continue to anticipate that our total pretax separation expense will aggregate $130 million to $140 million. The majority of these expenses, most notably debt breakage cost and financing fees will be realized at closing. I will now turn the call back to Ken for some closing remarks. Ken?

Thanks, Carl. We've made great strides to realign and rationalize both of our businesses. That said, we are continuing to work hard to position in future success as we march toward the planned separation that will create two industry-leading publicly held Companies. This concludes our prepared remarks for today. Kim, we will now begin our question-and-answer session.

Thank you.

(Operator Instructions)

Jamie Cook, Credit Suisse.

Good morning. My first question would go to Barry, just because you are new and you know you will become the CEO of the Crane business. A bigger picture question in terms of what attracted you to the Crane business. Why do you think the Crane business should be a stand-alone business? Or perhaps you don't, longer-term.

And then the other question is, I think in your prepared remarks, you mentioned the Crane business being able to generate double-digit margins. In a less robust cycle versus previous, what gives you the conviction level? And what are your assumptions around the competitive market in particular with the Zoomlion Terex recent announcement? Thanks.

Wow, that's a lot. Let me try to peel that onion a little bit at a time, Jamie. What attracted me to the position was I have been an operationally focused CEO in my prior life, and my prior jobs and when I look at the Crane business here at Manitowoc, along with the discussions with the Board, I think this is a operational turnaround business that requires some leadership with regards to how you implement lean principles and drive margin expansion at the same time. And this is a great opportunity.

The global footprint is too large as I think everyone knows. When Carl did his prepared remarks, he talked about under absorption. The way to look at under absorption, simply is that we have over capacity and we will be addressing that very quickly here in the next few months and as we do, we will be very forthcoming with what those costs will be and what the returns will be so that you can track our progress with regards to our overall implementation of the Manitowoc way.

The Company, it is a great company. It's a great business that needs some improvement in a number of areas, which we will continue to recognize and deal with. The brands that we have in the portfolio are very well recognized globally as leaders, which is always a good thing to attract a new CEO with regards to trying to turn the business around. Our dealer network that we have in the US and globally is the envy of all of our competition and so they are very dedicated to Manitowoc.

Most of them are exclusive to Manitowoc, so they are very important to our long-term future. And I'm absolutely convinced that after my first four weeks here, that lean implementation will in fact drive substantial results for the future, which leads to, I think, your final point of my commitment to double-digit earning growth irregardless of what happens with the top line. I am absolutely convinced that we will have the ability to do that.

And with regards to the Terex issue, I really don't have any comment on that, because quite frankly I have a business here that needs to be turned around. I have a business that has a substantial opportunity for new product introduction this year that we have to ensure that we focus on and deliver on time in order to get some of the growth that we are counting in latter part of the year, so quite frankly we are concentrating on the things that are within our control, which are the things that I just mentioned.

All right thanks. I will get back in queue

Jerry Revich, Goldman Sachs.

Good morning.

Good morning.

I'm wondering if we could talk about it in Foodservice? Obviously nice progress there. And we see your targets for 2016. Can you update us on your longer-term cost reduction opportunities beyond this year? Where do you stand on the key initiatives that you've spoken about on prior calls that are longer-term focus?

Well, we've given guidance now for 2016 and we don't want to give guidance beyond 2016. And we stated also that our long-term aspiration is to go to industry margins, industry every margins and we believe that the initiatives under the header of simplification and right sizing will bring us there. Plus, the innovation that we have brought to our business will drive the top line, so we are confident with that aspiration. I think we can achieve what we want to do.

And in birth of manufacturing consolidation as well? I didn't hear you list that?

Right sizing is for mainly manufacturing consolidation. As we have said, we have over capacity. We feel that with the announced measures, we have addressed a very good portion of that. If we conclude those rationalizations successfully we might want to announce more consolidation going on. But for the time being, this is what we have announced.

Okay. And then to switch gears to the Crane business, and I'm wondering if you could just flesh out your regional outlook a little bit more, so to get sales flat for 2016? Can you talk about which regions do you expect to drive growth for your business? Which regions do you see as challenged for 2016?

I'll start that and then I'll turn it over to Larry to give you a little bit more color, but from my perspective, what I am currently seeing is that in the Middle East and Africa and some of Asia, we are seeing substantial increase in tower cranes, which is a good sign for us and consistent with some of the macroeconomic conditions that have already been communicated.

In the US, it's a mixed bag. We are still challenged, but I'm also encouraged by some of the new products that we are going to be introducing at Bauma in April that should help drive some growth for us in the second half of the year.

Larry, you want to add anything to that?

Yes, just to reiterate what Barry said, I think the biggest change we've seen from Q3 is a significant order activity on both self-erecting and top slewing tower cranes, probably to a level that we haven't quite seen since 2008. And it's clearly not oil related.

It's high-rise apartment, residential construction, and the positive sign there too is, it's within some of the core markets in Europe: France, Germany, that we haven't seen, as well as the US, Korea, Vietnam, Australia. So while we have obviously headwinds with some of the mobile crane, RTM boom truck, the impetus on this tower crane order trend is positive so some of the ins and outs you end up back at flat revenue.

Nicole DeBlase, Morgan Stanley.

Thanks, guys. Good morning.

Morning, Nicole.

So my first question is around the Foodservice margin guidance. And, Carl, can you first confirm to me that you said that the 13.6%, was that Foodservice margins in 2015 if you were to include the public company cost, like on a pro forma basis? And then if that's the case, what's giving you conviction in expansion to 16% to 17% next year? How much of that is underwritten by cost cutting action?

You're exactly right in terms of what the 13.6% represents. It's a backout of the Kysor business, as well, as the corporate dissynergies, I guess I'd call it. And in terms of what drives the margin expansion, again, Hubertus can talk to that.

Yes, what drives it is the right sizing and the simplification actions that we have announced already in the last call. And we are basically delivering against those promises that we have made. We started to deliver in the fourth quarter and we continue to deliver into next year. And these initiatives will drive $50 million of bottom-line improvement around about. That's what we're guiding to.

There is one other thing to mention there, Nicole, and that is, obviously we did have some execution issues in 2015 that we have addressed and that will contribute to the margin expansion that we're able to generate year-over-year.

Last, we have established now I think a very, very strong Team under the leadership of our COO, Josef Matosevic. The sales and the operations team are working perfectly well hand-in-hand. It's really a nice team effort and we feel comfortable about our guidance.

Okay, got it. Thanks. That's really helpful. And then my second question is around the Crane business. So the debt was announced today. It seems to me that you're putting about two times leverage on the Crane business based on what I'm backing into for EBITDA for 2016 and I'm just curious what gives you comfort with putting that much leverage on such a cyclical business?

Well, yes, obviously, we've been at higher levels, but we would view the EBITDA levels as certainly at low levels through the cycle. There's no question about that and that's been demonstrated if you look back over time. And it's a business that does generate significant cash, even when the markets are difficult, so we feel good about where we stand and, without commenting on the EBITDA conclusion because obviously that's going to be subject to a little bit of interpretation as you think about the differences between segment EBITDA and total Companies EBITDA.

I think if I had one thing to add, what brings me a certain level of comfort is that as we continue to progress with the Manitowoc way, will see substantial improvement in working capital.

Charlie Brady, SunTrust Robinson Humphrey.

Thanks. Good morning.

Hi, Charlie.

Can we just talk about Crane for a second? I just really want to understand a little bit better the Crane guidance for flat Crane. And I know you're saying towers are great now and that's really up a lot. But look, at the end of the day, orders of 4.4% in a quarter. We're down 38% year-on-year, we know fourth quarter's always sequentially a very strong uptick from Q3.

But how do you get to a flat number? I mean, are you expecting -- can you give some commentary on what you're seeing on crawlers? And maybe what's your expectation RTs now that you're expecting them to flat line out and maybe tick up in 2016? I'm just trying to understand the math to get flat numbers even if we have a strong power market, which I would argue is partially reflected in the orders we saw in Q4.

That's a very good question. And let me try to give you some of our current assumptions and thoughts around that order rate. Thus far in January, our number of units are up substantially year-over-year, which provides us some level of comfort that in some of the markets that we expected the turn for the order rate that we put forward in order to make our guidance is in fact trending the way it should.

We are expecting a substantial increase as a result of the products that we will introduce at the Bauma Show. If you look at our historical order rate and you look at the effect of Con Expo and as well as Bauma, you can see the following quarter where we've had a substantial uptick in orders and I think this year, based on the product portfolio that I reviewed so far, should be no exception to that.

Also, we have a substantial military order that we are not allowed to put in our backlog as of yet simply because we have to deliver three prototypes in order to satisfy the letter of intent before that actually hits our backlog. So we are relatively optimistic about flat orders, but what I said in my prepared remarks, I am absolutely resolute to, that if we don't have flat orders, we certainly will meet our guidance with regards to earnings.

Okay. Thanks. I just had a follow-up just on the -- sorry. Go ahead.

This is let Larry. I think the one thing when, Charlie, when you talk about the our expectations, the RT market globally was down 22% year-over-year. In North America, it was down 32% and our assumptions does not assume that we're going to see an improvement in that market as we look at our plan for 2016. Boom truck market was down 43% and in our expectations, we perceive that to be flat, especially for the large population of what I would call short boom oil field cranes in the market.

I think the offsets to that is the crawler activity is good, with the VPC cranes, the AT market continues to, we see a little bit of order improvement, and the, obviously the tower cranes are running way ahead of what we would've expected. And we're also seeing some different larger deals in markets like Kuwait and Egypt, Turkey, Panama, and Thailand. So there's different pockets of the pluses and minuses that get us back to neutral.

Okay. Just as a follow-up, on the Crane margin, in your assumption, how much of that or unproven or flattishness is due to the suspension of operations in Brazil? And has a write off been taken for that facility at all?

The answer to the latter part of your question is yes, it has. That is part of the asset impairment that we took in the fourth quarter. And the expectation for margin expansion is certainly heavily contributed by the consolidation activity that we've embarked upon, including Brazil, but also other locations.

Vishal Shah, Deutsche Bank.

Hi, this is Chad Dillard on the line for Vishal. Thanks for taking my question.

So can you give an update on where you are over sorting out the VPC manufacturing issues? And is it already taken care of in the fourth quarter, or should we think about some margin driving in 2016?

I think we are over the hump with the VPC manufacturing issues and the level of revenue that we expected to ship in the fourth quarter we were able to do. And that's one of the reasons why our backlog has substantially reduced.

Okay and then also can you give an update on where you are with both the cost saving initiatives? What percentage are you complete? And then how much are you baking into your 2016 expectations for both businesses?

Certainly part of the market expansion that we were able to generate or that the decremental margin and the sequential increase in margin was driven by realizing the savings that we expected to see in 2015 and the margin expansion as part and parcel, I think it's fair to say, with a month on the job, that Barry has got some things that he's looking at that will probably change the picture a little bit.

I think it will be essentially a forward look as to what the opportunities are, and he stated in his prepared remarks, we'll get a little bit more granular about those in the intermediate term as we lay those plans down. But in terms of the historical aspects of the cost savings that drove the 2015 margin performance, as well as our guidance for 2016, well in hand.

(Operator Instructions)

Steven Fisher, UBS.

Thanks. Good morning. Barry, you mentioned the six months to bring a brand-new product from idea to market. How are you balancing the preference for bringing these products to market quickly versus getting the product and the launch exactly correct? Because I think historically, execution on these things has not always been perfectly smooth and I'm sure you are absolutely trying to build long-term customer confidence, so how do you balance that?

That's an excellent question. If you recall, I said that I spent a good portion of my time over the course of the last four weeks meeting with and talking to our customers. And it's very obvious to me that one of the issues we have is within the ability for us to be on time with a new product that allows our dealer network to fully enjoy the ability to sell those features prior to some of our competition knocking them off.

This product that we are developing is in fact an immediate market need that we have recognized as a result of meeting with our customers. It is, in fact, a breakthrough for us to do this in six months. We have elected a team and in our Shady Grove facility of 10 of our elite people with regards to multifunctional team. They are in place. They started meeting on Wednesday of this week.

I've already gotten reports from this group after two days of meetings that indicate that we are in fact on the right track. And I'm absolutely convinced that when you take great people and give them a process, which we have done, on how to develop and build a product in an expedited way, you take good people and you give them good processes you're going to get great results and to do this in six months is a great result.

Okay, that's helpful. And then what targets do you have for CraneCare in 2016? And maybe what's the next steps for it beyond as you think about medium- and long-term? And how do you view what the right mix of parts and services versus original equipment is in your view?

CraneCare is an opportunity for us, the way I look at it. I think CraneCare finished below 20% of our total revenue in 2015. I'd like to see that north of 30%, not only because it carries a very good anti-cyclicality for us, but as you know, the after market generally has a much higher operating margins, and we'd like to see that become part of our product portfolio. And I think you'll see, as time goes on here, that we will organize around that. We will source that appropriately, and we will change the margin profile of the business as a result of helping us grow the after market.

Ann Duignan, JPMorgan.

Hi, good morning. This is Mike Tomlin on for Ann.

Hi, Mike.

I just wanted to follow up on one of the other questions. So you closed the facility in Brazil during Q4. Is there any risk that there are product, that there's products from that region that flow into other regions, putting additional downer pressure on demand?

No, we're not concerned about that at all.

No. Because of the import duties and taxes that are between the countries, it's not an issue.

Okay. Thank you.

Mike Shlisky, Seaport Global.

Good morning. Barry, good to hear your voice again. As somebody said, it sounds awfully familiar. I wanted to touch base with you, Barry. I know it's been only a month or so, but do you sense in your travels around the Company's facilities that they're any major cultural overall that has to be done here at the Company? Or is it really more about getting people simply to focus on their tasks in the facility to get things done faster or with a lot less movement, or parts, or things like that? Can you give us a sense of the scale of what you're trying to do here?

Yes. I think it's an excellent question. And what I would say is that yes, the culture here is going to change, because quite frankly, the operating margin profile of the business over the course of the last five years is just not acceptable when you're try to create a world-class crane company. So the March profile in and of itself indicates that there's going to be a cultural change.

And that cultural change is going to be that we are going to do things according to what our customers want and not what we want. And I will say that that culture isn't for everyone and there will be some people who just cannot adopt to the new way of operating. And they will unfortunately have to leave the business and find another way to make a living.

But we will in fact make sure that the people who are here, we are going to invest in them in training, we are going to give them every opportunity that we possibly can to try and make sure that they do things the way we need them done in order to satisfy not only our customers, but satisfy our shareholders and ultimately our employees also and that change will in fact happen.

Great. And my follow-up is on the fast track product development sample you've got planned here. Is there any risk here about things that are out of your control, like getting state recertified, trying to certify the wear and tear on exposure to the elements, et cetera, over a six-month period? Or is what you know about how those processes work still within the six-month period? And I'd also want to ask how fast these guys in the past developing your products in Cranes?

The product that we are currently developed would've typically have taken two years to develop and introduce to the market. When you use lean product development techniques and say that you're going to cut the time down by 75%, as we are doing in this case, of course, you cannot have a substantial amount of bottleneck technology that needs to be developed in order to do so.

But, there is a lot of technology that has been developed across our entire product line, from crawlers to RTs to ATs to tower cranes that can be brought into this new product as non-bottleneck technology that can be applied very quickly and become a product much quicker than what we've done in the past. So I'm absolutely convinced that with the team that we formed and that the follow-up that I'm doing every week with them, we will in fact make this happen.

Mircea Dobre, Robert Baird.

Yes. Thank you. Good morning, everyone.

Carl, this for you is just one question, some clarification for my benefit, if you would. At the midpoint of guidance for both Foodservice and Cranes, what exactly is the guided EBITDA number? Can you help me with that?

The guidance we gave, or it's actually based upon the standalone Company on a 12-month perspective. So with the dis-synergies associated with making that separation, under again, 12 months is not necessarily exactly what will happen in 2016, given the calendar. It would be a little less than $100 million in our Crane business from an EBITDA standpoint. And Foodservice, because it's laid out there with you under the guidance that we gave on an organic basis, you're talking about --

Just that $20 million to $21 million, $21 million to $24 million depreciation you add that to your operating margin, then you're there.

Mircea, I just want to make an observation; while all that math works, giving the guidance in terms of an operating margin per say it's what's purposeful. And that means that we are committed to hitting those operating margins irrespective of where we find ourselves with the sales volume. So I'm not sure if you were asking that question, but I just wanted to comment that we -- the margin percentage was a purposeful effort. It shows our commitment to hitting those margins despite sales levels.

Sure. I appreciate that. It's just I'm trying to get it clear in my mind as to whether or not your operating margin includes or excludes amortization, and whether or not Crane is going to experience $30 million worth of public company cost, which to my understanding, that was not the case previously.

You are correct. It would, it's inclusive of all the costs in both businesses. The operating earnings does include amortization. It's before amortization, essentially.

EBITA.

It's basically EBITA.

Okay. And what about the second portion, the $30 million worth of cost in Crane?

That's it. That's all for just the Foodservice guidance.

Okay. Thank you, guys.

Seth Weber, RBC Capital Markets.

Hello. Good morning, everybody.

Morning, Seth.

Wanted to go back to the footprint rationalization discussion again if we could. This is a business that at one point did about $4 billion of revenue, the Crane business. So how are you thinking about what's the right size for this business going forward? Can you tells what your capacity utilization is today and what you think is really the right size for the business? Are there opportunities? I'm sure there's other opportunities with Lee and whatnot but are there opportunities for maybe outsourcing to go more asset light? Or can you give us more color there?

Seth, you're absolutely right. We find ourselves in a position with the filings where we're at not having being really reflective of what's happened in marketplace through the cycle. But it gives you an opportunity to step back and say, as a general model, we ought to be at about 80% one shift capacity when we are in the trough of the market. We weren't there. We aren't there and that's part of the effort that you saw in the last couple of announcements on the restructurings.

That allows you the opportunity to put on a second shift as you go up, as you move up the cycle. And ultimately, as you get to the peak, you start going into the outsourcing and the contracting arena. So, yes. We are essentially trying to size this thing so that we're at the trough, we are operating our plans at or about 80% on one shift, then adding a second shift, then adding some outsourcing and contracting as we get to the peak and that's the model we are pursuing.

Just as a follow-up, as a lean practitioner, the word underabsorption is taboo. Because, quite frankly, I don't even know what that is. However, we will in fact make sure that the business is sized according to the revenue levels that we have. And remember, we are in the infancy stages of lean introduction here. And as we continue to proliferate lean throughout all of our organization, we're going to find, just like we found in many instances in the past, that we can do a heck of a lot more with a lot less.

Sure. What I'm trying to get at is, do you envision that this business can get back to almost a $4 billion revenue run rate at some point, or is that just an extraordinary occurrence? And you're working towards a lower number than that?

I'm going to size the business according to what customers' needs are and we'll make sure and I think what Ken said is right on the money. We're not going to size and take the infrastructure in the business down to the current levels of revenue. However, we are going to size the overhead and make what typically has been fixed overhead very variable.

Seth, kind of to your point, I'll call it an innovation, but one of the things we are doing is in our Passo Fundo plant, we're actually moth-balling it. So we are suspending operations there. To your point, if we ever get into a situation where the South American demand picks up to the point that we need it, that will be available to us in the future. But we made the decision that in the interim, we need to just keep, get the fixed cost down to a minimum and shutter that plant for a period of time.

Ted Grace, Susquehanna.

Thanks, guys. Let me begin by saying congratulations to Barry.

Thank you. I appreciate that.

Sure. Couple questions -- shifting gears, a couple questions on Foodservices. Hubertus, could you technically decompose your 2016 growth expectations? I know you're talking about 2% to 4% organic. Can you help us appreciate how you're thinking about cold? It seems like the momentum has been there more recently, but it sounds like maybe you think hot could be coming back. How do you think about new product introductions, the contributions from NPI in 2016 and how you're thinking about pricing and FX headwinds, just as we think about that forecast?

Yes. I'm happy to do that. Well regionally, I think it is across-the-board growth. It's growing with the market in North America and outgrowing Europe and APEC. I think we have the potential to gain market share there.

If we look at the size, you mentioned it, we've been a bit shy on the hot side this year. So I would see a bit more growth on the hot side and continued growth on cold side. But relatively, hot will be growing a little bit more. And then you mentioned innovation. I see as us as the most innovative company in our industry space. So the new product introduction that we have planned for this year, which are north of 20%, will add around 20% to 30% to our sales mix for this year. That's kind of what we'll see. Does that answer?

Sorry could you just clarify that 20% to 30% of the growth will be new products? I just want to make sure I understood that.

Yes, that's what we think. And we've been traditionally around a bit shy of 20%, but with what we have in the pipeline right now we feel very comfortable that we're going to have a very, very fresh and updated product line, and we see a lot of growth coming also in the whole area of our fifth kitchen initiative, which is the outfitting of the entire kitchens, for convenience stores mainly, and the kitchen connect. The whole concept of industry 4.0 that you have in Europe is going to come to the kitchen. Kitchen 4.0 is at our doorstep and we are at the forefront of that development. That's going to drive sales.

Larry De Maria, William Blair.

Hi, thanks. Good morning. Just a couple questions. First, what are your assumptions for pricing for the businesses and what kind of competition are seeing on pricing given the currency dynamics? And then secondly, on Cranes what's the organic growth we're looking for for Cranes and how do we think about the first-half versus second-half split in sales? Because it sounds like it's obviously mostly geared towards the second half after Bauma. Thank you.

Let me take on the pricing, because I didn't answer that in the other question, as well. We see that our competition is not on price. It's total cost of ownership and innovation and that is rewarded by our customers. And so this is basically also what we've then been seeing our margins and our customer value that we invest a lot of the margins that we make in the innovations for them that benefit them. So therefore, we don't see a lot of pricing pressure right now.

We see pricing pressure particularly in the rental market and we don't see any dynamic that would indicate that that's not going to continue with the current utilization rates through 2016. We do believe, however, that in order to grow in this environment, we have to have a better mousetrap and we're going to prove through our product development that we're doing that we will have a better mousetrap.

One of the things to consider and one of the things that's driving our product development and innovation activities here is that these cranes, as you know, are very heavy and they require a substantial amount of effort to transport across the roads in the US and Europe. And anything you can do to take tens of thousands of pounds away from a crane and still be able to lift according to the profiles that are necessary is really something that our customers are willing to pay for. And our development activities and our innovation activities that we have going for this year are aimed strictly at that.

Ladies and gentlemen, that concludes today's question-and-answer session. Mr. Khail, at this time, I will turn the conference back to for any additional or closing remarks.

Before we conclude today's call, I would like to remind everyone that a replay of our fourth-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. This concludes today's call. Have a good day.

That concludes our conference. Thank you for your participation.