The Manitowoc Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.30.13 | About: Manitowoc Company, (MTW)

The Manitowoc (NYSE:MTW)

Q2 2013 Earnings Call

July 30, 2013 10:00 am ET

Executives

Steven C. Khail - Director of Investor Relations & Corporate Communications

Glen E. Tellock - Chairman, Chief Executive Officer and President

Carl J. Laurino - Chief Financial Officer and Senior Vice President

Eric P. Etchart - Senior Vice President and President of The Manitowoc Crane Segment

Analysts

Vlad Bystricky - Barclays Capital, Research Division

Charles D. Brady - BMO Capital Markets U.S.

Ravi Gill - Goldman Sachs Group Inc., Research Division

Christopher Schon Williams - BB&T Capital Markets, Research Division

Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division

Seth Weber - RBC Capital Markets, LLC, Research Division

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Eli S. Lustgarten - Longbow Research LLC

Joseph O'Dea - Vertical Research Partners, LLC

Damien Fortune - JP Morgan Chase & Co, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Operator

Welcome to the Manitowoc Second Quarter 2013 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Steve Khail, Director of Investor Relations. Please begin.

Steven C. Khail

Good morning, everyone, and thank you for joining Manitowoc's Second 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. Glenn will open today's call by providing an overview of the quarterly results and business outlook. Carl will then discuss our financial results for the second quarter in greater detail. Following our prepared remarks, we will be joined by Eric Etchart, President of Manitowoc Cranes and Bob Hund, our newly appointed 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 For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 July 30, 2013. 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 market and other factors that affect its business. However, actual results could differ materially from any implied projections due to 1 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.

Glen E. Tellock

Thanks, Steve, and good morning, everyone. The second quarter marked another period of solid results for Manitowoc driven by the strength of our diverse and innovative product portfolio, as well as our steadfast execution across several key strategies, including our manufacturing and LEAN initiatives. While macroeconomic conditions continue causing headwinds, we are encouraged by the conversations and outlooks across our global customer base. Additionally, we are confident about Manitowoc's opportunities for growth through the remainder of 2013. During the quarter, our Foodservice segment posted modest sales growth despite some customers deferring CapEx spending related to new store openings and other growth initiatives. However, several of these customers have accelerated their pace of spending as we've entered the third quarter. Based on recent customer discussions, we expect this trend to continue for the remainder of 2013. While we maintain the healthy margin profile in the business, we did experience a year-over-year decline during the quarter, driven by the execution of our manufacturing strategies in Tijuana, Mexico and Cleveland, Ohio, which are now virtually complete and will provide an incremental benefit to margins in the fourth quarter of this year. Positive sales performance in Foodservice was driven by our success in various product categories including results from the new products such as the NEO, our newest ice machine. In addition, the rollout of our Multiplex Blend-in-cup units in the U.K. was completed during the second quarter and I'm pleased to report that additional opportunities for this product line have begun to gain traction across several key EMEA markets. This performance is testament to our diverse product offerings across the globe, as well as our ability to leverage existing customer relationships, all of which affords us with opportunities to accelerate long-term growth in the segment. Before I discuss our crane business, I wanted to take a moment to introduce our new President of Manitowoc's Foodservice segment, Bob Hund. We are pleased to welcome Bob to his new position and we are confident that his contributions to the business will be a valuable asset within the segment. While Bob does not begin his position as Foodservice President until August 1, he has joined our call today. Bob has been instrumental in helping to drive our financial success and operational improvements within the Crane segment and brings demonstrated global leadership to Manitowoc Foodservice. Under Bob's leadership, his top priority will be accelerating long-term profitable growth by leveraging our competitive strengths in the segment. Consistent with our strategic imperatives, we'll also aggressively invest in innovation by launching new product spend in our ice, brine, refrigeration and accelerated cooking categories over the next 12 months. In addition, based on previously initiated plans and leveraging the success of our Crane Care business, we are pursuing growth initiatives in our Aftermarket Services and solutions for Foodservice. Moving on to our Crane segment, our second quarter results were encouraging as we witnessed a 7.6% year-over-year increase in sales and generated the highest operating margins in Crane since 2008. We are seeing the benefit of the initiatives we have put in place to improve and enhance our operations globally. While we experienced solid order intake around recent attendance at the Bauma Tradeshow, overall new orders increased sequentially, but were down year-over-year. While the Q2 order intake was the strongest we have seen in the last few quarters, the year-over-year sharp fall is reflective of the cautious CapEx spending environment within some end markets in geographic areas. Overall, Crane performance was driven by solid demand in the Americas region as higher crane utilization rates and improving rental rates spurred orders across this region. In addition, we experienced continuing demand in certain emerging markets. Consistent with previous quarters, demand in Western Europe, China and Australia remained weak. From a product line perspective, demand across a variety of our product categories in Cranes led to our improved second quarter performance, which included increased activity in crawler cranes and large rough terrain cranes in the Americas, complemented by all-terrain cranes on a global basis. With another quarter of improving activity in crawler cranes, we believe we have hit the inflection point in crawler demand. Most of our product lines continue to be driven by strength in the energy and infrastructure markets, as well as a pickup in both residential and nonresidential construction. Lastly, tire crane activity exhibited sustained strength in the parts of the greater Asia-Pacific region, as well as select emerging markets such as India, Turkey and Russia. However, this product line experienced ongoing softness in Europe, the Middle East, Africa and China. More broadly speaking, conversations with our crane customers are increasingly positive, which suggests stronger growth opportunities as we look into the remainder of 2013. While a fair amount of uncertainty remains given the broader macroeconomic environment, we will continue to invest in the areas that will accelerate our growth such as new product introductions and initiatives related to emerging market infrastructure. We firmly believe that our recent and future product introductions are great investments for us and our customers because they offer exceptional quality, dependable performance and optimal residual value. A few highlights are illustrated by the recent successes of our Grove RT770, a new 70-ton capacity rough terrain crane and the GMK6400, a unique 400-ton capacity all-terrain crane that we displayed at the recent Bauma trade show. We expect to continue to announce multiple new products over the coming months, including several new products that will premier at ConExpo 2013. Moving on, let me provide a quick update on the implementation of several manufacturing and operational excellence initiatives that have been completed or continue to take hold. As I mentioned earlier, the Foodservice facility consolidations remain on track. In addition to the construction of our multipurpose food service manufacturing facility in Monterrey, Mexico. We expect customer shipments from this new facility to begin in the latter part of 2013. In Crane, our focus on reliability and product quality continues to resonate well with our customer base as exemplified by our latest customer satisfaction index. With the release of our new products, the quality initiatives that we routinely undertake as part of our R&D efforts not only enhance our crane designs, but also ensure optimal product reliability. In addition, we continue to deploy our Project One initiative across Europe and Asia. When fully implemented in 2015, our new ERP system will reunite and streamline numerous information functions across all of our crane operations, while also providing cross and efficiency benefits. To conclude, Manitowoc's progress on several fronts further demonstrates our commitment to position the company for long-term profitable growth. We will continue to pursue a consistent strategy that is centered on our global manufacturing network, process improvements, product innovation and Aftermarket Services that all offer significant opportunities for continued growth. I'll now turn the call over to Carl to discuss our detailed second quarter financial results. Carl?

Carl J. Laurino

Thanks, Glenn, and good morning, everyone. We reported net sales for the second quarter of just over $1 billion, which is an increase of 5% from a year ago. GAAP net earnings for the second quarter were $57.6 million or $0.43 per diluted share versus earnings of $45.3 million or $0.34 per diluted share in the second quarter of 2012. EPS, excluding special items, was $0.45 per diluted share in the second quarter of 2013 versus $0.34 per diluted share last year. EPA in the second quarter of 2013 increased by 37% versus the second quarter of 2012. This increase was driven by contributions from both segments, but more heavily weighted toward those generated by our Crane segment. During the second quarter, cash provided by continuing operations was $47.5 million versus $6.6 million in the prior-year quarter, driven by improved earnings and partially offset by the seasonal working capital requirements in both segments. For the balance of 2013, we will remain focused on achieving our cash flow targets as we continue to prioritize debt repayment, while also funding our growth and process improvement initiatives. We remain on target to deliver at least $200 million in full year debt reductions led by cash from profitability. We expect the pace of our debt reduction to be similar to the normal seasonal pattern, which is to say that the bulk of the debt reduction will occur in the fourth quarter. Turning to our segment results, Foodservice sales in the second quarter of 2013 totaled $390 million, up 1% from a year ago. Second quarter 2013 operating earnings in Foodservice were $63 million. Operating margins is 16.2% or 90 basis points lower than the prior year quarter. We continue to expect 2013 full year margins to be in line with 2012 full year margins. The second quarter Foodservice margin comparisons were driven by flat sales, material and labor cost increases, negative product mix and the ongoing manufacturing initiatives in our key brands and product categories. Moving to the Crane segment, second quarter sales totaled $657 million, a year-over-year increase of 7.6%. Crane segment operating earnings in the second quarter were $65 million versus $52 million last year, which is a 25% increase. This resulted in a second quarter Crane segment operating margin of nearly 10%, up 138 basis points. This year-over-year comparison was positively impacted by higher sales volumes, operational efficiencies and favorable material cost realization. Crane backlog at quarter end was $726 million, a decrease from $944 million in the prior year quarter. For the second quarter, new orders totaled $604 million, which represents a book-to-bill ratio of 0.92x. Overall, new orders during the quarter declined 4% year-over-year, but increased 6% sequentially. Before concluding my remarks, let me now discuss our 2013 outlook. As noted in yesterday's press release, we are reaffirming our guidance for 2013. For the full year, we expect mid-single digit revenue gains in Foodservice and high single-digit revenue growth in Crane. We expect to achieve a continuing midteen operating margin in Foodservice and a high single-digit operating margin in Crane. We view full year 2013 as a transition year for Foodservice margins where improvements in the core business will roughly offset investments designed to help achieve our long-term high-teen margin target. Other guidance expectations in food, capital expenditures and interest expense of approximately $100 million and $125 million respectively. Debt-to-EBITDA will once again decline more than 1 full-term to 4X -- to below 4X, approximately half the peak level experienced in 2010. Finally, we expect the full year expected tax rate to be near 30%. This is a reduction in our original mid-30% guidance, primarily due to second quarter favorable discrete items that drove the Q2 effective tax rate to 14.1%. With that, I'll turn the call to Glen for his closing comments. Glen?

Glen E. Tellock

Thanks, Carl. To conclude, our second quarter performance reflects benefits from strategic initiatives we have implemented over several years that position us well for long-term success. These include new product introductions, lean and segment implementations, and leveraging our global scale to drive improved performance. As a result of these strategies, coupled with the improvements we see in our end markets, we remain optimistic in Manitowoc's full-year outlook. Put another way, we remain confident in the areas of the business that we can control, as well as in our ability to execute and improve the entire Manitowoc enterprise, further positioning us for greater value creation and competitive success. This concludes our prepared remarks for today. Teresa, we will now begin our question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go to Andy Kaplowitz with Barclays.

Vlad Bystricky - Barclays Capital, Research Division

This is Vlad Bystricky on for Andy. So I just wanted to ask you guys about crane orders and your outlook. So revenues for the first half is about $1.2 billion and orders are at a similar level, but your guidance implies something around $2.6 billion in revenue for the year. So can you help us understand how you get to the implied second half revenue of around $1.4 billion given recent order levels? I mean, are we missing anything?

Glen E. Tellock

Well, I think it's always the same thing. You have units that are unfinished goods that either are waiting, could be financing, it could be shipment, boats, and it can be a lot of different things. We talked about, I think in the first quarter, there are certain shipments that we've held up due to manufacturing inefficiencies or quality issues that we just don't feel comfortable shipping the products right now. And as we go through some of the new product introductions. So a lot of that comes into play when you look at the inventory levels. I mean, I think you can see it there. The other thing is, when you look towards the back half of the year in certain product lines, there still are incentives for customers as they look towards the back end of the year. And I would say primarily in the last few years, you've seen crawler cranes pick up like in the fourth quarter and especially towards the end of the year as people look and see where their balance sheets are at, where their tax situations are at and if you have it on hand, you see that happen late November and in December. So I think when you put it all together, the orders that we expect, the conversations we've had, we're pretty comfortable with what we see in the Crane side of the business. Flipping it over then to the Foodservice side, I think it's -- again, you look at flat where some of the guidance is implies a pretty strong second half. That's just the way the business has been trending and we're comfortable with what we've seen as we've entered the third quarter. We talked about the shipments out of Mexico for the new product line. We have some new product introductions that are coming out late third quarter and then into the fourth quarter. Just some of the things that we know with certain customers, assuming they make the expenditures as they've said, it's doable. I mean, we certainly understand the concern, but we also feel pretty good about it that we would say we would confirm our guidance.

Vlad Bystricky - Barclays Capital, Research Division

Okay. That's great, that's very helpful. Just a follow-up then on cranes. Can you update us on sort of what you're seeing in Brazil today and whether your expectations for that market have changed versus what you were thinking coming into the year?

Glen E. Tellock

I'll let Eric talk to Brazil.

Eric P. Etchart

Brazil is actually slowing down. This being said, our overall Latin America business is slightly up compared to last year and it's offset by other economies in Latin America. However, on Brazil, we see the course with our strategy. We have now 3 products, rough terrain cranes which are, I would say, localized Brazilian RTs, so eligible to the finance. And we do intend to continue to have the products in our Passo Fundo facility. So some 2 additional rough terrain cranes will be produced in that facility and plus, we'll stay the course with our tower cranes because we believe tower cranes demand in Brazil will slowly grow. So we stay the course. Yes, the economy is now -- we're talking about 3% growth. It's not what we expected, but we have our example that demonstrate that it's nice to stay the course with these kind of initiatives. For example, in India, we have a very difficult market right now. The Indian rupee has devaluated 30%. We stay the course with our tower cranes factory. We have localized our Indian tower cranes and we are seeing growth year-over-year now in India despite a very challenging economy. I think Brazil is exactly the same thing.

Operator

Charlie Brady with BMO Capital Markets.

Charles D. Brady - BMO Capital Markets U.S.

I just wanted to go back on the crane orders for a second. I mean crane orders first half over first half are down about 10%. Your guidance implies around $2.6-ish billion for the year. So if you make the assumption that everything booked and shipped in the year, which I know doesn't always happen, stuff slips out beyond that, I mean it implies a very, very strong second half order period relative to last half -- second half of last year. I mean is that in order like 25%, 30%, second half over second half. I mean, is that math correct or am I missing something on that?

Glen E. Tellock

Carl, can you? And then Eric go ahead.

Carl J. Laurino

Charlie, as you know, there's a certain amount of activity that does get booked and shipped within quarter. So there's some noise that can be created in just the straight math that I think you walked through. But directionally, I think you're right. I think some of the optimism that we're seeing and bringing some of the orders to fruition that we know about will be a component of what we expect to see in the second half of the year.

Eric P. Etchart

Maybe, Charlie, I can add a little bit of color. I mean, on the new products, the GMK6400 and the RT770, those products have been really tested in and out. They are ready to ship and we start shipping in Q3. So we expect those products really to be a big champion and to drive significant order intake as we move forwards that people can keep the tires in the field. Number two, we have seen this year so far a very soft business in the Middle East and in Africa and we expect to see growing demand -- and we start seeing growing demand right now in countries like Saudi Arabia, for example, or Kuwait or Qatar and even Iraq. So I mean, with softness that we've seen in those countries, we expect to see more activity moving forward into the year. And then North America, we continue to see positive demands for our products. So overall, that's how we feel confident about achieving our guidance.

Charles D. Brady - BMO Capital Markets U.S.

That's very helpful. Can you just comment on tower market? Any change since last quarter? I'm assuming not, but just your comments would be appreciated.

Eric P. Etchart

Well, Charlie, the tower crane business continue to be very challenging in Europe, maybe with the exception of Germany. That's not a real surprise although we can see moving pieces like some consideration of rental houses. However, we are seeing very, very strong demand in some of our emerging market. Russia is 1 of these countries where we see very, very strong demand for tower cranes. India, as I mentioned earlier and overall, greater Asia Pacific. Korea, for example, is now a strong market for tower cranes. Singapore continues to be very, very strong and a lot of countries in Southeast Asia are strong. So with the footprint we have in China with our factory that service this marketplace and again, India where we produce, I think we are in a very good position to serve those markets.

Operator

Jerry Revich with Goldman Sachs.

Ravi Gill - Goldman Sachs Group Inc., Research Division

This is Ravi Gill on for Jerry. Glen or Carl, can you talk about the actual impact that restructuring charges had in 2Q for the Foodservice business? And then can you talk more about the margin expansion potential in 2014 from all the LEAN initiatives that you're implementing this year?

Carl J. Laurino

Ravi, as I think I mentioned on the earlier call, the expectation is that we'll probably be really realizing the uptick in the margins that will enable us to be year-over-year flat as a fourth quarter issue for us in Foodservice. And that's a function of exactly what the first part of your question is asking about, what was the impact in quarter for -- from the manufacturing items, which for us in the quarter was circa $4 million.

Ravi Gill - Goldman Sachs Group Inc., Research Division

Okay. And then Glen, in the Crane business in the prior cycle, you're able to achieve low teens margins even before peak sales levels in '08. When should we expect the crane business to deliver similar type margins this cycle and to what extent is the driver going to be volume versus pricing?

Glen E. Tellock

Well, I think what you had in the last uptick, I would say we didn't have some of the investments that we made, such as the PVC, such as the factory in India, the new factory in China. There were some Brazil. I mean, so you do have a little bit of added fixed costs in some of the investments we made in emerging markets. So that's 1 area really. But I would say I think you can see the impact that the manufacturing initiatives that we have had just in the manufacturing changes that we've made, for instance like right now in Europe whether it's in [indiscernible] our AT factory or some tower crane factories, I think you're seeing the benefits of the manufacturing initiatives that you're starting to see the benefits of the manufacturing initiatives we've put in place in 2007, say in Shady Grove or Manitowoc, from the equipment standpoint or welding equipment. And so those, the more value that comes through, the greater throughput we get to the bottom line because of those initiatives. So the big thing is going to come from volume. To grab the margins as they go up from where they are right now and almost to double-digit to get them to the low teens, a lot of it is because -- I would say majority of it is going to come from volumes. The other thing is the mix has to change a little bit. You got to get a little bit better mix on towers and crawlers than what you have on the mobile hydraulics. So I think once those things take hold, I mean you're starting to get back to the margins that we've seen in the past.

Operator

Schon Williams, BB&T Capital Markets.

Christopher Schon Williams - BB&T Capital Markets, Research Division

Wondering if you could just -- could you update us on the status of the new China crane joint venture?

Eric P. Etchart

Well, Schon, we have not yet gotten the formal approval from the Chinese authorities. We got the antitrust approval from Beijing. We are expecting now the approval for the [indiscernible] in Shendong province. It should come any day. So I think we are making progress. I would expect this approval to come in Q3. Of course, we don't control this. This is in the hands of the government, but we are confident that we should see the agreement coming very soon.

Christopher Schon Williams - BB&T Capital Markets, Research Division

Okay. And then just on -- kind of staying on cranes. I mean, incremental margins picked up nicely in the quarter, running in kind of high 30s here. I'm just trying to get a sense of -- I mean, it sounds like the mix is helping the margin profile in cranes, but I'm just trying to get a sense of how sustainable is incremental margins in the kind of mid-to-high 30s? Should we expect something more like Q1 kind of low 20s? Can you just give a little clarity there?

Carl J. Laurino

Yes, Schon. I think -- I'm not sure what -- you may have been looking at a legacy Q2 number for 2012. I think the math on the reported Q2 is closer to low 30s in this environment. We did get some benefit from the mix, probably a little bit more than we would have expected with some additional year-over-year crawler contribution in the second quarter. So in terms of our expectations for the year, again, you got to go back to the original guidance that we gave. As you look at it from the full year, it would put you somewhere in that 25% to 30% incrementals.

Christopher Schon Williams - BB&T Capital Markets, Research Division

But you would expect that mix benefit should at least maintain or accelerate over the coming quarters, is that right?

Carl J. Laurino

I would think that there would be opportunity for us to push that to Glen's point when we start to get a little bit better overall product mix with greater contributions in towers and crawlers, coupled with the continuing improvements that we're making on our efficiencies, which we're experiencing real time.

Operator

Mig Dobre with Robert W. Baird.

Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division

Just sort of sticking with crane, and this question has been asked several ways this morning, but I guess I'm wondering, looking at orders in the quarter, can you maybe give us some color about conversion of orders that you might have gotten from Bauma? Was that pretty much in line with what you expected initially? And how did that order trends progress in the quarter?

Glen E. Tellock

I would say, back to the Bauma orders, we obviously had a lot of discussion about that on the last quarter and I would say, again we were pleased with the order intake that we had in the quarter. But as I said last time, the reason we don't report some of those is because you're not sure how many people brought in orders to the show that would have made them and made the order in May or June. So I would, in all honesty, the orders weren't as robust in the back half of the quarter as they were in the front half of the quarter. I mean, it's really that simple. But I think as you look at the normalized pattern that we have in the first half of the year, I mean, it's certainly acceptable to us as we move forward. Eric, anything to add ...

Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division

Glen, just to be clear, one of your competitors has said that they've had a bit of a harder time converting some of the opportunities at Bauma into actual orders, and I'm trying to understand whether or not you saw something similar or maybe you've done, frankly, better than that.

Glen E. Tellock

I don't necessarily know. I think there's -- I guess I wouldn't categorize us as having trouble converting. I mean if there are 1 or 2 deals that didn't convert, I don't throw those couple of deals as bad eggs on the whole group. So I don't know that I would characterize as that. Eric, do you...

Eric P. Etchart

No. I mean, coming to my mind, we had 1 large order coming from the Middle East that we could not convert into a firm order this quarter, but that's the only 1 that comes to my mind.

Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division

Great, that's helpful. And I guess my last question here is maybe a little bit of color on the competitive environment overall in crane. Have you seen any changes year-to-date? Any color there would be helpful.

Glen E. Tellock

No. I think -- I don't think it's any different. I think people -- it's a competitive environment. You have to sell your features and benefits. Again, we aren't the cheapest on the market. Sometimes we're not the most expensive either. So I'm not sure that I see a big change. I think the 1 area that maybe you see is with the strengthening of the dollar I think as maybe some of the European customers have been a little bit more aggressive, but I don't know that that's really any different than what you see over a normal course of 24 or 36 months.

Operator

Seth Webber, RBC Capital Markets.

Seth Weber - RBC Capital Markets, LLC, Research Division

Again, following up on some of these questions. I mean, can you comment on whether net pricing is positive for the Crane business and I guess for Foodservice as well?

Carl J. Laurino

Yes, on both.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. And how much of that is just related to input costs going down or are you actually getting absolute price increases?

Glen E. Tellock

I think you have the benefit of both on that. In the pricing, where it can, it's holding a bit, but I think we are having some pretty good excess -- success, whether it's product cost takeouts or the sourcing initiatives. Commodities has held pretty well this year.

Carl J. Laurino

And the way I might describe it, Seth, is that I think, given some of the earlier pressure that we saw as we were coming out of a rough environment, we took some pretty aggressive pricing action when we saw a steep slope of the curve on the cost and I think we've had the luxury of not needing to raise prices to the same degree recently because we have seen a little bit more cooperation on the cost side of the equation.

Eric P. Etchart

And Seth, the investment we have made on the quality of the products since now 3 or 4 years is also kicking in and we see really improvement in our cost of food quality as well.

Seth Weber - RBC Capital Markets, LLC, Research Division

And I guess just going back to the crane margin. The China JV hasn't closed, so are you still absorbing the costs from the original -- your original partner there? Does the second quarter margin reflect loss from the original agreement then in China?

Glen E. Tellock

It's apples-to-apples, yes.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. So that should get better...

Glen E. Tellock

We continue to absorb that cost.

Seth Weber - RBC Capital Markets, LLC, Research Division

You're absorbing that cost. And that should -- do you think that, that reverses out, then, here in the third quarter?

Glen E. Tellock

That's our expectation. I will be honest. We thought -- we were hoping to get that late in the second quarter. But there's really 1 last approval we need and we're down to it. So I mean I certainly would expect that would happen in the third quarter.

Carl J. Laurino

Just to be clear, Seth, from an EPS standpoint, we'll make a big difference -- it will make a difference in the crane operating margins I think to your -- to the point of your question.

Seth Weber - RBC Capital Markets, LLC, Research Division

Right. So the margin should get a tailwind going forward, then?

Carl J. Laurino

Once we get it closed. Not until that point.

Seth Weber - RBC Capital Markets, LLC, Research Division

Correct. And I guess just lastly, anything on the financing side? Are you seeing anything with crane financing, getting easier or harder across the board?

Carl J. Laurino

I think it's pretty consistent. We obviously have probably more challenges in emerging markets just because of the development of finance availability in those types of markets that can be difficult. But I would say, overall, it's been pretty consistent at a reasonably healthy level. What we might want to see a little bit more aggressiveness from the financial community would be in some of the real estate type projects that probably come online faster if there was greater availability of finance in that end market.

Operator

Ted Grace, Susquehanna.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Either Carl or Eric, is there any chance you could provide kind of an EBIT bridge, if you will, for cranes? I think we've all been really impressed with incrementals particularly in light of the fact that the China JV is still being consolidated. So 1 thing that might help us on the call is if you could maybe say look, pricing is X and better cost did Y, and ERP was X and Brazil was Z and just help us bridge, kind of how you got on $46 million of revenue growth, $17 million of incremental operating profits?

Carl J. Laurino

Well, obviously, we do get the benefits of growth that you combine that with a little bit of pricing. That's well into over $10 million on that front. We talked about the manufacturing efficiencies and cost benefits. That's on the order of -- not quite as high, but still pretty impressive, close to $10 million. We talked about cost reductions on material cost side. That was a benefit of certainly several million dollars. We talked about the quality enhancements, that's another handful of million or so. And obviously, we've got some things on the cost side and inflation side that offset some of those benefits that we've seen that bring it to the reconciled level of year-over-year operating income.

Eli S. Lustgarten - Longbow Research LLC

And the offsets are labor and benefits, some things of that sort? What particulars should we be thinking about in that regard?

Carl J. Laurino

Yes, a little bit of overhead, some engineering expense. We've got a little bit of ERP year-over-year, not a lot, because we had been investing last year as well, but there's a little bit of increase on that front this year over last year.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Okay. And then the next question, hopefully, I don't embarrass myself by asking this, but I guess the way I typically thought about the business is customers place orders, cranes get built according to those orders. Just to understand Glen's prior comments on inventories, should we assume that the company actually builds product kind of to hold in inventory so kind of at risk so that it can fulfill expected orders faster?

Glen E. Tellock

Yes, I mean that's true. I mean, let's be honest. When you have some of the lead times that you have on some of the components, Ted, you have to be buying some components based on at least a reasonable forecast. So what we try to do on some of the bigger units and longer lead time, we have what we call hedge packages on certain items and that's what you're trying to get. And then you can get the rest and get the throughput. So it's really a matter of -- when we were back in the days when you had 14 months lead times, I mean, that's a competitive disadvantage if somebody's trying to get into the market. So I think the market is changing a bit because I think customers know they don't have to pull the trigger as early as they have in the past. And so if you have it available, that's exactly what you're going to do. So I wouldn't say that we just build to stock. I mean that's certainly not what we're doing, but you do have a little combination of what are hedge packages versus what are build-to-order.

Eric P. Etchart

No, I just wanted to add. One thing that has not changed in the market dynamics is that the cranes end users, they really wait until the last minute to place their orders, whether it's distribution channel or elsewhere, depends how we go to the market. That's really something that has not changed and it's probably because everyone is very focused. So that triggers a little bit of how we have to manage inventory.

Carl J. Laurino

Maybe being a little modest, Eric, because I think part of that also may come from our efficiency, that we've improved efficiencies that enable customers to have that luxury to wait a little longer.

Eric P. Etchart

Yes, we've been working very hard with our supply chain and we have a lot of initiative in that respect so obviously, improved availability as much as we can in the plans.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

So then the last question, I'll get back in queue, is could you help illustrate kind of what the time to wait would be if I were to place an order for a crawler today, just say a midsized crawler, could you start manufacturing now and how long would it take to actually get that unit out the door? And then maybe if we could just understand the same kind of timeframes for call RTs and ATs?

Glen E. Tellock

The thing is, Ted, the answer is and I know you don't want to hear it, it depends. If you're in the U.S., you got to remember our distribution base, that's exactly what it's for. So if you're going to buy direct, if you're a national car or whatever, I mean, there are things that we have conversations going with those customers on a regular basis. And so I mean again, I hate to say it, it depends. But the throughputs are a lot different for a 16,000 crawler crane than it is for a 90-ton RT or a 50-ton boom truck or a self-erecting tower crane. And so, I mean, it's a different cycle for everything, but I can tell you that based on what we have and the flexibility we have around the globe is there are certain customers and that say, hey, my job may have got pushed back, go ahead and take that one, I'll take the next one and it can be within 2 weeks. So, I mean, again, I hate to say it depends. We try to do it as fast as we can.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Yes, I'm just trying to see if there's any kind of illustration. Let's go back to Vlad's question. If you were to get an order for a crawler in November, is it conceivable that it could translate into incremental revenue in December without being like, hey we're going to trade slots if somebody wants it later, so net-net it's actually incremental revenue to the company more units?

Glen E. Tellock

And the answer is yes. Some of that is based on what we -- we look at seasonal patterns, we look at trends, we look at discussions with customers and that's why we end up at the end of December or the end of any quarter, we do have finished goods on hand. I mean, we can use the term orphan, which means there's a crane that's sitting there that doesn't have a name on it, but I can tell you that it's not a significant amount in inventory that's an orphaned item.

Carl J. Laurino

Eric whispered to me that he could get you that crane before the end of the year, Ted. We'll talk, right, after the call.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Do you take IOUs?

Operator

Rob Wertheimer, Vertical Research Partners.

Joseph O'Dea - Vertical Research Partners, LLC

It's Joe O'Dea on for Rob. First question, just the -- you called out the positive contribution from Crane Care in the quarter. Just curious, if sequentially that's that being up and if it's a sign of more equipment going back to work or on the flipside, if there's any indication of customers maybe extending equipment life and doing a little bit more servicing side?

Carl J. Laurino

Certainly, we don't get specific financial information by product line or category but we certainly called out the Crane Care. There's some growth there. It tends to be, I would say, a good concurrent indicator of what's going on in the marketplace when we do see improvements it does reflect typically that the utilization rates are driving some of that Crane Care business for us.

Joseph O'Dea - Vertical Research Partners, LLC

Okay. And then on Foodservice, typically 4Q will see a sequential decline from 3Q on the margins. It sounds a little bit different this year. So just looking for maybe a breakdown of how much of the difference is going to be driven by product introduction timing, how much is maybe unique demand pattern in the year and then how much is just based on the new manufacturing coming online?

Carl J. Laurino

Obviously, when you look at the last year margin you would -- to stay at that flat level, you'd have to see some incremental improvement in the margin and I think that, that opportunity certainly exists, where we expect to see a little bit greater benefit to make up for the first half of the year. To get to that flat margin is a fourth quarter benefit.

Operator

Ann Duignan with JPMorgan.

Damien Fortune - JP Morgan Chase & Co, Research Division

This is Damien on for Ann. First on cranes, can you give us a little color on how the crane orders looked in July? I mean, have there been any significant changes since the end of the quarter?

Glen E. Tellock

We typically report the backlog and the order flow on a quarterly basis. But I think the ability for us to call out our expectations for the full year guidance I think reflects what we've been seeing realtime the business. So some decent activity.

Damien Fortune - JP Morgan Chase & Co, Research Division

And then I guess just turning quickly to Foodservice. Should we expect the majority of the benefits from your initiatives for margin improvement to materialize in the fourth quarter or are we going to see the lion's share of it show up in 2014?

Glen E. Tellock

Well, you'll start to see it in the fourth quarter. It will impact margins in the fourth quarter, but then obviously, you're going to get the full year run rate in 2014. And then will be a full year run rate. Both Tijuana, Cleveland and the Nevada product line.

Operator

Steven Fisher, UBS.

Steven Fisher - UBS Investment Bank, Research Division

Just on Foodservices. You mentioned that several customers accelerated their spending going into Q3. Could you just give us a little more color on what's driving that spending acceleration?

Carl J. Laurino

Well, when you look at any year, any time you have certain customers that you're talking with and they kind of plan their spend through the year. And I think they watch what happens during the year, they watch what their franchisees are telling them and they watch what other investments their franchisees have to make in the business and then they pull the trigger when they feel it's necessary. So we make our best guesses as to when we might have these expenditures and I think some of it was -- not think, we know a bunch was deferred in the first half. So you have these conversations, the relationships you have and many of them have committed and that's what I'm going to say, committed to doing what they said they were going to do on a full year run rate, which means -- they've said hey, make sure your supplier base is on, make sure your manufacturing is there. So we expect that to happen and, as we said in the commentary, we've seen some of these already happened in July, back to the last comment, what have you seen happen in July, and we've seen that ramp up. So long as the spigot is not turned off, we believe some of the deferrals will be made up over the back half of the year. So -- I mean, I won't give specifics. I don't want to lay out any customer names or anything like that, but as I said earlier, you look at whether it's the -- our Nevada product line, you look at some of the prime things that are going on, but truly, it's -- some of the beverage products and truly across all.

[Audio Gap]

Steven C. Khail

Before we conclude today's call, I'd like to remind everyone that a replay of our second quarter conference call will be available later this morning. You can access the replay by visiting the Investor Relations section of our corporate website at www.manitowoc.com. Thank you, everyone for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again during our third quarter conference call in November. Have a good day.

Operator

That concludes this today's conference. You may now disconnect.

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