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Executives

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

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

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

Eric P. Etchart - Senior Vice President, President of Manitowoc Crane Group and General Manager of Manitowoc Crane

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

Analysts

Andy Kaplowitz - Barclays Capital, Research Division

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

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

Robert Wertheimer - Vertical Research Partners Inc.

Jerry Revich - Goldman Sachs Group Inc., Research Division

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Henry Kirn - UBS Investment Bank, Research Division

Joel G. Tiss - The Buckingham Research Group Incorporated

Seth Weber - RBC Capital Markets, LLC, Research Division

Vance Edelson - Morgan Stanley, Research Division

The Manitowoc (MTW) Q1 2012 Earnings Call May 4, 2012 10:00 AM ET

Operator

Good day, everyone. And welcome to this Manitowoc Company Inc. First Quarter 2012 Earnings Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Khail. Please go ahead, sir.

Steven C. 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; and Carl Laurino, Senior Vice President and Chief Financial Officer. 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. Following our prepared remarks, we will be joined by Eric Etchart, President of Manitowoc Cranes; and 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For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning.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 May 4, 2012. 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 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 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 E. Tellock

Thanks, Steve. And good morning, everyone. During the first quarter, we saw positive year-over-year sales growth in both Cranes and Foodservice. Our performance creates a strong foundation for Manitowoc going forward, as both segments combined to deliver 18% top line growth and 150 basis point improvement in operating margins.

In one of the typically and seasonally soft quarters, the first quarter sales momentum and margin expansion underscore the improving operating environment in several of our end markets, the strength of our product offerings and the results from a variety of ongoing lean process improvement initiatives to streamline our business and improve our operational efficiency. Both market-leading businesses have worked diligently to leverage their competitive advantages and continue to benefit from the significant investments we have made to upgrade and rationalize our global manufacturing network focused on process improvements and drive continuous product innovation.

Turning to our segment performance, momentum in Foodservice continued with solid first quarter results as newer product successes and solid demand in select end markets drove our eighth consecutive year-over-year quarterly sales increase. Looking at our Foodservice products across the globe, the Refrigeration Solutions business, which includes our award-winning Indigo ice machines, was the strongest-performing product category during the quarter.

Our relationships with global and regional chain customers are continuing to drive sales growth in both mature and emerging markets. And our beverage category, notably the Carbonated Dispense business, is beginning to benefit from increased activity across the industry.

From a geographic perspective, we saw increased activity in North America during the first quarter, with strength from many of our market-leading brands. Europe, historically one of the toughest markets in Foodservice, grew substantially during the quarter, primarily driven by our Merrychef and Convotherm ovens business. In the Asia-Pacific region, we have seen a slowdown in the hotel sector in China, which somewhat muted our performance during the quarter. However, we continue to participate in growth from restaurant chains in this region, and our outlook for China remains positive. We will continue to deploy resources into China and other emerging markets as our customers seek international growth, primarily through new store expansion as well as new menu initiatives.

In addition, we recently opened a new test kitchen in India, which complements our similar set facilities in Singapore, Shanghai and Guangzhou to support our customers' growth strategy in these key emerging markets.

Our introduction of new technologies in Foodservice equipment recently resulted in 3 of our newest products receiving the NRA, National Restaurant Association's, 2012 Kitchen Innovation Award. This award, which recognizes cutting-edge kitchen equipment in the foodservice industry, was given to: one, Frymaster's new Large Vat Fryers designed to maintain high-production capability, while also using significantly less oil and reducing energy consumption; second, Garland's induction grill that enables real-time temperature sensing and a unique power management system; and third, Merrychef's Planar Plume Technology, which delivers quicker heat transfer, less microwave destruction, enhances reliability and increases energy efficiency.

Manitowoc Foodservice brands have captured more than twice as many Kitchen Innovation Awards as any competitor in the industry. In addition, we were recently recognized by McDonald's for the sustainability performance of our Indigo ice machines and our unique Blend-in-Cup product offerings, which are 2 excellent examples of our market-leading innovation in Foodservice.

We believe we are solidly positioned as a trusted and valued partner in the foodservice industry, particularly as we assist customers to improve their profitability at existing and new locations around the globe.

Moving on to our Crane segment, the first quarter results reflect another quarter of strong order intake levels and also marks our highest backlog level since before the recession. Our performance was driven by robust demand in the Americas region, as well as increasing activity in select emerging markets and the greater Asia-Pacific regions.

Improving landscape continues to be primarily driven by energy and infrastructure projects across these regions, and we expect this trend to continue for the remainder of 2012 on increased confidence levels. Within Europe and China, the sluggish demand environment continued compared to the other geographies.

From a product line perspective, large rough-terrain cranes, all-terrain cranes and boom trucks led our improved first quarter performance. Tower crane activity was brisk in most of the emerging markets and parts of the greater Asia-Pacific region, but this product line experienced some softness in the Middle East, coupled with ongoing weakness in Europe. And as the case with the previous quarter, Tower crane activity remains soft across all our geographic segments.

Overall, we are very pleased with our Crane segment performance in the first quarter. The recent architectural billing index for March of 50.4% marks the fifth consecutive month this index surpassed the 50% threshold, which is a positive indicator for the North American construction markets, providing us with increased confidence that our sound strategic focus through all stages of the economic cycle will continue to drive performance and profitability for our Crane business.

Moving on, let me now highlight some key strategic initiatives that have begun to bear fruit and will help drive growth for the foreseeable future in the Crane segment. First, many of you already know about our new manufacturing facility in Brazil to support the energy and infrastructure opportunities in Latin America. As we highlighted in yesterday's press release, I am pleased to announced the factory's recent opening, which began manufacturing in April, with its first deliveries expected in midyear. The Passo Fundo facility gives us a competitive advantage as the first global crane manufacturer to produce rough-terrain cranes in this part of the world.

Second, we started to benefit from several innovative crane products we introduced in 2011, as these products demonstrate our continued focus on quality, reliability and technology. For example, the Grove RT9150 is the world's largest rough-terrain crane and has become the category leader for construction and maintenance applications in the energy and infrastructure end markets; the National NBT 55 has gained similar recognition and acceptance in oilfield service applications, particularly natural gas and frac-ing because of its reach, capacity and routability capabilities; while the Grove GMK6300L has carved a strong niche in the heavy construction and crane rental industry, thanks to its 300-pound capacity, long-range boom and job site versatility. These new products are a testament to Manitowoc's market-leading innovation that continues to be a competitive advantage in the marketplace, and we plan on announcing additional new products as 2012 progresses.

And third, our ERP initiative remains a key focus in Cranes and represents one of the largest capital projects we have undertaken. More recently, a team of seasoned individuals launched SAP [ph] in Brazil in April and will launch implementations for our Cranes facilities in France and our global Crane Care operations later this year.

In conclusion, we continue to make solid progress on our strategic imperative during the first quarter, which helps position Manitowoc for sustainable long-term growth. Looking ahead, we will remain focused on the strategies that have contributed to our success. Through this robust strategy and our specific focus on EVA, Manitowoc continues to emerge as a stronger and more efficient company that delivers increasing value through our innovative products, unmatched aftermarket support, operational excellence imperatives and our dedicated workforce.

Now I'll turn the call over the Carl to discuss our detailed first quarter financial results. Carl?

Carl J. Laurino

Thanks, Glen. And good morning, everyone. We reported net sales for the first quarter of $860 million, which is an increase of over $127 million or 18% from the first quarter of 2011. The year-over-year increase in net sales during the quarter was driven primarily by a 29% increase in Crane segment sales, coupled with a 4% increase in Foodservice.

First quarter 2011 consolidated operating margin before amortization was 6.7% versus 5.4% in the first quarter of 2011. The year-over-year margin increase resulted from favorable product volume, manufacturing efficiencies and certain price increases, which were partially offset by material cost pressures.

GAAP net income for the first quarter was $100,000 or breakeven on a per share basis, versus a net loss of $52 million or $0.40 per share in the first quarter of 2011. First quarter 2012 EPS, excluding special items, was $0.01 per share versus a loss of $0.10 per share for the prior year quarter.

First quarter 2012 earnings were muted by the extremely high effective tax rate, which occurred due to a combination of low seasonal earnings and nondeductible losses in certain countries. We expect the full year 2012 effective tax rate to be in the high 30% range.

During the first quarter, cash flow used for operations was $130 million versus $154 million in the prior year quarter, driven mostly by the seasonal increases in accounts receivable and inventory. For the remainder of 2012, we remain focused on meeting our cash flow targets as we continue to prioritize debt repayment, while also funding our growth and process improvement opportunities.

EVA improved in the first quarter of 2012 by 27% versus the first quarter of 2011. Based on our latest projections, the Crane segment is on pace to return to positive EVA generation this year for the first time since the second quarter of 2009, while Foodservice is expected to improve its full year EVA by 35%.

Moving to the balance sheet, we remain on target to deliver $150 million to $200 million in full year debt reduction. We continue to manage working capital to ensure we maintain an appropriate balance between our ability to meet growing customer demand and our debt reduction goals.

Turning to our segment results, Foodservice sales in the first quarter of 2012 totaled $352 million, a 4% increase from a year ago. First quarter 2012 operating earnings in Foodservice were $51 million, up 24% from $41 million in the same quarter last year. Operating margins of 14.6% were 240 basis points higher than first quarter 2011, driven by higher sales volumes, improved operating efficiencies, certain price increases, product mix benefits and a $2 million income benefit due to a favorable resolution of a pension matter.

Moving to the Crane segment, first quarter sales totaled $508 million, up 29% from $393 million in the first quarter of 2011. First quarter results were favorably impacted by a strong year-end backlog and sustained strength in orders resulting from continued growth in the Americas region and solid levels of demand in most emerging markets.

As a reminder, we announced back in December that our quality assurance program identified an issue with a specific hydraulic component, which in turn delayed the shipment of some cranes until the first quarter. That matter has now been fully resolved.

Overall, Crane segment operating earnings in the first quarter were $23 million versus $12 million in the same quarter last year. This resulted in first quarter Crane segment operating margins of 4.4%, up 120 basis points from the first quarter 2011 margins. The year-over-year comparison was positively impacted by the higher sales volume and price increases, partially offset by commodity costs and product sales mix.

Crane backlog at quarter end was $931 million, which grew $131 million or 16% compared to a year ago. On a sequential basis, our Crane backlog was up an impressive 22% from year end, marking the highest level for this metric since before the recession and representing a book-to-bill ratio of 1.3x.

For the first quarter, new orders totaled $675 million. This is particularly noteworthy given that there wasn't a major trade show spurring order activity during the quarter, as we enjoyed last year at ConExpo. And as a reminder, crane order intake is typically seasonally stronger in the fourth and first quarters.

Before concluding my remarks, let me discuss our 2012 outlook. As noted in yesterday's press release, we are reaffirming our guidance for 2012. For the full year, we expect Foodservice revenues will grow in the high single-digit percentage range, and year-over-year operating earnings will increase by 10% to 15%.

In Cranes, we expect a 10% to 15% year-over-year revenue growth. We anticipate a benefit from our dealer network in North America in the first half of the year as they prepare for end-market recovery as the year progresses. As a result, our full year Crane operating earnings are anticipated to grow 30% to 40% over the prior year, while also exhibiting more normal seasonal characteristics.

Other 2012 financial expectations include: capital expenditures of approximately $80 million; depreciation and amortization of approximately $120 million; and interest expense reduction of $25 million to $30 million versus last year; plus a debt reduction target range of $150 million to $200 million, which when combined with our earnings improvement, should reduce our debt-to-EBITDA by more than one turn.

With that, I'll turn the call to Glen for his closing comments. Glen?

Glen E. Tellock

Thanks, Carl. To conclude, the performance from both of our segments created a solid start to 2012. While we are mindful that uneven demand levels exist within our businesses, our results from the first quarter, coupled with improving activity across our end markets, reaffirms our confidence in our full year 2012 outlook despite a slower growth scenario in China and continuing softness in much of Europe.

The core tenets of our strategy: superior products and aftermarket support, capitalizing on global growth opportunities and driving operational efficiencies, continue to differentiate us in the marketplace and solidify our position as a leading manufacturer of cranes and foodservice equipment.

This concludes our prepared remarks for today. Dana, we will now begin our question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Andy Kaplowitz with Barclays.

Andy Kaplowitz - Barclays Capital, Research Division

Glen and Carl, could you help us with the cost side of the equation in 1Q in Cranes? What I'm wondering is, you're starting up this Brazilian factory, you've got -- you had the strike end in mid-January and price cost has been an issue for you. I would assume all these things obviously improved, but how much of a drag were they in 1Q, if at all?

Glen E. Tellock

Go ahead, Carl.

Carl J. Laurino

Yes, definitely a drag, Andy. That's essentially in line with what we had said in the fourth quarter call. I think we indicated that we would have somewhere in the mid-teen millions of dollars of total headwind from a cost standpoint from ERP from the Brazilian facility. And we did indicate that we would see the same from a cost-price standpoint, that we would see some overhang this quarter. We actually were able to have a beneficial price cost in the quarter in total, but obviously, it was muted. And we indicated full year that we would see about a 50 basis point price cost benefit to the operating earnings line. That will be more pronounced in the second, third and fourth quarter than obviously -- it was pretty modest in the first quarter.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, that's helpful, guys. If I focus on crane orders for a second, obviously, a very good result in 1Q. What's your visibility for continued book-to-bill over one for the rest of the year? And then you've been in this range sort of since the end of 2010 of between $500 million and $675 million. I know you're not going to want to tell me that you're going to book what you did in late '06 and 2008. But is there a chance that we could break out of this range if we continue to get improving confidence from customers?

Glen E. Tellock

Well, I think, the first thing I would say to that, Andy, is keep in mind, as Carl said in his prepared remarks, that the fourth quarter and the first quarter are typically the best when it comes to the order rates. Where the confidence lies further, I'm going to let Eric give you some of that.

Eric P. Etchart

Well there's some of the greater improved confidence within the dealer channel in North America. And we've seen also the rental houses being ready to upgrade their fleet and signed to upgrade their fleets, so that reflects an increase of overconfidence. Beyond there, they continue to be very stronger and brisk in the emerging markets, most of them. Brazil continues to be very strong. India has been a little bit lumpy, but continues to be strong. And the greater Asia-Pacific is obviously a very good region for us, including Australia where large projects are driving demands and consequently orders. So there is a good level of confidence. However, Europe is very challenging, as we said on the call. And this is particularly affecting our entire crane business where we are typically very, very strong. So it's kind of a mixed bag. There is a much better and improved confidence overall, given the weight of the Americas business in our overall footprint and portfolio. Does it help?

Operator

We'll go next to Charlie Brady with BMO Capital Markets.

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

With respect to the Crane business, did the shipment delay -- those that went out this quarter, did that have any impact on the Crane margin this quarter, or is it all just last quarter?

Carl J. Laurino

I don't think there was much of an impact from that specific item per se. But overall, I think the biggest issue, seasonally, for us, obviously, other than the volume in the first quarter, all things equal, tends to be seasonally lower from a top line standpoint, so the absorption and the effect on margin in the first quarter is typically an issue for us. And then I mentioned the price cost, which is -- was modestly beneficial in the first quarter, and we expect it to be better in the last 3 quarters of the year.

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

Right. And are there -- I guess I'm going to move to the Foodservice side, are there additional price increases anticipated this year?

Glen E. Tellock

Well, I think when you look at some of the things we've chatted about in the past, Charlie, we've -- I think we've been very aggressive in leading and in price in many of our product lines. And I think if you remember last year, Mike said in one call, anywhere from like 0% to 10% it was product line specific. So again, what we would say is, I mean, there's always that -- you look at the product by category but you also have to be competitive. So I think there's certainly always opportunity, but we have to be mindful of what we have. But I would say, overall for the year, there's going to be benefit from the price increases that we had that will outpace what we believe some of the cost increases for the year. So, Mike, I don't know if you have any further...

Mike Kachmer

I would just take off on those comments. We have realized the benefit for the carryover effective price increases realized last year. We have implemented select price increases in the first quarter at certain key accounts and certain product lines. And every month, we are reassessing the commodity trends to determine whether or not we should be pursuing additional price increases.

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

All right. I just have one question, I guess, really for Eric. I mean, what do you think -- on the crawler side, what does it take to get the crawler demand really kind of going back again? Do we need an improvement just in Europe, broadly speaking? Or what's going to drive that pickup? And when do you think that might happen?

Eric P. Etchart

Well, typically, crawler cranes always lag the other -- the recovery of the other product lines, as you know. Europe is not particularly impacting us because that's not a market where we have been traditionally very strong. But it's true that, overall, we don't see a lot of demand for new cranes coming to us. However, we see more activity within the rental houses and the utilizations on large crawlers is getting much better. But that doesn't translate yet into really many purchases for new cranes, especially in the large category. And there isn't -- if you take the wind business for example, you have pockets of winds which are very good in North America. We probably would be back to the 2008 and '09 level. However, because of the uncertainty about the subsidy at the end of the year, people are not ready to commit to larger cranes. So it might take a while before we could see a really -- a stronger demand for crawlers, but I think 2013 should be much better in that respect.

Operator

We'll go next to Rob McCarthy with Robert W. Baird.

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

This is Mig Dobre for Rob McCarthy. I had a quick question on the recently announced defense contract for Grove, as we read it, a $327 million, 5-year deal. And I guess I'm wondering how should we expect to start seeing this contract impact revenues and backlog and so on? Is this evenly distributed or is there any lumpiness? What are your expectations at this point?

Glen E. Tellock

Yes, I think, Mig, you're referencing a announcement that came out of the Department of Defense. And what that is, you have to be approved to be able to bid on equipment that from the Department of Defense says, "Hey, here's what I need," and you have to be an approved supplier. But it just means that we have been approved to bid on that equipment. And in all honesty, there's a couple other competitors that we would expect would also be approved to bid on that equipment. So really, what it is, it's saying here is the pile of money that we've set aside and there'll be a few of us that get a chance to bid on it as it comes about it. It doesn't mean that it's all or nothing. It just means that they -- if they have 5 or 10 cranes at that time, we bid on it, the others bid on it. And so it's really -- it's not anything we got specifically at Manitowoc. It's just that I'm saying they've approved us, and we would expect some others to get approved under that program also.

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

I see. Then a little -- perhaps a little more color as far as the impact of ConExpo from last year on the comp. I guess I'm wondering is there any way you can sort of provide us with an apples-to-apples adjusted for that event as to what the order growth in Crane would have been in the quarter? I don't even know if we can sort of separate that event out.

Carl J. Laurino

We haven't disclosed specifically what the actual orders placed at the show were. But it is a show where -- as you know, a tri-annual trade show. And when the end-market conditions warrant, there's some pretty significant order activity, so it's definitely meaningful. Eric, I don't think there's a big issue, if you want to -- if you have a number you want to throw out there.

Eric P. Etchart

No, I don't have any further comment on this.

Carl J. Laurino

But it is -- I think it's notable that we were able to sustain the same relative order level without having that type of a strong order show.

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

So let's put it this way. Is it fair to characterize the environment as having perhaps accelerated from the prior quarter on a net basis, considering this performance here?

Carl J. Laurino

That is fair.

Operator

We'll go next to Rob Wertheimer with Vertical Research Partners.

Robert Wertheimer - Vertical Research Partners Inc.

I really just had one sort of big-picture question. Your crane orders have been very solid and -- well, actually, maybe 2. One is, we can't really tell within it if you're gaining share or if there's geographic and product mix that just make it hard, and I don't know whether you have a view on whether the innovation and service just paid off in share gains this down cycle. And second is just whether you can get back to double-digit profit if you sort of keep at this recovered but not incredibly robust order level for a while. I mean, you've done better profit levels at similar revenue levels, so I just wanted to see if you see a continued up-trend or you really need new orders to get the profit back.

Glen E. Tellock

Well, Rob, I would generally say to your comments -- and I'll let Eric talk about specifics. Yes, when you look at the market shares around the world, I think we certainly feel very comfortable with the positions that we have are gaining in some specific areas of the world and others, you try to maintain. But I would say, what I do appreciate out of the group this year is that the discipline that they've taken on focusing on margins and the price increases. I think, as the business benefits, you can see some of the other competitors in our industry as they've announced their earnings, certainly, much lower than Manitowoc's. So I think you pick and choose your battles there. When it comes to where we can get long term, and we've said publicly that it doesn't even have to be the peak of the cycle, but we can get back to the mid-teens. And I think it's a lot of the improvements that are being made -- or the investments that we even made in 2007, 2008 when it comes to machining centers, when it comes to the lean improvements and that type of thing. So we like the direction where we're headed with the margins. I wouldn't get all excited about the first quarter. I mean, it's typically one of the slower quarters, and the second and third are typically the top 2 quarters of the year for us. So I like the direction we're headed there. Eric, if you want to talk about certain market shares in certain geographies, feel free.

Eric P. Etchart

Yes, Rob, I think definitely in the Americas regions, we continue to have very strong market share, and thanks, I think, for the first-class distribution network that we have in North America. And also the regained confidence in the order intake that we have seen. For example, the midsized distribution that we have in North America has quite the largest order ever, even before we go back before the financial crisis. So that give you a little bit of flavor on that confidence level. But also in Latin America, traditionally, and still very, very strong for us. Again, our Grove and Potain and Manitowoc product lines have a very strong market share traditionally. And I would say that the new products that we launched in 2011 and we're going to launch this year, give me a lot of confidence that we should see that continuing trend. This being said on the pricing side, what I can tell you is that we are very diligent, and we walk away from deals that we believe doesn't add value to our shareholders and to our backlog. So we continue to have a lot of pricing discipline throughout the whole regions.

Operator

We'll go next to Jerry Revich with Goldman Sachs.

Jerry Revich - Goldman Sachs Group Inc., Research Division

Can you quantify for us the impact of improved operating efficiencies versus mix in the quarter, and just talk about how you see mix shaping up over the next couple of quarters based on the backlog?

Carl J. Laurino

I had to take the -- I did reference that one particular issue that was a little bit of a windfall for the quarter when everything else on the operational side was obviously very strong performance, as you would normalize for that benefit. From a mix versus manufacturing efficiency standpoint, maybe the majority on the mix side. Well, pretty significant contributions on both fronts.

Jerry Revich - Goldman Sachs Group Inc., Research Division

And Carl, the mix over next couple of quarters based on the backlog?

Carl J. Laurino

Are you talking about Cranes now?

Jerry Revich - Goldman Sachs Group Inc., Research Division

No, still on Foodservice. So you have positive mix this quarter. Does that continue?

Carl J. Laurino

Yes. We would expect to see -- I think the real strength that has been driving that for us is the success that we've had with the new generation ice machine that we introduced last year. That's the biggest component of that. It's not necessarily expected to change.

Jerry Revich - Goldman Sachs Group Inc., Research Division

Okay. And on the Crane side, Eric, can you talk about what was -- whether the order growth was stronger in North or South America, in the North America market specifically? Have you seen any impact of slower gas drilling activity on rough-terrain crane inquiries and what are the areas that you're monitoring there?

Eric P. Etchart

Well, we've seen a very strong order rates in both North America and Latin America. In North America, what's encouraging is we -- our dealers are, obviously, preparing for probably more activity again. So they are ordering. But what's interesting to see, their inventory level is still, I would say, I would qualify in the low tide despite the fact that we ship cranes to them. So it's a result of gains on some direct size [ph] and the retaining activity, but it's also the result that the demand for the rental is pretty strong right now, and they are now rebuilding also their own rental fleets. So that's really drove the demands. We've seen a strong demand for rough-terrain cranes, especially the large ones. And we saw also very strong demand for truck cranes in North America, especially year-over-year. And our all-terrain cranes demand throughout, I would say, the Americas is fairly strong. So we've clearly no inventory in the channel. This is driven by various infrastructure projects in the oil and the rigs and various maintenance projects. You have a different feature basically, of course, getting in the different regions in North America or Latin America. But that's what really driving -- plus boom truck activity, especially for the large ones, which remain very strong. And this is utilities, and this is the old patch, I mean, the same driver that we gave you in the previous conference calls.

Jerry Revich - Goldman Sachs Group Inc., Research Division

Okay. So no change in demand from oil patch as of yet, either in inquiries or in bookings in the second quarter?

Eric P. Etchart

No.

Operator

We'll go next to Ted Grace with Susquehanna.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

So I was hoping to focus on Foodservices. And the first question, I was hoping to run by Mike, is on the outlook. And if we were to look at the capital spending guidance by U.S. restaurants, and it doesn't matter if it's QSR, fast-casual or casual, they've all actually done really well in the last few months, or actually up meaningfully, call it on a sequential incremental basis, and yet your guidance is unchanged. And so I'm just curious if you could speak to kind of the sentiment you're seeing out of your clients, and your sentiment within the range of the revenue guidance on your business in particular, is the first question.

Mike Kachmer

Okay. Well, Ted, I would say that it's important to think about it in pieces around the world. And I would start with the Americas, which, for us, is primarily North America. We do see increased confidence and increased capital spend, most notably in the chain category. We don't see the same strengthening occurring in the institutional segment of our business, which would be areas like schools and municipalities and so forth. So we do see that strengthening. There's a bit of a lag between what they forecast and when the spending actually occurs. But the Americas are okay. Europe, we see tough forces. It remains a difficult market for us, much like Eric described for Cranes. And in Asia, as was noted earlier by Glen, there was a softening of the market the past 8 to 12 months, particularly in the hotel sector that ends up being a leading segment for us. But that's starting to recover as well. So overall, positive trends, challenges in Europe, the restaurant segment and chain segment in North America strengthening.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

But just if we could tie it back to kind of the guidance for your business on a sequential basis, just comparing to how the world felt in January, could you just give us some framework for how to think about, in particular the U.S., given how important that is from a geographic mix standpoint?

Mike Kachmer

Yes, we've incorporated that into a blended forecast, the guidance that we've provided with the recognition of some offsets in other regions.

Glen E. Tellock

I think some of it, as Carl just got done explaining, some of it is mix, some of it is what's the product that is, in fact, you're getting the capital expenditure from, some of the chains or the people that are looking at it. But the one thing I would say that we have noticed and I think if you read some of the forecast in different places around North America, there was probably some concern about what happens when you hear in the midsummer what the price of gas is going to be and that kind of thing. Things you read recently is, is people are putting that into -- are putting into play, that it really hasn't changed some of the forecast and mentality. And I think that's still yet to come. But I think to Mike's point, it's all blended in, whether it's North America but across Europe and across Asia. So I mean, you have to take it as a whole.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Absolutely understood. And then the second part, I was hoping to run through this again with Mike. And, Mike, you've talked to some degree about the reorganization plans you have in your business and the potential to meaningfully kind of strip costs out over the next 2 years. Just wondering, relative to the last update we had, the call 3 months ago, where that process stands, how you're feeling about it, and what kind of goals we might still expect?

Mike Kachmer

Well, I'm going to break it into 2 pieces, Ted. And the first is, a major part of the reorganization has been focused on further segmenting and subdividing our international marketplaces. So instead of having one big impact region managed by one management team, we've actually divided that one up into 3 subregions. In so doing, we've actually added cost. We've added sales resources, we've added service resources and we're adding product experts in those markets as a prelude to the growth that we think that's going to be substantial. So -- and we're seeing great focus as a result of that. So we're highly confident that those changes are going to drive quicker growth, but with cost adds to start with. On the flip side, we've always communicated that our pursuit of scale economies is very significant. And whether it's the consolidation of some of our operating companies or the consolidation of some of our factories, we believe that, that remains an enormous margin opportunity -- margin expansion opportunity moving forward. And it's a continuum for us. So again, our view's the same. The momentum continues to build. And we're sticking to those 3 key elements of our strategy.

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

And just as a reminder, order of magnitude, cost savings over multiyear, I think publicly you said $40 million to $50 million?

Glen E. Tellock

No, I don't think -- one thing that we have stated without putting a specific timeframe on it is that we think we can get the targeted margins for -- up into the high teens level.

Operator

We'll go next to Henry Kirn with UBS.

Henry Kirn - UBS Investment Bank, Research Division

Could you talk about how much impact the Americas Crane dealer inventory rebuild would have on the year?

Glen E. Tellock

I think that's a tough question to answer, Henry, because of the -- taking in the parts that Eric mentioned, we watch the inventory levels that the dealers have. And as he said, it's still at a pretty low tide as you look at the confidence that they have in the markets. So there's still a fine line between when the dealers are ordering and when they need the equipment. And so there's -- what you see is as the utilization's going up, a lot of the equipment that went out of this region during the downturn, and so some of it is replacement. But as we watch the inventory levels, it's also going out to the end users. So the impact, I mean, if you wanted to say it's going to get to the levels it did in 2008, that could be substantial. But I don't think the dealers want to get to those levels because I don't think we forecast commercial construction or residential construction could get back to those levels until, I mean, shoot, 2015, 2016. So it could have a great impact but I wouldn't forecast it because I -- we just don't see that happening. And we have dealer counsels, we get together, we talk about where we think the markets are at. So I mean, yes, while it can have a great impact to get back to those levels, I mean, I think our guidance that we have for Crane revenues takes all of that into account.

Henry Kirn - UBS Investment Bank, Research Division

That's fair. And as you look at it, is there a risk of losing market share because your dealers aren't willing to step up and take enough inventory?

Glen E. Tellock

No, I mean -- no, Eric, let's go to what his other comment. We have a dealer, that he's a very good dealer, put in a substantial stocking order based on his confidence on what he sees over the next 12 to 18 months. So, I -- and plus the fact of the matter is the inventory we have out there, we share not only Manitowoc's inventory, but the dealer inventory around the globe, from a parts perspective, I mean, things that we can trade off out of other dealer's inventory. Our dealer network is very highly sought after, and that's one of our strategic benefits. So it -- that doesn't cause us a problem at all.

Operator

And we'll go next to Joel Tiss with Buckingham Research Group.

Joel G. Tiss - The Buckingham Research Group Incorporated

Just 2 things. One, I wonder if you can talk a little bit about the value of what's in backlog. Is that going to help the mix a little bit more as we go through the year? And you didn't say anything about mining. I think that's been an area that's been driving the Crane business for the last couple of quarters. You didn't mention it. I don't know if you just omitted it or if there's some change there.

Glen E. Tellock

Well, I'll let Eric speak to the backlog, and what's in there for Carl. But when we -- I guess, not saying it's specifically doable, you get into the mining, yes, let's go to South America, whether it's Chile or whether it's Brazil. That is driving a lot of business. There's a big -- there was a trade show in Chile, the Expomin, which very, very well attended. This coming up at the end of May is M&T Expo in Brazil. That will -- I mean, that will show the strength of the mining business. You get into Australia, continues to be very strong. So, yes, okay, probably shame on us for not making more of a deal about it. But the mining business is still very good when you look at that. Eric, you want to talk about the backlog? I mean, obviously, some of the new products we have is some of the bigger products. We've -- taking away other product and improve -- in terms of getting to improve margins with the newer product as we roll it out. But I mean, if you want to speak specifically to it.

Eric P. Etchart

I think if you look at the backlog quarter-over-quarter -- comparing to year-over-year, sorry, of course, we -- I think, we have a much better backlog probably with the exceptions of towers, that again, we don't see a rebound in Europe in the very short term. But overall, I think we have a healthy backlog, well positioned with the expected pricing that we were shooting for. So again, I think it's a good indication. I don't know if you need a more color of it.

Carl J. Laurino

I guess, just one comment, Joel, from Carl here. The towers and the crawlers are obviously areas where we're still seeing the weakness. On the crawlers side, that's nothing unusual. From a cycle standpoint, Eric made a comment that they lag the rest of the product lines typically, and this cycle seems to be no exception to that. But at some point in time, we would expect -- probably expect that to come back. If it's the normal type of lag, probably late this year. In the towers side, I think it's more of a structural issue, that all things equal, if you look at it cycle-over-cycle, would be a negative when you look at those -- the margin performance of the business overall, the mix that you get out of the towers is probably not going to be a big contributor until you see that non-res and residential construction come back a little bit stronger than our outlook.

Eric P. Etchart

It's probably good to say -- to give you more color maybe on the tower crane activity. I mean, in the emerging markets, the tower crane activity has been very brisk. I mean, we see a lot of demand for big towers in Singapore supported by the HDB, the housing program. Hong Kong is fairly rebounding. So the greater Asia-Pacific region is very strong. India, as you know, we have our own plant there. And we keep growing in terms of both market share and capacity there. And Latin America demand is very good. I would say that the Middle East -- we didn't speak a lot about the Middle East, but Middle East had slowdown for towers as well. Saudi Arabia, we've got very fairly large contracts in the last 2 years with our cranes for a megaproject that we don't see happening. So really the activity for towers has not been as good as it has obviously been. But really, the issue for towers -- and that's reflected in the backlog, but also in the factory that serve those markets, I mean, our Chinese factory, of course, sort of the Chinese market but also a lot of the emerging markets. And there, these factories are very busy. Now the European factories, of course, we serve the traditional European markets, are the ones that suffers.

Joel G. Tiss - The Buckingham Research Group Incorporated

Okay. Well, great. And just a quick for Mike. It seems we've never really had a downturn in foodservice equipment, like a sort of a cyclical downturn in a long time. Can you just give us a sense of pent-up demand? I don't mean next quarter, but over the next couple of years, doesn't it seem like there ought to be more of an explosion in earnings, and maybe is it confidence that's holding that back? Or where are we in the cycle, basically?

Glen E. Tellock

I think first off, Joel, I mean you've seen some of the charts that we put out before in our investor presentation that goes across North America on the businesses. And 2009 was a pretty substantial hit to the foodservice industry. I mean, probably a hit that it hadn't seen in -- well, for many people ever. So and then that started the first trend of -- actually, it was 3 years in a row that the North America restaurant equipment sales was down 3 years in a row. It never -- it's unprecedented. So your point is well made. But again, it's a matter of -- as you see us talk about, over 1/2 of our business in the Foodservice side is replacement business. So you have the existing facilities, you have in the mature markets a good install base, so we do get that benefit. I think what Michael probably talked about is that there's going to be the explosion, it's going to be the capital expenditures in the emerging markets. And where he said, you can tell just by where we're putting in costs and he's building a presence in some of these areas, that's where you have the explosion. So, Mike?

Mike Kachmer

Right. And I think that percentage of gains that we see from a revenue standpoint over the last couple of years is far larger in these emerging markets. But as we all know, it's off of a much smaller base today. So as we build that, those higher growth rates are going to have a bigger impact on our overall business. With the Americas being roughly 70% of our business, even a mid single-digit growth rate has a bigger impact on our overall growth and the earnings associated with it. And with regard to your question around explosive growth on the earnings side, we've done a whole lot so far since the business was submerged, but there's certainly more in front of us. And it's occurring on all those fronts that I touched on earlier. It will be around innovation, it will be around the growth by investing in these emerging markets, it will result from scale economies related to operating company consolidation and plant consolidation. And it will also be associated with what I would attribute to the world-class designs, that not only give great performance, but that will also take costs out of our product lines, most notably from a design standpoint. So -- and then I guess I would finish up by saying -- Carl offered earlier the guidance towards high teens margins, and the pathway to there won't be linear, but it's going to be solid.

Operator

We'll go next to Seth Weber with RBC Capital Markets.

Seth Weber - RBC Capital Markets, LLC, Research Division

I was wondering if -- can you comment on pace of orders through the quarter, whether you saw any acceleration or deceleration through March? And then I guess we had a big trade show in April in Europe. I don't know if you guys were at Intermap. But any color on that trade show for the Crane business?

Glen E. Tellock

Well, I'll speak to the trade show. We did not have a presence -- a significant presence at the trade show. I think we're starting to believe there's too many of them. And we think our money is better spent other ways in getting customers to a crane days event or a quality initiative event or a new product launch. So I think it's taking the same marketing dollars we have and splitting it up worldwide. And Intermap really has become a regional show. So we had a very good dealer that had a good presence there. We supported him and had customer dinners, went to the industry trade event dinner that they had on a Thursday night. But Europe, as we said, is a little bit weak right now -- not a little bit weak, it is weak. So in hindsight, good for us. So with that, it really wasn't a significant pop from anything at the trade show. With respect to the orders through the quarter, you just never know. I mean, sometimes, they come late in the quarter, sometimes, they come early. I mean it's no different than any other quarter.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. Did the price increase go into effect in January? Is that the way we should think about it?

Glen E. Tellock

We had a couple last year. We had one in July, July 1, I think, and then there was one that was right at the end of the year.

Mike Kachmer

November.

Glen E. Tellock

Yes, November. We had some price increases last year.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. And then I guess separately, your Grove facility, are you thinking about adding any additional shifts or capacity there? It sounds like that facility should be getting fairly busy at this point.

Eric P. Etchart

Yes, we are fairly busy indeed. We hired many people in this facility. Now we -- yes, we will work with 2 or 3 shifts. But you have to remember as well that we have these lean manufacturing initiatives that are very helpful, definitely in terms of the whole product cycle and that's also is giving some results as well in Shady Grove in that respect. But, yes, we're fairly busy in Shady Grove indeed. We're probably back to the level we had in 2007 in terms of hourly employees and the capacity we have.

Seth Weber - RBC Capital Markets, LLC, Research Division

Sorry, Eric, so you're running 2 shifts now?

Eric P. Etchart

Yes.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. I mean that may go to 3?

Glen E. Tellock

A third shift is always a tough one, Seth. I mean, that's where you can, and we do, and we'll run it as a -- what Eric, would you call the -- a scaled-down shift. It would be more on a bottleneck areas than would it be anything else.

Seth Weber - RBC Capital Markets, LLC, Research Division

Okay. And I guess, Eric, can you just comment on what you're seeing on used crane pricing or availability?

Eric P. Etchart

Well, they're existing very well. I think the used crane activity has been fairly good, and the used crane price -- and again, from a premium brand because this is where you see a big difference between the premium brands and the other brand and the emerging brand. But I would say for the premium brand, the activity is fairly strong and the pricing are fairly good. So that's a good indicator.

Operator

We'll go next to Vance Edelson with Morgan Stanley.

Vance Edelson - Morgan Stanley, Research Division

Could you expand a little on China in particular, on the Crane side, not a huge part of the operations, but just based on what you're seeing on the front lines, how do you think the economic strength there plays out for the remainder of the year and into 2013? Do you have a feel for that?

Glen E. Tellock

Well, I think I'll start and then maybe Eric can add. But the product lines that we do best in are the tower cranes, obviously, and then we have the truck crane manufacturing. And obviously, the slowdown impacts both of those. But the beauty is on the tower crane side, we can -- what we manufacture in China, we can export to a lot of the other emerging markets. So our business there is fairly good. On the truck crane side, with the downturn, I would say you see the Chinese composers get very aggressive. And so basically, we can pick and choose where we want to go because we don't have the same market shares there that we do everywhere else. Well, you can watch the Chinese in their own country get very aggressive against each other. So I think you're seeing a transition of what's happening in China. I think it will stay slow. Our forecast is for it to remain like this pretty much most of the year. But obviously, as Eric has said a bunch of times, picking and choose where we want to play in that market and being relevant as opposed to trying to win in it. And -- so I think China -- that said, let's go to the Foodservice side of the business. There's a lot of opportunities. There's a lot of restaurants that continue to open, whether it's in China or the rest of Asia. You're hearing a lot of the changes to opening a store a day in certain areas. So it's a good piece of our business, but I think we're making up for it elsewhere throughout the rest of greater Asia-Pacific.

Vance Edelson - Morgan Stanley, Research Division

Okay, that's helpful. And could you comment on the capital deployment priorities? How should we think about capital needs for Cranes versus Foodservice over the next year or so? And maybe just provide some insight into how you think about balancing those needs against improving the balance sheet.

Carl J. Laurino

Well, this is Carl. Obviously, EVA is the key criteria that we utilize. We had some big -- we had 8 big projects that's ongoing in the Crane segment that we talked about a little bit earlier, with the ERP implementation that will continue to create investing for the next couple of years. And beyond that, I think it's more a matter of where the opportunities lie, what we want to do from a globalization of both the businesses and where we think we need to add infrastructure that we don't have. But the good news is, I think, overall, we've got some great infrastructure as a platform around the world. And there are enormous additional investments that are going to be necessary for us to exploit what we expect to be a pretty good market over the next few years.

Glen E. Tellock

I think when you look at it, Vance, if you look at where each of the segments are in there, where they've been and we've rationalized a lot of things in the Crane segment, so it's really picking and choosing where you would make those additional investments. Foodservice, the opportunity is still there in many of the emerging markets. They can either leverage what the Cranes has done in some of these areas, or as Mike said, make investments in places like India or the test kitchens in Singapore and Guangzhou. So it's a matter of where the growth opportunities, and to Carl's point -- but again, Mike has probably a more robust active plan when it comes to the globalization of his footprint than what the Crane segment does. So I mean, that gives you a little bit of a flavor.

Operator

And that does conclude our question-and-answer session. At this time, I'd like to turn the call back to Mr. Khail for any additional or closing remarks.

Steven C. 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 August. Have a good day.

Operator

Again, that does conclude today's presentation. We thank you for your participation.

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