Q4 2020 Terex Corp Earnings Call
Greetings and welcome to the tracks corporations fourth quarter and year end 2020 results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation in order to ask a question. Please press star one on your telephone keypad. As a reminder, this conference is being recorded it is now.
My pleasure to introduce your host Randy Wilson director of Investor Relations for trucks corporations.
Thank you Sir you may begin.
Good morning, and welcome to the Terex fourth quarter and year end 2020 earnings conference call a copy of the press release and presentation slides are posted on our Investor relations website at investors that Terex Dot com.
In addition, the replay and slide presentation will be available on our website.
I'm joined by John Garrison, Chairman, and Chief Executive Officer, and John Duffy, Sheehan, Senior Vice President and Chief Financial Officer.
Our prepared remarks will be followed by Q&A. Please.
Please turn to slide two of the presentation, which reflects our safe Harbor statement.
Today's conference call contains forward looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied.
In addition, we'll be discussing non-GAAP information that we believe it is useful in evaluating the company's operating performance.
Reconciliations for these non-GAAP measures can be found in the conference call materials.
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 most.
Most importantly, I hope you and your families are remaining safe and healthy.
Throughout these challenging times, we are proud of all Terex team members, who are keeping themselves and others safe meeting the needs of customers and helping our communities.
I'd like to recognize and thank our team members around the world for their continued commitment towards zero harm safety culture, and Terex way values.
Safety remains the top priority of the company.
Driven by think safe work safe home safe our.
Our team members remain vigilant by carefully following the COVID-19 safety protocols and continuing to keep their guard up.
Despite a challenging year, we delivered results for all stakeholders.
We prioritize their health and safety, while maintaining our terex way values.
Globally team members gave back to their communities with their time and donations.
For our customers. They are the center of our recovery and we have continued to maintain the highest levels of safety and our sales and service operations and finally for our shareholders, we minimize the operational and financial impacts related to the pandemic.
Please turn to slide four.
Despite the challenging markets during the fourth quarter, our team continued to meet customer demand.
<unk> managed all cost.
Aggressively reduced net working capital, especially AWP inventories and delivered outstanding free cash flow.
Q4 revenue improved sequentially.
As the end markets continued to recover despite the fourth quarter normally being seasonally slower.
The sequential improvement in revenues was driven by ANP.
Whose revenues improved approximately 18%.
Customer bookings in Q4 represented a continued strong improvement from Q3.
Sequentially, AWP and MP bookings were up dramatically.
In addition to sequential strength in bookings.
AWP bookings were flat with last year's pre COVID-19 levels in.
<unk> bookings were up 53%.
Yearend customer backlogs increased 25% over prior year pre COVID-19 levels.
Our stringent cost control and producing to customer demand.
US deliver operating margins in line with prior year on 11% lower revenues.
Even with $18 million of restructuring and related charges.
AWP recorded near breakeven operating margins, including $11 million of restructuring charges on revenue down 18% from the prior year.
Representing a decremental margin of 7%.
For an incremental margin of 3% when excluding restructuring and related charges.
We are driving improvement in Awp's profitability.
To restore the segment to industry competitive margins and.
And we will continue to take the actions necessary to deliver on that improvement.
Our MP segment achieved outstanding financial results reporting.
For reporting up 15% operating margin, while revenues were down slightly year over year.
Reporting an 82% incremental margin.
Throughout 2020.
We right sized our inventory levels to the customer demand environment, especially in our Genie business.
Inventory levels remain consistent with 2016, which was the last time, there was an industrial downturn.
In 2021 aerial products will manufacturer to customer demand.
Our intense focus on net working capital management drove a $129 million of free cash flow in the fourth quarter.
Total bring excellent full year cash flow generation.
Overall, our Q4 financial performance demonstrated strong execution by our global team.
We are committed to improving these results in 2021.
Please turn to slide five in 2020, we evolved from our focus simplify execute to win strategy to execute innovate and grow.
This transition and strategic priorities has strengthened our business operations.
Strategy requires action, so we took swift and decisive measures in 2020.
To improve strengthen and position terex for growth.
On the cost side, we looked at every aspect of the business to ensure we maximize our ability to be globally cost competitive.
We aggressively took out cost.
Not just manufacturing costs.
We also executed on an SG&A cost reduction initiatives with.
With a target of SG&A percentage of sales for 2021 of approximately 12, 5%.
Turning to innovation.
We listened to customers to ensure our products and services of the features and benefits that provide value.
We also invested in our connected assets and digital capabilities across the enterprise to better serve customers.
We continue to drive global adoption of our products.
Genie scissors and booms for working safely at height.
And mobile crushing and screening products for aggregate production.
Finally, we maintain our resolve to invest in the business for future growth.
Please turn to slide six.
Looking ahead to 2021, we recognize that execution is the foundation to deliver on our commitments to team members customers and shareholders.
Our hard work to rescale, the company's cost structure will be aggressively manage to achieve our strategy of being globally cost competitive we.
We will continue to invest in innovative products and services to serve our specialized markets.
<unk> is well positioned for growth in 2021, because we have strong businesses.
Strong brands and strong market positions upon which we can grow.
We will continue to invest including investing in new products and manufacturing capacity, where demand calls for it.
And we're more focused organization.
I am confident this will result in terex being an even stronger company with that let me turn it over to Debbie.
Thanks, John.
Going to slide seven let me begin by reviewing our Q4 financial results.
Like to call your attention to our financial reporting structure.
As you will notice consistently throughout 2020, we did not report adjusted financial results. Instead, we are identifying specific financial call outs, which impacted our Q4 reported results.
Looking at for the fourth quarter.
We achieved net sales slightly higher than our outlook from the beginning of the quarter.
Throughout the quarter, we saw our end markets continue to stabilize and improve.
Overall revenue of $787 million was down 11% year over year.
For the quarter.
Quoted an operating profit of $32 million.
Compared to adjusted operating profit of $36 million in the fourth quarter of last year.
The overall operating profit resulted from revenue being down.
Combined with $18 million.
Severance and restructuring charges, primarily in our AWP segment.
We achieved this positive operating results through disciplined cost control and adapting to the market environment.
While lower revenues impacted our gross margins and resulted in elevated SG&A as a percent to sales.
Aggressive cost reduction actions, allowing terex to achieve an approximately 5% decremental margin in Q4.
This decremental margin was achieved despite a $5 million.
Gross profit charges, primarily due to restructuring.
In addition, SG&A was adversely impacted by $13 million, primarily due to team member severance and restructuring.
Excluding these charges operating profit was $49 million and terex achieved an incremental margin growth.
13% in quarter.
Below operating income interest and other expense was almost $10 million lower than Q4 for 2019 because of several factors.
The first lower interest rates versus a year ago.
Second for millions of dollars of.
The investment income and.
And third non recurrence of $2 million in FX losses recognized in the prior year.
Our 2020 global effective tax rate was approximately 18%.
Compared to our previous estimate of 52%.
During the fourth quarter, there were a few discrete items benefiting our Q4 tax rate.
Finally, our reported EPS of 21 per share includes the adverse operating impacts on gross profit and SG&A offset by the favorable benefit in other income.
Just discussed.
Turning to slide eight and our segment financial results.
AWP sales of $412 million.
By 18% compared to last year.
Driven by end markets in North America and Europe.
Due to the impacts from the pandemic.
The aerial products market and our sales in China remained robust.
Utilities market remains stable and improved during the quarter for us and market.
We continue to aggressively manage production levels and aerial products to ensure that we are not building excess inventory.
During Q4.
Aerial products production was 16% lower than Q4 2019.
This continued aggressive production control allowed us to achieve almost 180 billion dollar reduction in aerial product inventory levels year over year.
AWP delivered flat operating margin in the quarter, driven by aggressively right size production and costs to align with end market demand.
AWP achieved strong decremental margin performance of 7% in the quarter, which includes $11 million charges for severance and restructuring.
AWP fourth quarter bookings of $753 million were flat with pre Covid Q for 2019 levels.
Backlog at quarter end was $826 million.
Up 10% from the prior year.
Now turning to materials processing.
<unk> had another strong quarter, achieving 15% operating margins as markets continue to improve.
It is a testament to the MP teams operational strength to deliberate.
Positive operating margin on revenue.
3%.
Sales were lower at $366 million.
Driven by flushed, it yet improving customer sentiment.
PMT team has been aggressively managing all elements of cost in a challenging market environment, resulting in incremental margin performance of 82%.
Backlog of 500 from $23 million with 59% higher than last year and up 81% sequentially.
And so its businesses strengthened through the quarter with bookings up 53% year over year and up 76% sequentially.
Customer sentiment in both segments continues to improve as equipment is being utilized and order for 2021.
Turning to slide nine.
Overall 2020 demonstrated the resilience of our business.
Team members to deliver these results against a very challenging backdrop.
Significant cost actions, reducing SG&A by $82 million from 2019.
<unk> delivered 21% decremental margin and beat our 25% target.
In addition, <unk>.
For positive cash flow generation was helped by tightly managing net working capital and aligning production with demand.
Turning to slide 10.
When the pandemic for rose in the first quarter.
Quickly refocused our investment initiatives.
Decisive action to reduce our overall cost structure through temporary and permanent actions.
And over the course of 2020.
Instituted an SG&A cost reduction initiatives.
Not just in corporate but across the entire company.
We always had and SG&A targets going back to our 2016 analyst day of 12, 5% to sales.
As detailed on this slide we took a variety of actions to reduce our cost base.
Whether it was moving our corporate headquarters improving productivity.
And selectively re scaling investments.
Group Nice every possible expense.
The result of these actions is that we were able to reduce our SG&A cost structure by more than $100 million.
For 2021 versus 2019 and delivered the improved results detailed in my earlier comments.
These actions have enabled terex to come into 2021, well positioned to meet the 12, 5% target.
Turning to slide 11.
Now I'd like to update you on how we currently anticipate 2021 to develop financially.
It is important to realize we are operating in an unprecedented period and results could change negatively or positively.
Disruptions associated with Covid related to reduce team member absenteeism for supply chain disruptions could impact our outlook.
That said this outlook represents our best estimate as of today.
Also consistent with 2020.
We do not plan to report adjusted financial results in 2021 day.
Outlook included this chart includes all known income and costs.
Does exclude the impact for potential future acquisitions.
Best pitchers restructuring transformation or other unusual items.
As we identified currently unknown income or cost, we will identify them in our reported results.
As for commercial demand.
We've seen our market stabilize and improve over the course of 2020.
All other things being equal we do expect to see markets improve due to the global deployment of COVID-19 vaccine and AWP customers linked replenishment.
However, our guidance does not include any benefit from potential infrastructure legislation.
We anticipate EPS of $1 95 to $2 35 per share based on sales of approximately 345 billion.
From a quarterly perspective.
We expect revenues for the full year to be relatively evenly split between the first and second half of the year.
With the second quarter being the strongest of the year.
We look forward to returning to year over year sales growth in the second quarter. This year.
Operationally.
Absolute amounts of operating profit and operating margins are expected to increase each quarter year over year.
With slightly more operating profit in the second half for the year versus the first half of the year.
Importantly, we are planning for and look forward to reported incremental rather than decremental margins, which meet or exceed our 25% target for full year 2021.
Quarterly earnings per share are expected to be generally consistent with the development of operating profits during the year.
Based upon global tax laws, we expect a 2021 tax rate of 19%.
We are monitoring potential changes to tax laws in the United States and around the globe and we will adjust our operational and tax strategies as required.
For full year 2021, we are estimating free cash flow for approximately $100 million.
Reflecting another year of positive cash generation.
We do expect Q1 cash flow to be negative, which is consistent with historical patterns.
We also estimate capital expenditures net of asset dispositions will be approximately $90 million.
Corporate and other costs are planned to occur relatively evenly throughout the year.
Although Q1 is expected to be slightly lower in Q2 slightly higher than the average.
We continue to monitor developments associated with the Uk's exit from the European Union and do not expect any material impact.
Now, let me turn your attention to the operating margin bridge on the slides.
We believe it is important that the investment community understand the key elements of our operating margin improvement in 2021.
First cost reinstatement represent for restoration of team members compensation.
After the reductions we enacted in 2020.
It is important to pay team members competitively to retain our talent.
Next.
I would point out that positive volume and improved manufacturing efficiency will drive much of our margin improvement.
Additionally, our SG&A cost reduction effort also provide significant improvement in our 2021 operating March.
Finally, we did have severance restructuring and other charges in 2020 that are not expected to reoccur in 2021.
Taking together these operational improvements drive our 2021 operating margin guidance of approximately 7%.
Turning to slide 12.
Now I'll review our segment guidance.
We expect the improved customer sentiment demonstrated by our Genie and utility customers to continue into 2021.
AWP margin are expected to be positive each quarter of 2021 with incremental margins well above our targeted 25%.
Materials processing is expected to continue its consistent operating performance.
Livery double digit operating margins each quarter throughout 2021.
Following the run up in steel prices in 2018, we implemented a steel hedging appropriate with respect to our aerials North American hot rolled coil or HR seats steel consumption.
Approximately two thirds of our aerial steel consumption is HRC.
You may be aware that there is not presently any forward market for hedging plate steel.
During 2020, we purchased hedges for the predominant amount of our anticipated 2021, North American aerial HRC requirements.
The guidance, we're providing today takes into accounts to steal hedging actions we took in 2020.
As well as current steel prices for the remainder of our global steel requirements.
Overall, our 2021 guidance represents a dramatic improvement in operating performance when compared to 2020.
The Swift and decisive actions taken in 2020 enabled this outlook.
We will continue to aggressively manage costs, while positioning the business for growth.
Turning to page 13, I'll review, our disciplined capital allocation strategy.
We introduced our strategy back that our 2016 analyst day.
It has served the company well during the pandemic and will enable us to grow from 2021.
Our team members for remaining vigilant and we will continue to aggressively manage production, especially within our AWP segment.
Scrutinize every expenditure.
So we continue to generate strong cash.
Positive free cash flow.
We have ample liquidity with greater than $1 billion available to us.
No near term debt maturities, we can manage and grow the business.
In 2021, we have entered into a partnership with a U S bank to provide financing solutions to our customers.
In connection with this arrangement last week, the bank purchased approximately $100 million.
Of our Terex financial services portfolio of receivables.
As a result of our strong liquidity position, including the proceeds from the sale of the TFS on book portfolio.
We initiated this week the repayment of approximately $200 million from term.
Term loans.
Reducing outstanding debt and lowering leverage.
In Q1, we will recognize for corporate and other operating gain of $7 million in connection with the TFS sales and.
Net interest and other charge of $2 million relate.
Related to the repayment of the term loans.
Neither this game or the charge is included in the financial guidance, we are providing two day.
Turning to growth.
We continued to invest in the business in 2020 at reduced levels.
And we will continue to invest in 2021 with capital spending net of asset dispositions of approximately $90 million.
In 2020, we executed a strong and swift actions to rightsize the business. So terex can profitably grow in the future.
We remain resolute in tightly managing production.
SG&A.
Our strong balance sheet and expected 2021 free cash flow generation allowed our board of directors to reinstate our quarterly dividend for 2021.
The board has approved a Q1 dividend of <unk> 12 per share as we return cash to shareholders.
Our earnings power and a healthy capital position provides a strong foundation for us to manage and growth Terex and.
And with that I'll turn it back to you John.
Thanks, Duffy turning to slide 14.
This quarter's results demonstrated progress, but we have more work to do.
<unk> team has stayed in close contact with our customers. During this critically important part of the year when customers are planning through 2021 requirements.
Being customer centric also means developing products that add value for customers at the appropriate price.
We are delivering a new electric drive for E drive Scissor and just recently announced a brand new teller handler. These.
These products demonstrate genie strength and listening to customers and responding with innovative industry leading products.
During 2020, we investing in expansion of our World class manufacturing facility in Changzhou, China and completed our Watertown, South Dakota utilities facility.
The utilities business is a very important growth area for AWP.
The TL shown at the top of the page is a new product to take advantage of the adoption of transmission line work in China.
At the bottom of the page the photo shows the customer delivery from our Watertown facility.
Terex utilities is well positioned to participate in the increased investment in electrical grid infrastructure for.
From an operational perspective, the AWP team executed in Q4 by delivering breakeven operating margins, despite $15 million of restructuring charges.
<unk>, taking cost out of the business to improve the ability to deliver future industry competitive margins and innovating by continuing to bring new products to market.
It is a competitive industry.
So we are controlling what we can control.
Superior execution, and aggressively reducing cost to improve margins and win in the global marketplace.
Turning to slide 15.
Once again.
Materials processing demonstrated strong operating performance and positioning the business to benefit from improving market conditions.
<unk> is a diversified high performing portfolio of businesses, which continues to invest for future growth.
The investment in our Campsie, Northern Ireland facility.
Our ecotec business to grow and waste recycling.
Shown on the slide is a new ecotec metal shredder, which supports recovery applications for the recycling and waste industries.
Is a new and unique offering demonstrating <unk> continued investment in new products and adjacent markets.
In addition, the adoption of Mp's innovative products, whether it's mobile crushing and screening in China are front of pick and carry cranes in India is just starting.
The financial performance of MP relative to market conditions by achieving an operating margin of 15% in Q4.
Demonstrates the MP teams strong execution.
MPS bookings improved and increased throughout the fourth quarter.
Resulting in bookings being up 53% year over year.
<unk> benefits from customer product and geographical diversity and strong execution to consistently deliver outstanding results.
Turning to slide 16.
To wrap up our remarks Terry.
Terex team members around the world are focused on the right things.
Safety.
Health <unk>.
Customers and improved productivity.
We are reducing cost to improve margins, especially within AWP.
We are driving positive free cash flow.
By reducing working capital.
Our businesses have a strong future.
So we are continuing to invest in innovative products and services to be prepared as market demand returns.
As a result of these actions.
Terex is well positioned for an improved 2021 and with that let me turn it back over 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 to ensure we answer as many questions as possible. This morning with that I'd like to open up for questions operator.
Certainly as a reminder to ask a question. Please press star one on your telephone keypad.
First question is from Stephen Volkmann with Jefferies. Your line is open.
Hi, good morning, guys.
Steve.
So lots of moving pieces here, so maybe not surprisingly I'll start with AWP.
First can you just remind us how much you actually under produced retail in total for 2020.
Thanks, Steve and in General I'll say right around 80% we produced.
For the end market demand, if you will and obviously you see that in the significant reduction in inventory that we had throughout the course of course of the year.
Alright, Yeah those are all.
Strong inventory reduction, but I'm just thinking ahead now to 2021, where you won't be doing that I guess so.
In light of that.
I'm struggling to think about what the end market growth that youre thinking about is because it feels like you can kind of hit your revenue target just by producing back to retail.
Even if things were kind of flat.
We are as you see we are anticipating growth in net 12 12, 5% range, Steve We did see the global end markets improve as we went through the quarter and North America.
We saw utilization improve.
An important time for the year. So we are in negotiations with or with our customers in terms of their needs for.
2020.
So we saw some strengthening of orders there I would also say we are encouraged by the mix. We saw the independents come back into the market. So in North America, We think the market is going to rebound off some very low levels.
As you see but again around customers are being cautious there or they are managing their utilization theyre managing their fleets and.
We are anticipating growth, we will see how it how it plays out but right now we're optimistic we're going to experience some growth as we move into 2021.
Fleet customers manage their inventory I'm sorry their capital.
So Steve let me just jump in for a second if I could though because.
I think it's also important is that our <unk> team is selling product directly to the rental customers. There is no.
If you will reap.
Dealer.
Network you'd be Queen so production doesn't really equate to sales.
We when we produce product it goes into inventory and so the the.
The revenue is really going to be driven by the rental channel demand for it.
Juice it when we produce.
In line with retail demand that will help our cost of goods sold because we'll be more efficient from a manufacturing perspective, but it doesn't increase revenue.
Okay Alright.
Alright, I understand that and definitely will I have you. The flip side of this is your incremental margin forecast for AWP is actually quite robust.
And so I guess I'm wondering if you can just give us some buckets of sort of what really drives that margin higher.
Significantly above your incremental targets for 'twenty, one and then I'll pass it on thanks.
Sure. So first and foremost is what I was just referring to which is that.
Yes.
Of course, the 2021, we do anticipate that we will.
Manufacture in line with the customer demand towards sales.
In 2020, as John indicated we were manufacturing.
80% of revenue for Gd, So as a result, the fixed costs of the business would be.
Spread over a much smaller base of manufacturing then theyre going to be over the course of 2021, so manufacturing efficiency <unk>.
John has been doing an excellent job.
Making the manufacturing operations and <unk> not just John John in the Genie team has been doing an excellent job of taking manufacturing cost out of the jewelry manufacturing so that cost whether it be in the indirect side or the direct side.
Glenn It makes us more efficient our SG&A cost reduction initiative, which was companywide.
It is also supporting the growth in the AWP margins for the Genie margins for 2021.
Then obviously the higher volumes there.
Dissipate even for 2021 all of those are driving the margin improvement that you see for our AWP segment, principally to gene business.
Great. Thank you guys well done John.
Thank you.
Thank you for the team.
Your next question is from Mig <unk> with Baird. Your line is open.
Good morning, everyone. Good morning Mig.
Good morning, My my first question.
It is really on your ability to ramp production going forward. Thanks for getting better right. So I'm wondering how you're managing the supply chain from Steve any any disruptions there.
As far as your comments on Neal I appreciated that color, but I guess, what I'm wondering is.
Sure.
Did you see in incoming orders right in your in your order book.
Sales relative to your to your plan into the guidance that you have provided how flexible is your pricing going forward.
Your price and be able to adjust to reflect.
Higher material costs above and beyond maybe.
What you bought forward.
I'll take it.
Let me start with the first one Meg on the supplier continuity and then.
I'll also cover just in general the pricing strategy.
We are executing for 2021, so on the supplier continuity side.
You are correct the <unk>.
Opportunity this year and challenge last year was a problem. We didn't have demand. This year. It is an opportunity and a challenge to meet the demand as it increases a lot of the hard work that our strategic sourcing teams and purchasing teams have done over the last couple of years has helped we have improved our overall supply base with that said like many manufacturers we are.
Are seeing delays in inbound material principally Mig.
Global logistics, starting shipping shipping starting to free up right now but.
But.
Painters remain an issue and depending on which ports youre going into Camden delay the offloading of the materials. So the team is managing that disruption day to day.
From a COVID-19 standpoint Mig.
In the fourth quarter, we did see disruption with certain suppliers that had COVID-19 related impacts that's improved as we've moved through the quarter, but again COVID-19 is still out there. So the teams teams doing a great job managing that.
Again as a result of strategic sourcing initiatives. One other thing that we did was our global logistics suppliers and so we believe we have the best in the world to help us manage through this period of time it is creating disruption, but the team is doing a really good job managing that disruption day to day and that will be the key as we move through the year My personal view is.
As we move through the year that it will improve all of us are highly motivated suppliers and everyone to produce and get out of what we experienced in 2020, but the team is managing day to day disruptions and and that will be important for us.
<unk>.
To continue to do so.
As we go forward so.
That's the supply.
Side of the equation on the pricing side Mig our pricing strategy.
This year in the environment is really price to offset material cost inflation that we're seeing so I would say price cost neutrality. So we're trying to get pricing from our customers to reflect the material cost environment that we're in realizing that we have to control a great deal of it but overall, that's what we're striving for in 2010.
One is price cost neutrality, so that we can at least offset some of the material cost increases that we're seeing around the globe.
Okay I see.
And then my follow up.
Material processing looking at the orders that you booked in the quarter.
Impressive.
Not quite some orders like this before I don't think.
Can you give us a strength for some of the moving parts here.
I know you've got quite a few verticals within this segment. Nowadays I'm also wondering if there are any if there is anything happening with the channel in terms of potential rethought from Europe from your deal. Thank you.
Thank you.
So <unk> had a very strong quarter and we saw.
The global end markets and the encouraging thing with MP is truly global and it is across the verticals that we operate in.
Our crushing and screening business saw good order activity, we saw that as the year progressed, we saw utilization through our telematics continue to indicate a good utilization of the equipment Youre right Mig about 70% of that business goes through dealers.
But this isn't the model as the dealers really have inventories thats out in a rental purchase option type environment and so what we saw was good utilization by end customers and then conversion of those rental contracts into ownership, which then enabled the dealer organizations to order back and Thats, what we saw in <unk>.
The order activity and I would say was broad brushed.
<unk> and screening business in the U S. Our mixer truck business with strength in the residential area. We saw really good growth. There we saw a recovery in our material handling business, which was a very challenging year in 2020 for fuchs, but it's one of the benefits of rising steel prices rising scrap prices. So we saw a recovery there.
The fourth quarter in orders in that business, our environmental businesses, the new business that Karen and the team have built over the last couple of years again, good global growth across our biomass and our recycling side.
In that segment and last but not least our lifting businesses are picking carry business down in Australia.
Had a good year, Australia weather, the Covid storm, a lot better than other places and they had a good year and then we saw some improvement in orders and our towers business.
Finally, we saw improvement in India, India was hit very hard by the Covid in the second quarter and as we move through the year, we did see some improvement in India. So what's encouraging for us about the MP side is it truly is global and it is across the verticals that we compete in so.
It was encouraging to see those those results and we're looking forward to 2021 on the on both businesses, but <unk> in a very good position starting starting the year.
Thanks, Mig that's great. Thank you.
Your next question is from Ann Duignan with Jpmorgan. Your line is open.
Yes, hi, good morning.
And dressed and margins and material processing in the fourth quarter, how much of that.
Margin increase arent the margins delivered.
The lower cost base in Northern Ireland, and in the cost base being in parallel rather than euro and is that a competitive advantage going forward for.
Share a competitive accounts, who would probably be mostly cost base for <unk>.
You want to go ahead and cover the margin aspect Duffy.
Sure So I would say Ian that principle.
John.
Benefit we saw in the fourth quarter for the <unk> margin was really.
The mix of product sales that they had both regionally and by business. We saw particular strength in the fourth quarter in our crushing and screening business and.
Concrete businesses.
And regionally both in North America.
We certainly our MP team is.
Really strong operationally and they have a tremendous cost focus they are able to adjust their production and your cost structure to the industry environment that you are absolutely correct that northern Ireland.
Is a very advantageous cost structure for manufacturing for us.
I would not say that.
FX, whether it be the British pound or any other currency was a significant driver of the.
The margin performance in the quarter, but rather mix of businesses strong North American sales.
And finally strong cost control by the MPT.
Okay I appreciate that color, particularly on the mix in Q4.
On AWP is on orders.
Are there any concern or can you quantify at all.
Any impact from the independents 19 pulling forward orders ahead of anticipated.
Pricing for instance, I mean, everybody is watching steel prices.
Assuming all your customers are looking at that.
We've been through this show before so.
Can you tell how much of your strong orders in Q4 might have been pull forward of demand ahead of anticipated price increases.
And we did take a price increase as part of the orders that we booked in Q4 anticipating the cost increases in 2021. So no I don't I don't think we saw any quote unquote pull forward I think it really was the independents coming back into the market.
Replenish their fleets because they like the large nationals did manage their fleets.
Over the course of 2020 in response to the market demand. So I think it's more about just response to the opportunities they see in the marketplace and they are aggressive fleet management that they had in 2020.
Okay I appreciate that I'll get back in queue and take my other questions offline. Thanks. Thank you Ann.
Yep.
Your next question is from Jamie Cook with Credit Suisse. Your line is open.
Hi, Good morning, Good morning day, a nice quarter I guess my first question can you just talk to order trends that you've seen so far in <unk>.
January and February with some of the rental companies coming out with fairly robust capex numbers I'm wondering if your orders has it started to accelerate relative to what we saw.
In the fourth quarter.
And then I guess my second question is.
John just because you've been wearing two.
Two hats for awhile now as you think about the progress that you've made in aerial work platforms. What inning of the ballgame are you in in terms of sort of restructuring.
Thinking about your ability to get margins back to sort of where your competitors are or prior peak level. Thank you.
So.
Thanks, Jamie in terms of trying to provide in quarter guidance I would say that.
From a customer standpoint, we're progressed.
From an order standpoint.
Several large national accounts completed the order activity at the end in December several large national accounts are continuing their dialogues with us as we progress through the quarter. So that that activity is ongoing and I would say work we're optimistic based on what we're seeing based on.
How the rental customers manage their fleet in 2020.
They do need.
Equipment in 2021, so I would I would.
Say.
That's what we've seen from a from a customer standpoint.
And then on your second question, Jamie you could you repeat that please.
Yes. My second question just was just on the aerial work platforms side, you've done a lot to restructure the business youre seeing that margin improvement in 2021, but I guess my question is what more needs to be done from your perspective, what inning of the ballgame are you in in terms net.
What needs to happen to get the margins over time back to prior peak or more comparable to your peer levels. Thank you.
Thank you all I will say this.
Jamie I'm, not necessarily going to speak to what inning, but the management team for so we have a strong management team in our Genie business and they are absolutely focused on driving margin improvement in the business of proud of our we've talked about commercial excellence over the course for the last couple of years really proud of the commercial teams and how they stayed in close contact with customers.
<unk>.
Through these challenging times driving some process discipline, they're improving our SIOP process. So more to come there we have to invest a little bit more on our technology and our systems.
But the team made good progress on the development side Jeanie has been known for strong product development with the product offerings that we have we're going to continue to bring innovative products for the marketplace purposeful innovation of products that are more cost effective for us to manufacture a more cost effective for our customers to operate so you can expect us to continue.
That activity going forward on the manufacturing footprint, we took action with some of our manufacturing footprint in the fourth quarter. The team will continue as Duffy said to manage all elements of cost material cost direct labor cost indirect labor costs, and we will leverage the volume that we get as we see the improvement as we go forward.
The team has done a really it's always difficult on the SG&A side, but the team has done a great job managing our SG&A and in positioning the business for success as we go forward and then.
We've continued to invest in our technology and our processes and our systems, our parts and service and so that investment we mitigated our.
Reiterated that I should say slightly in 2020 and Youll see us.
We need to make the investments on the parts and service side of the business. Because we think there's still continued opportunity for us to drive improvements. So overall the team made a lot of progress, but we know as you mentioned our margins are not where they need to be relative to competitors.
Tim and I understand that's not acceptable and so we're going to continue to drive the actions necessary to close that to close that gap as we move forward.
Okay. Thank you I appreciate it thank you.
Your next question is from David Raso with Evercore. Your line is open hi, Thank you within the AWP outlook for utilities business I was interested in your comments about it's a key part of the growth story can you give us a sense of the non AWP growth you expect in that AWP segment.
Yes, Thanks, David and you're right with the utility segment and let me just talk a little bit about what we saw in 2020 and then what we're anticipating for 2021 one of the things we do like about this business. David is the demand is more stable. So we saw stable demand in 2020 for the investor owned utilities for co ops.
And for vegetation care part of the business. So that was reasonably consistent in 2020, while we did see fall off in 2020 and come back from an order standpoint here at the end of the year with a specialized rental channel that really focuses on the contractors the specialized contractors in that business and like many of the rental churn.
We did see their demand fall off as we went through the course of the year, but we did see that respond nicely.
Here in November and December on the rental contractor side. So we're encouraged by the demand environment. There. We do think we're going to see substantial growth. The team did a great job David opening a plant in the middle of a pandemic. So now we have the capacity.
To meet the higher demand that.
That we're seeing and again a much more steady stream of revenue in the utility side versus some of the other elements of AWP. So again the team had a good year challenging year, but did a great job getting the new plant up and operating we're seeing good order activity and so we like our position and opportunity to grow.
A bad business.
As we go forward, David but just unclear due you think utility is a above segment average growth rate the segments being guided at 12% and use the word substantial I would want to make sure.
Call. It in the same same ballpark David.
St Paul same ballpark.
WPS the rental customer conversations I assume at least give you some look into.
A multi year view, how do they think of their needs, where the fleet ages and nothing really matters until we sit down and put it in order and I get it but.
But when we think about the conversations you are having today and we've all been for the stance about infrastructure builds and then they don't show up but it wont show up the way you would've thought.
But given what's happening in Washington towards an infrastructure Bill are you starting to have conversations with these customers at least giving you some insight.
What 'twenty, two and 'twenty three could be what their needs could be if there is an infrastructure bill that even part of the dialogue at all yet.
David.
I'll answer it this way the replacement cycle and the aerial business, principally in North America, and Europe, and we've talked about it but there is a replacement cycle given the age of the equipment coming up as we move into 2020.
'twenty, two and 'twenty three and that's just based on how they manage their fleets they understand the optimal time to.
To sell their equipment into the used market I might say they had a really good year in 2020, I got good used equipment sales and used equipment values. So we are unequivocally going to see a replacement cycle as we move into 'twenty, two and two into 'twenty three just associated with the age of the fleets in North America and Europe.
As it is it.
A infrastructure David I'm more encouraged than I have been historically about the potential for infrastructure clearly infrastructure will help our business as Duffy said in his comments, we're not planning on it in 2021, but if we take a step back we are advocating strongly in my CEO role, we're advocating very strongly as part of Aes.
<unk>.
Around infrastructure, there is an absolute need and there is a potential opportunity for bipartisanship.
One issue that being infrastructure. So I think it's too early to call the ball, David but you and I have been around for long time, I think its setting up for the may actually get something done, but thats going to be at 'twenty. Two 'twenty three type type timeframe and again, we'll see how that plays out but we're absolutely confident there is a need.
Now the issue is can we get the political will and political action to make it happen. Thanks, David next question operator.
Our next question is from Jay Ravi <unk> from Goldman Sachs. Your line is open.
Hi, good morning, everyone.
Good morning, John.
John Duffey I'm wondering if you could just talk about your AWP sales outlook comments.
Within the context.
Rental capex budgets.
Or essentially doubling for some of your bigger customers just as they go from shrinking their fleets in 'twenty two not shrinking their fleets from 'twenty, one so I understand the desire to be conservative.
Coming out of the pandemic, but that's.
Up 10% and up 100% is a pretty wide GAAP so can.
Can you just expand on that.
You do need to produce for the.
<unk>.
50% plus space.
Level do you think the supply chain.
Can deliver.
If you have to flex up towards the higher end of your scenario planning for 'twenty one.
Yes, so in terms of our conversations have gone well with the large rental companies and as I said in my earlier comments.
Jerry there continuing for several of them, yes, the capex is up but tough for a very low level for the percentages are impressive, but we shouldn't look at the base in terms of what they did or did not spend in 2020, but again, it's encouraging to see that they are managing their fleets and that they need.
That they need equipment, we're getting their best look at how they are anticipating their year's unfolding and we need to be in a position to meet that.
The potential opportunities I spoke we are seeing disruption in the supply chain, but the teams are doing a good job managing that historically, our genie business has done a good job of ramping up and down Unfortunately.
Demand so what I can say is we're staying in very close contact with our customers. They are giving us their best look at what their requirements are for 2021, and we're setting up to meet those requirements. So again, it's encouraging that we're talking about growth.
The absolute amount of growth, we will see how the year unfolds.
Okay, and then John if.
Does surprise to the upside relative to your sales guidance in.
AWP, how should we think about incremental operating leverage on incremental sales.
Your upside versus the 25% target.
You have simply because.
Really attractive absorption rates off of a low base as you pointed out.
I think you can see that our current outlook calls for substantially above.
But 25% target.
Our incremental margins in 2021.
And so that's what we're planning on if we get we get the volume that they will definitely substantiate those that that margin outlook as we go for overtime.
Again as Duffy indicated we are getting the leverage in 2021 from the increased production levels. So we are anticipating substantially better than our 25% target in 2021.
Gary next question operator.
Next question is from Ross Gilardi with Bank of America. Your line is open.
Hey, good morning, guys good.
Good morning Ross.
Ross.
Hey, Doug I was just wondering if you could talk a little bit more about your year MP business, which is obviously doing very well within MP.
<unk> got some quarry and aggregate exposure you saw orders pick up strongly in the second half.
The industry bellwethers been blaming quarry and aggregates for softness in their mining segment for the last six quarters and I was just wondering if you could talk a little bit more about your mobile crushing and screening business.
From a topline perspective did it outperform the broader MP segment in 2020, how fast do you think it grows for the cycle.
And all disruptive to the workings of a traditional Ross for your mind to the extent that just wider penetration of mobile crushing equipment could be displaced from equipment for.
Demand for traditional pieces of equipment, including trucks.
So.
A lot there Ross.
In terms of what we've seen over time Youre, absolutely right. The adoption of mobile crushing and screening technology has continued to increase and that principally is because you can you can move the equipment to the core in terms of our business in terms of mining we work really we're not necessarily at the <unk>.
<unk> face, we're downstream from that but there's no doubt the adoption of mobile crushing and screening equipment is providing operators the flexibility that they need and we're seeing that adoption in the more mature markets.
All that North America, and Europe, but we're also beginning to see the adoption of this technology in places like India and its just starting I mean.
Just starting in China. So we do think the trend of mobile crushing and screening equipment will continue because it does drive efficiency for for operators Corey operators and customers. So that's a trend that we think will continue and we like our leadership position in that mobile crushing and screening.
<unk> segment, and we're expanding in places like India, and China to take advantage of those adoption trend.
Thanks, John would you call Corey in aggregate like one of your softer end markets. This year or has it actually been an end market.
Kind of outperformed to the downside.
Through the pandemic.
I would say its a consistent performer.
And it was consistent through the pandemic and then from an order activity. We did see good order activity as we got into the fourth quarter as I said the model for that distribution channel is dealers really have the equipment out with contractors on RPI type of contracts.
We saw utilization stay high and those contracts got converted which enables the dealer organization to then order back in so we did see that activity.
Through the through the course of the year.
Especially in the second half of the year.
Got it thanks, so much.
Thank you Tim Operator next question. Your next question is from Steven Fisher with UBS. Your line is open.
Great. Thanks, Good morning wanted to just follow up on the discussion on materials processing, because it was a really solid quarter and you mentioned the broad strength.
Particularly looking at the backlog being up close to 60%, but the revenue growth target is still really only down at around 12%. So just curious what the disconnect is there between that that backlog growth in the revenue target because I think over the last few years.
Backlog has been a pretty good indicator of where the revenue growth could be is there something is it just sort of.
One or two quarter replenishment of that channel and then the back half will be weaker what's the reconciliation there. Thank you.
Yes, Thanks, Stephen just from.
The way that business works is it's a shorter cycle business for the dealer channel so shorter cycle disc.
Distribution channel order back.
We see it in backlog will turn that backlog quicker.
And then we will see again the model is do the dealers they put it out principally on rental type of contracts does that rental convert to ownership if it converts to ownership than the dealers ordering back they're not ordering equipment in this channel to put on a lot.
So.
We'll see how the year progresses, we are encouraged by by the backlog and the early indications.
The performance of the business as we move through 2021.
Terrific. Thank you.
Great. Thank you.
Our final question is from Robert Wertheimer with Melius Research Your line is open.
Hi, good morning, gentlemen.
Tomorrow.
I wonder if there's been a lot covered but I did want to ask if you could give any update as you have in the past on the market development and competitive development in China, and maybe a quick comment on an aerial specifically, but maybe you touched on the other segment.
And maybe maybe a quick comment on Latin America, if there's anything interesting happening. Thank you.
Oh I'll answer the last question first Rod Theres not a lot going on right now in Latin America that that market has been soft.
And we're not anticipating significant recovery in Latin America in 2021.
In terms of.
The China development from an aerial perspective of the China market recovered significantly after the second quarter and the growth of aerial equipment in China.
Has increased substantially so the China market response.
Rebound and frankly as strong as any other market frankly stronger than any other market again, the adoption of aerial equipment work and safely and heightened continues in China. So we saw the overall market growth substantially and we did see growth in 2020, and we're anticipating continued growth in 2021 in the area.
<unk> market as it pertains to the other businesses within China within MP in the infant stages.
We are doing some utilities within our AWP segment in China, We think that's a growth opportunity and mobile crushing and screening equipment, we're importing into China, now and Thats not a long term strategy. So we will be looking for localized manufacturing of.
Our equipment and MP and our Changzhou facility will help us with that so we do think there'll be growth. It's very small right now in China, but we do believe over time will experience good growth in the MP certain A&P verticals within China as we move forward.
Thanks, Robert Okay. Thank you.
I'd now like to turn the call back to presenters for closing remarks.
Thank you operator, I'd like to end today's call by thanking where I started thanking our frontline team members and also those working from home who quickly adapted to the pandemic and really are working safely to keep our customers and our community safe I also hope that you and your families are remaining safe and healthy bye.
Following the COVID-19 protocols and I would strongly advocate that we all do our part and being vaccinated when it's our turn so again. Thank you for your interest in Terex. If you have any additional questions. Please do not hesitate to reach out to Duffy and Randy and have a great day. Thank you.
This concludes today's conference call you may now disconnect.
Okay.
Yes.
Okay.
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