Q3 2019 Earnings Call
And Investor Relations. Please go ahead.
Thank you and good morning, everyone and welcome to the Manitowoc Conference call to review the Companys third quarter 2019 performance and 2019 full year business outlook as outlined in last evening's press release.
With me today, our Barry Pennypacker, President and Chief Executive Officer, and David Antolik, 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.
I'd like to request that you limit your questions to one and a follow up and return to the Q to ensure everyone has an opportunity to ask their questions.
Please turn to slide two 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 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.
No matter what company does not undertake any obligation to update or revise any forward looking statement, whether the result of new information future events or other circumstances.
And with that I will now I'll turn the call over to Barry.
Okay.
Thanks Ion and welcome everyone.
We once again delivered a strong quarter using to 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 it last quarter, we committed to reducing our inventory by 80 million by year end and I'm happy to say, we're 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'm also happy to say that Manitowoc tightened the range of our 2018 guidance.
And increased earnings despite lower anticipated revenue.
And now let's focus on orders.
Last quarter, we discussed a broader softness in global markets due to trade disputes and other macro economic factors.
These conditions have persisted in the third quarter, resulting in orders, which were short of 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 Cray days.
Our year over year decline was broad based across all product lines.
For the first time and along while South America is showing signs of life, which has continued into our October bookings.
In Europe , 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 the App the Asiapac 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're on 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 in a positive or negative because as you are aware this business can turn very quickly.
Dealer inventory across all markets is property aligned with current market expectations.
The market feedback from our key customers as that there remains a high level of utilization of key equipment.
But very few are talking about fleet expansion due to all the factors that have had discussed ad nauseum.
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.
Thanks, Barry and good morning, everyone, let's move to slide freight.
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 Europe .
Net sales declined 9%, 5% on a currency neutral basis. This decline was primarily due to reduced shipments to the commercial construction end market.
To me EP 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 51 cents per diluted share as compared to $12 million or 32 cents per diluted share in the prior year.
Adjusted net income for the quarter was $19 million or 54 cents per diluted share and improvement of $12 million or 34 cents 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 Thirtyth, our total liquidity was $354 million with no borrowings outstanding on our ABL revolver.
The net debt to adjusted EBITDA ratio ratio was a healthy 1.6 times.
Our ABL capacity, coupled with a low net debt ratio provides us with ample liquidity to execute on our growth strategies, while meeting ongoing operational cash requirements.
Turning to slide four please refer to our updated 2019 full year guidance.
A 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'll now turn to fall back to Barry.
Thank you David.
As we look ahead, we are mindful of the on circuit, so uncertain market conditions that exist. The 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 recruit 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.
I am confident that our innovation strategy is well positioned to deliver highly productive cranes to our customers.
Five of these new products will be introduced at the Con Expo 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 eyewitness substantial improvement in throughput.
Gone are the days a batch production the investment that we have talked about in the past has resulted in significant increase in a 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.
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're confident our strategy works and we'll continue to provide returns to our shareholders throughout the cycle.
With that operator, I'll turn it back to you can open up the lines for questions.
Thank you you would like ask your question. Please signal by pressing star one on your telephone keypad.
You are using the speakerphone. Please make sure your mute function has turned off two layers to move to reach or equipment again Thats star one to ask your question, we'll pause for just a moment to allow everyone an opportunity to single for questions.
We can I take your first question.
Seth Weber of RBC capital markets. Please go ahead.
Hey, good morning, guys, how you doing.
Good morning that how are you.
Good Thanks, nice nice job on the margins here in the quarter.
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. Thanks.
Thats 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 break even point to where we believe.
The bottom of the market could be.
We have continual opportunity to manage our SGN a.
But you should also.
Realized that we Maine, we remain resolute on continuing to expand our margins here, regardless of what tries to happen to us from a market perspective.
Okay can you was there anything in the mix here in the third quarter, there was particularly helpful too.
And maybe can you just talked too.
Your expectations for production in the fourth quarter versus kind of where we.
Where we were in the third quarter. Thanks.
From a mix standpoint, I think we were.
Pretty much where we've been historically in the third quarter, we have some.
Americas mobile mixed it tends to rear its head in the.
Third quarter, which.
No helps us in some regards.
And.
Yes towers was.
Pretty much where we expected it to be so from a mix perspective, maybe a little help full from the Americas.
Otherwise I would say you know we're pretty much.
Where we have historically have been as far as the fourth quarter is concerned yes of course, we began aligning our our production.
In the third quarter with where we are anticipating.
Demand to be and we will continue to monitor that and adjust that as our order rates indicate.
Okay. Thanks, and then maybe just a quick follow ups for Dave.
He commented on the.
Inventory reduction being on track can you just talked about used crane market in general and what Youre seeing I know I know part of that reduction is used cranes.
Can you just frame what is that what you're seeing out there in the used crane market. Thanks.
Yes sure OSAT. Thank you very much. So I think generally speaking prices have been fairly stable in the U.S crane market right now.
We don't anticipate any changes in our and our guidance doesn't anticipate any changes to that so it's steady as she goes within that market.
Okay guys. Thank you very much appreciate it.
Welcome.
Thank you.
Your next question.
Assuming debris of Baird. Please go ahead.
Yes, good morning, everyone.
Yes, I also have a quick question for for Dave.
How do you think about free cash flow in the context of your updated guidance.
So I think generally speaking Meg we're looking at generating $60 million in Q4.
Okay. That's helpful.
And then.
I'm also wondering from a orders perspective, I know there was 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 a market. So you know can you maybe.
Level set expectations for us should we expect a normal seasonality here, where are you thinking I don't know maybe a little.
Well I think.
I don't suspected.
Sequential weakness in fact.
We just closed October and our October orders were you know.
In line with what we would have.
Expected from prior year. So you know I'm I'm I'm pleased to see that.
October kind of had a.
Slight up pit and I mentioned some of the regions in my prepared remarks, where in fact that that were being helped I mean, you know we do you know there was a time when when South America was a very substantial portion of the revenue above this company and for the last.
For years since I've been here, it's been virtually non existent, but you know in the last couple of months, we're seeing some some uptick there. So that's very positive for us.
So I think there are still a lot of our customers are in.
So the wait and see mode.
As I mentioned, you know I've talked to a number of them over the course of the last month that their equipment is out working.
You know, they're continuing to think about investment, but a lot of it depends on what the temperature is out of Washington DC.
Okay.
Barry just to clarify on your October comment where are you, saying that.
October was basically in line or to wise, where you were on.
18.
Correct.
Okay Thats correct lives.
Correct, Okay, Yes, I mean.
The fourth quarter of a team that was a very nice order intake quarter. So I mean at least in theory that be kind of a tough comp.
So thats good news, it's going very tough comp, but as I said I remain encouraged that we're doing all the right things and.
We'll see where it ends up at the December 31.
Okay last question for me.
As we're thinking about conexpo.
I know that ratio is a big deal for you guys.
Hi, how how should we think about the new product introduction over there in terms of the potential ordered that impacted I might have on orders and Theres also an expense associated with it that we have to follow.
To put through margin. So can you can you help us out in modeling that.
Yes, the Conexpo SGN, a hit will be 3 million Bucks, 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.
On these F five cranes are.
Continued evolution of the product line I don't want to give too many away, but I think theres going to be.
As much excitement at Conexpo with our new products as there has been at a particular like crane days a year ago.
Over a year ago now.
Yes, Thank you and good luck.
Thank you very much make.
Thank you.
Your next question.
Jerry Revich of Goldman Sachs. Please go ahead.
Hi, Good morning, everyone. This is Ben brewed on for Jerry.
Hey, Ben were off morning are your Fourq, you implied EBITDA guidance ranges from about 19, the 34 million.
You mentioned earlier, what your normal seasonality, but when we apply what we're modeling to Threeq you EBITDA that implies for Q1 EBITDA around let's say 40 million can you step us through how you arrived at that Fourq you range.
As it is their general conservatism baked in to into that number are there some timing related items that we should be made aware of.
Yeah, I mean, I think we articulated a couple of the key points. There is going to be you know as a percentage was going to be lower lower aftermarket business. Both in dollars and percentage theres going be higher used equipment sales, which are which are sold that much lower levels than than typical equipment.
And when we are going to have a 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 I think that generally speaking we looked at where we're going to be in the mid point gives us somewhere about 27 million of EBITDA and theirs.
So we feel pretty good good attaining the numbers, we put out there.
The other thing is you.
Yes, Ben the other thing I'll say is that we.
There's a reason we don't give quarterly guidance right because you know a crane sale or few crane sales that move out from quarter to quarter, you know really impact what those quarters results are we had some good mix as Barry indicated you know with the Americas in the quarter. So so that plays into it as well so we look at our guidance as attain.
During a year result versus looking at it on a quarter by quarter specific basis.
Got it and on that point.
When we think about.
Next six among the order cadence is with Con Expo being a March is there any.
No chance that orders are pushed out into one Q from Fourq you.
Just to make sure we're modeling it accurately on.
Based on seasonality.
Yeah, I mean, absolutely because quite frankly, and I've I've been very transparent about this customers love to come to the booth.
Up to shake your hand, and love to celebrate with the glass 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.
Got it actually finally.
Got it and finally in pricing has been a great tailwind for offer you guys. You know in recent quarters, particularly in aftermarket can you can you just give us an idea about what's been supporting that improvement and if there's any difference.
And in pricing strength on the aftermarket side across your different and regional markets.
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 I'm I'm very happy with that I also think some of the recent consolidation that's happened in the industry is is helping to stabilize pricing.
Pricing.
We've already seen the effects of that some of that in Europe .
Which is which is really a positive for us going forward.
Awesome. Thank you.
Very welcome welcome.
Thank you.
Next question comes from and doing of Jpmorgan. Please go ahead.
Hi, Good morning, as Tom said the national fraud.
Yes, Hi, Tom.
Hi, just following up on the price cost question that on you'll like cost country sourcing how much of the incremental benefit of that initiative to expense will be realized this year versus 22 inch and beyond.
It will be more in 2020 and beyond.
Okay.
And then just looking at your channel. It is I think United a slowdown in Germany previously highlighted Francesa. We spoke can you just provide some more color on those two markets in particular.
Yes, I mean, I think I think Germany exhibited much lower strength, then then France.
We hope that some of that is just you know seasonal and starting vacations and extending vacations little longer than what.
As has historically been the case.
But France, you know, France, France is doing okay.
Okay from performing right at our expectations and if you heard into per the prepared remarks, what's interesting is that you know.
Countries, like Italy, and Portugal, and Spain.
Our in fact, starting to return to growth, which is something that is is very much appreciated by us, but somewhat surprising and where it's going to have to continue to.
Continue to monitor as we go forward.
And just lastly from me on on the inventory reduction last quarter, you detailed as three initiatives could you maybe just quantify the contribution of those three initiatives towards the 18 within the target.
Well I think generally speaking when you look at where we are today and on the balance sheet, we reduced inventory by 30 million. We have plans in place that have been developed by the team.
You know to to get another 50 million that inventory and we've historically reduced our inventory levels in the in the fourth quarter significantly the team still meets weekly.
We do we have identified target target areas for the for the inventory reduction and quite honestly, we feel.
Very good about our ability to attain that that that reduction in Q4.
I'll leave it that thank you very much.
You are very welcome.
Thank you.
And I moved our next question comes from Steven Fisher of Yes. Please go ahead.
Thanks, Good morning, guys.
Hi, good morning.
Morning on the cash flow was a nice positive quarter, but could have been even really stronger with or without that 59 million dollar payable headwind.
If I missed it but.
Can you talk a little bit about what drove that and what the potential is to see that reverse.
Yes sure. That's a good question. So I think generally speaking when you look at Q3.
We have a reduction in our in our overall payables within the organization then that's what I'll say is due to seasonality and thats associated with with the number of items in Europe as you know.
We have Gerard we have Germany, and France plant shutdowns in there I think you really two main factors number one is that in the U.S.. We brought in 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 as we ended up.
Well in in July , which would then be payable in September . So those bills were paid in accordance with our our vendors terms and that resulted in a in a decline as well.
It's 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.
So embedded in your $60 million for of cash flow for Q4 is that a combination of benefit from both inventory and payables.
That is correct.
Okay.
Thanks, and then in terms of the the North American market can you just maybe give a little bit more color on sort of what you've seen in the the flow of business and orders by production type and end market over the last few months between non res, the non res and infrastructure and.
Atrial et cetera, there would be helpful. Thanks.
Yes, they were still we're still seeing nonres.
Expansion, albeit at a lower rate.
Particularly on the West coast.
The West Coast has been very very strong in in the tower.
And.
Business in particular saw a little by little pause in that in the third quarter, but.
I think that will.
It will end up reversing itself continue to see a you know with the state infrastructure builds that are out there we're continuing to see.
Rts.
In particular.
Being.
Introduced into into that area. We're also seeing nice lift from the introduction of our hundred ton.
Crawler Crane, that's manufactured here in the U.S.
That's.
Definitely.
Being position to 100%.
That infrastructure, if there was one area in North America, where I'd say, we solve somewhat of a decline in.
In a particular area I would say it's at the wellhead.
With our 80 production.
Okay terrific. Thanks, a lot.
Very welcome.
Thank you.
Your next question comes from Jamie Cook of Credit Suisse. Please go ahead.
Hi, Good morning, most my questions have been answered, but I guess, just Barry I'm, even 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 all right Q on doing something.
Given the markets are a little softer broadly.
Across the industrial landscape, our multiple starting to become more attractive and is this sort of like an opportunity. We can see I guess and Oh now next six to nine months.
I would say that your observation about multiple contraction is right on the money.
People are.
Hey, coming in my opinion.
Back into the realm of.
What I would consider.
The opportunity for us to make acquisitions in an accretive nature.
You know we have we have a number of limitations in our credit agreement.
But we have made I.
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 nine months, we don't have an acquisition completed.
Okay, and then I guess I understand.
Sort of the Doom and gloom out there, but you know the crane cycle has been one of those are chronically finished in one of those markets that have been the only soreness industrial market that has remained fairly depressed since the.
No financial crisis, I guess and so is there something structural that you think is going on narrow and you're not assuming we got China trade War resolved how would you think about sort of the pace of ever recovery if that happened. Thank you.
Yeah. That's a very good question in fact, let me just give it a little little little background here, if I look at the Crane business at Manitowoc from 2007 to through 2015 prior to us becoming a standalone Crane company.
And if I took the high year out, which would have been 2009, and the low year out and I average all those years of revenue it comes roughly $2.4 billion.
If I averaged the revenue from 2016 that 2019 with our implied guidance for the year that revenue is one seven to five 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 beers that I just mentioned it's much higher.
So at some point in time, and I wish Jamie I could I 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 one seven in 2 million, our 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 profiles company at 2 billion in revenue than we are at an average of 1.7.
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.
Okay, I hope that answers your question.
Yeah, I know that does I appreciate the color. Thank you.
You're welcome.
Thank you well now take our next question.
From Stephen Volkmann of Jefferies. Please go ahead.
Hi, Good morning, guys. Most most of my name in done as well, but Dave I think you said something about price being a positive relative to sort of the margin performance in the quarter and I'm just curious if.
If you have any broader commentary around pricing and.
Gross orders kind of are harder to come by is pricing also get hurt getting harder to come by and then I'll. Just go I'm on with the fact that there's been obviously some change in the competitive dynamic or 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.
Well, let me start off a little bit from the broader market perspective, then David can get into more of the specifics I will say that I'm I'm very pleased with the amount of discipline that exist in the market. Currently I think some as I said earlier I think some of the consolidation that that's taken place has helped that and I don't see any.
The reason why.
That doesn't continue into the future.
So from a pricing perspective.
I'd say, even though you know there's a there's a bit of a pause and 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 yeah. 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 has seen price increases and and that's throughout you know what I'll say all the competitors within that particular area.
Certain areas are better than others.
We've obviously, we've obviously talked about the Americas and some of the actors that we've taken there.
The middle East will obviously, a bit harder south America bit harder as well, but for the most part I'd say it was its steady as she goes for right now and in the pricing actions have have you know.
Have been sticking in we're we think thats good for the industry.
Great. That's helpful. I appreciate it thanks.
You're welcome.
Thank you and our next question comes from Mike Shlisky of Dougherty and company. Please go ahead.
Good morning, guys.
Hey, Mike.
So how long the follow up into your answer to Jamie's question earlier about the average because as you did prior to 2015 and since then.
I think for a good portion of that deck here. So prior to two the spin off you had much higher market share and in 16 and since you're kind of you started the period at the lowest point of share and in certain key categories. So my question is I mean, it sounds like part of the ramp back to that 2 billion might be.
Some share improvements over the next couple of years. So could you maybe timing for us as to perhaps this year. So far how has your share trended in certain key.
Okay heavier categories, if you will.
In areas, where we have invested in technology, our share has returned to historical highs.
And every single category.
Areas of the this where we have dedicated new product development.
Our truck cranes for instance, I mean, we lost.
Mike I tell you, how many basis points, but I can't even say it there's bips you know because its percentage points, but it's a lot of based lot of lot of basis point.
We're back to historical highs because we invested in the new Tms 9000, which carried on of the Tms 500, which will carry on to the Tms new crane that we'll be introducing in the next six months, so where we have youre. Your historical perspective is absolutely correct.
But today sitting here in November of 2019, we are a much different company than when we were at 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 of the standpoint.
So if 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.
Okay that is good to answer here.
I also wanted to ask it wasn't really don't discuss much yet on the call about the crane care in parts efforts you've been doing can you update as to how that's gone this year.
And whether there's more to go in 2020, you think.
Yes, Mike I think Thats, a continual process, we continue to make strides in looking at fill rates than quick quicker response, five and overall profitability of our of our parts business. So I'd say that we're very pleased with the with the 2019 outcome and and we believe that 2020 is going to.
Deliver more of the same.
Okay as simple as that thanks, so much guys.
Thanks, Mike.
Okay.
Yeah.
Your next our next question comes image debris of Baird. Please go ahead.
Hey, Thank you for taking my follow up.
Have a quick question on a on backlog.
And I'm wondering how you're thinking about.
Minimal levels of backlog that you need in order to be able to do proper production planning.
Financially.
You know depending on how orders progress.
You know is there a particular amount that you have in mind to where you're adjusting production to make sure. You don't go Oh, you don't know wrote the backlog pass at certain point.
Yes off Meg I, it's it's a great question I mean, obviously when you look at our backlog today.
We are at at 467 million at this point in time I think our low point when you look at year end was 2016, where we're at 324 million.
You know I generally say that we're going to wait and see how our Q4 orders come you kind of have an idea, where our where our revenues our topline revenues going to be.
So we're not we don't anticipate being anywhere near the 2016, low, but but obviously you know if the trend continues.
We can react.
Conversely, if if theres a pickup in orders in there we have the ability react and ramp up as quickly as we as we need so I think it's it's it's good in the sense that you know we have levers to pull whether we go up or down in that regard.
Right I mean look we'll see exactly where the fourth quarter shakes out order wise, but.
Ill, stating the obvious your backlog has been coming down and your revenues our 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.
Probably going to end up being somewhere close to where 2019 orders were.
And whats happened to backlog.
I think that is a and assumption that one could make.
But again I'm not willing to make that.
You know as a as a statement until we see what happens in the fourth quarter.
I think you know where we have multiple plans for next year.
And and all of those plans have different assumptions and those and you know will be in a much better position to call 2020.
Sitting here at December 31 than we are today.
Hi, I appreciate that this was just sort of a mathematical question. If you would my my final question is on on margin.
Again, you know when I'm looking at my model and plug in and your guidance it looks like your.
I'm, assuming a decremental margin on EBITDA call. It low twentys right around 24, the fourth quarter, if one were too soon.
Revenue decline in 2020.
Is this the level of decremental margin that we should be operating ways or.
Do you have something else no.
No.
That is not the level of decremental margin you should be operating within 20 Twond.
You expand on that.
David Yeah, I think make when you look at it you know the fourth quarter is is a little bit of an anomaly when it comes to.
The decline in Europe in your midpoint I think what you're saying is that if we look are you looking at on a quarter over quarter basis, where you know were about 21 million down and 4 million down and on EBITDA, which should be about your 20% Rage. 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 we'll let you know in February .
I appreciate that but I mean look if your volume is down it's hard for margin not to fuel that that's what I'm trying to say.
Yes, so yes, no understood we might as well have these expectations line lined up even though you're not providing guidance I mean, we're gonna have to come up with estimates. So that's why I'm pushing out.
Yeah, No I I agree with you in there you know in is when you look at the flow through of our revenue I think thats the key consideration of where we'd be and obviously the other the other alternative is to whereas DNA comes out in the in the whole process as well.
All right well thanks for the color will follow up offline.
Thank you.
Thank you.
And our next question comes from Larry de Maria of William Blair. Please go ahead.
Hi, Thanks, Good morning, two questions good morning.
Hi, good morning, guys.
Obviously talked about pricing positive contribution sorry, 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 prior cycles in averages and stuff.
If we think about the productivity of the crane over the last few years versus the prior period is it possible that the productivity offsets is one of the reasons for the offsets and volume and sales I'm just curious your thoughts on that thanks.
Theres no question that our new products are more competitive than more productive than others, but I would say, it's a limiting factor right now to market expansion is manpower you talk to our large rental houses in the biggest issue they have with.
Taking on new work is getting qualified.
Train operators to operate the equipment.
So Dave become more sophisticated in their financial modeling that they may have been in other cyclist. Because in other cycles. They may have said you know they're willing to bet on the come that that labor is going to free up but I think you know as some of these costs.
Hi, good 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 you know overall as I said.
The number of cranes that are out there are being highly utilized and you know 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.
So you reckon, Barry that hey for labor wasn't as tight as it is for those.
Orders would be higher you'd be selling a lot more right now.
Die, but theres no question in my mind that orders would be higher if labour was available I mean, all you have to do as go down to.
No. The you know 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 you know that are on the board to you know go in fact be funded in start being built.
But the absence of labor and the absence of equipment is the is the limiting factor at this point and until confidence returns or that you know.
We're not going to be at a trade war and that the the economy isn't going to come to us screeching halt as a result of a certain person.
Being elected.
Then I think we'll see expansion again any less.
Okay. That's interesting. Thank you and then just on the material costs.
David Yeah, So I would say you know pretty sequentially pretty flat.
You know year over year, I think we have some a bit of a benefits, but not material enough to call out.
Okay. Thanks, very much great job and good luck.
Thank you.
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 closing remarks.
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 Dot Manitowoc Dot com. Thank everyone for joining us today and for your continued interest in the Manitowoc company.
We look forward speaking with you again next quarter have a good day everyone.
This concludes todays call. Thank you all for your participation you may now disconnect.