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Manitowoc Co Inc  (NYSE:MTW)
Q4 2018 Earnings Conference Call
Feb. 08, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Ladies and gentlemen, please stand by. Good day, everyone and welcome to the Manitowoc Fourth Quarter Full-Year 2018 Earnings Conference Call. Today's conference is being recorded.

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

Ion Warner -- Vice President, Marketing and Investor Relations

Thank you, Jake. Good morning, everyone, and welcome to the Manitowoc conference call to review the Company's fourth quarter 2018 performance and our 2019 full-year business outlook, as outlined in last evening's press release. 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 or actual projections due to one or more of the factors, among others, described in the Company's latest SEC filings. The Manitowoc Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or other circumstances.

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

Barry L. Pennypacker -- President and Chief Executive Officer

Thanks, Ion and welcome, everyone. I'm very pleased to report our fourth quarter results, which showed exceptional performance against very tough year-over-year comps. These results demonstrate that we are a stand-alone crane company, that can continue to deliver operational improvements and value creation by utilizing the principles of The Manitowoc Way. We achieved our seventh consecutive quarter of year-over-year adjusted EBITDA percentage improvement and generated $40 million of cash from adjusted operating activities for the year. These are significant achievements, in light of the recent market driven headwinds. This was an outstanding team effort by all of us, and I would like to thank all of our 5,000 employees for a job well done.

For the full year, we delivered 17% increase in sales, along with over 150 basis points of adjusted EBITDA margin improvement. This is a result of increased crane shipments across all regions, primarily due to recovery in the commercial construction and energy end markets. The all-too-familiar headwinds, such as material costs and tariffs, skilled labor shortages, rising logistic costs, and a constrained supply chain, were effectively managed and evidenced by the aforementioned EBITDA margin improvement.

Looking forward, market conditions are mixed. However, as I said in the third quarter conference call, we finished the year with a healthy backlog of $671 million, an 11% year-over-year increase. Our US customers continued to be optimistic about planned project work in the end markets they serve. We are also seeing encouraging rental utilization rates in the US, but still well off of historic highs. At the same time, we are experiencing a slower growth rate in Europe, after a healthy demand environment in prior years.

Presently, we are cautious in Europe, where we saw an order slowdown in the second half of 2018. Construction data in France and Germany has shown some deceleration and we are tracking these markets very closely. Despite the challenges in certain end markets, our transformation using the principles of The Manitowoc Way has us well positioned to drive continued growth and margin expansion in 2019 and beyond.

And with that, I'll turn the call over to David to walk us through our financial results and 2019 guidance.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Thanks, Barry and good morning, everyone. Let's move to slide 4. Fourth quarter orders totaled $486 million, a decrease of 22% compared to $620 million of orders last year. In the fourth quarter 2017, orders were favorably impacted by US dealer stocking orders, which did not repeat to the same magnitude in 2018. In addition, orders were negatively impacted by moderating demand in Europe, low demand in the Middle East, and a 1% unfavorable change in foreign currency exchange rates. As I outlined in our last call, our third quarter 2018 orders were favorably impacted by approximately $29 million of stocking orders that are typically placed during the fourth quarter tower crane winter campaign. Adjusting for this, our fourth quarter orders would be down 17% year-over-year.

As Barry mentioned, our 2018 ending backlog of $671 million was up approximately 11% over the prior year, driven by an increase in the Americas, partly offset by lower backlogs in both Europe and the Middle East. Ending backlog was also unfavorably impacted by approximately 2%, due to changes in foreign currency exchange rates. Currently, over 75% of our year-end backlog is scheduled to ship in the first half of 2019.

Net sales in the fourth quarter of $515 million increased $34 million or 7% from a year ago. This was primarily driven by improved demand in the US market, partly offset by a large non-recurring shipment in the Benelux region in 2017, which did not reoccur in 2018 and declining demand in the Middle East. Net sales were also unfavorably impacted by approximately 2% from changes in foreign currency exchange rates.

During the fourth quarter, we incurred approximately $2 million of restructuring expenses, predominantly related to European severance costs. Our non-GAAP adjusted EBITDA for the fourth quarter was $31 million, compared to $24 million in the fourth quarter of 2017, an increase of 31%. Flow through adjusted EBITDA on the increased sales volume was 22%. We disclosed in our third quarter 10-Q filing that a continued decline in our equity market capitalization could result in a goodwill impairment charge.

As a result of the continued decline in our market capitalization in the fourth quarter, we recorded an $82 million non-cash, goodwill impairment charge. Excluding impairment and restructuring charges, our adjusted net income from continuing operations for the quarter was $6 million or $0.16 per diluted share, as outlined in the supplemental schedules to our press release. We completed our calculation of the transition tax due under the US income tax reform legislation and recorded a related taxable income inclusion of approximately $160 million.

However, because we have sufficient net operating losses to fully offset this transition tax income inclusion and we are under a full valuation allowance in the US, we do not anticipate incurring a related cash tax expense or transition tax or other US tax reform legislation. As of December 31, our total liquidity was $237 million as compared to $223 million as of December 31, 2017. Cash on hand at the end of the year was $140 million, an increase of $21 million from the prior year.

Now, I'd like to recap the operating results for the full year. 2018 was a successful year of operational execution and continued margin expansion. For the year, our non-GAAP adjusted EBITDA improved $42 million or 56% over the prior year. In addition, our adjusted EBITDA margin improved by 157 basis points to 6.3% of sales. Full year non-GAAP adjusted operating cash flows were $40 million, driven by a 340 basis point improvement in working capital as a percentage of sales. On a currency neutral basis, working capital decreased 3% year-over-year despite our revenue growth.

Our full year 2018 net loss from continuing operations included the non-cash goodwill impairment charge, a loss on the writedown of the Chinese joint venture receivable, restructuring charges, pension settlement charges and certain discrete tax items, resulting in adjusted net income from continuing operations for the year of $23 million or $0.64 per diluted share.

I would now like to give you an update on the refinancing of our capital structure. As I mentioned in last quarter's call, we are evaluating options with the goal of reducing interest expense and providing more financial flexibility. The debt markets ended 2018 with a high level of uncertainty, as there were no high yield issuances in the month of December. While waiting for these markets to settle, we have moved forward with the refinancing of our ABL facility and anticipate closing on a new facility in the first quarter.

Our new facility will also refinance our existing accounts receivable securitization program and result in a simplified structure to improve liquidity and reduce restrictions in cost. Recently, the debt markets have shown encouraging signs and we are making excellent progress toward refinancing our current high yield notes. Our guidance reflects an expectation that we will also complete this transaction by the end of the first quarter.

Turning to slide 5. We are providing our 2019 full-year guidance as follows. Revenue of approximately $1.85 billion to $1.95 billion. Adjusted EBITDA of approximately $125 million to $145 million. Depreciation of approximately $37 million to $39 million. Restructuring expense of approximately $12 million to $15 million. Interest expense of approximately $28 million to $32 million, excluding debt refinancing costs. Income tax expense of approximately $12 million to $16 million, excluding discrete items, and capital expenditures of approximately $35 million.

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

Barry L. Pennypacker -- President and Chief Executive Officer

Thank you, David and moving to slide 6. 2018 was a very good year for Manitowoc, as we delivered higher sales, positive adjusted diluted earnings per share, a first for us, since becoming a stand-alone crane company and over 150 basis point improvement of adjusted EBITDA margin under challenging market conditions. Our goal is simple. We are committed to delivering improved returns to our shareholders by executing on our four key strategic priorities, utilizing the principles of The Manitowoc Way.

Starting with margin expansion, I'd like to recognize our team in Wilhelmshaven for their turnaround efforts over the last 12 months. As I have mentioned in prior conference calls, we made a significant capital investment in this facility to improve its overall operating results. I am proud to say that in 2018, this facility improved its manufacturing variances by over 50%, while producing 20% booms -- 20% more booms year-over-year. This is just one example of the powerful principles of The Manitowoc Way and how they drive improvement in our operations. We're not immune to costs increasing in 2019, albeit at a lower rate. While we continue to fight hard to fully offset these increases through efficiency gains, we decided it was prudent to take additional restructuring actions. In particular, we are in the process of streamlining our overall European organization, which we expect to have favorable impact on our SG&A going forward.

While I'd love to quantify these results for the year, I'm not in a position to do so, as we have not reached full agreement with all the associated parties in Europe. Consistent with past practice, we will inform you on a quarterly basis of our progress and our associated costs. We are also taking actions in other regions, including the US to align our cost base with our go-to-market strategy.

Our next strategic priority is growth. This past November, I attended the bauma CHINA trade show to meet numerous customers and dealers from across the Asia-Pac region. I was encouraged to hear their general positive attitude and sentiment on future demand. And they reaffirmed that our growth strategy in Asia-Pac is working. It has been my experience over the years that in order to be successful in markets like China, you must develop the products in the region you are serving to ensure that the costs are aligned with market expectations.

For the first time, we introduced a tower crane developed in China for the Asian market called the MCT 565, which we launched at bauma CHINA to a great reception. We are now in the process of developing an entire range of tower cranes in China for the Asian market, which will enable us to grow organically in the region.

Our third strategic priority is innovation. Our culture of continuous innovation is built around The Manitowoc Way, using the voice of the customer process to bring excellent value to our customers. Nowhere will this be more evident than at the bauma trade show in Munich, Germany this April, where we plan to introduce six new cranes. I encourage you to go to our website at www.manitowoc.com to learn more about these exciting new products. I look forward to connecting with our customers at bauma to further demonstrate that our product revolution is real.

Our fourth strategic priority is velocity. I recently visited our Tower facility in Baltar, Portugal, which has begun an ongoing transformation for over the last 18 months. We have completely changed our manufacturing approach at this location by outsourcing non-core activities and focusing on core production processes. This has led to a 21% increase in units produced in 2018, with minimal capital investment. Through rigorous kaizen, the team has completely changed the flow of the factory and significantly increased our capacity. Much to my surprise, the team is already well ahead on the next phase of the program and I'm excited to see what the team can achieve in 2019.

This quarter was a strong finish to the year. Our expectations for 2019 reflect another exciting year. While global trade tensions and customer demands are at times unpredictable, we are optimistic about the future and our ability to execute our strategic vision as an agile stand-alone crane company.

In closing, our results are indicative of a company that is still in the early stages of transformation. I've always said that a lean transformation of a company can be compared to a race. The good ones have a tendency to approach the race more like a marathon as compared to a sprint. Seven straight quarters of improved financial performance indicates that we are aligning our cost structure with the expectations that we will continue to outperform our peers, regardless of the market environment. Please continue to stay tuned for the updates as The Manitowoc Company continues to set the pace throughout the race.

With that, I'll turn the call back over to the operator to open up the line for questions.

Questions and Answers:

Seth Weber -- RBC Capital Markets -- Analyst

(Operators Instructions) We will hear first from Seth Weber with RBC Capital Markets.

Hey, good morning, guys.

Barry L. Pennypacker -- President and Chief Executive Officer

Good Morning, Seth.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Good morning, Seth.

Seth Weber -- RBC Capital Markets -- Analyst

Good morning. Wondering if you could just comment on -- the results came in better than what we were expecting and I think a little bit better than what your guidance had suggested. Can you just comment on where the upside came from? Was it better price-cost, was it better mix? Sounds like execution has been good, but just relative to your expectations, I think you had sort of message on the last call that price cost was going to be pretty onerous here in the fourth quarter and then again into the first quarter. So, maybe it was that the swing factor or anything else you'd call out. Thanks.

Barry L. Pennypacker -- President and Chief Executive Officer

Well, I tried to say in our -- in my prepared remarks when I talked about our strategic priorities that our plants are really performing. We are now three years into the transformation of our plants through utilizing the principles of The Manitowoc Way. And when I look at our global variances and I see what is happening in our plants, we're getting pleasant upside from -- as a result of these activities. I truly expect that to continue. Your question about price cost is neutral. We continue to think that in 2019, in our guidance that it's neutral. But overall, I would say that the margin improvement, the incremental earnings truly came out of performance in our operations.

Seth Weber -- RBC Capital Markets -- Analyst

Okay, thanks. And then you have a pretty big range for next year for 2019 on the EBITDA side relative to the revenue. So can you just talk about what some of the swing factors could be to get to the upper end of the range versus the lower end. I guess as you're -- I mean, do you expect mix to change at all through 2019 versus what we've seen this year or last...

Barry L. Pennypacker -- President and Chief Executive Officer

I think mix, Seth, is going to probably be about what we expected and pretty much consistent with this year. We're not expecting a substantial recovery in North America of RTs and crawlers, as we've beat that drum to death. I mean that's -- we're still waiting for that portion of the market to come back. So basically for '19, our mix really hasn't changed very much. We'll have more US than Europe. As for the range, I mean, the uncertainty in the range is primarily Europe.

You've got all the things going on with Turkey, you've got the Yellow Jackets in France. You got Brexit, you got all kinds of different factors that are just stimulating demand to be put on hold and move down some. So I mean, I think if you really wanted to know the range of possibilities that we take into account in our guidance, recognizing again that we are a very conservative management team, it primarily centers around Europe.

David, do you have anything to add?

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

No. Seth, I would echo the same comments that Barry made with the uncertainty at this point in the year, a wider range we felt was more prudent than a narrow range and keep adjusting it. So I would suggest that as the year goes -- falls into place, we'll look at that range and narrow it accordingly.

Seth Weber -- RBC Capital Markets -- Analyst

Okay, thanks very much guys. Appreciate it. Have a good weekend.

Barry L. Pennypacker -- President and Chief Executive Officer

Thank you.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Thank you also.

Operator

Now, we'll hear from Ann Duignan with JPMorgan.

Ann Duignan -- JPMorgan -- Analyst

Hi, good morning. It's Ann Duignan.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Hi, Ann.

Barry L. Pennypacker -- President and Chief Executive Officer

Good morning, Ann.

Ann Duignan -- JPMorgan -- Analyst

Hi, guys. Just talking about the path through innovation, et cetera, et cetera, (inaudible) is making a big splash in the trade magazines around the new facility they've built in China for tower cranes and they expect to double their sales of total cranes from about 750 million to 1.5 billion in the near term. Can you just talk, Barry, about competition, and particularly in some of these Chinese competitors who seem to be gaining strength and really building world-class manufacturing facilities in China for the rest of world distribution.

Barry L. Pennypacker -- President and Chief Executive Officer

Yes. That's an excellent question and it's a long and complicated answer. But I will try to do my best. When we segment the market in China, we really believed that 80% of the market is not addressable by our products. So when we look at the tower crane market in China in particular, we believe that 20% of the overall demand is demand that the Potain brand has the ability to serve and when I say has the ability to serve, it is that these particular cranes are developed with standards that are completely in excess of what the Chinese do. And when large and when large international companies that are doing development in China want to ensure that they have the best performing, highest quality cranes on their job sites, they look to the Europeans.

Now, as I said in my prepared remarks, there is a large market there that we don't currently address. We're not going to develop our products to address that 80%, the full 80%. But even if we are able to address 10% of that in China, China's market, it's pretty much equivalent to the entire market in Europe. So it isn't a strategic focus for us. It's one that's taken a little longer than what I would have liked to have had, but I do believe now that we have the management team in place, we have the engineering capability that we need in order to take full advantage of this wonderful organic opportunity.

Ann Duignan -- JPMorgan -- Analyst

And could you address the opposite, Barry, now that the Chinese are building European standard manufacturing facilities with European standard product, what about the accelerating competition from the Chinese players in the rest of the world.

Barry L. Pennypacker -- President and Chief Executive Officer

Where we have seen accelerated competition from the Chinese in the rest of the world has been primarily in Northern Africa and the Middle East. And we've never really had a very strong presence in Northern Africa. So that really hasn't affected us yet. The Middle East, I mean, they have a substantial presence in the Middle East, but the overall market demand for product is at such a low level that we haven't really seen that as a competitive disadvantage at this point.

Ann Duignan -- JPMorgan -- Analyst

Okay. And if I could just really quickly follow-up on just a point of clarification, maybe 2 million impairment charge this late in the cycle. Can you explain what that was and then the restructuring in 2019 you had anticipated been finishing -- been finished restructuring at the end of '18. So could you just reconcile both of those, I would appreciate that and I'll get back in line.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Sure, Ann. So with regard to the -- with regard to the goodwill impairment, there is -- in the accounting rules, there is a rule whereby you have to look at your market capitalization compared to the net book value of your balance sheet. In Q3, we said with the deteriorating stock price and the market value of the company, we had that there may be an impairment. And as the stock price continued decline in Q4, we did the calculation and ended up with an impairment that we booked into our European segment, more a mathematical calculation than anything. I don't think it impacts any of the operations or what we're seeing going forward.

With regard to our restructuring, Barry?

Barry L. Pennypacker -- President and Chief Executive Officer

Yeah. And I think as a point of clarification, when we said we were pretty much done with restructuring, we really meant that toward North America.

Ann Duignan -- JPMorgan -- Analyst

Okay, that's helpful. I appreciate the color. Thank you. I'll get back in line.

Barry L. Pennypacker -- President and Chief Executive Officer

You're welcome.

Operator

We'll now hear from Steven Fisher with UBS.

Steven Fisher -- UBS -- Analyst

Thanks. Good morning, guys.

Barry L. Pennypacker -- President and Chief Executive Officer

Good morning, Steve.

Steven Fisher -- UBS -- Analyst

Good morning. Just thinking about the 3% revenue growth target for 2019. Clearly, you mentioned some pricing, so what do you assume for volumes in this equation?

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Yes. Steve, generally speaking, when you look at the range, we have a pretty wide range of volume. There's a number of factors that are going to impact that, but I would say, if you're looking at through volume, our anticipated is a slight uptick in volume on a year-over-year basis.

Steven Fisher -- UBS -- Analyst

Okay. And would that reflect sort of up North America and down Europe.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Correct.

Steven Fisher -- UBS -- Analyst

Okay. And then just a bigger picture question here. Barry, curious how you're thinking about the overall portfolio, the scale of the business and M&A. I think you guys said last quarter, your intended refinancing would currently -- would raise more debt than you currently have. So just kind of curious how you're thinking about some of those factors and what might make sense going forward.

Barry L. Pennypacker -- President and Chief Executive Officer

Yeah. I mean we really will be in a position after this debt deal is completed to use various options for growth in our earnings going forward. As you know, we are very restricted from doing anything right now as far as dividends are concerned and/or share buybacks and/or acquisitions. So we want to make sure that as we go through this debt deal, we have the flexibility. And I will say, Steven, that we will look at, as always, based on current market conditions, where the best deployment of that cash is. I would like to hope that there are opportunities for us to grow, where we can add EBITDA, but also, we have to take into account, our current share price, when we look at the overall deployment of our cash going forward.

Steven Fisher -- UBS -- Analyst

Fair enough. Thanks a lot.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

You're welcome.

Operator

And now, we'll move to a question from Jerry Revich with Goldman Sachs.

Ben Burud -- Goldman Sachs -- Analyst

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

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Hi, Ben.

Ben Burud -- Goldman Sachs -- Analyst

Just had a question on orders. So we're coming off a quarter where they were down, as you guys mentioned, 22% obviously against a tough comp, but still on a sequential basis, they were, by our estimates, 13% worse than normal seasonality. Can you just kind of give us some color as to how though -- the winter campaign went after what you guys said was a strong October and then how is the table set for maybe the first six months of '19.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Yeah. So Ben, I think generally speaking, one of the things we talked about is the volume of stocking orders, particularly from our US customers that occurred in '17 versus '18 and that was a significant delta over there. I would say the winter campaign performed as expected. We didn't have any issues with that. The go forward, I think the go forward in orders is -- the question is there is why we -- or the answer is, why we have such a large range, we're waiting to see how the market plays out with all the factors that are influencing it in the more general, global economy. So I'm not going to comment as to where we think orders are going to be in the first half of the year versus second half, but that's -- because that's the reason we have such a large -- a large range in our guidance right now.

Ben Burud -- Goldman Sachs -- Analyst

Got it. And can you guys give us a sense of maybe what's embedded in your outlook in terms of new product introductions. So I think last spring, you had some very strong lineups, you've filled a bunch of holes in the portfolio. Can you give us an idea, the 6 to 10 that you're going to highlight at bauma, are those just refreshes, is there anything -- like what's new and captivating that could really drive upside for orders.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Well, what's new and captivating about those products are that our customers ask for them and it's a good mix between mobile cranes as well as tower cranes. One of the biggest opportunities that we see for growth in towers is refreshing the overall line itself from -- on the higher capacity end. On the higher capacity end, we have some opportunities to do things that will enable the setup much easier and tear down much easier as well as increase the capacity for these cranes. I want to be, if you feel like I'm being a little evasive in that comment, you are reading it absolutely perfectly, because I don't want to give everything away that our customers will see at bauma, but rest assured that this is not just changing the tires, put fancy wheels on and painting them a different color. These are new products from the ground up that our customers have asked for.

Ben Burud -- Goldman Sachs -- Analyst

Got it. Thank you.

Operator

And now, we'll hear from Mig Dobre with RW Baird.

Unidentified Participant -- -- Analyst

Hey, good morning, guys. This is (inaudible) on for Mig this morning.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Good morning.

Unidentified Participant -- -- Analyst

Good morning. Question on incremental margins at the midpoint of your sales guidance and the midpoint of your EBITDA guidance, there is an implied 35% incremental margin. What are kind of the puts and takes of that price cost mix, operational improvement. How do you kind of think about the 35% incremental in the guidance.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Yeah, generally the answer is going to be all of those. Right. It's a matter of how well our plants perform, where the order book takes us. I think from a price/cost standpoint, we're in reasonably good shape, given the current market dynamics. So from that perspective, I think we're pretty good. It really comes down to where we are going to be. And the other part is restructuring, we're going to be looking at restructuring as as an ongoing item, and that's going to impact our bottom line as well, and we can't talk about it now as to the impact, but stay tuned and in the first quarter, we'll probably have some updates on that as well.

Unidentified Participant -- -- Analyst

Got it. Okay, thanks. And then my follow-up question would be on the inventory levels, they were somewhat elevated exiting the year, impacted free cash flow for the year, how much of that was perhaps the Tier 4 engine pre-buy in Germany or what were some other factors in the inventory levels.

Barry L. Pennypacker -- President and Chief Executive Officer

Right. I would say, the Tier 4, 5 factor in Germany was not material. I'd say generally the increase is associated with the increase in production and the output that we have to do. So that's really the main driver of the inventory. When you look at the composition of our inventory, we think that the composition has improved as well. So we're in good shape there, and if you look on the liability side, that was offset to a large extent by the increase in liabilities, which is some of the products that we brought in at the end of the year, which were still sitting in payables.

Unidentified Participant -- -- Analyst

Got it, OK. Thanks for taking my questions.

Operator

Now, we'll hear from Steve Volkmann with Jefferies.

Steve Volkmann -- Jefferies -- Analyst

Hi, good morning guys.

Barry L. Pennypacker -- President and Chief Executive Officer

Good morning.

Steve Volkmann -- Jefferies -- Analyst

Maybe Barry, maybe a couple of kind of big picture, longer-term type questions. How are you feeling about the 10% EBITDA goal. And I guess I'm trying to figure out, because you've had some success in making progress there, is that number still the right number to think about, do you need significant volume to get there. Just sort of reset how you're thinking about that for us if you would?

Barry L. Pennypacker -- President and Chief Executive Officer

Excellent question and I'm glad I have an opportunity to talk about that. Yeah, believe me, there isn't a single day, maybe single hour within this company that that 10% goal isn't talked about. We have encountered some roadblocks that have gotten in our way with tariffs and material change -- charges that we didn't anticipate, employee costs that were higher than what we had originally thought. However, that's no excuse for us for coming off of our long-term target and we are still committed to that. I think you heard me talk a little bit more about Europe than what I have in the past. As you know, we have closed a major facility and done a very good job, I would say, of restructuring in the North American market, but we've only really truly begun our restructuring activities in Europe.

And that has been for a number of reasons. One and primarily the driver of that is that the product portfolio, quite frankly, needed a lot more work than what I had originally anticipated. And so we are investing in the product portfolio to ensure that we have a long-term company that our customers value and want to purchase from, but believe me, there isn't a single minute or day goes by, where that 10% goal isn't talked about and we are not revising that goal.

Steve Volkmann -- Jefferies -- Analyst

Okay. So I guess we're looking at something around 100 basis points for '19, is that the right cadence then to think about going forward.

Barry L. Pennypacker -- President and Chief Executive Officer

As I said, we are a very conservative management team. But as you saw in the guidance, it's about 100 basis points for this year. That's correct.

Steve Volkmann -- Jefferies -- Analyst

All right. I'll leave that one and just add one more and then pass it on. I noticed you said a couple of times and I'm probably super nitpicking here, but you said independent crane company and I know you're probably talking about the old Manitowoc model. But at the same time, after you pay down this debt or refinance this debt, you may actually be potentially a little more attractive to someone else. So I guess I'm curious how much it's important to you to stay independent, whether you'd be interested in potential combinations with other companies down the road.

Barry L. Pennypacker -- President and Chief Executive Officer

I think we are a stand-alone crane company, we have to continue to look at our strategy going forward as a stand-alone crane company and whatever happens in the future, we have to have -- make sure that we are in a position to capitalize on that. And by saying that, I mean that there is no intention internally at all to think that this isn't going to be a long-term stand-alone crane company. That is our strategy. We want the ability to grow it. We want the ability to see it become much bigger than what it is today. And let's face it.

I mean this management team has a very long history of making acquisitions that have been extremely accretive and to be honest, I wouldn't be in this role if I thought that all I had to do or what we had to do was come in, pretty it up and then sell it. I'm here for the long term, I've bought a lot of stock in the company and I want to see that grow over time, as do our shareholders.

Steve Volkmann -- Jefferies -- Analyst

Understood. I appreciate it.

Operator

(Operator Instructions) We'll now take a question from Charley Brady with SunTrust Robinson Humphrey.

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Hey, yeah. Thanks. Good morning, guys. Hey Barry, just a question kind of on a longer-term basis, if you look at the SG&A, or ES SG&A, you've done a really good job bringing that down over the past couple of -- 2, 3 years. I'm wondering on a longer-term basis, where do you see that going to. You're talking about still doing restructuring in Europe, so there is obviously some that comes out of there that you alluded to, but I'm just trying to get a sense of, is there a longer-term target where that as a percent of revenue kind of moves to over time.

Barry L. Pennypacker -- President and Chief Executive Officer

The longer-term target I haven't communicated yet because we're still developing it. As I said a little earlier, Charley, we're still in the middle innings of getting our innovation portfolio correct and it takes bodies and it takes minds to get that in the situation that we are comfortable with. But we're very, very quickly approaching the time where SG&A will be a substantial opportunity for us to grow our earnings. And I will tell you is, stay tuned for 2020.

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Yeah, thanks. And just on the commentary around the Middle East and Europe. I'm just wondering from a competitive standpoint, whenever those market slowed down, you've got some private companies out there you compete with, you've got some Asian competitors that tend to get irrational when markets get weak in those areas. I'm just wondering from a competitive standpoint, have you seen any of that irrationality start creeping into the market.

Barry L. Pennypacker -- President and Chief Executive Officer

Not as of yet. not as of yet. I expected in the Middle East, but again, I mean our Middle East business is so low right now that I don't think it would be detrimental to our overall results as a company, if there becomes intense competition there. So the Europeans are in a situation where they've got mouths to feed also and it will become competitive, but as of this point in time, as everyone continues to do what we're doing and innovate the industry and at least say they're innovating the industry, you've got to be able to pay for that. And by decreasing your margins, you're not going to be able to pay for innovation for the future. So, I fully expect and I hope that discipline will remain throughout this cycle.

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Thanks. I'm just going to sneak one more here, on the Shady Grove facility, can you give us a sense of where you are on capacity utilization at that facility right now. I know it's still not optimal until volumes get better, but kind of where is it running today.

Barry L. Pennypacker -- President and Chief Executive Officer

I mean, it's in -- it's between 50 and 65. I mean, it's still -- we have -- still have a lot of capacity in the Shady Grove facility and those of you who have been there know that. When you look at what this company used to produced in Manitowoc along with the combination of RTs that were produced in Shady Grove, and you add those two together and you look at how much that's still down from 2015, we have a long runway to get that closer to 80%.

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Got it, thank you.

Barry L. Pennypacker -- President and Chief Executive Officer

You're welcome.

Operator

Now, we'll hear from Jamie Cook with Credit Suisse.

Jamie Cook -- Credit Suisse -- Analyst

Hi, good morning. Just a couple of follow-up questions. First, can you talk about what you've seen for sort of order trends in January and February, and whether your assumption for this year seems with bauma, that orders, you'd get some benefit from orders, as you generally do, with trade shows if you could start there, that would be helpful.

And then I guess my second question, just what you're seeing in the markets, other industrial companies have talked about supply chain issues or higher freight costs, et cetera, like what your assumptions are, as you think about 2019. Thank you.

Barry L. Pennypacker -- President and Chief Executive Officer

Yeah. With regards to freight costs and other increase that we talked about in our prepared remarks, we are absolutely resolute on making the price/cost ratio neutral. We think that we have already taken that into account with our pricing actions that we've already introduced into the market. So I think from an overall increase in commodity prices as well as freight and/or any other tariffs, I think we have pretty much taken that into account within our backlog and our guidance for the year.

And I'm sorry, what was the second -- the first part of your -- OK, David, you go ahead.

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

So Jamie, just on the order side, I'd start off by saying that orders in Q4 came in, in accordance with our expectations. Right? I mean, we knew they were going be down year-over-year. But -- and that's because for a number of reasons. One month doesn't make a year as far as order goes. When you look at 2019, I'd again say that January was in line with our expectations of where we thought we were going to be. February, it's too early to tell, but I will say that typically when you do have a trade show, orders tend to shift to that trade show. So it wouldn't surprise me, if we see some orders move out of Q1 into Q2, because of the bauma trade show.

Jamie Cook -- Credit Suisse -- Analyst

Okay, thank you.

Operator

(Operator Instructions)

Ion Warner -- Vice President, Marketing and Investor Relations

I don't think we see any in the queue.

Operator

With no additional questions, I will turn the call back over to Mr. Warner for any additional or closing remarks.

Ion Warner -- Vice President, Marketing and Investor Relations

Thank you, Jake. Before we conclude today's call, please note that a replay of our fourth quarter 2018 conference call will be available later this morning by accessing the Investor Relations section of our website at www.manitowoc.com. Thank you everyone for joining us today and for your continuing interest in the Manitowoc Company. We look forward to speaking with you again next quarter. Have a good day, everyone.

Operator

With that ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation and you may now disconnect.

Duration: 60 minutes

Call participants:

Ion Warner -- Vice President, Marketing and Investor Relations

Barry L. Pennypacker -- President and Chief Executive Officer

David J. Antoniuk -- Senior Vice President and Chief Financial Officer

Seth Weber -- RBC Capital Markets -- Analyst

Ann Duignan -- JPMorgan -- Analyst

Steven Fisher -- UBS -- Analyst

Ben Burud -- Goldman Sachs -- Analyst

Unidentified Participant -- -- Analyst

Steve Volkmann -- Jefferies -- Analyst

Charley Brady -- SunTrust Robinson Humphrey -- Analyst

Jamie Cook -- Credit Suisse -- Analyst

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