The Manitowoc (MTW) Barry L. Pennypacker on Q2 2016 Results - Earnings Call Transcript

| About: Manitowoc Company, (MTW)

The Manitowoc Co., Inc. (NYSE:MTW)

Q2 2016 Earnings Call

August 09, 2016 10:00 am ET

Executives

Ion Warner - Vice President, Marketing and Investor Relations, The Manitowoc Company, Inc.

Barry L. Pennypacker - President, Chief Executive Officer & Director

David J. Antoniuk - Senior Vice President & Chief Financial Officer

Analysts

Jamie L. Cook - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Michael David Shlisky - Seaport Global Securities LLC

Stanley Elliott - Stifel, Nicolaus & Co., Inc.

Ann P. Duignan - JPMorgan Securities LLC

Robert Wertheimer - Barclays Capital, Inc.

Mig Dobre - Robert W. Baird & Co., Inc. (Broker)

Charles Brady - SunTrust Robinson Humphrey, Inc.

Seth Weber - RBC Capital Markets LLC

Lawrence De Maria - William Blair & Co. LLC

Operator

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

Ion Warner - Vice President, Marketing and Investor Relations, The Manitowoc Company, Inc.

Good morning, everyone, and welcome to Manitowoc's second quarter 2016 earnings conference call. We're glad you can join us today. With me today is Barry Pennypacker, President and Chief Executive Officer; and Dave Antoniuk, Senior Vice President & Chief Financial Officer. On today's call, we will provide details of our second quarter 2016 performance as well as an update on our full-year business outlook as outlined in last evening's release.

Before we begin, I would like to review our Safe Harbor statement. During the course of today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 will be made during each speaker's remarks and our question-and-answer session. Such statements are based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission, which are also available on our website. The Manitowoc Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or other circumstances.

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

And with that, please refer to slide three and I will now turn the call over to you, Barry.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Thanks, Ion, and good morning, everyone. I was encouraged with the results of the second quarter despite the difficult market conditions we continue to face. We reported revenues of $457.7 million, a decrease of $20 million or 4% for the second quarter of 2015, on a sequential increase of $30.3 million or 7% over the first quarter of 2016. Our second quarter adjusted operating margin was 3.2% which was flat with the prior period despite a 4% decrease in sales and was up 100 points sequentially from the first quarter of 2016.

Our results continue to reflect strength in our tower crane business resulting from infrastructure and commercial construction projects. We continue to see weakness in Mobile cranes driven by the depressed oil and gas market, primarily in the Americas and the Middle East.

Let me spend some time addressing our business model in more detail. Our tower crane side we see continuing strength in most regions. Our revenue, gross margin, and operating profit for the quarter were in line with our expectations. As we highlighted last quarter, our city-class tower cranes continued to be well received and we're gaining significant market share.

Similarly, our self-erecting Hup cranes which we introduced at bauma, are generating strong volumes, particularly in France and Germany. Our aftermarket orders for tower cranes continued to exceed expectations and we see this positive momentum continuing into 2017.

Within our Mobile crane business, while we were encouraged by customer activity at bauma, and indication for orders were strong, many potential orders were deferred. As a result, orders in the latter half of the second quarter declined more than what we had originally anticipated.

In the quarter, global market conditions have worsened and the general demand environment for cranes is very sluggish. While we are seeing targeted market share gains in specific product lines, for example, in the rough-terrain segment globally, the persistent weakness in the global oil and gas sector has more than offset these pockets of strength.

Turning to slide four, so while our sales continue to be impacted by challenging economic backdrop, we remain highly focused on what we can control, namely rightsizing our manufacturing footprint, aligning our cost structure, and ensuring the quality and reliability of our products meet our customers' expectation.

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

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

Turning to slide five, I'd like to review our progress of the strategic priorities we established for 2016 and beyond. First, margin expansion to right-sizing the business to match our new company culture and the current market environment. I'm pleased to report that we've made significant headway towards this goal so far. Our relocating of crawler crane production from Manitowoc to Shady Grove is a first step in eliminating significant excess capacity to drive operational efficiency and provide resources to invest in profitable growth. We're exploring other restructuring plans to enable us to deliver more value in the future.

I'd also like to highlight our Niella, Italy, facility, which has undergone a complete transformation and is well down the path of successfully implementing The Manitowoc Way. Through the use of automation and robotic loading, we will be able to produce our new hub cranes more quickly and efficiently while retaining the high quality standards our customers have come to expect from the world leader in tower cranes, Potain. This example demonstrates the power of The Manitowoc Way.

The second key element of our strategy is growth through improving our competitive position. As mentioned earlier, towers is demonstrating it and we're taking steps to position mobile similarly. For example, as part of our GRT8100 rough-terrain crane launch earlier this year, we've taken a new approach where we work closely with our key dealers in developing value-added product features. Our product specialists collaborated with our customers and their feedback was quickly incorporated into product improvements.

The third key element of our strategy is innovation. Our development efforts are focused around performance, differentiation, and enhancing our end-users' return on investment. The demand for our newly launched top-slewing and self-erecting tower cranes remain strong and has resulted in market share gains across the globe.

But we're not done. This November, the Hup 40-30 self-erecting tower crane will go into full production in our plant in Italy. The 40-30 is the bigger brother of the Hub 32-27, which we've already talked about. These two models replace five previous models which will streamline our production process and enable our customers to do more work with fewer models of cranes in their fleet. The combination of this new line of self-erecting cranes, with the plant transformation in Niella will make for a winning combination for both our customers and our shareholders.

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

The fourth key element of our strategy is velocity throughout the enterprise. It translates into getting more out of our operations with less and getting things done more quickly and efficiently. Velocity also translates into continuously improving the value proposition for our customers through an unrelenting focus on innovation and lean.

We are progressing on our lean journey with our first Manitowoc Way summit held in June. As a result of this summit, we combined two production lines in our Shady Grove factory into one line. I am excited by the progress made by this operations team as they continue their journey. We're committed to reinvigorating the company culture through full implementation of The Manitowoc Way across the enterprise and several more training sessions have been scheduled for the coming months. You've started to see the progress in our operating margin, but there is still a lot more work to be done.

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

David J. Antoniuk - Senior Vice President & Chief Financial Officer

Thanks, Barry, and good morning everyone. Let's move to slide six. As Barry mentioned, we reported net sales for the second quarter of $457.7 million which decreased $20 million or 4.2% from a year ago, but importantly, increased $30.3 million or 7.1% sequentially. This sequential increase was primarily attributable to increased shipments of tower cranes and all-terrains. On a year-over-year basis, the decline was primarily attributable to lower truck-mounted and rough-terrain sales.

Crane backlog at quarter end was $394 million, a decrease of $108 million or 22% from the first quarter of 2016 and a decrease of 46% from the prior year period. For the second quarter, new orders totaled $349 million compared to $417 million in the first quarter of 2016 and $438 million in the second quarter of 2015. For the quarter, the book to bill was 0.8.

From an SG&A perspective, costs were $6.1 million lower year-over-year and slightly up over the first quarter of 2016. As a percentage of sales, SG&A was 16% compared to 16.6% in the prior year and 16.9% in the first quarter 2016. The year-over-year decline is primarily attributable to structural cost actions taken during the year. The increased spending over the first quarter is primarily due to costs incurred for the bauma show. Adjusted operating income in the second quarter 2016 was $14.8 million versus $15.4 million last year and $9.5 million in the first quarter of 2016. This resulted in second quarter margin on adjusted operating income of 3.2%, which was essentially flat with the prior year but was up 100 basis points sequentially.

On a year-over-year basis, we were able to deliver approximately the same earnings as the prior year on $20 million of lower sales. This improvement was primarily due to reductions in force and other operating efficiencies.

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

The second quarter 2016 loss was impacted by $8.8 million in cost associated with ongoing restructuring initiatives, which does not include any significant cost associated with the reduction of crawler manufacturing to Shady Grove, Pennsylvania announced yesterday.

With regard to the relocation of our crawler manufacturing, we expect to recognize cash outflows in the range of $35 million to $50 million in settlement of these expenses by the end of 2017. The total annualized savings as a result of these actions, when the project is completed, will be approximately $25 million to $30 million. In addition, we expect to recognize non-cash charges of approximately $105 million to $120 million in the second half of 2016. This charge will primarily relate to non-cash impairments of our SAP capitalized costs and fixed assets associated with the announced restructuring.

Net cash flow from operating activities in the second quarter of 2016 was a use of $16.4 million, which includes continuing and discontinued operations. This compares to a source of net cash from operating activities in the second quarter of 2015 of $55.5 million, which also included continuing and discontinued operations. We invested $13.8 million in capital, which was used primarily for operational improvements in our European manufacturing operations.

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

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

Thanks, David. Turning to slide eight to summarize. Despite the challenging market conditions we continue to face, we're very excited about the opportunities we have in front of us. As I stated earlier, we're going through a period of major structural change. We're taking decisive actions to improve our year-over-year operating margins by 150 to 200 basis points and the restructuring announced last evening is part of our strategic direction to reduce our manufacturing footprint and ultimately our cost structure.

We will continue to innovate to grow market share in towers and we will regain the market share on Mobiles. While market conditions continue to be difficult near-term, our long-term outlook remains unquestionably strong.

We remain committed to reaching our goal of double-digit operating margins. With our 150 to 200 basis points of improvement year-over-year, we're now expecting to be double digits by 2020, which can be remembered by 10 by 20. We are confident we will exit this downturn as a higher margin, more resilient company and we'll be in a great position for when end markets improve.

Our success would not be possible without the effort and commitment of our 5100 employees around the globe. I thank them for their strong dedication to ensure the success of Manitowoc in the future.

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

Question-and-Answer Session

Operator

Thank you. We'll take our first question from Jamie Cook with Credit Suisse.

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

Hi. Good morning. Can you hear me?

Barry L. Pennypacker - President, Chief Executive Officer & Director

Yes, we can. Good morning.

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

Thank you. I guess, first question, I think you mentioned in your prepared remarks that you saw a deterioration in the latter half of the second quarter, so if you could just provide any color in particular what markets, geographies? And then my second question, I guess, just relates to your ability to keep market share in a market that continues to be challenged. How are you balancing sort of pricing versus share? Thank you.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Yeah. Very good question. When we talked to you last quarter at our earnings release, our daily order rate was on pace for what we anticipated we needed in order to have flat revenue for the year. Unfortunately we exhibited a precipitous drop, starting mid-May that continued throughout the month of June. Order rates on a daily basis down over 30%. We couldn't see that coming. We reacted as fast as we possibly could, and I think we're in a position now where we're taking decisive actions to ensure that we can protect the long-term growth potential of the company.

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

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

And is there any assumption in your new top-line guide of down 10% to 12% in terms of market share? And, sorry, I'll get back in queue after that.

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker)

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

You're welcome.

Operator

We'll take our next question from Mike Shlisky with Seaport Global.

Michael David Shlisky - Seaport Global Securities LLC

Good morning, guys.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Good morning, Mike.

David J. Antoniuk - Senior Vice President & Chief Financial Officer

Good morning, Mike.

Michael David Shlisky - Seaport Global Securities LLC

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Michael David Shlisky - Seaport Global Securities LLC

Okay, great. I also want to make sure I understood some of the upfront cash cost for the shift to Shady Grove. The cash that you've mentioned you're going to be spending, is there any offset from any asset sales at Manitowoc's plants or is it going to be just actually having everything simply moved from one place to the other?

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Michael David Shlisky - Seaport Global Securities LLC

So it's a gross cash amount?

David J. Antoniuk - Senior Vice President & Chief Financial Officer

That is correct.

Michael David Shlisky - Seaport Global Securities LLC

CapEx and no net from anything you might sell?

David J. Antoniuk - Senior Vice President & Chief Financial Officer

That is correct. All right. Got it. Thanks guys. I'll hop back in the queue.

Operator

We'll take our next question from Jerry Revich with Goldman Sachs.

Unknown Speaker

Hey, guys. This is Ben Brud (20:52) on for Jerry Revich. Thanks for taking my question.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Oh, good morning, Ben.

Unknown Speaker

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

Yeah, we're not going to say how many facilities we need, but I will say that we still need upwards of a 20% footprint reduction post this restructuring in the U.S.

Unknown Speaker

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Unknown Speaker

Got it. Thank you.

Barry L. Pennypacker - President, Chief Executive Officer & Director

You're welcome.

Operator

Our next question comes from Stanley Elliott with Stifel.

Stanley Elliott - Stifel, Nicolaus & Co., Inc.

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

Very good question. Yes. We have the prototype developed, and the prototype is in fact being proven out at our product verification center in Shady Grove. However, the government, upon review of our technology decided that they wanted to add a substantial amount of armor to the crane. So that is what we're in the process of working with the government on. We believe that that's now going to be a first quarter of 2017 event and the good news out of that is that the order value will increase dramatically as a result of these changes.

Stanley Elliott - Stifel, Nicolaus & Co., Inc.

And you'd mentioned some products that you were going to delay on introducing because of you wanted to make sure the quality was right. Could you give us kind of a quick overview of what some of those products were?

Barry L. Pennypacker - President, Chief Executive Officer & Director

They are specifically RT, one RT in particular. We call it our GRT8100. We went to our customer base. We told them that we wanted them to come in and review with us some of the potential failure modes, which they graciously did. And as a result of those actions, we redesigned a number of portions of that crane, and I'm glad to say, I'm happy to say that the ones that we have shipped subsequent to the end of the quarter are out operating very effectively with great capacity, great charts, great comfort for the operator. And I think our customer base is realizing now what it means to have the new Manitowoc Way driving our behavior internally.

Stanley Elliott - Stifel, Nicolaus & Co., Inc.

Great, guys. Thanks. I'll hop back in queue.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Thank you.

Operator

We'll take our next question from Ann Duignan with JPMorgan.

Ann P. Duignan - JPMorgan Securities LLC

Hi. Good morning.

David J. Antoniuk - Senior Vice President & Chief Financial Officer

Good morning, Ann.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Good morning, Ann.

Ann P. Duignan - JPMorgan Securities LLC

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Ann P. Duignan - JPMorgan Securities LLC

And that was not – that accident or collapse didn't cause any customers to step back from orders? I think you said the orders started to slow in May, so the two are not related, is that correct?

Barry L. Pennypacker - President, Chief Executive Officer & Director

No related at all.

Ann P. Duignan - JPMorgan Securities LLC

Okay, great. And then my follow-up is just, are you seeing any cranes, particularly tower cranes moving from region-to-region? We're hearing about projects slowing down in the Middle East. Are there any cranes moving from the Middle East to Western Europe? Is there any risk to the 2017 outlook for tower cranes from weak areas moving equipment around to areas of strength?

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Ann P. Duignan - JPMorgan Securities LLC

And would you expect that to continue into 2017 or do you think that'll be forced to move?

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Ann P. Duignan - JPMorgan Securities LLC

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

You're welcome.

Operator

We'll take our next question from Robert Wertheimer with Barclays.

Robert Wertheimer - Barclays Capital, Inc.

Hi. Good morning.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Good morning, Rob.

Robert Wertheimer - Barclays Capital, Inc.

Just a quick question on price and materials. Do you expect, and I know you guys talk news as much flat fuel as some others, do you expect material cost inflation? And is the pricing environment looking like it might firm up to support that? And then second question if I may just ask you both at once is that the decline you saw in May ordering is that related to others discounting and you not keeping up? I mean is it privatization or do you attribute that to something else?

Barry L. Pennypacker - President, Chief Executive Officer & Director

The second part of your question I attribute to just general crane cycle. I've studied the cycle now over the course of the last 20 years, and if you really study it in detail, you can see some trends that make themselves evident. And we think we're heading toward that. One of the leading indicators as to what are going to happen to our OEM orders is the value of our cranes and others cranes in the aftermarket at the auctions. And I think it's no secret to anyone on this call that in the month of June, there was a substantial reduction in the market price of used cranes.

And that truly does reflect in the OEM demand, because people are now looking at the depreciation on a crane that they have on their books and comparing that to what they can get in the market. And I would tell you that the customers that I have talked to here in the last 60 days are really second-guessing and evaluating whether or not the traditional model of – you can use a Grove crane, for instance, for 7 to 8 years, put it out into the market and get an 80% residual value. Unfortunately, those economics in this demand-supply environment aren't working, so that's hurting our ability to have our customers pull the trigger on new equipment. And I'm sorry, I forgot the other part of your question.

Ion Warner - Vice President, Marketing and Investor Relations, The Manitowoc Company, Inc.

Price on materials. Material pricing.

Robert Wertheimer - Barclays Capital, Inc.

Yeah, I'm so sorry. Do you expect any material cost inflation in the steel, not real great but it is still going up? Do you expect a lot of price, cost pressure and is the pricing environment going to rise until it matches itself?

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Robert Wertheimer - Barclays Capital, Inc.

Thank you.

Operator

We'll take our next question from Mig Dobre with Robert Baird.

Mig Dobre - Robert W. Baird & Co., Inc. (Broker)

Yes, good morning, gentlemen. Just maybe a little clarification on guidance. I'm trying to understand, you're pretty clear on the revenue side. I'm wondering how you're thinking about book to bill or backlog in the back half of the year. And also related to guidance, margin progression, third versus fourth quarter, any seasonality to be aware of and cash flow generation really in the back half?

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

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

David J. Antoniuk - Senior Vice President & Chief Financial Officer

Yeah. So if we look at your question with regard to book to bill going forward, as we said, we ended at $394 million. We're probably going to be out of that backlog shipping about $240 million and so that will leave somewhere in the vicinity of $160 million in the backlog and then we tack on new orders less what we're going to ship. So I would say that our anticipated bookings over the remainder of the year are soft, and it will be a drag on our backlog which is probably the main indicator as to why we've lowered our guidance on the top-line from a revenue point of view.

Mig Dobre - Robert W. Baird & Co., Inc. (Broker)

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

David J. Antoniuk - Senior Vice President & Chief Financial Officer

Yep.

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Mig Dobre - Robert W. Baird & Co., Inc. (Broker)

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

David J. Antoniuk - Senior Vice President & Chief Financial Officer

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

Mig Dobre - Robert W. Baird & Co., Inc. (Broker)

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

David J. Antoniuk - Senior Vice President & Chief Financial Officer

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

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

Mig Dobre - Robert W. Baird & Co., Inc. (Broker)

Thank you.

Operator

We'll take our next question from Charley Brady with SunTrust Robinson Humphrey.

Charles Brady - SunTrust Robinson Humphrey, Inc.

Hey, thanks. Good morning, guys.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Good morning, Charley.

Charles Brady - SunTrust Robinson Humphrey, Inc.

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Charles Brady - SunTrust Robinson Humphrey, Inc.

Okay. Thanks. And can you just talk about, I guess a little on kind of what Mig was asking earlier about some of the margin expectations of maybe from a gross margin perspective in the second half of the year. First half, you've kind of run just over 19%. Do you expect much degradation on the growth side in the second half of the year?

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Charles Brady - SunTrust Robinson Humphrey, Inc.

Got you. Thanks.

Operator

We'll take our next question from Seth Weber with RBC Capital Markets.

Seth Weber - RBC Capital Markets LLC

Hey, good morning, everybody.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Morning, Seth.

David J. Antoniuk - Senior Vice President & Chief Financial Officer

Morning, Seth.

Seth Weber - RBC Capital Markets LLC

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

100%.

Seth Weber - RBC Capital Markets LLC

100% lower volume?

Barry L. Pennypacker - President, Chief Executive Officer & Director

Absolutely.

Seth Weber - RBC Capital Markets LLC

Okay. And then I guess in your presentation, you had a aligned aftermarket growth. Can you give us any more color around that? Is it rebuild activity? I mean it's a little bit, typically we would look for aftermarket growth as a leading indicator. I mean could you just talk about what you're seeing there? Is it regional? Is it product oriented or what do you think? I know you've been focusing on it, but is there something that you can – more color you can give us?

Barry L. Pennypacker - President, Chief Executive Officer & Director

Yeah. I can give you some more color on that. And I think a lot of the aftermarket growth that we're getting is a result of the need for more tower cranes. Our rebuild operations, our EnCORE operations in Europe for tower cranes are at peak level. So a lot of the aftermarket growth that we are seeing is in fact targeted at the tower crane market. We're holding our own and it's not degrading on the Mobile side and I expect that if there's any upside in our expectations for the second half of the year, seeing that the price of aftermarket or seeing that the pricing for cranes at auction is decreasing as much as it has, I suspect that we will see a potential increase in our aftermarket in Mobiles so that the cranes that are out there operating can continue to.

Seth Weber - RBC Capital Markets LLC

Sure. Okay. That's helpful. Thank you. And I just wanted to clarify some thing. The 150 to 200 basis margin improvement target is that how we should be thinking about 2017 or is that just more of a bigger picture framework that you're working towards?

Barry L. Pennypacker - President, Chief Executive Officer & Director

No, you should think about that for 2017, absolutely.

Seth Weber - RBC Capital Markets LLC

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Seth Weber - RBC Capital Markets LLC

And that's regardless of the top-line?

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Seth Weber - RBC Capital Markets LLC

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

You're welcome.

Operator

We will take our next question from Larry De Maria with William Blair.

Lawrence De Maria - William Blair & Co. LLC

Hi. Good morning.

Barry L. Pennypacker - President, Chief Executive Officer & Director

Good morning.

Lawrence De Maria - William Blair & Co. LLC

Hey, as it relates to towers, curious how do you think the cycle's going to play out in Western Europe? So where do we see fleet utilization now versus, say, last year? And do think there's enough building and projects to continue to drive towers up sustainably over the next couple of years or are we more in replacement mode for now for low level obviously?

Barry L. Pennypacker - President, Chief Executive Officer & Director

I think it's both, and quite frankly I think the market is up, but I think we definitely track share, and we can see our share up dramatically since the beginning of the year. And a lot of that has to do simply with the things I talked about in my prepared remarks where we've introduced a better mousetrap, and people are in fact recognizing that. We think that the trend that is in Western Europe we're not expecting any dramatic change, and so the tower growth that we have I think is really some of it is market, but I would say the lion share of that is in fact technology helping our customers do their jobs better.

Lawrence De Maria - William Blair & Co. LLC

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

I think it's probably close to 80%.

Lawrence De Maria - William Blair & Co. LLC

About 80%, which will be up relatively significantly year-over-year?

Barry L. Pennypacker - President, Chief Executive Officer & Director

Yes.

Lawrence De Maria - William Blair & Co. LLC

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

Barry L. Pennypacker - President, Chief Executive Officer & Director

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

Lawrence De Maria - William Blair & Co. LLC

Okay. Thanks very much.

Barry L. Pennypacker - President, Chief Executive Officer & Director

You're welcome.

Operator

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

Ion Warner - Vice President, Marketing and Investor Relations, The Manitowoc Company, Inc.

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

Operator

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

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