Ion Warner - The Manitowoc Co., Inc. Barry L. Pennypacker - The Manitowoc Co., Inc. David J. Antoniuk - The Manitowoc Co., Inc..

Mircea Dobre - Robert W. Baird & Co., Inc. Brendan Shea - RBC Capital Markets LLC Jamie L. Cook - Credit Suisse Securities (USA) LLC Thomas Simonitsch - JPMorgan Securities LLC Michael David Shlisky - Seaport Global Securities LLC Charles Brady - SunTrust Robinson Humphrey, Inc. Ben Burud - Goldman Sachs & Co.

LLC Rob Wertheimer - Melius Research LLC Nicole DeBlase - Deutsche Bank Securities, Inc. Stanley Stoker Elliott - Stifel, Nicolaus & Co., Inc. Lawrence De Maria - William Blair & Co. LLC.

Good day, everyone, and welcome to this Manitowoc Company Third Quarter 2017 Earnings Call. Today's call is being recorded. And 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..

Thank you, Greg. Good morning, everyone. And welcome to The Manitowoc conference call to review the company's third quarter 2017 performance as outlined in last evening's release. We are holding today's call from our Wilhelmshaven, Germany manufacturing facility.

Conducting the call will be 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. We will reference these slides throughout the prepared remarks.

We will be sure to reserve time for questions-and-answers after our remarks. I would like to request that you limit your questions to one and a follow-up and return to the queue to ensure everyone has an opportunity to ask their questions. 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 projections due to one or more of the factors explained in Manitowoc's most recent Annual Report on its Form 10-K filing with the Securities and Exchange Commission.

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. And with that, please refer to slide 3, and I will now turn the call over to you, Barry..

Thanks, Ion, and welcome, everyone.

I'm very pleased to report that we delivered $0.09 of adjusted diluted earnings per share during the third quarter, along with improved adjusted EBITDA and cash flow from operations year-over-year with limited borrowing on our ABL, which was made possible by our operating this business effectively each and every day, utilizing the principles of The Manitowoc Way.

We were encouraged to see third quarter orders of $376 million, which increased our backlog 32% compared to the third quarter of 2016. But keep in mind, this was off a very low base. Our orders were driven by improvements in the U.S., partially offset by continued softness in key international markets such as the Middle East and Asia-Pac.

To note, we had an $18 million of order cancellation in the quarter from India due to uncertainty surrounding new regulations. However, our customers remain committed to purchasing these particular cranes once the regulatory uncertainty is resolved.

However, a number of these cranes have already been produced, and our team is prudently managing the sale of these cranes in the fourth quarter to effectively manage our cash flow. Looking at the U.S. in a little more detail, it's a story of two tales.

(3:23) On the positive, orders were driven by emerging momentum in demand to support energy and commercial construction end markets. On the other hand, we continue to see low activity for large infrastructure projects. While rental rates continue to be under pressure, overall utilization showed signs of improving.

Although dealer inventories are down in North America, we believe that based upon the current stocking levels and open purchase orders, they're adequately positioned for future growth, as we work very closely with them together to strike a healthier balance of equipment availability with working capital management.

Please also keep in mind that as we continue to apply the principles of The Manitowoc Way to our factories, our abilities to deliver product with increased velocity is improving dramatically. Nowhere is this more evident than here at our Wilhelmshaven facility, where we design and manufacture our all terrain product line.

The project Fluss, as it has been dubbed in the facility, which in German means flow, is showing great productivity potential as we continue The Manitowoc Way journey. I look forward to this project completion and fully realizing the benefits we expected at the outset of this important program.

Demand in Europe overall continues to meet our expectations, with growth in resi and commercial construction markets. Make no mistake, these results are hard earned. This market growth in Europe has come in a very competitive market.

As you are aware, we have spent a substantial amount of time and effort in evolving our product portfolio to one of a market leaded product offering. We have seen some deals where the competition doesn't have the same features and benefits to offer as we do, make up for their shortfall in very creative ways, including aggressive pricing.

We continue to see weak demand in a number of our other key international markets, with the one exception being Australia. For example, the Middle East remains a challenge for both internal and external reasons. In South Korea, we've seen a marked slowdown for the need in cranes and commercial construction project work.

And with that, I'll turn the call over to David to walk us through the quarter's financial results..

Thanks Barry, and good morning everyone. Let's move to slide 4. Our third quarter financial performance was in line with our expectations, and consistent with our 2017 full year guidance. Third quarter orders totaled $376.1 million, an increase of 21% compared to $309.9 million of orders in the third quarter of 2016.

Our year-over-year orders increase was driven by continued demand for our new products and was also favorably impacted by approximately 3% due to changes in foreign currency exchange rates. Third quarter backlog of $467.9 million was also up substantially over the prior year, coming in 32% stronger than the comparable period.

Backlog was also favorably impacted by approximately 3%, due to changes in foreign currency exchange rates. Net sales in the third quarter of $399.4 million increased $49.6 million, or 14% from a year ago. The year-over-year revenue increase was primarily driven by higher crane shipments to U.S.

customers, partially offset by lower shipments to our Asia-Pacific customers. The increase in net sales was also favorably impacted by approximately $9 million from changes in foreign currency exchange rates. SG&A costs in the third quarter 2017 were $60.9 million, which were $12.1 million lower than the prior year.

Third quarter 2016 SG&A costs were negatively impacted by approximately $7 million of charges related to the decline in the fair market value of used cranes.

The balance of the year-over-year reduction is primarily due to lower employee-related costs, reductions in professional and consulting fees, and discretionary cost oversight, partly offset by higher incentive compensation cost and approximately $1 million from changes in foreign currency exchange rates.

During the third quarter, we incurred $3.7 million of restructuring expenses, which were primarily related to severance cost associated with head count reductions in the U.S. and the closure of our manufacturing operations in Manitowoc, Wisconsin and Passo Fundo, Brazil.

Our non-GAAP adjusted EBITDA for the third quarter was $20.8 million, compared to a loss of $20.9 million in the third quarter of 2016.

As we noted last year, third quarter 2016 non-GAAP adjusted EBITDA included approximately $30 million of non-cash charges related to inventory reserves, losses from declines in used crane values, and product improvement initiatives.

Removing these items, the third quarter 2017 non-GAAP adjusted EBITDA was approximately $12 million, and 260 basis points higher year-over-year. Our net income from continuing operations was $9.7 million for the third quarter, or $0.07 per diluted share.

Adjusted net income from continuing operations for the third quarter was $13.5 million, or $0.09 per diluted share. For the third quarter, we recorded the discrete tax benefit of $13.7 million, or $0.09 per diluted share, primarily due to a resolution with the Internal Revenue Service related to prior years.

We continued to maintain ample liquidity through the seasonal demand cycle. At September 30, total availability under our ABL was $136.7 million, net of $10 million in borrowings and $14.4 million in outstanding letters of credit. Cash on hand at September 30 is $29.3 million resulting in total liquidity as at September 30 of $166 million.

Cash flows from operating activities were $10.6 million in the third quarter of 2017, compared to a use of $1.4 million in the third quarter of 2016. Total cash provided in the quarter was driven by increased earnings and improved operating working capital management.

As of September 2017, working capital as a percent of sales improved to 27.3% from 34.2% in September 2016. Our team did a great job managing inventory, which declined by $54 million year-over-year, as adjusted for changes in foreign currency exchange rates, while increasing third quarter revenue by $50 million on a year-over-year basis.

Please turn to slide 5, where we have reaffirmed our 2017 full year guidance. With that, I will now turn the call back to Barry for some further remarks.

Barry?.

07) several new self-erecting tower cranes that we refer to as hub. Since we initiated the production of these units in the first quarter, we have increased our daily production by over 30%.

To achieve this, the team has worked hard to utilize the tools of The Manitowoc Way including 5S, planning, material flow and presentation and developing of new standard work.

In conclusion, we continued to deliver our improved financial performance as a direct result of implementing our strategic priorities on the path to building a stronger Manitowoc. As we look forward to the fourth quarter and 2018, we see both challenges as well as positive signs.

On the one hand, there are significant headwinds that we must overcome, like many of our peers and competitors we are experiencing increased material costs, particularly in steel, as well as constraints in the supply chain, changing end markets and geographic mixes along with very competitive pricing challenges us in certain markets.

On the other hand we see modest recovery in the U.S. Based on current market conditions we are feeling more confident than ever that the market bottom has finally formed.

We are focused on the things that we can control such as the progress of our lean journey, introducing great new products, rationalizing our manufacturing footprint, and flattening our organizational structure, all of these activities that will enable us to achieve our long-term goal of 10% operating income by 2020.

With that, I will turn the call back over to Ion to begin the question-and-answer session..

All right. Thank you, Barry and David. Operator, please provide instructions..

Absolutely, sir. And our first question comes from Mig Dobre with Baird..

Yes. Good morning, everyone. Thanks for taking my question.

I guess, maybe a little more color on your guidance would be helpful, the range is still pretty wide on EBITDA, with only a couple of months left in the year, so can you maybe help us think through the puts and takes as to what puts you either at the high end or the low end of that guidance? I mean, just looking at revenue, it seems like revenue should be stable to up sequentially, you talk gross margin down, but really any color here would be helpful..

Well, this is Dave. So, I think generally speaking, when you look at – our guidance implication would indicate a low of about $400 million in revenue to a high of about $433 million in revenue with, what I'll say, adjusted EBITDA somewhere between $14 million and $24 million.

With a number of factors associated with our fourth quarter, particularly what Barry highlighted in the call, was that our margins are typically put under a bit of pressure in the fourth quarter, and we're not going to realize the same type of margins that we had in prior years.

So, we feel pretty comfortable with the guidance that we've put out there as of right now, and confident in our ability to achieve that guidance..

Can you help us understand what the pressures are that you're referring to, specifically?.

Well....

There's a number of factors, one is mix. We have a significant mix issue in the fourth quarter, which has been historical. We do have – for the first time, you hear me talking about headwinds in steel, not in steel that we have typically hedged over the years, but in things like large castings that we use for our large AT cranes.

And the third factor that I will tell you is that you know that, with our large presence in Europe from a manufacturing standpoint, we have substantially less production hours in the fourth quarter than we do in the balance of the year..

Okay. Then my follow-up is on free cash flow. Maybe a view as to how you're thinking about it for this year.

And as we look into 2018, if there are any drags that should be going away, or anything incremental on the working capital side that you're looking (21:53) to do?.

So, I'll go reverse. Regarding 2018, we're not in a position right yet to give any guidance with regard to 2018, we will do so at a later date. But we've always said that our goal is to provide, what I'll say, no use of cash in 2017. So, fourth quarter typically for us is a cash generator, and we anticipate it to be so.

So, we are counting on it being close to zero for the year..

As our business continues to improve, Mig, we are not going to invest in working capital that will affect our overall ability to generate cash. I mean, that's not what lean companies do, and that's not what we're going to do..

All right. Thank you..

You're very welcome..

Moving on from RBC Capital Markets, we have Seth Weber..

Hi, thanks. This is Brendan on for Seth.

I was wondering if you could provide us some more color on what you're seeing in terms of any strengths or weakness by product line?.

24) that you've heard me talk about, has been an extreme success story in the U.S., and has really returned us to market leading share in that particular model, that we are in a position to take advantage of.

We have done, and have continued to do, great things with our RTs in the U.S., our 80-ton and 100-ton offering, I think, is becoming the standard.

We see increases in our overall market share in the U.S, in particular in these particular RTs, and I think, as we continue to evolve this company into the innovation leader, we won't be talking so much about price, but we will be talking about innovation and how we can improve the overall experience for the end user..

Okay. Great. Thanks.

And then, for my follow-up, I was wondering if you could talk about your aftermarket business, and improvements there?.

Yeah. Our aftermarket business improved year-over-year, and that's coming off of a pretty tough base, because we had a very large order for Algeria in the third quarter of last year.

However, we continue to organize around it, we continue to evaluate different alternatives, we continue to invest in technology that enables us to capture that aftermarket more effectively. As I mentioned DIAG, in towers, that particular opportunity will give us, as I said, the opportunity to sell a part that traditionally we would not have sold.

So we continue to increase our percentage of revenue, in the particular quarter, we were up 5% from last year, and we just continue to invest in it, organize around it, and insist that aftermarket gets the amount of attention that I think is necessary for a company like ours going forward..

Okay. Thank you..

You're welcome..

Our next question comes from Jamie Cook with Credit Suisse..

Hi, good morning. A couple questions, one....

Good morning..

Last quarter, when you gave your – last earnings quarter you sort of talked big picture with regards to 2018. I think, you said you expected broadly the U.S. to be flat, Europe up and then maybe tower cranes up in the Middle East.

I guess, is that still a good way to think about the market and given your orders have been very good this year, in particular driven by new products, do you think that's sustainable into 2018? And then my follow-up question, I mean, you did mention in your prepared remarks about supply chain issues, if you could just provide a little more color on that, where the supply chain bottlenecks are, and if that's hurting sales at all? Thank you..

Yeah, so let me start with the supply chain issue. I mean, we have here in Wilhelmshaven for instance, all four manufacturers of 1980s in the world are located here in Germany. And sometimes it's unfortunate that we share the same supply base. However, what we have done is we've taken five of our key people out of the organization.

We've located them in the plants of these suppliers that are having these supply chain issues. And they're fighting adequately to get us the products we need in order to satisfy our customer.

So, yes, there are – while there are constraints I can look out here at the production facility, and I cannot see a single crane that's sitting here waiting for a part from an external supplier.

So, we are in fact making very good progress, because we're out there fighting for ourselves and not just letting the supplier decide who he is going to ship it to. So, that's the one thing. Getting back to the markets on a global basis.

I think, broad brushly, I think, what we said in the second quarter going into 2018, I think is, still remains positive. I'm a little concerned about the Middle East, particularly what's happened in the last few days. Saudi Arabia typically for us is a very, very large market for RTs in particular.

And with the unrest that's happening there I'm a little concerned about whether there'll be a substantial pullback with regards to investment. Asia-Pac as I mentioned we saw – we're seeing going into 2018 in South Korea, where we have enjoyed very, very good market share, industry leading in tower cranes, is slowing a little.

So that concerns me a bit. But you know what we have slowing down, we're going to see green shoots coming from other areas, particularly in the Americas.

So, we're not in a position yet to tell you exactly what we think about 2018, but that's ever evolving and rest assured we're spending a lot of time in making sure that we have hit the bottom, and we're going to try our best to predict where we believe our growth will come from next year..

Okay. Thank you. I appreciate it. I'll get back in queue..

Thank you..

Our next question comes from Ann Duignan with JPMorgan..

Good morning. This is Tom Simonitsch on behalf of Ann. Last quarter you mentioned lower production hours at Shady Grove were muting some of the potential benefits of the relocation.

Can you tell us how much production hours you need to improve in order to achieve the target annual run rate savings of $25 million to $30 million?.

I – we don't typically talk about the total amount of hours that we produce, but I'd say that when we looked at our production hours in the current year versus the last year, even though we have one plant we're still -we're still down on the number of hours.

As we talked about our – our lattice boom crawler crane manufacturing has significantly slowed, which is causing a really slowdown in the number of earned hours at a plant, so for this facility.

So, unfortunately, we don't – we don't say how many hours we work at a plant or how much they're down, but they still are down significantly on a year-over-year basis. And at that point in time, that's why you see the muted amounts not coming through as a benefit in the P&L..

Yeah. It's kind of a double whammy when you look at it, right? I mean we have the issue where there is no volume in our large crawler market as of this point in time, but we've also become so much more productive in this facility that we don't need as many hours as we did in the past to satisfy the demand.

And we're pretty confident that we've solidified the bottom and we certainly look forward to incremental revenue providing us the incremental returns that we think we've structurally put in place in order to lead us to 150 basis points of margin expansion every year..

Thank you. I appreciate that. And just going back to pricing. You mentioned very competitive pricing in certain markets.

Can you give just some more color on the pricing environment across each region?.

I'd say in the – in Europe in particular, where you have four manufacturers fighting for decreased demand, it's been extremely competitive.

However, I have instructed our group here that if we truly believe that we have the most competitive, most technologically advanced crane offering in the industry, we have to be patient and we have to be diligent in trying to maximize our margins.

We can't sit back and say that we're not going to take any crane orders where there is some craziness in the market from a competition standpoint. But we can minimize the impact of that. And so, I would say, the toughest market that I see right now is in Europe.

The Americas, I think, we're doing fine in the Americas, I think, there's a lot of -lot more discipline and I think there's a lot less manufacturers, and I think that the Americas is doing fine. The Middle East is -I mean, the Middle East is very, very competitive.

I mean, I just don't know how else to say it, it's very, very competitive, and we're putting our thinking caps on and figuring out ways that we can compete, and I think is, as these calls continue to evolve next year, you'll become more familiar with the strategy that we're implementing internally to take better advantage of a growing market in the Middle East.

I hope that provides the color that you were looking for?.

That was great. Thank you very much. I'll pass it on..

Moving on from Seaport Global, we'll hear from Mike Shlisky..

Good morning, guys..

Good morning, Mike..

15) kind of very confident that there's going to be a real cycle change upward in that particular end market?.

We saw the spike in the first quarter, which we reported very, very openly about with the -with our boom trucks, in particular driving demand. As you know, we have a large distributor that's also a publicly traded company that said that on their call that utilization in the fleets is picking up.

So, I think, it's going to take a little while longer, and I think, the $60 number that has been thrown out and we're seeing in crude in Saudi, that needs to be sustained for a period of time in order to really spike and see dramatic increase in our demand.

The one issue that remains a level of uncertainty for us is the level of geopolitical activities that are happening, and we see that, we see what's happened in the Middle East in the last four days, and we're watching that, trying to understand that, but as I said, all we can do is make sure that we're in a position from a competitive standpoint to take advantage of that when the market does return..

Okay. Got it. And just my quick follow-up here is kind of a model question. Your SG&A has kind of flattened out at $50 million for a couple of quarters now.

Is that the right run rate to expect going forward or are there any big inflationary issues in 2018 we should be aware of?.

Mike, I don't see any big things other than, depending on our – what we tend to do on our prototypes, due to engine changes, like purified engines, that may come about which may cause that to spike a little bit, but we're – it's a little bit too early to call that. I'd say that's probably the biggest other thing upside.

And then, the other one that we can't control is FX, right, depending on what happens to exchange rate, that has a – that will have an implication due to the amount of foreign operations that we have, and it's predominantly what I'll say the Euro Dollar FX issue that we have..

54).

And our next question will come from Charley Brady with SunTrust Robinson Humphrey..

Hey, thanks. Afternoon for you guys anyway..

Hey, Charley, how are you?.

Good. Thanks. I just wanted to go, Barry, back to your comment on your opening remarks, I mean, I thought I heard say that you thought that dealer inventories were at appropriate levels to support growth.

And if I'm correct in hearing that, what are we to infer in terms of an outlook for an order growth, and I know you're communicating guidance, but are you trying to convey that the dealer inventories are in pretty good shape and they don't really need as much, or as I just reading too much into that?.

No. I think, you are absolutely reading the message that I was trying to communicate here. The one thing we are not doing is stuffing the channel. We are making sure that our dealers are taking products that they have orders for. That has not always been the practice of this company, but it is the practice today.

We are not stuffing the channel, we are making sure that we increase the velocity in our manufacturing plants, so that our dealers can have better working capital management and keep fewer machines in their inventory, so that – because of the fact that we're able to increase our velocity through our plants. So, it's a partnership, right.

I mean, and we are – as we are trying to manage our working capital, we want to be cognizant of how we can manage their working capital too..

Fair enough..

It's a delicate balance, but it's one that I think – it's a delicate balance, but I think, it's one that if you talk to our dealers across the U.S. in particular, they'd say, we're evolving in a very positive way..

Thanks. And as we look to the cancellation orders that you had from India that's, going to be in Q4, can you try and frame that as to what the margin impact on that might be.

I mean, are those – and kind of how much of that $18 million was produced, and how much, I guess, wasn't?.

Well, a good portion of it was produced. And as I said in my prepared remarks, our customers remain committed to accepting those machines. However, I'm not getting – remaining committed to keeping them in our inventory for an extended period of time. So, we're being very opportunistic in trying to find homes for those machines..

Okay..

And when our customers in India are ready for them, we'll make new ones..

Great. I'll hop back in the queue. Thanks..

Thank you, Charley..

Moving on from Goldman Sachs, we'll hear from Jerry Revich..

Good morning, everyone. This is Ben Burud on for Jerry..

Hi, Ben..

Hey, Ben..

Hey. So, you guys called out slight improvement in U.S. energy and commercial markets.

And you already gave some color on energy, but could you at least give some additional detail on what you're seeing in the commercial markets, and over the – through the balance of the year, as well as maybe first half 2018?.

Well, yeah, I mean, one of the things of course that would change our whole outlook is infrastructure. But, what we have seen is an uptick in our overall demand in California, for instance, where we have a state who had put together its own infrastructure bill, and are truly investing in their roads and bridges.

We are – we definitely have seen a substantial uptick. And if we can get that type of infrastructure spending across the entire country, it will certainly be very, very good for the types of products and services that we offer.

But as we're talking about, we have some new tower products that we are demonstrating it to customers, that would change the way that they build their overall products.

For instance, three storey apartment building would typically have a number of gas-powered vehicles there to move product around the job site, and making sure that the workers have the appropriate raw materials they need to build the site. In Europe, it doesn't work that way.

And in a few nice pockets of success we've had in the U.S., where we've convinced these track builders to use what we call our hup tower cranes; they're quiet, they are very reliable. They don't require fuel. They don't require a set up in a site where the tires are tearing up the overall infrastructure around the building.

And they're extremely safe, and we're looking at how we can change the paradigm of the U.S. building industry to use these tower cranes, as opposed to other types of typical building types of equipment that have been used in the past..

All right.

And then, can you just spend a moment touching on cost inflation, maybe what you are expecting to see over the next six to nine months, and maybe touch on steel in particular?.

Yeah. I guess that's really anybody's guess as far as input prices at this point in time. I think what we've seen in the year was, we've seen that, when you look at the steel input, they've increased.

That which we bought, (41:59) we think that steel is going to continue to go up a bit, how much we're not quite sure of yet, and we're still analyzing that as we go through. So, I think the input cost will be the key thing and then, I think general inflationary factors will cover the other side of the costs..

All right. Thank you..

You're very welcome..

Our next question comes from Rob Wertheimer with Melius Research..

Yeah. Hi. Just wanted to ask a quick follow-up on the rental rates versus utilization. I believe, if I understood correctly, you said utilizations were trending up, looking good, rental rates were a little bit softer.

What's the cause of the gap, is it that utilization is actually inflecting upwards and rental rates haven't caught up, was that more different regions, I don't know if you can give color on that?.

I think it is that the rental rate has not caught yet the utilization improvement. There's lots of competition, particularly in local markets, but I think that, as we trend into next year and this utilization continues to improve ever so slightly, there's plenty of history behind this that says that rental rates will follow.

But I think we just need to be patient..

Perfect.

And I know utilization data is not always perfect, but are you able to get a sense of the utilization levels and whether we're really getting to the point where people start to feel, across the channel, nervous about availability, or is it another 5 or 10 points to go? I mean, just maybe give a sense of that?.

Yeah. We track our dealers, particularly on our RT product line, that – we have that data at our fingertips continuously..

And so, does it look like it's starting to get....

It's not a matter of us taking external feedback and trying to put that into a model and guess. We actually see what the utilization of our assets in the field are through the CCS technology that we have implemented in the field..

How many years back do you get that data?.

We go back as far as 8 to 10 years, when we first put the type of ability to track it..

Yeah. Perfect.

And then so would you say that's showing tightness, showing normal level, I mean, I'm just trying to get a sense of whether there's an inflection ahead?.

I mean, it's improving, right. I mean, inflection to me means hockey stick, but I would say that we are bouncing off of the bottom and slowly improving..

Great. Thanks..

And our next question comes from Nicole DeBlase with Deutsche Bank..

Yeah, thanks. Good morning, guys. Good afternoon, I guess..

Good morning, Nicole..

Good morning..

Hey, so when you talked about 2018, I think you mentioned Middle East, South Korea, and the Americas, but you didn't really say a whole lot about your expectations for Europe and the tower crane market has been actually pretty strong or decent for the past two years.

So, if you could talk a little bit about, your thoughts on Europe into next year?.

Now if you're asking my opinion right now, I'm kind of flattish..

Okay, okay. That's helpful. Fair enough. And then I guess, kind of a higher level question. I mean, we've seen three quarters of sustained order strength now.

Is it possible that we're entering the beginning of a crane recovery?.

I mean, the best way that I could answer that Nicole is to say, I certainly hope so. Because we've invested so much in effort to be able to demonstrate that this industry and this business in particular at Manitowoc has the ability to be a high margin business and I just hope that that is the case.

There certainly are some green shoots that are indicating that, but again I've been in this business 18 months and I've talked to people who've been in this business for 50 years, and they continue to tell me, just be patient Pennypacker, be patient, you're going to trail the dirt guys by 9 to 12 months, when they started their inflection, and if we go back and we look at the earth moving guys which we so eloquently call the dirt moving guys, the dirt guys in our business.

They were second quarter of last year and first quarter, so if history repeats itself, it very well could be around the quarter.

Now one thing that I think does impact us though is and I'm as concerned about this as I am of anything else is the geopolitical temperament around the world, particularly with things that have happened here in the Middle East in the last few days. I mean it's good for pricing, but I don't know how good it's going to be for investment..

Okay. Thanks, Barry. That's helpful. I'll pass it on..

Next from Stifel we'll hear from the line of Stanley Elliott..

Hey, guys. Thank you for taking my question.

A quick question on the 40% of the new products from stand-alone company, is it fair to assume that the backlogs and order rates are tracking at least that high if not even higher?.

Absolutely..

And then just maybe service, kind of a quick refresher.

I mean you've done some things with the truck cranes and then the hub cranes, how much of your portfolio, Barry since you've come on board have you been able to kind of reconfigure what the voice of customer and kind of changed that portfolio for a go forward basis? And the reason I was asking is trying to kind of get a feel for some of the new cranes that you've got coming out in the next year?.

Yeah. I mean I would say if I had to, and I'm thinking on the slide here across the entire product portfolio, but I think a good number is 15% to 20% that we've touched in our new way.

We have to become extremely good at doing more of this type of effort in 2018, and particularly for this business here that I'm at now, this all-terrain business because quite frankly, we have to go from tier 4 final regulations here in Europe to tier 5. And we don't have a whole lot of time to do that.

So we've got to learn and we are learning how we can touch more with less. But I'm very, very pleased at the innovation efforts that have happened in this company and continue to happen on a daily basis..

Great, guys. Thank you very much and best of luck..

Thank you..

Thank you..

Our next question will come from Larry De Maria with William Blair..

Hi. Good afternoon, guys. I want to follow up on the....

Hey, Larry..

...hey, guys, diagnostics tools you mentioned. Just to understand a little bit better.

Is this a potential profit center or is this more likely to help you capture more aftermarket parts? And curious, what your capture rates are now, you're thinking maybe where they can go, in other words, what's the opportunity there?.

I think it's both. I mean, I think it's a service that we can sell. But as we sell the service at the time we put the crane into operation, we should be able to ensure that our Potain brand parts are in fact installed in the crane as opposed to a competitor..

And do you think you guys have high aftermarket capture rates as it is now or can they move materially higher?.

No, I mean it can move – it has to move materially higher. I mean, my stated goal was to try and get this business 25% to 30% aftermarket. And we're a bit away from that today..

Okay. Thanks.

And then, secondly, on the crane cancelations, can you just update us, what's the current policy regarding deposits and progress payments? I'm curious, specifically with the Indian cranes, what happened there?.

59). I think generally speaking is, each negotiation is separate, in this particular case, it wasn't the full order cancellations, though there was a delivery in the orders, so it was just a part, it was a significant cancellation from customers, but nonetheless it was not a full cancellation.

It was a partial cancellation, so the shipments that we received we received payment for and these are the residual balance on the purchase order from the customer..

Okay. Got it..

So, really, if you are specifically inquiring about the reasons for the cancellation, the Indian government overnight put a regulation and it said that left handed driven vehicles in our particular crane segment could not be imported into the country.

I think that policy has been very ill received, and our intelligence tells us that there are regulations that are going to be changed, but as our particular experience in India goes, once a policy is made, it takes a good time for it to get changed again..

Okay. Understood. Thanks. Okay..

Thank you..

And next we'll move back to Charley Brady with SunTrust Robinson Humphrey..

Hey, thanks.

Just a quick follow-up on the gross margin, not to beat it up too much here, but I just want to make sure I understood your commentary in Q4, clearly you are communicating it's going to be obviously a little bit weaker than normally would be in seasonally, but on a year-over-year basis, are you still expecting gross margin would be up or at least offset with mix and price competitors or things like that, not going to make that happen?.

Yeah, no..

One word answer, absolutely..

Absolutely, up year-over-year..

Up year-over-year, we anticipate there being, yeah, you anticipate our actual margins to be up year-over-year. Well, what we're saying, Charley, is that, when you look at it, what I'll say sequentially is, the fourth quarter, you can't marry up to other quarters, but year-over-year we do see an increase in our overall margin..

Okay. Good clarification. Thanks.

And just, I'm curious when we talked about holding the meeting with all the Potain dealers, when you're hearing from those dealers, that large number of dealers, what are you hearing from them in terms of their market expectations, both positive and kind of concerns that they have within their respective markets for towers?.

Overall, I would say for the Europe businesses that we're represented there, it was a very positive response to their potential in the market over the next couple of years. They are absolutely flattered by our new product introductions. They're absolutely very complementary about our ability to deliver in this increased demand environment.

And I think I've demonstrated some of that in some of my prepared remarks, particularly around hub, because we haven't always been able to deliver new products on time to customer expectations, but this one has been a blowout success for us, and I think the sentiment in Europe, in particular, remains extremely strong..

Thanks..

You're very welcome..

Okay. And at this time, it looks like we have no further questions from the audience. I'd like to turn the floor back to Ion Warner for any additional or closing remarks..

Thank you, Greg. Before we conclude today's call, please note that a replay of our third quarter conference call will be available later this morning, or this afternoon our time, by accessing the Investor Relations section of our website at 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 fourth quarter 2017 conference call. Have a good day, everyone..

And ladies and gentleman that does conclude today's conference call. We thank you for joining us. You may now disconnect..