Q1 2021 Terex Corp Earnings Call
Okay.
Work safe home safe.
Terex team members have contributed to our effort to continue to produce for our customers, while following the protocols and maintaining a safe working environment.
Please turn to slide four.
Before I discuss our Q1 results I would like to review our commitment to ESG.
Environment so.
Social and governance is not a new concept of Terex. It has been front and center for many years through our zero harm safety program and our commitment to maintaining a vibrant and supportive working environment.
ESG is foundational to the Terex culture.
Our company purpose is to help improve people's lives.
Through our Terex way values, we are focused on strong governance.
Our commitment to diversity equity and inclusion at every level.
And supporting the communities, where we live and work, including being responsible environmental stewards.
First strong governance and leadership are independent and engaged board with diverse backgrounds perspectives and experience as value for all stakeholders.
Second we've enhanced our governance and we are energized by the engagement of our team members.
And third electrification by.
By introducing sustainable products, such as our new GE electric drive visitors.
We've made good progress in our sustainability program.
Including publishing our first annual ESG report, which enhances our ESG communications.
We are working on standard reporting frameworks.
A group of company senior leaders are charged with implementing.
We will keep stakeholders apprised through our investor conferences and quarterly earnings calls.
We believe companies that recognize the importance of ESG are better able to identify strategic opportunities and meet competitive challenges.
Turning to slide five.
We're off to a very strong start to 2021.
Customer demand continued to increase during the quarter.
Resulting in revenues exceeding our expectations.
We increased operating margins and backlog in AWP and MP year over year.
We significantly improved our first quarter earnings per share compared to last year and.
And we are increasing our full year sales.
Operating profit cash flow and EPS outlook.
Despite having to address supply chain challenges AWP delivered improved margins in Q1.
Materials processing continued its strong execution by overcoming supply disruptions and delivering increased sales and profitability.
As a result of the improved execution in both segments year over year operating margin for the company improved by 800 basis points.
Our intense focus on net working capital management and improved profitability drove $40 million of positive free cash flow in the quarter.
Which is an excellent start to the year.
During the first quarter our team continued to meet increased customer demand tightly managed all cost and delivered outstanding positive free cash flow.
Overall, our Q1 financial performance demonstrated strong execution by our global team in the face of increasing supply chain challenges.
Let's turn to slide six.
We continue to improve Terex is global cost competitiveness.
Our SG&A cost reduction initiatives.
With a target of full year 2021 of approximately 12, 5% or better SG&A to sales remains on track.
We are maintaining strict cost discipline.
In addition, during the quarter, we announced the planned move of our Oklahoma City tell a hammer production to Monterrey, Mexico.
This action will position us with cost competitive Keller handler products for the North American market.
The team is addressing increasing supply chain disruptions.
Our operations team are demonstrating adaptability and flexibility to overcome to dynamic supply chain environment.
Turning to innovation.
We continue to listen to our customers, ensuring our products and services offer the features and benefits that provide value.
We've also invested in our connected assets and digital capabilities to better serve customers.
For example.
Our new Genie drive scissors are designed to offer significant performance improvement and reduce maintenance costs by 35% over the life of the machine.
Customer and dealer integration or CDI as a global initiative spearheaded by our parts and service organization.
There is a sharing their data which allows the team to better serve customers.
Finally, we continue to invest for future growth.
Our MP team is in the process of executing on localization plans in China to meet growing demand for industry, leading crushing and screening products as it is the world's largest aggregate market.
Terex is well positioned for growth in 2021 and beyond because we have strong businesses strong brands and strong market positions.
We continue to invest.
Including our new products digital capabilities and manufacturing capacity.
Turning to slide seven.
I'll provide some comments about our end markets and what we're seeing today.
And our Genie business in North America fleet utilization continues to improve.
Rental rates are improving used equipment pricing is strong which are all positive signs of a recovering and growing rental industry.
In Europe, the market continues to demonstrate improvement.
And in China adoption of work and safely at height with Genie equipment is driving significant growth.
Globally, the secular trend towards rental continues.
Turning to our utilities business <unk>.
Demand is strong across its end markets of tree care rental and investor owned utilities.
Next in materials processing.
We expect global demand for crushing and screening equipment to continue to growth broad.
Broad based economic growth construction activity and aggregates consumption other primary market drivers.
We're seeing continued improvement in our cement mixer material handler and environmental businesses.
Overall, we are seeing improved market conditions around the world for our industry, leading products and solutions and with that let me turn it over to Doug.
Thanks, John turning to slide eight.
Looking at the first quarter, we achieved net sales higher than our expectation.
Throughout the quarter, we saw our end market continued to strengthen.
Overall revenues of $864 million.
We're up 4% year over year.
Notably our materials processing segments revenues were up almost 20% year over year.
For the quarter, we recorded an operating profit of $62 million.
Compared to an operating loss of $7 million.
In the first quarter of last year.
We achieved an operating margin of over 7% through disciplined cost control and meeting strengthening customer demand.
The first quarter operating profit includes severance and charges associated with the closure of our Oklahoma City manufacturing facility, which were offset by the gain on the sale of our TFS on book financing portfolio.
Improved gross margins and lower SG&A as a percentage of sales, allowing terex to expand operating margin by 800 basis points year over year.
Interest and other expense was approximately $4 million lower than Q1 of last year because of several factors, including lower interest expense and a 3 million dollar mark to market gain recognized in other income.
Our first quarter 2021 global effective tax rate was approximately 16%.
Driven by two favorable discrete items in the quarter.
Our tax rate estimate for the remainder of the year remains 19% consistent with our previous outlook.
Finally, our reported EPS of <unk> 56 per share includes the nearly offsetting operating impact.
And the favorable benefit in other income.
That I just discussed.
Turning to slide nine and our AWP segment financial results.
AWP sales of $477 million were down 7% compared to last year, driven by a decline in North America offset by improvement in Europe and Asia Pacific.
The utilities market improved significantly.
And by strong customer bookings.
AWP deliberate significantly improved operating margins in the quarter, driven by increased production and aggressively managing our costs.
AWP delivered 680 basis points improvement in operating margin, which includes $3 million of severance and charges for the closure of our Oklahoma City facility.
First quarter bookings of $961 million were up dramatically compared to Q1 2020, while backlog at quarter end was $1 $3 billion.
Up 82% from the prior year.
Okay.
Now turning to slide 10, and material processing Q1 financial results.
And <unk> had another strong quarter, achieving 13% operating margins.
As end markets are strengthening.
As a testament to the MTN teams operational strength to deliver these consistent.
Positive operating margins.
Sales were higher at $378 million.
Driven by improving customer sentiment across all end markets and geographies.
The MP team has been aggressively managing all elements of cost.
As end markets improve resulting in incremental margin performance up 38%.
Backlog of $713 million more than doubled from last year and was up 36% sequentially.
<unk> saw its business has strengthened through the quarter with bookings up more than 100% year over year.
Customer sentiment in both segments continues to dramatically improve as equipment is being utilized and ordered as end market demand strengthens.
Turning to slide 11.
I'd like to update you on how we currently anticipate the full year to develop financially.
It is important to realize that while the end market demand environment has improved significantly.
Increasing supply chain headwinds are impacting results.
We have taken these factors into consideration in the outlook, we're providing today.
As for commercial demand, we have seen our end markets improved dramatically over the course of the first quarter.
All other things being equal we do expect continued end market improvement in both segments and increasing levels of AWP customers fleet replenishment.
From a quarterly perspective, we expect revenues for the full year to be slightly higher in the first half than the second half of the year with the second quarter being the strongest of the year.
Operationally the absolute amounts of operating profit and operating margins are expected to increase each quarter and year over year.
With operating profit relatively evenly split between the first half of the year versus the second half of the year.
We continue to plan for incremental margins, which muni work.
Exceed our 25% target for the full year 2021.
Corporate and other costs will occur relatively evenly throughout the remainder of the year.
On April one we completed the refinancing of our revolving credit facility and unsecured bonds.
These transactions will result in Q2 charges of $25 million, which were not previously included in our 2021 financial outlook.
Including 30 <unk> per share of cost for refinancing of our capital structure. Our EPS outlook is increased to $2 35.
To $2 55.
Per share.
Based on sales of approximately $3 7 billion.
Quarterly earnings per share are expected to be generally consistent with the development of operating profit during the year.
For the full year 2021, we are estimating free cash flow of approximately $150 million.
Reflecting another year of positive cash generation.
We continue to plan for capital expenditures net of asset dispositions of approximately $90 million.
The largest project included in capital expenditures is for the <unk>, Mexico manufacturing facility John referenced earlier.
Turning to slide 12, and I'll summarize our updated 2021 EPS outlook.
We expect the strong customer sentiment demonstrated in Q1 higher AWP and MP customers to continue throughout 2021.
Our 2021 full year EPS outlook comprehends first.
Our Q1 outperformance.
Second the operating profit contribution on additional revenue for Q2 through Q4.
Third price and manufacturing efficiency, which is only partially offsetting increasing supply chain headwinds.
And finally.
Reduced interest expense and one time capital structure charges of approximately $27 million representing.
Representing 30 cents per share.
Overall, our 2021 outlook represents a significant improvement in operating performance when compared to 2020.
We will continue to aggressively manage costs, while positioning the business for growth.
Turning to page 13, and I will review, our disciplined capital allocation strategy.
Our team members remain vigilant and we will continue to aggressively manage production.
Especially within our AWP segment and scrutinize every expenditure.
The strong positive free cash flow of $40 million in the quarter demonstrates the hard work of our team members to tightly manage net working capital.
Terex has ample liquidity of approximately $1 $2 billion available to us with no near term debt maturities. So we can manage and grow the business.
As discussed during the Q1 earnings call. The proceeds from the sale of the TFS on book portfolio, and our strong liquidity position allowed us to prepay a $196 million.
Term loans in early February.
This prepayment resulted in reducing outstanding debt lowering leverage and saving annual cash interest expense of approximately $7 million.
This deleveraging action resulted in a rating agency upgrading terex his outlook and providing positive momentum for refinancing our capital structure.
Our refinancing included successfully renewing our $600 million revolving credit facility.
And placing $600 million of new bonds with a 5% coupon.
These new bonds, we placed our five and five 8% bonds due to mature in 2025 and reduce annual cash interest expense by approximately $4 million.
Importantly per.
<unk> obtained lower cost unsecured funding for the remainder of this decade.
This strong action demonstrates our commitment to improving Eric balance sheet, while maintaining flexibility to execute on our organic and inorganic growth plans.
Finally, we would like to thank our bank group, which supported Terex during this successful refinancing.
And with that I'll turn it back to you John.
Thanks Debbie.
Turning to slide 14.
Wrap up our remarks.
Terex team members around the world are focused on the right things safety.
Health customers and improved productivity and markets are strong and the team is managing the increasing supply chain headwinds.
We are driving positive free cash flow, we're continuing to invest in innovative products to meet increased customer demand.
We are focused on both organic and inorganic growth as.
As a result of these actions terex is well positioned to deliver strong 2021 results and 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 to ensure we answer as many questions as possible. This morning.
With that I'd like to open it up for questions operator.
Thank you Steve.
Ask a question you will need to press star one on your telephone.
John Your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from Stephen Volkmann with Jefferies. Your line is open.
Great. Good morning, everybody good morning, Stephen.
Cash at the risk of ascending ungrateful I wanted to just look into your kind of guidance in AWP, a little bit. So your revised revenue guidance still only up from a 20% year over year. If my math is right and it just seems like the demand side of the equation is much stronger than that so.
Yes, maybe.
The difference is concerns around supply chain, maybe it's a question as to sort of dig a little bit deeper into that topic.
I guess I'm, just trying to figure out what's holding those revenues back relative to some of the Capex budgets, we are seeing from your customers.
Thanks, Steve and first let me say, we did significantly increase our bookings and backlog literally around the world.
In AWP. So we were pleased with that if you look at the outlook for the rest of the year Q2 through Q4, Youre talking about 30% year over year growth in our AWP segment. So we are seeing substantial growth in this segment of the team continues to work.
We like many.
And then in factors are seeing supply chain constraints. So we're working through those supply chain.
Jane constraints, but right now we are seeing strong growth around the world for the remainder of the year.
And we're executing on our supply chain, but we are seeing disruptions in the supply chain that's impacting.
Our production levels, but overall really pleased with the back book.
Backlog the bookings.
And what we're seeing the strength that we're seeing in that marketplace.
Okay, great demand doesn't seem to be the factor here is the gating factor maybe.
Maybe a little bit longer term or broader John and then I'll pass it on.
Are they feeling about margins in that business I know that's kind of been your focus over the past several quarters couple of years.
7% is not bad, but it's obviously still a ways to go to get back to kind of where you were a couple of years ago. So what does that trajectory look like in your mind.
Thanks, Steve.
First of all we've got a great management team.
At Genie and in our utilities business and they are intensely focused on driving margin improvement as you saw we draw.
We had a 680 basis point improvement on a year over year basis on lower sales in the first quarter, we anticipate as we've indicated sales to be improving so the team is focused on driving margin improvement we are seeing headwinds like most manufacturers on material cost we're offsetting that.
Action with pricing.
We're continuing to be resolute in our SG&A cost the team has done a great job managing our SG&A and we're continuing to address our global cost competitiveness with the announcement, we made in our Oklahoma City plants. So the team understands that we need to be globally cost competitive we've made great progress, but unequivocally there is more.
<unk> to be made there Steve.
But your conviction that you can get back to those double digit levels.
Unchanged I assume.
<unk> is focused on getting us back to those double digit.
Double digit levels absolutely.
It will take time, but unequivocally we believe that that is absolutely an achievable target for us and the team.
Super Thank you.
Thank you.
Your next question comes from the line of Mcdonald, Brian with Baird. Your line is open.
Thank you good morning.
Maybe I'm just going to pick up on this line of questioning here as well.
If im looking at your guidance, a little over $2 billion of revenue in AWP.
Just a couple of years ago. This business was.
For generating more than $2 7 billion of revenue. So I guess I'm wondering how you sort of see that.
The path going forward.
In terms of the recovery getting back to those kinds of revenue levels is that feasible do you think you can actually do better than this.
Coming cycle.
And to ask this question once more.
Given that Youre already guidance margin at 7%, which is basically where you were in 2019 on them on a much higher revenue base.
We work to get back to those kind of prior peak levels.
What would be the right sort of margin framework for us to kind of consider.
Thanks, Thanks, Mig So let me just take a step back.
We're encouraged by the AWP business I mean, if you take a step back and if you look at just as I said in my opening comments, the secular trends and the rental industry is definitely going to be a tailwind. We think the replacement cycle is definitely starting and coming after the next couple of years. So from a volume standpoint, we're encouraged by what we're seeing and we.
Think we can significantly increase the volume overtime is that replacement cycle and growth continues as.
As we see that growth in volume then we need to convert that at more historical levels of operating margin and that's what the team.
<unk> is focused on is driving that margin improvement so as the volume returns as we've taken the aggressive cost actions that we've taken we should expect to see over time continued margin improvement in that business as we move forward. So that's what the team's focused on every single day and we're going to continue.
To drive execution and improvement no doubt in the current environment. Mig we are seeing significant material cost increases we've had to offset some of those material cost increases with pricing activity. So that's obviously a factor, but we're going to continue to work with our customers and offset material.
Increases with pricing right now in this environment as you saw on our outlook, we werent able to do that longer term, we're going to we're going to strive to offset material cost increases with pricing. So that will also help as we go forward. So again.
<unk> business has historically been a great business it's got.
At an incredibly strong brand management team is absolutely focused on meeting the needs of the customer and driving margin improvement and I can assure you every single day, that's a focus of the team.
If I was just to add to John's comments.
Build on the second part of your question as you pointed out in 2018, our AWP business. Our AWP segment is about $2 $9 billion of revenue and double digit margins.
<unk>.
Our guidance here.
Good day, $2 1 billion, 7% margin. If you just look at that additional say 800 million of.
Revenue and you know that target of 25% incremental margin I think you would find that to get to a double digit margin again.
It wouldn't require a 25% incremental margin on that $800 million of revenue.
We definitely see that.
<unk> brand the <unk> business. The AWP segment is a double digit margin business.
That's great color. Thank you for that.
And then.
My follow up is it Tom.
And.
Want to talk about margin there as well.
The implied incremental margin here.
A little bit lower I think it's something like 20% in the guide this year I'm just looking for a little more context on this.
This particular segment Steve Moore.
Pressure on the cost side or is this a factor maybe pricing what are all the moving pieces here. Thank you.
So.
On the MP side, I think if you take a step back and you look at just continued strong execution with the margin generation with the top line sales growth and.
Aggressively manage costs throughout throughout their business through the multiple businesses that we have and.
Again, we target to 25% incremental margin the team has done a good job of delivering on that as we as we go forward. There also are seeing a material cost headwinds that we're having to offset with pricing as well.
And again not necessarily setting off offsetting.
Offsetting all material cost headwinds associated with the pricing, but over time, they will be able to do that as well. So again, if I just take a step back and look at the at the E&P business and the execution across the businesses across the globe that have done a fantastic job delivering margin improvement on the growth in <unk>.
Totally confident.
The team will deliver on the volume that's there in the marketplace.
Thanks, Mike Thank you.
Your next question comes from the line of Steven Fisher with UBS. Your line is open.
Thanks. Good morning, Good morning, Brian just good morning, just in terms of execution Q1 looked very good but I guess looking out to the next couple of years.
John You mentioned youre going to drive execution.
If your revenues in the AWP segment.
To get back to that prior peak, what would you need to do to handle that kind of revenue is your business peak ready today, just kind of trying to make sure we don't run into any execution challenges.
Thanks, Yes, I mean, we have the we have the global footprint around the globe for the Genie business.
In China, and North America and Europe.
Our capacity actually will expand we did close our Oklahoma City facility.
Let me say that we will be closing it in the first quarter of 2022 and moving that operation in Monterrey, Mexico that will also give us incremental capacity, but will produce in both locations over the transition period of time. So the genie team in their history. If you look at their ability to ramp up and to ramp down but have been quite successful in doing.
Net and so we have the capacity to meet the needs of a growing market and again, that's a great opportunity for us as we move forward and frankly, we're excited about that opportunity to meet the higher demand as the market improves.
Great.
So you mentioned inorganic growth plans can you just talk about what youre thinking about M&A than anything inorganic these days.
Yes. Thank you well first it starts with the ability of our disciplined capital allocation strategy and the team's done a really nice job driving free cash flow improvement as Duffy indicated in our opening comments really done a great job strengthening our balance sheet. So now we believe we have the opportunity to look at inorganic growth.
Our principal focus really is in and around our MP businesses.
Specialized equipment markets, we have leadership positions in those markets and it still remains a relatively fragmented in the segments that we compete within MP and so our initial focus as we're building our M&A pipeline is in and around our MP business in our lifecycle businesses and we're building that pipeline and we.
Do believe that inorganic growth can now be part of our overall growth strategy for terex. So the team is working on that and we're excited about the potential and the opportunities that we're seeing for M&A activities, but again, we'll be very disciplined in our approach to M&A, but we absolutely are looking at M&A opportunities.
<unk> for us going forward.
Okay. Thanks.
Thanks.
Yes.
Sure.
Your next question comes from the line of Ann Duignan with Jpmorgan. Your line is now open.
Yes, Thank you and good morning Miranda.
When we were sitting here at the end of Q4 top Tim to add a hedging program that was in place for almost all of the <unk> in North America and it still means.
And so what's happened there has demand come in stronger than expected and any incremental demand has not changed and subject to higher costs are.
A little bit more color on actually what's happened in the quarter in terms of input costs and our.
Is it just raw materials or is it other thing Tim just little more quantification of actually what's happened during the quarter.
Sure maybe John I'll start on the skilled side.
Okay, you can add.
So as you pointed out.
Hi.
Ill talk about our hedging program and that we had.
Hedged the.
Predominant amount of our path.
Hot rolled coil.
<unk> for the North American market for 2021.
We have not entered into additional hedges for steel for 2021 during the Corp.
The first quarter.
We certainly know steel prices.
Including in the futures market have increased significantly and therefore.
Utilizing our hedging program would not have been.
Financially beneficial transaction for us.
The additional volume over and above.
I will say our initial guidance this year.
Procure that as part of our normal steel purchasing program with our from our steel suppliers.
Hi, John.
Turning to input costs.
I'll, just say obviously not not.
Not just simply steel, but other.
Material, such as resin logistics costs et cetera.
Have definitely increased over the course of the quarter and that.
Those cost increases are built into the updated guidance updated outlook that we're providing here today.
Okay. Thank you and I appreciate the color on that that sometimes suspected.
And then.
Can you give us a little bit more color in terms of the region and demand I know you tend to end demand improved through the <unk>.
Across all regions and all segments, but.
Any favorable product mix this quarter or in the odd pluck any favorable regional or non paper borrowing with I think last quarter, Dan you talked about favorable product mix as well as favorable lean genomics. So an update there would be great.
Great. Thank you I'll leave it there thanks.
Thanks, Sam and again very encouraged about the broad based demand picture that we're seeing across our businesses and really across multiple regions. If we look at our crushing and screening business. We saw end market strengths in Europe, North America, and the APAC across our product line.
We look at concrete mixer truck business specific in North America saw substantial growth in orders in that business really and we think thats associated as much with the residential construction market, but again substantial increases.
In Terex advance.
We were just talking about materials and if there is one positive of high steel cost scrap metal prices are going up and that is really helping our material handling business, our fuchs business and again and we're seeing that really around the globe Europe North America.
Substantially up for our Fuchs business, our environmental business is a relatively new business within MP. So we're seeing good market demand, but it's also a great example of product line extensions growing that business for us and again a similar story, we are seeing that growth both in North America and in Europe, and beginning to see some growth in that.
In that area in APAC one.
<unk> business that we don't talk a lot about is our pick and carry business down in Australia, Australia, whether the pandemic reasonably well and we're seeing strength in orders in that in that business, both from the mining sector as well as.
Infrastructure down there so that business, we saw some good year over year growth and strength as well and we did see some improvement not to the same level that we've seen in the other parts of the business, but we actually saw some recovery in our tower cranes in our tea business and finally, India. We were seeing we saw order strength in India.
Obviously, we're all concerned about the current COVID-19 situation.
In India. Our team members are doing a great job navigating that following the protocols and keeping production are running safely in India, but again just encouraged by the broad.
Level of demand across the globe across our product offerings within RMP segment and again the team continues to do a great job in a challenging market executing on that demand.
Thanks, Tim.
Your next question comes from the line of David Raso with Evercore ISI. Your line is now open.
Hi, Good morning, Thank you for Tom I was wondering David tunnel.
The relationship of your AWP backlog at the end of the first quarter to the full year.
Historically that backlog is 30% to 40% of the full year Rev.
More recently in let's call it closer to 40.
If that relationship held I mean, it would imply revenue should be north of $3 billion. This year on the AWP not to want to change.
So can you help us bucket.
Why the weaker conversion of backlog into revenue at that magnitude I mean, Tom.
Close I mean is it the backlog.
Are you starting to have orders extending into the following year more than normal.
Is it just.
Your customers have ordered that much earlier. So then naturally we will see a little less sequential order.
Orders are normal.
Is it the logistical shipping issues and I guess the question with visa.
How conservative is that does that guide just given the starting point with that backlog.
So so thanks, David and again encouraged by the increase in customer demand after after last year.
There were a lot of orders placed early this year from our early obviously in Q1 as you see the backlog.
Go up significantly and again, we saw that David around around the globe.
In terms of the ability to increase production. We are limited right now by by the supply chain, we're working with our supply chain to ensure that we can meet the customer demand, but the limiting factor.
The near term so call that Q2 Q3.
Is the supply base and the supply basis ability to ramp to the levels that we're at so that the supply base is unequivocally a limiting factor in the demand that we can deliver for our AWP segment and to some extent not to the same extent that to some extent the same thing in MP. So in the current environment, David and ramping up the <unk>.
Supply chain is the limiting factor.
And in our ability to meet the increased demand. The good news is is the demand is there and the team is working hard to secure the materials to be able to achieve the higher production rates. So that's basically what's driving this year. Thus far is material supply material constraints and the team is doing a heck of a job overcoming note.
So we can meet the needs of our customers.
So theres no David.
Yes.
When you think about the guidance when we thought about the guidance, we took that into consideration and.
To the extent that we.
It's early in the year right now and as we work through the supply chain and the opportunity to increase production, we would factor that into our guidance is also and David The second part of your question was in terms of is the backlog for beyond 2000, and a very small percentage of the backlog is for 'twenty two <unk>.
Average and Thats really more in our utilities business and the custom truck side.
And so some of that backlog has moved into 'twenty, two but but theres not a significant portion of our 2021 backlog that we're showing that for delivery in 2002. There is some but it's not it's not a significant portion David.
I appreciate that I'm, obviously, it's a positive that have that much backlog I'm just trying to level set.
Gatekeeper is the ability to ramp up.
The orders that would normally show up into Q3 Q because of the early ordering maybe the inability to serve new demand.
Respect that would suggest the orders sequentially dropped a little more than normal.
And I'm curious given the seasonality of taking iron.
Really right before September August even earlier, how do we how do we I'm just trying to level set the idea of the orders could look a little weak going forward.
Do you think your customers given the supply constraints.
Might start putting orders in for 'twenty two.
Earlier, meaning not worrying about hey, if you can't get it to be this year I know I'm going to need in the spring I am just trying to level set how we interpret the orders going forward.
I think David that observations on 22 already.
So I'm putting orders in for 'twenty two earlier.
I will say this David there is an awareness that in general the supply chain as tight and obviously not just for us and not just for.
The aerial equipment.
For a rental companies. So they are cognizant that the supply environment is tight we're having conversations but I can't tell you at this time David This early in the year that it's going to fundamentally alter how they think about order and order order placement as we go forward. So I think we're going to have to be responsive and reactive.
The situation I can't tell you right now at this point in time in the year ago that we're going to see a significant change in terms of order pattern and order flow.
Backlogs are up across the industry and that may lead to behavior change and we'll be prepared for that.
Thanks, David.
Your next question comes from Jamie Cook with Credit Suisse. Your line is open.
Hi, good morning, and nice quarter I guess Q question. The first one can you just help us understand your approach to pricing when you put any incremental price increases I think your peer has talked about putting in a 3% in March and just wondering if you or is this comparable and is it a surcharge or an actual list price increase.
Tap water has changed since that price increase and then my second question Kathy.
Everyone's sort of asking questions around this but is there any way for 2021 Holistically. We can think about the incremental costs associated with whether it's supply chain inefficiencies COVID-19.
Net cost I'm, just trying to understand what costs could be sort of incremental in 2021 that aren't necessarily there in 2022 net terex that far.
Potentially good incremental margin in 2020, Calif day volumes are still back thanks.
I'll take the first part Duffy and if Youll take the second part.
On the pricing and price cost strategy, what we're doing is being very transparent with our customers.
And being very clear in terms of the cost increases that we're seeing our normal pattern is that we have a price increase for the upcoming year. So that would be in Q4 of last year for 2021 deliveries when we saw the substantial increase in material cost.
Around steel, we did implement an incremental price increase in March.
That went into effect for orders that were placed after for the most part of it very bad business, but for the most part orders placed after the end of end of March that incurred the higher price that we're seeing the range of price that you indicated is relevant it within that ballpark low low single.
It does vary.
Across businesses the level of increase that we're asking for again being transparent with customers on the cost increases that we're seeing in terms of the price cost relationship as you saw in our in our outlook guide.
This year, because we had so much in backlog, we chose not to in general we chose not to reprice. The backlog there are some specific situations where we.
We had to.
And so the price cost is negative this year as a result.
That backlog, but the pricing did go into effect.
Right at the end of the first quarter and the.
Orders and equipment that we deliver that is not in backlog going forward will be at the higher price level and we will continue to monitor the data center continued to.
Adjust price based on the material cost inputs that we're seeing and again being very transparent.
With with the customers stuff that you want to follow up on the second piece of the question yes.
Yes, <unk> weighted look at we included the EPS walk from our previous guide to our updated outlook.
In the earnings presentation today, and where do you see there is that we included a line per kit.
Debt.
<unk> reduction.
From the previous guidance as a result of cost pressure and I think thats probably a good.
Marker for you.
What the impact has been from our from the start of the year in terms of the impact to us in terms of decreases whether resident.
Brendan.
Et cetera.
GAAP.
We are.
With the.
The reason why we increased prices and.
We are only partially offsetting it is John offsetting those cost increases as John said, but I think 55 would be a good number.
Thank you.
Thanks, Jamie Thanks, Jamie.
Your next question comes from the line of Tim Thein with Citigroup. Your line is open.
Great. Thanks, just I wanted to circle back on the earlier theme on an order timing.
Specifically on NPS.
Obviously very strong bookings.
The segment as a whole, but im just curious within that.
Rushing in screening.
Typically that quarter growth tends to start out the year strong based upon.
The construction season.
And from dealers and customers want enhance delivery. It ahead of that but I'm curious if you think that there may have been within that <unk> bookings number there may have been some.
Kind of preordering, given concerns about longer lead times, so effectively some pull ahead of orders.
Net.
They have come in subsequent orders that may have come later in the year do they get potentially pulled into the first quarter.
Okay.
Thanks, and again on the MP side, Tim we actually saw order activity begin to improve really in the fourth quarter of last year. So this is the continued momentum on orders within the E&P segment.
Again across all the businesses within MP, we have seen significant order activity increase.
We've got a very rigorous process of looking at the dealer orders is there some ordering activity as a result of seeing lead times extend yes. That's a natural reaction that a distribution channel would have about 70% of the business and MP goes through a distribution channel. So there may be some of that but I think the biggest dry.
River and the order activity is what our dealers are seeing in their end markets based on our telematics data, we're seeing increased utilization.
Seen significant conversion.
Rent to own there's a lot of that in that channel. That's enabled the dealers too to order back. So when we look at our dealer inventory levels, even even with the increased sales dealer inventory levels are down. So all in all we feel very strong about where we are in that business and yes, there may be.
Some preordering, because they want to get slots, but they're only doing it because they see the demand in front of them and we're seeing especially on the all of our businesses, but this whole concept of infrastructure, that's driving demand around the world and it's not even in place yet, but it's the attitude is the expectation.
And globally, we have seen infrastructure investment and that clearly has helped RMP business around the world. So there may be some but the market demand. The underlying fundamentals are strong and frankly, we believe theyre going to continue to be strong and frankly increase as.
As we go around the world So.
MPT has done a great job in that business is performing at performed in a down cycle and I think it's going to perform incredibly well in the upcycle.
Okay got it thank you.
Thanks, Tim.
Your next question comes from the line of Ross Gilardi with Bank of America. Your line is open.
Thanks, Good morning, guys Tomorrow.
Tomorrow.
Could you just talk about some of the things you did and are still doing with your global sourcing strategy and how those how some of the critical elements from those things just sort of enable care ex which should enable terex to cope better in this environment, where we've got.
Widespread shortages and more localization and just everything thats going on right now with supply chain tightness, what have you done to better equip the company for the next cycle.
Great well one of the major initiatives that we've had over the last couple of years.
I'm very thankful that we did was our strategic sourcing initiative and what they are able to enable us to do is really strengthened our relationships with our supply base and when things get challenged those relationships become very important and there is much more engagement at senior executive levels, where more and more important cut.
Customer.
Our suppliers and so the hard work that the team has put in place on our strategic sourcing initiative has really positioned us well with our primary suppliers also setting up secondary and alternate suppliers has helped overcome the challenges that we've had sort of the strategic sourcing initiative that disciplined process.
<unk> that we put in place is really helping us in this environment and I think it will continue.
To assist us as we go forward and I do want to hats off to our all of our operations team, but especially our strategic sourcing teams and our logistics teams. It has been a challenging environment like all industrial companies right now and Theyre doing a great job managing our supply chain.
Focusing on continuity and the strategic sourcing initiatives that were implemented over the last couple of years of really served us well in this challenging environment and theyre going to serve as well as we move forward.
John just a quick one to follow up on that so would you say would you say that you have your move to more towards single sourcing of critical components to enhance those relationships or have you moved more towards dual triple quadruple sourcing.
And John.
Yes, so it's hard to say in general because it really depends on which specific commodity or that youre looking at work.
From a general statement, we look to reduce our single source.
If it made economic sense to do that so we have.
Increase the number of alternative sources, we have absolutely had to go to those alternative sources in this environment and so I don't want to make a general statement because it truly does matter and what type of component what type of commodity that we're dealing with but I will say, it's a strategic decision by commodity what is our strategy.
<unk> for that respective commodity as we go forward.
Got it thanks, so much thanks Ross.
Your next.
Question comes from the line of Brett Linzey with vertical research partners. Your line is open.
Hi, good morning, everyone.
Thank you Brett.
Wanted to come back to some of the cost initiatives and really thinking outside SG&A.
<unk> pointed to the manufacturer example, in telling handlers localization of production in China.
Moving to quantify what the savings you think those actions are yielding.
Outside some of the SG&A stuff and then.
Have you identified additional repositioning opportunities around the footprint.
Thank you a lot of the activity was in our AWP segment, specifically Jamie of the team's done a great job as we mentioned on the SG&A side as you acknowledged in that that focus and discipline will continue on the manufacturing footprint. We've taken action, we closed our rock Hill facility.
We're moving our Keller handle the production from Oklahoma City to Mexico, which is going to give us a call.
<unk> advantage as well and then also within our manufacturing facilities. Our teams have done a great job really driving productivity and leverage with indirect manufacturing spend and as we as the volumes come back we would anticipate that that leverage on the indirect side of the manufacturing spend will also be helpful.
To drive margin improvement as volumes return so it's been a multi pronged approach by the team looking at every element of the cost structure and ensuring that work globally cost competitive and every activity and I might also add that every activity within the company. So it's also functional activities where can that be done.
In the most cost effective area around the world. So the team has a comprehensive plan, we're implementing a comprehensive plan to drive the margin improvement and over time, we are going to drive the genie business back to double digits or historical levels of margin activity and the team is committed to doing that.
And.
While I don't think we can put a specific dollar number Ross.
Cost savings and what they contributed it when you look at some metrics right is the AWP segment Q1 improved 680 basis points year over year, the incremental margin per the full year reported.
4% on the outlook, we provided today.
A 7% operating margin. So I think those are some of the metrics that demonstrate the cost.
The hard work on cost improvement that the AWP peoples has executed on.
Yes, no doubt very strict on a strong start when they come back to the order book is the uptake youre seeing driven by existing customers, replacing equipment or are you seeing new customer engagements driven by products or some of the front end <unk>.
Commercial processes.
It's a combination.
New customer acquisition, but also the replacement cycle, especially in the AWP segment.
Deep cleaning last year, utilizations, improving they're beginning to build back their fleets.
And we think if you just look at the replacement cycle for the Genie business of what's coming forward.
There is a strong run ahead for that business.
We're going to have to ended at this time. So we can stop right at the top of the hour. We know you all have other calls. This afternoon. So I was just wanted to say thank you for your interest in Terex and a public public announcements COVID-19 safety remains a priority for us here at Terex, we're continuing to follow the safety protocols and I would strongly encourage all of us to be.
<unk> when the opportunity presents itself, we no longer have a supply issue we have a demand issue with the vaccine. So we're working hard to convince our team members to receive the vaccine. So we can move to the other side of this pandemic operator, please end the call.
Yes.
This concludes today's conference call. Thank you for participating you may now disconnect.
Tom.
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