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Executives

Mike Kachmer - Senior Vice President and President of Manitowoc Foodservice Group

Eric Etchart - Senior Vice President and President of Manitowoc Crane Group

Carl Laurino - Chief Financial Officer and Senior Vice President

Steven Khail - Director of Investor Relations & Corporate Communications

Glen Tellock - Chairman, Chief Executive Officer and President

Analysts

Jerry Revich - Goldman Sachs Group Inc.

Ann Duignan - JP Morgan Chase & Co

Seth Weber - RBC Capital Markets, LLC

Christopher Weltzer - Robert W. Baird & Co. Incorporated

Henry Kirn - UBS Investment Bank

Paul Bodnar - Longbow Research LLC

Nicole Deblase - Deutsche Bank

Charles Brady - BMO Capital Markets U.S.

Robert Wertheimer - Morgan Stanley

Charles Rentschler - Boenning and Scattergood, Inc.

Ted Grace - Susquehanna Financial Group, LLLP

David Wells - Avondale Partners

Manitowoc (MTW) Q1 2011 Earnings Call April 29, 2011 10:00 AM ET

Operator

Good day, everyone, and welcome to this Manitowoc Co. Inc. First Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over the Mr. Khail. Please go ahead, sir.

Steven Khail

Good morning, everyone, and thank you for joining Manitowoc's first quarter earnings conference call. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer; Carl Laurino, Senior Vice President and Chief Financial Officer; and Eric Etchart, President of Manitowoc Cranes. Glen will open today's call by providing an overview of our quarterly results and business outlook. Carl will then discuss our financial results for the first quarter in greater detail. He will be followed by Eric Etchart, who will offer insight into the market conditions for our Crane segment, and will also discuss the recent ConExpo trade show in Las Vegas. Following our prepared remarks, we will be joined by Mike Kachmer, President of Manitowoc Foodservice, for our question and answer session.

For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning. Please visit the Investor Relations section of our corporate website at www.manitowoc.com to access the replay. Before Glen begins his commentary, I would like to review our Safe Harbor statement.

This call is taking place on April 29, 2011. During the course of today's call, forward looking statements, as defined in the Private Securities Litigation Reform Act of 1995, will be made during each speaker's remarks and during our question and answer session. Such statements are based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied projections due to 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 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. The first quarter 2011 results were in line with our expectations as year-over-year sales growth in our Crane and Foodservice segments reflect signs of continuing improvement in several end markets across both of our businesses.

During the quarter, each of our segments participated in major industry trade shows, which were highly successful, in support of our increasing confidence in our full year outlook and long-term positioning.

For several years, we have frequently discussed the 7 company-wide strategic imperatives that have played a vital role in strengthening our business segments and better positioning them for long-term growth. Two of these initiatives are focused on innovation and aftermarket product support, our key ingredients in our success.

And such, during the downturn, we intensified our focus on these initiatives, and we are starting to see those bear fruit as the markets strengthened. At the ConExpo and NAFEM trade shows, our interaction and engagement with customers centered on these key strategic strengths, and I would like to highlight a few examples that illustrate the results of our investments and efforts in these initiatives.

At NAFEM, we demonstrated our continued focus and push towards increasingly user friendly products that consume less energy and water, cook foods faster while improving flavor and offer multiple cooking platforms within 1 piece of equipment. Two of the products that we exhibited, the new Indigo ice machine and The Mini 2in1 combi oven, will be receiving a 2011 kitchen Innovations award at the National Restaurant Association trade show in May.

In addition, Manitowoc Foodservice was also recently named an ENERGY STAR Partner of the Year for the second consecutive year, reflecting our commitment to sustainability and energy efficiency.

Similarly, our Crane segment continues to be on the forefront of product innovation. At ConExpo, we launched several new products, as well as various enhancements to existing products, which Eric will tell you more about later.

We also took the opportunity to highlight our quality initiatives and new encore program within Crane CARE, which are competitive advantages as customers focus on the total cost of ownership, an area where Manitowoc excels.

In addition to our investments in new product development, we continue to improve and streamline our operations through LEAN initiatives, technology enhancements and facility consolidations that will drive enhanced long-term profitability. However, we know that these operational improvements are only effective if we continue to build industry leading products that our customers want.

Therefore, we will continue to drive improvements in both the product offering that we present to our customers, as well as the way we build, deliver and service those products.

Turning to our segment performance for the first quarter, Foodservice performed in line with our expectations once again, posting sales growth and healthy operating margins in a seasonally soft quarter. We also continued to see increasing demand in most regions, including Asia, North America and select countries in Europe. This includes a quick service chain that is planning to open 475 new stores in China this year, another quick service chain that expects to have 2,000 restaurants open in China by 2013 and a quick service franchisee based in India that is investing over $111 million to double its restaurant footprint in that country over the next 3 to 4 years.

Since attending the last NAFEM show in 2009, our Foodservice segment has undergone significant change with the integration of Enodis. Just 2 years later, it was exciting to see the remarkable changes at NAFEM 2011, as Manitowoc Foodservice is now a cohesive, industry leading enterprise.

During the show, we also spent considerable time with several current and prospective customers. And the feedback we received in Orlando in the subsequent weeks following NAFEM 2011 has been extremely positive. It's very clear that our strategy is resonating with customers who are beginning to understand the value and benefits of our full product offering and the power of presenting multiple products with 1 face.

Moving to our Crane segment, our first quarter results represented a continuation of the improving demand environment that we experienced in the fourth quarter of 2010, highlighted by strong growth in the Americas and the successful ConExpo show in March.

year-over-year sales growth and margin improvement, coupled with a backlog of $800 million, a 40% increase, are early signs of the actions taken during the past 2 years to strengthen this segment and position it for growth and enhanced long-term profitability.

With the first quarter behind us, we're happy on how both of our segments performed and have increased confidence in our full year outlook. However, we continue to believe that 2011 will be a year of transition, and we're mindful of the challenges ahead.

In addition to managing our business through uneven demand levels, we are also taking proactive steps to counteract the increasing commodity cost faced by the entire industry.

Despite these challenges, we're comfortable where we stand today and believe that we are in an excellent position to drive year-over-year growth in 2011 and accelerated that growth as we move into 2012.

I will now turn the call over to Carl to discuss our detailed first quarter financial results. Carl?

Carl Laurino

Thanks, Glen, and good morning, everyone. We reported net sales for the first quarter of $732 million, which is an increase of $48 million or 7% from the first quarter of 2010. On a sequential quarter basis, net sales decreased $99 million or 12% due primarily to delayed shipments of mobile hydraulic units due to Tier IV engine challenges that have now been resolved.

First quarter of 2011 consolidated operating margin before amortizations and onetime items was 5.5% versus 6.1% in the first quarter of 2010. The year-over-year margin decline was driven by challenging comparables associated with the new product launch for Foodservice in the prior year quarter, the reimplementation of some employee benefits and other costs that was suspended during 2009 and 2010, as well as rising commodity costs.

The GAAP net loss for the first quarter was $52 million or $0.40 per share, versus a net loss of $23 million or $0.18 per share in the first quarter of 2010.

First quarter 2011 special items were primarily comprised of the impact from discontinued operations driven by the tax expense from the sale of Kysor/Warren of over $33 million. Excluding these and other unusual items in both quarters, the first quarter of 2011 net loss was $0.10 per share, equivalent to the first quarter of 2010.

During the first quarter, we also experienced an unusual tax provision with the recognition of approximately $1 million of income tax expense against a pretax loss of $16 million. This was the result of first quarter losses experienced in certain foreign jurisdictions, primarily in France, which are fully impaired for GAAP reporting purposes. The results that the impairments with these net operating losses had on the first quarter tax provision totaled about $6 million or $0.04 of diluted EPS.

Moving on to the balance sheet, debt was relatively flat at the end of the first quarter compared to year end 2010. This was the net result of the term loan pay down from the proceeds of the Kysor/Warren sale, offset by a use of cash for the seasonal working capital build.

Additionally, we recently announced we are taking action to further improve the strength and flexibility of our capital structure by refinancing our senior secured credit facilities. The proposed changes should result in a 200 plus basis point reduction in interest rates and extend our current maturities.

These amendments should become effective within the next few weeks. During the first quarter, cash flow used for continuing operations was $137 million, driven mostly by the seasonal increases in accounts receivable and inventory that were only partially offset by an increase in accounts payable.

Moving on to our segment results, Foodservice sales in the first quarter of 2011 totaled $339 million, which increased 7% from the first quarter of 2010. First quarter 2011 operating earnings in Foodservice were $41 million versus $47 million in the same quarter last year. The year-over-year comparison was negatively impacted by first quarter 2010 earnings strength resulting from the launch of our smoothie machine in North America for a major customer, as well as first quarter 2011 investments in various emerging market opportunities and expenses for the biannual NAFEM trade show.

Moving to the Crane segment, first quarter sales totaled $393 million, up 7% from $366 million in the first quarter of 2010. First quarter results were favorably impacted by a sustained increase in orders from the fourth quarter, as well as an improved backlog.

Crane segment operating earnings in the first quarter were $13 million versus $5 million in the same quarter last year. This resulted in first quarter Crane segment operating margins of 3.2% compared to 1.2% in the first quarter of 2010.

Crane backlog at the end of the first quarter was $800 million, an increase of $228 million from December 31, 2010. The increase in backlog was due to solid order levels throughout the quarter that were enhanced by orders placed at the ConExpo trade show. The backlog build was also enhanced by the temporary delay in product shipments resulting from the previously mentioned supply issue with Tier IV engines. Our book to bill ratio of 1.6 is the highest level for this metric since the third quarter of 2007.

As noted in yesterday's press release, we are reaffirming our guidance for 2011 and updating certain items for the impact of our pending refinancing of our senior credit facilities.

Based on the order levels we have seen during the first quarter, we have increased confidence about our ability to reach our goals of low double digit year-over-year percentage growth in Crane segment revenue, as well as improved margins building off 2010 trough levels despite a rising commodity price environment.

For the Foodservice segment, we expect high single digit percentage revenue growth and improving mid teen margins versus 2010. Other expectations for 2011 include capital expenditures of approximately $70 million, depreciation and amortization of roughly $125 million, approximately $150 million in interest expense, and approximately $10 million in amortization of deferred financing fees.

In addition, during the second quarter of 2011, as a result of our credit facility's refinancing, we expect to incur a noncash write off of approximately $25 million in deferred financing fees from the existing facility.

Let me now turn the call over to Eric Etchart to discuss recent events in our Crane segment and to share some feedback on the 2010 ConExpo trade show. Eric?

Eric Etchart

Thank you, Carl. In the months since I last spoke to you on the fourth quarter conference call, we've seen sustained improvement in demand for cranes, driving increased confidence that we have emerged from the trough of the cycle and are on track to reach both our full year and long-term targets.

In the first quarter of 2011, we experienced sustained order intake levels compared with the fourth quarter, driving year-over-year sales growth and the sequential increase in backlog. First quarter sales benefited from strong demand in North America, driven primarily by energy projects, as well as continuing strength in Asia, the Middle East and Latin America. While parts of Northern Europe are showing modest signs of recovery, Southern and Eastern Europe continue to show very little activity.

During the quarter, we saw additional positive signs such as improved rental utilizations and an inventory decrease in distribution channels, which drove some restocking in rental fee to replacement orders.

Our first quarter order intake also benefited from the ConExpo show, which included over 120,000 attendees from across the globe. The event not only enabled us to showcase our industry leading product lines, but allowed customers the sustained opportunity to witness the results of our investments in innovation and new product development.

As Glen noted, we launched several new products at ConExpo, including the world's highest capacity rough terrain crane. We also featured various upgrades for current models, including the wind attachment for the Manitowoc 16000, which puts the crane's capacity by up to 49%, and makes it increasingly powerful and an essential piece of equipment for this industry.

Additionally, Crane CARE highlighted its new anchor program, which is the latest example of Manitowoc's commitment to helping its crane customers reduce the rising cost of crane ownerships and operation.

This program reflects the longevity and quality of our products as we are able to fully remanufacture older Manitowoc cranes to standards that can even exceed their original date of manufacture, a capability that is unmatched in the industry.

Our dedication to delivering superior products and providing best in class support is a key differentiator that sets us apart from the competition. And it is clear that customers care about these capabilities.

While we are pleased with the quarter and growing signs of improvements, we are also focused on managing operational challenges associated with fluctuating demand levels and external factors, such as rising input costs, which impact our margins. We will continue to diligently manage our supply chain, and we have already taken action to offset increasing costs through strategic pricing adjustments, productivity initiatives and greater efficiency. And we will continue to proactively manage these issues as they evolve throughout the year.

In closing, I am proud of the progress we have made over the last year, and I am excited about what the future holds for us. We are very pleased with the demand levels in emerging markets, such as China and India, coupled with our recent announcement to build a 25,000 square meter manufacturing facility in Brazil.

The new plant, which will begin producing mobile cranes in 2012, not only gives us the first mobile advantage in the Latin American market, but continues the tradition of Manitowoc being a pioneer in emerging markets. And as the global economy continues to improve, Manitowoc is ideally positioned to compete for and win high profile projects given our broad global footprints, which brings us closer to our customers and their needs.

With that, I will return the call to Glen for his closing comments.

Glen Tellock

Thanks, Eric. In conclusion, we are pleased with our first quarter results and are equally encouraged by the positive signs of recovery across both of our segments, which also validates the strategy and investments that we've made in expanding and globalizing our Crane and Foodservice operations.

As I noted before, we expect 2011 to be a transition year for Manitowoc in terms of challenges and opportunities. Furthermore, we continue to expect year-over-year growth in both of our operating segments, and we remain focused on making the right investments and taking the appropriate actions that should drive significant top line growth and bottom line profitability in 2012 and beyond.

This concludes our prepared remarks. Nicole, we will now begin our question and answer session.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Robert Wertheimer from Morgan Stanley.

Robert Wertheimer - Morgan Stanley

So my first question is just to the extent you're able, could you elaborate on what the Tier IV issues were, and help us understand how they are in the past?

Eric Etchart

Well, the amount of that is around $50 million, Rob. And the issues were trying to get a lot of the software synchronized with the rest of the engine and everything else with the trucks basically, and the chassis. So that is behind us from that set of factors in the current models that we have. And so those did begin shipping in the second quarter.

Robert Wertheimer - Morgan Stanley

Okay, so it wasn't anything physical with the engine or the way you've designed it to fit, it was just your software?

Glen Tellock

It was just getting it to match up with all the software and the capabilities of the rest of the truck and the chassis.

Robert Wertheimer - Morgan Stanley

Okay. And then the second question I guess would be that you and 1 of your competitors, over at Terax, have now posted 2 quarters of very good crane orders, each of you. Internally, did it feel to you like there's a solid bottom and robust recovery? Or does it feel like the orders are still coming in patchy and spotty? I would imagine a lot of your customers are still not making much money given where rental rates are, so I just wanted to see if you feel like it’s on a gradual upswing from here or are you still thinking it's uncertain?

Glen Tellock

I don't like I wouldn't call it robust. I like the patchy and spotty. I mean we've mentioned that before, that's kind of an uneven demand. And I think if you look at the first quarter, I mean, ConExpo was good for North America and it gave you the confidence in what's happening in North America. But what I would say is, where it is robust, it stays robust, it's maintained its robustness, I guess is the best phrase, in the emerging markets. That's where we continue to see good levels of activity.

Robert Wertheimer - Morgan Stanley

And are you seeing any impact from the emerging Chinese competitors in emerging markets on your demand or pricing ability? And I'll stop there, thanks.

Glen Tellock

We are. I'll let Eric elaborate a little bit more on the Chinese competition.

Eric Etchart

Well, Rob, I think the Chinese continue to dominate obviously in China, even if we are and other first tier manufacturers, are competing in China. Obviously, and honestly, there is a lot of smoke but not a lot of fire. I think you wouldn't have time for the Chinese competition to build up their brand, distributions and raise their value and the best in class reliability that they need to crack the domestic market. So overall, yes. Chinese competition that's outside of China is only a long term threat. But again, we don't see immediate threat short term.

Operator

[Operator Instructions] And we'll take our next question from Nicole DeBlase from Deutsche Bank.

Nicole Deblase - Deutsche Bank

So the first question that I have is, if you could provide the FX impact to the Crane backlog this quarter?

Carl Laurino

Nominal.

Nicole Deblase - Deutsche Bank

Okay. And that's on a Q on Q basis that was a nominal impact?

Carl Laurino

Q on Q and year-over-year.

Nicole Deblase - Deutsche Bank

Okay. Got it. And then just a modeling question, what are you guys expecting for the tax rate for the full year or the remaining 3 quarters?

Carl Laurino

That's a very good question. Obviously, we've had the unusual circumstances, and I think it probably is something that we revisits us if we get the normal seasonal pattern and softness in the fourth quarter this year, probably have a very unusual effective tax rate in the fourth quarter. The remaining quarters in total, you're still looking at probably a high effective tax rate because of those 2 quarters. And if you take them all together, you're probably close to a 50% effective tax rate because of the ineffectiveness of the losses in some of the foreign jurisdictions. And if you take out that issue, that obviously, we expect to get through once we get into a little bit better times in the cycle. We're worried about our 25% effective tax rate, but since we expect that to linger and be most pronounced in the fourth quarter, it's probably about 50% effective tax rate for the balance of the year.

Operator

And our next question comes from Charlie Brady from BMO Capital Markets.

Charles Brady - BMO Capital Markets U.S.

Can you on the Quick Service opportunity you guys talked about in Foodservice with the China and India, can you quantify what that opportunity might be over the next few years? And given the size of what I imagined those orders might be, is there a margin differential on there that might impact the Foodservice business over that time period?

Glen Tellock

Well, I'm going to take the first part of that, and then I'm going to let Mike give you a little better flavor just overall on the emerging markets with Foodservice. But yes, to quantify it, Charlie, is very difficult. I mean I think what we're trying to get across is to say the emerging markets are more and more a bigger part of the Foodservice strategy that we put in place to get a lot, capture a lot more of that market, and show that there is growth in that market outside of North America. So it's the normal opportunities we have anytime anybody expands in any market, given the product breadth that we have and the global footprint that we have. Now when it comes to the margins, I mean it's going to be on a normalized basis. Again, it goes it's a mix issue. It depends if they're using 1 product versus another, and so that just depends on what they're ruling out at a given time. I'm going to let Mike step in and give you a little more flavor on some of the opportunities in emerging markets.

Mike Kachmer

Yes, Glen, let me extend your comments there on margin. If you look at the categories right now that we're focused on with the targeted chains, we believe that our cost position is extremely competitive, first of all, due to the operations that we have in the APAC region to begin with, but also with our continued focus on reducing our cost structure going forward. So we believe that again, for the categories that we're focused on, our margin situation is good.

Carl Laurino

The other thing that I would say is depending on your time horizon on this, Charlie, is that, yes, obviously, a key driver for us in Foodservice is the replacement. And it takes a while for you to get to that critical mass to have that driver be as relevant in the emerging markets but certainly, helpful to us in the near term on some of the new store activity.

Charles Brady - BMO Capital Markets U.S.

And is it fair to say that a product sold into emerging market doesn't have a meaningful lead lower margin than something sold into, say the North American market?

Carl Laurino

Yes.

Operator

And our next question comes from Ann Duignan from JP Morgan.

Ann Duignan - JP Morgan Chase & Co

Could you just first address the $800 million backlog, crane backlog? How are those products priced? Are those priced at old prices and therefore, will carry lower margins as we go through that backlog? Or when do price increases take effect and when will they hit the P&L?

Carl Laurino

Well, Ann, I would say, yes, I think much of the activity that's ongoing today would be at pricing arrangements that obviously go back depending on the type of product, sometimes, even several months. But Ann, our overall message as it relates to price versus commodities in cranes is that it's a difficult story for us this year. We're just coming off the trough, and there's still, despite some of the recent order activities, still capacity available in the industry for the pricing environment, is not as robust as we would expect it to be when you get a little bit longer into recovery. And by virtue of that, and we think that it's going to be difficult for us to get the requisite type of pricing and maybe even some other product on take out to be able to overcome some of the steep increases that we're seeing on the commodity cost side. Obviously, we'll get other benefits from the expected volume growth and overall, our message is that we'll see year-over-year margin enhancement and margin growth in cranes. But price versus commodity costs is pretty tough in '11.

Glen Tellock

But what I would add to that though, Ann, historically, we've been a price leader and we're going to continue to be that in the future. And we're going to do that. And if people don't follow, that's a challenge for us and then to everything that what Carl said. But I can tell you that we aren't going to sit back and wait. I mean, we will continue to do what we've done in the past.

Ann Duignan - JP Morgan Chase & Co

So I'm a little confused, have you raised prices yet or not?

Glen Tellock

We have.

Eric Etchart

Yes, we had, Ann, and we had to because with the Tier IV, we had additional costs associated with Tier IV engines and we had already passed some pricings. But given what we see on the material costs coming in front of us, we need to be more aggressive in testing pricing.

Glen Tellock

But I think to answer your other question, Ann, what you said is, what does it do to the near term versus long term. Yes, some of the near term things that are going out are based on pricing that was in the fourth quarter of last year. And as you know, historically again, we have not changed the prices in our backlogs. And we don't intend to change that policy either, so it's what we have to get around and that's where it comes to the LEAN manufacturing initiatives, comes to additional pricing that we'll do and some of the benefits we have to get out of our manufacturing environment.

Ann Duignan - JP Morgan Chase & Co

Okay. So when would you expect to be price cost neutral?

Carl Laurino

We don't expect to be able to achieve that in all likelihood until probably, next year.

Ann Duignan - JP Morgan Chase & Co

Okay, that's what I was trying to get at. And then just my follow up question on Foodservice. Should we be concerned that, that segment is already past peak operating margins? And just given your commentary that, you say it's very tough comparables based on last year's product launches, are we looking at 2010 as having been peaked for Foodservice margins?

Glen Tellock

No, I don't think you should infer that, Ann. Obviously, the first quarter is typically, as I mentioned in my comments, it's a soft seasonal quarter. Typically, the second and third quarters are best, but I wouldn't make that assumption.

Carl Laurino

Sorry, I do need to make sure that we do 1 follow up because we do have a, I think, a pretty big queue of questions.

Operator

And we'll take our next question from Jerry Revich from Goldman Sachs.

Jerry Revich - Goldman Sachs Group Inc.

Eric, can you talk about the inquiries you're seeing, rank order for us, which regions do you expect to drive order growth over the next 6 to 12 months? You mentioned Americas were a big driver on the past couple of quarters. Is that continuing or any other markets that are looking more or less interesting?

Eric Etchart

Well, obviously, the activity has been, as we anticipate in the emerging markets, very, very strong, especially Latin America, I would say. Asia, typically, the Q1 is not the best quarter in terms of order activity because you have a Chinese New Year. This year, you had the waterflood in Australia, so Asia has been over what we have seen last year, but slightly obviously down compared to the last quarter. Now I must tell you that in Europe, we see the towers picking up a little bit of steam. And we're coming from the low base but that's quite encouraging. And the Middle East has not been impacted, at least where we do business. We have the recent geopolitics even, so the business in Saudi Arabia, as an example, has continued to be fairly strong. So overall, I mean it's a good outlook. We've got to be careful now to see if we can confirm all these order activity in North America. Definitely, there have been some refuting activities, there have been some restocking activity. We need to see how this retail. Obviously, the customer are more positive and optimistic, but I think we have to be a little bit cautious in North America.

Jerry Revich - Goldman Sachs Group Inc.

And can you talk about the timing of customer delivery requirements for the past few quarters? Even adding back the interim Tier IV issue, you still would have underproduced versus the order transfer for the past 2 quarters. Is that a function of customers want a big chunk of the deliveries in 2Q or 3Q? And how should we think about production rates from here?

Glen Tellock

Most of it's in for delivery in the next 6 to 9 months. I mean, a lot of it doesn't stretch out to next year but there is some.

Jerry Revich - Goldman Sachs Group Inc.

So we should think of a pretty meaningful production pickup as early as 2Q?

Carl Laurino

Yes.

Glen Tellock

We've been in that mode already, yes.

Operator

And our next question comes from Chris Weltzer from Robert W. Baird.

Christopher Weltzer - Robert W. Baird & Co. Incorporated

Still a little bit of a clarification on the answer to the last question. Do you expect to recognize sort of your catch up with that $50 million of revenue in the second quarter? Or should we still expect sort of a normal, 2Q is good, 3Q might be a little bit better and a big 4Q in Crane for this year?

Glen Tellock

We should get most of that delay in the second quarter.

Christopher Weltzer - Robert W. Baird & Co. Incorporated

Okay. Thank you, that's helpful. And are you guys seeing any impact or can you parse what you're seeing as far as any impact from the Japanese disasters? I know you guys have a relationship with Kobelco for some small crawlers. Just a little bit of color, what you're seeing there?

Glen Tellock

Well, overall, I wouldn't call it significant, Chris. There are some things we have you mentioned the Kobelco relationship, there are the timing of some shipments on that. But there also is a steel supplier that we have in Japan, which again, that's one of those core supplier issues that we talk about. And then on the Foodservice side, it's not as we haven't seen the big, significant impact on that. So we're not looking at it as a great impact, and certainly, in the month of tragedy, we don't want to talk about opportunities yet, but I think that's a much longer term. Eric, do you have anything to add on that?

Eric Etchart

No. You mentioned Kobelco, which is the unknown, because where's there's still unfolding issues in Japan is the Tier 2 and Tier 3 suppliers of our overall, our own suppliers. This is still very unknown. So we have to see some questions, remarks. But to be clear, I mean, we have to look at suppliers as generally, because they are ramping up, and probably some electronic conference going from there, but that's all we can stay at this point of time.

Christopher Weltzer - Robert W. Baird & Co. Incorporated

Okay, that's very helpful. Then one real quick one. Any idea how much ConExpo expenses might have been in the quarter? And what line items they'll show up in?

Glen Tellock

Well, it's going to show up in SG&A. It's go ahead.

Carl Laurino

It's about $2 million, yes.

Christopher Weltzer - Robert W. Baird & Co. Incorporated

Okay. In unallocated or up with the segments?

Glen Tellock

It's only in Cranes.

Carl Laurino

I should add that we also had probably, about $1.5 million in NAFEM in the quarter on the Foodservice side. And that's not a year-over-year recurrence because that's every 2 years or so.

Operator

And our next question comes from David Wells from Thompson Research Group.

David Wells - Avondale Partners

First off, I was wondering if you could quantify a little bit of your verbiage about the investments that you made in the emerging markets in the quarter. And I guess I'm trying to get a sense of, is that headcount additions and kind of the drivers behind the choice to make those investments right now?

Carl Laurino

I think you're talking about the Foodservice business,

David Wells - Avondale Partners

Foodservice business.

Carl Laurino

Have you mentioned about the Foodservice?

Glen Tellock

Go ahead, Mike.

Mike Kachmer

Okay. I think there are a couple of great examples that highlight what we're talking about. If you think of the blended ice movie category, that is a very important new market for us, Southeast Asia is a market that 1 of our largest customers is pursuing their next rollout. And so while we believe that the steady state margins will be fine, we do put resources in place in advance of the rollout to support it. It will come in the form of product managers, sales resources, service resources, et cetera. So we will have headcount and some associated costs like that. Separately, for a different large global chain in China, we have put people into the region to develop products conducive for the region, and again, those resources are placed in advance of the revenue occurring. Long term, it's going to be great. In a quarter like the first, there'll be expenses not linked to direct revenue. Two examples.

David Wells - Avondale Partners

That's helpful, thanks. And then I guess as a follow up on, I'm just trying to get a sense of looking back over the last couple of years, there was a fair amount of discussion on these calls about the cost takeout that you've have done on a broader basis. Given what you're seeing now, I guess as orders begin to return on the Crane side of things, and certainly some of the opportunities on Foodservice, as you look at the cost takeout that you've done over the business and look at the kind of permanency and kind of a fixed versus variable side of the equation, has you're thinking on that changed appreciably? And any thoughts about that would be helpful as we think about the business heading into '12 and beyond.

Carl Laurino

One thing I would mention is yes, that's definitely the case. I think part of the benefit that we saw from some of the actions that we took in building capacity in the last peak, they certainly are not realizable as you go through the trough years as we saw. The other thing that comes into play as far as having an ability to leverage as we are in growth mode is some of the re institution of some of the austerity measures that are taking that, that have to flow back into place. So we do as we look at getting through to a profitable margin growth in 2011 despite the commodity challenges, that's a big part of the way that we get there, is through some of those operational excellence initiatives.

Glen Tellock

But I would say on that, David, when you look at some of the infrastructure things that took cost out, whether it was in Foodservice or in the integration over the last 2 years for Cranes, for instance, the Slovakia thing, investments that we made in Italy or what we're doing now in India or China or different things, or the consolidations in France, you take those together, what we're going to be bringing back are people. And so, if we've made a lot of investments in machinery, technology, that kind of thing, as we ramp up, we should start seeing the impact of those investments from an efficiency standpoint. And so instead of bringing back as many people as we did in the last upturn, we're not going to need that same headcount on a lower capacity base of manufacturing. So those are the opportunities we have. We're just too early in the upturn to see the benefits of those right now.

Operator

And we'll take a question from Ted Grace from Susquehanna.

Ted Grace - Susquehanna Financial Group, LLLP

On the Crane orders, I'm just wondering if you can give us a little more color on the 1Q order book itself, total order book of 51% year-over-year. Could you just help us understand how North America performed versus Europe and Latin America? 80% would be helpful or just the broader EM, just so we understand what drove it regionally?

Eric Etchart

Well, North America had a very strong order intake in Q4 already, and that order rate sustained very well in Q1 as well. So that has been impressive in terms of growth. And comparing with Q1 last year, basically, America's backlog orders basically has doubled, just to give you the magnitude of what it is.

Ted Grace - Susquehanna Financial Group, LLLP

Okay. So it's doubled year-over-year?

Eric Etchart

Yes.

Ted Grace - Susquehanna Financial Group, LLLP

That's great. And then Europe and it would be helpful to understand that.

Eric Etchart

Well, Europe, again, is definitely growing as well in terms of order intake and backlog. It's primarily driven by the GMK product range, and towers again, as I said earlier, picking up really steam in Europe as well. So again, year-over-year, you see an improvement in Europe as well. Of course, if you take that total backlog, the Americas became a heavyweight compared to Europe, which traditionally was not the case.

Ted Grace - Susquehanna Financial Group, LLLP

Okay. And so is it fair to assume what you're saying is Europe probably punched below the 51% average for the segment year-over-year?

Carl Laurino

In Europe or...

Ted Grace - Susquehanna Financial Group, LLLP

Yes, the European orders were, I'm guessing, up, but not as great as the 51% we saw for the whole Crane business.

Eric Etchart

Yes.

Ted Grace - Susquehanna Financial Group, LLLP

And for Latin America, could you give us just a little more color there?

Glen Tellock

No. I think when we get down to the specifics, when we get that granular, we would rather keep it on a higher level. But what I would say is the order intake, it certainly didn't double like it did in the Americas, but it was certainly impressive.

Ted Grace - Susquehanna Financial Group, LLLP

Okay. So fair to assume that's above the 51%?

Glen Tellock

Sure.

Ted Grace - Susquehanna Financial Group, LLLP

Is it fair to say, Glen?

Carl Laurino

Reasonable expectation.

Ted Grace - Susquehanna Financial Group, LLLP

Okay, great. And then just the second kind of follow on question is, can you just remind us what your mix was in 2010 for Crane revenues between, I know you before with the Americas, EAME (sic) [EMEA] and then all other? Or if you could just give us a sense for how big each region is, that would be helpful.

Glen Tellock

Both, I mean in the quarter, you mean?

Ted Grace - Susquehanna Financial Group, LLLP

No, for 2010. I would be more curious to kind of benchmark it against last year.

Glen Tellock

We only give the regional split, Ted. So you've got Europe, Middle East, Africa, bunched together, that's south of 40%. The Americas is more of kind of mid 40% range, and then you got Asia Pacific, that's in the mid teen level.

Ted Grace - Susquehanna Financial Group, LLLP

Okay. Yes, I was just wondering if you might be able to give us the country, so. And then this will be the last thing, but can you just talk on the split between new crane orders and attachment orders? And help us understand if there was a material difference between attachments and new cranes and I'll leave it there.

Glen Tellock

No, there's the interesting thing is some of the attachments cost more than what some of the some of it's on product mix, some of the smaller products that we have. So when we say attachments, it still can be a significant part of the business, and it is. So I mean, it's not a big breakout.

Carl Laurino

There's not normally wild swing between the whole goods and the attachments.

Operator

And our next question comes from Paul Bodnar from Longbow.

Paul Bodnar - Longbow Research LLC

Just a follow up on pricing. I mean, you guys have obviously sounds like you've taken some actions. How did the competition reacted? Is there anyone kind of lagging out there? Or being a bit more aggressive?

Glen Tellock

Well, yes, I think there are some that are lagging. And I think we made comments about it late last year, people that had inventory. I think 1 of our competitors announced some things that they saw from a common competitor we all had in southern Germany, a big construction equipment company in southern Germany. And it's in various publications, if you look at what other people have for pricing in that market. And so, I don't think it's I think it's improving in all honesty, because as Carl mentioned, the inventories and I think the capacities are getting back to normal. You're seeing pricing stabilize on used equipment. I think that's a positive. And then in Mike's industry or the Foodservice industry, again, it's I liked Mike's comments where he said, "Hey, look, our position is very competitive." When you have made your change that are going out and you're competing for certain pieces of business around the world, it's competitive. But the beauty that we have is we have a very good cost position. So I mean, you can get it through to the customers that pricing through when you can verify that, hey, it's specifically this, it's commodities that's rising this, rising that, but that still doesn't mean that all competition is rational. But we've been dealing with that forever, so that's where we play in the positions in the markets that we're in.

Paul Bodnar - Longbow Research LLC

Okay. And then, I guess along those lines, I mean are you concerned or have you any kind of commentary? I mean if some customers come in ahead of these price increases at all, or are they kind of saying, hey, it hasn't moved up that much, and maybe the price power is not going to be that strong so they're still taking the wait and see approach in terms of buying? It's probably more Crane than Foodservice.

Glen Tellock

I mean, I think it's I can't speak for anybody else. I think it's on a case by case basis.

Carl Laurino

But the buying decision on that type of equipment is going to be much more predicated on what is the need and what is the availability of that type of lift equipment. The idea of deferring because there's a price or accelerating because there's a price increase coming is I don't think a real driver.

Operator

And we have a question from Henry Kirn from UBS.

Henry Kirn - UBS Investment Bank

Could you chat a little bit about where the supply chain in cranes stands today outside of Japan?

Eric Etchart

Well, obviously, Henry, tires is becoming the problems and everything relating to hydraulics, pumps, is becoming something that you have to watch carefully. And also your outsourcing, they have to ramp up and then it's tough for them. So that's the overall supply chain that is stretched right now.

Henry Kirn - UBS Investment Bank

That's helpful. And is it possible to quantify the ConExpo order intake in the quarter?

Glen Tellock

It is possible to quantify it, but we're not going to disclose it. I mean it was good. It was a good order intake show for us. As we mentioned, we had some good products that were new. We talked about the new RT, some of the encore products. You had the tower cranes, the wind detachment, the GMKs, the 6300 and the 6400. I mean, I would characterize it as good as other ConExpos, so I mean there was no decrease or anything like that. But it was good for us.

Operator

And we'll take a question from Seth Weber from RBC Capital Markets.

Seth Weber - RBC Capital Markets, LLC

Just a quick follow up on Henry's question. I mean do you feel like ConExpo pulled orders forward from the second quarter? Or can you comment on how trends in North America the order book has trended in North America thus far into April?

Glen Tellock

I don't think it pulled anything forward, Seth. I think a lot of times, people know our sales people and other people know what's going to happen there. And people just want to touch it. They want to see it, and our people have been talking to customers and prospective customers for a long time about these things. And so the orders are there. I mean again, the price of some of this stuff is not where they just buy it haphazardly, especially in today's environment. So I don't think it pulled it forward. I think it's because for instance, the 6300 and the 6400, some of that will ship later this year. If the 6400 doesn't ship, it will start shipping until next year, so it's not pulling anything forward. I think it's just the normal position that people have. Sometimes, it's just the number of quantities and how far they stretch out. So again, it's a normal show for us and it doesn't change the dynamics any.

Seth Weber - RBC Capital Markets, LLC

But is it safe to say that trends have continued into April then?

Glen Tellock

Well, certainly, with ConExpo, you're not going to have the same number of units you're going to have in April. But yes, I think it continues to tell us that the worst is behind us.

Eric Etchart

What I just want to add up on his comments that, we see also the increase of the Parts business, which again, it's a sign that 2010 was a trough. And we have repeatedly say that Parts is a good indicator of what's moving forward. So we continue to see Parts business increasing.

Seth Weber - RBC Capital Markets, LLC

Right. Okay, thank you. And then I'd like to drill down a little bit on the Foodservice margin guidance. I mean you're talking about up year-over-year for 2011, which would suggest something like a 15% margin. But the first quarter was down year-over-year about 250 basis points. I'm just trying to understand, and I appreciate some of the commentary that you gave earlier about some improvements and enhancements, but I mean I would suggest the second, third, fourth quarters have to be up pretty strongly over the balance of the year, year-over-year. So I'm just trying to understand what you're seeing there that gives you confidence that those margins will be up versus last year.

Glen Tellock

Well, it's really the biggest part is the unusually high margin that we had in Foodservice in the first quarter last year given the success of a rollout that we didn't have this year. And the normal seasonal pattern is that you do have some pretty solid quarters in the second and third quarters, and then more of a muted type of margin performance in the first and the fourth just because of the normal seasonal pattern there.

Seth Weber - RBC Capital Markets, LLC

Okay. So you're not assuming there's any kind of you're going to get a benefit from new product introductions or anything like that through the balance of this year, that would juice your margins this year versus last year then? It's just kind of volumes getting better and...

Glen Tellock

Those will always factor into every year. It's just the matter of calendarization and what is the order of magnitude of that type of activity comparing any 2 quarters. But it's not anything that we could foresee that would be as significant as what we saw in the Q1 comparison.

Seth Weber - RBC Capital Markets, LLC

Okay. I mean, just from a quarterly comparison perspective, do you expect, I mean were there any quarters last year that were weak, that the comps would be easier this year? Or is it just going to be strength across the board going forward year-over-year?

Glen Tellock

Yes, I would say...

Seth Weber - RBC Capital Markets, LLC

Does that make sense?

Glen Tellock

Yes.

Seth Weber - RBC Capital Markets, LLC

Just kind of business getting better, better leverage?

Glen Tellock

Getting better...

Operator

And we'll take our next question from Charlie Rentschler from Boenning and Scattergood.

Charles Rentschler - Boenning and Scattergood, Inc.

I wanted to ask another question about the Fukushima disaster but not your possible role in reconstruction. But Eric, what the consequences on the industry as people look at the, or re look at nuclear power versus alternatives, what can you tell us? What's going on short term, long term in people's thinking in the industry?

Glen Tellock

Well, Charlie, I think that's you can debate back a long time. But what I would say, when this happened and we had a lot of conversations internally about it, is does it get people to look at more of the renewable energies, is it wind? Is it solar? Is it water, hydro? All that kind of thing. And I think a very good response that we had internally is, look if we build nuclear, we're going to use a lot of cranes. If we don't build nuclear and we have to build something else that is in the renewable side, we're going to use probably even more cranes, because you're not going to get the same effective, efficient energy that you get out of nuclear from some of the renewables. So it's still no matter what they do, the thirst for energy worldwide is still going to use a lot of cranes.

Charles Rentschler - Boenning and Scattergood, Inc.

Okay, that's helpful. And I wanted to ask Mike a question about his product portfolio. Do you see anything you'd like to prune out of what you've got, Mike? Or anything that you really long to have, other products? Can you talk about that a little bit?

Mike Kachmer

Well, first, let's talk about the pruning side. I think what's taking place since the acquisition of '08 was some forced pruning and then some selective pruning, ending without the Kysor/Warren divestiture that occurred at the very start of this year. Right now, we believe that we're greatly positioned with long standing brands that are either 1 and 2 in their marketplaces. And where we have 2s, we're working on strengthening them. But buying large, we like the lineup that we have today. There are categories that as we look forward, and we have more flexibility and more stable environments, that we'd like to add to our current portfolio. In most cases, probably be geographical plays that support our emerging market growth or some categories that would be new to us.

Operator

At this point, I will turn the call back over to Mr. Khail for any closing remarks.

Steven Khail

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

Operator

And once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.

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