Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

The Manitowoc Company, Inc. (NYSE:MTW)

Q1 FY08 Earnings Call

April 29, 2008, 10:00 AM ET

Executives

Steven C. Khail - Director of IR & Corporate Communications

Glen E. Tellock - President and CEO

Carl J. Laurino - Sr. VP and CFO

Eric Etchart - Sr. VP, The Manitowoc Company, Inc. and President & General Manager, Manitowoc Crane Group

Analysts

Robert McCarthy - Robert W. Baird

Charlie Brady - BMO Capital

Nigel Coe - Deutsche Bank

Seth Weber - Banc of America

Joel Tiss - Buckingham

Alexander Blanton - Ingalls and Snyder

Operator

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

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

Good morning everyone and thank you for joining our first quarter earnings conference call. Participating in today's call will be Glen Tellock, our President and Chief Executive Officer, and Carl Laurino, Senior Vice President and Chief Financial Officer. Joining Glen and Carl on today's call will be Eric Etchart, President of Manitowoc Cranes.

Glen will open with commentary on our market. Carl will discuss the financial results for the quarter and Eric will discuss the recent operations and future outlook for the Crane segment. We will then conclude with a question-and-answer session following our prepared remarks. Mike Kachmer, President of Manitowoc Foodservice and Bob Herre President of Manitowoc Marine, will also be available to address questions at that time.

For any of you who are not able to stay on the line for today's entire call, you can hear a replay beginning at 12 noon Central Time today, until 12 midnight Central Time on May 6. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 7403292. You may also access an archive version of this call by visiting the Investor Relations section of our corporate website, at www.manitowoc.com.

Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on April 29, 2008. During the course of today's call, forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 may be made during speakers' remarks and during our question-and-answer session. Such comments are based on the company's current assessment of its markets and other factors that affect our business. 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, including but not limited to the company's Annual Report on Form 10-K for the year ended December 31, 2007.

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

Glen E. Tellock - President and Chief Executive Officer

Thanks Steve. Good morning. We announced strong financial results yesterday, as all three of our business segments showed solid improvements in sales and earnings. Posting strong earnings is good, but doing it consistently is even better. We are able to consistently drive improvement, because of our success in executing our key growth strategies of product expansion and geographic penetration. This philosophy has fueled our success in Cranes and we expect to continue to utilize these two primary growth strategies in both Foodservice and Cranes.

The benefits of our growth strategy in Cranes are obvious today. The largest segment is growing at more than 20% per year with margins expanding at the same time. What makes those numbers possible wasn't the addition of new assets, it was the combination of businesses that added to each other.

We moved from a North American crawler crane company to a global provider of complex lift solutions. Today, we are largely a North American provider of ice machines and cold storage equipment. With the planned acquisition of Enodis, we will be a global provider of both hot and cold foodservice equipment capable of serving the world's largest customers in much broader product categories.

We are continuing to leverage our leadership position in cranes, in high growth markets like India, Eastern Europe, the Middle East, Latin America and China through advanced technology and customer support. All of the experience we are gaining in new markets and in product development can be applied to foodservice as well.

The opportunity to follow the same path in Foodservice that we have in Cranes is what makes this such a defining and pivotal time for Manitowoc. Before Eric describe the ongoing progress within the Crane segment, Carl will give some commentary on the financial results. Carl?

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

Thanks Glen and good morning everyone. Yesterday we reported first quarter 2008 net sales of $1.1 billion, a 25% increase over the first quarter of 2007. We also reported net earnings for the quarter of $102.7 million or $0.78 per diluted share, compared with net earnings of $64.1 million or $0.50 per diluted share for the same period last year. All per share amounts in our comments reflect a two-for-one stock split that became effective in mid-September 2007. There were no unusual items in either period, so the reported earnings also represent earnings from continuing operations.

Turning to the segments; Cranes segment sales for the quarter were $884 million, an increase of 30% from the first quarter of last year. Operating earnings were $134.6 million, up 40% resulting in an operating margin of 15.2% compared to14.1% a year ago. That solid operating margin for the quarter reflects our investments in operating efficiencies and an improving product mix toward our larger and more complex products.

We remain confident in our ability to achieve sales growth for the Cranes segment in excess of 20% in 2008 with margins in the mid-teens. We expect our ability to increase our incremental margins from the teens in the first half of the year to over 20% in the second half, to be dependent in part on our ability to minimize the impact of pronounced rising input costs. Our initiatives to minimize these costs... these cost increases include but are not limited to pricing actions and improving operational efficiencies.

Crane backlog at March 31st, totaled $3.3 billion up 72% from a year ago. Growth in backlog was strong across all of our geographic markets and in virtually all product categories. As we said for several quarters on these call, backlog is just one element of our performance and Eric will discuss some other indicators of market conditions in his comments.

Moving to Foodservice; sales increased 7% to $104 million from $97 million in the first quarter of 2007. Operating earnings rose 13% and margins improved to 11.9%. Mike Kachmer and his team are doing an outstanding job, driving improved performance through leaner operations and leveraging new products with new customers. Economic trends in our core North American market points to a little if any growth in consumer-driven spending, which makes the performance in Foodservice even more impressive. It also points out the importance of gaining better access to global customers, thereby lessening the dependence on any specific geographic regions.

Marine sales for the quarter were $88 million, up 7% from last year and operating earnings nearly doubled to $10.2 million. The high number of repeat projects in our backlog, both government and commercial, helps to increase operating efficiency and we are now ahead of schedule on several commercial projects. We also completed a very strong winter repair season and the 15 vessels service in our yard, are now back-sailing on the lakes.

The outlook for our Marine segment remains favorable at the Coast Guard's Response Boat-Medium Program is ramping up and our work on the Improved Naval Lighterage System and the Littoral Combat Ship are both proceeding at full manning levels.

Improved operating performance in all of our segments obviously translated to the bottom line. Compared to the first quarter of 2007, net income from continuing operations in the first quarter of 2008 increased more than 60%. We also generated positive cash from operations of $11.8 million in the quarter, when they are historically a user of cash. All of these factors impacted our EVA performance which increased more than 58% from last year. We continue to expect our full year EVA to increase by more than $90 million in 2008.

The main driver of our strong financial performance is the Cranes segment and we plan to deploy a significant portion of our free cash flow back into our businesses. Given the continued strength we see in most of the global crane markets, we expect to continue to make measured investments in our crane production capacity. Our CapEx target of $120 million in 2008 will provide additional capacity for crawler and mobile telescopic cranes here in the U.S and around the world.

Combined with our recent entry in India, Slovakia and China, we are making the right investments to be able to capitalize on continued strong global crane demand. We are also continuing to incorporate significant outsourced manufacturing into our plans, so that we can quickly respond to forecast changes for specific components.

I'll conclude my comments by affirming our EPS guidance of $3.20 to $3.40 per share, which excludes any unusual items and does not include any impact from the Enodis acquisition, which we expect to close in the fourth quarter. Our next speaker is Eric Etchart who will describe the progress at Cranes. Eric?

Eric Etchart - Senior Vice President, The Manitowoc Company, Inc. and President & General Manager, Manitowoc Crane Group

Thanks Carl. Good morning everyone. Yesterday's press release showed the continuing strength of our Crane business and I would like to share our views on where we think this business is headed. Our results last quarter were very good. Sales were up in all of our markets and operating margin is the highest since we made the Grove acquisition back in 2002.

We were able to achieve these results because of a very good efficiency at our plants and a better mix of high capacity and more innovative cranes. We will see some pressure on our costs during 2008 as higher steel prices will offset some of the improvements we make in efficiencies. We will seek to offset these cost increases through the benefits of our capacity expansions as well as pricing actions and escalator clauses that product has against the higher steel prices.

Carl discussed how backlog has set another record at $3.3 billion. Many people try to gauge the strength of the crane market by analyzing backlog trends. This quarter backlog growth was good, but there are other factors that are equally helpful in understanding the crane market. This includes fleet utilization rates and the rental fees charged for the different classes of equipment. Two other important factors that we track are requests for delayed deliveries from existing customers and cancellations of large construction projects. Currently, the positive trend in all of these factors, strongly support our industry outlook to continuing growth at least through the end of the decade.

We saw this positive outlook at ConExpo last month. All of our employees agree that this was the most active ConExpo they have ever witnessed. We had more traffic through our booth than even the 2005 show, with visits from existing customers as well as new prospects in emerging markets like Latin America. One of the reasons we had such great interest is because Manitowoc had the biggest new product introduction of all at ConExpo.

We introduced the model 31,000, which will be our largest crawler cranes. With a lift capacity of more than 2500 tons, it will be the one of the world's largest crawler cranes and it has several features that make it much more advanced than the competitions. Along with the 31,000 we also introduced 11 other new models. So we had something new for everyone.

The model 31,000 is a huge crane and the first unit will be ready for delivery in 2010. We have initially planned to build three units and we have already sold the first two units to American customers. That says a lot about the state of the lifting market. With a decline in U.S housing constructions, demand for self-erecting tower cranes and boom truck is sparse in the U.S, but the demand for large complex cranes has not slowed.

The model 31,000 and our other large crawlers are well suited for large infrastructure and energy projects; a good example is the nuclear power industry. According to the world nuclear associations, there are 21 proposals for new or expanding nuclear power plants in the U.S alone and the global total of 228 reactors. Because of the size and weight of the components, these projects will require many cranes with high-lift highly and reach capabilities.

These complex cranes are in the sweet-spot for our Cranes segment and the demand forecast confirms our decision to expand production capacity in our U.S manufacturing sites. Outside of the United States, we see crane demand remaining very strong, especially in the emerging markets. Large infrastructure projects, energy facilities and refineries and commercial development to support the growing middle classes are driving broad demand for all our lift solutions.

Our investments in India and Slovakia show how we have been able to meet that demand quickly and at a reasonable cost. They also show our philosophy on how to succeed in new markets. We acquired India's largest Potain distributors, so we could be an Indian company in that market, not a western company exporting to India. We are now the largest tower crane manufacturer in one of the world's fastest growing construction markets. We have retained an Indian management team and they are driving good results.

We'll use the same model in China, where we acquired a joint venture interest in a local manufacturer. TaiAn Dongyue heavy machinery is one of the China's top producers of truck cranes. About 70% of all new truck cranes are sold in China, so this is another great growth market and an extension of our existing product line in China.

By operating as a joint venture, we get the experience of a local management team and we can provide them with access to our products. In time, we will share technology that improve their products and create the same customer advantage that Manitowoc enjoy in larger lifting products. That concludes my remark. I now turn the call over to Glen.

Glen E. Tellock - President and Chief Executive Officer

Thanks Eric for the update on the Cranes segment. Before we take your questions, I would like to review our strategic priorities with our continued record results and the Enodis announcement two weeks ago. It is possible to lose sight of how we got in this position and what we are doing to keep succeeding.

The Enodis acquisition addresses our top strategic priority of profitable growth. Foodservice has historically been a consistent high margin business with stable top line growth. Enodis lets us build a global platform that is uniquely positioned to serve the industry's largest and fastest growing customers. By further diversifying our product lines and expanding our geographic markets, we can deliver increases in sales and profit growth faster than we could have on a standalone basis.

Innovation is also a growth driver in both our Cranes and Foodservice segments have a strong commitment to innovation. The model 31,000 that Eric described joins the GTK 1100 as two of the most important new lifting products of the past several years. And our Foodservice group is working with global customers on some ground-breaking new products that take it into new categories. I am very confident that the new products and innovative technologies will be a hallmark of Manitowoc for many years.

Our products have to be more than innovative; they have to be what the customers wants. We asked our customers what features they value and we include their voice into our new products. That's how we develop, the most energy efficient line of foodservice equipment long before higher energy standards were issued. We operate in three very different businesses and we all pride ourselves on being very skilled manufacturers.

We share best practices across regions and across businesses and we constantly look for ways to take out cost and drive the efficiencies. We drive that culture of efficiency by training our people and giving them the tools to produce great results. They have multiple levels of internal training and in 2008, we will bring new skills to 100's of our employees. As we expand into emerging markets, we will develop more leaders who understand our business and our culture. The acquisition of Enodis will also provide an infusion of talent into our company. We've competed against Enodis for many years and we have a high opinion of their skills and capabilities. I think our teams have complementary cultures and are going to mesh together extremely well.

Another exciting aspect of the Enodis acquisition, is the ability to replicate the after market services offering we have created in the lifting industry. Crane care is one of the main reasons that customers choose our products over established competitors. We have made the investment in parts training and a global network of service centers and real0time support that no one can match. The needs of the Foodservice customer are similar and we are convinced that a crane care style offering would be a great competitive advantage. I will close with some comments on value creation, our businesses are providing excellent return whether measured by EPS, EVA or free cash flow. Our job as managers is to utilized those returns from projects that drive even greater value. It took time before our investments Grove and Potain began to reach their potential. At Enodis we expected to be EPS accretive in the first full year ownership and EVA positive by 2011. We would not have pursued to notice so persistently if you did not firmly believed it will provide an outstanding return to our shareholders. This concluded our prepared remarks and we will now open the call to your questions. Yolanda?

Question And Answer

Operator

[Operator Instructions]. We'll hear first from Robert McCarthy with Robert W. Baird.

Robert McCarthy - Robert W. Baird

Good morning guys.

Unidentified Company Representative

Good morning Rob.

Robert McCarthy - Robert W. Baird

I wonder if you could spend a little more time talking about the raw material landscape if you will, since that's been such... apparent significant change in the over all operating environment for capital goods manufactures and who I'm specifically getting at is how your ability to respond to that with pricing and productivity initiatives might vary between cranes and food service where do you expect to see the larger impact between those two segments and I'm tempted to read into this that you have a little bit stronger out look for operating efficiency this year with an unchanged outlook in given developments on raw material market, I wonder if you could comment on that as well.

Unidentified Company Representative

Sure I will do best I can, a all of it Rob...but I would say that the biggest... obviously spike has been steel and I think that all started in January, February you saw the commodity head-win there and I think its no difference than what you are hearing from lot of people, we have said before you can hedge out three to six months in our global sourcing people are taking every initiative they can to make sure we have not only the supply but we have it at a reasonable cost, but the steel company is now that there are some pressure there for them and still with price increases we have a few things that going to play price increases are one and some of its not necessary, just price increases looking at things as surcharges we are looking at other things that, I think the customers are more aware of that they get another commodities so it doesn't look like we are just... I hate to use the word gauging but they don't get that impression because whether its whether its freight charges or oil these people that are in the crane side of the business have seen these other types of surcharges so we are working with it we worked with dealer council here in North America which primarily is going to be the biggest market effected, now I would say to answer your other question where is the biggest impact it is on the crane side and not as much on the food service side and a lot of it just because of the volumes of product that's made for the food service industry versus what's made for the crane industry. And into those high tensile strengths, Rob and that's where it comes from, because as you know we have said many times there is very few suppliers of that. So, with respect to the impacts on our margins, we are doing a lot of things and that's why you saw some of the capacity expansion projects you see a lot of the things that we are doing efficiency with the equipment. We are trying as fast as we can to get these things online, because of what we saw on the commodity side. But we still believe that there are opportunities for us and Carl mentioned in his comments the rising commodity cost prices is only one thing. We do have opportunities to take cost out, it can be with different type product, it could be engineering, changes could be different vendors, so we are trying to go through the whole gamut of opportunities to minimize the impact of the rising cost.

Robert McCarthy - Robert W. Baird

Hi thanks Glen that's very helpful. And then... second for a follow-up if you will. Could you talk about the impressive margin in the marine business, I know its small, but are we looking at in terms of sort of relative to run rates in the last couple of quarters. Are we looking strictly at the traditional impact of the winner repair season and the higher margin business involved in that or do we have an improvement underlying run rate as well?

Unidentified Company Representative

Yes, I think what you are seeing just from a macro side of it, Rob, we do have that repair season, but at the same time you have got to remember a lot of these projects have been ongoing now and you have some of the efficiencies that you get over the long-term of doing things like INLS and now we have the RBM, and in those types of barges that we have done before that, they are very consistent. Consistently design and that's where we get the benefits but I will let Carl comment also on the run rate.

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

Look, Bob Herre sitting here I will just say its got to be some good management. Right Bob?

Robert McCarthy - Robert W. Baird

Thank you, sir.

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

There is a calendarization issue that we do have to some extent, this year versus last year relative to the repair that Glen talked about in as much as there is some spill over into the second quarter last year. Just because of the way that there was the work was done and the other type of work that was being done which certainly benefited the second quarter last year and benefited the first quarter of this year.

Robert McCarthy - Robert W. Baird

Okay.

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

That was certainly a part as well.

Robert McCarthy - Robert W. Baird

Alright. If the underlying run rate is improved with as we get deeper into these programs and up the learning curve that would suggest them that we should expect to see some significant year-to-year margin improvement in the second half of the year without the complication of this timing issue right?

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

Full year guidance is high single-digit margins that we are very comfortable with that.

Robert McCarthy - Robert W. Baird

Okay, Alright. Thanks guys.

Operator

We will take our next question from Charlie Brady with BMO Capital Market.

Charlie Brady - BMO Capital

Hey thanks. Good morning guys. Could you clarify one of your comments for me regarding the crane margins in the back half of the year and I hear you correctly I don't know if you are talking about incremental or just regular operating margins in excess of 20%?

Unidentified Company Representative

That was referred to operating margins incremental margins

Charlie Brady - BMO Capital

Incremental margins in the second half of this year correct?

Unidentified Company Representative

Our guidance was that we would expect the incremental to stay in the team in the first half of the year. I think everybody is aware from the ongoing capacity increases that we expect it to be able to that would be ongoing on the first half and that we would be expect to be able to get some benefit better benefit out of them in the second half because you don't have the destruction where you going through the capacity increases and we had indicated that we can get back up to a 20% incremental margin in the second half, I think what we are trying to say its relative to this management of the commodity issued that certainly was most pronounce in the January-February time frame, as far as projector of the increases that we have seen on the supply side often equal to the extend that were not able to be as successful as we would like to be relative to a lot of a things that Glen articulated and that Erick and his team will be working on, that just by virtue of the way you had expect a lot of the contest to be to go out from a sales perspective without the multi section in the fourth quarter, so from a pressure on incremental side I think that's what we would probably see it all things equal but of course we will continue to work all the issues pricing in the other element to minimize their impact.

Charlie Brady - BMO Capital

Can you give us [indiscernible] how much outsourcing today in terms of percentage of the work that goes in the Crane, and than where does that go, I guess back half and maybe if you even looking at '09 once you have this additional capacity coming on line.

Unidentified Company Representative

Charley there are different outsourcing strategies depending on the size, the Crane lets take for instant just a small color and we have a relationship on where they come from Japan so you have that almost 100% outsource, and than there is different component when you look at, the triple nine is all going to assemble that Shady Grove and a lot of that is coming from different suppliers and marrying up in Shady Grove for the assembly and then when you get to the 2250's the 16000s, 18,000s you have some of the work being done in Port Washington and [indiscernible] but again some of it is also done on the outside and that's to take advantage of the capacity increases that we've seen.

If you go back to the comments that we've made many years ago that when we looked at this market and when we thought that the cars where going to go at the peak when we are at 2002, when we said at the peak of the next cycle we believe we could manage everything with the current facilities we had and a little bit of outsourcing obviously those projections were low and that's why we are looking at some of the capacity expansions we have. We are also bringing on some additional suppliers on the outside to take advantage of the peak. We don't need to build everything to get that last crane, but we can use the outsourcing as a strategy and I would say you probably have a third of our hours, are utilized outside of the factory.

Operator

[Operator Instructions] We will take our next question from Nigel Coe with Deutsche Bank.

Nigel Coe - Deutsche Bank

Thanks Good morning could you just remind us to what extent you are hedged out on steels for cranes currently in the back log?

Unidentified Company Representative

I didn't... say that again Nigel?

Nigel Coe - Deutsche Bank

Yes, I am just you obviously made the comments about pricing to help offset some of the innovation but to an extent you hedged out on our back log, your current back log?

Unidentified Company Representative

Nigel its really something that is part and parcel of the commentary that we have given relative to managing the risk in the back log... with some of these components in particularly the high tensile strength steel its very difficult for us to hedge outside of what maybe a four to six month time frame.

Nigel Coe - Deutsche Bank

Okay.

Unidentified Company Representative

And that's obviously a key one in this realm that we are talking about and that's why Eric and his team are certainly going to be working all the initiatives in order to capture as much of the margin that we weren't able to perfectly hedge and the word hedge in quotes just essentially from the supply side on making the pricing arrangement.

Nigel Coe - Deutsche Bank

So it would not be impossible to effectively re-price some of that back log to effect some of inflation.

Unidentified Company Representative

I don't think it's impossible but it seems you have to again I will go back to the fact that in historically we have not new priced our back logs with our customers and you go back to 2004 when we were caught with the same thing but I think as gain out [ph] safe we have seen the majority haven't been primary in North America, we have a dealer account we have sat down and we have chatted with them about the impacts of these impacts of these and they are very aware of what's happening so again I want to be careful that it could be pricing it could be surcharge as it could be other thing, but we are going to do everything we can to minimize some of the impacts of this and our customers are very aware of it and actually have been very understanding of and certainly you know none of us like it but they certainly have be bit very understanding.

Nigel Coe - Deutsche Bank

Okay, Secondly we know we saw a Q and Q decline in crane revenues from 4Q '07 to 1Q '08. First of all is that just phasing of shipments. Is there some weather impact in there as well just want to understand that, that dip because some of you haven't seen this cycle to date.

Unidentified Company Representative

Again that, we certainly looked at that, as we are putting many of our projections together and some of it is weather, you recalled that in January there were some issues in China and the factories were closed for, several days and so that impacts the quarter. We'll make it up certainly by year end but then again its you got to remember we talked about in the third quarter last year some of the delayed shipments and so as we got into the fourth quarter, we had lot of customers that wanted it by year end and the fourth quarter last year was probably an anomaly and see as sometime you can be a victim of your own success and I think that was again making up for some of the delayed shipments we had through the third quarter but I don't think its indicative of anything other than at the lumpiness in that order rate but I just would say there is one other area of I won't call it struggle but again because of what we do outsource on one of the couple of suppliers as you stress them the delay go from if it's a week or two and it crosses your quarter end and again we will make it up and so I don't put a lot of concern that, that lumpiness just happened across quarter.

Nigel Coe - Deutsche Bank

Okay great. And then finally obviously ConExpo was in March. What would you expect that do to your order rate and back log. First of all was there any impact measurable impact on 1Q bookings and would you expect that to be pull through [ph] into 2Q as well?

Unidentified Company Representative

I mean just take the first part and I'll let Eric talk about ConExpo. No, I don't expect a big inflow on the backlog, because of ConExpo. It was a great show, but the orders that we have are coming in on a regular basis and so people knew what was going to be introduced, so I don't think the show necessarily bumped anybody into the buying mode. But Eric you want to comment on the ConExpo.

Unidentified Company Representative

Yes obviously we have a couple of great enhancement that's going to do for major orders or for the several major Reynolds company opting for Manitowoc products, so it was a great announcement at ConExpo, but beyond this ConExpo for us was, only a gradual, because it confirms the strength of the demand and the outlook. I heard so many customers from around the globe coming to ConExpo and asking us when can I get more cranes as a matter of fact [ph], so that was a great confirmation for us and as well all the new products were very, very attractive and we certainly expect to see that positive trends to continue so no direct impact really on the backlog, but the highest confidence, the market outlook is very positive for cranes.

Operator

[Operator's Instructions]. We will hear next from Seth Weber with Banc of Americas.

Seth Weber - Banc of America

Thanks and good morning everybody. I guess Glen was there any new capacity that contributed that kicked in this quarter

I mean new capacity that contributed they kick in this quarter that help on the Crane side or is that all still to come.

Unidentified Company Representative

I think when we go back, we had this last Slovakia, that factory is full online and then India, the little bit of ramp up as we get our ducts in a roll there but that's probably those are the only two that I think had any impact and again on the size of the business today is its now real material impact obviously we talked about those type of things that the strategic advantages that we have in those market to serve closer the customers and that's the beauty of what's happening there.

Seth Weber - Banc of America

Okay so if you were taking a guess, from the total capacity that you expected to add over the next you know, 12 to 18 months you feel like you are still on the less than 20% is completed at this points.

Unidentified Company Representative

Yes the biggest capacity events that are going to happen are in the cars with respect to Manitowoc and Shady Groves in Port Washington and than the other ones going to be that impacts this year is what happens in Germany at our Wilhelmshaven facility and that will be more towards the third quarter in late this year.

Seth Weber - Banc of America

Okay I just wanted to clarify one things that you said, I think you said that North America will have more an impacts of an impact on this steel cost or the pricing, can you just revisit that.

Unidentified Company Representative

Yes, Eric do you want to touch that.

Unidentified Company Representative

Yes obviously it's related to the coal, the steel price increase effects particularly the production of Rafter [ph] and cranes well obviously Shady Grove is the largest piece of rafter [ph] and Cranes and the coal prices is really impacting Shady Grove more then the others in Europe.

Seth Weber - Banc of America

Okay thank you. And then just on the European strength that you mentioned is that split, is it noticeably stronger in the CIS or Eastern European region or are you seeing strength in the Western European region as well.

Unidentified Company Representative

Its the CIS but its also the middle east and its also now you are starting to see parts of, like Africa that are picking up that would, greater then we've seen in the past so those three areas primarily.

Operator

And moving on we will take our next question from Joel Tiss with Buckingham.

Joel Tiss - Buckingham

Guys how you doing?

Unidentified Company Representative

Hey Joe.

Joel Tiss - Buckingham

I just wondered if you are seeing any signs of a pre buy, I guess everyone is on the waiting list anyway but are you seeing any signs of a pre buy, people trying to squeeze in before all the prices increases that every ones talking about?

Unidentified Company Representative

Well I would say, we don't believe that what, with what you have in North America and other parts of the world as any time you go through distribution, these people are putting in some of their projections for future years, but when you get into the bigger capacity especially with the lattice moves [ph] Joel we are, we are starting to require down payments and so if people want to take that, they are really managing that order board through the fact that its going to take that money to secure your spot at some later date.

Joel Tiss - Buckingham

To switch gears on food services, can you just talk a little bit about may be say the next 18 months, it seems like some of the customers are under the distress and what you guys seeing and thinking about in terms of customers CapEx budgets and how may be you can mitigate that.

Unidentified Company Representative

I will let Mike answer that.

Unidentified Company Representative

I think your observation is fairly accurate but what we are doing is, we are trying to gain share in all of our categories even when some of the markets are softening. On the ice [ph] side, we are growing as the market is flat to slightly down that's being achieved primarily by doing a great job on the energy side with our machines, introducing some new products with higher capacities and really engaging with some of the customers that are doing very well as you probably have observed some of the chains are still having success in the marketplaces even while some other struggle.

On the beverage side, we are benefiting by some of the refresh programs that we have talked about in the past. Our products have been placed and we are seeing volumes improved year-over-year. Probably the only area of softness that we see, is in our refrigeration category, that again is not down but essentially flat and that is the, one of the three categories that is more tied to the new stores openings whereas the other two are greatly associated with replenishments with replacements. So again we are committed to win even as the market struggles in a couple of areas.

Joel Tiss - Buckingham

Okay and last one, as long as I have you here... can you just give us any sense of the overall OEM aftermarket mix with Enodis and Manitowoc combined? You know Safer '09 or 2010?

Unidentified Company Representative

Joel the question you are fading out, the question was what is the OEM aftermarket mix for Enodis?

Analyst: Enodis and Manitowoc combined as we get out to '09, 2010?

Unidentified Company Representative

The customer mix or even..?

Unidentified Company Representative

Joel from a aftermarket services support side that's not a big element but I think what you may be referring to is, that we talked about 80% driven by replacement and renovation in our organic food service business, the Manitowoc business if you combine them together that same metric would be about two thirds.

Joel Tiss - Buckingham

Thank you.

Unidentified Company Representative

Two thirds of the revenue driven by replacement or renovation.

Joel Tiss - Buckingham

Okay, thank you.

Operator

Put it on next question from Skit Tate [ph] with Body Brown [ph].

Unidentified Analyst

Hi, Good morning. Could you give a little more detail about how the Enodis acquisition will be accretive in '09 given the premium of your valuation?

Unidentified Company Representative

Essentially just covering the cost of decreased just the EPS and the profitability of the enterprise and when we would expect it to contribute to the full year, our expectation is that will be in 2009.

Unidentified Analyst

Good, Thank you.

Operator

And moving on and now takes a follow up question from Robert McCarthy with Robert W. Baird.

Robert McCarthy - Robert W. Baird

Yes I am sorry guys, I just had a couple little details I wanted to ask about other income and expense was a fairly significant number in the quarter, could you talk about what's in that number.

Unidentified Company Representative

The key element to that would be foreign exchange benefit that would be the majority and the next highest item would be the interest income.

Robert McCarthy - Robert W. Baird

Which would be pretty small number itself so.

Unidentified Company Representative

Okay, and actually it's a good ontrader.

Unidentified Company Representative

Tell me the more meaningful number than it has been given our debt levels.

Robert McCarthy - Robert W. Baird

And that's a good segue to what impact currency translation had on the top line and then you know in the context of your answer what you just said about other income did you talk about of what the net effect was on our earnings.

Unidentified Company Representative

[indiscernible] Impact was about $0.3 on the EPS line, obviously driven by the crane business. And from a top line prospective probably in the $30 million range.

Robert McCarthy - Robert W. Baird

That's a $0.03 positive.

Unidentified Company Representative

Yes.

Robert McCarthy - Robert W. Baird

Right so in other word, the largely accounted for by hedging activity, your giving in other word, what I'm trying to get at is if not for that would you be looking at in essentially are you getting kind of a neutral effect because of you got so much moving in and out of different currency zones, you understand my question?

Unidentified Company Representative

Not really.

Robert McCarthy - Robert W. Baird

If not for your hedging activity wouldn't you have had something closer to zero impact is the one I'm

Unidentified Company Representative

No I think that the $0.03 would be inclusive of the hedging activity.

Robert McCarthy - Robert W. Baird

Right so that, my understanding is the hedging was positive. Right

Unidentified Company Representative

Right.

Robert McCarthy - Robert W. Baird

Okay so, even though you had a I mean its not huge but you had a positive impact on top line not much positive on bottom line if not for the hedging activity.

Unidentified Company Representative

I guess that's a fair comment, it's a function of the fact that we try to manufacture, we got the over all philosophies trying to manufacture as much as we can as close to the customers positive.

Robert McCarthy - Robert W. Baird

Its okay, all right thanks.

Operator

[Operator Instructions] we will take another follow up from Seth Weber with Banc of America.

Seth Weber - Banc of America

Thanks, think I got cut of last time, just one quick followed up, did your cash flow from operations forecast change at all this year or are you still looking for about 400 million.

Unidentified Company Representative

Still looking for 400 million Seth.

Seth Weber - Banc of America

Okay thank you very much guys.

Operator

[Operator Instructions]. We will take a question from Alexander Blanton with Ingalls and Snyder

Alexander Blanton - Ingalls and Snyder

Excuse me. I got on a little bit late, but just to review. You take all your price increases for this year. What would you forecast would be your overall price increase for the year for, I mean for 2008? What do you think?

Unidentified Company Representative

Are you talking on a consolidated basis.

Alexander Blanton - Ingalls and Snyder

Yes.

Unidentified Company Representative

For food service marine.

Alexander Blanton - Ingalls and Snyder

Well, yes, yes. consolidated basis then if you have an idea of what it would be in the crane business that would be helpful too, because that's where your strongest demand is.

Unidentified Company Representative

I would say that on an overall basis that its right around the mid-single digit around 5% or so, and I think what we've said before on the crane side is going anywhere from low single digits to high to almost double digits depending on what product line, so I think when you look over our food service you look at the marine, what they have for their winter repair work. I think that mid-single digit is probably reasonable.

Alexander Blanton - Ingalls and Snyder

As for the overall and then a bit higher than that for the crane business?

Unidentified Company Representative

Yes, it probably on average may be a little bit higher than that on the crane side on average.

Alexander Blanton - Ingalls and Snyder

And this to recover your cost increases you see so far?

Unidentified Company Representative

Well based on what we looked at the beginning of the year and start with our... how commodities would go and with the rest of our cost we are taking our manufacturing efficiencies in place, I would hope there will be a little bit more than just the normal increases.

Unidentified Company Representative

But Alex also we did indicate that based upon some of the activity on the cost push side that we've seen earlier this year is there's further actions that we need to be taking not necessarily just from a cost perspective but also from a pricing perspective but also from an operational perspective. It's to re-capture some of the headwinds there.

Alexander Blanton - Ingalls and Snyder

And as you look around at this situation with cost increasing and then prices falling, is there any concern that you have that the inflation numbers are might pick up to the point where there would be action by the federal reserve to stop that and interest rate increases that might be coming, that could cause changes in your business scenario going forward, any look at that any concern about that, have you been looking at that.

Unidentified Company Representative

Well I would say that when you look at some of the things that are driving some of the headwinds that we are experiencing on the cost side, it really is reflective of the lot of the benefits that we are seeing in the largest part of our business being crane.

Alexander Blanton - Ingalls and Snyder

Yes.

Unidentified Company Representative

That is driving a lot of the ability of some of the supply base to enjoy the types of robust prices that they are passing along to us, that obviously goes well for the sales that we are having particular into as you look around the world, the question as to whether achieve it global macro economic environment will create a rising interest rate environment. We certainly have enjoyed some pretty good results in both rising and falling interest rate environment generally speaking the business drivers in the rising interest rate environment both well for our crane business as well. There is a there is a positive correlation of in a rising rate of environment. Obviously there is a tolerance level on, based on trajectory and how high they might go.

Unidentified Company Representative

Well in my experience installing machinery stocks they tend to do best in, when interest rates are rising for the reasons that you just gave that the things that the rates will go up also cause you a demand to rise. Well it unfortunately it also has, counter acting effect on the PE which sometimes is not to person. Okay I just wanted to know if you done any thinking about that and had any forecast of what might happen in that regard built into your numbers?

Alexander Blanton - Ingalls and Snyder

Okay, thank you.

Operator

We will take our next question from Brian [indiscernible] with UBS.

Unidentified Analyst

Good morning guys.

Unidentified Company Representative

Good morning Brian.

Unidentified Analyst

I am just wondering if you can talk to us a little bit about the seasonality in the crane business. You talked about some weather in the current quarter and followed by following up on a strong 4Q and it typically looks like you got a strong 2Q so are we setting up for an above seasonal 2Q. I know you guys don't give quarterly guidance but just kind of any commentary around that will be great. Thanks.

Unidentified Company Representative

Well, I would say that there tends to be a seasonal build in a business and all things in the second to third quarters for both food service and cranes obviously with the secular trends in the crane business the seasonal effect has been that muted from what it what it was formally but you have still intend to see some build up in those second and third quarter one carry on that third quarter issue is the fact we have significant European operations that would have a holiday season from an equal stand point would offset some of that

Unidentified Analyst

And then over lay, of the capacity expansion as well how should we look at that rolling to Q2 and 3Q on the crane side in terms of one the volumes coming out and you know comes give us exact number but you know how much of an increase on the seasonal organ see of that and then offsetting that is they like give you disruption that are going on during that time?

Unidentified Company Representative

Yes, I guess we've done is provided some annual guidance based upon essentially an assumption of flat currency assumption 20 plus percent in the crane business overall did little bit better then that in the first quarter and from the margin performance standpoint that we talk about that earlier in the call and our overall expectations is in mid-teen

Unidentified Company Representative

I think Bryan what's encouraging is this is the time of disruption in the crane side and you have seen how stronger margins are and so it tends to give us some comfort that we are getting through some of the disruption whether it be in Germany or America, going online for Slovakia and what's happen in Italy at our nearer facility or India so, I think the disruptions are in there right now and you can see how strong the margins were in the first quarter.

Unidentified Analyst

Okay I am got a follow-up here if I don't take too much your time the other income line a little bit confused from your comments it looks, is it correct to say that you are striping out some of the operating income that is ForEx based from your operating income line on the cranes and putting that into the other income line and should we modeling out of couple of quarters, if the currency stays were it is so we modeling out a couple of quarters of other income?

Unidentified Company Representative

Yes I think what you are seeing in the other income line is really from hedging activity that is reflective of a rising you environment would be the key one for us that hedging activity goes into the other income line obviously the interesting income component is the functional of whatever the interest rate environment is in a cash levels

Unidentified Analyst

Okay.

Unidentified Company Representative

Those are the two key elements of the other income

Unidentified Analyst

Okay and last question I heard the comment from crane side that it looks like you are going have gross at least to be end of the decade, could you talk about that talk about the drivers well structure build but any color around that will be great ?

Unidentified Company Representative

I think its interesting you picked up on that blank as it exactly the message that we are sending out let Eric give his thoughts but if you go back 18-24 months ago projecting what was happening through the end of the decade as we sit here we are not too far away from the end of the decade and its another 18 months and so I think there is a low bit of comments within our forecast what we see and going forward that we know I mean it's a we are pretty confident and that's why we say now at least through the end of the decade and I think we want to spend some more time looking at how far at might go pass and I think when you have this a little more increasing in optimism on the part of not only our people internally but customers and projects around the world talking to any base that's a contractor or global contractor, a global crane metal company is think so that's give us little more optimism but Eric do you want to talk about some here optimism

Unidentified Company Representative

No I just want to confirm that what we can hear from the market and what we are cracking are all positive event there are some major projects infrastructure projects primarily in North America as well but suddenly in emerging countries that give us that confidence level that strong how looks will beyond the decade and again its driven by infrastructure progress around the globe monitor up power plants more energy progress or related projects wages and all this type of projects are there and they are long terms and they are planned and suddenly finance as well so that's give us that level of contagious to say that beyond the decade the end of the decade.

Operator

Thank you and that will conclude our question and answer session for today I would like turn the conference at this time back over to our host Mr. Khail, any further remarks or closing remarks

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

Yes, before we conclude today 's call I would like to remind every one that a replay of our call would be available beginning at 12 noon central time today and until 12 mid night central time on May 6th the number to dial for the replay is area code 719-457-0820 please use confirmation code 740-3293 you may also excess an archive version of today's call on our website at www.manitowoc.com. Thanks again for joining us everyone have a good day

Operator

That does conclude today's conference thank you all once again for your participation and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Manitowoc Co., Inc. Q1 2008 Earnings Call Transcript
This Transcript
All Transcripts