Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Q1 2020 Terex Corporation earnings Conference call.
At this time, all participants are in listen only mode.
After the speakers presentations there will be a question answer session.
Ask a question during the session you will need to press star one on your telephone.
If you require any further assistance please press star zero.
I'd like to have the conference over to your speaker today.
Randy Wilsons director Investor Relations. Thank you. Please go ahead Sir.
Good morning, and welcome to the Terex first quarter 2020, <unk> earnings Conference call.
During today's call following the centers for disease control and prevention guidelines are using both social distancing and technology for remote access.
Copy of the press release and presentation slides are posted on our Investor relations website at investors that Keryx Dot com.
In addition, the replay in slide presentation will be available on our website.
I'm joined by John Garrison, Chairman, and Chief Executive Officer, John Duffey, Sheehan, Senior Vice President and Chief Financial Officer.
Their prepared remarks will be followed by QNX.
Please turn to slide to the presentation, which reflects our complete safe Harbor statement.
There are few items I like to cover.
First today's conference call, including our remarks and answers. Your questions contains forward looking statements, which are subject to risks that cause actual results to be materially different from those expressed or implied.
In addition, we'll be discussing non-GAAP information that we believe it's useful in evaluating the company the operating performance.
Reconciliations between non-GAAP measures can be found in the conference call materials.
Please turn to slide break and I'll turn to John garrison Nice Randy.
Good morning, Thank you for joining us and for your interest in Terex.
First our thoughts go out to all who have been affected by Tobin 19.
As well as a dedicated healthcare workers first responders and volunteers, who on the front lines all over the world battling this pandemic.
The church way values, along with our commitment to safety gives us strength to face with pandemic together.
I am proud of and want to thank all of our team members for their dedication commitment and focus on or zero harm safety culture.
I am pleased with their attention and focus on adhering to the cobot 19 protocols.
We have operations in China, Italy, Washington State and our Connecticut, Corporate office near New York City.
All hot zones for the Corona virus.
That said.
Most of our Terex global parts and service in logistics teams have remained open to service needs of our customers.
It was a testimony towards zero harm culture, we've only had seven confirmed cases, although we suspect we may have more.
By practicing and rigorously following that cobot 19 protocols.
Helping to keep team members and families.
Customers and communities safe.
At church, we have confidence in ourselves and in our purpose that as a team we have quickly taken action to address the current situation.
And we were rapidly respond to market conditions.
We are focused on controlling what we can't control.
We're in constant communication with our customers.
Safely meeting their needs.
Producing the actual customer demand.
Providing essential equipment parts and services.
We are proactively maintaining our financial flexibility.
For a highly experienced management team and we will successfully navigate this crisis.
And our Terex team members are resilient.
Facing this pandemic by demonstrating the terex waiting values.
Let's turn to slide four.
Citizenship.
Which is one of our values helps us navigate this crisis and approved the lives of people around the world.
In Redmond already W.P. teams brainstormed on how to help the community after their region in during the first major cobot 19 outbreak in the United States.
The Genie team produced and donated 4500 protective phase shields for local medical professionals.
In Watertown tariffs utilities received requests from a local vocational college to use our threed printer to help make parts needed for fish shields.
Thanks to the efforts of our utilities team.
Approximately 1000 shields were distributed to health care providers in South Dakota in Minnesota.
Our China in Northern Ireland, James donated over 5000 mass tort Colgate 19 community group that is supporting local hospitals and care workers with P.P. supplies.
In India Terex team members voluntarily contributed a full day salary.
To purchase almost 20000 pounds of food for a community kitchen in Delhi.
Oh, thank all of our team members, who are assisting others and exhibiting our value of citizenship.
Turning to slide five.
Safety is and will remain the top priority of the company.
We have response plans in place falling guidelines some governmental authorities.
That are intended to slow the virus spread.
Team members, who can work remotely or doing so.
Given the lessons learned from change all the company's implementing protocols to further safeguard team members, who perform jobs that must be done at our facilities or customer sites.
Weve wants daily and weekly communications to stay in close contact the status of each of our sites.
We continue to educate our team members and share best practices across the company.
Safety and the well being of our team members is our first party.
Followed by the Companys financial health.
Turning to slide six.
As a result to the cobot 19 pandemic.
Every PNM p. saw significant number of customer cancellations and requested delivery delays in the second half of March.
In response to this unprecedented situation, we took swift action.
We have implemented a comprehensive cost reduction program that includes.
Salary reductions.
Following up team members and reductions in force.
Temporarily suspending manufacturing operations to align with customer demand.
And partnering with suppliers to limit the incoming supply materials, receiving only what is needed to support current production schedules.
Well the environment continues to be uncertain.
We are implementing cost savings in excess of $100 million.
The tariffs team is committed to taking the proper steps to protect the financial well being of the company.
Please turn to slide seven.
In addition, the cost savings, we're focused on having ample liquidity to run the business.
As of March 31st we had $945 million in available liquidity.
We are participating in tax and other government relief programs.
We're also utilizing worker assistance programs in the United States.
UK.
Germany, Australia and other countries.
To help keep our talented workforce in place.
Well easing the financial burning Terex.
We have begun to global effort to reduce indirect expenses in short we're asking all team members to look for opportunities to reduce the company's cost.
We have taken 35% out of our Capex budget for 2020.
However, we are investing in the future on a more targeted basis.
We're still funding the completion of our Watertown, South Dakota manufacturing facility and the expansion of or change of China facility.
Changes in important manufacturing facility for us.
The China market is growing and it is essential to have the capacity for future demand.
Working with our banks, we successfully extended and amended our revolving credit facility.
Additionally, we suspended our dividend and share repurchases for the remainder of 2020.
As a result of these actions I am confident.
We will have more than sufficient liquidity through the downturn and that we will be able to grow.
When we get to the other side of this pandemic.
With that I want to turn over to Duffy.
Thanks, John.
Turning to slide eight let me begin reviewing our recently completed credit Amendment.
We are pleased with the support demonstrated by or pay crude regarding the amendment and extension of our revolving credit facility.
The amended addresses the short term concert with our financial Covenant and provides the flexibility needed to manage the company during these challenging times.
The amendment provides us an extra labor comfort during this period of uncertainty.
It is important it hurts its stakeholders, how confident that Terry has the operational and financial strength to manage successfully through the current environment.
Let me walk you through some of the highlight.
The one year extension of the existing revolver from January 2022 to January 2023 is part of our border amendments and liquidity enhancement objectives.
Blending ahead, we did not want to be in a position in early 2021, where the revolver with considered a current liability instead of long term debt.
During 2020 as a result at the amendment, we are only subject to a minimum liquidity covenant.
Then during 2021, we are subject to a maximum secured leverage covenant that is only applicable at 30% or bore hope revolver utilization.
The credit agreement does revert to the existing financial Covenant on January 1st 2022.
It is important the terror to stakeholders, including customers suppliers team members and both credit and equity investors have confidence that Terry has the operational and financial strength to melt it successfully through this period of uncertain.
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That is exactly what this amendment provides us.
Turning to slide nine to review our Q1 consolidated results.
I would call your attention to our financial reporting structure.
How did you will notice we did not report adjusted Q1 2020 financial results.
Today, we called out specific financial impacts from Cobot 19.
We had sought to provide information that will help the investment community more easily compare our year over year result going forward.
Looking at our first quarter financial results revenue of $834 million was down 27% year over year.
We were operationally planning for first quarter revenue to be lower than the prior year.
During the month of January and February our skills, we're tracking in line or slightly above our expectations.
But the market go walk dramatically in March.
Also as discussed during our Q4 earnings calls in February we were planning to make strategic investments in 20 Twond.
Which we started in January and February.
However, we have since taken substantial steps cut back on a reinvestment into reduce our overall cost structure and those reductions in F. T. They will show up from April onward.
Gross profit was impacted by $8 million due to several kogan 19 related impacts.
First reserves were established against U.S. government tariff recoveries as a result of anticipated lower product exports qualifying for duty drawback recoveries.
Second we were required to record charges associated with the cost for the temporary closure of manufacturing facility.
Also as GE, they was adversely impacted by $5 million, primarily due to the reserves on a customer financing receivable and other items, resulting from Kogas 19.
For the quarter, we recorded an operating was $7 million compared to adjusted operating income of $106 million in the first quarter last year.
The operating loss resulted from $300 million lower revenues versus Q1 2019.
Well, it's a cobiz safety related charges in the quarter.
Other income was impacted by $2 million related to the marking to market of a publicly traded holding.
It is very important to note. Despite the challenging month of March Q1, free cash flow use of approximately $110 million improved year over year basis from a free cash flow use of approximately $255 million it.
One 2019.
The year over year improvement in free cash flow of approximately $145 million resulted from three factors.
First.
Cash flow from continuing operations increased approximately $40 million at lower earnings plus higher capital expenditures were more than offset by lower net working capital.
Second.
Yes, peanuts for interest taxes, and other operating costs decreased approximately $35 million.
And third as a result, the sale of our mobile cranes businesses, we did not repeat the cash used in these businesses in Q1 2019 of approximately $70 million.
During Q1, Twentytwenty are continuing operations free cash flow benefited from our producing below retail demand.
That's a result at the covert 19 impact on commercial demand in March we aggressively reduced manufacturing production further.
Especially within our E.W.P. segment, which further benefited our Q1 free cash flow.
We expect net working capital will be it's worth of liquidity for the remainder of Twentytwenty.
Turning to slide pet started with DWP.
He W.P. sales of $512 million contracted by 30% compared to last year.
Driven by continued challenging global markets.
End markets in the Western Europe shortly contracted in March despite starting the year inline with expectations.
We aggressively responding to customer cancellation insulated by reducing or stopping our production to ensure we were not building excess inventory.
Archon, Joe China facility will shut down or operating at a reduced level for most of the quarter.
However, starting in March the China business has gradually ramped up production.
Utilities market softened in the quarter, but not at the same rate that we experienced in the areas.
He WP first quarter bookings of $498 million were 29% lower than Q1 2019.
The bookings in the quarter, our net of approximately $175 million of orders, which were canceled by customers.
Backlog at quarter rent was $770 million down 34% from the prior year.
During the quarter, we experienced a shifting of customer orders from Q2 to the second half of 2020.
The reduction in machine utilization by our customers provides an opportunity for increasing our parts and services offering.
As customers are using the downtime of their machines to perform maintenance to be ready when the construction markets normalize.
Now turning to materials processing.
M.P. started the year with another solid quarter.
<unk>, 8% operating margin despite challenging markets.
It is a testament to the strength that this segment has the team delivered relatively strong positive operating margin on lower revenues.
Sales were $316 million down 23% from the first quarter 2019, driven by extremely cautious customer sentiment, resulting in delays capital purchases of crushing and screening product material handlers.
Yeah environmental equipment.
Yes, PTC has been aggressively managing all elements of cost in a challenging market environment.
Backlog of $272 million was 52% lower than last year, including order cancellations from the dealer network.
However customers in both segments continue to operate through the coated 19 crisis and existing equipment is being utilized.
Both are ADW, Pete and as he businesses our industry, leading in their respective segments with very strong brands.
They will be well position as we come out at this current downturn to grow in their respective markets.
And with that I'll turn it back to you John.
Thanks, Debbie turning to slide 11.
In both W.P. NMT, our teams are aggressively managing their production operations by accelerating their science cycle.
We are bringing in partial staff for certain product lines, where we have demand.
Partial operations adversely impact our decremental margins.
Under normal times, this would not be inefficient way to operate our facilities.
The benefit is we can produce the actual customer demand.
Thereby minimizing our cash burn.
A benefit of our strategic sourcing initiative is we have reduced the number of suppliers.
As a result, we have closer relationships and I've been able to work collectively to reduce the amount of material coming into the plans.
Our teams are doing a good job of managing material flow.
Also ensuring we have continuity of supply.
We're responding to short term customer demand.
But we're also focused on the longer term market dynamics.
Whether it's our new facility in Watertown.
Expanding our China facility digital innovation in parts and services or new product development. These are important investments to position terex for growth as business conditions improve.
Turning to slide 12.
Free cash flow execution is our principal financial objective in 2020.
As discussed in detail, we took decisive action with our banks to ensure we have ample liquidity to manage the business.
We also reduced capex by 35%.
We continue to fund the investments important for future growth.
As business conditions improve we will reinstitute returns of capital to shareholders.
Turning to slide 13.
To wrap up.
Our church team continues to live our zero harm culture, and a challenging global environment.
We are intensely focused on meeting commitments to our customers and supporting them during these difficult times.
Our businesses have a strong future.
So we will continue to invest in innovative products and services to be prepared as market demand returns.
Our management team is highly experienced and cycle tested.
And we will navigate through this crisis.
Aggressively managing costs and liquidity with that let me turn it back to Randy.
Thanks, John as a reminder, during the question and answer session. We ask you to limit your questions to one and a follow up can share we have time to get to everyone with that I'd like to open up for questions operator.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Your first question comes from Stephen Volkmann of Jefferies. Your line is open.
Hi, Good morning, guys more and Steve hopefully you are healthy.
Yes, thank you for asking and seem to everybody. There. So maybe a general we could just start by talking about the trends you're seeing a in a WPS. Thank you for the information around the the cancellations but.
I guess I'm trying to I was a little bit surprised at the net orders were actually a little better than I expected. So you know what did you see in April and just maybe broadly you know are you expecting much of any production in the second quarter there.
You know off of that backlog or is that mostly for kind of later in the year.
Thanks, Steve So.
As as you recall, we came into 2020, and we were planning on already W.P. markets to be down in that 7% to 9%.
Area and break in January and February we actually you know, we're actually performing at that expected expectation and slightly better and then when cobot hit it created is the world now knows a significant amount of of uncertainty.
And we saw the in store teams worked with our customers to basically scrubbed the order book globally.
To ensure that the orders that were in there we had cancellations. We did have some push outs as well and when we look at it you know it really I think it's an illustrative to think about the markets the way the pandemic.
Spread around the world and we saw in China, very very almost zero utilization of our equipment in the month of February began to increase in March and then in April we saw utilization rates begin to get back up into that 60 plus percent range. We also saw commensurate with that order and order activity.
Increase in China. So as we said in her opening comment China was down for most of the first quarter, but we did begin to see a prior to our production increase and the market increase if you then go to where the pandemic win for US We've got our eight W.P. site in in MBR, TV, Italy, North Central Italy, when the pen.
Demick hit there in Europe.
We saw the same phenomenon in that utilization fell dramatically and it moved kind of from southern Europe up up to the north and what we saw was utilization rates come down pretty dramatically in the market basically went into a shutdown not to the same extent that we saw in China, China was.
As an absolute locked down and then from Europe than we saw the pandemic moved here into into the United States in that in some of US we're together conexpo in the middle of March and what we saw there as it was the market was actually pretty solid.
But in from the Middle of March early to Middle of March then utilization starting to fall pretty significantly and then and then customers began to either cancel or delay you know push out their order. So our teams worked with the customers to to understand what's in the order book and to be honest with you if they if they couldn't give us a ship to date or.
Our location, we moved it out and or cancel that and as we've seen April and I think you've heard several of the you know the publicly traded companies and I can confirm and in my conversations with our customers in the W.P. space both at the National accounts in the major independence.
They they saw utilization plummet really from that that third week of March into that to middle of April and stabilize now in the middle of April at that level and it really in the United States. It really is dependent on where they're located so an independent in an area that's not a dramatically impacted is.
Actually having a pretty pretty good business right now if you're an independent in the northeast or the northwest the market conditions are very very difficult for them. So I think as we think about it. It's really has held the pandemic as float around the world and that's impacted customer demand customer order behavior and well.
We're doing and we'll talk about as we go forward is we're matching our production around the world to two that demand and trying to be as flexible as possible realizing that all of us or trying to figure out what's the near term an intermediate future look like in a very you know in an unprecedented times. So that's how I would say unfold.
Then as as as you know from from kind of March until where we are now and and our approach is we're going to be in constant contact constant communication with our customers to understand their needs.
And to meet their needs and his Duffy said in her comments and I'm going to reiterate this we're really not going to overproduce, we're not going to produce inventory.
We're going to keep production to match, the retail demand or actually below retail demand.
Because we think in this unprecedented time, that's the best approach that we can take as a company. So that's the dynamic that we're seeing Steve.
Long answer, but it's a it's been a unprecedented time and as a global company. We see you know we see impacts as his pandemic has moved around the world globally, and we're learning from it and applying lessons learned from one region to the next as we move forward.
Great. Okay. It's actually helpful. Thank you and as a quick follow up you know you mentioned, a you know cost Oh actions SGN a declining although you didn't say how much I guess I'm just trying to think about how we should broadly think about decremental margins I assume they get worse because production goes down.
More but whatever bookends around that would be great.
Sure and I'm going to let Adelphi take that call and as you. This is unique an unprecedented times Duffy and I are not only not in the same room were actually not in the same state as you know our region of the other country has been a really significant hotbed for the current a virus that we thought it was prudent for us to separate so Duffy would you go ahead and take that question on decremental margins.
Sure Thanks, very much seed and.
Yeah. When you look certainly a at our Q1 financial result, the impact on Q1 from the.
David 19 pandemic with.
Very past falloff in revenues and as well as the Oh stopping of production, especially during the month. The March that did have an impact on our decremental margin for the first quarter.
We continue to target with all of our businesses that 25% dechra incremental or decremental margins and we do believe that that we can operate to that level or the cost savings that we laid out in our prepared remarks and are described in the early.
This presentation take effect really from Q2 onwards, as we develop them we started to implement during the month of March so those are impact, which actually begin immediately.
In Q2 or began immediately in Q2 and will continue throughout the year as we adjust our demand our production to the customer demand environment and so Oh, we do continue to target the 25% decremental margin the cost reductions that were taking will.
Support are getting to that or too.
Working to achieve those targets.
Great Thanks stuff into on a pass it on.
Thanks, Steve.
Your next question comes from Nick do appraised of Baird. Your line is open.
Thank you good morning, everyone and.
I also want to kind of stick with this discussion on a cost saving is there away maybe to help us understand how.
You're thinking about these savings that segment level and maybe related to this when I'm looking at your unallocated corporate expense line item.
This one has has remained pretty robust.
I mean, I daresay based on why what I recall, our discussion to be last quarter that the expenses here in Q1 have been running a little bit ahead of where you are guiding the full year on a full run rate basis. So.
How do we think about corporate expenses, and then or maybe some color on the hundred million breakdown in segment level.
Thanks, Matt I'm going to ask a duffy to two to respond to that question.
Sure. So when you look at the $100 million of cost reduction or as they said a few moments ago. The $100 million really is Q2 through the remainder of 2020 and $100 million.
Began immediately or at the beginning of Q2 to 100 million is spread across our business both of our segment and as both of our segments are taking a similar cost reduction actions and so while we happen to specifically provided.
Information with respect to the allocation of 100 million across the businesses I think it would be fair to think about those cost savings in proportion to the contribution of the businesses to overall terex.
On the cost saving side, Oh, sorry on the corporate side when you look at a our corporate unallocated corporate costs in the first quarter 2020 $26 million that compares to corporate costs in the first quarter 2019.
$15 million really there's two factors that are leading to the increase a year over year.
First is in the first quarter 2019, we did record a 6 million dollar ER positive healthcare expense credit or at the result of lower healthcare expenses than that had been anticipated and we did not that have a similar repeat.
We have that credit in 2020, so that a year over year impact and then number two we did record as I discussed in my prepared remarks, we Didnt recorder reserve in Q1 to 2020 for a specific financing receivable.
That charge was as a result of the Ur Cobot 19, and the impact of Cobot 19 on this customer this financing receivables from a customer there and the question of Recoverability.
So those two impacts which are really accounts for the full difference.
Year over year is so what's driving the increase in corporate and other in Q1 of 2020.
And how are you thinking.
Thats for the year I mean used to think $80 million for this line item is that.
Is that still the number that you're using or is it something different.
Well look or make a as a as you know we were not providing guidance for 2020, but I guess, what I would like to try to bring across with might talk was trying to bring costs with my comment is is that.
There were specific factors cobot 19.
Or otherwise associated with the credit last year that caused the differential we're continuing to focus on controlling our overhead costs in delivering our all of our services to the segments from corporate in the most efficient manner and we have not increase.
Cost structure of our corporate a team. So maybe that's another way of answering your question do we haven't added any cost to the corporate segment.
I see a last question for me is on working capital.
US would continue to be a source of liquidity I'm wondering if we can give more color on that and in your slides you talked about working capital as a percentage of sales running at 22% has your view as to.
Where are you might be exiting the year. Thank you.
Oh I'll also take a take that one and Oh, you know that asset. So just a couple of puts their rate is our free cash flow in the first quarter. This year improved by $145 million in my prepared remarks, I talked about the fact that.
When you look at our continuing operations. They the reduction in operating income at higher capital expenditures that we saw was more than offset by lower net working capital in those businesses and led to a 40 million dollar.
Increased in the cash flow from operations for continued from continuing operations.
We will be continuing John talked a few minutes ago that were only producing to customer demand and so are we will be bringing down our inventory over the course of the year and as I said networking capital will be a a source of cash.
For the same reasons, we talked about a few moments ago related to corporate I can't say, specifically what are going forward working capital as a percent of sales is going to be and in future quarters, but what I can tell yet is that that networking capital will be a source of cash.
This company has more than has ample liquidity to operate throughout 2020 and 2021.
Even with the uncertainty associated with the Ur Cobot 19 pandemic.
Alright, thanks for the call good luck guys.
Thanks, Mike they stay healthy.
Your next call comes from antagonist of JP Morgan Your line is open.
Hi, Good morning, everybody. Good morning in in a couple of questions and more clarification. So I think could you give us more details on that 5 million dollar charge on the customer receivables.
You know what what happened there or how can you give us confidence that that's one often that we don't start to see more upbeat and see what region lives. It in that segment are you, let darren couldn't be more things going forward.
Barry I'm gonna have not be cover that as well [laughter], yeah, so and and if it's a follow on to the point that that mid week was asking a moment ago. So the particular customers situation is one associated with our Trx financial services.
Business and actually it's a customer.
That said, we had just have extended.
On books.
To add to support the customers purchases of equipment, it's a customer which was financially challenged even before that opened 19 pricing and as a result is togut 19, we believe that the prudent thing to do was to take the reserve that we did in the first.
Quarter, what I can also assure you up is that in conjunction with our Q1 financial close we did do a full review of all of our on book Terex financial services receivables as well as for that Matt financing receivables as well as well.
Our open account receivables and there were no other charges, which we talk or that we at the current time anticipate that we will be taken.
Okay. That's helpful. Thank you appreciate the color on that and then just.
More strategically I think he said that dealers canceled orders in materials processing I'm just curious.
They are there any financial ramifications for dealers canceling orders I know.
Some of your competitors, maybe not competitors, but peers do not allow dealers to cancel orders and particularly for large ticket items like equipment and material processing, okay, okay little bit more about what happens there and what's going on there and.
Are there any financial ramifications any cost associated pardon dealers cancel orders like that.
Dan So overall, if you look at the backlog.
In MP, there's a couple of dynamics you know last Q1, we still had.
The dealers, placing really their full year demand, especially in our core aggregate crushing and screening business and this year that that was not the case, obviously given the level of uncertainty on the core crushing and screening.
Business and our material handling business that that business or we did see some.
Lower ordering at some slight cancellations as well as the market change and then in our concrete business in the United States, where our truck business. We saw some some order cancellations, but I also commented in our concrete business that occurred in March and and then two weeks later in April the specific customer came back with a number.
With an order to replenish some of the words that they had canceled in terms of penalties, there's not significant penalties and a four for US we work with the dealers and basically in this environment and what we didn't want one of the lessons learned from prior crisis is is that you really want to scrub the order book and when when a deal.
It says hey, I'd like to delay that.
Then you'd really your red flags Gotta go up so we basically said to dealers. If you can't give us where do you want it to ship two and a delivery date, we're going to go ahead and cancel that order in you you re enter the order when you actually you can't have that the clarity of where that demand is going to I would also so say yeah.
And in our MP business about 75% of the business goes through distribution deal channels, but it's not what I would call traditional yellow iron. This distribution. These are specialized dealers and distributors and in many many cases their inventory is really a rental fleet and they're putting it out on rental for RPL tie back to.
Ladies and that then converts to a sale so their inventory levels are in good shape. We don't believe there's excess inventory in that channel we have seen the dealer utilization come down, but again you know new.
Equipment, New technology that we've invested in that that we think over time is going to help is our telematics than that in that distribution channel, especially our around our core crushing and screening and what's interesting is we've actually seen the number of machines on work be relatively constant, especially in the month of April in North America.
In Europe, but the hours have come down 15% to 20% and so we're going to continue to work with the dealer organization watch it but again, it's not our dealers are highly specialized in their market segments. It's not a traditional what I'd call yellow iron distribution channel and so that's how would manage it was a lesson learned from the prior.
Prior crisis to really understand that that order book in detail into cheering them on a good job [noise].
Oh the pricing.
[noise] [noise]. Okay. Thank you I'd just add can you quantify then amount of cancellations in MP.
We didn't quantify that and I don't have that right here, but it did lead to some of the backlog reduction that we saw.
Yeah, that's what I was hoping to understand how much of the backlog reduction lets cancellations.
Okay, well I can follow up offline I appreciate that I'll get back in queue. Thanks. Thanks Sam.
Your next question comes from Jerry Revich of Goldman Sachs. Your line is open.
Yes, hi, good morning, everyone.
Sure I'll be well.
Good good to hear for you Jerry It seems like last time, we were together with a real real long time ago. When it was what only 78 weeks ago, So glad you're doing well.
Okay. So somebody.
[laughter].
I'm wondering if we consider the discussion that you just already done.
Got it.
Amount its operating hours for that business and it would you mind.
Next conversation to.
Aerial platforms.
Giving us an idea how trends of all over the course of April.
By region, specifically and so one of your customers nice pickup in utilization over the course people I'm wondering if youre data shows that as well in any color by region you'd be willing to share with would be helpful.
Sure and again, we've invested heavily in telematics across our Genie business and in General again board kind of going back to murder comments, China. If the market stopped for the month there was virtually no utilization in the month of.
February utilization rates in March kinda climb from zero in February two around 40% based on our best estimates and then Jerry by April utilization had climbed into the 60% Mark.
In Northern Europe go there from a pandemic similar story utilization there was still some activity because rules weren't as clear in China. They lock that down in other parts of the world. We are essential services and our customers have been able to operate so utilization fell dramatically.
Stayed down in began to increase in that but that the middle of April timeframe, we began to see.
Utilization increase.
In in kind of stabilize it stopped falling about the second week of April and it's stabilized at at a lower level and then in North America very similar story, Yeah overall and I think the you know the rental companies have been pretty clear that they saw a pretty significant decline from the second third week of March.
You know really down to about the second week of April stabilizing around that second week of April and you know trending slightly up but still no big dramatic moves and again the other comment I would say if it really does depend on what specific states you're in.
It does impact the level of you live in utilization based on local government regulations rules as it pertains to construction construction sites maintenance maintenance sites in the light. So I would say the telematics data that we have is very consistent with what rental companies have been.
I have been saying publicly and I can say in conversations with independents very similar but again the independents. It really depends on what markets are in as to their level of business.
Based on the on the opening of the markets.
We appreciate the color and then in terms of did you consider that you folks rolled out over the past couple of years diplomatic keytruda.
Thank you folks they realized pricing.
Couple of years.
In December.
Are you getting any push back on pricing given the change in the demand environment and.
What do you think of the pricing discipline.
But you're seeing in your competitors.
Thanks, That's a great question and we're really focused on the value based pricing that we've been working on here for the last couple of years and really being disciplined with their commercial excellence.
Tools to remain discipline in pricing and provide value to our customers either feature benefits that if you think about our June gloom line or X C line, that's done really well our Z. Our hybrid ft line and then we introduced the new Jay series, which is ANSI compliant to a 660 pounds a range. So you know.
We we are being disciplined on on pricing, we've been transparent with customers as it as it pertains to the ANSI standard increases and what the and what those costs were and we're going to be we have been and we will remain disciplined around pricing in the ADW piece segment, you're hearing you know that the pricing just.
The point with rental companies as it is improved over time, there being very disciplined about pricing and we're going to be very disciplined about pricing in the biggest thing that we can do to be disciplined about pricing is not over producing in building a lot of excess inventory and feel compelled to need to take to take action. So right now Jerry I'd say.
I think the markets being disciplined I think we all recognize that this is a situation where go into the price levers not be appropriate lever in this dynamic. So we provide tremendous value over the lifecycle of this equipment for for our customers and that is independents, eight W.P. and MP and over the lifecycle of the.
Equipment, we provide tremendous value so discounting the upfront purchase price is not something we're looking to do to stimulate demand. So we're going to remain disciplined and the team and tools that will put in place over the last couple of years give us that visibility. So that we are in control of the pricing and can see very clearly the pricing waterfall. So.
It's it's going to its always a challenging market of course, when volume declines, but we're going to focus on the value that we're creating over the lifecycle those products and remain disciplined on pricing in this environment.
Okay.
<unk> discussion John is still well above the one thanks.
Likewise, Jerry stay healthy.
Your next question comes from David Raso of Evercore ISI. Your line is open.
Thank you very much. So my question focuses on thinking about how do we get ADW p. back to profitability.
Could you help us think about where do you see the revenue breakeven point, especially in light of it appears there's about $60 million to $65 million of savings that should be earmark toward eight W.P. The rest of the year and I've a related question to that thinking through your revenue answer.
So I'm going to let doesn't take the first part and I'll follow up in the second part of that question David. Thank you.
Yep, So David when you think about Aker BP and the results that they had for the first quarter revenue was approximately EUR $500 million and that a small loss in the into.
Quarter, and I think there's a couple of factors that went into that a Q1 results by eight WP that first of all its important to recognize that the production volumes that GE was planning work go into the quarter, we're going to be down 25% Euro.
Every year and the lower production in the manufacturing facility does drive efficiency in their cost structure that as a result of the covert 19.
Genie reduced their production volumes even further.
When you look at the end to the quarter Genies production volumes year over year for the first quarter was down 47% as they were producing although retail demand. So.
That creates a definitely created a fair bit of.
Inefficiency in their manufacturing Unabsorbed overhead.
That was reflected in the financial result, the operating loss that Gd reflected in the first quarter.
After that date, she did record a about a four and a half million dollar charge associated with the.
Government a receivable that they have reserved associated with a reduced expectation or duty drawback recoveries.
That also contributed to the first quarter results. So if I think about those factors Oh, well I can't give you specifically what the breakeven point, if we see I would say the at that it's definitely less than $500 million.
So then when we think about the usual pattern to Q revenues would be higher than one Q all else equal you would normally returned to profitability for AWB into Q Needless to say, it's not as per usual so.
I assume it's fair to say the revenues take a step down one Q2 Q.
And maybe let me know if you think the savings are enough to offset that that even to Q might be breakeven, but my I'm really trying to think about normal your backlog at the end of one Q, there's a certain percentage that ships to Q and a certain percentage that ships threeq was the bulk of when your customers take.
Machines.
I'm curious how much those percentages have changed given your commentary in what we know when the channel about your customers pushing to Q into three Q. So I guess, that's a two part question I'll leave it there the to comment about breakeven and how much of the revenues to believe got shifted from Twoq to Threeq you versus normal for your.
Backlog.
Thanks, Yeah, David I'll update to that first part you know clearly Q2 is going to be a very challenging quarter as as we've discussed with that would be a call economy basically globally being shutdown. So there is no normal revenue flow.
In the unprecedented times. So I would just say the Q2 is going to be a very challenging quarter four for us and many companies given the dynamics that coated 19 has created.
If you do you want to comment on an all about the breakeven comment.
Well I think that to the point that you just need when ER revenue is going to be challenged in Q2 asset that is going to certainly be a dynamic for the second quarter, which is gonna be like we are implementing acquirer.
Eating a $100 million across the total company with those is action. So we're going to be too we are taking actions to reduce our overall cost structure in line with that customer demand environment that we're experiencing.
I can't stand I can't sit here on this call and say what a Q2 results are going to be but what I can say is is that a revenue is going to be a challenge in Q2, and we're taking action to match our cost structure to the revenue environment in which will will be operating and.
I'm, sorry to interject, but no. My question was I mean look we know twoq is going to be lost I'm, just trying to figure out we have an abnormal AWB p. revenue declined sequentially.
How much can we think about three Q being abnormal that the revenue might go up from Twoq to Threeq <unk> WP now, we could get cancellations no doubt, but I'm just trying to think about the backlog what percent usually shifts in twoq, you and what percent Threeq you and now is it a lot heavier.
To choose not to Q3, Q and we can debate cancellations and how the rental companies might come back to you in a month and changed their mind, but again as we sit here today, how abnormal to backlog shipping dates versus normal how much now three Q versus wouldn't normally would be.
David as a result of the cobot crisis everything has been pushed out the uncertainty the uncertainties created so there's been a push out. So there is no normal cycle right now in you know in a AWB in terms of the orders what there has been orders pushed out and what customers are looking for is what happens to their utilization.
Rates and they've been very straight with us and we've been very straight with them, they're going to give us as much and indication is they can't in terms of what their needs are and we're going to adjust our production to match those needs and that's why you know part of what the in my opening comments, especially around DWP, we're taking a unique step to through actually produce parts.
So we're opening up plants, partially and when and when post this on our website. So everybody can see that's an unusual step to take but were going up we're going to build to that retail demand. So we may bring in a plant startup of plan and only running at 25 or 50% for the lines that we have customer demand and keep the other team members out on.
On unemployment benefits one of the benefits of of where we are in Washington State. This is quite flexible and so we can bring our team members in in out of the plant as needed to match the retail demand, but David I I think it's fair to say and I think we all understand this there is no normal right now in the middle Middle of this.
Prices, so we're going to do things that under normal circumstances, you wouldn't run a plant partially like that because it would be inefficient, but under these circumstances.
I work to team to be more efficient, but under these circumstances were willing to take some inefficiency to just meet the needs of the customer in their actual demand in not build a lot of excess inventory. So that's that's the approach we've taken haven't gone through these crisis now David for.
Many crisis over there and I can tell the team is probably my fifth one.
Each crisis is somewhat unique and different but one thanks for sure as you've got to get on top of the quick and you've got to adjust to that situation. In this situation as we don't do not have a lot afford visibility and so we're going to be as flexible as possible to adjust to the actual customer demand and you know just summing it up David you're right. There is no normal and customer.
There's have push with what was the second quarter into into a third quarter third quarter and reform and again, they're looking for stabilization as they see stabilization as they see the economy increases they see their utilizations pick up.
They are going up they're going to need equipment, and we're going to be there to match that need.
But we do not have David the simple truth is we don't have the visibility that we normally have and that's because our customers don't have visibility that they normally have.
That's completely fair Yeah, I mean, it's all about the three Q, it's really a pushed out backlog the backlog number.
It's actually not that low but the question is how much is it still gonna be there for three Q to maybe even try to get yourself moving back toward profitability.
Last these aren't real quick the backlog at the end of April versus the end of March any color at all would be helpful. Just to get some sense of the the vitality of that that backlog thinking about threeq to fourq it would be great and that's it. Thank you for the time.
Thanks, David.
I will say this we track the backup orders bookings backlog everyday and what we can say is is that cancellations.
Basically have stopped a push outs and stopped back in the backlog has stabilized as we've moved through the month of April.
Is what I can say.
Greg Davis.
And your final question for today comes from Jamie Cook of Credit Suisse. Your line is open.
Hi, Good morning, and hope everyone is while Jamie.
I guess my first question can you just provide an update on the strategic sourcing sourcing initiatives understanding we want to reduce the number suppliers that we use that can be challenging inco's Ed when people are having component shortages, so what you're seeing there and what the risk is there.
So that's my first question and then second question any color I'm, just sort of on the on the Crane business, how that performed in just sort of trends you're seeing there. Thanks.
Thanks, Jamie in terms of the strategic sourcing initiative, we remain committed to it and I will tell you. The work that we have done a leading up to this crisis has really helped us because in the in the product lines of the commodities that will put through the process, we're dealing with the upwards of 80% fewer suppliers, which dramatically improves the lead.
Station in partnership if you will with the supply base.
I think our teams done a really great job.
Ensuring that we have the materials that we need at the quantities, we need and then maintaining continuity of supply. It has been a challenge as it has been for supply chains, all over all of the world, but I think the team has done a great job in terms of obviously the savings that we are anticipated they're going to be lower based on the volume the actual rates that were seeing we still.
Are seeing the rates that we that we had anticipated.
Going into the year.
And I'm sorry.
Jimmy was your second question.
Cranes, John Sorry, get Crazy right I don't think Oh.
Okay. Yeah. So [laughter] every so cranes is obviously now reporting inside our our MP business on the tower side. It didnt meet with them you with construction headwinds, but but they are have been deemed essential and so they have been able to operate on and off through the crisis.
We did take some some some decent orders that adds for the tower business in.
Yeah at Conexpo. So I was pleased with that on the our Teesside principally European business. It has slowed as well as the year European markets have slowed in the middle East markets have slowed but I would say Jamie just basically in line with with our other businesses. Our team is off a little bit more towers I held in a little bit better but still under press.
Sure.
Okay I appreciate it stay well.
Thank you.
That was our final question for today I will now return the call the Mr. John garrison for closing remarks.
Again, thank you for your for your interest in Texas in during this unprecedented pandemic. Please stay safe.
Stay healthy please follow the protocols because that will help you help your family and help the communities that you live in work and that's one of the message is that we've been stressing here at the end Terex and if you have any a follow up questions. Please do not hesitate to follow up with that would Randy indoor Duffy and again be safe and stay healthy.
[noise], ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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