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Manitowoc (NYSE:MTW)
Q4 2020 Earnings Call
Feb 10, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, everyone, and welcome to the Manitowoc Company fourth-quarter 2020 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, sir.

Ion Warner -- Vice President, Marketing and Investor Relations

Good morning, everyone, and welcome to the Manitowoc conference call to review the company's fourth-quarter 2020 financial performance and business update, as outlined in last evening's press release. Participating on the call are Aaron Ravenscroft, president and chief executive officer; and Dave Antoniuk, executive 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 & Presentations. We will reserve time for questions and answers after our prepared remarks.

I would like to ask 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. 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 statements, whether as a result of new information, future events, or other circumstances. And with that, I will now turn the call over to Aaron.

Aaron Ravenscroft -- President and Chief Executive Officer

Thank you, Ion. Good morning, everyone. Please turn to Slide 3. To start, I would like to thank the Manitowoc team for a job well done.

2020 was an extremely challenging year. At the onset of the COVID-19 pandemic, we identified three key priorities: one, ensure the health and safety of our team; two, maintain the strength of our balance sheet; and three, position the company for long-term growth. I'm very proud of how the team managed through these unprecedented times and how well we executed on these three priorities. First, with regards to safety.

We continue to see low incidence of COVID cases throughout our operations. In addition, we achieved the lowest recordable injury rate in the history of the company. The recordable rate was 1.34. Secondly, we ended the year with a strong balance sheet.

We have $120 million of cash and over $400 million of liquidity. And thirdly, we strengthened our foundation for future growth. In the face of the pandemic, we continue to develop the future leaders of our organization. During the year, approximately 200 frontline supervisors completed a 12-month leadership program that covered safety, leadership skills, and LEAN.

We also kicked off a mentoring program for our key female leaders, which has already resulted in a few promotions. Our LEAN journey continued in 2020, with almost 900 entries in our global Manitowoc Way Lessons Learned Competition. There were many deserving submissions, but our Wilhelmshaven, Germany facility took home the prize. The team is in the middle of a multi-year initiative to improve production flow on the campus.

During 2020, the team developed a robotic measuring device that proved to be a major breakthrough in our boom assembly process and cleared the path for us to make further progress on several other elements of this initiative. In addition, this year, we rolled out the Manitowoc Way CEO Award to recognize a team member who exemplified not just LEAN thinking, but LEAN action. I would like to recognize Saleem Ahmed, test field supervisor in Wilhelmshaven. Saleem self-engineered a systems-convert manual boom cable drum alignment on the test field to an electronic process during assembly.

Thank you, and congratulations, Saleem. This type of behavior embodies our values and culture within the Manitowoc Way business system. Turning to the financials. Our performance during the fourth quarter exceeded our expectations.

Taking a closer look, it's really a tale of two stories. Our profitability for the fourth quarter was significantly better than our forecast primarily due to a favorable product mix. We had higher-than-anticipated book and ship demand for our tower cranes in Europe. This also has the added benefit of higher factory absorption in those related sites.

However, while our orders and backlog exceeded our forecast, they were heavily influenced by a couple of sizable crawler orders and favorable exchange rates. In terms of our balance sheet, we reached our second-half target to reduce inventory by $80 million on a currency-neutral basis. With that, I'll pass it to Dave to provide more color on the financial results and after which time I'll conclude with some comments on our outlook.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Thanks, Aaron, and good morning, everyone. Let's move to Slide 4. Our fourth-quarter orders totaled $509 million, an increase of 8% compared to $472 million of orders last year. On a currency-neutral basis, Q4 orders were up $22 million or 5%.

As Aaron previously mentioned, the increase in orders was primarily driven by a couple of large crawler orders in the U.S. Our 2020 ending backlog of $543 million was up 14% over the prior year and up 10% on a currency-neutral basis. The increase in backlog was mainly due to the increased crawler crane orders and the timing of shipments in Q4. Net sales in the fourth quarter of $430 million were in line with our expectations and decreased $33 million or 7% from a year ago.

A decline in the Americas segment was partly offset by stronger results in the EURAF and MEAP segments. Net sales were favorably impacted by approximately 4% from changes in foreign currency exchange rates. Our adjusted EBITDA for the fourth quarter was $34 million, an increase of approximately 11% year over year. A favorable product mix, along with reduced discretionary spending, allowed us to exceed the prior year and our expectations for the quarter.

As a percentage of sales, adjusted EBITDA margin improved to 7.9%, an improvement of 120 basis points over the prior year. During the fourth quarter, we incurred approximately $1 million of restructuring expenses predominantly related to severance costs in India and Europe. Our GAAP diluted earnings per share in the quarter was $0.05. On an adjusted basis, diluted earnings per share declined $0.16 from the prior year to $0.19 per diluted share.

Higher income tax expense due to our jurisdictional mix and the impact from net foreign currency losses were the main contributors to the year-over-year decrease in adjusted diluted earnings per share, partly offset by improved operating income. Moving to liquidity. We generated $36 million of cash from operating activities in the quarter. On a currency-neutral basis, we achieved our inventory-reduction target of $80 million in the second half of the year.

Most of this improvement occurred in Q4, which was the main source of our cash flow generation in the quarter. Year over year, our cash flow from operating activities declined due to the timing of collections on accounts receivable. We ended the year with a cash balance of $129 million, a decline of approximately $70 million year over year. However, our total liquidity remained strong at $412 million with no borrowings outstanding on our ABL.

Now, I'll recap the financial results for the full year. Orders totaled roughly $1.5 billion, down $127 million or 8% from the prior year. Foreign currency exchange rates benefited 2020 orders by approximately 1%. Lower orders in the Americas and EURAF segments were partly offset by gains in the MEAP segment.

Our net sales for the year totaled approximately $1.4 billion, a 21% decrease from 2019, and were positively impacted by $12 million or 1% due to favorable changes in foreign currency exchange rates. The year-over-year decrease was primarily attributable to entering the year with a lower shippable backlog, coupled with a reduction in demand related to the COVID-19 pandemic. Our adjusted EBITDA declined $74 million or 47% from the prior year, resulting in a 19% decremental margin on nearly $400 million of less revenue. This better-than-expected flow through result is a testament to the efforts of our team members throughout the world during these unprecedented times.

We were able to limit our discretionary spending while continuing to invest in our new product development and growth strategies. Congratulations to the team for a job well done. Our full-year 2020 adjusted net loss was $12 million, compared to net income of $67 million in 2019. Adjusted diluted net loss per share of $0.35 was impacted by approximately $0.01 from our first-quarter share repurchases.

As mentioned previously, we suspended our share repurchase program during Q1, and we do not anticipate repurchasing additional shares in 2021. Full-year cash flows from operating activities were a use of $35 million, primarily driven by the timing of accounts receivable collections and the net loss recorded in the year. As I previously mentioned, we ended the year with ample liquidity and a strong balance sheet. With that, I will now turn the call back to Aaron.

Aaron Ravenscroft -- President and Chief Executive Officer

Thank you, Dave. Let's please move to Slide 5. Turning our focus to 2021, I see this as a year of transition, one step forward, one step back. Overall, while we believe that we are beyond the economic trough brought on by the COVID-19 pandemic, we expect the recovery to be choppy.

The recently enacted stimulus packages by many countries and the rollout of the COVID-19 vaccines are all favorable developments. However, there is still a long way to go to get back to normal. And unfortunately, some of these actions will have unintended consequences. First and foremost, while economic stimulus packages are essential to the recovery, fiscal spending has a tendency to create inflation, and we are already seeing this in steel pricing.

Moreover, the heavy debt burden that this has created in the United States has resulted in a weaker dollar. Given the speed at which both these variables are changing, I am concerned that we will see a dislocation in the market, which will create a short-term cost challenge for us. Secondly, Manitowoc benefited from substantial cost containment actions during 2020 that will not repeat in 2021. Between our discretionary spending restrictions, bonus program costs, social claim benefits, and increases in insurance costs, we will easily see more than a $15 million cost headwind.

Thirdly, with the increase in crawlers, our mix is shifting toward lower-margin products, and we continue to suffer from low-production levels at our German factory, where we manufacture all-terrain cranes. Please move to Slide 6. We continue to invest in our future. We have earmarked $15 million of capex to further expand our European tower crane rental fleet in 2021.

We continue to scale up our Chinese tower crane business that serves the Belt and Road regions. We are accelerating our product development programs and our all-terrain product line, which we will showcase at Bauma in 2022. And we continue to pursue acquisitions. These growth initiatives require more investment than we've made over the last couple of years, but we are confident that these strategic initiatives will fuel our future growth as the crane industry rebounds.

In closing, the current economic environment is extremely dynamic in terms of demand and costs. And therefore, we will not provide specific financial guidance for 2021. Directionally, we believe that our revenue will be up modestly, but there are some clear indicators that we will see margin pressure from cost headwinds and product mix while we are investing in the future. 2021 will be a year of transition.

With that, operator, please open the line for questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] We'll take our first question from Ann Duignan with J.P. Morgan.

Ann Duignan -- J.P. Morgan -- Analyst

Good morning. Could you walk us through any further detail or any quantification of each of the headwinds that you're facing? All things being equal, if material costs and steel prices stay where they're at today, how much would that cost you in incremental dollars? How is this weakening dollar going to impact you quantitatively and then the less favorable product mix? If you could just walk through in more detail where you're thinking those will be?

Aaron Ravenscroft -- President and Chief Executive Officer

Thanks, Ann. I think the real complex part here is we're dealing with several variables and trying to project where they go in the future when they've moved so much in the last four weeks. And we're not in a good position to really quantify it. In terms of the steel pricing situation, right now, obviously, there's some dislocation as demand is outpacing supply.

Our hope is that supply comes back on and pricing starts to plateau a lot like what we saw in 2017. So it's tough for us to give you a good number on where we think that sends, having only been off as strong as it's been for four, five weeks. Some of those other items, I think it's the same case scenario. Dave, do you want to just provide a little color on the issues of foreign currency?

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. So, Ann, while we do benefit from the translation of currency, it also increases the cost of our products imported from Europe and sold into the U.S. And unfortunately, there is always a lag in pricing in catching up to the currency fluctuations, particularly in an extremely competitive products like our all-terrain business. So from a short-term perspective, currency does become a headwind for us relative to those products that we bring into the U.S.

Ann Duignan -- J.P. Morgan -- Analyst

OK. And I was going to ask about pricing, but I think you addressed it there. So my follow-up would be, as I look at your growth initiatives, can you explain your thinking on the scale-up of your China tower crane business? And how do you determine whether that's a good return on invested capital? I mean, it's a hugely competitive market. At the end of the day, there's very little differentiation, one crane, specialty steel in a row as the Chinese would say.

So how do you differentiate your stuff in China? And why should investors believe that that's a good investment?

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. So firstly, the tower crane market in China is the largest tower crane market in the world. They make 30,000 or 40,000 tower cranes a year. So huge market opportunity.

But also, that's a platform how we really compete in places like the Middle East, Asia Pac, South America. So it's well beyond just China. And in terms of return on investment, I mean, Potain is a well-known brand locally. We found that the rental houses are all very interested for us to get into a competitive position.

The real issue we have long term, strategically speaking, if we look through our history here is, that we historically had moved old legacy product lines to China and basically, they will make -- the old legacy stuff in China reduce the cost. Basically, over the last two years, we've reinvigorated our engineering locally, and we've been producing, what I'd call, our Asian-specified cranes for those local markets so we can be competitive. So there is this ongoing game of not only do we have to be price competitive, but we're also getting our, call it, value engineering initiatives in line with making sure that our specs are where they need to be to be competitive. So for us, it's a great opportunity for growth, and we see good margins in the business.

So I think it's just a great opportunity for us.

Ann Duignan -- J.P. Morgan -- Analyst

OK. I will leave it there in the interest of time and get back in queue. Thank you.

Aaron Ravenscroft -- President and Chief Executive Officer

Thanks, Ann.

Operator

We'll take our next question from Stephen Volkmann with Jefferies. Please go ahead.

Stephen Volkmann -- Jefferies -- Analyst

Hi, good morning.

Aaron Ravenscroft -- President and Chief Executive Officer

Good morning, Steve.

Stephen Volkmann -- Jefferies -- Analyst

Can you give us any more detail on these crawler crane orders? It sounds like they were meaningful, but maybe you're not expecting that to really be a harbinger of anything more to come. And I would have thought large crawlers are good for the margin mix. So I don't know when they get shipped, but just any more details there?

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. So the crawler crane business in the United States is as low as it's been in 10 years. So when we get a couple of these orders and are big-ticket items, numbers hit big ways. In terms of the margin, basically, over the last 10 years, especially as the dollar has remained strong for most of that period, pricing has been relatively constant.

So this is some of the big challenges that we face. As I say, the strengthening euro has challenged for us in the short term, but this is an area where it could be a big benefit to us in the long term as pricing adjusts accordingly in our local market. So in terms of a trend, fourth quarter is fantastic. I think we've seen one order so far this year.

I mean, it's so lumpy that it's tough to say that if it's a full one trend, I do think that over the next three or four years, the market will start to trend back up, sort of low 20.

Stephen Volkmann -- Jefferies -- Analyst

OK. And then, Aaron, what do you hear from the large rental guys in the U.S. specifically? Because I assume you have lots of conversations with them. What are you hearing relative to things like utilization and fleet age? We've seen some other rental-type equipment where capex has bounced back, I think, faster than people expected.

Just what's the tone of those types of customers?

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. So I would say that the smaller rental houses are more active in the current environment. I mean, the large rental houses, it's really spotty when you talk about utilization. I've talked to a few large rental houses where the utilization rates have been a big challenge for them in the short term.

And I mean, if you look down in oil patch, there's a lot of cranes sitting right now. So I think it depends on where you look around the country and what the utilization is, but I think on a whole, utilization is pretty soft. That being said, the one thing that I always hear from our customers is that, while this year may be tough and they may not be spending on capex, the fleets continue to get older and older and older. So at some point, they're going to have to refleet.

Stephen Volkmann -- Jefferies -- Analyst

OK. I appreciate it. I will pass it on.

Aaron Ravenscroft -- President and Chief Executive Officer

Thanks, Steve.

Operator

Our next question comes from Jamie Cook with Credit Suisse.

Aaron Ravenscroft -- President and Chief Executive Officer

Good morning, Jamie.

Jamie Cook -- Credit Suisse -- Analyst

Hi, good morning. I guess two questions, one following up on Steve's question on the order strength tied to crawlers. Is there any way you could help us understand what the orders would have looked like sort of ex that and ex the crawler help, so on a normalized basis? And how you're thinking about the order trend in the remaining quarters? And then I guess my second question is, I think you said you expect top-line growth for 2021 to sort of be modestly positive. Are there any sort of market outgrowth opportunities embedded in that forecast? Or is that more of what you think the industry should do? Thanks.

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. So for the crawlers piece, just to give you a feel, I mean, we took a $15 million order with just a couple of days left in the year. I mean, they're just extremely lumpy. That's only a couple of cranes.

So those could have easily shifted into the first quarter. If I look at our January orders, they're sort of in line with where we expect it to be. I mean, a little bit down versus last year, but January is always a slow month. So I think at least in the short term, we've seen we got lot of the crawler orders that we would have expected in the first or second quarter.

In terms of our overall outlook and our modest growth, I think some of that's just that the second quarter was so slow last year that we had some easy comparisons. That will really help drive the growth. But I wouldn't say there's any specific market that's really driving that.

Jamie Cook -- Credit Suisse -- Analyst

OK. So you don't embed any market outgrowth in your forecast for 2021 that could be then --

Aaron Ravenscroft -- President and Chief Executive Officer

No. I mean, a perfect example. Like David mentioned, the Middle East was pretty strong for us in the fourth quarter. I mean, I wouldn't call it systemic.

I mean, the tower crane business is tough sledding. And the mobile crane business has been really slow for the last five years. There's nothing that's systemic that's driving it. It's just we've seen some large projects break free, and we've been able to land a couple of those orders, and we got a couple more coming.

But it's nothing that I would say systemic that I could see sort of throughout the whole year and really call a turn. Yes, I think Europe's got a tailwind to go. Wait and see what happens with the vaccine in Europe, but I pretty really got a good feel because I think they're still way behind in terms of where they thought they'd be.

Jamie Cook -- Credit Suisse -- Analyst

OK. Thank you. I appreciate it.

Aaron Ravenscroft -- President and Chief Executive Officer

Thanks, Jamie.

Operator

We'll take our next question from Jerry Revich with Goldman Sachs.

Aaron Ravenscroft -- President and Chief Executive Officer

Good morning, Jerry.

Jerry Revich -- Goldman Sachs -- Analyst

Good morning, everyone. Hi, good morning.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Good morning, Jerry.

Jerry Revich -- Goldman Sachs -- Analyst

Can you talk about -- can you hear me OK?

Aaron Ravenscroft -- President and Chief Executive Officer

Yes.

Jerry Revich -- Goldman Sachs -- Analyst

Can you -- OK. Sorry about that. I'm wondering if you could just talk about the pricing on a spot basis today. Dave, I appreciate the comments that what's in backlog was obviously price pre the move higher in steel.

But I would imagine it's a pretty transparent market. So the cost headwind that we're talking about I would presume you're pricing for those on new bids. So maybe you could just expand on those prior comments if you don't mind.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. I'd say it looks almost identical to what we saw in 2017. We've got the charts that we track, whether it be long or coil and they're up, call it, 25-ish percent in the last couple of weeks. That's all public data out there to find.

I think what's tricky for us also to nail down on how this all plays out is this game of what we purchased. So typically, for instance, in the United States, we've purchased larger blocks, and we've got more protection if we look out, say, let's say, six months, where in Europe, we have shorter contracts.

Jerry Revich -- Goldman Sachs -- Analyst

And in terms of the pricing that you're quoting to customers, I would imagine it's taking into account the move on the spot market, correct? Those are the comments that you talked earlier about there being a lot of -- just to be clear.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. I wish we could change prices that fast. I mean, that's some of my remarks where I said, I think there's a dislocation in the market because you're going to have these adjustments. Same thing, for instance, in the United States.

Any product that's coming in from Europe, eventually, it's going to have to be adjusted relative to the strength of the euro. But that doesn't happen overnight. Plus, we've got what we have in our backlog. Those prices don't often change.

Rarely change. And a lot of these projects in this environment were negotiated. So I do expect that if this thing holds up, we've already started talking about price increases internally, but there is a bit of a process to get it out into the field.

Aaron Ravenscroft -- President and Chief Executive Officer

So hopefully, if we follow the same trends that we saw in 2017, we'll start to see steel come down and moderate, and then it's much more manageable.

Jerry Revich -- Goldman Sachs -- Analyst

Yes. And in the quarter, really strong margin performance by the team. And in your prepared remarks, you spoke about a weak dollar and other factors that appear to be continuing. So can you just talk about why we shouldn't expect you folks to be in a better cost position given your overweight U.S.

dollar exposure versus the competition? And I fully appreciate the comments on the European products. But on a net basis, you're still at an advantage versus imports coming from outside of Europe for component segment products.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. So, Jerry, I'll take that. So I think, generally speaking, we did get the added benefit of really favorable product mix in Q4. And some of the products that generated, what I'll say is this revenue that was in excess of our anticipations were products that generated really good margins.

And you couple that with still the, I'll say, restrictions or low level of ESG&A spending, couple those two together, and those two really were the main drivers of our better-than-expected results in Q4. On the long run, I don't think we'll see those types of margins into 2021.

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. The thing I would add is there's a serious dislocation in the marketplace right now with respect to supply and demand whether it be parts, whether it'd be steel. If you look at China freight, for instance, this is a perfect example, something that just popped up over the last couple of weeks. If I look at what it costs us to ship a crane from China to Singapore, I don't know, six or eight weeks ago, it'd have cost $25,000.

And today, it's $63,000. And that's all because there's a shortage for containers for export. So you see this sort of things sort of pop up and then they go away. And then, of course, there's this domino effect of how it plays in the supply chain in the case of steel.

So there's plenty of headwinds for all of us out there to manage through this year as everyone starts to come back online.

Jerry Revich -- Goldman Sachs -- Analyst

Appreciate the color. Thanks.

Operator

We'll take our next question from Mike Shlisky with Colliers Securities.

Aaron Ravenscroft -- President and Chief Executive Officer

Good morning, Mike.

Mike Shlisky -- Colliers Securities -- Analyst

Hey, good morning, guys. Can we maybe go back to one of your earlier answers and perhaps slice and dice some of the conditions based on end market? Can you tell us how things are going and maybe how are utilities versus infrastructure versus oil and gas? Are there any big standouts on a positive or negative side here?

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. So the standout is the wind business. That's really where we're seeing the strength in the crawler cranes. Oil and gas, even though oil prices continue to inch up, we really haven't seen any drastic change.

And that will take some time because it's -- we got to get the rental houses, get their utilization up before you really see some action. So I would say utilities has been strong with the transmission work that's out there. Utilities has been nice, robust. I think that pretty much covers the main markets in the United States.

Mike Shlisky -- Colliers Securities -- Analyst

OK. Great. And another question was about some of the fire points on the cash flow for 2021. Just quickly, David, can you maybe just tell us, is there a capex outlook that we should be looking at? And then secondly, are there any important goals you've got for 2021 for inventories or for broader working capital?

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. So, Mike, we're not providing guidance. However, I will say that we are targeting positive cash flow from operating activities at this point in time. And I think depending on where we end up, we can flex up our capex or flex down our capex.

But right now, I can't give you hard dollars just because of the uncertainty it exists. But regardless, we are targeting positive CFOA.

Mike Shlisky -- Colliers Securities -- Analyst

And then on the inventory side –

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

OK.

Mike Shlisky -- Colliers Securities -- Analyst

Please ask --

Aaron Ravenscroft -- President and Chief Executive Officer

Come on, Mike.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Mike, we'll take the order. On the inventory side, there's a couple of pieces to really think about and work on. One is FX. So it actually drove up our inventory this year by $20 million, just to put it into perspective.

So where that goes will have an effect on where our inventory is. I think that our inventory for use is a little bit higher than where we'd like it. So we want to keep on working that down. So that's an opportunity for us.

And then we have our normal seasonality that we'll manage through where we normally increase inventory in the beginning of the year, and then we work it down in the second half of the year. So there's some puts and takes.

Mike Shlisky -- Colliers Securities -- Analyst

Got it. Sorry to rush you there. I will pass it along. Thank you.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

No problem, Mike. Thank you.

Operator

[Operator instructions] We'll take the next question from Mig Dobre with Baird.

Aaron Ravenscroft -- President and Chief Executive Officer

Good morning.

Mig Dobre -- Robert W. Baird -- Analyst

Hey, good morning, everyone.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Good morning, Mig.

Mig Dobre -- Robert W. Baird -- Analyst

So, yes, good morning. Going back to thinking through this field cost dynamics, my recollection is that field was -- accounts for better than 20% of your COGS. I think that said, I got it from very -- couple of years back. So correct me if I'm wrong on that.

But then just structurally, as we're thinking about margins for '21, it's probably fair to say that your margins are going to be pressured in the back half of '21, probably lower year over year. Is it a fair expectation for us to have that margins could be up year over year in the front half of the year? And I'm thinking about Q1 specifically because I would imagine that some of these inflationary items are not impacting Q1 as much as maybe you're going to see in Q2 and especially in the backlog?

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. I think that's a fair statement with respect to the first quarter. But I mean, we always have -- I mean, we have our own little seasonality the way our margins move. I think probably the better way -- if you want me to answer that relative to the decremental margins, that might be.

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. So I think, Mig, when we look at it, we've always kind of articulated and we did better this year that -- on the downside, we looked at 25% to 30% decrementals and on the upside, 20% to 25%. But from a seasonality, typically, our Q1 is lower than our Q2, and we're going to do better in Q2, I believe, as well. The first half, we should be up slightly maybe in that regard to answer your question.

But it's a wait and see. I mean, we do have a reasonably good backlog coverage for the first half of the year.

Mig Dobre -- Robert W. Baird -- Analyst

Right. And as far as steel as a percentage of COGS, do I remember that correctly that it's a little better than 20%?

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. I mean, that's a number that Barry provided. We typically -- it varies by product lines, of course, obviously, depending on there when we look at material costs. But obviously, there's a lot of steel in our products, right?

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. And even in some of our parts. And this is where it gets tricky is we're seeing -- we already have suppliers who want to increase their prices. They have own steel effect.

So this is where the domino effect kicks in.

Mig Dobre -- Robert W. Baird -- Analyst

Sure, sure. And then maybe my final question here. You talked about some timing issues around accounts receivable collection. I'd like maybe a little more detail on that.

And given the way you're thinking about the business, the top line really for '21, should we expect you to continue to build inventory, either raw material or components ahead of some of these price increases? Or can both accounts receivable and inventory still be a source of cash for '21? Thanks.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. So thanks, Mig. So with regard to receivables, I'd say if we went back to year-end 2019, we had a perfect storm on collections. Everything kind of fell into place.

I would say, better than normal. And I think that in 2020, at the end of the year, we were just pretty much average when it came to our collections. So it's just a matter of -- it is a pure matter of timing. It's not a matter of uncertainty, which is the good news.

So we'll collect most of that money in January. With regard to what I'll say is the inventory and the seasonality, as Aaron did mention, in the first half of the year, we do grow inventories as part of our seasonal trend for the construction season that takes place in the spring. So there will be an increase there. I'd say that receivables are going to be less impacted.

It's more just an inventory. However, looking at 2021, I go back to say that we are targeting positive CFOA, which will be generated through mostly our working capital.

Mig Dobre -- Robert W. Baird -- Analyst

All right. Thanks, guys, a lot.

Aaron Ravenscroft -- President and Chief Executive Officer

Thank you.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

We'll take our next question from Cliff Ransom with Ransom Research.

Aaron Ravenscroft -- President and Chief Executive Officer

Good morning.

Cliff Ransom -- Ransom Research, Inc. -- Analyst

Good morning, folks. A quick comment and then two quick questions. One, congratulations on Wilhelmshaven. It just goes to show what happens when you bring in brilliant outside talent to help a facility.

Aaron Ravenscroft -- President and Chief Executive Officer

We appreciate your assistance.

Cliff Ransom -- Ransom Research, Inc. -- Analyst

Yes. When you think about the lessons learned at Wilhelmshaven, how will you translate them to your other plants? They're not necessarily doing the same processes, but the thinking is important. How will you spread that gospel?

Aaron Ravenscroft -- President and Chief Executive Officer

Yes. I mean, you raised a good point, especially in the COVID-19 world with the virtual. Obviously, we try to do as much as we can on Teams, and we have regular reviews. So for instance, we have a person who runs the Manitowoc Way program.

He holds regular calls and reviews with respect to all of the lessons learned leaders at each individual plant. So they're required to share lessons learned on a monthly basis with each other. And that's about what you can do right now. I mean, we've done some drone videos and shared that across the organization, so people could see some of the changes we've made.

But the real key is we get out of the virus situation, we can get back to traveling because the home run comes when we're able to move people around the world and moving from factory to factory to participate in different Kaizens. I'm super excited with what our team in Charlieu has done with TPM. But right now, it's tough to get anyone to see it because we can only send pictures to each other. So I think the only way you really get your arms around something like that is for us to send some of our other folks in different facilities to physically see what they're doing.

Cliff Ransom -- Ransom Research, Inc. -- Analyst

Yes. Nothing odd going to the gemba. Dave, a question for you. When you talk about the collections experience, contrasting 2019 and 2020, how much of that was happened stance? And how much of that was applying LEAN thinking to back-office carpet land, transactional world?

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Yes. So that's a great question, Cliff. I would say that when you look at how we've changed over the last number of years, our processes that we've implemented within the organization from a back-office standpoint have become more streamlined. And what we've seen in '19 was a big benefit associated with that.

I'd say that in 2020, it was more of a factor of when the shipments occurred and our ability to collect them, and which is why we anticipate seeing that come in, in early 2021. But the efficiency that we operate now in collecting our receivables is probably the best that it's ever been at any point in time right now.

Cliff Ransom -- Ransom Research, Inc. -- Analyst

What's your next step to make it better?

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

So good question. So --

Cliff Ransom -- Ransom Research, Inc. -- Analyst

I'm hanging you on the continuous improvement -- hoist on your continuous improvement petard.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Absolutely. Absolutely. I will say that many of our sales are financed sales. And so in working with our finance partner, we're working toward reducing the time from the sale occurrence to the funding of the sale.

And in that regard, we've made great strides over the last couple of years, and we have a new agreement with them that just came into effect this past year, and we look forward to just continuous improvement as that's -- from an 80/20 standpoint, that's 80% of our dollars versus the 20%, which is what I'll say is normal routine collections. But the good news is that you continually get calls from people to help you in collecting and particularly in delinquent accounts. And I'd say that we have a great relationship with our customers. We stay on top of any issues with our customers, and that affords us the opportunity to make our collections within a reasonable time frame with agreed terms.

So we're pretty happy with the way it's been progressing.

Cliff Ransom -- Ransom Research, Inc. -- Analyst

Thank you.

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

You're welcome.

Aaron Ravenscroft -- President and Chief Executive Officer

Thanks, Cliff.

Operator

And there are no further questions. I'd like to turn the call back over to Ion Warner for any additional or closing remarks.

Ion Warner -- Vice President, Marketing and Investor Relations

Before we conclude today's call, please note that a replay of our fourth-quarter 2020 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. Thank you.

Operator

[Operator signoff]

Duration: 39 minutes

Call participants:

Ion Warner -- Vice President, Marketing and Investor Relations

Aaron Ravenscroft -- President and Chief Executive Officer

Dave Antoniuk -- Executive Vice President and Chief Financial Officer

Ann Duignan -- J.P. Morgan -- Analyst

Stephen Volkmann -- Jefferies -- Analyst

Jamie Cook -- Credit Suisse -- Analyst

Jerry Revich -- Goldman Sachs -- Analyst

Mike Shlisky -- Colliers Securities -- Analyst

Mig Dobre -- Robert W. Baird -- Analyst

Cliff Ransom -- Ransom Research, Inc. -- Analyst

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