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Executives

Steven C. Khail - Director of IR & Corporate Communications

Glen E. Tellock - President and CEO

Carl J. Laurino - Sr. VP and CFO

Michael J. Kachmer - Sr. VP; President and General Manager, Manitowoc Foodservice Group

Eric Etchart - Sr. VP; President and General Manager, Manitowoc Crane Group

Robert P. Herre - Sr. VP; President and General Manager, Manitowoc Marine Group

Analysts

Joel Tiss - Buckingham Research

Paul Bodnar - Longbow Research

Charles Brady - BMO Capital Markets

Seth Weber - Banc of America Securities

Nigel Coe - Deutsche Bank

Robert Mccarthy - Robert W. Baird

Kent Green - Boston American Asset Management

Dennison Veru - Palisade Capital Management

Dan Sundheim - Viking Global Investors

Alexander Blanton - Ingalls & Snyder LLC

Manitowoc Co. (MTW) Q2 FY08 Earnings Call July 29, 2008 10:00 AM ET

Operator

Good day everyone and welcome to the Manitowoc Company Incorporated Second Quarter Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introduction I would like to turn the call 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 second quarter earnings conference call. We apologize for the delay in starting this morning's call due to technical difficulties.

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 Mike Kachmer, President of Manitowoc's Foodservice Segment.

Glen will open with an overview of our performance. Carl will discuss the financial results for the quarter, and Mike will discus the exciting changes that are about to transform our Foodservice segment.

Following our prepared remarks, we'll conclude the call with a question-and-answer session. Eric Etchart, President of Manitowoc Cranes; and Bob Herre, President of Manitowoc Marine will also be available to address your questions at that time.

If you're not able to stay on the line for today's entire call, you can listen to a replay of this call beginning at 12:00 noon, Central Time today until 12:00 midnight, Central Time on August 5. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 3047397. 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 July 29, 2008. During the course of today's call forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 maybe made during in each speaker's remarks and during our question-and-answer session. Such comments are based on the company's current assessment of it's 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 to 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.

Yesterday we announced another quarter of strong performance and record financial results. And once again we saw continuing evidence that our strategic approach to each of our businesses was generating the kind of result that will ensure Manitowoc's long-term success as a global manufacturing company.

During the second quarter, our current segment delivered impressive increases in sales; earnings, and margins by continuing to take advantage of growth opportunities around the world, while emphasizing operational excellence in virtually every aspect of its business.

On the last day of the quarter, our Foodservice segment was a recommended bidder in the auction for Enodis. We believe that this strategic acquisition to launch our Food Service business on the same path that transforms our Crane business from the U.S. builder of crawler cranes to a global leader in the creation of innovative lifting solutions.

With Enodis as an integral part of Manitowoc, our foodservice business will have a broader portfolio of products, which will enable us to expand and deepen Manitowoc's relationships with the global customer base as well as opening the door to a significantly wider range of growth opportunities. I should point that the addition of Enodis will also change the balance of the company. Today, Foodservice represents 11% of our consolidated revenue. With Enodis, we expect food service to produce about 36% of Manitowoc's total annual revenue.

I also want to acknowledge the continuing success of our Marine segment. Bob Herre and his team delivered solid results this quarter by increasing its throughout and efficiency on a number of commercial and government projects. This included the Littoral combat ship which successfully completed the dock-side testing of its engine and proportion system and commence C-trials yesterday.

The Marine group also received praise from the U.S. coast guard as the new responsible medium was premiered to a number of Washington dignitaries attending the debut of the new National Security Cutter. The RBM is the first of a funded order for 30 such vessels.

Carl will now review our second quarter results followed by our featured speaker Mike Kachmer, who will talk about the exciting changes that he is leading in Food Service segment. Carl?

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

Thanks Glen, and good morning everyone.

Yesterday we reported second quarter 2008 net sales of $1.3 billion over 28% higher than the second quarter of 2007. We also reported net earning of $133.9 million, a $1.01 per diluted share of 33% increase over the $0.76 per share reported for the second quarter of 2007. All per share amount to my comments today reflect the two-for-one stock split that became effective in September of 2007. Net earning in the second quarter of 2008 included a $0.02 per share contribution from a special item.

Now let's review the performance of each of our business segments. Second quarter 2008 net sales in the Crane segment increased 32% to $1.06 billion compared with $805.1 million in the second quarter of 2007. Operating earnings of $167 million were 39% higher than the second quarter of 2007 in spite of rising material costs and delays in delivering products to areas of China recently effected by earthquakes and related natural disasters.

Crane margins increased to 15.7% for the quarter, up 80 basis points from the same period in 2007 as a result of operational improvements, improved product mix, and higher volumes. We continued to see the benefit of the globalization of our Crane business during the second quarter as international activity generated strong sales and earnings growth. This trend was reflected in our crane backlog, which stood at $3.5 billion at June 30, an increase of 70% over the same period in 2007.

The solid backlog also reflects the pay back of our innovation strategy as well as the success of our new products in the marketplace. Our outlook for the Crane segment remains strong through at least the end of 2010, despite the recent decline in U.S. housing market, the softening of commercial in some mature markets and slowing residential construction in Western Europe. We expect to offset these trends as demands for our higher capacity cranes particularly those serving infrastructure and energy application continues to grow in both developed and emerging economy.

In our Foodservice segment second quarter net sales of $127.3 million decreased slightly compared with the second quarter of 2007. In contrast operating earnings climbed to $22.9 million, a 2% increase from the second quarter of 2007 reflecting our gains in manufacturing efficiency and effective marketing of new products. Also during the quarter, the company announced the price effective July 1 to address the rising cost of material specialty commodity such as stainless steel, copper, and plastics.

In addition, Manitowoc Foodservice introduced a 0% financing incentive to end users to help to take advantage of the current markets potential. This program, which is supported by one of our global finance partners, who fund many of our customers crane purchases has been well received and has been helpful in driving incremental sales.

As Glen noted, the Marine segment had a very string second quarter with the net sales of $114.2 million, an increase of more than 33% from the 2007 second quarter. Operating earnings more than doubled to $17.7 million from last year's second quarter of $8.5 million reflecting higher levels of production efficiencies from repeat orders such as the OPA-90 vessels that comprise the bulk of our commercial backlog. As we noted in our press release, operating earnings also included a one-time positive adjustments of $4.3 million related to a change in an existing contract, which resulted in a forfeited customer deposit.

In addition to the success of Littoral combat ship and the responsible medium, we remained well positioned to garner additional military and commercial contracts, which we expect will be awarded during the second half of 2008. I would also like to mention that our Marine group has established itself in the business of repowering steam vessels with more efficient diesel engines. There are 10 older steam powered vessels on the Great Lakes and rising fuel costs are causing many of their owners to consider installing new fuel efficient system. This trend should be dealt in additional booked business later this year.

I'll conclude my remarks by commenting on our earnings guidance, which we are tightening to a range of $3.30 to $3.40 per diluted share. This new range increases the lower end of our previous guidance by $0.10 per share and excludes any special items and any effect from the acquisition of Enodis. Like other manufacturers of capital goods and construction equipment, we are facing fuel price increases in the third and fourth quarters that are of an unprecedented magnitude.

These increases have tempered our expectations for improvements and incremental margin to a much more modest level during the second half of the year. We are implementing a number of actions that will dampen the impact, but will not fully offset these commodity headwinds until early next year. Among these initiatives are material substitutions, products redesigns, efficiency in capital improvements plus new pricing actions.

With that, I'll now turn the call over to this quarter's featured speaker, Mike Kachmer. Mike?

Michael J. Kachmer - Senior Vice President; President and General Manager, Manitowoc Foodservice Group

Thanks Carl. I have the pleasure of being the featured conference call speaker almost one year ago. What a difference here it makes?

The Foodservice group is now on a very exciting path with depending acquisition of Enodis and the multi-dimensional growth that accompanies it. As you may recall from previous discussions of this transaction, Enodis is one of the world's leading designers and manufacturers of foodservice equipment with annual revenues of $1.6 billion.

The company has posted like-for-like sales growth of approximately 36% and like-for-like operating earnings growth of 51% over the past three fiscal years. Merging the capabilities of Enodis with those of Manitowoc will enable us to pursue a much different growth scenario than we could as an exclusively cold side operation.

The great benefit of the Enodis is that it will enable Manitowoc to fully equip entire commercial kitchens including cooking, warming, refrigeration, beverage, food preparation and washing systems. The importance and appeal of this change to our business is that Manitowoc will now be able to better partner with major global restaurant and food service companies and their facilities designers in the development of the entire foodservice operation. A level of involvement that simply was not available to us when our capabilities were limited to the cold side of the business.

Enodis also will significantly expand our global manufacturing footprint by adding 30 manufacturing facilities in nine countries along with distribution and service capabilities in more than 120 countries. With 14 leading Enodis brands complimented by our premier brands, Manitowoc's foodservice business will represent an impressive product offering to customers while becoming a major factor in the global restaurant and food service business.

The financial benefits of completing the Enodis acquisition and its integration are substantial. Based on 2007 reporting, the combined Manitowoc-Enodis Foodservice segment would add annual sales in excess of $2 billion. We expect the transaction will be accretive to earnings in 2009, will produce annual cost and revenue synergies in excess of $80 million and will be EVA positive in 2011. Reaching these goals will result from efficiencies and economies of scale that are larger and more diverse food service segment can achieve through a streamlined operations, global sourcing and expanded cross selling initiatives.

As you know, innovation is one of Manitowoc's strategic priorities and adding Enodis to the fold will greatly increase our new product development capabilities. Enodis is one of the most advanced development centers in the industry located at company's operational headquarters in Temple, Florida.

Their technology center developed the company's accelerated cooking technology that is used in its commercial ovens. One of our priorities is the integration of our two R&D capabilities to become the industry leader in product innovation coupled with an operational culture that brings top quality products to market quickly.

We also plan to field one of the best customer support and service teams in the global industry. Together, these impressive capabilities will make Manitowoc a major player in all aspects of the food service business, for the cook service and fine-dining restaurants to hotels, conference centers, universities' resorts, and other high volume operations.

We are transforming our food service segment at the right time. Even though we are experiencing some headwinds from current domestic economic slow down, the demand in the U.S. market for food-prepared-away-from-the-home continues to grow. In fact the U.S. food service industry has experienced only three contractions over the past 40 years.

While the industry expectations are for a U.S. contraction in 2008, we see the global demand for food preparation equipment continue to grow at an average annual rate in excess of 7% for the next 10 years driven by growing disposable incomes in developing markets and changing consumer lifestyles.

Even though the Enodis acquisition will not close until later this year, we are in the process of developing a rigorous plan that will ensure the successful integration of the two businesses. We will create a focused and cohesive management team that will execute a powerful approach to global strategic growth for the benefit of all Manitowoc stakeholders.

That concludes my remarks. I'll now turn the call back over to Glen. Glen.

Glen E. Tellock - President and Chief Executive Officer

Thanks Mike for the update and you've said in outlook for our foodservice segment.

Before we take you questions, I'd like to mention that the Enodisacquisition satisfies each of our strategic priorities, and we are very pleased to be able to bring this new source of value and international growth into our company.

I also want to say few words about how Manitowoc is viewing the challenging economic environment that has most pronounced in the United States. Manitowoc is a global company and operates a diverse set of businesses. While it's impossible for any company to be completely immune to recessions and cyclical downturns, the strategic actions that Manitowoc has taken during the past eight years were designed to make us far less vulnerable to the changes occurring in any single geographic area or industry.

In 2000, over 90% of our sales came from the U.S. with minimal sales from the emerging markets. Today, U.S. accounts for only about half of annual sales with much higher penetration being driven by the emerging markets. As we face challenges in U.S., we also face opportunities in Latin America, the Middles East, the EU and the Asia pacific regions.

In 2000, we manufactured our products in primarily U.S. based facilities. Today, we operate 74 manufacturing and service facilities throughout the world, which is consistent with our strategy of building our products as close to as to possible to their intended end markets.

I would also like to point out that this fundamental change in our business has altered the way our management team response to challenges. Today, we have options and point of views that were now available to us in 2000. We are focused on growing our company by taking advantage of global opportunities. Seven or eight years ago, we would have been locked into a purely defensive position. Today, that is not the case.

Our strategies are both sound and proven. More importantly, despite the current state of economic uncertainty, 2008 will be our best year of financial performance in the 106 year history of Manitowoc. Manitowoc's management is focused on continually pursuing improvement in every aspect of our business. This dedication has driven new strategies, control their costs, created new products, resulted in new product support services and made us a better company. We will remain focused on this discipline, because it's the chief driver of our ultimate goal - creating value for our shareholders.

This concludes our prepared remarks, and we will now open the call to your questions. Josh?

Question And Answer

Operator

[Operator Instructions]. We'll take our first question from Joel Tiss with Buckingham.

Joel Tiss - Buckingham Research

Hi guys. How is it going?

Unidentified Company Representative

Hi, Joel.

Unidentified Company Representative

Hi, Joel.

Joel Tiss - Buckingham Research

I wonder if you could just talk like very quickly the amount of accretion from Enodis. Do you have any sense, is it going to be material or modest or any characterization you could give us there.

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

Modest accretion in 2009, Joel.

Joel Tiss - Buckingham Research

Okay. And can you also talk a little bit about like what's... you said, Carl that cranes look strong through the end of 2010. Can you just help us build up a couple of end markets? And what gives you confidence all the way out? I mean that's pretty far away, and I know, this is long lead time business. But can you just give us some of the pieces to give us some confidence in your statements?

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

Sure, Joel. I think that Glen is going to take first crack at that one.

Glen E. Tellock - President and Chief Executive Officer

Joel, I think when you look at the end markets that we are serving right now around the world, almost 60% of it is in energy, industrial petro-chem, bridges, highways, utilities, power plants. And so when you put that together and you look at some of these statistics from not only the U.S. or Western Europe, but you look at the rest of the world, we see a lot of the projects already planned, funded and that type of thing in process or being put in place over the next few years. And that's why we talk about same that we're comfortable through the end of the decade.

Now despite that, yes, there are some softness in a couple of the end markets, a lot of there are more capacity type items. Because of those end markets that we see, they are using a lot of a higher capacity cranes, and that's what gives us that comfort.

Joel Tiss - Buckingham Research

And are you seeing anything coming out of wind? Is this just talk or are you seeing orders coming through?

Glen E. Tellock - President and Chief Executive Officer

I'm going to let Eric speak to that, because he's chatted a lot about that. Wind, the wind energy market.

Eric Etchart - Senior Vice President; President and General Manager, Manitowoc Crane Group

The wind energy market is certainly a growing segment. As usually, the introduction of GTK and the large crawlers [ph], and the backlog we have generated is giving us strong response. So certainly this is a segment that is likely to continue to grow as we move forward.

Glen E. Tellock - President and Chief Executive Officer

It's a real end market, that's for sure.

Joel Tiss - Buckingham Research

Okay. Thank you very much.

Operator

Next we will hear from Paul Bodnar with Longbow Research.

Paul Bodnar - Longbow Research

Hey good morning.

Unidentified Company Representative

Hi, Paul.

Paul Bodnar - Longbow Research

Can you give a little clarity on the second half incremental margins particularly in cranes. Last quarter, you were beginning around 20%, obviously I assume that's changed, but any update there?

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

Yes,most definitely Paul, I think we made the comment in our prepared remarks that what we are seeing is unprecedented; that really is the case. We certainly saw some material headwinds in the 2004 timeframe. I think in the recent past that's certainly was an extreme year. We disclosed in that year that that was about $0.11 EPS headwind adjusted for our split that have occurred since then.

And this current headwind that we are experiencing is beyond both levels. I mean, it's extreme; we certainly took action early in the year. We expected some continued increases as we have been seeing. But the slope of the curve that has been experienced, it just puts us in a circumstance, where I guess you would temporarily the expectations for incremental margins in the second half of the year all the way down to about a modest double digit level if you look at the second half in total.

Unidentified Company Representative

Paul if I could touch pace and something Carl also said and reiterate, 2004 is very consistent with what we saw in 2004 only its opposite halves of the year in 2004 happened right away in the beginning of the year. Our pricing didn't catch up until the second half of the year, when we had the price increases that went in the back half.

This time once again we have not re-priced our backlog, but we will be looking at that what our pricing actions are and announcing them to customers here in September-October time frame. So, again it's just like 2004; a little steeper I think on some of the pricing on the commodity. But it's just a flip of what half of the year it's taking place.

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

The other think that I'd add Paul is that another difference in contracts of 2004 is that the demand levels are continuing to transport higher and higher capacity crane. And those are cranes that have the longer production lead time, which taken alone puts us in a circumstance, where there is a bigger gap and more risk to manage relative to what we are able to arrange on the supply cost side versus the pricing levels. And that's something that is a little bit different.

Paul Bodnar - Longbow Research

One of your competitors implemented a soft backlog type scenario or taking the orders net pricing. I mean are you doing something similar at all. I mean is your backlog understated, because...

Unidentified Company Representative

Yes, I think we've disclosed that previously that there is a notion of a shadow backlog that has been an ongoing element of the demand levels that we see in the confidence that we have in the intermediate term, where we know there is a transaction, we know there is project, where one of our cranes is going to go on site. The rough delivery schedule, but we differ on making the pricing arrangements and therefore those transactions don't go into our backlog. So that is the real issue.

Paul Bodnar - Longbow Research

Any estimate just on what kind of number that might be?

Unidentified Company Representative

We've not published any kind of indication, but I would call it significant.

Paul Bodnar - Longbow Research

Okay. I'll jump back in the queue. Thanks.

Operator

Next we'll hear from Charlie Brady with BMO Capital Markets.

Charles Brady - BMO Capital Markets

Hi, thanks just back to the incremental margin question. In the second quarter, can you give some indication? It looks like incremental margin were about 18% in Crane in Q2. What the headwind on raw material cost was in Q2?

Glen E. Tellock - President and Chief Executive Officer

Actually Charlie, I think as you look at the pricing action that have been taken previously and the supply that we did have on hand there really wasn't really any appreciable margin headwind for us in the quarter. This really is something that becomes to have an issue for us in the second half of the year. We certainly had an expectation that material costs were going to be higher, but and certainly took that into account as we made our pricing actions last year for the 2008 pricing, but they have more than doubled from those expectations.

Charles Brady - BMO Capital Markets

Okay. Can you give us an update on the capacity expansion as to where you are on that today?

Glen E. Tellock - President and Chief Executive Officer

We are right on to the schedule. We really are operational to on the both the crawler crane expansions, the ones that are related to that in Port Washington and Manitowoc and J.D. Grove as well, which is again some problem with GMK production. And I should probably let Eric add any color that he has. But we are essentially right where we expected to be from bringing the capacity online.

Eric Etchart - Senior Vice President; President and General Manager, Manitowoc Crane Group

Yes, and I would like to hear that the capacity expansion that we are having in India also is on track. So overall we just are on track and all the capacity expansions that we have started since last year.

Charles Brady - BMO Capital Markets

Yes, with regard to the corporate expanse as a percent of revenue, it trended down a little bit. And on a dollar basis, expect to stay around the same level remainder of '08, going in '09?

Unidentified Company Representative

Yes, roughly the same level Charlie.

Charles Brady - BMO Capital Markets

Yes, thanks. I'll get back in queue.

Operator

Next we will hear from Seth Weber with Banc of America Securities.

Seth Weber - Banc of America Securities

Hi good morning every body.

Unidentified Company Representative

Hey Seth.

Seth Weber - Banc of America Securities

Just maybe if you could go back maybe... your comments about the Western European market, the low capacity tower business slowing down. Can you give us some color on how that's manifested itself? Are you seeing cancellations there? Do you feel like you are losing market share to Chinese suppliers? Can you frame for us how big that business is for you on the overall scheme. I mean it sounds like it's not a huge business for you, but can you quantify that for us?

Unidentified Company Representative

Well, good morning Seth. It's certainly when you look at Western market... Western Europe supply one of the three largest markets of cranes in the world traditionally. And I think it's just following some of the patterns that the U.S. has followed whether it be on the residential side. People are looking... you got to remember that in Europe that's a majority of where our tower cranes go, so you're seen it on the self-erecting towers. And you're seeing it on the small tops moving [ph] towers.

So, I think it's just a look at some of the residential and the non-residential projects that are being toned down or trimmed. What that does is it moves some of our capacity to other geographic regions around the world. But it's really... it's looking at what our total... when it comes to the market share, the U.S., we are losing market shares. I mean the Chinese are coming into different markets. But again it's not significant. And as we've said in the past, we'll continue to watch them when it comes to distributions, support services, innovation. Yes, we are watching them, they are going to be a long-term threat. But it's not significant; I think it's just a little bit of a slowdown in some of these markets, where... it's a reflection of what's happened in the U.S. That's... I mean, I don't think there is anymore than that.

Seth Weber - Banc of America Securities

I mean have you seen... have your rental company... customers have actually started canceling orders. And I am just trying to understand this is catching people by surprise or this is kind of as expected. Another way, I mean can you comment on your top line cranes sales target for the year having previously you had said 20% plus. Is that still what you are thinking? Has there been just any change to your, to your overall thought process?

Unidentified Company Representative

No, I would say Seth that from the revenue perspective, that 20% plus was something we count as a currency neutral member. Obviously, we've gotten some currency benefit during this year. But if you look at the year end total, taking all factors into account, in another word getting the tailwind from currency, we are going to have a 30% plus in increase in our top line in cranes this year.

Unidentified Company Representative

Go ahead, Eric.

Eric Etchart - Senior Vice President; President and General Manager, Manitowoc Crane Group

No, I just would like to add a comment, sure that article [ph] softening and I'm wishing Europe GME separating towers and tower cranes, we continue to see very strong demands obviously in the emerging markets. And you may recall that because of capacity, we were not able to serve those markets to the extent that they we wanted. So, I mean that's obviously that softening as I mean if we're going slowdown in ourselves in GME. Because we have visible to redirect that productions to market for the demand is very good.

Seth Weber - Banc of America Securities

Okay. Thanks for that. And just a quick follow up on the shadow backlog, Carl that you mentioned. Is that a particular crane type or is that across the board?

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

It's pretty broad.

Seth Weber - Banc of America Securities

Okay.

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

When you get the shorter production, throughput obviously is not a big issue. So they are very like capacity side, but beyond that it's pretty broad.

Seth Weber - Banc of America Securities

Okay. Thanks very much guys.

Operator

Next we'll hear from Nigel Coe with Deutsche Bank.

Nigel Coe - Deutsche Bank

Thanks. good morning. I wonder can you give a bit more color on the... how the crane revenues, so maybe the backlog breaks up between North America, Western Europe and emerging markets.

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

It's pretty consistent with the revenue breakdown that we give regionally, Nigel.

Nigel Coe - Deutsche Bank

Okay.

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

And we talked about over half of our revenue coming outside the U.S. That's a company metrics; it's an even larger percentage in the crane business. So that's... and from an emerging market stand point, we had indicated that we expect to realize $1 billion in revenue from the emerging market this year.

Nigel Coe - Deutsche Bank

Okay. So the backlog would be probably a little bit greater than this than the revenue proportion?

Unidentified Company Representative

I am not sure; what do you mean by that, Nigel?

Nigel Coe - Deutsche Bank

I mean some seem in that's... as we see some weakening in Europe, that's the proportion of order coming from emerging markets would be naturally increasing.

Unidentified Company Representative

The thing that you have to remember, Nigel is as we break down the regions, you have emerging markets in all three. So you've got it in the Americas with Latin and South America, you've got it in the Middle-East and the Eastern Europe and EMEA region and obviously much of APAC would be considered an emerging markets for us.

Unidentified Company Representative

But Nigel I also want to point out there is a mix issue here at play as when you see what I've have talked about it in the earlier question about what our end markets are. When you get into the petro-chem, you get in the energy. The strong end of our market is the higher capacity cranes whether it's the GMKs, the larger towers, the crawlers; and that's where a lot of the capacities were put into play in the last 18 months. So, while the units can be different, the dollars can also be different just because of the mix. So, that all plays into whether it's the Western Europe, the Americas and the emerging markets. And those end markets are still strong in all the regions through out the world.

Nigel Coe - Deutsche Bank

Okay. And then switching gears to the Enodis deal, can you give us some sense of the major hurdles and may be dead lines between now and getting deal done in 4Q?

Unidentified Company Representative

Yes, we can do that. Go ahead Mike.

Michael J. Kachmer - Senior Vice President; President and General Manager, Manitowoc Foodservice Group

I would summarize at this way, we continue to work with all associated regulatory bodies, most notably, the Department of Justice in the U.S. and the European Commissions for the European issues, we are still very much on track, and expect to get done in the early October timeframe as we have originally expected.

Nigel Coe - Deutsche Bank

Okay. And there is no major landmark, which we are looking for between now and then?

Michael J. Kachmer - Senior Vice President; President and General Manager, Manitowoc Foodservice Group

No.

Nigel Coe - Deutsche Bank

No? Okay.

Glen E. Tellock - President and Chief Executive Officer

Yes, I mean the shareholder meeting is here in early August; August 4th, I think it's exactly the date.

Nigel Coe - Deutsche Bank

Okay. And then Marine is becoming quite meaningful. Now it sounds to contribute. Can you give us some indication of the second half earnings from Marine and how sustainable current earnings share [ph]?

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

Well... yes, we are pretty pleased with the Marine performance overall. Obviously we do know that the... yes there was an unusual bottom-line effect that occurred because of the forgone deposit by a customer that was helpful to earnings in the quarter. I would say as you look at the total year for Marine, we still will have the ability to achieve a double-digit operating margin there.

Nigel Coe - Deutsche Bank

Okay.

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

But certainly, you are not going to see run rate from what we had in the second quarter.

Nigel Coe - Deutsche Bank

But to tick out that positive $30 million of income second quarter if I multiply that by two, is that a good indication for second half?

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

Say that again Nigel.

Nigel Coe - Deutsche Bank

So $30 million of run rate EBIT from Marine in the second quarter; is that a good run rates for the second half of the year?

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

No.

Nigel Coe - Deutsche Bank

Too high?

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

Yes.

Nigel Coe - Deutsche Bank

Okay. And then just a quick one on the second half incremental margins in crane; does that seem as probably bit more pension 3Qs and 4Q given that your pricing action is coming through in September-October?

Unidentified Company Representative

Yes, Nigel that would be correct.

Nigel Coe - Deutsche Bank

Okay. Thanks a lot.

Operator

Next we'll hear from Robert Mccarthy with Robert W. Baird.

Robert Mccarthy - Robert W. Baird

Good morning gentleman.

Unidentified Company Representative

Hi Rob.

Unidentified Company Representative

Hi Rob.

Robert Mccarthy - Robert W. Baird

I'm sorry to be the dead horse, but I just want to make sure that we don't walk away with the wrong inferences. When... Carl, when you say a modest double-digit for expectations for second half incrementals in crane, I infer that that means likely below 15%. Is that... am I get the right takeaway?

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

Yes, I would... yes, definitely below 15%. I think you can see what that the magnitude of the headwind is tampering us from increasing our top end of our guidance because of the material issues primarily and our inability to recapture the margins. We are recapturing the dollars I would say, but... which enables us to hold the top end of our guidance. But certainly, significantly compressed on the incremental side.

Robert Mccarthy - Robert W. Baird

Incremental side, okay; thank you. I'd like to also ask about Enodis, sorry. Of the $80 million in minimum, I guess $80 million plus; the $80 million in synergies that you all have identified at this point, what proportion of those would impact '09 and your estimate for earnings accretion in '09?

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

About 30%.

Robert Mccarthy - Robert W. Baird

About 30%.

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

Is our expectation. We get to almost the full... we get to roughly a 90% level and 0.10 for our expectations right now.

Robert Mccarthy - Robert W. Baird

90% in 2010.

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

And then full run rate.

Robert Mccarthy - Robert W. Baird

And... okay. And so... all right, that is good enough. And then is there anything you can tell us, can you give us any help on or even a rough size estimate of what you are anticipating that you will likely divest once you consummated the acquisition?

Unidentified Company Representative

The only thing Rob that we have said publicly and it's in the documents filed is that the global Scotsman as a divestiture give up with the regulatory agencies; other than that, that's still where we think we can fall out.

Robert Mccarthy - Robert W. Baird

And can you give us any idea Glen of like a maximum revenue number or it's less than $300 million, it's less than 500 to plus than 200?

Glen E. Tellock - President and Chief Executive Officer

Unfortunately, we can't, Rob. We are constrained by the manner in which Enodis does their public reporting. They don't disclose like us. They don't disclose brand financial.

Robert Mccarthy - Robert W. Baird

Okay.

Glen E. Tellock - President and Chief Executive Officer

So we just can't provide it. I think there has been some public commentary on the point though that is out there.

Robert Mccarthy - Robert W. Baird

Okay. And lastly, is there any detail you can share with... you talked about both military and commercial programs in the Marine segment, where you think you have opportunity to have put up some interesting contracts wins in the second half. Can you give us any details for instances, examples?

Unidentified Company Representative

Yes, I mean I'll let Bob speak to both the commercial sides some of the things that are going on and on the government there is some opportunities.

Robert P. Herre - Senior Vice President; President and General Manager, Manitowoc Marine Group

Yes, we are in the final stages of bidding on a fairly major government contract for a series of 150 foot boats that would be an excellent contract to land. We are also penetrating the energy exploration market with vessels that are in support of drilling rigs.

Robert Mccarthy - Robert W. Baird

Okay, thank you. Its helpful.

Operator

Next will hear from Kent Green with Boston American Asset Management.

Kent Green - Boston American Asset Management

Yes, good quarter, fellows.

Glen E. Tellock - President and Chief Executive Officer

Thank you.

Kent Green - Boston American Asset Management

My question portage to delays that you had in China for deliveries, but was that significant and does that spill over in the third quarter or the fourth quarter or both?

Glen E. Tellock - President and Chief Executive Officer

It's pretty much candid. That will spill over mostly during the third quarter. I think it's significant enough that we wanted to mention it, because people focus on the incremental margin and that kind of thing. But yes, it washes itself through pretty quickly enough in the third quarter.

Kent Green - Boston American Asset Management

Several of the machinery companies have talked about buying domestically from the China affecting their sales there. Could you comment on that and your joint venture that will bring us up to speed as how that joint...been how that new plant in China is progressing?

Glen E. Tellock - President and Chief Executive Officer

Kent, would you say that first question again. I'm going to let Eric talk about the JV. But what was your point on that first part?

Kent Green - Boston American Asset Management

The first part is that the Chinese government has put again certain programs to encourage people to buy domestic from domestic suppliers in certain machinery areas. Several comments by recent announcement. Have you seen any of that coming in cranes or... and then also bring us up-to-date on your crane facility there? What it's operating at capacity? Where it's selling to, is it just selling it to China et cetera?

Glen E. Tellock - President and Chief Executive Officer

The... I am going to touch based on that first part and then let Eric to give you an update on the JV, but there are certain things that the Chinese government does that puts an onus whether it's a VAT tax or an exemption tax or anything else. They put it in uncertain for us, particularly the limit capacities of cranes. And so we've seen a movement in the capacity of the crane, where we used to be able to get exemption certificate.

Those continuing move up is the Chinese become... their supply becomes more available whether it's goes from a 150 ton to 200 ton. And right now the exemption certificate are at about 300 tons. So anything...anything under that, yes, we are... it is very difficult for us to export into China. But the beauty is we are a manufacturer in China. So, long term, we are a Chinese manufacturer if you want to call it that. So with respect to the JV, I'm going to let Eric give you an update on that.

Eric Etchart - Senior Vice President; President and General Manager, Manitowoc Crane Group

Well the JV has been a very long, very long process. I guess we want you to make sure based on our [indiscernible] joint venture, of course we learned some lessons. And we wanted to make sure when we selected our JV partner for the truck cranes that we were going to share the same bed as we would have the same dreams. And I would say that the very first month of operations are proven that we pick up the right partners. So we're very pleased to what's happening right now by hand. We have huge opportunities, because we have a new factory there as we employed our lean manufacturing fixing our initiatives, we are going to see very good result of these factories, so it's a very good start and the gains, the demand for mobile cranes, truck cranes in China is still very, very strong. And we have a lot of room to improve our market share.

Kent Green - Boston American Asset Management

And just a final question: you talked about verticals, would you talk specifically of the crane business about countries, where you see strength or you see weaknesses?

Unidentified Company Representative

Really, Kent the only weakness is that we see on a global basis right now there is a smaller capacity cranes mobile little bit on the mobile side and the self-erecting towers in domestically, and then portions of Western Europe, again the self erecting in the smaller capacity mobile hydraulics. But other than that, we don't see anything through out the rest of the world.

Kent Green - Boston American Asset Management

Thank you.

Operator

Next we will hear from Dan Veru with Palisade Capital Management.

Dennison Veru - Palisade Capital Management

Good morning gentlemen.

Unidentified Company Representative

Hi Dan.

Unidentified Company Representative

Hi, Dan.

Dennison Veru - Palisade Capital Management

Glen, I'm wondering... most of my questions have been answered, but I wanted to kind of step back and get it your general view on and we talked a lot about China and the emerging markets. But could you specifically talk about opportunities for growth in the Brazil and how you see kind of down the road where you see that as part as a whole composition of the business?

Glen E. Tellock - President and Chief Executive Officer

Yes, I can speak towards that, because the strategy is that... have been employed, been going on for a good four or five years. And it's like any other emerging market that we go into. Our sales people are very good and can sell anywhere in the world. It's really the following up with the product support. And so we now have some good strategies in place to break up all of Latin and South America in different regions with service and support, whether it be facilities, whether it be in partnerships. We for a while have had somebody building math sections for us down in Brazil for our tower cranes are going down there.

We have some other opportunities that we are looking at on the mobile hydraulic side. And the build up of our infrastructure in Brazil has been certainly a very extreme path on growth for us. There is a lot of... when you get into the mining, you look at what's happening in the resources, whether it be Northern Brazil, Southern Brazil. You mean I'll take all of South America, you've Argentina, Chile. So, they're looking at some of the products that they haven't had previously and as an example of that could be boom trucks. We are trying to look at some of our crane product and put it on a local carrier. And so as we do those types of things, again it comes out once we have the infrastructure in place. The life of the customer becomes very powerful and that's where a lot of our strategies comes from.

Dennison Veru - Palisade Capital Management

And those... can opportunities in Brazil overtime approach though, I mean obviously China is on a much bigger scale, but proportionately can they be as important and profitable for you?

Glen E. Tellock - President and Chief Executive Officer

Yes,I think when you look at the growth rate obviously, it's a much smaller base. And you are right, it's not going to get to that level of totaling volumes of China, but it's a very important piece of our business and the people in the Americas responsible for it. I mean yes it's significant part of our business. And as we look at what we've done in the crane side, let's take into the foodservice side. We also have, when you look at some of the financing that we've done in on the cranes. We can take some of this infrastructure, put it in the place and foodservice. And when you look at what Manitowoc food service has... what the notice has. The opportunities that we have to expand in that area I mean again the growth rates can be extraordinary.

Dennison Veru - Palisade Capital Management

And then really not going to ask you the comment on your stock, but clearly the valuation of the company has changed in the lastly year. Yet some would argue that the balance of business would now with food service and just the progress you've made on the crane side and on the marine side that the clearly certainly we would view Manitowoc as a better company today than it was a year or two ago. Yet that's not necessarily reflected in the what Wall Street's valuing the company at. What do you think you need to do to enhance the valuation for shareholders?

Glen E. Tellock - President and Chief Executive Officer

I agree with a lot of what you're saying obviously. But I think if you go back whether it's from 1995 or 1998, 2001, 2004, we've made some pretty bold moves during those years. And it's easy to be the pessimist, but I think what we need to do is simply execute. I said it earlier in my remarks. Our strategies are good, our plans are good. And it's simply a matter of executing. And we have proven track record of that. So that's really what has to happen. So, I think it's simply a matter of execution.

Dennison Veru - Palisade Capital Management

Thank you.

Operator

Next, we'll hear from Dan Sundheim with Viking Global Investors.

Dan Sundheim - Viking Global Investors

Hi guys. Just a question on the capital structure. Can you talk about you are comfortable with maintaining the three times leverage given the cyclicality in the business post-Enodis. I mean can you talk a little about under what circumstances you might raise equity, and also how forgiving the covenants are going to be on the funding?

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

We certainly have a comfort level. And I think that's reflective of the ability to generate cash, very strong cash flow dynamics in the company very consistently over a long period of time. So there certainly is a tolerance for the debt levels that we would expect to be at the close of the transaction in the fourth quarter of this year. That comfort I think has been reiterated by the rating agencies as they've looked at in all that structure and their affirmation of our presence.

Operator

Ladies and gentleman we have lost communication with the feed line at this time. Please stand by while we reconnect it.

Good day every one. You are currently on hold for the Manitowoc's conference call. We are currently waiting on the feed line to be reestablished. Please stand by. We'll be back in just a moment.

And the speakers have been reestablished.

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

Josh?

Operator

Yes sir, you are back on line.

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

Okay, apologies for that disruption and disconnection. So the question was relative to the cap structure comfort level with the leverage. Obviously we have a comfort level based upon a pure debt transaction. We have inherent in our expectations is that we would adapt in all that structure unless there was some thing that would occur relative to other growth opportunities or something that's unforeseen at this level. At this time, we expect to adopt all that and quickly deliver.

As far as the covenants, yes, there is a certainly a comfortable cushion with the covenants.

Operator

I'll take our next question from Matthew Flavell [ph] with Silver Point Capital.

Unidentified Analyst

Yes Hi. Good morning. I was wondering if you could give us a sense of the impact of currency on your cuts line, profitability and backlog.

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

Currencies, probably somewhere just under 7% on the top line. From a profitability standpoint, probably contributed about $0.05 to the EPS line. And backlog would be very similar to the revenue, roughly 6%... 6%, 7%.

Unidentified Analyst

Okay. Thank you very much.

Operator

Next, we'll hear from Alex Blanton with Ingalls Snyder.

Alexander Blanton - Ingalls & Snyder LLC

Hello, it's Ingalls & Snyder. In this part of the call, did you mention what price increases you might be effecting percentage wise for the entire year, year-over-year?

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

Alex, you are talking about for 2008?

Alexander Blanton - Ingalls & Snyder LLC

Yes.

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

Basically with respect to crane, it was mid-single digits that we announced earlier in the year. And that's pretty much we're realizing for this year. What we did mention probably one in the Q&A was not going back and doing mid-year pricing on the backlog. What we have done is instituted in June, a 1% surcharge on some models of the cranes that higher... has some higher still components on the specialty steels. So that will blend itself through for the rest of the year.

Alexander Blanton - Ingalls & Snyder LLC

Well, but what about... do you mention that raise prices in the fall, I think. Didn't you?

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

Yes.

Alexander Blanton - Ingalls & Snyder LLC

So, I am asking for the entire year what do you anticipate your price increase will be?

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

Well, but those prices won't go through further in 2008. Those will be prices that will be starting in January 1 of 2009.

Alexander Blanton - Ingalls & Snyder LLC

Yes, but they've begun things that are ordered, won't they in the fall?

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

I'm not sure I understand.

Alexander Blanton - Ingalls & Snyder LLC

Butwhen someone orders something in November, they're going to be paying a higher price, correct?

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

Yes.

Alexander Blanton - Ingalls & Snyder LLC

So taking that into account when we get to the end of the year, how much will your prices be up for the year?

Unidentified Company Representative

It will be a mid single digit of the percentage of realized...

Alexander Blanton - Ingalls & Snyder LLC

No, no.

Unidentified Company Representative

For the full year.

Alexander Blanton - Ingalls & Snyder LLC

I'm sorry. I don't mean what's going to be realized. I mean the price that you are charging customers, how much will be it up across the year?

Unidentified Company Representative

Well, I mean that's we haven't determined that. And the reason we haven't determined what we are going to do going forward is because as an example of the prices scraps steel goes up 33% in one month. So that's why we've delayed until October, November of this year before we announce the price increases for '09.

Alexander Blanton - Ingalls & Snyder LLC

Right. But do you have an estimate of what your prices will be up? For example in Terrell an area of work platform said, we're going to increase our price to 7.5% in October. And I think JLG ask I said the same thing JLG, 7.5%

Unidentified Company Representative

Right.

Alexander Blanton - Ingalls & Snyder LLC

So do you have any number like that number in mind for the next fall?

Unidentified Company Representative

We do. But we are not going to say it publicly.

Alexander Blanton - Ingalls & Snyder LLC

I mean this goes to what revenue we would be looking for in 2009. Because it will start in January, right? So you have a number in mind. Okay. But you won't share it.

Unidentified Company Representative

No, I think there is a lot that goes into it, and as we contemplate what it is, I mean we have to look at our competitors, you mentioned JLG and that's areas work platforms.

Alexander Blanton - Ingalls & Snyder LLC

Right.

Unidentified Company Representative

I mean that's end market that we don't compete with.

Alexander Blanton - Ingalls & Snyder LLC

I know. I am just saying that's an example of the company, they told us how much they were going to raise prices.

Unidentified Company Representative

Yes, no. We have not determined what we are going to do across the globe on that.

Alexander Blanton - Ingalls & Snyder LLC

Okay. The second question is sort of related to that, but there order very large price increases being contemplated as I just mentioned. Have you in your planning considered what the response of the monetary authorities around the world might be to a very high rate of inflation that we've had? I mean we've seen a lot of different countries, central banks of many different countries raising interest rates recently, because they're concerned about the inflation rate. Is there a chance that this could slow growth down to the point that it would affect your crane business in the next couple of years?

Glen E. Tellock - President and Chief Executive Officer

But I think there's always that opportunity, but when we look at all the external risk factors that come into play and economic policy is one of them, whether it be the Middle-East, whether somebody had asked early what about China when they restrict the exemption certificate and you pay a 17% difference of something either manufactured there or coming in as a import. So those all go into what we're looking at exchange rates, where we manufacture and then. So we take all of that together and try... as I mentioned and try to manufacture many of these end markets, where our products in the market that we are selling them. And to give us the same competitive advantage as a local supplier. So yes, we look at all of that; and even if it's not economic policy, commodity prices as you look at the continuing rise in commodity prices that's an external factor that we watch around the price of oil, which can help us and if it gets too high, just wonder where that breaking point.

So there is a lot of those things that go into play. But as I said earlier in the call, when you look at the end markets from a crane standpoint, I'm gong to speak the cranes on this, the volatility that we saw in the 70s, the 80s, the 90s. Our globalization efforts have tried to take out the impact of these big swings that we have had in our businesses during those previous down turns. And so when you look at this, we are trying to minimize the impacts of any of these localized events that you are talking about. When you look at the food service side, you don't have those same inflationary type pressures and then some more modest increase an then certainly as we have mentioned in the last three years in the U.S. only three contractions. So, we put that all together as we look at our business model moving forward.

Alexander Blanton - Ingalls & Snyder LLC

Okay thank you.

Operator

Next we will take a follow-up question from Charlie Brady.

Charles Brady - BMO Capital Markets

Thanks. Can you just clarify your comment regarding the revenues, crane revenues 2008, does it correctly up 30% plus in '08 now?

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

Forwhereas the original metric that we put out there was a currency neutral metrics. I am saying all in this instance today that our expectations are 30% inclusive of the currency tail wind.

Charles Brady - BMO Capital Markets

What'sthe currency impact year-to-date?

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

It's been similar to what we just disclosed in the... for the quarter 6, 7%.

Charles Brady - BMO Capital Markets

With regard to the food service segment, operating margins... obviously pretty good margins in the quarter despite a revenue decline. Is that... we've moved up to a higher level in that foodservice business or was there something within the quarter that drove that margin higher than we might see a tip back down?

Charles Brady - BMO Capital Markets

Well. I think you certainly, typically would see the second quarter as the highest margin performing quarter for foodservice just based upon the order pattern that have been very tried and true over a long period of time. So all in for the year and foodservice, I think that mid-teen margin expectation in foodservice is still a good metric to look at there.

Charles Brady - BMO Capital Markets

Thanks.

Operator

Ladies and gentlemen, that will conclude today's question-and-answer session. At this time, for any additional or closing remarks, I would like turn the conference back over to Mr. Khail.

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

Before we conclude today's call, I'd like to remind everyone that a replay of our call would be available beginning at 12:00 noon Central Time today until 12:00 midnight Central Time on August 5. The number to dial for the replay is area code 719-457-0820. Please use confirmation code 3047-397. You may also access 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

Ladies and gentlemen, that does conclude today' teleconference. We appreciate your participation. Everyone have a great day.

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Source: Manitowoc Co., Inc. Q2 2008 Earnings Call
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