Terex Corporation (NYSE: NYSE:TEX), a global manufacturer of lifting and material processing products, has reported a strong start to the year, with first-quarter sales climbing 5% to $1.3 billion and earnings per share reaching $1.60. The company's operating margins expanded by 20 basis points, and gross margins improved by 40 basis points.
With a solid backlog of $3.1 billion and a healthy demand across key markets, Terex has raised its full-year sales and earnings outlook. The firm's strategic initiatives in new product development and market expansion, along with a strong balance sheet, position Terex well for continued growth.
Key Takeaways
- Terex reported a 5% increase in sales to $1.3 billion and earnings per share of $1.60 in Q1.
- Operating margins expanded by 20 basis points, with gross margins improving by 40 basis points.
- The company raised its full-year sales and earnings per share outlook.
- Terex has a robust backlog worth $3.1 billion, signaling confidence in the year's sales outlook.
- The company is focused on organic growth and exploring M&A opportunities to strengthen its portfolio.
- Terex is well-positioned in North America and expects growth in infrastructure, utilities, manufacturing, and recycling markets.
- The company reaffirmed its 2024 free cash flow outlook range of $325 million to $375 million.
- Terex plans to invest approximately $145 million in capital expenditures, mainly focusing on its new Monterrey facility.
Company Outlook
- Terex expects to raise its 2024 sales and profit outlook due to strong customer demand and improved operational throughput.
- The company anticipates higher sales volume in the second and third quarters, with full-year operating margins estimated to be between 12.8% and 13.1%.
- Terex aims to maintain a net leverage target of 2.5% through the cycle and projects to be close to debt-free by year-end.
Bearish Highlights
- MP sales declined by 6% in Q1 due to softer demand in Europe.
- Q2 is expected to face inefficiencies in Monterrey, which may impact margins.
- The utility business has experienced supply chain disruptions, although improvement is anticipated.
Bullish Highlights
- The AWP segment saw a 13% increase in sales and a 29% rise in operating profits in Q1.
- The company has a strong balance sheet and ample liquidity to support strategic growth initiatives.
- Terex recorded a return on invested capital of 27.6%, reflecting efficient capital use.
Misses
- Despite strong sales, the company is dealing with ongoing supply chain issues, though there has been significant improvement compared to a year ago.
- Margins are expected to be lower in Q4 due to seasonal patterns and fewer production days.
Q&A Highlights
- In response to Steve Barger's question about growth perspective, Simon Meester indicated that while the $6 billion revenue target for 2027 could be exceeded, it's too early to update their longer-term outlook.
- Julie Beck noted the company's return to normal delivery patterns and improved supply chain, positively impacting margins.
- The company emphasized that it is comfortably ahead of the 2027 targets and is focusing on organic growth and evaluating M&A opportunities without haste.
Terex's strategic focus on developing new products, including hybrid and plug-power alternatives, and leveraging technology for efficiency, underscores the company's commitment to innovation and market expansion. With a $5 billion business in a $34 billion addressable market, Terex is poised to capitalize on organic growth opportunities and has an active pipeline for potential acquisitions.
The company's management remains prudent in its approach to growth, ensuring any acquisitions are financially attractive and complement the existing portfolio. As Terex continues to navigate the current economic landscape, its strong financial position and strategic initiatives suggest a positive trajectory for the future.
InvestingPro Insights
Terex Corporation (NYSE: TEX) has demonstrated resilience and strategic acumen in its latest financial results, with a notable uptick in sales and margins. The company's forward-looking statements are backed by robust metrics that offer a glimpse into its financial health and future prospects. Here are some key insights from InvestingPro that shed light on Terex's performance and potential:
InvestingPro Data:
- Market Cap: With an adjusted market cap of $3.99 billion, Terex exhibits a substantial presence in the industry.
- P/E Ratio: Terex is currently trading at a low P/E ratio of 7.88, suggesting that its stock could be undervalued relative to its earnings potential.
- Revenue Growth: The company has experienced a revenue growth of 11.98% over the last twelve months as of Q1 2024, which aligns with the positive sales outlook mentioned in the article.
InvestingPro Tips:
- Dividend Consistency: Terex has not only maintained but also increased its dividend payments for 12 consecutive years, signaling a commitment to returning value to shareholders.
- Analysts' Outlook: Despite four analysts revising their earnings downwards for the upcoming period, the company's low P/E ratio relative to its near-term earnings growth and the recent large price uptick over the last six months suggest that investors may still have reasons for optimism.
For those interested in a deeper dive into Terex's financials and future prospects, there are an additional 11 InvestingPro Tips available. These tips provide valuable insights that could help investors make more informed decisions. To explore these tips and gain an edge in your investment strategy, visit https://www.investing.com/pro/TEX and remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Terex Corp (TEX) Q1 2024:
Operator: Greetings and welcome to the Terex First Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Neil Frohnapple, Vice President of Investor Relations.
Neil Frohnapple: Good morning and welcome to the Terex First Quarter 2024 Earnings Conference Call. A copy of the press release and presentation slides are posted on our investor relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. We are joined by Simon Meester, President and Chief Executive Officer, and Julie Beck, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to Slide 2 of the presentation, which reflects our Safe Harbor Statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the earnings materials and in our reports filed with the SEC. In addition, we will be discussing non-GAAP financial information we believe is useful in evaluating the company's operating performance. Reconciliation for these non-GAAP measures can be found in the conference call materials. Please turn to slide four and I'll turn it over to Simon Meester.
Simon Meester: Thanks, Neil, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. I'd like to begin by thanking all Terex team members for delivering outstanding performance in Q1. The team executed really well and delivered strong results to start the year with. We increased sales by 5% and expanded operating margins by 20 basis points from last year. The company also delivered earnings per share of $1.60 in the quarter and achieved a return on invested capital of more than 27%. These outstanding results demonstrate our ability to execute as the team continues to perform at a high level. Additionally, we're raising our 2024 sales and profit outlook and now expect earnings per share in the range of $6.95 to $7.35. During the quarter, we also continued to advance our strategic initiatives to drive long-term shareholder value. We launched several new products across the portfolio and continue to make good progress ramping up our new facility in Monterrey. This new facility continues to absorb more of Genie's global production mix and is expected to improve the segments through cycle margin performance. Please turn to Slide 5. Customer demand remains healthy across most of our businesses supported by favorable end-market conditions. Our Q1 backlog of $3.1 billion is significantly above historical levels and gives us confidence in the sales outlook for the remainder of the year. As expected, the backlog continues to moderate from peak levels, which reflects more normal lead times, improving supply chain, and continued efforts by our team members to improve overall throughput. Consolidated bookings in Q1 of more than $1 billion were down from last year, which reflects a return to more normal seasonal order patterns combined with softer demand in Europe. In the MP segment, the backlog is still above historical norms and bookings increased sequentially from the fourth and the third quarter. Additionally, our AWP backlog now covers the 2024 outlook with our utilities business actively taking orders for 2025. Overall, based on customer feedback, our backlog coverage, our bookings, and leading indicators, we feel confident about raising our 2024 outlook. Please turn to Slide 6. The overall market outlook remains strong for many of our primary end-markets, especially in North America, which represents over 60% of total company sales. In fact, we saw double-digit sales growth in North America in Q1. Our businesses remain well positioned to benefit from higher U.S. Government spending to modernize infrastructure over the coming years with an increasing number of projects continuing to be announced. Additionally, construction spending on manufacturing is up more than 30% year-over-year, driven by on-shoring and mega projects related to semiconductor manufacturing, clean energy and EV battery projects. These favorable end market trends combined with replacement cycle tailwinds and high equipment utilization rates are beneficial for our Aerial's business. Additionally, the increasing adoption of our products in emerging markets such as India is another positive. The utilities market is expected to continue to grow, supported by investment in grid upgrades and expansion required for zero-carbon and amplified electrification needs like power generation for future AI applications. In the US, power-related spending has been increasing at double-digit rates. Our utilities business is benefiting from this growing demand and was up double digits in the first quarter as the team is working hard to overcome ongoing shortages in the supply chain. Strength in US Infrastructure, General Construction and Residential end-markets will continue to benefit MP’s aggregates and concrete businesses. We expect these tailwinds to offset softness in businesses with higher European exposure. We expect MP's environmental business to continue its growth, driven by increasing demand for waste recycling. And our Fuchs business is focused on expanding into new geographies and new products to help offset the near-term demand softness. Overall, we see continued strength in the infrastructure, utilities, manufacturing, and recycling markets, and remain positive on the 2024 market outlook for our portfolio. Please turn to Slide 7. I now want to take a step back and provide a few reasons on why I'm confident in Terex’s growth trajectory over the coming years. First, Terex has a diverse product portfolio that provides differentiated value to our customers at all points of the project life cycle. Notably, our equipment is utilized by customers across various applications, from foundation to building, repair, maintenance, and the eventual recycling of materials for reuse. We also remain committed to developing new products to address our customers' evolving needs and maximize their return on investments. In fact, the innovate part of our strategy continues to generate incremental growth for the company. For example, approximately 20% of our annual sales are from new products introduced in the last three years. This is a testament to our team members' collaboration with our customers to provide innovative solutions to support development across the globe. Please turn to slide 8. Terex also remains well positioned to capitalize on megatrends and emerging technologies that will favorably impact our end-markets over the coming years. In total, around 80% of our addressable market is aligned with stimulus from mega trends and from increasing government investment and incentives. Our market-leading businesses all benefit to varying degrees by more investment in infrastructure, digitalization, waste recycling, and electrification. For example, the MP team has leading positions in global crushing and screening markets that benefit from the growth of on-site demolition and infrastructure projects in general and the associated demand for aggregates. Keep in mind that aggregates represents around 50% of segment sales. MP also serves customers across all project life cycle phases, including growing demand for environmental and waste recycling solutions. Our utilities business is well positioned to capitalize on investment required to upgrade the US Electrical grid to support the accelerating demand as the industrial world continues to move to the use of more electrical power. And our Genie products are benefiting from demand from infrastructure projects, data centers, manufacturing, on-shoring, and investments in the entertainment sector. Overall, Terex diverse product portfolio positions us very well for 2024 and beyond. Let's turn to Slide 9. It has been an exciting first few months as CEO of Terex, and I would like to provide a few more thoughts on our strategic priorities as we look ahead to the future. Our Execute, Innovate, Grow strategy has built strong momentum over the last several years. We now have a diversified portfolio of market leading businesses that are generating higher levels of performance through the cycle. In fact, we're on track to achieve more than $7 of earnings per share and greater than $300 million of free cash flow for the second consecutive year. I'm confident that Terex have significant upside for many years to come. Looking ahead, I strongly believe we can create even more value for shareholders by accelerating the growth element of our strategy over the coming years. And it starts with our strong balance sheet and cash flow generation, which provides plenty of firepower to pursue opportunities that will drive sustainable long-term value. With respect to organic growth, we're focused on increasing product vitality and targeting opportunities to drive incremental growth across the portfolio. The team is also moving with urgency to capitalize on the megatrends and emerging technologies that I highlighted earlier. And finally, we continue to grow the M&A pipeline to identify opportunities that are financially attractive, broaden our market reach, and strengthen our portfolio. Keeping in mind, we continue to evaluate potential inorganic action against other alternative uses of capital, which is a good position to be in. Overall, I'm excited for the opportunities that lie ahead and I'm confident we will elevate Terex to new levels of performance. And with that, let me turn it over to Julie.
Julie Beck: Thanks, Simon, and good morning, everyone. Let's take a look at our strong first quarter financial performance found on Slide 10. We posted sales of $1.3 billion, up about 5% from last year, reflecting strong demand for our products across multiple businesses. Geographically, we delivered significant growth in North America, while Europe declined in last year's very strong first quarter. Gross margins of 23% increased by 40 basis points over prior year on improved manufacturing throughput and disciplined price cost management. SG&A expense increased over the prior year due primarily to higher compensation expense, although structural cost came in largely as expected. SG&A as a percent of sales was 10.8% up slightly from last year. Note that SG&A includes $4 million of discrete financial call-outs due to accelerated vesting and severance charges. Excluding these charges, SG&A came in at 10.4% of sales better than last year. Income from operations was $158 million with an operating margin of 12.2%, a 20 basis improvement over prior year. Operating income also includes the $4 million impact of vesting and severance charges. Interest expense was relatively consistent with the previous year, while other expense increased $7 million from the prior year, primarily due to unfavorable mark-to-market adjustments. The first quarter global effective tax rate was 20.5% compared to 17.5% in the first quarter of 2023. First quarter earnings per share of $1.60 was consistent with last year. As expected with a return to more seasonal patterns, free cash flow for the first quarter was negative, as increasing operating profits were more than offset by working capital added to support the sales outlook. In Q1, we continue to carry a higher level of inventory to support increased Q2 and Q3 sales volumes, as well as our Genie production [mode] (ph). Let's take a look at our segment results. Please turn to Slide 11. The MP team has gotten off to another good start in 2024 and is executing well, despite more challenging macro conditions for a few of its businesses. Before I go into more details on the quarter, let me first provide more perspective on the segment from a high level. We have nearly doubled the size of the MP segment over the last seven years and expanded operating margins by almost 700 basis points during this period. Today, MP consistently generates mid-teens operating margins and represents about half of our total annual operating profit. And the segment remains well on track to achieve the Investor Day targets, we established for 2027. In fact, delivering on the long-term sales target of $2.7 billion represents an incremental dollar per share of earnings power for the total company relative to our 2024 outlook. For the first quarter, MP sales declined by 6% to $520 million compared to the exceptional first quarter of 2023, due primarily the softer demand in Europe, partially offset by growth for aggregate. MP's recorded operating profit of $72 million was down $13 million due to the impact of lower sales volume, unfavorable product mix, and product liability reserve. Although MP’s operating margins were down 150 basis points from last year, they were 50 basis points better than expected. MP ended the quarter with backlog of $712 million, still above historical norms, while our bookings increased 7% sequentially from the fourth quarter. Keep in mind that the MP business is shorter cycle and continues to transition back to more traditional book-to-bill dynamics, as supply chains continue to improve which impacted the comparison for bookings relative to the prior year. Turning to slide 12. AWP delivered excellent performance in the first quarter with sales of $773 million, up nearly 13% from last year, primarily reflecting higher demand, as well as improved supply chain and manufacturing throughput. AWP reported quarterly operating profits of $107 million, an increase of 29% over the prior year. The increase was driven by strong operational execution on the higher volume, improved supply chain performance, and disciplined price cost management. Operating margins expanded by 180 basis points with an incremental margin of 28% reflecting strong performance overall by the team. And finally, I would note that AWP backlog is strong at $2.4 billion, which is more than 2 times the historical norm. Please see Slide 13. Terex has a strong balance sheet with ample liquidity. Our net leverage remains low at 0.5 times, well below our 2.5 times target through the cycle, providing us plenty of flexibility as we look ahead. And our outstanding bonds are at an attractive fixed rate of 5% until the end of the decade. We are reaffirming our 2024 free cash flow outlook range of $325 million to $375 million. As you can see on this slide, Terex is on track to generate more than $1.1 billion of free cash flow over this five-year period. This cash generation has allowed us to strengthen the balance sheet and invest for profitable growth, all while returning significant cash to shareholders. We're planning for capital expenditures this year of approximately $145 million, or about 2.7% of sales at the expected midpoint, with the largest investment related to our Monterrey facility. Note that we would expect CapEx to take a step down next year and to be a benefit to free cash flow conversion in 2025. We recorded a return on invested capital of 27.6% of 370 basis points year-over-year. Terex is in an excellent position to continue advancing our strategic growth initiatives while returning capital to shareholders. Now turning to Slide 14 and our full year outlook. It's important to realize we are operating in a complex environment and many macroeconomic variables and geopolitical uncertainties that results could change negatively or positively. With that said, this outlook represents our best estimates as of today. Following the strong start to the year, we are raising both our sales and earnings per share outlook for 2024. We are increasing our earnings per share outlook to the range of $6.95 to $7.35, up from the previous outlook of $6.85 to $7.25. We are also raising our sales outlook to a range of $5.2 billion to $5.4 billion, up $100 million compared to the prior outlook midpoint. Our sales outlook incorporates healthier customer demand and improved operational throughput. With that said, the outlook reflects strong demand in North America and plans for continued softness in Europe over the balance of the year. We expect the first half sales to be slightly higher than the second half, with the second and third quarter sales higher than the first and fourth quarter as we return to a more seasonal customer delivery pattern. We anticipate full year operating margins in a range of 12.8% to 13.1% consistent with our prior outlook and solidly above full year 2023 performance. The margin expansion reflects strong operational execution and the impact from the higher sales outlook. We are also driving ongoing cost reduction activities to offset softer demand in Europe and continued inflation. At the midpoint of the outlook range, the implied incremental margin range for the full year is about 30%. From a modeling perspective, we do want to emphasize the strong second quarter performance in 2023, when making year-over-year comparison for the remainder of the year. We expect corporate and other expenses to be around $25 million in the second quarter and then approximately $20 million per quarter in the second half of the year. We now expect interest and other expense of $65 million for the full year higher than the prior outlook to primarily reflect the financial callout in the first quarter. The outlook for the rest of the below-line items are largely unchanged from our previous outlook. And as I highlighted earlier, we continue to estimate free cash flow in the range of $325 million to $375 million. Let’s review our segment outlook. We expect MP sales to be $2.2 billion to $2.3 billion for the full year with margins from the range 15.6% to 15.9%, both consistent with the previous outlook. For the second quarter, sales and margins are expected to step up from Q1 levels. Profitability is expected to steadily increase through the balance of the year. For AWP, we now expect 2024 sales of $3 billion to $3.1 billion, up $100 million from our previous outlook. We are slightly raising our operating margin outlook to a range of 13.5% to 13.8% for the full year, representing upwards of 100 basis points of expansion over 2023. We expect Q2 sales to be up from the prior year, while margins are anticipated to be around 150 basis points lower compared to last year's very strong second quarter. Note that margins will be impacted by Monterrey efficiency and unfavorable mix, partially offset by continued cost-out activity. We anticipate the quarterly cadence of our AWP sales to be closer to historical patterns with the highest sales in Q2 and Q3, which will also drive higher profitability for those quarters. Overall, our increased full year outlook reflects our confidence that 2024 will be another outstanding year for Terex. And with that said, I will turn it back to you, Simon.
Simon Meester: Thanks, Julie. Turning to Slide 15. In summary, the Terex team delivered excellent results to start the year and we now expect even stronger performance for 2024. We have a diversified portfolio of industry-leading businesses that are generating higher levels of performance through the cycle. We are also well positioned to continue to benefit from megatrends and emerging new technologies like electrification, digitalization and AI. The team remains focused on operational execution to drive greater efficiency and higher returns on invested capital. We have a strong balance sheet and generate significant cash flow that will continue to fuel our profitable growth strategy and return capital to shareholders. And we have a global experienced diverse and highly engaged team that is committed to continue to create value for our customers and our shareholders over the coming years. And with that, let me turn it back to Neil.
Neil Frohnapple: Thanks, Simon. As a reminder, during the question-and-answer session, we ask you to limit your questions to one and a follow-up to ensure we answer as many questions as possible this morning. With that, I would like to open it up for questions. Operator?
Operator: Thank you. [Operator Instructions] Our first question comes from Jamie Cook from Truist Securities. Please go ahead, your line is open.
Jamie Cook: Hi, good morning. Congrats on a nice quarter. I guess Julie, my first question on materials processing. You noted margins came in 50 basis points ahead of expectations, but you are not changing your margin guidance for the year. And just also surprised or not -- the sales guidance was reiterated when the markets seem weaker, in particular with the European exposure within materials processing. So if you could just help me on the MP guide. I guess -- and Simon, now that I guess you're close to five months in, can you just talk to what your -- I know your strategy sort of accelerate growth, can you talk to what you are seeing on the M&A sort of pipeline, whether you think there is an opportunity to do deals in 2024 and then just sort of the size of the deals that you are looking at and where you would be interested. Thank you.
Julie Beck: Okay. Jamie, I guess I'll start with the MP outlook. So the MP business, we had a better quarter than I anticipated. They were about 60 basis points ahead in operating margin from what we had anticipated. They had some favorable geographic mix. We had more North America exposure, they were also impacted in the quarter about 50 basis points for that product liability charge that I mentioned. We do anticipate that the -- some of the European markets, in particular our material handling business, the German business, [ type of scrap] (ph) is challenged going forward. But we see upside in our environmental businesses and our concrete business and aggregates continues to perform well. And so the -- and from a margin perspective, we are expecting our margins to improve sequentially, as we go throughout the year, and we expect the sales to take a step up from Q1 levels as well. So overall, we are expecting another nice year from the MP business.
Simon Meester: Yes. Jamie, good morning. Thanks for the question. Yes, so it's been four months, it's been very exciting so far. Obviously looking back over the last couple of years, I don't think there is any denying that we have built very strong operational momentum with our Execute, Innovate and Grow strategy. We truly transform the company, we have a strong portfolio that we feel very good about. So I’d say, my first priority is to make sure we maintain that positive momentum that we are currently on. But there is no doubt that we now are in a position where we can also focus on now that we have that strong operational momentum and how we can accelerate growth and to your point, obviously, we look at inorganic options. We're also looking at organic options. We're a $5 billion business, in a $34 billion addressable market. There is still a lot of white space to go after organically and with good return on invested capital, that is on the table for us just as much as inorganic action. But when it comes to the inorganic action, for the reasons I just laid out, we're not really in a hurry. We didn't set ourselves a target, we didn't set ourselves a time line because we are in such a strong place. And because we have strong demand for our existing businesses, for the next couple of years, we are going to take our time for this, but we do have an active pipeline of opportunities. We're looking for anything inside and outside our current addressable markets that would be attractive that would strengthen our portfolio, that will make us stronger, we widen our moat but obviously needs to be financially attractive and ultimately further strengthen our future earnings profile. But again, I can't emphasize this enough. It all needs to rank favorably versus all the other actions that we have available to us like share buybacks, like investing in our current businesses and dividends. And so that's how we force rank those opportunities. But anything is on the table.
Jamie Cook: Okay, thank you.
Simon Meester: Thanks Jamie.
Operator: Our next question comes from Stan Elliott from Stifel. Please go ahead. Your line is open.
Stanley Elliott: Hi, good morning, Simon. Good morning Julie. Thank you for the question. I guess piggy-backing on that with leverage, you guys have a kind of a 2.5% kind of net target through the cycle, probably going to be close to debt free by the end of the year. How large of a deal would you want to pursue if something were to pop up? And if that doesn't materialize this year, then maybe kind of help us again with opportunities for buyback and things like that.
Julie Beck: Yes. Well Stanley, we will evaluate. We're evaluating all sources of -- we have a wide pipeline. So we look at smaller things and made some larger things as well, and we're not prescriptive. I think we're just trying to follow the criteria that Simon mentioned before. When we think about share repurchases, certainly we've repurchased $1.6 billion of shares over the last seven years or eight years. Last year, we returned over 28% of our free cash flow to shareholders and we have $130 million remaining at our current authorization for share repurchases. So again, we will continue to evaluate share repurchases and inorganic opportunities along the way and make the decision that provides with the greatest return.
Stanley Elliott: And I guess, secondly, the comments, I mean, you had about 20% new products in the past three years. This comes at a time when you guys are generating very strong margins returned and making accelerated CapEx. That combination typically does not happen. What are you guys doing differently, is it voice a customer? Is it kind of moving into some kind of niche white space, but it sounds like the new product piece is probably exceeding expectations.
Simon Meester: Yes, definitely. And at the end of the day, we're a product company. That's what we do, that's what excites us. That's what makes us going every single day we are excited to bring new products to the market. We deliver most -- our products go to businesses. They are looking for return on investment. So whatever improves, return on investment for our customers and makes our customers more successful. But yes, in MP, we've been expanding our hybrid and our [plug-power] (ph) alternatives. We announced our Cummins (NYSE:CMI) partnership to collaborate on hydrogen power. We've expanded our recycling and environmental solutions offerings like Greentech and the new Slow Speed Shredders that I talked about in the presentation. And it's really all the combinations you can think of new products in existing markets, existing products in new markets. We are exploring it all. We have opportunities to take existing products into new markets. We have opportunities to take new markets and new products in existing markets. On the Genie side, Genie has been a leader in the development of electric and hybrid products for some time with the excess capacity in 2018, even before the regulations changed Genie already brought that to market. But today, with our hybrid booms they’ve really been trendsetters, the new telehandler setup come out with significantly improved total cost of ownership. And then lastly, on the utility side, introduced the first all-electric bucket truck combined with an ePTO on an all-electric chassis that was two years, if I remember correctly, a big opportunity going forward there. And so, yes – we are playing the NPD card really hard because at the end of the day, that's I think, what makes our company what it is and gives us competitive advantage that it has.
Stanley Elliott: Perfect. Thank so much. Congrats and best of luck.
Simon Meester: Thank you.
Operator: Our next question comes from Steven Fisher from UBS. Please go ahead. Your line is open.
Steve Fisher: Thanks, good morning. You mentioned, Julie a benefit from price versus cost management. Can you maybe just give us some quantification of that in the quarter? How did it compare to your expectations? And what do you have embedded in there -- for the rest of the year on price versus cost?
Julie Beck: Yes. Thanks for the question, Steve. In the first quarter, the team just really performed well, particularly in AWP. They were able to -- we saw improvement in the supply chain, we were able to bring in the labor that we needed in Washington State, as well as in Monterrey which was terrific, and we were able to ship more than we expected. And of course, that helps with the overall margin. When we talk about pricing and price cost, we always talk about our price cost being price cost neutral. And we are anticipating pricing for the year in about that low mid-single digit range. So that's where we're at from price cost. We continue to monitor price cost. And as you know, the MP business is very dynamic in their pricing, as they're quoting virtually every piece of equipment.
Steve Fisher: That's helpful. And then just you mentioned, Simon, I think the utilities orders for 2025. Can you just talk a little bit more about how the discussions around 2025 have evolved in utilities and also more broadly for the company?
Simon Meester: Yes. It really is – we are not there definitely for MP because MP is returning more to kind of a book-to-bill cadence typically with about three months or four months forward visibility, perils mostly covered for 2024. We could take some more bookings probably in 2024, if we would find the labor material for it, and we expect to start discussions for 2025 typically as we do in Q3 and Q4. But then yeah utilities is already actively taking orders for 2025. Just a lot of demand, we're still struggling with a little bit of throughput because of bodies and chassis. But overall, that business has a lot of upside for the next couple of years. Everything equal, just obviously the mega projects alone but grid upgrades that need to happen, means grid expansion. And I spoke about AI, and I know, it's a little bit of a buzzword, but thinking about AI applications that will make their way into the market, they are all very power intense, power intensity means, grid upgrades means grid expansion and exactly in our wheelhouse. So that's why we're very excited about that business going forward.
Steve Fisher: Terrific, thank you.
Operator: Our next question comes from David Raso from Evercore ISI. Please go ahead. Your line is open.
David Raso: Yeah, hi. Thank you. Following up on the order conversation. I think clearly '24, people are going to try to figure out why can't we do maybe a little better on the margins given what's already on visibility with the backlog. Then you mentioned some of the manufacturing challenges that could arise, maybe parts of Europe within AWP. But can you help us understand sort of what's in the backlog today when it comes to mix product type, which channel you're selling to -- just so we can better understand particularly why the margins should be lower the rest of the year versus the first quarter. I know you said the second quarter, the number you provided will be better than the first quarter. But I'm talking for the rest of the year, the implied margins are below the first quarter which is a little surprising. So again, is there something in the mix or just conservatism on some manufacturing issues. And then on the '25, order conversation, anything you can help us with on mix. The end markets you just described, are those more big booms, mid-sized booms. Just trying to get a sense of [Teles versus Aerials] (ph). Just trying to set up a little bit why the margin is lower the rest of the year. And also any thoughts around '25 for mix?
Julie Beck: So when we think about the operating margins for the year, we are expecting improvement from year-over-year, and we are expecting a 30% incremental margin. So we see margins improving over last year, and we see margins improving sequentially in Q2, Q3. And then of course, they come down in Q4 because we had [usually] (ph), due to seasonal patterns and lower production days in the fourth quarter. But we're anticipating higher margins and 30% overall incremental for the year.
Simon Meester: Yes. I would just say, no big material swings in the backlog that should be accounted for top of my head. But yes, we are just going back to more normal kind of seasonal behaviorals where our Q2 and Q3, are going to be from a top-line are probably going to be our stronger quarters Q4 because of Julie -- what Julie said to less working days going to be traditionally probably one of our below average quarters. So that will just make its way in terms of incrementals down to bottom-line. And then Q2, we just have a little bit of headwinds because we're ramping up in Monterrey, and that's how we account. We don't -- we see sequential improvement, David.
David Raso: For AWP specifically, the rest of the year is implied at 13.6% margins. We just did 13.9%. I know the fourth quarter seasonally can be lower than the first quarter. But I'm just making sure we understand is there some understandable Europe, all the risks that are out there. I'm just making sure there isn't something we're missing where it's logical without just trying to be a little cautious, which I appreciate. Why would the rest of the year margins be below the first quarter? Because -- that's what the implied numbers are? I just want to make sure we're not surprised a quarter or two from now with a big mix issue or the first quarter had a unique price cost that we are giving back in the rest of the year? I just want to make sure we understand the base case here. Thank you.
Julie Beck: Yes, thank you. I mean what we would say, David, is that we would have Q2, as Simon mentioned, would be -- and we mentioned in our remarks would be impacted by more inefficiencies in Monterrey. But really, the first quarter would be a stronger quarter than the fourth quarter, I guess and that would be the only reason. There is nothing else other than some further startup inefficiencies, and that's about it. But overall again -- for the AWP, they're going to have incremental margins approaching at 35% for the year.
David Raso: Okay, just want to make sure. I really appreciate it. Thank you.
Operator: Our next question comes from Steve Volkmann from Jefferies. Please go ahead. Your line is open.
Steve Volkmann: Thanks guys. Just a couple of cleanups for me. Julie, have you changed at all your view of the sort of total start-up cost impact on 2024?
Julie Beck: We would say that we guided to that $15 million to $20 million number. It came in a bit favorable in the first quarter. I'd say, it was probably about a $5 million impact. We would expect that to increase and be higher in the second quarter, as we mentioned. And then we would expect that to go down through the rest of the year, more first half weighted than second half.
Steve Volkmann: But for the full year, kind of that same range that you have been talking about --.
Julie Beck: Yes, exactly.
Steve Volkmann: Okay. And then I had a question on the utility business as well because if I remember correctly, that had some very kind of specific and I think significant margin headwinds through the COVID interruptions in supply chain and so forth. So I'm just curious if you can sort of bring us up-to-date. How are margins in that utility business now? Is there still sort of meaningful upside as we go forward? Just how to think about that?
Julie Beck: Yes.
Steve Volkmann: Yes, we had a tough Q3 last year. And since when we kind of graduated team has continued to improve. So we're actually very pleased with how the team executed in the first quarter.
Julie Beck: Yes. The third quarter, as Simon mentioned, they had a supplier quality issue, which impacted us significantly. And we recovered from that. And so we are expecting some improvement in that business as well. That business still does have some more supply chain disruption due to bodies and chassis, but we are expecting improvement in that business as we go as well. And we're -- as Simon mentioned earlier, we think there is a business that has a tremendous amount of potential and we like that business going forward.
Simon Meester: It's still functional supply, though, that's the challenge, is that -- and there are some big swings like custom bodies and truck chassis. We thought we were out of the woods truck chassis and that kind of came back. So it's really -- there's some uncontrollables there as well.
Steve Volkmann: Okay, thank you.
Operator: Our next question comes from Nicole DeBlase from Deutsche Bank (ETR:DBKGn). Please go ahead. Your line is open.
Nicole DeBlase: Yeah, thanks good morning. Maybe just first, you raised the EPS guidance for the full year, but less free cash flow as is. Is it just early in the year to be raising the free cash commitment? Is it more working capital investment? Can we just discuss that?
Julie Beck: Yes. I mean we kept the range it is early in the year, Nicole I agree with that. We are carrying -- we do expect inventory levels to come down through the year and improve working capital management is incorporated in that. As we mentioned, that we do carry some more inventory in the first quarter, we build inventory to support those second and third quarter of higher sales volumes, and we have higher inventory right now for the production moves. And so -- but we are expecting that to come down in net working capital to be a source of cash this year, and we -- cash flow to gradually improve throughout the year and be more traditional with our seasonality with the use of free cash flow in the first quarter and improving subsequently throughout the year.
Nicole DeBlase: Got it. Thanks, Julie. And then I guess, can we just hear a little bit more about what you guys are seeing in Europe. This has been definitely a trend that we've heard from multiple company. So it's not particularly surprising. But just would you say things are like getting worse, just kind of bouncing along the bottom, it would be really helpful if you could characterize what you're seeing there. Thank you.
Simon Meester: Yes. For us -- so the bright spot in that region, if you include the broader region is for us in the Middle East. But the parts where it's really affecting us, it's Germany, U.K. and it's France. And I guess, technically, both the UK, and Germany are hinting towards, I think, a technical recession. I haven't seen their late GDP numbers. But if Germany and the U.K. would recover, and we think U.K. might recover a little before Germany does because Germany is overly dependent on exports but our outlook currently confirms that it doesn't get worse in the UK, and in Germany. But those are the two markets that are really [hurting us] (ph) the most.
Nicole DeBlase: Thank you. I’ll pass it on.
Simon Meester: Thank you.
Operator: Our next question comes from Tami Zakaria from JPMorgan (NYSE:JPM). Please go ahead. Your line is open.
Tami Zakaria: Hi, good morning. Thank you so much. So could you comment on the inventory in the channel for MP. I think I remember you expected some destocking in the first quarter. Is that largely done?
Simon Meester: Destocking -- sorry. Thank you, Tami. So yes, we -- that is largely done. Our dealer inventories are where they need to be. So it's an interesting dynamic because obviously, when backlogs come down and in the case of Fuchs where demand came down because of scrap prices, we had to do some adjustments in supply. That's largely done. That's behind us now. And so from a dealer inventory and pipeline standpoint, we think we are where we need to be going forward.
Tami Zakaria: Okay. That's all from me. Thank you.
Simon Meester: Thanks, Tami.
Operator: Our next question comes from Jerry Revich from Goldman Sachs (NYSE:GS). Please go ahead, your line is open.
Jerry Revich: Yes, hi. Good morning everyone.
Simon Meester: Good morning.
Jerry Revich: Simon, in your prepared remarks, you spoke about the company's opportunity in leveraging digital and technology advancement. Can you just expand on that? What are the opportunities with your telematics offerings and elsewhere, what exactly if you wouldn't mind flushing out first, what exactly you have in mind in terms of the most significant opportunities for you folks, given existing installed base telematics and any other developments you're focused on?
Simon Meester: Yes. Thank you. So I see external opportunities for us and I see internal opportunities for us. External besides just what makes its way into our products today. I talked about hybrid. I talked about our first all-electric pocket truck, ePTO and so on and so forth. But we also made some longer-term technology investments in Acculon and Apptronik which we both announced last year, and I believe late 2022, we believe we're very excited about our Acculon investment because that will give us control of an important EV supply chain for us. And in Apptronik, we're excited because that's kind of the next-generation of robotics and we can start applying that in some of the applications in not just aerials, but in other areas of tariffs as well. So the long-term technology investments is just as exciting as what we're currently implying. But then internally, we see AI as just that – the next opportunity to just drive efficiency, drive productivity, drive real-time decision-making, the way we balance supply-demand with AI, we can make that a real-time process. So we're excited on how we can leverage that both externally and internally. We mostly see it as opportunities for us.
Jerry Revich: Okay. Thank you. And then lastly, can I ask you to please comment on what you're seeing in terms of the telematics data for booms in North America in terms of where year-over-year utilization stands. It looks like used equipment inventories are rising off of a really low base, but I'm wondering what the utilization data shows if you'd be willing to share it, please?
Simon Meester: Yes. No -- it's a tight correlation between what our customers are telling us and what we're seeing from the data. And that when I mentioned leading indicators in one of my opening remarks, this is one of the leading indicators that obviously, we look at telematics, because we see what the utilization of the fleet is. And all of our customers are reporting high utilization and that's what telematics is kind of confirming. I'm talking North America in Europe, we see some lower utilization, again, confirmed by what our customers are telling us. So the telematics data correlates with the high use that we're seeing in North America.
Jerry Revich: Thank you.
Operator: Our next question comes from Steve Barger from KeyBanc Capital Markets. Please go ahead. Your line is open.
Steve Barger: Thanks. I just want to look forward a little bit to accelerating profitable growth on Slide 9. When the team modeled out opportunities in mega trends, emerging technologies and outgrowth initiatives, what's the range of organic growth you envision in the next three years to five years?
Simon Meester: Yes. So for now, we're still sticking to our Investors Day targets, Steve. So we have a commitment of $6 billion. We're ahead of that trajectory. We're comfortably ahead on both the top and the bottom on $6 billion and 13% to 14% operating margin is the commitment we made. We made that commitment 5 quarters ago. It's a five year commitment. We're 5 quarters in. We don't think that we should start talking about raising that kind of commitment because we would like to have a few more quarters under our belts before we reassess where we want to be in 2027 and beyond.
Steve Barger: Yes. That was really the motivation for the question. You only need a 3.5% CAGR. If you hit the high end of your guidance range this year to get to $6 billion. So I guess if you have to frame it up from a growth perspective, is that what you expect? Or is $6 billion too low? Or when do you think you might update that?
Simon Meester: Well, everything else equal. I mean, obviously you could argue that we are probably in a comfortable place to beat that expectation. But there are more variables at play in. As I said, we would like to get a few more quarters under our belt before we start looking at changing our longer-term outlook.
Steve Barger: And then with Terex being a product company, as you noted, when you think of mega projects like semi-fabs, EV plants, renewables, is there room to differentiate with a new purpose-built machine for specific markets or is it really more about modifying existing machines? And then just -- I don't want to downplay it -- but quality and delivery to take share?
Simon Meester: No, yes, to both. So we're applying testing products. For example, our Green Tech offering, we're basically applying existing products to a new segment with the visitation management business. And so we are leveraging our portfolio -- existing portfolio in new markets. And the other way around, we are also developing based on certain platforms that we already have. We're providing -- we're expanding our recycling portfolio and embedding new technologies in our crushers and shutters and repurpose them to broaden our reach in the recycling space. So we're applying technology, and we're leveraging the existing portfolio. That's kind of what I believe is the strength of the MP vertical is that we have so much white space just to leverage the existing portfolio. And I think the MP business has demonstrated just that in the last seven years, eight years, they've booked on a double-digit growth margins consistently every year for the last eight years, nine years. And one of the things that they did was just finding new use cases for their portfolio.
Steve Barger: Thanks.
Simon Meester: Thanks Steve.
Operator: Our last question today will come from Angel Castillo from Morgan Stanley (NYSE:MS). Please go ahead.
Angel Castillo: Thanks for taking my questions. So just going back to the first quarter performance, and you noted kind of stronger throughput, a number of kind of points here. I just wanted to do back a little bit. Could you just give us an update on just kind of hospital inventories and where that's kind of at? It seems like some of this might have improved just throughout the quarter. If you could give us a little bit more color along with that on the supply chain? And then just last point on this, as you gave better throughput and stronger deliveries in the first quarter, generally it sounds like what we're hearing from some of the public rental companies is that they're really taking deliveries on a more kind of normal cadence. So was this more driven by independents in the first quarter? Or what are you seeing from a customer mix perspective? And in terms of taking deliveries of kind of the stronger [company] (ph)?
Julie Beck: Okay. So it's left there. So let me help -- if you think about our customer mix, our customer mix, in general things relatively consistent over time. There may be puts and takes in any one given quarter. But I wouldn't say that customer mix had anything to do with who took delivery in the first quarter, if you will, or deliveries. I would say that we are returning to those -- the more seasonal patterns with the large national accounts -- one things in Q2 and Q3 that we're moving back to that where in the past when we were so constrained, they were taking the equipment when we could make it. So we're returning to those more normal delivery patterns that supply chain improves. And then when you asked about margins in the first quarter, what allowed us -- yes, with supply chain improves, we were able to get labor in our Washington state locations, as well as our Monterrey facility which certainly that more manufacturing throughput, of course, helped margins in the quarter as well. So that was all very helpful. We still have a hospital inventory. We're still dealing with issues that were part issues, but they vary. And of course supply chain has much improved over a year ago.
Angel Castillo: That’s very helpful. Thank you. And then I wanted to go back to one of the earlier questions around the 2027 targets. Maybe I was just kind of doing the math a little different, but I was just looking at the CAGR imply between 2023 [and rate] (ph) in 2027, it seems to be closer to kind of 4% top-line CAGR. And I think the guide for this year at the midpoint puts it at 2024 CAGR or 2024 growth of kind of 3%. So as we think about kind of getting to that 4% CAGR for 2027 delivering on the targets, you mentioned you feel you're comfortably ahead of the range. So given 2024 seems to be a little bit below that despite pretty strong backlogs and pretty kind of good visibility, should we anticipate that '25, '26 and '27 accelerate for some, I guess, underlying factors organically? Or is that 1% kind of difference generally what you think about kind of the M&A that you're trying to kind of work back towards to get to kind of a 2027?
Julie Beck: So Angel, we had a significant growth in 2024. 16%, 17%, we had really strong growth in sales 2023 and so that puts us ahead of the target. But when we think about the -- going out to 2027. It's still early to upgrade -- update those targets. It is -- and so we remain ahead of those, and that is just where we are right now.
Angel Castillo: Appreciate. Thank you.
Operator: We are out of time for questions today. I would like to turn the call back over to Simon Meester for closing remarks.
Simon Meester: Thank you, operator. If you have any additional questions, please follow up with Julie or Neil. And with that, thank you very much for your interest in Terex. Operator, please disconnect the call.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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