Q3 2019 Earnings Call
And Chief Financial Officer, following the prepared remarks, we will conduct a question and answer session.
We have released our third quarter 2019 results a copy of which is available on terex stock comp.
Today's call is being webcast and its accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website all adjusted per share amounts in the presentation or on a fully diluted basis.
We will post a replay of this call on the Terex website under events and presentations in the Investor Relations section.
Let me direct your attention to slide two which is our forward looking statement and description of non-GAAP financial measures. We encourage you to read this as well as other items in our disclosures because the information we will be discussing today does include forward looking material.
With that please turn to slide three and I'll turn it over to John garrison.
Good morning, and thank you for joining us and for your interest in Terex.
First I want to thank our global team for their intense focus on creating a zero harm safety culture.
Delivering value for our customers and their commitment to implementing our strategy.
Looking at the global market environment.
Became clear to us towards the end of the third quarter.
We are in a softening environment for industrial equipment.
Demand in the major markets for aerial work platforms has declined putting pressure on sales.
We lowered production in the third quarter and are reducing production in the fourth quarter two aligned with global demand.
Which is impacting margins.
A bright spot freight WP continues to be growth in China.
In the quarter materials processing continued its strong performance, increasing sales and generating over 15% operating margin again.
However, bookings and backlog levels are pointing to weaker demand in their global markets.
In this environment I was very pleased with our free cash flow performance as you read generated $104 million in the quarter, a significant improvement compared to last year.
Global team continues to focus on generating cash and improving working capital efficiency.
As we enter a more challenging macro environment for industrial equipment, we are intensely focused on maintaining a strong liquidity profile.
We are well positioned entering the fourth quarter with approximately $1.1 billion in available liquidity.
One of the commitments, we made back in 2016 was to generate returns greater than our cost of capital throughout the cycle.
By executing our strategy.
Focusing the portfolio on great businesses dramatically, improving our balance sheet, reducing corporate overhead and making significant improvements to our operations, we are well positioned to deliver on that commitment.
And have the ability to execute at a high level through the challenging phases of the equipment cycle.
I acknowledge and the team understands that we have more work to do as a company to establish a consistent high level of execution across our businesses.
Turning to slide four.
We continue to implement our strategy and enhance the capabilities needed to win in the marketplace.
A core element of our execute to win business system is talent development.
We recently completed our annual talent review process.
This is a global activity that requires every leader in the company to evaluate his or her team.
Great development plans and address talent gaps.
As I travel to our sites around the world I'm always encouraged when I meet emerging leaders.
We have many high energy passionate team members that are taking on more responsibility.
To harness this talent, we're investing in companywide leadership development and mentoring programs and supporting local training initiatives.
From a leadership perspective, we recently announced that three executives, who I would describe as builders of Trx.
Eric Cohen, Kevin Bar, and Brian Henry will be leaving the company at the end of the year.
Eric led the legal function and provided council to the senior leaders of Terex for 22 years.
Eric was instrumental in the company's acquisition and disposition strategy and building in improving the company.
Including establishing our corporate governance, and ethics and compliance strategy.
Kevin Joint tariffs 19 years ago to build the human resource function.
He was a leader in implementing the cornerstone of our culture.
The tariffs way values.
The fact that we have internally developed leaders taking on these executive roles going forward.
As a testament to the quality of the talent development structure that Kevin put in place.
Finally, many of the folks on the call of work with Brian Henry.
Over his 29 year career with the company has been a driving force in the strategic decisions.
Including the acquisitions and divestitures that shape the terex of today.
I want to thank Eric Kevin and Brian for the many contributions they have made to terex over the course of their distinguished careers.
I want to thank each of them for their insights and counsel.
Turning to slide five.
We continue to make progress implementing our strategy.
In August we completed the sale of Bemag mobile cranes.
Team members from across Terex worked incredibly hard to close the sale and ensure a smooth transition.
And the remaining rough terrain and tower Crane businesses, we rebuilt our commercial organization to position the businesses for success.
We are committed to these businesses and investing to support our customers into the future.
We continue to simplify terex.
We completed the transition to a two segment organization.
A significant portion of the general and administrative costs associated with the former Crane segment has been eliminated.
The simplified structure also allowed us to reduce expenses in our corporate functions.
Our leadership team continues to scrutinize every expense to ensure our operating model is efficient and appropriate for the current structure and market environment.
We continue to execute the organic growth element of our disciplined capital allocation strategy.
By investing in innovative products and services and our global manufacturing capability.
The new utilities manufacturing site in South Dakota remains on schedule and within budget.
MPS expansions in India, and Northern Ireland are on track.
The new can see facility pictured here celebrated its official opening last month.
The new site manufacturers mobile conveyors, and eco tech waste management and recycling equipment.
These investments enable simplification improve manufacturing productivity and underpin our long term growth.
We also continue to invest in our execute to win priority areas.
Our commercial excellence team achieved the significant milestone in the quarter by completing the final deployment of Salesforce.
All of our businesses worldwide are now on the system.
On lifecycle solutions.
The leadership team has in place, we're investing in systems and infrastructure to enable longer term growth.
A high performing parts and service businesses important throughout the cycle as demand for new equipment moderates.
Finally, we continue to implement our strategic sourcing program as we are moving significant volumes to new suppliers.
Lower production volume, which is reducing spending levels.
Impacting the overall savings however, we are achieving good savings rates.
Based upon a WPS lower production levels and spend forecast, we expect savings of approximately $25 million this year.
Turning to slide six.
Based on our year to date performance, the slowing global market environment reduce production volume and adverse foreign exchange rates. We now expect full year EPS to be between $3 and $3.20 on net sales of approximately $4.4 billion.
While we continue to focus on working capital and improving cash flow. We are adjusting our free cash flow guidance for 2019 to approximately $110 million based on our updated earnings outlook.
Looking ahead to 2020.
While we're not providing financial guidance today.
From an operational perspective.
We're planning for sales to be potentially 10% lower than 2019 due to the softening macro environment for industrial equipment.
We are planning conservatively, but are ready to react to the changing market conditions with that let me turn it over to John Thanks, John .
Let me begin by reviewing our Q3 segment highlights a WP sales totaled $628 million in the quarter down about 14% versus the prior year period.
Weakening demand in North America, and Amir led to sales declines in both markets in the quarter.
We increased sales in China, driven by market growth and increased product adoption.
Lower sales and reduced production volumes in the quarter resulted in lower margins for the segment.
To align with customer demand and manage inventory levels, we reduced aerial production in the quarter by over 30% compared to last year.
This resulted in lower manufacturing absorption and lower than expected material cost savings.
Margins also continued to be impacted by a weaker euro which declined 4% versus the us dollar compared to Q3 last year, leading to a 5 million dollar operating profit headwind.
A weak euro pressures AWB margins in Europe as a large portion of the products sold in the region is produced in North America in China.
Finally, the mix of sales were more skewed to Telehandlers, which also impacted margins.
Softening in the major market led to lower bookings and backlog in the quarter.
A portion of the year over year decline is attributable to the timing of annual purchase orders with three major customers.
There are 2019 orders were booked in Q3 of last year.
We are still negotiating their 2020 orders.
Excluding these three large orders bookings would be down, 19% and backlog would be flat to the prior year.
Materials processing continued its strong performance achieving excellent financial results again in Q3.
Sales were $339 million up 8% or 12% on an FX neutral basis on growth across the MP businesses.
The MP team delivered a very strong operating margin of 15.6% on an adjusted basis, representing an expansion of 240 basis points.
These results were driven by improved operating performance across the portfolio and effective price cost management.
The British pound to US dollar exchange rate provided a modest tailwind to NP.
NP is seeing lower backlog and booking levels as the global macro environment for industrial equipment is slowing.
That said the MP team is diligent in their production planning and we'll manage the businesses appropriately.
The rough terrain and tower cranes businesses that are reported in corporate continued to perform inline with expectations in Q3.
Although these businesses also experienced weakening demand in the quarter.
Let's turn to slide eight to review our consolidated results.
Total revenue of $1 billion was down 7% for approximately 5% on an FX neutral basis.
The currency volume and lower production headwinds that impacted AWB margins were partially offset by the strong performance in MP and reductions in corporate expenses, leading to an overall adjusted operating margin of 8.8%.
Investment in our execute to win initiatives and restructuring related charges were the primary difference between our as reported and as adjusted operating profit.
On an as adjusted basis total interest and other expense increased approximately $2 million year over year, resulting from increased borrowings offset by non operating FX gains.
For the quarter, we generated earnings per share of 82 cents on an as adjusted basis.
While this quarter's EPS was lower than the prior years quarter on a comparative basis. The result is 21% better than the 68 cents as adjusted EPS, We presented in Q3 2018.
Demonstrating the benefits of our strategy execution.
Turning to slide nine.
We are delivering on our commitment to follow a disciplined capital allocation strategy.
Our global team continued to focus on improving working capital and pre cash flow performance.
During the third quarter, we generated $104 million of free cash flow.
Significant improvement compared to the third quarter of last year.
We have reduced inventory slightly since the end of Q2. However, we continue to hold more inventory than last year.
To better align with market conditions, we continue to scale back production levels, particularly in a WP.
We will continue to reduce inventory as we diligently manage working capital through the cycle.
In addition to free cash flow, we are generating cash by executing our portfolio strategy.
The sales of de Mag mobile cranes, and our shares of ASV generated approximately $150 million in cash proceeds in Q3.
As of September Thirtyth, our net debt to adjusted EBITDA ratio was a healthy 1.5 times.
Down from two times at June Thirtyth.
While we continue to invest in our execute to win priority areas. The level of investment has been reduced.
In our internal capabilities are maturing.
We are investing in our global manufacturing capabilities with capital expenditures of approximately $120 million in 2019.
And planning for approximately $100 million in 2020.
Turning to our full year financial guidance on page 10.
Based on year to date performance and outlook for Q4, we are updating our full year 2019 guidance.
We now expect revenue for 2019 to be approximately 3% lower than 2018.
The decline is driven by softening demand in our major aid WP markets.
Our operating margin outlook is now approximately 8.4% and our EPS guidance range has been updated to $3 to $3 in 20 cents per share.
We have lowered our expected full year effective tax rate to 20%.
As a result of our updated earnings outlook, we are adjusting our full year free cash flow guidance to approximately $110 million.
From a segment perspective, we expect a WP performance in Q4 to continue to be impacted by the market downturn in North America and Europe .
Resulting in expected full year sales decline of approximately 7%.
We are reducing production dramatically in the fourth quarter compared to last year, which will lead to substantially lower factory absorption.
In addition, lower volume adverse foreign exchange rate and product mix will continue to impact margins as we close out the year.
Leading to an expected full year operating margin of between 7.25 and 7.75%.
The Euro dollar exchange rate will have an unfavorable full year impact on a WP margin of approximately $30 million.
We expect MP to deliver solid operating performance in the fourth quarter.
We are updating full year guidance.
The sales growth of between three and 5% and operating margin of 14% to 14.5%.
MP operate several facilities in the UK.
Our guidance range assumes there are no major disruptions associated with Brexit.
We continue to monitor event as the Brexit process unfolds.
And with that I'll turn it back to John .
Thank you John .
Turning to slide 11, I'll review, our segments, starting with a WP.
The overall global market for the aerial work platforms is clearly softening.
Frankly, we expected a longer period of market stability.
However, geopolitical and macroeconomic dynamics have led to a market downturn.
Looking ahead to 2020, we're planning for demand in North America in Europe to be lower than 2019 and are working closely with our customers to align with their requirements.
Looking beyond 2020, we expect growth in the developed markets to be driven by the replacement cycle, which we expect to kick in in the 2021 timeframe.
We continue to be encouraged by growth in the developing markets customers are seeing the benefits of adopting genie equipment to safely and efficiently work at height.
We expect strong long term growth in Asia Pacific region.
Turning to utilities, the North American market continues to grow and utilities team continues to deliver strong performance.
A key to improving margins in January PE is the execution of our strategic sourcing strategy.
Including transitioning significant volume the new suppliers.
Through the end of September data will you be team has transitioned over 2200 parts to new suppliers.
We are encouraged by the saving rates we are achieving.
However, the lower spend levels are impacting the total value of savings in 2019.
Looking ahead and through the cycle, improving our supply base will mitigate some of the margin pressure on lower volumes and will support margin expansion when markets improve.
We continue to invest in growth in emerging markets and product innovation.
The Genie team recently launched a new electric scissor lift pictured here featuring E drive technology.
The new model was designed as a global product to reach high locations in tight spaces. It hearing to the new ANSI standards as well as European and other requirements. So another great example of Genie innovation.
I recently attended our utilities equipment show in Louisville, Kentucky.
This is a major event for the utilities industry and Terex had a strong presence.
We are growing and gaining share in the utilities market by focusing on what's important to our customers safety and innovation.
At the show, we introduced a new innovative TL series for the transmission line segment.
This enables us to compete in the new market segment with a cost effective solution for do on higher level work on transmission lines.
The utilities business will benefit from new manufacturing facility, we are building and larger town South Dakota.
The new site will increase capacity and significantly improve productivity.
This is an important investment for tariffs as utility equipment market has considerable growth potential in North America and in developing markets.
Overall free WP the investments, we are making our execute to win priorities new product development and strengthening our global footprint will improve performance throughout the cycle.
Turning now MP materials processing is a high performing segment that deliver strong results.
Although sales grew across the NPL portfolio in Q3, we're seeing signs that the market conditions are softening.
Utilization of crushing and screening equipment remains high however conversion from rental to sales is slowing as uncertainty in both the United States in the European markets is impacting capital spending decisions.
The global market from material handlers has softened.
We are monitoring scrap steel prices in important driver for this business and working closely with our customers to align with the demand outlook.
Our cement mixer trucks business in the United States was relatively stable.
And our picking carried crane business continues to execute well, although demand is softening in Australia.
We continue to invest in new products.
The recently launched power screen job Crusher pictured here is the latest example of innovation in the crushing and screening business.
MP has a history of success developing new products and new markets and our business in India is a great example.
Our hosts are into your plant celebrated an important milestone in August achieving 10 years of growth in India.
With hosts are as the cornerstone tariffs has established itself as the clear market leader in mobile crushing and screening in India.
In addition to the tremendous job the team has done growing the business I'm also proud of their safety record.
Achieving over four and a half years with no lost time injuries.
We are making investments to expand our capacity in hoster, and we will capitalize on the dramatic growth potential in India and the surrounding markets.
In summary for MP, Great performance again in Q3, we are seeing signs that the us in European markets are softening and we're evaluating production plans for every business.
As MP has demonstrated the team will continue to execute at a high level.
Turning to slide 13.
To wrap up our prepared remarks.
Our global team continues to work hard to improve execution and meet the needs of our customers.
We have made considerable progress implementing our strategic plan.
Focusing the portfolio on high performing businesses and simplifying the organization to make our cost structure more agile.
Landstar capabilities and to execute the wind priority areas.
We implemented our disciplined capital allocation strategy, returning capital to shareholders and dramatically strengthening our balance sheet.
Finally, we will continue to follow our disciplined capital allocation strategy, while investing in future growth and creating additional value for our shareholders with that let me turn it back Brian .
Thank you John as this is my last earnings call I would also like to thank the members of the analyst and Investor community that I have had the pleasure to work with over the past several years.
I will continue to be your contacts through the end of the year at which time, Randy Wilson, who I've worked with extensively over the past year will assume the role of director of Investor Relations.
Ladies and gentlemen ill ask a question. Please press Star then the number one on your telephone keypad to withdraw your question press the pound key I'll pause for just a moment you can top acuity roster.
Your first question comes from Jamie Cook with Credit Suisse. Your line is open.
Hi, Good morning, I guess, a couple questions first on the aerial side. One can you just help us understand what the production cuts are applied for the back half of the year versus when you guided last quarter and the risk that the production cuts will have to continue into 2020, because obviously that has implications on on margins for 2020.
And then last the 10% sort of 2020 topline outlook down 10%.
I understand you don't really want to give guidance, but with regards to aerial should we assume your some way somewhere in the range of.
Thanks, Thanks Amy.
To the margin impacts I think we have to take its back to last year. At this time in Q3 in Q4, we made the decision to maintain a high level of of production are higher level of production than normal and a tight labor market and and built up inventory in anticipation for a stronger.
For 2019.
2019 has turned out it has not been a strong I think our customers are being very disciplined in there in their capex plans aggressively managing their utilization or rental rates and used equipment, which I think it's going to be good for us as we move into.
Yes, so heading chain the as it relates to your other questions on strategic sourcing.
We did lower the savings or.
The year for 19 as a result to the lower production that we're seeing in in ADW fee and less buying.
Down to $25 million.
We still are very positive on our strategic sourcing initiatives the savings rates that were getting our inline with.
Our expectation and.
We see that program continuing to contribute to our bottom line profitability in 2020, we've talked previously about a.
70 ish million dollar level of savings next year and as you as you pointed out we're not providing we will provide our financial guidance in February and at that time, we'll we'll update exactly where we'll be with respect to all of our financial performance for 20, including our strategic source.
Seeing initiative.
I would say as it relates to 2020 revenue outlook as as we indicated in our remarks, we are.
Planning conservatively for revenue to be down 10%.
That's what we're using for our production planning purposes today.
Financial perspective, because at that point, we'll have much better visibility as to the results of our discussions with our customers that take place here over the course of Q4 and into January .
But duffy to be clear the expectation for you to produce in line with retail demand in 2020 at least for Aereo, given where we are today.
That is correct.
I didnt make that point, but.
As I thought it was inherent in John's respond that is correct the reduction of the 30%.
Retail demand or customer demand.
Let me use.
[noise] to ask a question during this session you'll need to press star one on your telephone. Please be advised that that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Brian Henry Senior Vice President of Investor Relations, Sir you may begin.
Good morning, everyone and thank you for participating in today's third quarter 2019 financial results conference call participating on today's call, our John Garrison, Chairman and Chief Executive Officer, and John Sheehan, Senior Vice President and Chief Financial Officer. Following the prepared remarks, we will conduct a question answer session.
We have released our third quarter 2019 results a copy of which is available until its stock comp.
Today's call is being webcast and as a company by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website all adjusted per share amounts in the presentation or on a fully diluted basis.
We will post a replay of this call on the Terex website under events and presentations in the Investor Relations section.
Let me direct your attention to slide two which is our forward looking statement and description of non-GAAP financial measures.
Encourage you to read this as well as other items in our disclosures because the information we will be discussing today does include forward looking material.
With that please turn to slide three and I'll turn it over to John garrison.
Good morning, and thank you for joining us and for your interest in Terex.
First I want to thank our global team for their intense focus on creating a zero harm safety culture.
Delivering value for our customers.
Their commitment to implementing our strategy.
Looking at the global market environment.
It became clear to us towards the end of the third quarter.
We are in a softening environment for industrial equipment.
Demand in the major markets for aerial work platforms has declined putting pressure on sales.
We lowered production in the third quarter and are reducing production in the fourth quarter to align with global demand.
Which is impacting margins.
A bright spot freight WP continues to be growth in China.
In the quarter materials processing continued its strong performance.
Increasing sales and generating over 15% operating margin again.
However, bookings and backlog levels are pointing to weaker demand in their global markets.
In this environment I was very pleased with our free cash flow performance as you read generated $104 million in the quarter, a significant improvement compared to last year.
Our global team continues to focus on generating cash in an improving working capital efficiency.
As we enter a more challenging macro environment for industrial equipment.
We are intensely focused on maintaining a strong liquidity profile.
We are well positioned entering the fourth quarter with approximately $1.1 billion in available liquidity.
One of the commitments, we made back in 2016 was to generate returns greater than our cost of capital throughout the cycle.
By executing our strategy.
Focusing the portfolio on great businesses.
Dramatically, improving our balance sheet, reducing corporate overhead and making significant improvements to our operations.
We are well positioned to deliver on that commitment.
And have the ability to execute at a high level through the challenging phases of the equipment cycle.
I acknowledge and the team understands that we have more work to do as a company to establish a consistent high level of execution across our businesses.
Turning to slide four.
We continue to implement our strategy and enhance the capabilities needed to win in the marketplace.
A core element of our execute to win business system is talent development.
We recently completed our annual talent review process.
This is a global activity that requires every leader in the company to evaluate his or her team update development plans and address talent gaps.
As I travel to our sites around the world.
Always encouraged when I meet emerging leaders.
We have many high energy passionate team members that are taking on more responsibility.
The harnesses talent, we're investing in company wide leadership development and mentoring programs and supporting local training initiatives.
From a leadership perspective, we recently announced at three executives, who I would describe as builders of Trx.
Eric co on.
Kevin Bar and Brian Henry will be leaving the company at the end of the year.
Eric let the legal function and providing council to the senior leaders of Terex for 22 years.
Eric was instrumental in the company's acquisition and disposition strategy and building in improving the company.
Including establishing our corporate governance, and ethics and compliance strategy.
Kevin join Terex 19 years ago to build the human resource function.
He was a leader in implementing the cornerstone of our culture.
The tariffs way values.
The fact that we have internally developed leaders taking on these executive roles going forward.
As a testament to the quality of the talent develop a structure that Kevin put in place.
Finally, many of the folks on the call of work with Brian Henry.
Over his 29 year career with the company has been a driving force in the strategic decisions.
Including the acquisitions and divestitures that shape the terex of today.
I want to thank Eric Kevin and Brian for the many contributions they have made to terrorist over the course of their distinguished careers.
I want to thank each of them for their insights and counsel.
Turning to slide five.
We continue to make progress implementing our strategy.
In August we completed the sale of Bemag mobile cranes.
Team members from across Terex worked incredibly hard to close the sale and ensure a smooth transition.
In the remaining rough terrain and tower crane businesses.
We rebuilt our commercial organization to position the businesses for success.
We are committed to these businesses and investing to support our customers into the future.
We continue to simplify trx.
We completed the transition to a two segment organization.
A significant portion of the general and administrative costs associated with the former Crane segment has been eliminated.
The simplified structure also allowed us to reduce expenses in our corporate functions.
Our leadership team continues to scrutinize every expense to ensure our operating model is efficient and appropriate for the current structure and market environment.
We continue to execute the organic growth element of our disciplined capital allocation strategy.
By investing an innovative products and services and our global manufacturing capability.
The new utilities manufacturing site in South Dakota remains on schedule and within budget.
MPS expansions in India, and Northern Ireland are on track.
The new can see facility pictured here celebrated its official opening last month.
The new site manufacturers mobile conveyors, and eco tech waste management and recycling equipment.
These investments enable simplification.
Prove manufacturing productivity and underpin our long term growth.
We also continue invest in our execute to win priority areas.
Our commercial excellence team achieved the significant milestone in the quarter by completing the final deployment of Salesforce.
All of our businesses worldwide are now on the system.
On lifecycle solutions.
The leadership team has in place, we're investing in systems and infrastructure to enable longer term growth.
Hi, performing parts and service business is important throughout the cycle as demand for new equipment moderates.
Finally, we continue to implement our strategic sourcing program as we are moving significant volume to new suppliers.
Lower production volume, which is reducing spending levels is impacting the overall savings. However, we are achieving good savings rates.
Based upon ADW piece lower production levels and spend forecast, we expect savings of approximately $25 million this year.
Turning to slide six.
Based on our year to date performance, the slowing global market environment reduced production volume and adverse foreign exchange rates. We now expect full year EPS to be between $3 and $3 in 20 cents on net sales of approximately $4.4 billion.
While we continue to focus on working capital and improving cash flow. We are adjusting our free cash flow guidance for 2019 to approximately $110 million based on our updated earnings outlook.
Looking ahead to 2020.
Well, we're not providing financial guidance today.
From an operational perspective.
We're planning for sales to be potentially 10% lower than 2019 due to the softening macro environment for industrial equipment.
We are planning conservatively, but are ready to react to the changing market conditions with that let me turn it over to John Thanks, John .
Let me begin by reviewing our Q3 segment highlights.
Hey, WP sales totaled $628 million in the quarter down about 14% versus the prior year period.
Weakening demand in North America, and Amir led to sales declines in both markets in the quarter.
We increased sales in China, driven by market growth and increased product adoption.
Lower sales and reduced production volumes in the quarter resulted in lower margins for the segment.
To align with customer demand and manage inventory levels, we reduced aerial production in the quarter by over 30% compared to last year.
This resulted in lower manufacturing absorption and lower than expected material cost savings.
Margins also continued to be impacted by a weaker euro which declined 4% versus the us dollar compared to Q3 last year.
Leading to a 5 million dollar operating profit headwind.
A weak euro pressures AWB margins in Europe as a large portion of the products sold in the region is produced in North America in China.
Finally, the mix of sales were more skewed to Telehandlers, which also impacted margins.
Softening in the major markets led to lower bookings and backlog in the quarter.
A portion of the year over year decline is attributable to the timing of annual purchase orders with three major customers.
They are 2019 orders were booked in Q3 of last year.
We are still negotiating their 2020 orders.
Excluding these three large orders bookings would be down, 19% and backlog would be flat to the prior year.
Materials processing continued its strong performance achieving excellent financial results again in Q3.
Sales were $339 million up 8% or 12% on an FX neutral basis on growth across the MP businesses.
BMP team delivered a very strong operating margin of 15.6% on an adjusted basis, representing an expansion of 240 basis points.
These results were driven by improved operating performance across the portfolio and effective price cost management.
The British pound to US dollar exchange rate provided a modest tailwind to NP.
MP is seeing lower backlog and booking levels as the global macro environment for industrial equipment is slowing down.
That said DMP team is diligent in their production planning and we'll manage the businesses appropriately.
The rough terrain and tower cranes businesses that are reported in corporate continued to perform inline with expectations in Q3.
Although these businesses also experienced weakening demand in the quarter.
Let's turn to slide eight to review our consolidated results.
Total revenue of $1 billion was down 7% or approximately 5% on an FX neutral basis.
The currency volume and lower production headwinds that impacted ADW p. margins were partially offset by the strong performance in MP and reductions in corporate expenses.
Leading to an overall adjusted operating margin of 8.8%.
Investment in our execute to win initiatives and restructuring related charges were the primary difference between our as reported and as adjusted operating profit.
On an as adjusted basis total interest and other expense increased approximately $2 million year over year, resulting from increased borrowings offset by non operating FX gains.
For the quarter, we generated earnings per share of 82 cents on an as adjusted basis.
While this quarter's EPS was lower than the prior years quarter on a comparative basis. The result is 21% better than the 68 cents as adjusted EPS, We presented in Q3 2018.
Demonstrating the benefits of our strategy execution.
Turning to slide nine.
We are delivering on our commitment to follow a disciplined capital allocation strategy.
Our global team continued to focus on improving working capital and pre cash flow performance.
During the third quarter, we generated $104 million of free cash flow.
Significant improvement compared to the third quarter of last year.
We have reduced inventory slightly since the end of Q2. However, we continue to hold more inventory than last year.
To better align with market conditions, we continue to scale back production levels, particularly in a WP.
We will continue to reduce inventory as we diligently manage working capital through the cycle.
In addition to free cash flow, we are generating cash by executing our portfolio strategy.
The sales of de Mag mobile cranes, and our shares of ASV generated approximately $150 million in cash proceeds in Q3.
As of September Thirtyth, our net debt to adjusted EBITDA ratio was a healthy 1.5 time.
Down from two times at June Thirtyth.
While we continue to invest in our execute to win priority areas. The level of investment has been reduced as our internal capabilities are maturing.
We are investing in our global manufacturing capabilities with capital expenditures of approximately $120 million in 2019.
And planning for approximately $100 million in 2020.
Turning to our full year financial guidance on page 10.
Based on year to date performance and outlook for Q4, we are updating our full year 2019 guidance.
We now expect revenue for 2019 to be approximately 3% lower than 2018.
The decline is driven by softening demand in our major aid WP markets.
Our operating margin outlook is now approximately 8.4% and our EPS guidance range has been updated to $3 to $3 in 20 cents per share.
We have lowered our expected full year effective tax rate to 20%.
As a result of our updated earnings outlook, we are adjusting our full year free cash flow guidance to approximately $110 million.
From a segment perspective, we expect a WP performance in Q4 to continue to be impacted by the market downturn in North America and Europe .
Resulting in expected full year sales decline of approximately 7%.
We are reducing production dramatically in the fourth quarter compared to last year, which will lead to substantially lower factory absorption.
In addition, lower volume adverse foreign exchange rate and product mix will continue to impact margins as we close out the year.
Leading to an expected full year operating margin of between 7.25 and 7.75%.
The Euro dollar exchange rate will have an unfavorable full year impact on a WP margin of approximately $30 million.
We expect MP to deliver solid operating performance in the fourth quarter.
We are updating full year guidance to sales growth of between three and 5% and operating margin of 14% to 14.5%.
MP operate several facilities in the UK.
Our guidance range assumes there are no major disruptions associated with Brexit.
We continue to Monitory, then as the Brexit process unfolds.
And with that I'll turn it back to John .
Thank you John .
Turning to slide 11, I'll review, our segments, starting with a WP.
The overall global market for the aerial work platforms is clearly softening.
Frankly, we expect that a longer period of market stability.
However, geopolitical and macroeconomic dynamics have led to a market downturn.
Looking ahead to 2020, we're planning for demand in North America in Europe to be lower than 2019 and are working closely with our customers to align with their requirements.
Looking beyond 2020, we expect growth in the developed markets to be driven by the replacement cycle, which we expect to kick in in the 2021 timeframe.
We continue to be encouraged by growth in the developing markets customers are seeing the benefits of adapting genie equipment to safely and efficiently work at height.
We expect strong long term growth in Asia Pacific region.
Turning to utilities, the North American market continues to grow and utilities team continues to deliver strong performance.
A key to improving margins in January PE is the execution of our strategic sourcing strategy.
Including transitioning significant volume to new suppliers.
Through the end of September AWB team has transitioned over 2200 parts to new suppliers.
We are encouraged by the saving rates we are achieving.
However, the lower spend levels are impacting the total value of savings in 2019.
Looking ahead and through the cycle, improving our supply base will mitigate some of the margin compressor on lower volumes and will support margin expansion when markets improve.
We continued to invest in growth in emerging markets and product innovation.
The Genie team recently launched a new electric scissor lift pictured here featuring E drive technology.
The new model was designed as a global product to reach high locations in tight spaces. It hearing to the new ANSI standards as well as European and other requirements. So another great example of Genie innovation.
I recently attended our utilities equipment show in Louisville, Kentucky.
This is a major event from utilities industry, and Terex had a strong presence.
We are growing and gaining share in the utilities market by focusing on what's important to our customers safety and innovation.
At the show, we introduced a new innovative TL series for the transmission line segment.
This enables us to compete in the new market segment with a cost effective solution for do on higher level work on transmission lines.
The utilities business will benefit from new manufacturing facility, we are building and Watertown South Dakota.
The new site will increase capacity and significantly improve productivity.
An important investments are terex as utility equipment market has considerable growth potential in North America and in developing markets.
Overall free WP the investments, we are making our execute to win priorities new product development and strengthening our global footprint will improve performance throughout the cycle.
Turning now MP materials processing is a high performing segment that deliver strong results.
Although sales grew across the MP portfolio in Q3, we're seeing signs that the market conditions are softening.
Utilization of crushing and screening equipment remains high however conversion from rental to sales is slowing as uncertainty in both the United States in the European markets is impacting capital spending decisions.
The global market for material handlers has softened.
And our Q3 bookings were down sharply from last year.
We are monitoring scrap steel prices in important driver for this business and working closely with our customers to align with there is demand outlook.
Our cement mixer truck business in the United States was relatively stable.
And our picking carry crane business continues to execute well, although demand is softening in Australia.
We continue to invest and new products.
The recently launched power screen job Crusher pictured here is the latest example of innovation in the crushing and screening business.
The lightweight machine is designed to maximize throughput added aggressively low cost per ton setting it apart from the competition.
MP has a history of success developing new products and new markets and our business in India is a great example.
Our hosts are into your plant celebrate an important milestone in August achieving 10 years of growth in India.
With hosts are as the cornerstone tariffs has established itself as the clear market leader in mobile crushing and screening in India.
In addition to the tremendous job the team has done growing the business I'm also proud of their safety record.
Achieving over four and a half years with no lost time injuries.
We are making investments to expand our capacity in hoster, and we will capitalize on the dramatic growth potential in India and the surrounding markets.
In summary for MP, Great performance again in Q3, we are seeing signs that the us in European markets are softening and we're evaluating production plans for every business.
As MP has demonstrated the team will continue to execute at a high level.
Turning to slide 13.
To wrap up our prepared remarks.
Our global team continues to work hard to improve execution and meet the needs of our customers.
We've made considerable progress implementing our strategic plan.
Focusing the portfolio on high performing businesses and simplifying the organization to make our cost structure more agile, we enhanced our capabilities and to execute the wind priority areas.
We implemented our disciplined capital allocation strategy, returning capital to shareholders and dramatically strengthening our balance sheet.
With our current portfolio of businesses and strong balance sheet, we are well positioned to generate cash in significantly out around our cost of capital throughout this cycle.
Finally, we will continue to follow our disciplined capital allocation strategy, while investing in future growth and creating additional value for our shareholders with that let me turn it back Brian .
Thank you John as this is my last earnings call I would also like to thank the members of the analyst and Investor community that I have had the pleasure to work with over the past several years.
I will continue to be your contact through the end of the year at which time, Randy Wilson, who I've worked with extensively over the past year will assume the role of director of Investor Relations.
Now, let's get the Q and a startup as always we ask you to limit your questions to one and a follow up to ensure we have time to get everyone with that I'd like to open it up for questions operator.
Ladies and gentlemen, ill ask a question. Please press star and the number one on your telephone keypad to withdraw your question press the pound key I'll pause for just a moment a couple of acuity roster.
Your first question comes from Jamie Cook with Credit Suisse. Your line is open.
Hi, Good morning, I guess, a couple questions first on the aerial side. One can you just help us understand what the production cuts are applied for the back half of the year versus when you guided last quarter in the risks set the production cuts will have to continue into 2020, because obviously that has implications on on margins for 2020.
Given where we are in the back half second on the supply chain. It sounds like you're a little behind because demand is lower what are the new expectations in terms of what that will contribute in the back half year or is this push through 2020 and it is a lower number.
And then last the 10% sort of 2020 topline outlook down 10%.
I understand you don't really want to give guidance, but with regards to aerial should we assume your some way somewhere in the range of of what Josh guided to yesterday for 2020. Thanks.
Thanks, Thanks Amy.
Jamie several several questions airline, let me start with the production changes and then I'll have duffy speak to the.
To the margin impacts I think we have to take its back to last year. At this time in Q3 in Q4, we made the decision to maintain a high level of production are higher levels of production than normal and a tight labor market and and built up inventory in anticipation for a stronger.
For 2019.
2019 has turned out it has not been a strong I think our customers are being very disciplined in there in their capex plans aggressively managing their utilization or rental rates and used equipment, which I think it's going to be good for us as we move into.
20, it back half of 2020 and 2021.
But in that environment.
We made the decision to significantly reduce production volumes in Q3 down about 30% and again in Q4 down about 45% and again, we're going to be very disciplined do not overproduce to the global demand and so with this lower production volume it has clearly in.
Impacted our margins in Q3 in Q4, so Duffy would you like to comment on the on the margin impact.
Yes, so heading chain the as it relates to your other questions on strategic sourcing.
We did lower the savings for.
The year for 19 as a result to the lower production that we're seeing in in a WP and less buying.
Down to $25 million.
We still are very positive on our strategic sourcing initiative the savings rates that were getting our inline with.
Our expectation and.
We see that program continuing to contribute to our bottom line profitability in 2020, we've talked previously about a.
70 ish million dollar level of savings next year and as you as you pointed out we're not providing we will provide our financial guidance in February and at that time, we'll we'll update exactly where we'll be with respect to all of our financial performance for 20, including our strategic source.
Seeing initiative.
I would say as it relates to 2020 revenue outlook.
As as we indicated in our remarks, we are.
Planning conservatively for revenue to be down 10%.
And that's what we're using for our production planning purposes today, when we provide financial guidance in February we'll we'll update exactly where we are from a.
Financial perspective, because at that point, we'll have much better visibility as to the results of our discussions with our customers that take place here over the course of Q4 and into January .
But daffy to be clear the expectation for you to produce in line with retail demand in 2020 at least for area given where we are today.
That is correct I didnt make that point, but.
As I thought it was inherent in John's respond that is correct the reduction of the 30%.
Great.
For AWB production in Q3, 45% year over year in Q4 is intended to bring our inventories down in AWB down 200 million over the course of 2019, such that we are producing in line with retail demand or customer.
We're demand let me say.
In 2020.
Okay. Thanks, I'll, let someone else can then.
Thanks, Jim.
Your next question comes from NAND dividend with Jpmorgan. Your line is open.
Oh, well I can take my first name.
It is totally.
My questions have been answered, but I will ask one perhaps.
Gross profit of things Thats been has been.
Just a great performer in the upside and I'm, assuming is pretty high tech costs given.
Nature of the equipment. So what should we consider it will be normal decremental margins for that business I'm, assuming they're going to be on the high tide.
Hi around 30% is that correct or am I missing anything.
So again, thanks for the question and.
You are absolutely correct that the MP team has done a great job.
As they have increased their margins.
Over the last several years.
Actually in excess of the 25% incremental margins that we have traditionally thought about for our our businesses.
On the downside in the in the Decrementals. We would also expected MP would be in the 25% range for their decremental margins I think that they have demonstrated that they are.
Very.
Cost conscious.
The upside and will be similarly cost conscious on the downside. So I'd say, 25% decremental margins isn't appropriate place to think about for the MP business.
Okay, and just quick follow up on the material handling side is this the first quarter, where are you notice at slow down and customer demand or did I guess mix within at last quarter.
No there on material handlers, we've had a good rise in sales on our material around those books business over the last several quarters and so yes. This is the first time, we've seen kind of the the bookings in the backlog begin to come down and again, that's that's principally being driven by scrap metal prices around.
In the world as scrap metal prices have come down that impact the demand for that segment, but the teams done a good job on the upside.
I'm confident we'll do a good job as the is the volume comes down and that seems also working to expand our regional mix and in our customer mix moving beyond scrap metal, but clearly scrap metal is impacting our material handling business and will impact that as we go into 2020.
Okay. Thank you I appreciate it and get back in line.
Thank you and.
Your next question comes from Seth Weber with RBC capital markets. Your line is open.
Hey, good morning, everybody.
Morning, Seth I wanted to ask about the HBP appreciate the color on the changing order cadence, but the but then you kind of called out and I think it was 19% down kind of apples to apples.
Can you just give any color where thats coming from is that spread pretty evenly you asked Europe or is there any anything you would call out from.
That's that's contributing to that 19% delta. Thanks.
All right. Thanks, Yes, let last year in Q3, we actually had three large customer orders that booked there as opposed to their annual plan in Q3 last year, one of which was a large us customer two of which were larger European customers about equally split in terms of the amount.
The $240 million and I think that was that the environment that we were in last year's customers were looking to plan earlier in the cycle. We have had longer lead times other competitors that have longer lead times and as we move into into this year I'd say the team is saying, we're seeing a more normal pattern as we're moving.
In November and December early January we're starting those conversations are engaged in those conversations with the with the larger national accounts. So we did want to call that out there that did occur last year and it did not reoccur in Q3 of of this year.
Right right, sorry, John I thought I had heard that the.
Excluding those three contracts at the base business.
The balance of the ordering was still down.
Or almost 20%, that's what I thought I heard.
It was on our correct.
Yes that is correct. It was down as we reported it was down more.
This this.
Explains that it wasn't down quite as is dramatically as it seem.
Right. So I was just trying to get some color on that 19 that 19 or 20%. If that's equally spread that Europe is it more you asked from the accident.
Yes, sorry, sorry about that so yes, let me start let me just talk about the regional dynamics within their work process Ada BP business.
In North America, we're seeing our customers and in Europe be very disciplined around their fleet in fleet utilization aggressively managing their utilization rental rates in used equipment. So we saw very strong growth frankly in the on the 18 timeframe and growth in their fleet that's intermediate.
Thats coming down now.
As as we look into the back half of 2019 and into 2020, I will say the high utilization rates a bit that our customers are experiencing will help as we move into the back half of 2020 and into 2021 with the replacement cycle that high utilization is clearly going ahead.
In North America.
Or for the replacement cycle in Europe , we are seeing the macroeconomic environment is more severe in Europe , our sales in Europe , we're in the quarter were down.
Greater than 20% or bookings.
Our down as well I think the global economic uncertainty in Europe with with Brexit the situation in Germany, Italy, what was going on in France is just caused a pause in the European market and so we did see a decline in Europe .
And obviously, we're monitoring that quite closely as we go forward.
See how that business is going to perform going into 2020, but the macro environment in Europe was more severe the environment that we saw in North America, and then offsetting all that was dramatic growth.
In in China with the adoption story, we've got a fantastic manufacturing facility in China that produces not only for China, but Asia Pacific region, and exports into Europe , and so we continue to see strong growth in China, but ameliorating growth.
In.
In Europe and to a.
The extent in North America.
Great Thats Super helpful. John and just on China is there any kind of are you banging up against capacity constraints or how are you.
How are you set up there can you handle more demand on the current footprint. Thanks. So so thank you said that that was the in China in earlier in the in the quarter and and.
Two years ago, we implemented a phase two and grew our capacity in China, and we're already through that capacity in China. So we're looking at a phase three expansion.
At our plants in China.
Sided about it we've got a fully integrated team in China.
A great management team local management team a great Chinese cost structure, and so we will be expanding in 2020 in our Chinese operations and again.
It's to meet the capacity needs both within China, but also to export out of China and Asia Pacific in other regions is the very effective place for us to manufacture added just I'd just add that to.
The expansion of our China manufacturing facility is a contributing factor for the 100 million dollar.
Capex amount for 2020 that we highlighted in the in the presentation and.
That that as we organically invest in our business, it's important to invest in our high performing.
Businesses in China is certainly one of those.
Super Thank you very much guys I appreciate it thanks.
Your next question comes from David Raso with Evercore ISI. Your line is open.
Hi, Thank you I was just curious morning, David.
I hopped on late so I apologize if I Miss but the cash flow was little disappointing to take it down and the guide even more than the implied EBIT was caught.
Thinking about the net debt to EBITDA, it's improved right one from two point OTA nearly 1.5 times at the ended the quarter.
What do we think of anything to offset what appears to be a difficult cyclical.
Situation for 20 on on the down 10% sales we can.
The Decrementals, how should we expect the balance sheet usage to be utilized pushback against that operational downturn.
2020.
So thanks David.
When you look at the free cash flow.
Forecast that we provided today or guidance that we provided today at $110 million. The reduction is really attributable to the reduction in earnings.
I think that the difference between the reduction in earnings and the reduction in the free cash flow is within the range of noise.
We generated over $100 million of free cash flow in the third quarter that after generating $168 million of free cash flow in Q2 and.
The guidance we provided today.
Implies about $100 million of free cash flow in the in the fourth quarter. So the jet the businesses clearly.
Throwing off cash flow in.
Even in this declining macroeconomic environment that we're operating in.
I would say that.
That the working capital.
I would expect that in a declining revenue environment next year that working capital will continue to be a source of cash will provide financial guidance, specifically on 2020 pre cash flow but.
We we do expect that free cash flow will continue to be strong I would say without providing guidance at least as strong as the as 2019 and we'll we'll finish this year with the net debt to EBITDA or let net leverage.
Page.
Below the based upon the free cash flow of $100 million in the fourth quarter.
Below the 1.5 that were at here in the at September Thirtyth. So we think the balance sheet is very well positioned terex is balance sheet has never been stronger and we are absolutely focused on managing and improving our working capital performance and increasing free cash.
Hello.
Well two things I'd say, one when you cut your production that much today WP as much as you lose some earnings you would think the cash flow from working capital would be a bigger beneficiary.
Than simply have any give away the cash flow equal to the EBIT cod.
I would have thought the working capital offset where.
Yes, I think the leasing offset some of the EBIT and if you can answer my question I apologize, but my question is more about okay. So the balance sheet can be an asset going into next year, how should we think about the management's decision to pushback against the EBIT declined.
Share repo.
On the for M&A answers just with some perspective.
So I apologize I guess I didnt.
Pickup on the last point, specifically on so I do believe that net working capital will be a contributor to free cash flow.
And that will be more so in the early 2020 time period than necessarily here as we close out 2019, that's why I do believe that our free cash flow in 2020 will be stronger than 2019.
As it relates to.
Whether it to other actions we may take.
Yes, though is with the very strong balance sheet that we have and will follow our disciplined capital allocation strategy invest in or in the organic growth in the business.
And then.
We will potentially return cash to shareholders. We've returned $1.35 billion of cash to shareholders over the last two plus years, we do view Herrick shares as a.
A good investment and we.
We will continue to.
Two.
Strategically consider reinvestment back in our in our business I'd say on the inorganic side that certainly will continue to continue to consider that but is when we follow our disciplined capital allocation right now today, our focus is on organic investments in our business.
Yes.
And I got a little more if you could if you've kind of im trying to push here, but just a sense of what's a target say debt to EBITDA that you're comfortable with so we can at least.
Thanks through whatever the EBITDA decline is next year, what are you comfortable with on the leverage again this year, you're probably in the bit below one and a half so.
No.
So we've talked before and really nothing has changed that we're comfortable with net debt in the two two and a half times, but I would also say that where we are in the industrial cycle right. Now were very pleased to have our net debt to EBITDA substantially below that.
The 1.5 times that net debt EBITDA at September Thirtyth, and we have over $1.1 billion of liquidity available to us as of today and so.
We will continue to consider how we use our balance sheet to drive shareholder value.
I appreciate it okay. Thank you so much.
Thank you David.
Your next question comes from and Jerry Revich with Goldman Sachs. Your line is open.
Hi, Good morning, everyone. This is Ben route on for Jerry Revich.
Good morning.
Good morning.
Just want to start aerials two years ago Youre aerial work platform business what are the most about the same sizes as Oshkosh is and now you're let's say about 20% small or can you help us think about what's driving that.
That differential is this.
Apparently it could be share loss or your production adjustments playing a role on a relative basis.
So so thanks, thanks, when obviously as we spoke about pretty significant production changes and reductions.
In in 2019 as it pertains to share based on am data.
Market shares consistent.
North America stable on a product by product basis, we have a higher mix of booms and in scissors Telehandlers are not as big a part of our overall business is other players in the industry our European market shares relatively constant booms are steady scissors, we did see a small.
Low single digit market share change over the course of the last 12 months or so that we're seeing that rebound in Europe telehandlers are quite quite small so we're really not a player in the European Tele handler market and as I've talked China, we've seen dramatic a significant growth in China as John the China.
Adoption story really takes off in the market.
And I was there in September we continue to grow as we spoke earlier and invest in our plant in China for more market share standpoint.
The market share is changing but thats really a result of the number of Chinese manufacturers that are that are reporting now into into thanks. Overall, we feel is as we think about our commercial excellence, we're laser focused on delivering value for customers and that comes from product and service innovation. If you look at our eight.
You P. line, we got out ahead of the market with our booms or extra capacity booms launch which are ANSI.
Compliant launch those in 18 and 19 the competitors are going to have to match Nancy compliant boom as we go.
From December 10th.
Onwards, our scissors you see on the scissor side.
We're investing in technology, there and we're also investing and telematics Oliver machines are going out with telematics and telematics solution. So we're providing a true value package for our customers and our teams working hard on selling.
That value package, so that that we can.
Continue to win in the marketplace. So.
I might add as we go through a.
A challenging industry cycle, we will not be reducing our research and development spend across any of our businesses. We will continue to invest and new products and services. These businesses are cyclical we realize that in but we're going to invest through the cycle to ensure that we've got the best products and services in the marketplace to win.
And so that that's how I.
I'd respond to that in terms of our relative position in the marketplace. It's something obviously, we pay very very close attention to and but again, we're focused on customers and how can we deliver customers value.
Got it got it and I was hoping you could just provide a little more granularity regarding whats embedded in that 10% revenue outlook for 2020.
Assuming we'll see a meaningfully larger to climb aerials relative materials processing, but just wanted to check.
Given the on characteristic weakness, we've seen a material processing book to bill ratios over the last two quarters.
Just want to make sure were properly aligned given.
The higher margin performance and materials as well.
Yes, so I think that number one is that.
The.
The 10% that were referencing today is what we're operationally planning for from a production perspective, and we will provide our financial guidance in February just to reiterate that point. When you think about the production planning that we're doing right now we're planning for about 10% down.
Across our business lines or a business segments. So it's not one.
Business planning for their production to be down significantly more than the other.
Yes.
Got it thank you.
Thank you Ben.
Your next question comes from Mig Dobre with Baird. Your line is open.
Good morning, everyone. Just wanted morning May go up.
On that last comment so when you're sort of making this plan for a 10% production.
Is this.
A factor of the backlog erosion did you have seen in 29.
Or is this embed already some kind of view as to where Youre orders are going to be in 2020 based on what do you know from your customers and then.
Thanks made it really is a combination of both you've got to SAP process. The teams Ron based on their sales forecast usually.
In most cases 18 months. So you continue to update your sales forecast and your production plans based based on that sale forecast. Obviously you you are looking at at orders in that case and backlog. So what is it is a combination but you really the biggest driver is looking out to two the sales forecast as we go for.
Board and I might say in both AWB and in MP and AAMC, we were at historically high levels of backlog in that that 18, 17, 18 time period, Likewise with our MP business.
Coming into this year, we just historically high backlog.
Almost $490 million historically that business is is really not used the operating at that level of backlog normally it would it's more of a shorter cycle book to Bill business that business is about 75% of their sales go through a distribution channel. So.
Well the teams monitored the ongoing active process of the sales forecast adjusting your production schedules and then sometimes we have to step in like like Matt The team did it at AWB and make decisions that.
Based on labor and things of that nature. So that's why I explained the changes that we made it AWB.
And then MP consistent process across their businesses looking at what does that 12 18 months sales forecast look like in the production plants to that obviously and output is is orders in backlog. So it's a combination leg of how you drive that forecast going forward.
Okay.
Then my follow up is on MP.
Maybe a little more color on your on your aggregates business and there you talked about.
Conversion conversion from rentals slowing I heard one of your competitors say something similar recently.
What's what's really going on in that market and I guess my question is now down we are fairly late in this current highway bill in the West are you starting to see maybe some saturation of demand here.
We are we realigned if you would on anything legislative happening in order to get.
The demand boost as we look at 20 or 21. Thanks.
Thanks makes so if we look at our core crushing and screening business and specific to your question maybe around North America as we have commented.
Our dealers on the positive side, our dealers are seeing very high utilization of their rental fleets, which is good news I mean that the underlying activity remains strong theres a degree of uncertainty which has caused them not to convert those rental machines the customers to convert the rental machines into owner, which then allows the deal.
Colors to restock.
There there rental fleet. So that trend has continued as as we've gone through this year again, the positive is very high utilization in terms of the macro outlook.
Specific to North America any legislative action.
Would be a positive we're not counting on that in the underlying demand profile that we're looking at so if we were to get a may or may any major legislation on infrastructure that will be a net positive. So as we looked out and we're not assuming that.
In in the forecast our customers and dealers are not assuming that that we're going to get any major legislative breakthrough on infrastructure I think it's just the underlying need for infrastructure specifically in North America is there, which again is showing up in the high utilization rates of the of the aggregate crushing and.
And equipment.
Equipment, what we need to see maybe is that does that then convert and that's what we're going to be following quite closely over the coming months does that does it the rhythm convert to a ownership and then which allows us to our dealers to increase the rental fleet and purchase more machines from us So thats what will be falling quite closely.
Okay, which we already do but we'll continue to fall that as we go forward.
I see lastly are you seeing any price pressure.
Given this.
Late conversion, if you would do ownership.
For me thanks.
No overall I think the the MP team across again, it's a collection of businesses across the businesses was 75% of the of the business is going through a distribution channel they manage the price cost ratio.
Quite well and so we havent necessarily seen anything significant.
That of course made one off deals here and there where the dealer to a customer always occur, but overall I would say the DMP teams done a really great job managing price cost across their portfolio of businesses in aggregate crushing and screening is no different no different I should say.
Thank you.
Your last question comes from Andy Casey with Wells Fargo Securities. Your line is open.
Thanks, Good morning, and good luck, Brian Thanks for the help.
Hi.
Good morning to any.
Last one first I guess.
Anyway, the clarification on slide 10.
Comment about exclusion of future divestiture impact among other things from guidance I know, it's kind of been on there but.
Are you looking at and further portfolio actions beyond those already announced.
No I'd say NDS, we're absolutely committed to our disciplined capital allocation strategy, which.
Looking for exactly the page number, but I believe it's a it's the right behind that and so we're not.
Trying to highlight anything with that as I mentioned in response to a previous question.
And our disciplined capital allocation.
Strategy in is primarily focused on organic investment and then.
It starts with maximizing free cash flow and then from there.
Organically investing in the business, having the right capital structure, and then returning capital to shareholders efficiently.
And as we continue to.
Operationally drive the performance of TYRX.
We will consider.
Changing that capital allocation strategy in the fuel in the future and thinking about organic inorganic activity, but I'd say today, we're more focused on organic and we just to close it out we've never had a stronger balance sheet in history that company leverage at one point.
Net leverage at 1.5 times we.
Reduced our net debt by $250 million over the course of the quarter 950 million down to 700.
Million dollars so that.
We like very much where the company is focused and.
The strength of our balance sheet, and we'll continue to evolve our capital allocation strategy as we move forward.
Okay.
And just to go back to that John the.
The question was more around are we are we looking at a stable portfolio forget about acquisition Nationals, Yes, yes, Andy. So this is John so the focus element focused simplify execute to win but focus element of our strategy is virtually it is complete.
The remaining businesses that we have in the portfolio are all businesses that have historically been able to out earned the across the capital through the cycle. They have relative leadership market positions in the room in their respective segments that they compete in and so with that with the sale of our Dematic business that we completed in the quarter at really completed the folks.
Element of our strategy in terms of of any further dispositions within the portfolio.
Okay. Thanks, and then to follow up if I may I know, it's getting lane, but.
There really follow ups on a couple of mix questions.
The.
When you're looking at the.
Segment forecast for next year, particularly WP.
Thank you kind of commented about.
Some forecast from the second half of last year that.
Turned out a bit a bit optimistic and had to correct and this year should we expect that you're kind of discounting that segment forecast to be conservative.
I would say obviously, we continue to one of things is continuous improvement and trying to drive continuous improvement in all of our business processes and so we want to learn from the previous forecast we have systems to continue to improve the level of forecasting one of things I am excited about as we were able.
Well to put Salesforce now globally within that business, so that give us a much better insight into the to the sales opportunities as we go forward. So at this I'd answer that one Andy saying that obviously, our job is to drive continuous improvement in all of our business processes and outcome and we anticipate to continue to do that.
Okay, and then last one from me.
When you.
When you look at coincident backlog decline JW PNM peak.
And your and your discussions.
With customers outside maybe folks in the picking Kerry.
And this seems to be from your comments.
Yes.
And mainly uncertainty driven and if so what what are you.
Hearing from your customers that they may be looking forward to Reaccelerate investment.
I think thats the broader geopolitical question Andy.
Talk to customers, if you talk to European or UK based customers clearly Brexit isn't the forefront so driving clarity in Brexit trade trade policy trade tensions clarity in the trade the global trade situation, especially as a is an equipment manufacturer and industrial equipment manufacturer.
Well clearly help our customers and their insights so anything that helps the route resolve some of the uncertainty on the trade side on the Brexit side those are things that impact customers that are making capital capital decision. So anything any progress that can be made over the course, the coming months in that area will be.
Positive for for the global equipment business industrial equipment business that that we compete in.
Okay. Thank you very much.
Thank you.
I would now like turn the call back over to John Carrington for closing remarks.
Again, thank I'd like to thank everyone for your interest in Terex. If you have any additional questions. Please follow up with Brian at least for the next several months as Brian moves on but again. Thank you for your interest in Terex and again any questions. Please follow up with Brian . Thank you.