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Edited Transcript of MTW earnings conference call or presentation 8-Nov-19 3:00pm GMT

Q3 2019 Manitowoc Company Inc Earnings Call

Manitowoc Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Manitowoc Company Inc earnings conference call or presentation Friday, November 8, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barry L. Pennypacker

The Manitowoc Company, Inc. - President, CEO & Director

* David J. Antoniuk

The Manitowoc Company, Inc. - Senior VP & CFO

* Ion M. Warner

The Manitowoc Company, Inc. - VP of Marketing & IR

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Conference Call Participants

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* Benjamin J. Burud

Goldman Sachs Group Inc., Research Division - Research Analyst

* Jamie Lyn Cook

Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst

* Lawrence Tighe De Maria

William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure

* Michael Shlisky

Dougherty & Company LLC, Research Division - Senior Research Analyst

* Mircea Dobre

Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst

* Seth Robert Weber

RBC Capital Markets, Research Division - Analyst

* Stephen Edward Volkmann

Jefferies LLC, Research Division - Equity Analyst

* Steven Fisher

UBS Investment Bank, Research Division - Executive Director and Senior Analyst

* Thomas Marc Alfred Simonitsch

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, everyone. And welcome to The Manitowoc Third Quarter Earnings Conference Call. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Ion Warner, Vice President, Marketing and Investor Relations. Please go ahead.

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Ion M. Warner, The Manitowoc Company, Inc. - VP of Marketing & IR [2]

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Thank you, and good morning, everyone, and welcome to The Manitowoc conference call to review the company's third quarter 2019 performance and 2019 full year business outlook, as outlined in last evening's press release.

With me today are Barry Pennypacker, President and Chief Executive Officer; and David Antoniuk, Senior Vice President and Chief Financial Officer.

Today's webcast includes a slide presentation, which can be found in the Investor Relations section of our website under Events and Presentations. We will reserve time for questions and answers after our prepared remarks. (Operator Instructions)

Please turn to Slide 2. Before we begin, please note our safe harbor statement in the material provided for this call. During today's call, forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, are made 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 or actual projections due to one or more of the factors among others described in the company's latest SEC filings. The Manitowoc Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or other circumstances.

And with that, I will now turn the call over to Barry.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [3]

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Thanks, Ion, and welcome, everyone. We once again delivered a strong quarter using the sound principles of The Manitowoc Way. We generated $43 million of adjusted EBITDA, an increase of $12 million on flat revenue, which was primarily driven by strong operational performance. This marks the 10th consecutive quarter of year-over-year adjusted EBITDA margin improvement.

Free cash flow generation of $25 million was solid as well, representing a significant improvement compared to last year.

As you are aware, last quarter, we committed to reducing our inventory by $80 million by year-end, and I'm happy to say we are on track to achieve this goal. The hard work and dedication of our employees delivered these results, and I couldn't be more proud.

I am also happy to say that Manitowoc tightened the range of our 2019 guidance and increased earnings despite lower anticipated revenue.

And now let's focus on orders. Last quarter, we discussed the broader softness in global markets due to trade disputes and other macroeconomic factors. These conditions have persisted in the third quarter, resulting in orders, which were short of a prior year level.

The Americas led the overall decline due in part to our strong bookings in the prior year of new product introductions that carried over from Crane Days. Our year-over-year decline was broad-based across all product lines.

For the first time in a long while, South America is showing signs of life, which has continued into our October bookings.

In EURAF, the reduction was not nearly as dramatic and was concentrated in one particular product line within towers in Germany. On the plus side, Benelux, Spain, Portugal and Italy showed growth.

In MEAP, the Asia Pac region of our business performed very well. However, the Middle East continues to be an area of focus for improvement.

As our orders indicate, we are in a slowing environment. During the quarter, we began the process of aligning our production levels with current demand and are prepared to adequately react to market conditions being positive or negative because as you are aware, this business can turn very quickly.

Dealer inventory across all markets is properly aligned with current market expectations, market feedback from our key customers as it still remains a high level of utilization of key equipment, but very few are talking about fleet expansion due to all the factors that have been discussed ad nauseam.

With that, I'll turn the call over to David to walk us through our financial results in more detail as well as provide color on our updated full year guidance.

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [4]

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Thanks, Barry, and good morning, everyone. Let's move to Slide 3. Net sales were $448 million for the quarter, essentially flat year-over-year. On a currency adjusted basis, net sales for the quarter were $457 million, an increase of $7 million or 2% year-over-year.

The Americas segment continued to perform well as sales increased 12% year-over-year, driven by higher shipments, primarily for the expansion of our customers' rental fleets.

In EURAF, net sales declined 9%, 5% on a currency neutral basis. This decline was primarily due to reduced shipments to the commercial construction end market.

The MEAP segment net sales declined $13 million on a currency neutral basis, primarily due to reduced shipments to the Middle East. Our execution on the items within our control was excellent as we expanded adjusted operating margins by 280 basis points to 7.6%, with strong contributions from favorable price realization and cost reductions throughout the business.

Our adjusted EBITDA in the quarter was $43 million versus $31 million in the prior year, a 40% increase on essentially flat revenue.

Interest expense in the quarter totaled $7 million compared to $10 million in the prior year.

The overall effective interest rate in the quarter was 9% compared to 12% in the prior year, reflecting the benefit of the refinancing of our debt and lower average borrowings in the quarter.

GAAP net income was $18 million or $0.51 per diluted share as compared to $12 million or $0.32 per diluted share in the prior year.

Adjusted net income for the quarter was $19 million or $0.54 per diluted share, an improvement of $12 million or $0.34 per diluted shares compared to the third quarter of 2018.

Cash flows provided by operating activities on a GAAP basis were $38 million compared to adjusted cash flows from operating activities of $8 million last year. This was mainly driven by improved management of our working capital in the quarter.

As of September 30, our total liquidity was $354 million, with no borrowings outstanding on our ABL revolver. The net debt-to-adjusted-EBITDA ratio was a healthy 1.6x. Our ABL capacity, coupled with the low net debt ratio, provides us with ample liquidity to execute on our growth strategies while meeting ongoing operational cash requirements.

Turning to Slide 4. Please refer to our updated 2019 full year guidance. To highlight the most notable items, we have decreased our revenue guidance from $1.850 billion to $1.880 billion, which represents a year-over-year change of approximately flat to up 2%, and increased our adjusted EBITDA guidance to $145 million to $160 million, which represents a year-over-year increase of approximately 25% to 38%.

This guidance assumes normal seasonality, which will adversely affect the fourth quarter results due to higher sales of used equipment, a lower percentage of aftermarket business and lower production hours.

With that, I will now turn the call back to Barry.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [5]

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Thank you, David. As we look ahead, we are mindful of the uncertain market conditions that exist. But rest assured, our commitment to drive innovation and velocity through all of our business processes remains steadfast. The introduction of new products, productivity initiatives and cost controls will continue to position us to navigate these uncertain times while ensuring positive returns to our shareholders and investing in future growth and innovation.

Recently, we completed a review of our new product pipeline and came away very pleased with the progress we are making in developing products that incorporate the voice of customer.

I am confident that our innovation strategy is well positioned to deliver highly productive cranes to our customers. 5 of these new products will be introduced at the CONEXPO Trade Show in Las Vegas next March.

As we continue on our lean journey, our investments to increase velocity are delivering productivity improvements. Last week, at our Niella, Italy, factory, I witnessed substantial improvement in throughput. Gone are the days of batch production. The investment that we have talked about in the past has resulted in a significant increase in the number of cranes produced per ship with less manpower.

The team remains focused on continuous improvement, and I'm very proud of the progress they have made. Our journey continues to evolve.

And now I'd like to comment on our M&A activity. We remain very optimistic about our ability to continue to reposition Manitowoc as the type of company that can deliver superior returns to our shareholders throughout the cycle. A balance between organic and inorganic growth is healthy.

While our pipeline remains robust for acquisitions, we are being extremely disciplined in our approach. None are imminent, but we remain focused on delivering growth that continues to add to our recurring revenue, while ensuring our internal stringent criteria are met.

To summarize, we delivered solid results in the third quarter, including positive operating cash flow. In response to a slowing crane cycle, our strong execution, proactive cost control and investment in productivity actions underscore how we manage our business.

Throughout the business cycle, we remain focused on driving productivity, efficiency and cost reduction actions.

With a stronger foundation in place, we are confident our strategy works and will continue to provide returns to our shareholders throughout the cycle.

With that, operator, I'll turn it back to you. You can open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We can now take our first question from Seth Weber of RBC Capital Markets.

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Seth Robert Weber, RBC Capital Markets, Research Division - Analyst [2]

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Nice job on the margins here in the quarter. I wanted to ask, I know you're not talking to next year yet, but can you just, from a high level, talk about whether you think margins can continue to expand next year in a scenario where revenues are down potentially double digits?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [3]

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Seth, that's always our goal. A lot of it, I think, depends on mix. We have done, what I would call, a fantastic job of aligning our breakeven point to where we believe the bottom of the market could be. We have continual opportunity to manage our SG&A, but you should also realize that we remain resolute on continuing to expand our margins irregardless of what tries to happen to us from a market perspective.

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Seth Robert Weber, RBC Capital Markets, Research Division - Analyst [4]

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Okay. Can you -- was there anything in the mix here in the third quarter that was particularly helpful to you? And maybe can you just talk about your expectations for production in the fourth quarter versus kind of where we were in the third quarter?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [5]

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From a mix standpoint, I think we were pretty much where we've been historically in the third quarter. We have some Americas mobile mix that tends to rear its head in the third quarter, which helps us in some regard, and towers was pretty much where we expected it to be. So from a mix perspective, maybe a little helpful from the Americas. Otherwise, I would say we're pretty much where we historically have been. As far as the fourth quarter is concerned, yes, of course, we began aligning our production in the third quarter with what we are anticipating demand to be, and we will continue to monitor that and adjust that as our order rates indicate.

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Seth Robert Weber, RBC Capital Markets, Research Division - Analyst [6]

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Okay. And then maybe just a quick follow-up for Dave. You commented on the inventory reduction being on track, can you just talk about the used crane market in general and what you're seeing? I know part of that reduction is used cranes. Can you just frame what you're seeing out there in the used crane market?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [7]

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Yes. Sure, Seth. Thank you very much. So I think, generally speaking, prices have been fairly stable in the used crane market right now. We don't anticipate any changes, and our guidance doesn't anticipate any changes to that. So it's steady, she goes within that market.

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Operator [8]

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And I move to our next question, comes from Mig Dobre of Baird.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [9]

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I also have a quick question for Dave. How do you think about free cash flow in the context of your updated guidance?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [10]

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So I think, generally speaking, Mig, we're looking at generating $60 million in Q4.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [11]

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Okay. That's helpful. And then I'm also wondering, from an orders perspective, I know there is a little bit of seasonality in the fourth quarter. You normally see a bit of an uptick sequentially. But there are a lot of cross-currents in the market. So can you maybe level-set expectations for us? Should we expect the normal seasonality here? Or are you thinking, I don't know, maybe a little bit...

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [12]

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Well, I think -- I don't suspect sequential weakness. In fact, we just closed October, and our October orders were in line with what we would have expected from prior years. So I'm pleased to see that October kind of had a slight uptick. And I mentioned some of the regions in my prepared remarks where, in fact, that's -- that we're being helped, I mean, we -- there was a time when South America was a very substantial portion of the revenue of this company, and for the last 4 years since I've been here, it's been virtually nonexistent. But in the last couple of months, we're seeing some uptick there. So that's very positive for us.

So I think there are still a lot of our customers are in the wait-and-see mode. As I mentioned, I've talked to a number of them over the course of the last month that their equipment is out working, they're continuing to think about investment, but a lot of it depends on what the temperature is out of Washington, D.C.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [13]

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Okay. Barry, just to clarify on your October comment, were you saying that October was basically in line order-wise where you were in 2018? Or am I missing something?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [14]

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Correct. That's correct.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [15]

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Okay. I mean, the fourth quarter of '18, that was a very nice order intake quarter. So I mean, at least in theory, that would be kind of a tough comp. So that's good news.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [16]

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It's got very tough comp. But as I said, I remain encouraged that we are doing all the right things, and we'll see where it ends up at December 31.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [17]

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Okay. Last question for me. As we're thinking about CONEXPO, I know that trade show is a big deal for you guys. How should we think about the new product introduction over there in terms of the potential order impact that I might have on orders? And there's also an expense associated with this that we have to follow -- to put through margins. So can you help us out in modeling that?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [18]

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Yes. The CONEXPO SG&A hit will be $3 million. It's pretty consistent. We -- that's usually what our impact is. The new products that we're introducing this year, I think, will, in fact, well exceed that in margin because these 5 cranes are continued evolution of the product line. I don't want to give too many away. But I think there's going to be as much excitement at CONEXPO with our new products as there's been at particularly like Crane Days a year ago -- over a year ago now.

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Operator [19]

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And I move to our next question, Jerry Revich of Goldman Sachs.

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Benjamin J. Burud, Goldman Sachs Group Inc., Research Division - Research Analyst [20]

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This is Ben Burud on for Jerry. Your 4Q implied EBITDA guidance ranges from about $19 million to $34 million, and you mentioned earlier your normal seasonality, but when we apply what we're modeling to 3Q EBITDA, that implies 4Q EBITDA around, let's say, $40 million. Can you step us through how you arrived at that 4Q range? Is it -- is there a general conservatism baked into that number? Or are there some timing-related items that we should be made aware of?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [21]

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Yes. I mean, I think we articulated a couple of the key points. There's going to be -- as a percentage, there's going to be lower aftermarket business, both in dollars and percentage. There's going to be higher used equipment sales, which are sold at much lower levels than typical equipment. And we are going to have a slowdown in the manufacturing, where we have less hours within the manufacturing facilities, particularly in the mobile facilities than we did in Q3. So understand what your items are. I think that, generally speaking, we looked at where we're going to be. And the midpoint gives us somewhere about $27 million of EBITDA. And there's -- so we feel pretty good attaining the numbers we've put out there.

The other thing is -- Ben, the other thing I'll say is that there's a reason we don't give quarterly guidance, right? Because a crane sale or a few crane sales that move out from quarter to quarter really impact what those quarter's results are. We had some good mix, as Barry indicated, with the Americas in the quarter. So that plays into as well.

So we look at our guidance as attaining a year result versus looking at it on a quarter-by-quarter specific basis.

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Benjamin J. Burud, Goldman Sachs Group Inc., Research Division - Research Analyst [22]

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Got it. And on that point, when we think about the next 6-month order cadences, with CONEXPO being in March, is there any chance that orders are pushed out into 1Q from 4Q? Just to make sure we're modeling it accurately on -- based on seasonality.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [23]

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Yes. I mean, absolutely, because, quite frankly, and I've been very transparent about this, customers love to come to the booth, love to shake your hand and love to celebrate with a glass of champagne their order for the year. So absolutely, I would expect that if there are large orders that some of our dealer network are planning to place, they will, in fact, bring them in hand to CONEXPO.

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Benjamin J. Burud, Goldman Sachs Group Inc., Research Division - Research Analyst [24]

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Got it. And then finally, pricing has been a great tailwind for you guys in recent quarters, particularly in aftermarket. Can you just give us an idea about what's been supporting that improvement? And if there's any difference in pricing strength on the aftermarket side across your different regional markets?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [25]

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Yes, I mean, aftermarket is always strong. I mean we use a very sophisticated program to analyze our aftermarket pricing to aid us in that. So I'm very happy with that. I also think some of the recent consolidation that's happened in the industry is helping to stabilize pricing. We've already seen the effects of that -- some of that in Europe, which is really a positive for us going forward.

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Operator [26]

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And I'll move to our next question, comes from Ann Duignan of JPMorgan.

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Thomas Marc Alfred Simonitsch, JP Morgan Chase & Co, Research Division - Analyst [27]

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This is Tom Simonitsch on for Ann. Just following up on the price cost question there. On your low-cost country sourcing, how much of the incremental benefit of that initiative do you expect will be realized this year versus 2020 and beyond?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [28]

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It will be more in 2020 and beyond.

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Thomas Marc Alfred Simonitsch, JP Morgan Chase & Co, Research Division - Analyst [29]

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Okay. And then just looking at European orders, I think you noted a slowdown in Germany, and you've previously highlighted France as a weak spot. Can you just provide some more color on those 2 markets in particular?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [30]

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Yes. I mean, I think Germany exhibited much lower strength than France. We hope that some of that is just seasonal and starting vacations and extending vacations a little longer than what has historically been the case. But France is doing okay from performing right at our expectations. And if you heard in the prepared remarks, what's interesting is that countries like Italy and Portugal and Spain are, in fact, starting to return to growth, which is something that is very much appreciated by us, but somewhat surprising, and we're just going to have to continue to monitor as we go forward.

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Thomas Marc Alfred Simonitsch, JP Morgan Chase & Co, Research Division - Analyst [31]

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And just lastly for me, on the inventory reduction, last quarter, you detailed those 3 initiatives. Could you maybe just quantify the contribution of those 3 initiatives towards the $80 million target?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [32]

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I think, generally speaking, when you look at where we are today, in the balance sheet, we reduced inventory by $30 million. We have plans in place that have been developed by the team to get another $50 million at inventory, and we've historically reduced our inventory levels in the fourth quarter significantly. The team still meets weekly. We do -- we have identified target areas for the inventory reduction. And quite honestly, we feel very good about our ability to attain that reduction in Q4.

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Operator [33]

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And I move to our next question, comes from Steven Fisher of UBS.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [34]

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On the cash flow, was a nice positive quarter, but could have been even really stronger without that $59 million payable headwind. I don't know if I missed it, but could you talk a little bit about what drove that? And what the potential is to see that reverse?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [35]

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Yes, sure. That's a good question. So I think, generally speaking, when you look at Q3, we have a reduction in our overall payables within the organization. And that's, what I'll say is, due to seasonality, and that's associated with a number of items in Europe. As you know, we have Germany and France plant shutdowns in there.

I think there are really 2 main factors: number one is that in the U.S., we brought in less materials, which resulted in a lower overall quarter-over-quarter payables level. And then within Europe, because we had extended shutdowns, particularly in France, what we ended up doing is we ended up bringing material in, in July, which would then be payable in September. So those bills were paid in accordance with our vendors' terms, and that resulted in a decline as well. It's something that we watch closely. We look at the days, and I would expect that our days are going to be back to normal in the fourth quarter.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [36]

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So embedded in your $60 million of cash flow for Q4, is that a combination of benefit from both inventory and payables?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [37]

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That is correct.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [38]

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Okay. And then in terms of the North American market, can you just maybe give a little bit more color on sort of what you've seen in the flow of business and orders by production type and end market over the last few months between nonres and infrastructure, industrial, et cetera, that would be helpful?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [39]

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Yes. I mean we're still seeing nonres expansion, albeit at a lower rate, particularly on the West Coast. The West Coast has been very strong in the tower business, in particular. Saw a little pause in that in the third quarter, but I think that will end up reversing itself.

Continue to see -- with the state infrastructure bills that are out there, we're continuing to see RTs, in particular, being introduced into that area. We're also seeing nice lift from the introduction of our 100-ton crawler crane that's manufactured here in the U.S. That's definitely being positioned 100% at infrastructure. If there was one area in North America where I'd say we saw somewhat of a decline in a particular area, I would say it's at the wellhead with our AT production.

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Operator [40]

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And I move to our next question, comes from Jamie Cook of Crédit Suisse.

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [41]

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Most of my questions have been answered, but I guess just, Barry, you've been talking about M&A on and off now for some period of time. So can you just give some color on sort of how close you are to doing something, given the markets are a little softer broadly across the industrial landscape? Are multiples starting to become more attractive? And is this sort of like an opportunity we could see, I guess, in, I don't know, next 6 to 9 months?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [42]

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I would say that your observation about multiple contraction is right on the money. People are coming, in my opinion, back into the realm of what I would consider the opportunity for us to make acquisitions in an accretive nature. We have a number of limitations in our credit agreement, but we have made, I think, absolute great progress in the amount of conversations and further work that we're doing with our pipeline.

And to be perfectly honest, I would say I would be very surprised that if in the next 9 months, we don't have an acquisition completed.

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [43]

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Okay. And then, I guess, I understand sort of the doom and gloom out there, but the crane cycle has been one of those or crane equipment has been one of those markets that have been the only sort of industrial market that has remained fairly depressed since the financial crisis, I guess. And so is there something structural that you think is going on there? And assuming we got China trade war result, how would you think about sort of the pace of a recovery if that happened?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [44]

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Yes, that's a very good question. In fact, let me just give you a little background here. If I look at the crane business at Manitowoc from 2007 through 2015 prior to us becoming a stand-alone crane company, and if I took the high year out, which would have been 2009 and the low year out and I averaged all those years of revenue, it comes roughly to $2.4 billion. If I average the revenue from 2016 to 2019 with our implied guidance for the year, that revenue is $1.725 billion. Overall, on average, a 30% reduction.

Now at some point in time, and I wish I could pinpoint it, that 30% reduction has got to come back to fruition because when you look at the amount of activity that's in the economy compared to the years that I just mentioned, it's much higher. So at some point in time, and I wish, Jamie, I could -- wish I could put my finger on exactly when that point is, we're going to get back to the days where we're over $2 billion in revenue in our core business.

And you can do very simple math to see what that incremental between the average of $1.7 billion and $2 million -- or $2 billion, what the incrementals would mean to us based on all the work that we've done from a cost structure standpoint. I mean we are a completely different profiled company at $2 billion in revenue than we are on an average of $1.7 billion. So I don't know when that day is, but I certainly am anxiously awaiting and looking forward to the opportunity to demonstrate to everyone what this company's potential is with that type of revenue. I think that answers your question.

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [45]

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Okay. I appreciate the color. Yes. No, that does. I appreciate the color.

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Operator [46]

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We'll now take our next question, comes from Stephen Volkmann of Jefferies.

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Stephen Edward Volkmann, Jefferies LLC, Research Division - Equity Analyst [47]

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Most of my have been done as well. But Dave, I think you said something about price being positive relative to sort of the margin performance in the quarter, and I'm just curious, if you have any broader commentary around pricing? And as orders kind of are harder to come by, is pricing also getting harder to come by? And then I'll just glime on with the fact that there's been, obviously, some change in the competitive dynamic or the ownership around some of your competitors, and is anything happening there relative to kind of pricing or aggressiveness of competition in the market? And I will leave it there.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [48]

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Well, let me start off a little bit from the broader market perspective, and David can get into more of the specifics. I will say that I'm very pleased with the amount of discipline that exists in the market currently. I think some -- as I said earlier, I think some of the consolidation that's taken place has helped that. And I don't see any reason why that doesn't continue into the future. So from a pricing perspective, I would say, even though there's a bit of a pause in the order rates, the major manufacturers have been, what I would call, disciplined in the approach. And David, I'll turn it over to you for more color on...

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [49]

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Yes. So Steve, I think that what we've seen recently is that when you look at different areas, some of the areas that have been historically at low levels of pricing have seen price increases. And that's throughout, what I'll say, all the competitors within that particular area. Certain areas are better than others. We've obviously talked about the Americas and some of the actions that we've taken there. The Middle East still, obviously, a bit harder. South America, a bit harder as well. But for the most part, I'd say, it's steady as she goes right now. And the pricing actions have been sticking, and we think that's good for the industry.

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Operator [50]

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And our next question comes from Mike Shlisky of Dougherty & Company.

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Michael Shlisky, Dougherty & Company LLC, Research Division - Senior Research Analyst [51]

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So I wanted to follow up with your answer to Jamie's question earlier about the average business you did prior to 2015 and since then. I think for a good portion of that decade or so prior to the spin-off, you had much higher market share. And in '16 and since, you're kind of -- you kind of started that period at the lowest point of share in certain key categories. So my question is, I mean, it sounds like part of ramp back to that $2 billion might be some share improvements over the next couple of years. So could you maybe comment for us as to perhaps this year so far how has your share trended in certain key kind of heavier categories, if you will?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [52]

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In areas where we have invested in technology, our share has returned to historical highs.

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Michael Shlisky, Dougherty & Company LLC, Research Division - Senior Research Analyst [53]

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In every single category?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [54]

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The areas of the business where we have dedicated to new product development, take our truck cranes, for instance, I mean we lost -- I'm not going to tell you how many basis points, but I can't even say it, there's bps because it's percentage points, but it's a lot of basis points. We're back to historical highs because we invested in the new TMS9000, which carried on to the TMS500, which will carry on to the TMS new crane that we'll be introducing in the next 6 months. So where we have -- your historical perspective is absolutely correct. But today, sitting here in November of 2019, we are a much different company than when we were in January of 2016, not only from a market share standpoint, but overall, from a competitive standpoint; overall, from a technology standpoint; overall, from an aftermarket and response to the standpoint.

So you cannot, in my opinion, draw a conclusion that the revenue degradation of 30% over that period is due to market share loss. That is false.

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Michael Shlisky, Dougherty & Company LLC, Research Division - Senior Research Analyst [55]

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Okay. That is good to hear. I also wanted to ask, it wasn't discussed much yet on the call, about the crane care and parts efforts you've been doing. Can you tell us as to how that's gone this year? And whether there's more to go in 2020, you think?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [56]

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Yes. Mike, I think that's a continual process. We continue to make strides in looking at fill rates and quicker response time and overall profitability of our parts business. So I'd say that we're very pleased with the 2019 outcome. And we believe that 2020 is going to deliver more of the same.

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Operator [57]

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And I move to our next question, comes from Mig Dobre of Baird.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [58]

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I have a quick question on backlog. And I'm wondering how you're thinking about the minimal levels of backlog that you need in order to be able to do proper production planning, essentially -- depending on how orders progress. Is there a particular amount that you have in mind to where you're adjusting production to make sure you don't go -- or you don't erode the backlog past a certain point?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [59]

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Yes. So Mig, it's a great question. I mean, obviously, when you look at our backlog today, we are at $467 million at this point in time. I think our low point when you look at year-end was 2016, where we were at $324 million. I generally say that we're going to wait and see how our Q4 orders come, you kind of have an idea where our revenues, our top line revenue is going to be. So we're not -- we don't anticipate being anywhere near the 2016 low, but obviously, if the trend continues, we can react. Conversely, if there is a pickup in orders in there, we have the ability to react and ramp up as quickly as we need. So I think it's good in the sense that we have levers to pull, whether we go up or down in that regard.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [60]

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Right. I mean, look, we'll see exactly where the fourth quarter shakes out order-wise, but stating the obvious, your backlog has been coming down and your revenues are year-to-date have ran well ahead of orders. So you're not providing 2020 guidance, but is it fair to basically say that we should be thinking that revenues in 2020 are probably going to end up being somewhere close to where 2019 orders were, given what's happened to backlog?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [61]

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I think that is an assumption that one could make, but again, I'm not willing to make that as a statement until we see what happens in the fourth quarter. I think we're -- we have multiple plans for next year, and all of those plans have different assumptions in those. And we'll be in a much better position to call 2020 sitting here at December 31 than we are today.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [62]

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I appreciate that. This was just sort of a mathematical question, if you would. My final question is on margin. Again, when I'm looking at my model and plugging in your guidance, it looks like you're assuming a decremental margin on EBITDA, call it, low 20s, right around 20 for the fourth quarter. If one were to assume revenue decline in 2020, is this the level of decremental margin that we should be operating with? Or do you have something else in mind?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [63]

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No. No. That is not the level of decremental margin you should be operating within 2020.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [64]

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Can you expand on that?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [65]

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David?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [66]

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Yes. Look, I think, Mig, when you look at it, the fourth quarter is a little bit of an anomaly when it comes to the decline in your midpoint. I think what you're saying is that if we look -- you're looking at it on a quarter-over-quarter basis, where we're about $21 million down and $4 million down on EBITDA, which should be about your 20% range. I mean we've always said that when you look at decrementals within the year, but putting a plan together, I'm not quite sure that, that would hold true for the 2020 plan at this point in time. But we'll let you know in February.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [67]

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Well, I appreciate that. But I mean, look, if your volume is down, it's hard for margins not to feel that. That's what I'm trying to say here.

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [68]

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Yes, yes. No, understood.

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Mircea Dobre, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [69]

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So we might as well have these expectations lined up, even though you're not providing guidance. I mean we're going to have to come up with estimates. So that's why I'm pushing you on.

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [70]

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Yes, yes. No, I agree with you in there, and as -- when you look at the flow-through of our revenue, I think that's the key consideration of where we'd be, and obviously, the other alternative is to where SG&A comes out in the whole process as well.

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Operator [71]

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And our next question comes from Larry De Maria of William Blair.

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Lawrence Tighe De Maria, William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure [72]

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Two questions. Obviously, you talked about price being positive contribution. And sorry, if I missed this, but can you talk specifically about material costs in the quarter? And how that looks moving forward? And secondly, it was interesting analysis you talked about the product cycles and averages and stuff. If we think about the productivity of the cranes over the last few years versus the prior period, is it possible that the productivity offsets is one of the reasons before the offsets in volume and sales? I'm just curious to your thoughts on that.

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [73]

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There's no question that our new products are more competitive and more productive than others. But I would say the limiting factor right now to market expansion is manpower. You talk to our large rental houses, and the biggest issue they have with taking on new work is getting qualified crane operators to operate the equipment. So they've become more sophisticated in their financial modeling than they may have been in other cycles because in other cycles, they may have said they're willing to bet on the come that, that labor is going to free up. But I think as some of these crane rental companies have become part of more sophisticated private equity firms, the discipline has, in fact, creeped its way in from a financial standpoint. But overall, as I said, the number of cranes that are out there are being highly utilized. And at some point in time, and as I told Jamie, I wish I could predict when that time is, that is going to -- we're going to return to those levels, and then we will definitely be able to show everyone exactly the types of results that we've been exhibiting in the past, but also much improved.

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Lawrence Tighe De Maria, William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure [74]

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So you reckon, Barry, that if the labor wasn't as tight as it is for those -- that the orders would be higher, you'd be selling a lot more right now?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [75]

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There's no question in my mind that orders would be higher if labor was available. I mean all you have to do is go down to the southern part of the country and look at Louisiana and look at Texas. I mean you've got all these large projects that are on the board to go, in fact, be funded and start being built. But the absence of labor and the absence of equipment is the limiting factor at this point. And until confidence returns that we're not going to be at a trade war and that the economy isn't going to come to a screeching halt as a result of a certain person being elected, then I think we'll see expansion again in the U.S.

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Lawrence Tighe De Maria, William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure [76]

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Okay, that's interesting. And then just on the material cost?

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Barry L. Pennypacker, The Manitowoc Company, Inc. - President, CEO & Director [77]

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David?

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David J. Antoniuk, The Manitowoc Company, Inc. - Senior VP & CFO [78]

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Yes. So I would say pretty sequentially, pretty flat. Year-over-year, I think we have some -- a bit of benefits, but not material enough to call out.

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Operator [79]

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It appears we have no further questions at this time. Mr. Warner, I'd like to hand the call back to you for any additional or closing remarks.

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Ion M. Warner, The Manitowoc Company, Inc. - VP of Marketing & IR [80]

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Thank you. Before we conclude today's call, please note that a replay of our third quarter 2019 conference call will be available later this morning by accessing the Investor Relations section of our website at www.manitowoc.com. Thank you, everyone, for joining us today and for your continuing interest in The Manitowoc Company. We look forward to speaking with you again next quarter. Have a good day, everyone.

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Operator [81]

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