The Manitowoc Company, Inc. Q3 2009 Earnings Call Transcript

Transcripts

The Manitowoc Company, Inc. (NYSE:MTW) Q3 2009 Earnings Call Transcript October 30, 2009 10:00 AM ET

Executives

Steven Khail – Director of IR & Corporate Communications
Glen Tellock – Chairman, President & CEO
Carl Laurino – SVP & CFO
Eric Etchart – SVP, and President & General Manager, Manitowoc Cranes
Mike Kachmer – SVP, and President & General Manager, Manitowoc Foodservice

Analysts

Nigel Coe – Deutsche Bank
Charlie Brady – BMO Capital Markets
Ingria James [ph] – JPMorgan
Seth Weber – RBC Capital Markets
Charlie Rentschler – Wall Street Access
Sunita Suzanne [ph] – Barclays Capital
Eric Crawford – UBS
Robert McCarthy – Robert W. Baird
Ben Elias – Sterne, Agee
Dick Kindick [ph] – UV Asset Management [ph]
Alexander Blanton – Ingalls & Snyder
Alex [ph] – Buckingham Research Group
David Wells – Thompson Research Group

Operator

Good day everyone and welcome to this Manitowoc Company Incorporated third quarter earnings conference call. Today's call is being recorded.

Steven Khail

Good morning, everyone; and thank you for joining Manitowoc's third quarter earnings conference call.

Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer and Carl Laurino, Senior Vice President and Chief Financial Officer. Glen will open today's call by reviewing our business outlook; and Carl will discuss our financial results for the third quarter.

Also participating in today's call are Eric Etchart, President of Manitowoc Cranes; and Mike Kachmer, President of Manitowoc Foodservice, both of whom will be available for our question-and-answer session.

For anyone who is not able to listen to today's entire call, an archived version of today’s call will be available later this morning. Please visit the Investor Relations section of our corporate website at www.manitowoc.com to access the replay

Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on October 30, 2009. During the course of today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 may be made during the speakers’ remarks and during our question-and-answer session.

Such comments 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 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 Company does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or other circumstances.

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

Glen Tellock

Thanks, Steve; and good morning everyone. Obviously, our financial results this year continue to be constrained by the global economy. But I think it is important to acknowledge the substantial progress that we are making in managing through one of the most dramatic economic declines in memory. We took decisive steps to reposition our operations for greater efficiency and sustainable growth over the long term, in particular, we have been focusing on certain key priorities to strengthen the business.

Those priorities include the (inaudible) integration in Foodservice, position four crane operations for economic recovery, and the generation of cash to reduce debt. Our performance in all three areas has been excellent and these actions are generating tangible results.

We can also point to clear evidence of success in our fundamental strategically to concentrate on two core business segments. A key part of that strategy was to create more balance between the size of the Crane and Foodservice segments, a strategy that led to the acquisition of Enodis. A larger Foodservice segment helps cushion the volatile cycles that are inherent in our crane business and this is exactly what is happening.

The most obviously evidence of this is the improving results in our Foodservice business. We have now posted two quarters of revenue growth in this segment, even though the overall industry is still reporting declines in Foodservice equipment spending.

Even more important, however, is the substantial progress that we have achieved in integrating our two premier organizations. As a result, the combined business is one of the largest, most innovative and customer-focused Foodservice equipment companies in the world.

Based on our restructuring efforts and the synergies that we are achieving, operating margins are improving significantly. And we are well ahead of our forecasted synergy targets. Carl will review these results with you in a few moments.

We have used the opportunity to created by our capacity to make structural changes and other improvements in our production method that are now resulting in sustainable reductions to our cost structure. For example, we have consolidated facilities and streamlined production flow in a number of plants, something that could not easily be done during peak periods of capacity utilization.

Also, we continue investing in emerging markets, which are now leading the economic recovery, in particular Manitowoc has a solid presence in China where we’ve had an established manufacturing and sales presence for near two decades. Just recently, we have added crawler cranes to our manufacturing capabilities in China.

We have also consolidated and realigned various organizations including our crane engineering, procurement, and quality teams, to eliminate regional and product silos. The business slowdown has provided an excellent opportunity to align these functions to support our long-term vision for Manitowoc. We are building on the scale and breadth of our entire global crane business to become more innovative, efficient, and effective.

Complimenting our cost reduction efforts, we continue to invest in new product technologies and customer support services that will enhance our market share and increase customer loyalty.

Just last month, we premiered our largest crawler crane ever, the 2500 ton capacity Model 31000. Also during the quarter we commissioned a new 141000-square-foot parts distribution facility near Louisville, Kentucky. This centrally located distribution center consolidates three former warehouses into a multi-brand outlet stocking 65,000 unique part numbers. This enhances our customer support across our entire range of crawler, tower, and mobile telescopic cranes.

In both segments of the business, our excellent customer support is especially valuable during down cycles, not only for our customers, but also a stable revenue stream for our Company. Our customers are trying to maximize the usable life of their equipment to minimize their need for additional capital investments. Our aftermarket support helps them to do just that while also enhancing the residual value of their Manitowoc equipment. And this partnership helps ensure that our customers will turn to us for replacement equipment in the future.

We recognize that economic conditions remain difficult, but there are reasons for cautious optimism. We are focusing our resources towards areas where demand is expected to remain relatively strong and to improve most quickly. This includes areas that are likely to benefit from infrastructure, energy, and transportation stimulus legislation in many parts of the world, particularly in emerging markets.

We have confidence that the actions we have taken to reduce our cost structure and develop innovative products will keep us at the forefront of our markets. As we have done in the past, we are positioning the Company to leverage our leadership positions in both Cranes and Foodservice when the markets rebound.

Finally, we will continue to focus on cash flow and steadily reduce our debt. In fact, we have reduced our debt by more than $0.5 billion since the Enodis acquisition about one year ago.

So now let me turn the call over to Carl to discuss our third quarter financial results. Carl?

Carl Laurino

Thanks, Glen, and good morning everyone. For the third quarter, we reported net sales of $881 million. This is a decline of $226 million or 20% from the third quarter of 2008. On a sequential quarter basis, net sales declined 15% in the third quarter with a $20 million increase in Foodservice, offset by a $173 million decline in Cranes.

Third quarter operating earnings were $48 million, down from $141 million in the third quarter of 2008. Excluding intangible asset amortization and restructuring charges, adjusted operating earnings were $69 million versus $82 million in the second quarter this year. This resulted in an adjusted operating margin of 7.8% compared to an operating margin of 7.9% in the second quarter.

These comparisons do not fully reveal the progress that we are making in strengthening the business for the long term, creating solutions and implementing changes that we believe are yielding permanent improvements. We are seeing substantial improvements in our expense levels as many cost reduction initiatives are now yielding results.

On last quarter’s conference call, I mentioned that $150 million of savings will be realized in the second half of this year. We remain on target to achieve that with over $70 million achieved during the quarter. On a per-share basis, we had a net loss of $0.14 per diluted share in the third quarter compared to a loss of $0.20 per share in the third quarter of 2008. This year’s results included $0.06 per share of restructuring costs and a loss of $0.03 per share from discontinued operations. Excluding those items, we lost $0.04 per diluted share.

Moving on to our segment results, Foodservice sales in the third quarter totaled $402 million, up from $116 million in the third quarter of 2008. On a pro forma basis, including Enodis in both periods, Foodservice revenues were down 23% year-over-year. On a sequential quarter basis, sales were up for the second consecutive period, rising 5.2% from the $382 million recorded in the second quarter of this year.

Third quarter operating earnings in Foodservice were $59 million versus $18 million in the third quarter of 2008 and $46 million in the second quarter of this year. This resulted in Foodservice segment operating margins of 14.7%, a significant increase from 12.1% in the second quarter, showing the progress of our integration activity. On a pro forma basis, year-over-year Foodservice operating earnings were down 16% although the operating margin was 120 basis points higher than last year.

Year-to-date, we have realized approximately $26 million of our integration synergies. This is substantially ahead of plan and we are now raising our full year 2009 realized synergy savings target to $34 million. We are well on our way to the $80 million plus in savings and revenue synergies we expect to realize by 2011. As the financial benefits of our integration progress – progress continues to improve, we are on target to generate solid double digit full year operating margins in Foodservice this year.

Moving to the Cranes segment, sales in the third quarter totaled $479 million, down 52% from $992 million in the third quarter of 2008. Nearly $30 million of the year-over-year decline in Cranes is due to currency. Crane operating earnings in the third quarter were $21 million versus $139 million in 2008 and $50 million in the second quarter this year. This resulted in Crane segment operating margins of 4.3% versus 14% last year and 7.6% in the second quarter.

Crane backlog at the end of the third quarter were $667 million, down from $901 million at the end of the second quarter. The trend in new orders has had a measured increase in each of the first three quarters this year. At the same time, our book-to-bill percentage has increased from 18% in the first quarter to more than 50% this quarter. Relative stability in customer demand leads us to expect increased order flow in the current quarter as well as the first quarter next year.

The current backlog is now more in balance with underlying demand and we are no longer experiencing the heavy cancellation activity that appeared almost overnight at the beginning of the downturn. Also, with a reduced backlog and our lean manufacturing initiatives, we are now seeing a higher percentage of our orders received and shipped within the same quarter.

Moving on to the balance sheet, one of our top priorities this year has been debt reduction. As Glen pointed out, we are making excellent progress, especially considering the substantial decline in Cranes this year. Debt reduction has been driven largely from cash flow from operations, which totaled $198 million in the third quarter. Contributing to the strong quarterly cash flow were inventory reductions of $94 million and $111 million from inventory and receivables, respectively.

For the quarter, we reduced our debt by more than $140 million on a year-to-date basis. Debt reduction totaled $262 million in spite of one-time cash outlays of $72 million that we disclosed in the second quarter. Given the Company’s expectations for continued cash generation in the fourth quarter, we are still targeting $450 million in full-year debt reduction this year.

Just a brief update on our debt covenants. Our current projections for total leverage and interest coverage continue to give us comfort that we will maintain compliance into the foreseeable future. We are benefiting from the improving results in our Foodservice segment, coupled with cost reduction and stabilizing demand in our Cranes segment. Given this outlook, we expect to remain within our required coverage ratio.

In closing, we believe that our two segment diversification strategy is working well as we build market-leading positions in both of our core businesses.

Now, we will open the call for you questions. Maurice?

Question-and-Answer Session

Operator

(Operator instructions) Our first question will come from the line of Nigel Coe with Deutsche Bank. Your line is open.

Nigel Coe – Deutsche Bank

You mentioned in both the press release and also in your comments, Carl, that you got confidence that the Crane orders will continue to pick up next quarter and 1Q (inaudible). Just want to clarify, you expect the net orders to improve from current levels and what gives you confidence to look at two quarters ahead?

Carl Laurino

Well, obviously the activity that we see is a part of that. It’s strength in the emerging markets and some of the end markets that we are selling into. We made the comment about the traditional construction markets, but there are certainly other areas that are supporting some of the order activity that we are seeing right now. But I think that’s probably something that Glen might want to comment –

Glen Tellock

Nigel, I think the other thing that you look at is in a period like this, as you go through the downturn, our seasonality becomes a little more pronounced during these periods. So, what’s going to happen is typically you are seeing people that they are looking out into 2010 right now and you’ll start to see what their order patterns are typically in the fourth quarter and the first quarter of next year. And that just goes with a lot of conversations with customers as we do our planning for 2010 and along with the – trying to collaborate with the customers and find out what they have going on.

I think the other thing is if you look at the engineering and construction firms that we talk to on a regular basis, and they look out to what they have in their backlogs, you can see some of their backlogs are picking up. It’s a matter when they start some of these projects

Nigel Coe

Okay. Great. And can you just talk about Crane CARE, just update us on what percentage of revenues that is right now and how that’s trending?

Carl Laurino

It’s about a mid-teen percentage, Nigel. It is more resilient than the whole goods part of the business in this environment.

Nigel Coe

Okay. Would you expect that to be stable into 2010?

Carl Laurino

We would expect so.

Nigel Coe

Yes, Okay. And then just, could you just maybe flush out the structural cost savings that you realized in 3Q and how you expect that to be in 4Q and maybe into 2010?

Carl Laurino

Well, what you see in the restructuring charges, Nigel, isn’t all just social. We did some restructuring on the Foodservice side of the business as well that would be more in the category of – I think it would be more probably characterized as opportunities of the combination that we’ve taken advantage of, so we did some consolidation there. But the balance, obviously there has been continuing activity to size the business aggressively to the outlook so that we are at appropriate levels of production given the demand on the Crane side.

Nigel Coe

Okay. But then as we look from 3Q to 4Q, could you just maybe quantify the actual cost savings you’ve realized from the actions and how that changed into 4Q?

Carl Laurino

So the – I think the $150 million cost savings metric that we have out there is consistent. We met – I mentioned in my prepared comments that we got about $70 million that – we should get about $80 million in the fourth quarter. And then the year-over-year change in the run rate savings, now remember that this is a metric that’s based upon 2008, but we said that versus the 2008 cost levels of the business that we get about $240 million of the total identified savings that we’ve taken actions on this year. So, that’s the 2009 impact versus 2008. And the total impact versus 2008 is $365 million. So, there should be some continuing savings realized in 2010 versus what we’ve realized thus far this year to the tune of about $125 million.

Nigel Coe

That’s helpful. And then just finally from me, the interest expense (inaudible) in this quarter is that good run rate going forward?

Carl Laurino

I think it’s a little bit high, Nigel, just given the calendarization of some of the debt pay down. I think we also had a specific customer transaction that where we had some interest expense flow through our books for a period that we ended up passing through to the customer at a point in time that this total transaction was finalized. And that there was an offset to that in our other income category, but – so, a bit high this quarter versus what you would expect just versus the effective interest rate and the debt reduction expectations as well.

Nigel Coe

Great. Thanks a lot.

Operator

As a remainder, one question and a followup. We’ll take our next question from the line of Charlie Brady with BMO Capital Markets.

Charlie Brady – BMO Capital Markets

Okay, thanks, good morning guys.

Carl Laurino

Hi good morning.

Glen Tellock

Hello, Charlie.

Charlie Brady – BMO Capital Markets

Going back to your comment on the percentage that you are – in the quarter, receiving and booking in the quarter that has increased, can you give us some more granularity on what – where are percentages today and how that’s compared with maybe where it’s been a year ago?

Glen Tellock

Well, Charlie, what we are seeing, I guess it’s probably not as relevant to a year ago, but what’s more relevant is what happened in the last downturn. And as Carl mentioned, I forget the specific percentage, I think it was around 25% or 30% –

Carl Laurino

That’s right, this quarter.

Glen Tellock

– in the quarter, in this quarter. But if you go back to 2003 and 2004, we were upwards of 50% and 60% at that point in time and the reason it’s probably a little bit higher is because we didn’t have the globalization of the business at that point in time. We were just putting – put (inaudible) and Manitowoc together. So, you look at what we have in the emerging markets now and the global footprint we have. I think that’s a little different story where some things can get in the backlogs. But, again, many of the customers know they – with their inventories if they don’t have the right inventory, they know they can get some of these equipment on a pretty quick basis. So, it comes in and out just like you’ve seen in the past downturn.

Charlie Brady – BMO Capital Markets

And then just with – quickly, with respect to the Foodservice operating margin, that was certainly a good – better than what we would have thought it would have been this early. There was nothing unusual in that, was it just the cost take-downs really taking hold in there or was there some particular mix issues?

Glen Tellock

No, it was – I mean it’s just a lot of the things that we’ve been working on. And I think you get a little bit of benefit on the seasonality as you go into the second and third quarters, but I think it’s – you know again, part of what the entire strategy was and I think many of the things that are coming together I think that’s why you saw us talk about the synergies being a little bit higher now than what we originally anticipated at $29 million higher than that as we move forward.

Charlie Brady – BMO Capital Markets

Right. Thank you very much.

Operator

Your next question comes from the line of Ann Duignan with JPMorgan.

Glen Tellock

Hello? Hello? Operator?

Operator

Yes, one moment please.

Glen Tellock

Hello?

Operator

One moment. Ann, your line is open.

Ingria James – JPMorgan

Hi, can you hear me?

Glen Tellock

Yes.

Carl Laurino

Yes.

Ingria James – JPMorgan

Hi, this is Ingria James [ph] for Ann. I just want to go back to the Foodservice margins. Do you think that this is a normalized level or what can we expect for a kind of a normalized margins for the Foodservice business?

Carl Laurino

Why, I think the guidance that we gave for Foodservice margins this year despite the fact that we’ve obviously given the times and where we were in the integration, we had a 7.7% margin in the first quarter.

Ingria James – JPMorgan

Right

Carl Laurino

Guided to an expectation we would get to double digits this year. Obviously, with the performance in the third quarter, that puts a lot of confidence into that expectation. You do tend to see a – to Glen’s earlier comment – a bit of a seasonal impact Q3 over Q4, you would tend to see some movement in the margin, in the downward direction. But obviously as you layer in the total synergy expectations that we have going out to the 2011 timeframe of $80 million plus, that will bode very well for our Foodservice margins.

Ingria James – JPMorgan

Okay. So you think that could improve from here as you layer in those cost savings? You are helped there [ph] anyway?

Carl Laurino

We’ll provide some specific guidance about 2010 when we have our business plan update and year-end conference call.

Ingria James – JPMorgan

Okay, great. And then just on the new orders that went sequentially up for the Cranes, what does pricing look like on these new orders?

Glen Tellock

Well, I think on the majority of the orders I think pricing is holding relatively well. I would say that we are seeing some, I’ll call it competitive pricing, mainly I would say the majority are coming out of China, with some of the Chinese competitors, which – and I think they are enjoying a pretty robust domestic market, but I think on some of those they are doing outside of China, we are seeing a little aggressiveness come out there. But again, I think it goes back to any time you have this, people call them their strategic deals and they try to protect maybe territories that they have been very good at in the past and it’s not unusual. So, I would say for the most part, it’s held up pretty well. But, you see certain deals where it gets very aggressive. The one thing I would point out since you are bringing up new pricing, I would say we are actually seeing some of the pricing on Manitowoc’s used equipment holding up very well. I mean I know there has been some recent auctions as equipment has gone into their – whether it was in Europe or here in the United States and we have been very pleased with the strength of the residual values of our equipment in these auctions. So, that’s been a – I wouldn’t say a surprise, but it’s certainly been a pleasant affirmation of the things that we are doing in Crane CARE.

Ingria James – JPMorgan

Okay, great, thanks so much.

Operator

Your next question will come from the line of Seth Weber with RBC Capital Markets. Your line is open.

Seth Weber – RBC Capital Markets

Hello?

Glen Tellock

Hi, Weber.

Seth Weber – RBC Capital Markets

Hey, good morning, guys. Just coming back to the booked and shipped discussion for a second, I mean are you able to book and ship a crawler crane in the same quarter or is that smaller equipment?

Glen Tellock

No we can't. It’s not going to be – yes, it’s not going to be 16000 or the 18000, but certainly if it’s the 777, 999, 2250 range, we certainly can.

Seth Weber – RBC Capital Markets

Okay. If we could talk about Crane margin for a minute, I mean there was a comment in the press release that suggested some of the weakness in the margin could just be due to seasonality, vacation days in Europe, I mean is that – should we interpret that this is the bottom, you think this is the bottom for the margin in the business?

Carl Laurino

Well, I think as you look at the business all-in, Seth, I – although I think our main message is that we are seeing stability in the markets, I don’t think that there is anybody that’s trying to convey the fact that this going to be V-shaped upturn. So, it is true that given primarily the European holiday has a big effect on the European operations, that affects some of the margin performance, traditionally in the third quarter even when the markets are good it’s – what will happen to the Crane margins going forward is obviously going to depend upon whether we continue to see that stability and how that translates to things like the production levels in the factories and therefore the absorption is low as a product mix.

Seth Weber – RBC Capital Markets

Okay. Can you give us any color on kind of your four key product categories – towers, crawlers, mobile, et cetera, just you know if you have any – ?

Carl Laurino

Not from a margin standpoint, but I think –

Seth Weber – RBC Capital Markets

No, just from a –

Carl Laurino

How the markets are, I think we can.

Seth Weber – RBC Capital Markets

Yes.

Eric Etchart

Well, Eric speaking. Obviously, the tower crane business is still very, very slow. We haven’t seen any major changes from the rental (inaudible) vacant strips [ph] the life of their equipment. They would add some cranes based on some projects, particularly in the high level capacity cranes, but overall there is no real sign of a recovery for tower. It’s outside of very specific projects that would require large numbers of tower cranes and that would be coming primary for – from emerging markets like in Saudi Arabia or Libya or Algeria. Just recently, we have been awarded projects requiring 100 units of tower cranes for a project in Riyadh in Saudi Arabia. But this is more driven by projects related.

If you go to crawler cranes, the demand for large crawler craned hold well again and we haven’t seen really sign that this is going to decline. So, we still have pretty much good demand for large crawler cranes. The same comments would be valid for rough-terrain cranes and all-terrain cranes. Really what is suffering is middle-sized cranes in all categories. And we do not see any signs of changes quarter-over-quarters on that type of cranes.

Seth Weber – RBC Capital Markets

Okay. That’s helpful. Thank you. And then, Carl, is there any input cost relief that you guys expect next year on steel or high-tensile steel?

Carl Laurino

I think when you look at that, Seth, you are seeing a little bit of it this year. We expect a little bit of it here and we had it in the third and fourth quarters. I think commodities, if anything, may be they go up a bit, but I don’t think it’s going to be anywhere out of anybody’s – it’s not the great wild fluctuations you saw in 2007-2008. I think it’s a – certainly a more moderate commodity market. And a lot of things, whether it’s Cranes, mainly in the Foodservice we actually hedged some of that to protect the balance sheet cost, and we feel pretty comfortable with that.

Seth Weber – RBC Capital Markets

Okay, great, thanks very much guys.

Glen Tellock

Thanks, Seth.

Operator

Your next question comes from the line of Charlie Rentschler with Wall Street Access.

Charlie Rentschler – Wall Street Access

My first question is for Mike. I wonder if you would talk about what pieces of the Foodservice Equipment business are accelerating or likely to accelerate in the next quarter or two, where is the beef [ph]?

Mike Kachmer

Now, Charlie, I would be careful to use the word ‘accelerate.’ I would tell you that if you look a the research firms that we use as reference point, be it Technomics or Foodservice Equipment reports and then obviously our own connections to customers and distribution partners, we remain cautious about forward volumes. We see some leveling off, but again as most people look to 2010 through the fourth quarter, nobody is anticipating a big uptick. Having said that, our focus remains on really lining up the best distributors and dealers in the marketplace, the continued introduction of new products, and the aftermarket services that connect to those products. So, again – and we really focus on those across all categories. So, there is really no singular focus that I would point to. So, again, cautious expectations. Same-store sales in restaurants appears to be improving as some restaurant chains look out, but again, no major uptick expected in Q4 in 2010.

Charlie Rentschler – Wall Street Access

Okay. And, Carl, a question for you on accounts payable. What can you tell us about suppliers’ attitude towards Manitowoc at this point? Is there still an awful lot of pressure to pay down – to pay down payables or do you think you are through the worst of that?

Carl Laurino

No, I don’t – I think our relationship with suppliers has continued to be good. You certainly see the working capital contribution from payables obviously getting difficult when you are consuming inventory for your production purposes, which is a big part of how we are generating cash this year. So, I don’t think you should read anything into that relative to our relationships with our suppliers. They are very solid. Obviously, Manitowoc has had long-term relationships with nearly all of those folks.

Charlie Rentschler – Wall Street Access

Thank you.

Operator

Your next question comes from the line of Meredith Taylor with Barclays Capital.

Sunita Suzanne – Barclays Capital

Hi, this is Sunita Suzanne [ph] on behalf of Meredith Taylor. And some – regarding your – the margins in the Cranes business, I suppose this a follow-up, can you pin point how much of a drag the European production is on schedule were on margins? Yes.

Carl Laurino

Well, I think it just goes into that general bucket of the volume and the absorption category. It probably going to point to something specific in that realm we will probably be on the order of 40, 50 basis points.

Sunita Suzanne – Barclays Capital

40, 50 basis points, okay. And also, can you give us sort of more detail on how your net order intakes progressed over the course of the quarter? Did they accelerate or were they consistent from month over month? And also can you provide some more detail on a geographic basis, you mentioned pockets of strength. So, were the pockets of strength stronger year-over-year or were they just down the last ten year overall?

Carl Laurino

Well I think if the pacing is somewhat as we described from essentially a measured level, obviously we had the turmoil that occurred in Q4 last year with the huge net negative order flow cancellation over our order activity. That got to modestly positives in the spring of this year. I think we are seeing some pretty consistent and steady progress as we move forward. I think it’s probably appropriate for Eric Etchart to talk about where we are seeing some of the relative strengths.

Eric Etchart

Well, obviously, we have an emerging strategy and this is really playing out because we see now orders in countries that we traditionally did not generate any orders and I would mention countries like Brazil or Chile or Libya, Algeria, Africa, generally speaking. And then obviously China where we have a long term presence. So, emerging markets are main contributors right now to the order entry.

Glen Tellock

I would say, also – and this is Glen – you asked about what happened over the quarter, you got to remember the middle of the quarter is August. And again where we talk about it, it impacts the production side of our business and the absorption, it also impacts obviously the order rates. So, as you get into September and you come out of the holidays, you come out of whether it’s a religious holiday or a seasonal holiday or a vacation time, you have people coming back and looking at as they get closer to year-end as they start feeling more comfortable.

The other thing that’s going to impact as we move forward is – are the credit markets, what is happening with – around the world with the availability of credit not only for our customers, but some of the engineering and construction companies. The other thing that we are watching and people in the United States are very keenly aware of is the transportation infrastructure builds. That doesn’t look like it has a great chance of moving forward, but the beauty for us is that we don’t get big pops when those things happen.

Anyway, it’s just people feel more comfortable and that’s what gives them the impetus to increase their backlogs from an ordering standpoint. So, there is a lot of things that we are watching and that’s why we feel some of those things as we move forward have a little bit of a better clarity than they did four or six months ago.

Sunita Suzanne – Barclays Capital

Okay. Thank you.

Operator

Your next question comes from Henry Kirn with UBS.

Eric Crawford – UBS

Hi, good morning.

Glen Tellock

Hi, Henry.

Eric Crawford – UBS

Actually, this is Eric Crawford on for Henry. Just a followup on that last point. How much would you say is it a function of access to credit holding back customers or concern for credit markets and people just holding on the cash? Your customers and the conversations you’ve had with the E&C firms, is the financing in place, should they want to move forward?

Glen Tellock

I think they are linked to some extent because you do have – obviously the confidence is going to come in part from the project finance issue. And that obviously plays into this. And specific transactions, ability to finance, sometimes even if you desire, there is still a constraint. Obviously, we are in much – a better climate than we were when we were talking a year ago. So, stability on that front as well. But still it’s not as if those markets are really robust as they were a couple of year ago.

Eric Crawford – UBS

Okay. And then to touch upon what you said with respect to your cautious optimism on Cranes and infrastructure and energy related projects, you mentioned the role stimulus would play in that. How – is there a way to quantify to what extent that optimism is dependant on stimulus coming through, be it in emerging markets or here, domestically?

Glen Tellock

It’s easy to give you a number on the U.S. stimulus, it’s between zero and just a little bit. It hasn’t been much. I mean we go around and talk to a lot of different distributors and ask them what projects they’ve had and I can tell you it’s a disappoint at best for most of our customers. There are some specific items that we can pinpoint to, but in the U.S. it’s been pretty dismal. If you get into China or if you get into India, the Middle East where it’s really not an infrastructure stimulus, but at least they are putting, finishing what they stopped, that actually has had some upturn in the Middle East. But I mean you’ve read all about China; India is the same. And I think we just mentioned only – Brazil also. You see what Brazil is trying to do and whether it’s infrastructure, whether it’s some of the mining. Australia – Australia has been a good market. That really – market had a little bit of a slowdown, but then picked right back up. So, really we are not seeing –

Eric Crawford – UBS

Yes, I –

Glen Tellock

– stimulus, but I would tell you jokingly, I said it at the second quarter conference call, we probably saw more in the Foodservice side with what went through the institutions for the hot lunch and the (inaudible) and program that we did. It was a little bit of boost, but not significant. But it was a decent boost for some of those businesses.

Eric Crawford – UBS

I guess my question was more with respect to what you were looking at forward, like projects for 2010.

Glen Tellock

Yes, that’s a good question. And I think what I do is give you a little bit of historical perspective. Every time things like things happens, we tend to want to get excited and put it into our projections and I can tell you we’ve been more disappointed than we’ve ever been happy. Because you think it’s all going to come to fruition, but you never know where the money is going to get spent. So, I think what it does is when we look at our forward projections, I think we take everything into account, but we don’t put any specificity to say if it’s a $6 billion infrastructure build, what would we get out of that. I think we just look at it – if it does happen, we’ll get our fair share and we plan accordingly in our conversations with our customers. But we don’t put any specific numbers on any of these things anymore because it’s just – it never comes to where you think it should.

Eric Crawford – UBS

Got you. That’s great. Thanks so much.

Operator

Your next question comes from Robert McCarthy with Robert W. Baird.