Responding to a question from Dan Veru, an analyst with Palisade Capital Management, Manitowoc CEO Tellock said, “We now have some good strategies in place to break up all of Latin and South America into different regions with service and support, whether it be facilities, whether it be in partnerships. We for a while have had somebody building mast sections for us down in Brazil for our tower cranes going down there.

“We have some other opportunities that we’re looking at in the mobile hydraulics side, and the build-up of our infrastructure in Brazil has been certainly a very extreme path on growth for us. There is a lot of—when you get into the mines, you look at what is happening in the resources. I mean whether it be northern Brazil, southern Brazil—I will take all of South America, Argentina and Chile. So they’re looking at some of the products that they haven’t had previously, and an example of that could be boom trucks. We’re trying to look at our crane product and put it on a local carrier.”

Shifting demand

The conference call reinforced the importance emerging markets play in Manitowoc’s global strategy. Asked about the global breakdown of the company’s crane revenues, CFO Carl Laurino said, “Over half our revenue is coming from outside the US. That’s a company metric, and an even larger percentage in the crane business. We expect to realise $1bn in revenue from emerging markets this year.”

Tellock explained, “Manitowoc is a global company and operates a diverse set of business. While it’s impossible for any company to be completely immune to recessions and cyclical downturns, the strategic actions that Manitowoc has taken during the past eight years were designed to make us far less vulnerable to the changes occurring in any single geographic area or industry.

“In 2000, over 90% of our sales came from the US, with minimal sales from the emerging markets. Today, the US accounts for only about half of our annual sales, with much higher penetration being driven by the emerging markets. As we face challenges in the US, we also face opportunities in Latin America, the Middle East, the EU, and the Asia-Pacific regions. In 2000 we manufactured our products in primarily US-based facilities. Today, we operate 74 manufacturing and service facilities throughout the world, which is consistent with our strategy of building our products as close as possible to their intended end markets.

“If you look at end markets from a crane standpoint, the volatility that we saw in the ’70s, ’80s, ’90s, our globalisation efforts have tried to take out the impact of these big swings that we have had in our businesses during those previous downturns. And so when you look at this, we’re trying to minimise the impacts of any of these localised events

The Manitowoc directors recognised that sales in some regions had declined. Tellock said, “Western Europe [is] probably one of the three largest markets of cranes in the world traditionally. And I think it’s just following some of the patterns that the US has followed, on the residential side: you have to remember in Europe that is where a majority of our tower cranes go. You see it on the self-erecting towers and you’re seeing it on the small top-slewing towers. So I think it’s just a look at some of the residential and the nonresidential projects that are being toned down or trimmed. What that does is move some of our capacity to other geographic regions around the world.”

Manitowoc Crane president Eric Etchart added, “We continue to see very strong demands from emerging markets, and you may recall that because of capacity we were not able [to meet demand] to the extent it warranted. We have the ability to redirect production to markets where demand is very brisk.”

Working locally in China

One of the issues that international crane builders face in many markets is restrictive tariffs: in China, tax policies are designed to favour local manufacturers, with exemptions granted only on products that aren’t available locally. Tellock explained, “There are certain things that the Chinese government does—whether it’s a VAT tax or an exemption tax or anything else—they limit capacities of cranes. And so we have seen a movement in the capacity of the crane, where we used to be able to get exemption certificates, those continue to move up as the Chinese supply becomes more available. Right now the exemption certificates are at about 300-ton. So anything under that, yes, it’s very difficult for us to export into China, but the beauty is that we are a manufacturer in China.”

Manitowoc is able to sell these lower capacity cranes in the country, because of its joint venture with local business TaiAn. Eric Etchart, who was previously Asia-Pacific executive vice president, said, “The JV has been a very long process. And we wanted to make sure that when we selected our JV partner for the truck cranes that we’re going to share the same bed and have the same dreams. I would say that the very first months of operations have proven that we have picked the right partners. So we’re very pleased right now [with] what is happening in TaiAn. We have huge opportunities because we have a new factory there, we deployed our lean manufacturing Six Sigma initiatives, we’re going to see really good results out of the factory. So it’s a very good start and again the demand for mobile cranes in China is still very, very strong and we have a lot of room to improve our market share.”

Crane sales rise by a third

Laurino announced the company’s for the quarter: “We reported second quarter 2008 net sales of $1.3bn, over 28% higher than the second quarter of 2007. We also reported net earnings of $133.9m, or $1.01 per diluted share, a 33% increase over the $0.76 per share reported for the second quarter 2007.

“Second quarter 2008 net sales in the crane segment increased 32% to $1.06bn, compared with $805.1m in the second quarter of 2007. Operating earnings of $167m were 39% higher than the second quarter of 2007, in spite of rising material costs and delays in delivering products to areas of China recently affected by earthquakes and related natural disasters. Crane margins increased to 15.7% for the quarter, up 80 basis points from the same period in 2007 as a result of operational improvements, improved product mix and higher volumes.

“We continued to see the benefit of the globalization of our crane business during the second quarter as international activity generated strong sales and earnings growth. This trend was reflected in our crane backlog, which stood at $3.5bn at June 30, an increase of 70% over the same period in 2007. The solid backlog reflects the payback of our innovation strategy, as well as the success of our new products in the marketplace.

“Our outlook for the crane segment remains strong through at least the end of 2010, despite the recent declines in US housing market, the softening of construction in some mature markets, and slowing residential construction in western Europe. We expect to offset these trends as demand for our higher capacity cranes, particularly those serving infrastructure and energy applications, continues to grow in both developed and emerging economies.”