Manitowoc Company Inc (MTW) 2016 Q2 法說會逐字稿

Good day everyone and welcome to the Manitowoc Company Q2 2016 earnings conference. Today's call is being recorded. At this time, for opening remarks and introductions I'd like to turn the call over to Mr. Ion Warner, Vice President of Marketing and Investor Relations. Please go ahead, Sir.

Good morning everyone, and welcome to Manitowoc's second-quarter 2016 earnings conference call. Were glad you could join us today. With me today is Barry Pennypacker, President and Chief Executive Officer, and Dave Antoniuk, Senior Vice President and Chief Financial Officer.

On today's call, we will provide details of our second-quarter 2016 performance as well as an update on our full-year business outlook as outlined in last evening's release. Before we begin I would like to review our Safe Harbor statement. 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 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.

Today's call is accompanied by a presentation which can be found in the Investor Relations section of Manitowoc's website. We will reference these slides throughout the remarks. We will be sure to reserve time for questions and answers after our prepared remarks. I would like to request that you limit your questions to one and a follow-up and get back in the queue for further questions in order to ensure that everyone has an opportunity to ask their questions.

With that, please refer to slide 3 and I will now turn the call over to you, Barry.

Thank you, Ion and good morning, everyone. I was encouraged with the results of the second quarter, despite the difficult market conditions we continue to face. We reported revenues of $457.7 million, a decrease of $20 million or 4% for the second quarter of 2015, but a sequential increase of $30.3 million or 7% over the first quarter of 2016.

Our second-quarter adjusted operating margin was 3.2% which was flat with the prior period despite a 4% decrease in sales, and was up 100 points sequentially from the first quarter of 2016. Our results continue to reflect strength in our tower crane business, resulting from infrastructure and commercial construction projects. We continue to see weakness in mobile cranes, driven by the depressed oil and gas market primarily in the Americas and the Middle East.

Let me spend some time addressing our business model in more detail. Our tower-crane side, we see continuing strength in most regions. Our revenue, gross margin and operating profit for the quarter were in line with our expectations.

As we highlighted last quarter, our city-class tower cranes continue to be well received and we are gaining significant market share. Similarly, our self-erecting Hup cranes, which we introduced at Bauma, are generating strong volumes, particularly in France and Germany. Our aftermarket orders for tower cranes continue to exceed expectations and we see this positive momentum continuing into 2017.

Within our mobile crane business, while we were encouraged by customer activity at Bauma, and indication for orders were strong, many potential orders were deferred. As a result, orders in the latter half of the second quarter declined more than what we had originally anticipated. In the quarter, global market conditions have worsened and the general demand environment for cranes is very sluggish. While we have been seeing targeted market share gains in specific product lines, for example, in the rough terrain segment globally, the persistent weakness in the global oil and gas sector has more than offset these pockets of strength.

Turning to slide 4. While our sales continue to be impacted by a challenging economic backdrop, we remain highly focused on what we can control, namely, right-sizing our manufacturing footprint, aligning our cost structure, and ensuring the quality and reliability of our products to meet our customers' expectations.

As announced last evening, we've taken decisive action to relocate our crawler crane manufacturing from Manitowoc, Wisconsin to Shady Grove, Pennsylvania, to optimize our manufacturing footprint, increase factory utilization, and provide cranes that deliver great value and best return on investment for our customers. This action will yield $25 million to $30 million a year in cost savings. We have a cross functional team dedicated to ensure this move is completed in a careful phased process over the next several months to ensure we have a seamless transition.

This is incremental to the series of actions we announced in March and other structural changes, which included approximately a 10% reduction in workforce to streamline our organization year to date. While we are fixing our cost structure, we've instituted a culture to deliver quality and reliability with accountability from the shop floor to top management. For example, we recently delayed the launch of multiple product introductions to ensure our product meets the expectation of our customers. We know the strength of Manitowoc is dependent on our ability to deliver real value to our customers with differentiated products and services. This is the spirit of the Manitowoc way.

Turning to slide 5, I'd like to review our progress on the strategic priorities we established for 2016 and beyond. First, margin expanse and right-sizing the business to match our new Company culture and the current market environment. I'm pleased to report that we have made significant headway towards this goal so far. Our relocating of crawler crane production from Manitowoc to Shady Grove is a first step in eliminating significant excess capacity to drive operational efficiency and provide resources to invest in profitable growth.

We are exploring other restructuring plans to enable us to deliver more value in the future. I would also like to highlight our Niella, Italy facility which has undergone a complete transformation and is well down the path of successfully implementing the Manitowoc way. Through the use of automation and robotic welding, we will be able to produce our new Hup cranes more quickly and efficiently while retaining the high quality standards our customers have come to expect from the world leader in tower cranes, Potain. This example demonstrates the power of the Manitowoc way.

The second key element of our strategy is growth through improving our competitive position. As mentioned earlier, towers is demonstrating it and we are taking steps to position mobile similarly.

For example, as part of our GRT8100 rough-terrain crane launched earlier this year, we have taken a new approach where we work closely with our key dealers in developing value-added product features. Our product specialist collaborated with our customers and their feedback was quickly incorporated into product improvements.

The third key element of our strategy is innovation. Our development efforts are focused around performance, differentiation, and enhancing our end-users return on investment. The demand for our newly launched top-slewing and self-erecting tower cranes remain strong and has resulted in market share gains across the globe. But we're not done. This November, the Hup 4030 Self-Erecting Tower Crane will go into full production in our plant in Italy.

The 4030 is the bigger brother of the Hup 3227, which we have already talked about. These two models replace five previous models which will streamline our production process and enable our customers to do more work with fewer models of cranes in their fleet. The combination of this new line of self-erecting cranes with the plant transformation in Niella, will make for a winning combination for both our customers and our shareholders.

Last quarter I talked about the next-generation crane that we were developing in six months with key differentiating features to enhance our competitive advantage in the market. We're making great progress on this project. Recently, I reviewed the working prototype which has performance characteristics better than any of us had initially projected. This is a true testament to the future of our ability to bring new cranes to market quicker than anyone in our competition.

The fourth key element of our strategy is velocity throughout the enterprise. It translates into getting more out of our operations with less and getting things done more quickly and efficiently. Velocity also translates into continuously improving the value proposition for our customers through an unrelenting focus on innovation and lean. We are progressing on our lean journey with our first Manitowoc Way Summit held in June. As a result of this summit, we combined two production lines in our Shady Grove factory into one line.

I'm excited by the progress made by this operations team as they continue their journey. We are committed to reinvigorating the Company culture through full implementation of the Manitowoc way across the enterprise and several more training sessions have been scheduled for the coming months. You started to see the progress in our operating margin but there is still a lot more work to be done.

With that, let me turn the call over to David for a review of the quarter in more detail.

Thank you, Barry, and good morning everyone. Let's move to slide 6. As Barry mentioned, we reported net sales for the second quarter of $457.7 million which decreased $20 million or 4.2% from a year ago. But importantly, increased $30.3 million or 7.1% sequentially. This sequential increase was primarily attributable to increased shipments of tower cranes and all-terrains.

On a year-over-year basis, the decline was primarily attributable to lower truck-mounted and rough-terrain sales. Crane backlog at quarter end was $394 million, a decrease of $108 million or 22% from the first quarter of 2016, and a decrease of 46% from the prior-year period. For the second quarter, new orders totaled $349 million compared to $417 million in the first quarter of 2016 and $438 million in the second quarter of 2015.

For the quarter, the book-to-bill was 0.8. From an SG&A perspective, costs were $6.1 million lower year over year and slightly up over the first quarter of 2016. As a percentage of sales, SG&A was 16% compared to 16.6% in the prior year and 16.9% in the first quarter of 2016. The year-over-year decline is primarily attributable to structural cost actions taken during the year. The increased spending over the first quarter is primarily due to costs incurred for the Bauma show.

Adjusted operating income in the second-quarter 2016 was $14.8 million versus $15.4 million last year and $9.5 million in the first quarter of 2016. This resulted in second-quarter margin on adjusted operating income of 3.2% which was essentially flat with the prior year but was up 100 basis points sequentially. On a year-over-year basis, we were able to deliver approximately the same earnings as the prior year on $20 million of lower sales. This improvement was primarily due to reductions in force and other operating efficiencies.

Non-GAAP adjusted net income and adjusted EPS for the quarter was $5 million and $0.04 per diluted share, respectively, in line with consensus expectations. This compares to non-GAAP adjusted loss of $5.9 million or $0.04 per diluted share for the second quarter of 2015. On a GAAP basis, net loss for the second quarter was $4.9 million or $0.04 per diluted share, versus net income of $23.3 million or $0.17 per diluted share in the second quarter of 2015.

The second-quarter 2016 loss was impacted by $8.8 million in costs associated with ongoing restructuring initiatives, which does not include any significant costs associated with the reduction of crawler manufacturing to Shady Grove, Pennsylvania announced yesterday. With regard to the relocation of our crawler manufacturing, we expect to recognize cash outflows in the range of $35 million to $50 million and settlement of these expenses by the end of 2017. The total annualized savings as a result of these actions, when the project is completed, will be approximately $25 million to $30 million.

In addition, we expect to recognize non-cash charges of approximately $105 million to $120 million in the second half of 2016. This charge will primarily relate to non-cash impairments of our SAP capitalized costs and fixed assets associated with the announced restructuring. Net cash flow from operating activities in the second quarter of 2016 was a use of $16.4 million, which includes continuing and discontinued operations. This compares to a source of net cash from operating activities in the second quarter of 2015 of $55.5 million which also included continuing and discontinued operations. We invested $13.8 million in capital which was used primarily for operational improvements in our European manufacturing operations.

Moving onto slide 7, as we noted in our press release we are adjusting our full-year outlook as follows. Revenue down approximately 10% to 12% reflecting current-market conditions. Adjusted operating income margins, excluding amortization and restructuring expense, approximately 1% to 2%. Depreciation between $45 million and $50 million, amortization expense between $3 million and $4 million, and capital expenditures approximately $45 million to $50 million.

I will now turn the call back to Barry for some closing remarks.

Thank you, David. Turning to slide 8, to summarize, despite the challenging market conditions we continue to face we are very excited about the opportunities we have in front of us. As I stated earlier we are going through a period of major structural change.

We're taking decisive actions to improve our year-over-year operating margins by 150 to 200 basis points. And the restructuring announced last evening is part of our strategic direction to reduce our manufacturing footprint and ultimately our cost structure. We will continue to innovate to grow market share in towers and we will regain the market share on mobiles.

While market conditions continue to be difficult near term, our long-term outlook remains unquestionably strong. We remain committed to reaching our goal of double-digit operating margins with our 150 to 200 basis points of improvement year over year, we are now expecting to be double digits by 2020, which can be remembered by 10 x 20. We are confident we will exit this downturn as a higher margin, more resilient Company and we'll be in a great position for when end-markets improve.

Our success would not be possible without the effort and commitment of our 5,100 employees around the globe. I thank them for their strong dedication to ensure the success of Manitowoc in the future.

With that, I'll turn the call back over to Rachel for the Q&A session.

(Operator Instructions)

Jamie Cook, Credit Suisse.

Hello, good morning, can you hear me?

Yes, we can. Good morning.

The first question, I think you mentioned in your prepared remarks that you saw a deterioration in the latter half of the second quarter? If you could just provide any color in particular what markets, geographies?

My second question just relates to your ability to keep market share in the market that continues to be a challenge? How are you balancing pricing versus share? Thank you.

Yes. Very good question. When we talked to you last quarter, at our earnings release, our daily order rate was on pace for what we anticipated we needed in order to have flat revenue for the year. Unfortunately, we exhibited a precipitous drop starting mid-May that continued throughout the month of June.

Order rates on a daily basis down over 30%. We couldn't see that coming, we reacted as fast as we possibly could, and I think we're in a position now where we are taking decisive actions to ensure that we can protect the long-term growth potential of the Company.

With regards to the share, I have ensured that we are not going to get into a situation where we are playing the price game. We will protect our share based on the quality and reliability and innovative features that our products offer our customers, but we are not getting involved in a pricing game and, yes, we have been walking away from orders as a result of margins that were unacceptable to us.

Is there any assumption in your new topline guide of 10% to 12% in terms of market share? I will get back in the queue after that.

Yes. Our assumption is that we will maintain share in mobiles, and continue to gain share with our new product introductions in towers, which, quite frankly, when we look at the order rates for the tower business, in fact will happen throughout the balance of the year, particularly with the new product introductions in the fourth quarter, as well as through 2017.

Okay. Thank you. I'll get back in queue.

You're welcome.

Mike Shlisky, Seaport Global.

Good morning, guys.

Good morning, Mike.

I just want to ask a little bit about the Brexit issue? Everyone has been commenting on at least during their conference calls. In late June and July, did things change for you as far as orders or interest, either in Europe or in the UK specifically?

No. Not at all. We had no change at all.

Okay. Great. I also want to make sure I understood some of the upfront cash costs for the shift to Shady Grove? The cash that you mentioned spending, is there any offset from any asset sales at Manitowoc plants? Or is it going to be actually everything moved from one place to the other?

Thank you, Mike. Yes, in our cost structure we didn't anticipate any proceeds from sales, but obviously if we do have any proceeds from the sale of assets, they will go to reduce that amount. A lot of it is, what I'll say, is the cost to relocate existing assets from Shady Grove, from Manitowoc to Shady Grove as well as a couple of new capital spending. That does include capital spending as well, within that number.

So it's a gross cash amount?

That is correct.

No net from anything you might sell?

That is correct.

Thank you, I will hop back in the queue.

Jerry Revich, Goldman Sachs.

Hey, guys. This is [Ben Brode] on for Jerry Revich.

Morning, Ben.

Good morning. First off, in light of the Shady Grove relocation, and as you look at your footprint today, can you guys please give us an idea as to how many facilities you think you need in order to service your global markets going forward?

Yes, we are not going to say how many facilities we need, but I will say that we still need upwards of a 20% footprint reduction post- this restructuring in the US.

Got it. Thank you. On the back of that, can you please talk about which of your regions had resilient book-to-bill in the quarter? And is demand in South America showing signs of bottoming across any of your product lines?

Demand in South America is almost nonexistent, so I would say that is at the bottom. I will say that -- you asked where there were positive book-to-bill, and I would say our tower crane business in France and Germany were a positive book-to-bill.

Got it, thank you.

You're welcome.

Stanley Elliott, Stifel.

Hello, thank you for taking my question. Is it fair to assume that the military order is not going to end up happening this year with the reduction in guide? And along those lines were you able to develop prototypes for the military order?

Very good question. Yes. We have the prototype developed, and the prototype is in fact being proven out in our product verification center in Shady Grove. However, the government, upon review of our technology, decided that they wanted to add a substantial amount of armor to the crane, so that is what we're in the process of working with the government on.

We believe that it's going to be a first quarter 2017 event, and the good news out of that is, that the order value will increase dramatically as a result of these changes.

You mentioned some products that you are going to delay on introducing because you want to make sure the quality was right? Can you give us an overview of what some of those products were?

They are specifically RT, one RT in particular. We call it our GRT 8100. We went to our customer base, we told them that we wanted them to come in and review with us some of the potential failure modes.

Which they graciously did, and as a result of those actions, we redesigned a number of portions of that crane. And I'm glad to say, I'm happy to say that the ones that we have shipped subsequent to the end of the quarter are out operating very effectively with great capacity, great charts, great comfort for the operator, and I think our customer base is realizing now what it means to have the new Manitowoc way driving our behavior internally.

Great. Thank you. I will hop back in queue.

Thank you.

Ann Duignan, JP Morgan.

Hello, good morning.

Morning, Ann.

While we're on the subject of customer feedback, et cetera, can you update us on the investigation into the cause of the crane crash here in New York?

I sure can. We met with the Tappan Zee Constructors on August 4 to review our initial results of the action investigation. We determine the root cause of the accident was what is known as a sudden loss of lifted load in a pile driving application on the bridge. As a result of our investigation, we have determined there were no issues with the design or operation of the crane, and specifically no issues with the VPC. In normal lifting applications in the world that we live in, no machines in the field are at risk for a similar issue.

That accident or collapse didn't cause any customers to step back from orders? I think you said the orders started to slow in May, so the tow are not related? Is that correct?

Not related at all.

All right. My follow-up is, are you seeing any cranes, specifically tower cranes, moving from region to region? We are hearing about projects slowing down in the Middle East. Are their any cranes moving from the Middle East to Western Europe? Is there any risk to the 2017 outlook for tower cranes from weak areas moving equipment around to areas of strength?

The only movement we've seen in the quarter, and its been very minor, is we've seen some towers come out of the Middle East and move to Korea. But other than that, we see pretty good discipline with regards to the capacity remaining in the countries that they have resided.

Would you expect that to continue into 2017? Or do you think that will be forced to move?

I don't think so, because we really believe some of the aftermarket -- I should say, some of the used market, could continue to move from countries that are less robust in their commercial construction, but the other countries that they are moving those into, I think with the new technology that we're offering has given us substantial opportunity for share.

Okay. I will leave it there and get back in queue. Thank you.

You're welcome.

(Operator Instructions)

Robert Wertheimer, Barclays.

Hi, good morning.

Morning, Robert.

Quick question on pricing materials? Do you expect -- and I know you guys don't use as much [flack deal] as some others -- do you expect material cost inflation? And is the pricing environment looking like it might come up to support that?

Second question, if I may just ask both at once, the decline you saw in May ordering -- is that related to others discounting and you not keeping up? Was that supply or innovation or was that something else?

The second part of your question, I attribute to just general crane cycle. I've studied the cycle now over the course of the last 20 years, and if you really study it in detail you can see some trends that make themselves evident, and we think we are heading toward that. One of the leading indicators as to, what are going to have to our OEM orders, is the value of our cranes and other cranes in the aftermarket at the auctions.

I think it's no secret to anyone on this call that in the month of June there was a substantial reduction in the market price of used cranes. That truly does reflect in the OEM demand, because people are now looking at the depreciation on a crane that they have on their books and comparing that to what they can get in the market.

I will tell you that the customers that I have talked to in the last 60 days are really second-guessing and evaluating whether or not the traditional model of -- you can use a growth crane, for instance, for seven to eight years, put it out into the market and get an 80% residual value. Unfortunately, those economics in this demand and supply environment aren't working. That's hurting our ability to have our customers pull the trigger on new equipment.

I'm sorry, I forgot the other part of your question.

Material pricing.

Yes, I'm sorry, do you expect any material cost inflation with steel? Not the [irrigation] of steel, but steel going up? Do you expect a lot of cost pressure and the pricing environment will rise until it matches itself?

I have prepared reviewed our material purchases for the balance of this year and into 2017, and I think we are fairly well protected based on the contracts that we have with our suppliers. I hope that others aren't, and that pricing does become a strategic advantage for some and hopefully we can follow.

Thank you.

Mig Dobre, Robert Baird.

Yes, good morning, gentlemen. Just maybe a little clarification on guidance? Trying to understand, you were pretty clear on the revenue side, I'm wondering how you are thinking about book-to-bill or backlog in the back half of the year?

Also related to guidance, margin progression -- is third versus fourth quarter, any seasonality to be aware of? And cash flow generation, really in the back half?

Yes. I will say this about the seasonality. Yes, there is a very seasonal element in the third quarter. We plotted our quarterly sales for the last 10 years, and the third quarter always has a precipitous drop. I think a lot of that is very well explained by the fact that a substantial portion of our business is in France, and the whole country basically goes away for the month of July. We do see a seasonal affect in the third quarter with our revenue.

With regards to guidance, I will let David give you a little bit more color, but our margin expectations are that we're going to continue to cost reduce the product and take out costs where we need to, and ensure that the structural cost base in the Company is reducing, even if our margin isn't evident with such a precipitous drop in revenue. David, maybe you can add a little bit more about cash flow for the second half?

Yes. If we look at your question with regard to book-to-bill going forward, as I said, we ended at $394 million. Probably going to be out of that backlog shipping about $240 million and so, that will leave somewhere in the vicinity of $160 million in the backlog. And then we tack on new orders to their end, less what we're going to ship.

So I would say that our anticipated bookings over the remainder of the year are soft, and it will be a drag on our backlog, which is probably the main indicator as to why we lowered our guidance on the topline from a revenue point of view.

And cash, and also just to be clear, you were talking about the third quarter being the lowest on the top line and margin for the year?

Correct. Correct. From a cash basis, obviously, we had a $225 million asset based revolver. We have nothing drawn on that revolver at this time. We do have about $20 million of letters of credit that would go against that particular line, but we do have adequate liquidity that will take us through the rest of the year into 2017. So I don't see any issues from the cash side.

Okay. My follow-up is on cost savings? Maybe you can give us an update again as to what the realized cost savings would be 2017 versus 2016 from actions you've already undertaken? And then, in terms of the relocation of the manufacturing facility, how will those cost savings come in? Is it 2017 or are those going to be all in 2018?

No, I think you will see a substantial portion of the $25 million to $30 million in 2017. We still are working some details with our employees here in Manitowoc, so to commit to you exactly at this point how that's going to phase in over the next 3 to 4 quarters, I'm not in a position to do that right now. But I will be in a position next quarter to give you pretty much an estimate of how the cost and the savings will in fact line up going through the balance of the year and into the first half of next year.

Just to add on to Barry's comments, the plan right now calls for completion sometime in July. And as I mentioned, it's savings of $25 million to $30 million is predicated upon completion of the plan and take full effect once that plan gets completed. If it were to get completed in the July timeframe, you could run that out from a pro ratus point of view from the rest of the year. And obviously the top line is also impacting that as well.

What about your prior actions, and what flows into 2017 versus 2016?

All right. So we took actions in April, we had significant cost reductions in April, which had a run rate of approximately $20 million. We probably would get somewhere around $16 million of that in this year. So year-over-year there will be about $4 million from actions we took earlier.

The actions we are taking right now are included -- the remaining actions are in the $20 million to $25 million range. And obviously, as mentioned in the first quarter call was just looking at the spending in and of itself, consultants and temporaries that were in the organization that are no longer there. They would be gone, and I think we estimate it somewhere around $18 million. So we're still working towards that number as well, but year-over-year, I would anticipate somewhere around probably $7 million to $8 million sequentially increase year-over-year.

Thank you.

Charlie Brady, SunTrust Robinson Humphrey.

Thank you, good morning, guys.

Good morning, Charlie.

In terms of the crawler plant? You've kept capacity utilization and moving that to Pennsylvania -- can you talk about potential production disruption, how you're mitigating that? Its a pretty big move to take that production from Manitowoc to Shady Grove. I'm trying to understand - is the capacity on crawlers so low because of the market such that's not a big issue? Or can you start making some of the Manitowoc product in Shady Grove to mitigate that disruption?

Well, its a phased approach, right? I will, just so everyone recognizes that there are two models of crawler crane that we currently produce 100% of in Shady Grove. So crawler cranes to Shady Grove are not apples and oranges. It is a technology and assembly process that they are familiar with. We will, and we have, built some inventory in anticipation of the move, but I can tell you that based on the current backlog, I expect no interruptions at all as a result of the move.

Okay. Thank you. Can you talk about what Mick was asking earlier about some of the margin expectations from a gross margin perspective in the second half of the year? First half, you've kind of run just over 19%? Do you expect much degradation in the gross side in the second half of the year?

We had some plant closures in our European operations and they will impact our top line. I think generally speaking, that's going to be the biggest contributor to a decline versus the first half of the year.

Thank you.

Seth Weber, RBC Capital Markets.

Hello, good morning, everybody.

Morning, Seth.

Just wanted to ask about the reset margin guidance here for this year? Is that entirely being driven by the lower volume? Or are some of the initiatives just happening more slowly than you thought?

100%.

100% lower volume?

Absolutely.

In your presentation, you had a line -- aftermarket growth, can you give us any more color around that? Is it rebuild activity? I mean it's a little bit -- typically we would look for aftermarket growth is a leading indicator?

Can you just talk about what you are seeing there? Is it regional? Is a product-oriented or what do you think? I know you focusing on it, but is there something, more color you can give us?

Yes. I could give you some more color on that. I think a lot of the aftermarket growth we are getting is a result of the need for more tower cranes. Our rebuild operations, our encore operations in Europe for tower cranes are at peak levels. A lot of the aftermarket growth that we're seeing is in fact targeted at the tower crane market.

Were holding our own and it's not degrading on the mobile side, and I expect that if there's any upside in our expectations for the second half of the year, seeing that the price of aftermarket, or seeing the pricing from cranes at auction is decreasing as much as it has, I suspect that we will see a potential increase in our aftermarket in mobiles, so the cranes that are out there operating can continue to.

Sure. Okay. That's helpful. Thank you. I just wanted to clarify something? The 150 to 200 basis point margin improvement target, is that how we should be thinking about 2017 or is that just more of the bigger picture framework that you are working towards?

You should think about that for 2017. Absolutely.

Okay. Is that a conservative number for 2017, given all the puts and takes?

I don't think any time you increase your operating margin by 200 basis point that its a short time. So I would say that its a gimme. I will say that the plans and actions that we've announced and the things that we already have in the bag, should in fact yield our 150 to 200 basis points in 2017.

And that is regardless of the top line?

Well, that's assuming that our topline doesn't degrade more than what it is right now. I mean, when you're trying to catch a falling axe, it makes it much more difficult.

Sure. Okay. I appreciate the color, guys. Thank you.

You're welcome.

(Operator Instructions)

Larry De Maria, William Blair.

Hello, good morning.

Good morning.

As it relates to towers, how do you think you guys are going to play out in western Europe? Where do we see fleet utilization now versus last year? And do you think there's enough building and projects to continue to drive towers up sustainably over the next couple of years? Or are we more in replacement mode for now? At an awfully low level, obviously?

I think it's both, and quite frankly, I think the market is up, but I think we definitely track share and we can see our share up dramatically, since the beginning of the year. And a lot of that has to do simply with the things I talked about in my prepared remarks where we have introduced a better mousetrap and people are in fact recognizing that.

We think that the trend that is in Western Europe -- we're not expecting any dramatic change. So the tower growth that we have I think is really, some of it is market, but I would say the lion's share of the is in fact technology helping our customers do their jobs better.

Okay. That's great. Is there a utilization number you can point towards for the fleet in Western Europe?

In a -- I think it's probably close to 80%.

Around 80%, which would be up relatively significantly year-over-year?

Yes.

Okay. And the last thing, thank you. As it relates to the May through June weakness, was that broad-based or was that specific to the RTs?

It was primarily driven by RTs. Towers was fine and I would also say that you could throw crawlers in there also.

Okay. Thank you very much.

You're welcome.

It appears that there are no further questions at this time. Mr. Warner, I would like to turn the conference back to you for any additional or closing remarks.

Thank you, Rachel. Before we conclude today's call, please note that a replay of our second quarter conference call will be available later this morning by accessing the Investor Relations section of our website at www.manitowoc.com. Thank you, everyone, for joining us today and for your continued interest in the Manitowoc Company. We look forward to speaking with you again during our third quarter conference call. Have good day, everyone.

This concludes today's conference. Thank you for your participation. You may now disconnect.