Q1 2022 Terex Corp Earnings Call
<unk> 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.
Thank you Randy and good morning.
I would like to welcome everyone to our earnings call and appreciate your interest in Terex.
I would like to begin by thanking all terex team members for their efforts in this challenging global operating environment with production disruptions and Covid impact.
Team members are working diligently to improve our performance for customers and shareholders.
We are seeing strong global customer demand in our business.
Bookings of $1 $8 billion increased 19% year over year.
Record backlog of $3 5 billion.
<unk> increased 17% sequentially and 73% compared to prior year.
The global operating environment has become increasingly difficult and unpredictable.
With that said our supply chain team members, who are working hard to minimize production disruption and to deliver for our customers.
Next let me take a moment to address the war and its impact on tariffs.
First our thoughts are with Ukrainian people.
During the first quarter, we stopped accepting new orders from Russia and Belarus.
Have no manufacturing.
And limited historical sales into Russia.
<unk> and Ukraine.
However.
The recent increases in commodity prices.
Energy costs and logistics, resulting from the war.
Are adversely impacting the company.
Despite these challenges.
<unk> team members have worked together to drive our strategic priorities execution.
Purposeful innovation and growth.
Turning to slide three.
We are proud of all tariffs team members, who are keeping themselves and other states.
I would like to thank our team members around the world for their continued commitment to our zero harm safety culture, and Terex way values.
You remain a top priority of the company.
Driven by thanks.
Work safe home safe.
Our strong commitment to zero harm is driving improvement of safety metrics, such as total recordable incident rate.
Which has significantly improved over the past six years.
This is a testament to the hard work and dedication of our team members.
Please turn to slide four.
Our strong environmental social and governance programs deliver stakeholder Bay.
We continue to progress on our ESG journey with leadership from our board of directors and executive leadership team.
During each quarterly Investor call, we will feature one of our pillars of our ESG strategy and we will report progress.
This quarter, we are highlighting social responsibility, which includes diversity.
QWERTY and inclusion for dei.
Employee engagement and community support.
I am proud that many of our team members are actively participating in our India groups, which.
Which includes veterans.
Women working parents pride and non majority of chemo.
For example, Ah.
A working parents group is very active in supporting each other during this demanding time for working families.
In addition, three.
3000 team members participated in our March International Women's day events throughout the world.
Our goal is to capture the full potential of tariffs by making sure every voice is heard.
And team members feel valued and welcome.
Affinity groups get team members an opportunity to support one another grow their networks and provide education.
Each of our executive leadership team members is sponsoring one of our eighth global affinity groups.
One of our objectives is to drive action around social responsibility.
Including increasing E mail and non majority representation throughout the company.
Our executive team's compensation is aligned with these goals.
I want to recognize our team members impact on their communities, which clearly demonstrates the terex way values of citizenship and service leadership.
Our materials processing team members in India are partnering with local nongovernmental organization to fund children's rights and education.
And all of our team members will participate this quarter and our habitat for humanity project and environmental cleanup.
Also team members in the company have donated to the Euro cranium relief efforts.
We are pleased with our progress on our ESG goals.
Please turn to slide five to review our financial highlights.
The team delivered solid financial results for the quarter.
Sales of $1 billion were driven by continued strong global customer demand.
We continued prudent cost management.
Operating margin of seven 4% improved year over year.
And earnings per share of <unk> 74.
Increased 32% compared to prior year.
Overall first quarter financial performance demonstrated continued strong execution by our team members in a dynamic and ever challenging operating environment.
Please turn to slide six.
Our MP segment is a diversified high performing portfolio of businesses.
Mp's brands have leading market position with excellent end market product and geographic diversification.
Mp's global demand remains strong.
Illustrated by a 24% increase in bookings and a record backlog of $1 2 billion.
Up 66% year over year.
Our power steering and Finlay brands are benefiting from strong global aggregate demand.
We have leading market positions with our mobile crushing and screening products.
Growth of environmental and waste recycling solutions is driving demand for our <unk> and CPI products.
The MP team has taken existing product designs and modify them to service the fast growing environmental and waste recycling markets.
The strength of residential construction is driving demand for our cement product ex U S housing inventory is being replenished.
Vance mixture business has launched new products and features.
Our fuchs material handlers are benefiting from high scrap steel prices in addition.
Books machines operating hours are higher which drive parts revenue.
The strength of commodity prices been driving demand for prana pick and carry cranes in Australia.
This product is being redesigned for the growing India market, which is the largest pick and carry crane market in the world.
Mp's end market diversification as a strength.
All of these markets are growing and provide strong demand for our leading MP brand.
It is <unk> end markets are also strong.
Illustrated by a 16% increase in bookings and.
And our record backlog of $2 3 billion.
Up 77% year over year.
Construction infrastructure and industrial applications are driving demand for <unk> solutions.
Applications, Virginia products include data centers warehouses and manufacturing facilities.
The replacement cycle in North America, and Europe is positive.
The fleet's age and customers have strong utilization rates.
Globally <unk>.
<unk> adoption continues to improve labor efficiency and job site safety.
Except for China demand remains strong for Genie products in all regions.
Our utilities business will benefit from the electric grid expansion as well as anticipated infrastructure bill related spending in 2023.
Further the business, while participating in the demand for <unk> telecom across the United States.
The business has robust demand as customers look to reserve multi year production slots are.
Our new state of the Art Watertown, South Dakota facility has the capacity to support this growth.
Turning to slide seven.
Our execute innovation growth strategy will continue to strengthen our operations in 2022 and.
And allow the company to capitalize on strong demand in our end markets.
First the team continued expansion into new markets and geographies, which has high growth potential.
Quoting recycling material handling and electrification.
MTI continues to build out prostate bulk.
Bulk handling product offerings and distribution channels.
This is an excellent adjacency to our existing material handling solutions.
In AWP.
The Ginnie substation utility boom demonstrates partnership between our Genie and utilities business.
To deliver a new insulated boom for electric Substations.
And operator cannot use a bucket trucks.
Our parts and service teams are investing in digital offerings for dealers and customers, including my tariffs and lift connect.
Enhanced features include improved.
Improved service analytics, allowing customers to maintain their equipment and reduce downtime annually.
Timely information such as utilization rates and fuel consumption improves customer operating.
Online product information and intuitive parts and service order functionality.
More than 60000 machines are fitted with this technology and more enhancements are underdeveloped.
We are also expanding our utilities customer service footprint with the new Atlanta facility.
In addition to technology and customer experience, we continued to invest for growth both organically and inorganically.
In February we made an investment in biotech with their plug and play electronic power takeoff system.
This demonstrates our commitment to support the electrification of utility fleets that allow us trucks to operate without engine out of it.
This solution supports our customers' ESG needs by eliminating noise and carbon emissions.
It also lowers operating costs and extend the life of utility equipment.
Reducing engine operating hours.
This week, we announced the acquisition of the heavy fabrications manufacturer based in Northern Ireland.
This purchase supports mt's growth strategy by increasing fabrication capabilities and capacity.
These actions and investments demonstrate our commitment.
Executing on attractive growth priorities that support our strategy.
Turning to slide eight.
An important part of tariffs organic growth is our new Monterrey, Mexico facility.
Recently visited the temporary facility, where our highly engaged and talented <unk> team members are currently producing callahan.
The team is building a strong operational foundation.
Based on the zero harm safety culture, and Terex way values.
I also visited decided the permanent facility, which is early in the construction space and progressing well.
Local supply chain development is also underway.
The Monterrey team came together over the past year from multiple industries and they are doing an incredible job.
It has been great to see the excellent teamwork among our local Monterey.
<unk> <unk> and corporate teams working together to create a world class manufacturing facility.
Please turn to slide nine.
Geopolitical issues and local COVID-19 policies are causing increased disruptions and significant cost increases in.
The materials were.
<unk>.
Energy and labor.
These headwinds have constrained our growth. However, we are aggressively managing these challenges.
In the quarter Covid cases continues to increase at.
At Terex, we had more cases in Q1 2022 than we had during the full year of 2021.
This adversely impacted production and efficiencies at our facilities as well as our suppliers.
Towards the end of Q1.
China, Covid policy started causing significant disruption to our changeover and judging facilities.
This is also impacting many of our China based suppliers.
Further increasing disruption and our global supply chain and logistics.
The team is battling headwinds every day.
By mitigating cost pressures and minimizing production disruption by staying close to suppliers and expanding our supply base.
Redesigning confluence and maximize the availability of critical inputs to improve production.
Providing transparent communications of delivery and cost headwinds to our customers.
And.
Implementing price increases in response to inflationary cost pressures.
In this dynamic environment, our operations sales and customer service team members are demonstrating resilience and flexibility to increase production deliveries for our customers to overcome these global challenges and with that I'll turn it over to Julie.
Thanks, John and good morning, everyone, let's take a look at our first quarter financial performance on slide 10.
We reported sales of $1 billion up 16% year over year, primarily due to increased volume and price.
Foreign currency translation negatively impact sales by $32 million or approximately three 5% in the quarter as the euro weakened against the dollar.
Gross margins declined by 180 basis points in the quarter as pricing actions, partially offset cost increases are.
The AWP business recognized $3 million.
Benefit related to prior period from the reinstatement of tariff exclusion.
And a business tax refund.
Recall that we were not able to ship all 2021 priced orders in 2021 due to component availability.
Input costs for steel I drive engines freight and logistics have increased on a year over year basis on a sequential basis and since our last earnings call.
Spike the highly inflationary environment SG&A expense of $3 million lower than the prior year.
SG&A percentage of sales of 11, 1%.
And by 210 basis points from the prior year as strict expense management control continued.
Operating margin of seven 4% is up 30 basis points compared to the prior year and up 40 basis points sequentially due to disciplined cost control.
First quarter operating profit was $75 million compared to $62 million in the prior year.
Current quarter operating profit increased $5 million.
Charges in corporate and other associated with restructuring severance and litigation charges related to former product lines.
Interest and other expense was approximately $4 million lower than Q1 of 2021, primarily due to reduced interest expense on debt levels that were lower by $239 million.
The first quarter 2022 global effective tax rate was approximately 18, 5% and you either.
Recorded favorable discrete items in the quarter.
Our global effective tax rate estimate for the year remains at 25% consistent with our previous outlook.
First quarter earnings per share of <unk>, 74 increased 32%, representing an 18% improvement over last year.
Financial Carlyle had a <unk> 10 per share negative impact in the quarter.
Incremental margins of 9% for the quarter were below our target of 25%.
As we discussed in February and the first half of the year, our incremental margin framework of 25% is challenged as inflation continues to escalate.
Our return on invested capital remained strong at 19, 2%.
Free cash flow for the quarter was negative $72 million, which was consistent with past historical patterns for the first quarter.
We have not yet received an approved $39 million IRS refund.
I won't discuss free cash flow in more detail later in my prepared remarks.
Let's look at our segment results.
Starting with our materials processing segment.
Slide 11.
Pictured here on the slide are excellent examples of our growth investments in M. P. R is the Czech recycling product lines and Terex washing system.
<unk> had another strong quarter with sales of $453 million.
One 8% compared to the first quarter of 2021, and the business ended the quarter with a backlog of $1 $2 billion up 66% from a year ago.
Booking activity was particularly strong in our aggregate and environmental businesses.
These challenging markets and increased our operating profit by 31% in the quarter and reported operating margins of 14, 2% up from last year.
Hundred and 20 basis points and sequentially by 40 basis points.
<unk> has been able to show consistent performance even in this inflationary environment at King continued excellent operational execution.
On slide 12.
Our aerial work platforms segment financial results.
AWP sales of $552 million increased by 16% compared to prior year eight.
AWP first quarter bookings of $1 $1 billion were up.
16% year over year, with particularly strong booking activity in the utility business.
Backlog at quarter end was $2 $3 billion up 77% from the prior year.
Jeannie and utility I've taken multiple pricing actions over the course of 2021 and 2022 to address inflationary cost pressures.
AWP delivered operating margins of five 9% in the quarter up from last year by 30 basis points and sequentially by 110 basis points driven by strict expense management.
Excluding the financial call up benefits in the quarter operating margins were consistent with the prior year.
The Genie and utility team are working diligently to deliver every day I am proud to work with them as we continue to drive operational improvement.
Please see slide 13 for an overview of our disciplined capital allocation.
To provide you some color on our free cash flow performance.
Historically the business is in a negative free cash flow position in the first quarter.
In the first quarter of 2021, our free cash flow was positively impacted by $15 million of tax refunds and $7 million of net benefit from the sale of our TFS portfolio.
Q1, 2022 has improved when compared to our historical performance in the first quarters of 2019 and 2020.
Free cash flow in the quarter of negative $72 million was adversely impacted by increased inventory of $108 million.
The higher inventory levels were at least a 40.
$42 million increase in hospital inventory awaiting installation of final component and a $44 million increase in raw materials to support our backlog.
Now, let me detail some uses of our cash in the quarter we.
We continue to reinvest in our business with capital expenditures and technology investments of $23 million.
A large portion of our capital expenditures is related to our Monterrey, Mexico facility.
Turning cash to our shareholders is an important element of our disciplined capital allocation strategy.
The company increased its quarterly dividend per share in February the 13th.
At eight 3% increase.
In addition, we completed $18 million of share repurchases in the quarter and we believe at Terex shares are an attractive investment.
We had $122 million remaining on our share repurchase program.
Ali the company has significantly delever over the past four years and strengthened its balance sheet.
Outstanding gross debt has been reduced by $738 million since the first quarter of 2019, 50% decrease and $239 million since the first quarter of 2021 or 24% decrease.
We have no near term maturity until 2024, and 81% of our debt is at a fixed rate until the end of the decade.
Our net leverage remains low at 1.35 times, which is well below our two and a half times target through the cycle.
We have ample liquidity of $753 million.
The company is in an excellent position, so Brian and grow the business.
Now turning to slide 14.
We're reaffirming our full year company and segment 2022 outlets that we shared with you in February .
Supply chain challenges continue.
But inflation pressures geopolitical uncertainty and highly restrictive China Covid policy has gotten worse since we last spoke to you.
It is important to recognize the unprecedented environment could change this outlook positively or negatively.
Our performance in the first quarter was better than expected.
As for our commercial demand, we continued to see strong bookings activity in the first quarter.
We ended the quarter with backlog of $3 $5 billion.
However, our sales outlook reflects the latest dialogue with our suppliers.
Those are not a function of demand.
Rather the ability of the supply chain to deliver components, we have the internal capacity to produce more and have demonstrated such in the past.
Operating margins are expected to definitely increase throughout the year as price cost dynamics improve.
MPS margin of 14 to 14, 5% will be relatively balanced throughout the year.
Awp's operating margin of 788.5%.
Price realization improving throughout the remainder of the year.
In the second quarter, we expect Awp's operating margin in the mid single digits.
Operating margins are expected to improve in the third and fourth quarters as pricing actions take effect.
With that said incremental margin in the first half of the year are anticipated to be negative.
But improve in the second half and be above our 25% target.
M. P had an outstanding second quarter in 2021 with operating margin of 16, 4%.
So the business has a difficult year over year comp for the second quarter of 2022 and.
In addition, empties incremental margins are negatively impacted by investments in new products and manufacturing capacity.
AWP also had a strong second quarter in 2021, delivering 11% operating margin as sales recover and there were minimal inflationary pressures.
Therefore unfavorable price cost dynamics in the first half of 2022 really solid incremental margins below our target, but increasing to above our target in the second half of the year.
Turning to free cash flow, we expect improved free cash flow in the next three quarters, and we reaffirmed our $175 million to $225 million outlook.
Finally, I would like to reaffirm our earnings per share outlook of $3 55.
The $4 five and with that I will turn it back to you John .
Joyce.
Slide 15 to conclude my prepared remarks.
Terex is well positioned to deliver increased shareholder value because we have strong businesses strong brands and strong market positions combined with record backlog upon which we can grow.
We will continue to invest in new products and manufacturing capacity, along with strategic inorganic growth.
We will continue to execute our disciplined capital allocation strategy and we have demonstrated resiliency and adaptability in an increasingly challenging environment I'm confident this will result in <unk> being an even stronger company.
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.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. If he would like to withdraw your question again Press Star. One. Your first question comes from the line of Nicole <unk> with Deutsche Bank. Your line is open.
Yeah. Thanks, Good morning, guys good morning.
Good morning.
And so the <unk> margins, but definitely I think better than expected, but incrementally inflation has stepped up versus when you guys provided your original outlook. So maybe you could talk a little bit about how the price cost equation is looking for the full year relative to how you were originally thinking about it.
Thanks Nicole.
So the objective of our pricing strategy really across our global businesses is to offset material and logistics cost increases.
We took pricing actions in late 2021 is inflation began to accelerate and unfortunately, it was not enough and so we had to take additional actions across the company in 2022.
We are being transparent with our customers and our distribution partners regarding the level of inflation that we're seeing and why do we need to take the additional pricing actions I'll also comment that our supply chain teams are pushing back hard on our suppliers, but nonetheless, we are seeing.
<unk> impact and so in the AWP business again took pricing actions late 'twenty one it was not enough.
So we implemented further price actions in April to mitigate the inflationary pressures that we're seeing in our outlook is is that price realization will improve throughout the year for AWP and this was consistent Nicole we do anticipate being price cost negative in the first half of the year in <unk>.
Cost neutral for the full year is that price realization improves.
At our MP business, you know MTI has done a really good job.
Offsetting most of the material and logistics inflation that we've seen around the globe.
They have been dynamic in updating their pricing and we expect that they will continue to be dynamic as we go forward and even though their pricing has been more dynamic as we know well.
We've seen greater inflationary pressures here this.
This year as a result of the war in Ukraine, which impacts our MP business given their production.
Capacities.
In Europe , and so we're looking for them to also they have to take further price actions as we progress and were expecting MP for the full year to remain price cost neutral. So again, that's that's our pricing actions, we're being transparent with customers being clear of what we need and why do we need to take these pricing actions they are different.
Conversations, but absolutely necessary given the unprecedented level of inflation, we're seeing so pricing is dynamic and its ongoing to offset these inflationary pressures that we're facing.
Got it thanks, John and just as a follow up.
I mean, one of your biggest competitors talked about actually taking surcharges. This week, which is a total change in how the industry typically prices and even adding those surcharges to equipment. That's already in backlog what is care access approach to taking the incremental price increases that you just spoke about.
Our approach is price actions you can call them share charged the price increases we did take the pricing actions for anything that had not been delivered so anything delivered after mid April in the Genie business will carry the higher price.
Thanks Robert.
I appreciate it.
Later next question.
Yeah.
Yeah.
Operator next question. Please your next question comes from the line of Stephens Volkman with Jefferies. Your line is open.
Hey, good morning folks thanks for joining us.
Maybe semi related but I just wanted to sort of understand the moving parts here. So last quarter, you said you expected it.
<unk> margins to be sort of low single digits in the first quarter. Obviously, they came in better than that <unk> been sort of subtracting. Your good Guy that you described Julien and I'm just curious what what was better than than you expected was it price cost or just throughput.
Player availability, just what actually was better.
Yeah, So Steven Thanks for the question.
It's slightly higher and higher volume.
And we had a bit of a favorable product mix and we had some strong execution and price costs and really the team did an excellent job on strong expense management.
Both operating and SG&A costs SG&A costs were were very favorable there, where we have a very strong.
Cost control environment, and they've done a really really great job on managing costs. So all of these things where were favorable we did have some unfavorable exchange, though want to make sure everybody knows that as the dollar has strengthened the genie AWP business in particular is impacted by the strengthening of the dollar against the euro.
So that's.
That's helpful. Thanks, and then I guess as we think about the second quarter.
It sounds like Youre kind of thinking margins are flattish sequentially on what I assumed is up revenue sequentially, but correct me if I'm wrong, there, but that seems conservative or have things sort of deteriorated at the margin.
Sort of a more realistic outlook.
So go ahead, Julie I'll take the first part Steve on the on the volume side, and we can talk a little bit more on the supply chain, but with the with the changes in China and the Covid policies. There we have a large production facility that produces for China, but also exports out of China.
To the rest of the world other than than the United States and so we're seeing some softness in production as a result of those Colgate. So we're looking at probably flattish revenue year over year in the AWP segment, and Julie you want to comment on the margin side, yes margins will be up slightly.
You know just due to you know a little bit more pricing actions coming through in the second quarter.
Okay. Thank you.
Thanks, Dave.
Your next question is from the line of Tami Zakaria with Jpmorgan. Your line is open.
Hi, good morning, Thanks for taking my question.
Good morning, Jeremy.
You've taken.
How are you.
We have taken multiple price increases year to date can you remind us what's the volume and price mix embedded for the full year sales growth and also if you could remind us what the mix was in the first quarter, a 16% growth you saw.
Yes.
Thank you and thanks to a.
Very much for the question Kevin.
We.
I have in the first quarter, we had them.
More price than we had volume so about and it was offset by FX of three 5%. So about two thirds of our increase was related to price a third of it was related to volume.
And so as we look at our full year.
We will see more pricing, we have higher cost to us offsetting that we have unfavorable foreign exchange in the year and volume up a little bit more than what we gave you last time about 6%.
Got it thank you and also.
Can you talk about the recent northern Ireland steel fabricated acquisition anything you can share on what kind of sales and margin accretion you expect over time and how this fits into the overall portfolio.
Thanks, Tami, yes. The recent acquisition, we made really it's a vertical integration play we needed to take control. There are heavy fabricator manufacturer, we've been doing business with them for quite some time and we needed to be to ensure our growth in our in our MP business. They are in northern Ireland with our crushing and <unk>.
Screening products, we needed to control the fabrications and so there was going to be a change of control in the business and we felt it was appropriate for us to control that fabricator to ensure that we have the growth that we need going forward. So it really is it's a it's a vertical integration play Tammy to control our supply chain.
Great. Thank you so much.
Thanks, Jamie Your question. Your next question comes from the line of David Raso with Evercore ISI. Your line is open.
Hi, good morning.
So it appears all the math and I know corporate expense goes down sequentially because of the one off item in <unk>.
But it seems like puts and takes.
<unk>, maybe around 85, or so what I'm trying to understand is in the back half of the year.
You would need roughly about $2 20.
To get to that.
The midpoint of the guide and that just feels like a.
Tug of war between price cost improvement.
And then the negative in particular, the China Lockdowns in Russia, Ukraine fallout, especially on your cost structure in Europe can you help us a little bit quantify.
How are you thinking about the guide in that back half when it comes to and I know, it's hard to predict but I mean.
There is some work around a little bit around the China locked down to some degree or some assumption of.
Of handling the lockdowns in a different way or just assuming there is some opening and then the Russia, Ukraine fallout I guess, particularly that would.
Hurt the MP profitability, so I'm just trying to.
Think about the second half earnings being above the first half with those tug of war as price cost positive versus those two obvious negatives to the lockdown in the Russia, Ukraine situation.
Yeah, Thanks, David and Youre right price cost given the pricing actions, we need to see improvement in the back half of the year clearly.
On the price cost side, I think David really the way we're looking at it its really.
This is not a demand issue, it's a supply issue and what we're doing is we're looking at what's the demonstrated capacity of our suppliers and we've built our outlook around that demonstrated capacity. They have demonstrated a bit you know a billion dollars.
One type of level of capacity to meet to meet our needs and so we've built our outlook around that and in terms of the <unk>.
Supply chain supply chain performance, we didn't see an improvement in the supply chain in the first quarter as a matter of fact, we saw some deterioration in performance, we are anticipating and other parts of world, We do see a slight improvement, but not substantial improvement in the supply chain to.
To meet our forecasted needs a bit of a challenge right now is COVID-19 in China. It has impacted our facility. The good news is we haven't been shut down completely but we have had rolling shutdowns based on the ability to have a material in the plant. So our team member can work our suppliers are experiencing similar.
A similar phenomenon and so based on the best information available that's how we've laid out our outlook for the second half of the year and it's really in that billion won kind of range and that's the demonstrated capacity that suppliers have exhibited frankly for the last couple of quarters and we're not anticipating a significant improvement now if we do get a signature.
An improvement clearly the demand is there and we will be able to produce and deliver more but right now the constraint is the supply chain and the new variable here in Alaska.
60 days 30 days is really the China, Covid policy and what impact that has on the global supply chains and so that's obviously, what we're managing and we believe our outlook comprehends the best available information available.
And I'm just trying to thinking mathematically if it's sort of like 80 <unk> has to go up roughly call. It 2015 sequentially to get to that sort of a $1 10 run rate in the back half every 100 bps of price cost improvement is about 10 right. So it seems like there is a couple.
A couple of hundred bps of improvement in price cost and then just hopefully a little a little improvement in the lockdown situation.
Is that the.
Rough math and how to think about the swing from the first half negative price cost to second half positive price cost. It's at least a couple of hundred.
Basis points and that kind of gets you the incremental EPS.
So David.
You are correct.
We'll see for AWP is the operating margins of seven eight to eight 5%.
It improves sequentially over time as price realization improves throughout the remainder of the year and for the MP business operating margins remain relatively flat in that 14% to 14, 5% for the year. They just continued to do an outstanding job each quarter.
Okay. So the AWP price cost swing is the major driver for the back half and then.
And we'll obviously see what happens with the Russia, Ukraine situation, but that's sort of the delta right. If you can get some locked down help that obviously helps AWP volume on top of the price cost and then the rush of fallout.
Just on the cost side for empty, you've already taken the margin sort of down to a.
Lower than previously expected right just the idea of sort of flattish the rest of the year roughly speaking.
Okay. That's fair thank you very much.
Thank you David Thank you.
Your next question is from the line of Jamie Cook with Credit Suisse. Your line is open.
Hi, good morning, a nice quarter.
Thanks, Jamie.
My question is on the backlog.
On AWP, obviously, I think you were at $2 3 billion, which suggests you are starting to take orders for 2023 and can you just sort of help us understand how contractually one whether you are in and how you are contractually.
You know, making sure we don't have price protecting yourself right. So we don't have price cost headwinds in 2023, whether you have any surcharges in air or contract really for 2023.
Then since you announced the April price increase.
Have you seen any change in order pattern patterns as a result of that thank you.
Thanks, Sami I'll I'll answer the questions in reverse order there so.
I can say this broadly across the globe, we haven't seen any significant order cancellations as a result of the price actions that would been taken of course, there are pockets at times, we saw some of our utilities business based on municipal contracts, but in those cases actually it went to rebid and we were able to.
To win the bid in terms of the journey of the aerials business. The good news is we are seeing quite strong demand.
Rental companies are really good position theyre seeing record levels of utilization there business is strong we're entering into the replacement cycle and I think the replacement cycle is going to continue and I think it's probably going to continue to be pushed a little bit to the right because of the industry's ability to meet.
The demand from a capacity standpoint, so we are having discussions with customers we do have.
Orders that are flowing into 2023, the way in which we have handled it as we have provided indicative pricing there is provisional and that will be reviewed at the end of the year as we get closer to the time of actual production in the beginning of delivery. So we are not locking in pricing for 2023.
At this time, we'll provided provisional indicative pricing for all customers that are interested they are taking some production slots, but we have the ability to go back at the end of the year and adjust prices based on what the material <unk> material conditions are at that point in time of the year.
And into 2023 I might add.
And John just as a follow up in terms of who is coming in for 2023 that the nationals or is it pretty broad based across your customer base and then I'll come back to you. Thanks.
Jamie it's really broad based so it's across all customer segments in North America European base that principally right now in North America, but we're seeing strong demand.
All over the World right now in <unk> with the exception of China. So it's broad based across the customer segment.
Thank you very much thank you Jamie.
Your next question is from the line of Stan Elliott with Stifel. Your line is open.
Hey, good morning, everyone and thank you guys for taking the question.
Quick question on the Prana business, it's been a great product great margins for you guys, taking it into China, what sort of investments will be required from from you. All there can you build it within some of your existing facilities just curious how you know.
How that will eventually ramp.
Yes, so youre right front is a great business down in Australia, and we're seeing some real strength again, there is positives and negatives.
Greg commodity prices around the world for mining lead to strong business for for us with <unk> and its actually go into India. So what the team has done it and we're the clear market leader in picking carry in Australia, but it's a much smaller market and so the team has taken the fundamentals of the front end design and we're moving it to our <unk>.
Facility and host sewer localizing, it and done a great job localizing it and building. It there we had a had expanded one of our manufacturing facilities and hosts or so right now they are going into the existing facility. We will need if were successful as we think we will be we will need to add to the capacity that we have there.
Stan in wholesaler.
And again, it will be modest levels of investment, but again excited to to see that that's a great example of growth.
Product line extension regional growth that the MP team is really good at and we're excited to see what happens in the reception. Thus far has been quite positive and again, it's the world's largest picking carry market. So we're excited to see if we can drive some incremental growth and profitability.
In India with the front of product line.
Switching gears, maybe a little bit about what's happening on the M&A environment.
Curious if you will.
The transaction from the other week is that really more was that more opportunistic in terms of being moved more into fabrication would you still like to be more expansive within the product categories that you are operating more on the E&P side, just curious if that mark.
<unk> change or if it is kind of more opportunistic.
So we obviously, we have a bias towards growth Mal with capital deployment. So if you look at the investments, we're making or for organic growth a fairly substantial in our systems and our technology for organic growth. We also have done several smaller acquisitions over the course of the last year.
Building, an active M&A pipeline. Our principal focuses are in and around the MP businesses in the verticals that we compete in an MPV.
The market structure, we think theres going to be opportunity. So we have an active M&A pipeline that we're active on and in this particular case it really tied to yes to some extent it was opportunistic but to a broader extent, we wanted to make sure we controlled our ability to grow a critical part of our business and key heavy.
Fabricators are very important to our growth for our MP business and so it was opportunistic key area for us and we felt the vertical integration there in northern Ireland was important to have that ability to grow going forward. So that's why we made the.
Physician staff.
Perfect. Thanks, so much for the time and congratulations best of luck.
Sam.
Your next question comes from the line of Steven Fisher with UBS. Your line is open.
Thanks, Good morning, I Wonder if you could.
Could just give us a little more color from the frontline to the supply chain situation there's still.
Seven day, a week frenzy kind of dynamic or is any of it normalized a bit.
Related to this on on China, how much of the.
My concern here is just a concern that it might have a more global impact versus just within China or are you already seeing it have a global impact on the supply chain.
The supply chain environment still.
As.
Incredibly dynamic.
When you look at supplier on time delivery performance, we have not seen.
Good news is it hasnt deteriorated significantly, but it hasnt improved so on any given day, we literally have hundreds of parts that are late or not where they need to be in our facilities.
The world. So the teams are doing a heck of a job adapting to that environment. So we have not seen a significant improvement in the supply chain.
We did see a build in what we call hospital inventory almost a $40 million increase in bad debt represents inventory that's substantially complete awaiting one or two components that we can complete and ship and so the team is still dealing with that phenomenon, we would've never spoke about hospital inventory prior to this.
But that's that's the environment that the team is dealing with and so it really is resilient adaptability staying close to suppliers getting the best information available as soon as possible and then adjusting your production schedules to maximize our production and limit the disruption too.
To a certain extent, but it's disruptive every single day.
And the Covid situation in China. It has clearly impacted our plant. The good news is we're not in a region, where our plant has been shut down for a month.
It's been able to operate but we are seeing and we have situations where suppliers are giving us a heads up that there are second or third tier suppliers are struggling right now and thats going to impact their deliveries to us. So again, it's just another variable that the teams have to manage and.
The good news, though in China is is.
When our team members can work, we have 99% plus attendance and they want to work all the hours that are required to make it up and so once they are get some freedom of movement in China. It will recover quite quickly.
Now you've got a deal with the logistics and all that sort of thing, but that's the good news in this challenging scenario was once the policies change China will recover quickly. The question is how long are.
Are we in this zero zero tolerance zero, Covid and what impact does that have and it really is a.
City by city plant by plant and so that's why it remains dynamic and again our team is doing a heck of a job managing through that not just in China, but on a global basis.
Okay, and just could you remind us what your position is on steel costs for the second half of the year versus the first half.
Yes so.
Our original outlook, we had talked about an 800 in the first half for hot rolled coil in the U S going down to 200 in the second half that assumption is now 800 in the first half down to up to <unk> hundred in the second half.
Perfect. Thanks, a lot.
Thanks, Steve Thank you Steve.
Your next question comes from the line of Steve Barger with Keybanc capital markets. Your line is open.
Hey, Thanks, and good morning.
Good morning, Dave.
Your comments on challenged incremental margin, especially in the first half or totally understandable. My question is if you come in at high teens. This year for argument sake does that rebound above the target range next year, meaning that as you get a handle on price and supply chain you would expect to run.
Further into the 30% plus range to kind of get to a two year average on that target.
So.
Yeah.
I'll take the first part Stephen.
Julie jump and honestly our target as a manufacturer is 25% incremental as we said clearly challenged in the first half of the year above that target in the second half of the year, we will see as we as we move into 2023 clearly in the AWP segment, we need to be looking at something north of 25%.
To get to the margin levels that we think that business should operate in on the MP side, they're consistent level of operating margin sometimes.
Sometimes they fall a little short of that 25% target, but as Julie said, that's because of some of the investments, we're making so the 25% target as our target and.
We will see as we move into 2023, but clearly in the AWP segment, we're going to have to do better than that to get back to the margin levels that we think the business should should enjoy.
Understood. Thanks, and you talked about the Fuchs operating hours being up and driving the parts business.
How does fuchs compare to say screening in terms of driving aftermarket parts and can hire operating hours across the installed base really drive a material benefit to earnings or is that just more of a modest tailwind.
So the highest parts usages are obviously the heavy screens.
And crushers, just given the nature of ground engaging but the operating hours of our Fuchs machines in terms of hours run on the engines and movement is actually the highest so.
They do generate nice parts revenue stream a lot of the strategies that were put in place are driving incremental revenue in our parks business margins have again, we have to take the same pricing actions. There. So it's a modest tailwind for us as we go forward, but we do think there's ability to continue to grow our parts and service business.
Ross the globe.
Thanks, Steve got it thanks.
Your next question is from the line of Seth Weber with Wells Fargo. Your line is open.
Sure.
Hey, good morning, guys.
I wanted to ask a question about Europe specifically.
Demand environments in Europe , and your ability to get pricing.
Are you getting pricing the same.
<unk> levels that Youre getting in North America. Thank you.
Thanks in terms of the pricing actions.
Icing actions our regional based on the specific cost needs in the regional markets for both AWP and MP business. They are taking pricing actions around the globe specific to the respective products in the region. So the pricing actions do vary and we are.
Seeking price increases in Europe , both in the AWP business and the E&P business as we go forward.
How would you characterize as demand levels in Europe relative to.
To North America, or any sort of impact that youre seeing demand perspective.
With respect to the to the war.
In the first quarter, we saw strong demand in.
In Europe , we will see as we move forward, but right now we've seen strong demand across both MP in AWP in Europe .
Okay. Thank you and then just a clarification John you talked about.
Utilities bookings being particularly strong where agent where access bookings up in the quarter as well or is that just all driven by utility.
First both of the business had increased that bookings in the quarter.
Yes.
Most of the parcels.
AWP, yeah, yeah, both the Genie and utilities had increased bookings in the quarter.
Okay. Thank you.
Yes.
Your final question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.
Yes, hi, good morning.
John I'm wondering if you could hi.
John can you talk about your handling of the current supply chain headwinds in China given.
The experience that the organization has gained over the past.
Three years dealing with these rolling shutdowns globally.
How much more global as your supply base today, as you drill down and look at core underlying components.
The tier suppliers could you just talk about that dynamic it feels like youre in a better position today.
Over the past couple of years, given the work the organization has done but.
Maybe you could.
Quantify the supply base.
To provide some more color on that.
Yes, I mean, the team has done over the last several years.
Tremendous work on the strategic sourcing initiative and it really is a globalized supply base now with that.
Came.
<unk> manufactures suppliers in China.
And especially around castings.
I draw it components and some electronic components China's a world leader in those categories. So those are categories, where we have seen some disruption associated with Covid and again, that's what we'll be watching quite closely.
The work the team has done consolidating suppliers identifying primary suppliers and growth suppliers, we've been able to move and again this tight supply environment has been challenged but where we need to move some supplier increased capacity. We have had some success there and most importantly, I would say is that just a level of importance that we are.
Our to the supply base has enabled senior level dialogue, because I'm spending a lot of time on the supply base side and the strategic sourcing initiative that we underwent allowed me to have those relationships that I think are critical in this time period to ensure that our suppliers understand the impact that they're having on our <unk>.
<unk> into making sure that the suppliers are utilizing all resources available to help break the constraints.
That had been applied and we've seen we've seen some amazing work done by the teams from an engineering redesign standpoint and done things safely.
And properly tested in time frames that we wouldn't have thought possible.
Prior to.
To this pandemic, so I would say that that strategic sourcing and enabled us to have those relationships that we needed through the organizations were more importantly suppliers and it's clearly helped now with the level of disruption. They are experiencing their on time delivery performance is not anywhere near where we would like but that's one of the things we discussed.
When we have our senior level meeting so again I think we've made progress.
Our localizing some of as I mentioned in my opening comments, we are localizing. Some in Mexico, We think Mexico will be a good <unk>.
Apply base for us to support not only our Mexico operations, but also our U S. Based operations. So you will see us moving some from Asia into into Mexico. As we go through the coming years, because we think thats a quite attractive place for us to be going forward. So.
Jerry kind of around the world on our supply chain, if you will.
I appreciate it.
Uh huh.
I'm wondering John now that you have all of the telematics Dave.
Data in place can you just talk about how in Europe utilization has evolved.
Year to date.
Given the.
Disturbance in energy prices and obviously the war can you just talk about.
What the utilization has looked like in AWP in Europe in the quarter versus normal seasonality.
Okay.
April if you if you can share it.
So just just looking at the graph as we speak we saw good good utilization increase in general and actually January February we did see it declined slightly in March and a little bit more in April now again, we're not seeing in North America, especially we're not seeing the normal seasonality impact because the demand is so strong but we did.
See a little bit of come down and operating hours in April .
Europe based on our telematics data.
Thanks.
Thanks Jerry.
I will now turn the call back over to Mr. John garrison for some closing remarks.
Thank you operator, if you have any additional questions. Please follow up with Julian Randy Please stay safe and healthy and thank you for your interest in Terex operator, please disconnect the call.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Okay.
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