The Manitowoc Company, Inc. (MTW) Q2 2015 Earnings Report, Transcript and Summary

Good day everyone and welcome to the Manitowoc Company Second Quarter 2015 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Mr. Steve Khail. Please go ahead. Steven C. Khail - Director-Investor Relations & Communications: Good morning, everyone. And thank you for joining Manitowoc's second quarter earnings conference call. Participating in today's call will be Glen Tellock, our Chairman and Chief Executive Officer, and Carl Laurino, Senior Vice President and Chief Financial Officer. Glen will open today's call by providing comments related to our quarterly results and business outlook. Carl will then discuss our financial results for the second quarter in greater detail. Following our prepared remarks, we will be joined by Larry Weyers, President of Manitowoc Cranes, and Bob Hund, President of Manitowoc Foodservice for our question-and-answer session. For anyone who is not able to listen to today's entire call, an archived version of this call will be available later this morning. Please visit the Investor Relations section of our corporate website at www.manitowoc.com to access the replay. Before Glen begins his commentary, I would like to review our Safe Harbor statement. This call is taking place on July 30, 2015. During the course of today's call, forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 will be made during each speaker's remarks and during our question-and-answer session. Such statements are based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied projections due to one or more of the factors explained in Manitowoc's filings with the Securities and Exchange Commission, which are also available on our website. The Manitowoc Company does not undertake any obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events, or other circumstances. With that, I'll now turn the call over to Glen. Glen E. Tellock - Chairman, President & Chief Executive Officer: Thanks, Steve, and good morning, everyone. The results we reported yesterday reflected another challenging quarter for our businesses. While we saw stability in certain product categories within cranes, macroeconomic headwinds and weak oil prices continue to create a level of uncertainty in the rough terrain and boom truck markets that weighed heavily in our cranes results. That said, we have taken decisive actions over recent quarters to respond to those areas that are within our control. For example, over the past 12 months, we have eliminated $30 million of direct and indirect costs and continue to pursue more opportunities to streamline our manufacturing processes. The good news is that the balance of our crane business performed in line with our expectations and we are seeing demand improvement in the residential and commercial construction markets in North America. Turning to Foodservice, we saw improvement as we progressed through the quarter which underscores the corrective actions we have put in place throughout the business. While certain areas are still experiencing softness particularly reduced CapEx spending by large chains, other expects of our business are doing well, particularly, cold-side products as well as ovens and grills in the United States. The notable improvement we experienced in June has continued into the third quarter and we are cautiously optimistic that Foodservice is turning the corner. We're now seeing the benefits of the actions we have taken within our KitchenCare business and the execution issues reported in previous quarters are largely behind us. Our parts flow and order fill rates have dramatically improved, our backlog has diminished, capacity has now aligned and our monthly operating cost are down nearly 40% from the peak. As a result, KitchenCare sales are up modestly on a year-over-year basis and up sharply on a sequential basis. Besides KitchenCare, we continue to make progress on our 80/20 Business Simplification initiative which is expected to drive substantial improvement in our operating profit over the next several years. In essence, this initiative is driving transformational change in our culture. This will allow us to focus on sales, customer support and product development efforts in the most efficient way to grow our business and drive profitability. We are expecting to generate as much as 150 basis points of margin by simply employing our time and resources more judicially through 2017. Once again, our technology leadership in the Foodservice market was validated as we won two Kitchen Innovation Awards at the recent National Restaurant Association Trade Show. In addition, McDonald's named us Innovator of the Year for our superior frying technology and we received the ENERGY STAR Partner of the Year Award for the sixth year in a row. In addition, we received the Supplier of the Year Award from Subway last night in Las Vegas. We also continue to receive favorable results for our Convotherm 4 ovens. Customer feedback has been extremely positive with some stating that its performance and reliability is the best they've ever experienced. Lastly, our fitKitchen solution is also generating considerable interest as this integrated approach to accelerated cooking not only enhances speed of service but improves food quality and the customer experience, particularly for QSRs and kiosk operators. Turning to cranes, global weakness and depressed oil prices continued to negatively impact our rough terrain and boom truck markets, primarily in North America while unfavorable foreign exchange rates have pressured pricing in other regions. As we said on the last call, U.S. permits, rig count, and well starts, all important drivers for the North American crane market, have been declining since the second half of 2014 to levels lower than any time since the third quarter of 2009 as crude oil prices hover near six-year lows. In addition, the euro is at one of the weakest levels in nearly a decade which negatively affects the currency translation of U.S.-denominated carne sales from our European operations. Additionally, our internal forecast had assumed some macro improvement in the second half of 2015 including oil rising to higher levels than we now anticipate. As a result, we now expect any meaningful demand in market improvement of the crane industry to be further delayed. Carl will discuss this in greater detail in a few minutes. Excluding weak demand in the rough terrain and boom truck markets in foreign exchange, we continue to see pockets of strength in certain product categories including tower cranes and all-terrain cranes driven by solid performance in the Middle East, Europe and certain areas within the Asia Pacific region. In fact, we recently launched four new tower crane models that received an enthusiastic response. We were also recently awarded a $192 million mobile crane contract by the U.S. Department of Defense that should impact our revenue beginning in 2017. The amount of this award is not included in our reported backlog. Finally, we are seeing an uptick in non-residential construction in North America which is helping crane utilization in non-oil related markets, but has not yet achieved the magnitude that we had expected. While we are encouraged by these positive indicators, our progress continues to be overshadowed by the oil and gas markets and we don't expect a reversal until oil prices begin to rebound. Overall, our disciplined operating strategy in both segments has resulted in year-to-date improvements in working capital and solid free cash flow generation. Before I turn the call over to Carl, I want to update you on our progress towards the planned separation of Cranes and the Foodservice business. As mentioned on previous calls, we have established the foundation for the execution of the spin, including functional and cross functional teams who are making solid progress and we have created the initial charges for day one readiness. Carl will provide more detail on the related separation costs in his remarks. In addition, we recently announced the hiring of Hubertus Muehlhaeuser who brings over 20 years of global business leadership with an industrial focus to his new post as CEO of Manitowoc Foodservice. Most recently, Hubertus served as Senior Vice President and General Manager EMEA (08:58) for AGCO Corporation. With this key leadership now in place, we will be making other management appointments over the next 30 to 45 days and we remain on track to complete our business separation in the first quarter of 2016. In conclusion, there is no doubt that the operating environment during the second quarter remained challenging, we continue to focus on the agility of both businesses. Manitowoc has weathered many economic cycles and our team has proven its ability to manage the business without compromising our competitive position in the marketplace. Combined with our cost reduction efforts, we believe the initiatives we have taken in the areas of quality, reliability and performance position us well to succeed even with limited end market improvement. With that, let me turn the call over to Carl for a review of the quarter. Carl? Carl J. Laurino - Chief Financial Officer & Senior Vice President: Thanks, Glen, and good morning, everyone. We reported net sales for the second quarter of $885.4 million, which is a decrease of 12.6% from a year ago. GAAP net income for the second quarter was $23.3 million or $0.17 per diluted share versus net income of $46.6 million or $0.34 per diluted share in the second quarter of 2014. Unfavorable currency exchange rates had a $59.7 million negative top line impact, plus an unfavorable EPS impact of $0.03 for the quarter. Excluding special items, second quarter 2015 adjusted earnings from continuing operations were $30.6 million or $0.22 per diluted share versus adjusted earnings of $47.8 million or $0.35 per diluted share last year. We have also made significant progress in implementing the cost savings initiatives that we announced last year, we have generated total savings of $100 million since mid-year 2014. Unfortunately, to-date these savings have been outstripped by under-absorption by both businesses as well as costs associated with factory consolidation and the KitchenCare launch in Foodservice. By its completion in 2017, we expect to achieve total savings of $125 million to $170 million. During the second quarter, cash generated from continuing operations was $55.4 million compared to cash generated from continuing operations of $72.2 million for the second quarter of 2014. The decline was primarily due to lower cash from profitability. Turning to the results of our two businesses, second quarter crane sales totaled $477.7 million decreasing from $606.1 million a year ago. The impact from foreign currency exchange on sales totaled $44.3 million. Crane operating earnings in the second quarter were $26.2 million versus $54.4 million last year. This resulted in the second quarter operating margin of 5.5% compared to 9% last year. This year-over-year decline was due to continued volume decreases in rough terrain cranes and boom trucks which drove lower absorption that was only partially offset by ongoing operational efficiencies and cost reductions. Crane backlog at quarter end was $731 million, up slightly from the second quarter 2014 backlog of $728 million but down modestly from the first quarter 2015 backlog of $770 million. This generated a book-to-bill ratio of 0.92 times. For the second quarter, new orders totaled $438 million, virtually equal to the first quarter of 2015 but down from $491 million in the second quarter of 2014. As Glen mentioned, the recently awarded U.S. government order totaling $192 million is not yet included in backlog due to the multiyear delivery schedule. Foodservice sales in the second quarter of 2015 totaled $407.7 million, roughly flat with the prior year period's $406.7 million. Sales were fueled by strength in North America, cold-side products, ovens and grills which were partially offset by continued weakness in large chain rollouts, particularly in Asia and unfavorable exchange rates. As Glen mentioned, we saw significant improvement towards the end of the quarter and these trends have continued into the third quarter. Second quarter 2014 operating earnings in Foodservice were $63.6 million producing operating margins of 15.6% compared to 16.2% for the second quarter of 2014, but reflected a 600 basis point sequential improvement. The year-over-year decline was driven by lingering costs associated with KitchenCare issues and price discounting that were not fully offset by savings from purchasing and manufacturing cost reduction initiatives. As a result of our improvement initiatives, KitchenCare expenses have consistently trended down over the past few months and are reaching a more consistent run rate. In addition, we have taken $11.6 million in manufacturing costs out of the system year-to-date which is nearly half of our full year 2015 goal of $25 million. As we noted in our press release, we are revising our 2015 full year outlook to reflect our current outlook for the Crane segment which assumes a limited recovery in oil prices. This also affects our outlook for total leverage while our Foodservice outlook remains essentially unchanged. More specifically, Crane revenue should decline by approximately double-digit percentages, Crane operating margins to be in the mid-single-digit percentage range, Foodservice revenue approximately flat, Foodservice operating margins in the mid-teens percentage range, capital expenditures, approximately $70 million, depreciation and amortization approximately $110 million, interest expense approximately $80 million, amortization of deferred financing fees approximately $4 million, total leverage approximately 3.5 times debt-to-EBITDA and effective tax rate of approximately 30%. We continue to anticipate that our total pre-tax separation costs will aggregate a total expense of $130 million to $140 million on a pre-tax basis. The majority of these expenses, most notably debt breakage cost and financing fees, will be realized at closing during the first quarter of 2016. In addition, run rate costs associated with separating into publicly-traded companies are expected to be in a range of $20 million to $30 million on an annual basis. I will now turn the call back to Glen for some closing remarks. Glen? Glen E. Tellock - Chairman, President & Chief Executive Officer: Thanks, Carl. We expect the global macro economic backdrop to remain difficult throughout the remainder of 2015 as lower oil prices, currency headwinds, and a general tone of uncertainty among our customers persists. We are encouraged by recent trends in our Foodservice business and the resilience of our Crane business. However, we continue to focus on those aspects of the business that we can control, namely enhancing our operational performance, optimizing our cost structure, maintaining our leadership position through innovation and quality and improving our organizational efficiency. Although we no longer expect a material improvement in the Crane segment until 2016 at best, we are cautiously optimistic that the recent trends within Foodservice will continue. As we execute the separation of Cranes and Foodservice, we will remain focused on our key initiatives over the remainder of 2015. This concludes our prepared remarks for today. Katy, we will now begin our question-and-answer session.

Thank you. We'll take our first question from Jamie Cook with Credit Suisse. Ben E. Xiao - Credit Suisse Securities (USA) LLC (Broker): Hi, good morning this is actually Ben Xiao on for Jamie. So on crane orders, the orders in the quarter were actually a little better than at least what we were expecting. For the back half, I know that's a little usually seasonally stronger but maybe you can calibrate us on what we should expect in the back half? Glen E. Tellock - Chairman, President & Chief Executive Officer: Are you saying, Ben, from an order perspective? Ben E. Xiao - Credit Suisse Securities (USA) LLC (Broker): Yeah, an order perspective. Glen E. Tellock - Chairman, President & Chief Executive Officer: I think the general tone, and I can let Larry go through it. I think the general tone for us is somewhat kind of more of the same. I think what we have is when you look at the new products, I think that's going to generate some interest but you're right, as you get past the third quarter, as you get into the fourth quarter, you get a little bit of – especially in North America and somewhat in Europe on the tower crane side, you get the dealers that are starting to look at what they want to forecast for 2016. So, I think you're right, seasonally it gets a little better towards the end of the year but I think again, just I think with some of our guidance, I think you can see that it's probably more of the same. Larry? Lawrence J. Weyers - Senior Vice President; President - Manitowoc Cranes: I think that's pretty accurate, Glen. I think for the second half, we don't expect to see a pull-through of the RT or boom truck orders as the market tries to consume those products that were in dealer inventory based on the oil prices. But I think there's some markets that – specifically AT and towers, that continue to produce for us. We saw that in the second quarter. So, I think some of those markets will continue from what we've seen not at a great extent but I think at a balanced incoming rate, so... Ben E. Xiao - Credit Suisse Securities (USA) LLC (Broker): Okay. Thank you. And then switching to Foodservice, the margins, I think were pretty solid. It does sound like for the full year if I interpreted it correctly, you moderated a little bit from improving mid-teens to mid-teens. So I guess how should we think about margins in the back half relative to what you put up in Q2? Glen E. Tellock - Chairman, President & Chief Executive Officer: Go ahead, Carl. Carl J. Laurino - Chief Financial Officer & Senior Vice President: Yeah, I think the way to think about it is, obviously, we had well below our standard type of margin performance in the first quarter. You know certainly made some nice progress on that this past quarter as we look at the exit rate at the end of the quarter, I think it's probably going to be sustainable as we look at the back half of the year. Incrementally for us given the fact that the first quarter and the second quarter were as bad as they turned out, I think that put us in a situation where we felt like you know putting the commentary about improved margins was probably a bit of a stretch and that's the reason for the change just to simply state mid-teen margins. Ben E. Xiao - Credit Suisse Securities (USA) LLC (Broker): All right. Thank you.

We will take our next question from Jerry Revich with Goldman Sachs. Jerry D. Revich - Goldman Sachs & Co.: Hi, good morning. Carl J. Laurino - Chief Financial Officer & Senior Vice President: Hey, Jerry. Glen E. Tellock - Chairman, President & Chief Executive Officer: Good morning. Jerry D. Revich - Goldman Sachs & Co.: I wonder if you could talk about within Cranes just flesh out for us the relative pockets of strength from an order standpoint in the quarter or inquiry levels just if you could just expand on the prepared remarks? Glen E. Tellock - Chairman, President & Chief Executive Officer: Go ahead, Larry. Lawrence J. Weyers - Senior Vice President; President - Manitowoc Cranes: Yeah, sure. I think what we've seen is that for our tower cranes and our all terrain cranes, they are pretty much in line with our expectations. We just introduced four new models of tower cranes as Glen mentioned plus a new GMK model. But the pockets of strength still remain, I would say the pluses are the UK, the UAE, Korea, Saudi Arabia is still fairly strong on the non-res construction. We will see how that plays out with their spending on that versus defense. But I think Germany, France still, Italy is a little bit stronger and Spain believe it or not. Belgium, Netherlands are flat, India is flat and I think it really comes down to the boom truck and the RT that are the challenging based on the oil. I would say the one positive sign we've seen there is a reduction in our dealer inventory of about 38% since the first quarter, but most of those cranes are going out on a rental purchase option which means they're not converted to a sale but they're actually moving somewhat out of the channel. So, I think from that order's perspective we're going to see – try to see that inventory flush out through the end of the year to position ourselves more positively for 2016. Jerry D. Revich - Goldman Sachs & Co.: Okay. And then in Foodservice, can you just clarify your comments of 150 basis points margin expansion by 2017, I'm assuming that's on top of reversing the startup expenses on KitchenCare – is that right, can you flesh that out for us? Carl J. Laurino - Chief Financial Officer & Senior Vice President: That's correct, Jerry. That's incremental to the expectations that we had prior to introducing the business simplification that 80/20 represents. Jerry D. Revich - Goldman Sachs & Co.: Okay. Thank you.

We'll take our next question from Nicole DeBlase with Morgan Stanley. Nicole DeBlase - Morgan Stanley & Co. LLC: Yeah, thanks. Good morning, guys. Glen E. Tellock - Chairman, President & Chief Executive Officer: Hey, Nicole. Carl J. Laurino - Chief Financial Officer & Senior Vice President: Good morning. Nicole DeBlase - Morgan Stanley & Co. LLC: Hi, there. So, my first question is around the Crane guidance, so down double-digits, just, it's kind of broad. I'm just curious if by down double-digits, we can clarify that, does it mean down low double-digit, mid-teens, high-teens, like what are you guys thinking for the full year? Glen E. Tellock - Chairman, President & Chief Executive Officer: It's still lower end of that, Nicole. Nicole DeBlase - Morgan Stanley & Co. LLC: Okay, got it, that makes sense. And then my second question is I am not sure if you guys are willing to elaborate on this a little bit, we were talking about the food margin exit rate a little bit earlier, does that give you confidence that you can get to, back to that range that you were operating at before KitchenCare and some of these other headwinds around 16% to 17% in the second half, is that where you guys are targeting? Glen E. Tellock - Chairman, President & Chief Executive Officer: I think that's a fair assumption, you know and again, I think, the things that you've seen, I mean if you go back six quarters or eight quarters, I mean the run rate was right around that same amount. So we are – I mean we've had a few hiccups, we've talked about them. We've address them and I think this is where we should expect to be and I think Bob and his team have a lot of that behind them and a lot of the new initiatives, as they gain some momentum going to the end of this year and into 2016, I mean it's certainly a more positive story. Nicole DeBlase - Morgan Stanley & Co. LLC: Okay, thanks. I'll pass it on.

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

Hey, good morning, guys. Steven C. Khail - Director-Investor Relations & Communications: Good morning, Seth.

Good morning. So I thought it might be helpful, so for Crane revenues for this year, we're looking at something which is roughly half of where we peaked out at in 2008. Can you frame for us by product category, maybe I know you don't break out revenues by category, but how far off the peak we are in each of the kind of the four major Crane segments, is that something you'd be willing to do? Glen E. Tellock - Chairman, President & Chief Executive Officer: Yeah, I think, no, not really willing to answer your question, but I would give you some clarity on that. I think you heard me say in my remarks on the Crane side whether it's oil and gas or the boom truck and RT market, we are at the levels we were at 2010 when you get to some of that, so it's well off the peak. As you get to the crawler, the RT, I am sorry the – as you get to the crawler, the towers, and the ATs, the ATs are probably the one that has gone up closest towards that peak and then the towers – still that was such a great market in 2008. It's certainly not – that dropped 80% from 2009 to 2010. But I think it's climbed steadily over the last four or five years and we expect that with some of the – just with the improvements in the economies and then with new products. I don't know, the crawler market has gone up more than towers or ATs but I think those are improving where what happened is the RTs came out of 2010 a little faster than the rest of the market, peaked in 2012 and now you are seeing the decline over the last three years. So, hopefully that gives you a little bit better indication of where it's at, but there is still room to go, I mean especially in towers, ATs and crawlers, there is still room to go to get to the 2008 levels, but we don't expect that to happen soon.

Well, sure, sure, sure. Okay, just going back to the guidance, the revenue guidance for the Crane business, I mean if you are talking revenues down 10% to 15%, that still implies you know something like $1.1 billion or $1.2 billion of revenue for the back half of the year versus the $900 million you did in the first half but it sounds like you're talking about orders being kind of constant. So, I'm trying to reconcile those two comments if you could? Glen E. Tellock - Chairman, President & Chief Executive Officer: Yeah no, and it's – that one, Seth, you're spot on and the one that you wouldn't get from that it's more on the – it's mostly in the crawlers and that's going to give you the – a lot of the – where we have the new products the MLC300 and the MLC650. The run rate in the back half of this year is almost that difference you talked about in the back half of the year versus the first half for crawlers.

That's the VPC you're talking? Glen E. Tellock - Chairman, President & Chief Executive Officer: Exactly, exactly

Okay. And then – thank you, that's helpful. And, Carl, maybe if I can just get a clarification on the $20 million to $30 million of additional run rate costs, does that – will that run through corporate expense or will you call that out when you report as an items? Carl J. Laurino - Chief Financial Officer & Senior Vice President: Those are represented by the separate public companies in the costs associated with obviously the leveraging that takes place as a single public company, that is not possible under two independent public companies and just the run rate costs associated with that. So, it's really nothing that you're going to see prior to affecting the separation.

I got it. Okay. Thank you very much.

We'll take our next question from Vishal Shah with Deutsche Bank.

Yeah, hi. Thanks for taking my question. Can you maybe talk a little bit about the 30% of the cranes that are sold to the oil patch, what percentage change you're expecting for this end market in the second half versus the first half? Glen E. Tellock - Chairman, President & Chief Executive Officer: Go ahead, Larry. Lawrence J. Weyers - Senior Vice President; President - Manitowoc Cranes: Yeah. I think your question was around the volume of cranes to the oil patch, the 30%. I think the 30% is the normal run rate for us of cranes going into that work. I think what's different or what's changed now is when the oil prices drop so severely that you have a fleet of cranes that are not working. So you have to have a period of time here where those cranes are pulled through the system. So, in a normal year, we would have 30% effect of that, but I think with a lot of these customers renting and not purchasing and waiting to see what's going to happen and some of the projects being delayed, we're going to see an effect here where the cranes have to get pulled through and retailed and that's going to take a bit of time here. And I think, what we don't want to do is, get in a position where we're either heavily discounting or trying to pump cranes into the market again without the proper demand. So, I think we're in the position to balance our production and focus on our costs both direct, indirect, production, material. But we don't want to overstock the market as we go into 2016.

That's helpful. And just clarification on, given the lower cash flow expectations for the second half have you – have you guys started rethinking about your debt repayment expectations and you know how should we be thinking about the capital structure for both the Foodservice as well as the Crane businesses as separate entities in 2016? Thank you. Glen E. Tellock - Chairman, President & Chief Executive Officer: Go ahead, Carl. Carl J. Laurino - Chief Financial Officer & Senior Vice President: Yeah, I would say that the, really the change in the view on the leverage side is driven by the EBITDA erosion that's taken place primarily in the crane side of the business given the back half for the year outlook and results to-date. As far as what the expectations are about the capital structure, what we stated is that we expect the credit rating for the separated companies to be as equivalent or better than Manitowoc's current and that expectation has not changed. And we will take a scenario-based approach to the agencies so we'll have that visibility on the front end as to which scenario to choose in order to ensure that that happens.

Thank you.

We will take our next question from Ted Grace with Susquehanna.

Good morning, guys. Glen E. Tellock - Chairman, President & Chief Executive Officer: Hi, Ted.

First thing I was wondering maybe just to Larry's last comments, frequently you talk about time utilization statistics in the field and to your prior comments about the need to absorb kind of stock out of the energy patch more broadly, can you just update us on kind of where you think you are in North America and then other key geographies that are affected, whether that's parts of Asia Pacific or elsewhere? Carl J. Laurino - Chief Financial Officer & Senior Vice President: I'll let Larry elaborate a little bit more from his conversations with different customers but, Ted, the thing that's interesting to us and we talk about it quite a bit internally is when you look at many of the customers that are out there, they are very busy, the utilizations are high. One of the things that everybody is trying to get now it's purely on the rental rates, and the rental rates probably not improving as fast as what you would see with utilizations as high as they are. And I think to Larry's point, where you are seeing people on the RPOs and things, while they are busy, you wonder about the confidence because they are not buying, they are kind of going on a lot of these purchases on the RPOs. So I think when you look at what's happening primarily in North America, I think, a lot of it's a lack of confidence, and more specifically, we've talked about the non-res and the commercial construction improving but not offset by what Larry talked about, you see some of these other cranes moving out of different parts of work and go into others. That's really what's interesting and when you talk to a lot of the rental companies, if you see them for the first time, and you haven't talked them for a while, it's like, wow, you guys must be busy. Well, there is that dichotomy there and the other thing we talk about quite a bit is you see some of the rental companies aging their fleets just a little bit longer. And, again, that's just a – it's more of a cautious move than it is a defensive move, I think. But I think it just, there has to be some confidence and some optimism in the markets and I think that's what's driving a lot of the decisions. But I can assure you that a lot of the rental companies out there are very busy right now and that's both North America and in Europe on the towers and the ATs. Glen E. Tellock - Chairman, President & Chief Executive Officer: Larry? Lawrence J. Weyers - Senior Vice President; President - Manitowoc Cranes: Yeah, I think the utilization we're watching the closest obviously is the RT and boom trucks and, we use our CraneSTAR to check utilization and we've seen some drops in specific models that we know are specific to the oil patch or oil-related work. But I think a lot of the dealers or customers, specifically our dealers that are offering cranes on a rental purchase option, that still ties up their capital. So I think we're really trying to watch when some of those get converted. People that have been running a crane for two to three years and I think when that conversion rate happens in combination with the reduction of the dealer inventory, that's when we're going to see some positive light. I would say the other thing we're watching from a global perspective is cranes coming from other parts of the world where the markets are down and they're coming back into North America. Australia for one we've seen some cranes coming from there back into the U.S. but places like Algeria, it's still been a good year for us but we're watching that closely because of the amount of cranes going to oil. Vietnam there's a lot of steel (36:10) projects going on there. So, but I think because of the size of the share we have in RTs and in North America, we're really trying to plan effectively to work with our dealers to help them manage their inventory. So, we, again, aren't plugging the channel with cranes at lower or discounted prices.

Okay, that's helpful. The second thing I was hoping to ask is just on new leadership at Foodservices, we've gotten the question a lot, so I figure it best to hear from you guys directly, I think a lot of investors were kind of hopping that you'd have somebody out of industry thinking that that would be important to kind of more effectively managing the Foodservice business. Obviously you made a decision to go with somebody that came out of more of a conventional industrial background. Can you just walk through kind of like the pros and cons of that selection process and why – and I apologize, I won't try to pronounce his name, because I know I won't get it right, but could you just walk through why you think he is the right person to lead this business with the lack of foodservice experience on his resume? Glen E. Tellock - Chairman, President & Chief Executive Officer: Yeah. I can try. I think when you look at the industry and you look at – I think that was a – we had utilized Korn Ferry on an extensive search for this and so they came forward with names like any other search goes through, I don't need to tell anybody on the call how these searches work. But I think you go back and you find people that are interested and you vet the selection process and so to make it look like someone from within the industry, we had very good candidates. But you've got to remember that this is a very fragmented industry and there aren't a lot of people that that have leading positions that all of sudden what makes them – if they are a competitor whatever, what makes them want to jump ship to Manitowoc? I mean, there's a lot of reasons why I could see it, but I think there's a lot of uncertainty. It was a difficult search, just because of I think the separation, so you have a lot of things that while it's a very positive position, it's a very difficult decision and so when you go through the candidates, you look for somebody that is going to keep the team together, you look for somebody that's been an operator before. You look for somebody with international experience. You look at all the qualities that we need and this isn't a turnaround situation by any means. It's purely a situation where somebody needs to come in and pull a few levers and look at it maybe a little differently than we've looked at it in the past and grow the business. So, I mean, I get the fact that people wanted somebody from the industry but at the same time, it is almost like draft day. You take the best candidate available and you take the most talented person and that was the person chosen. Bob, I don't know if you have any comment. Robert M. Hund - Senior VP & President-Foodservice Segment: Yeah, maybe I can make, Ted, I can make a comment too and that is the experience of the existing Foodservice leadership team is still there. I think one of the talents that Hubertus has for us is the ability to convert us from being a segment of one company to being a corporation unto itself with his industry experience in developing companies. I think that's where we're going to see him shine being able to continue doing what we're doing and lead the segment and grow the business. We have strategies in place to move forward with it and we're looking to him to help us become an independent company, that's – I think from within the company, that's where we're looking his leadership to help us the most.

Okay. That's really helpful and I know everybody looks forward to meeting him once he is on board. So, good luck this quarter, guys. Glen E. Tellock - Chairman, President & Chief Executive Officer: Yeah, thank you. Robert M. Hund - Senior VP & President-Foodservice Segment: Thank you.

We'll take our next question from Mig Dobre with R.W. Baird. Joseph M. Grabowski - Robert W. Baird & Co., Inc. (Broker): Good morning, everyone, this is Joe Grabowski on for Mig. Glen E. Tellock - Chairman, President & Chief Executive Officer: Hi, Joe. Carl J. Laurino - Chief Financial Officer & Senior Vice President: Hi, Joe. Joseph M. Grabowski - Robert W. Baird & Co., Inc. (Broker): Most of my questions have been answered – hi, good morning. Most of my questions have been answered. Just wanted to drill a little deeper on the VPC shipments, it sounds like they're really going to move the needle in the back half of the year. Can you tell me has VPC started shipping, when will it start shipping and sort of what are the status of new orders that have been coming in this year for the VPC product? Glen E. Tellock - Chairman, President & Chief Executive Officer: I mean if you recall, we said the first – the MLC300 and the MLC650, the first ones we'd ship, we said a long time ago would be early in the second quarter. We actually I think got it out by the end of March, at the end of the first quarter. So we've been shipping these since the end of the first quarter. So I think that's why, when you look at the run rate, you basically have a slower start up, basically none in the first quarter, I mean, yeah, okay, we got them out, a couple. But you have what you have is gaining traction in the second quarter. Now you have it in full run rate for the third and fourth quarters, so that's not an issue there. So I mean and with respect to the orders, I mean it's being well received. I mean, that's about all I can say is that the ones that are out, the people that are using them like the crane. We are getting very positive feedback and we're excited about it. We know the technology works and it's, as we've said previously, some people have called it a game-changer and time will tell but we certainly like our chances. Joseph M. Grabowski - Robert W. Baird & Co., Inc. (Broker): Okay, great, thanks. And then on the Foodservice side, maybe more of a big picture question. The consumer has been taking advantage of lower gas prices to eat out more, restaurant sales are up pretty strongly year-to-date. Could you maybe just talk about your initiatives of broadening your customer base and maybe getting beyond sort of the top 10 QSR players into some of the more faster growing, fast casual players to take advantage of the strong restaurant trends we've had this year? Glen E. Tellock - Chairman, President & Chief Executive Officer: Yeah, I am going to turn over to Bob quickly, but to that point, I think when you look at some of the markets that we are very strong in and continue to be, and I will let Bob talk about some of the markets, our businesses that are up in different areas. But you look at the one that's, that's a big one right now is on the convenience stores. That's where you're seeing a lot of traction and we have some great initiatives going on with a lot of different people. And Bob can talk to it more but to your point, the general market, if you get away from some of the chains and you look at more of the "general" market, those trends right now for our business are very positive and I think that's why we see, that's why we're more confident in the back half of the year than what you saw in the first quarter. Bob, go ahead. Robert M. Hund - Senior VP & President-Foodservice Segment: Yeah, thanks, Glen. I think we have gained some considerable traction. If you look at our general market growth rate and particularly North America, it's well, well outpacing industry growth. So it is an area we're growing in. We are also taking advantage of our third party rep force across North America and we've had them all in recently to continue to grow that fast casual, casual dining segment. Glen mentioned C stores is an important area. He also mentioned in his prepared remarks on fitKitchens, it's doing a kind of a tiny kitchen food inspiring technology, where you mix the culinary in and try to do it in a much smaller footprint with lower cost. Even the chains and the start-ups are interested in this type of concept because they can go into a smaller footprint area in a bigger city or in a second tier city in China, or India as an example, and kick off the business in the right way. All these things are going in I believe in the right direction to be able to grow that area, to grow just outside of the large QSRs. In fact, the large QSRs are interested in that type of concept as well, too. We continue to grow products in that area and do further developments like in our Merrychef line, the Accelerated ovens is an important area, our smaller combi ovens, smaller fryers and these types of things will help develop that type of market. Joseph M. Grabowski - Robert W. Baird & Co., Inc. (Broker): Okay, great. Thanks, everyone. Good luck in the back half. Glen E. Tellock - Chairman, President & Chief Executive Officer: Thanks.

We will take our next question from Joe O'Dea with Vertical Research Partners.

Hi, good morning. Glen E. Tellock - Chairman, President & Chief Executive Officer: Hi, Joe.

On Crane margins – hi. When, I mean you've actually dialed in across both segments, the $100 million of savings out of that $125 million to $170 million target quickly, and so when you think about some of the pressure maybe in Crane margin and then as you exit this year and into next year, just trying to get a sense of whether in next year, there's a little bit of a mix benefit with some of the development or demand trends in Europe? Whether or not there's been just given the pace of declines, it's been a harder impact on production and so that eases both – just trying to get a sense really of the opportunity for year-over-year margin improvement in Cranes next year barring any kind of real shift in current demand environment? Glen E. Tellock - Chairman, President & Chief Executive Officer: Well, I think if you look at – if it's apples-to-apples and you didn't have the separation or some of the associated separation costs in the SG&A, there would be margin improvement and a lot of it is because in my prepared remarks, I said over the last 12 months, we've taken $30 million out of direct or indirect cost. And so what you look at, there is a few things that I would say – I wouldn't expect to happen again next year and you kind of pointed to it as how fast do you get in front of that decline in some of these markets where you didn't see it in maybe the RTs and the boom trucks. So you annualize the costs you've taken out. There's areas where we can impact the utilization of a factory like Shady Grove by doing other things there whether it's North American GMKs, it can be some of the things as we have a lot of the cranes coming out of Manitowoc. There can be shifts in capacity that can help basically those unabsorbed variances that you have in your factories and the key – and the other startups that we had are the SAP that we had in Manitowoc as we went live there and the startup experiences you have with the new products such as the MLC300 and the MLC650. So you have all those behind you and just, you would expect that once those are behind you, you would have margin improvement. So, there's no reason why we wouldn't expect at these levels for the margins to improve.

That's helpful, thank you, and then on KitchenCare, in terms of measures that still need to be taken, is that fixed in 3Q? Are the issues outstanding at this point more customer relationship and so that slowly comes back, but just kind of the timeline and outlook on that – kind of like the big remaining piece I think in marching food service margins back up? Glen E. Tellock - Chairman, President & Chief Executive Officer: Yeah, I think you've kind of touched on both of them, I think we still have some things to do. I mean, we're not out of the woods but I can tell you that Bob and his team have done a yeoman's job to get it where it is today back on track, but there is – the issues are smaller and smaller every time we have a steering committee meeting to talk about them. And I think we talked about the run rates of the costs that are in there, down 40% from the peak. We believe that and we said this at the end of, I think our last call, by August, we will be back at our normalized run rate for the KitchenCare parts activities. The one thing that is the wild card and you said it, what are some those relationships where it still is going to be the, hey, show me first. I got impacted quite a bit but I still – show me before I really jump back on board. The other area that we could improve a lot quicker is some of the international shipments. We still have a little bit of some things to do there. We recognize it. We are getting better at it but it's just some of the documentation and those kinds of things that go with international shipments, but we're certainly in a much better place as we sit here today than we were three months ago. Bob? Robert M. Hund - Senior VP & President-Foodservice Segment: Yeah, maybe I can also mention too, it wasn't until closer to the end of the quarter that we started taking more significant cost out. We wanted to make sure we got our order fill rate up and we took care of our customers before we started pulling significant cost out of that business and that really didn't happen until about the June timeframe, and we have a little bit more to go but we think we can get there with KitchenCare. Order fill rates are closer to 90% now and those types of things, so it's coming around. As Glen said, the only thing left is we've got little more work to do in international shipments and I think we will be there in terms of cost and then customers as well too, customer satisfaction.

Got it. And then maybe one last one, Carl, just circling back to your comment on thinking around leverage and the target to keep the rating. I don't know if you are able to add on to that at all, high level at least what you think that means in terms of separated company leverage levels? Carl J. Laurino - Chief Financial Officer & Senior Vice President: Not specifically, but I think obviously fair to say given the margin profile and the stability in the Foodservice business that there'd be greater level of debt in Foodservice than the more cyclical lower margin Cranes at least currently, so that's the general expectation and we will get more specific about that as we continue to go forward through the split process.

Okay, all right, thank very much.

We'll take our next question from Tim Thein with Citi Research.

Hi, great. Thanks. Good morning. I guess two for Larry, first, just on Europe specifically. A lot of kind of mixed messages in recent weeks just in terms of the pace of underlying macro and the outlook there, but as you get closer to kind of the quoting and order season for towers for 2016, I am just curious what you see across Europe in general from the standpoint of rental rates? Lawrence J. Weyers - Senior Vice President; President - Manitowoc Cranes: Yeah, I think the rental rates depends on which market you are in especially for towers. I think the UK has been fairly robust over the past 8 to 10 months and it looks like it's going to continue. I think Europe, specifically, I think Germany, France, I don't think the rates are overwhelmingly great, but we see some recent activity with the new models that we've come out with. We just launched those two weeks ago, and then I think Italy as well, there's some activity that is starting to show. So for core Europe and then you have other areas, Algeria has been a very good market for us, not core Europe but there has been a lot of equipment going into that which was oil related. So I think we have to keep an eye on how that trend takes place. And then I think you have clearly the Iranian activity that's going on and how those sanctions are handled going forward. So, clearly, that's a market that could be a strong potential but on the flipside, that could have repercussions depending on how that's viewed by countries like Saudi Arabia and other countries that could affect our business, our current business there. So, but I think it's – there's not an overwhelming huge jump that anybody would expect for our tower crane business in that area but we do have some specific new products that are hitting the market that are going to affect our position in Europe definitely in 2016 in a positive manner.

Okay. Got it and then just coming back to North America and your comment earlier around some of the rental operators in North America not having quite the ability to push rates up enough to make that ROI math work in terms of purchasing new cranes but do you think it's – this weakness in oil and gas, do you think it's sharp enough or I don't know, deep enough to trigger more consolidation in a channel that hasn't seen that same level of consolidation like the general construction equipment rental market has? I'm just curious your thoughts, there's been some recent news there in terms of some of the private equity firms getting a bit more aggressive but I – just curious as to your thoughts around that. Lawrence J. Weyers - Senior Vice President; President - Manitowoc Cranes: Yeah. I'm not so sure those activities and I know which ones you're talking about that were related so much to the decline in oil. I think most of the companies in the market today have rebalanced and reset based on the assumption that the oil price probably isn't going to get much better through next year. So I think what consolidation activity takes place will be because of other business-related issues. I think more the companies that will be affected are maybe not so much are crane rental companies but the companies that are specifically are in the shale oil business, we've seen them affected quite heavily with layoffs and some closures of specific companies that are doing work in the shale business. And we've seen other companies step in and buy a lot of that equipment right now based on the price being very attractive as you can imagine. So I think the consolidation will take its normal course and we don't see any huge pressure to say, hey, I need to sell my business because I'm that affected by the oil prices but that's just my view.

Understood, thanks for the time, Larry. Lawrence J. Weyers - Senior Vice President; President - Manitowoc Cranes: Yep.

We'll take our next question from Brett Stone with Cantor Fitzgerald (56:09).

Hi, thanks for taking my questions. Regarding the Foodservices spin off, could you give us some color on the other roles you're looking to fill and when you would expect the new board to be assembled and then I think you've already touched on this a little bit but could you just walk through the first three months and quarters for the new CEO and where his focus would be, would you expect him to do a strategic review or is he really just going to be focused on the execution of the breakup? Glen E. Tellock - Chairman, President & Chief Executive Officer: No, well, I'll touch on some of the earlier questions. We mentioned in the next 30, 45 days you'll have probably the first level of management communicated both internally and externally. I think as you go to the next level down, most of that will happen at – by I think our target date is in September for the L2s.

Okay. Glen E. Tellock - Chairman, President & Chief Executive Officer: And then with respect to the board, that discussion we have our board meeting next week and obviously, we've been working on it, that's part of the spin plan and the goal we have is basically not to have any overlap be – on the boards between the two companies. We're going to have to try to decide how to split up the participants on the board to either Foodservice or Cranes but we have initiated a search with Spencer Stuart to get additional board members for Foodservice and Cranes because we will need them. So, that's going to take as we file Form 10s as we have the names of those people that are already on and we know which one they're going to, we'll fill those in and as we get them, we'll go along but those are all effective obviously on the day of the split. With respect to Hubertus and what he is going to do in the first 90, 100 days, he obviously – the majority of his time is going to be looking at, okay, understanding where are we, what are the strengths, what are the weaknesses? He's got to get to know the people, he has got to put his team in place. He's going to be working with me on the separation, it's going be his decisions as we go through, we've been working on a lot of Foodservice things in kind of a quasi team and now he can be part of the spin process also on the steering committee that will be making decisions for Foodservice. So, yeah, he is basically jumping in feet first and he will be putting his mark on the Foodservice business day one and so it's really kind of – he is got to be working on it all because on day one, he has got in charge. So we actually look forward to it. I mean it's nice to have Hubertus on board and named. I mean it's taken a lot of uncertainty out of a lot of the things that have been questioned by employees for the last few months and so now to your point, get the next level on and that will take a lot of more uncertainty out and we can focus on the spin. So it's really, we're in the execution phase now and you will see more and more as we go through the quarter.

So, would you expect him to sort of come back to the market after 100 days with a sort of his findings or will that be quite formal or would it be more... Glen E. Tellock - Chairman, President & Chief Executive Officer: No, I don't think so, I don't expect that. I know my conversations with Hubertus, I mean he has been a very quick study and he has spent lot of time looking at what Foodservice is doing and I know he has had a lot of conversations with Bob. And I think to the point that we made earlier, as he looks at it, the comment that he made to me is he said – and we are putting him with the board meeting next week. He has looked at where Bob has turned in the Foodservice strategy through 2016 to 2018 and I think generally agrees with it and is on board. I mean but of course, for us to sit here and think there aren't going to be changes made we'd be crazy. I mean that's silly to think he is not going to put his own stamp on some things but I think the best thing that I believe and again, what he said to me is, hey, look, I agree with where you're headed. I like what I hear. There is probably just a few levers that he may put a different little spin on and I think he needs to pull those levers and do it but again, it's not a turnaround, and it's not something that you've to upset the entire apple cart for. So I think there's some things he has got in mind and when he gets to those, I'm sure when we get on one of these calls, he'll be happy to talk about it. So, I mean we'll certainly let you know.

Great. Thanks for the color.

With no further questions in queue, I'll turn it back to Mr. Khail for any additional or closing remarks. Steven C. Khail - Director-Investor Relations & Communications: Before we conclude today's call, I would like to remind everyone that a replay of our second quarter conference call will be available later this morning. You can access the replay by visiting the Investor Relation section of our corporate website at www.manitowoc.com. Thank you everyone for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again during our third quarter conference call in October. Have a good day.

That concludes today's conference. We appreciate your participation.