Q2 2023 Terex Corp Earnings Call
Greetings and welcome to the second.
Second quarter, 20th 20th Street results Conference call.
At this time all participants are in a listen only mode.
A brief question answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
Now my pleasure to introduce your host Caritas from Asia.
Head of Investor Relations.
Good morning, you're welcome to the second quarter of 2023 earnings Conference call.
Copy of the press release and presentations like that posted one hour Investor relations website at investors Dot <unk> Dot com.
In addition, the replay and slide presentation will be available on our website.
We are joined by John Garrison, Chairman and Chief Executive Officer.
<unk> Senior Vice President and Chief Financial Officer.
Third remarks will be followed by Q&A.
Please turn to slide two of the presentation, which reflects ever Safe Harbor statement. Today's conference call contains forward looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied.
In addition, we will be.
Cutting non-GAAP information the beliefs, it's useful in evaluating the companies operating performance.
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 .
Prior to us and good morning, I'd like to welcome everyone to earnings call and appreciate your interest in <unk>.
I would like to begin by thanking all tariffs team members around the globe for their excellent work and meeting the needs of our customers and dealers.
And for their continued commitment to safety.
Are zero harm safety culture extends across everything we do.
It is our first priority.
Primary responsibility to create a zero harm environment for our team members.
Thanks.
Safe and go home Safe every single day.
Please turn to slide four to review, our outstanding second quarter financial results.
This quarter the team delivered sales of $1.4 billion up 30% from last year.
Operating margins, a 15% and expansion of 540 basis points from the prior year.
And earnings per share of $2.35 more than doubled on a year over year basis.
As a result of the strong execution by our team members in the first half of the year and robust backlog across our businesses.
We are raising the full year outlook to approximately $7 per share.
Police are besides spot.
Terrace is well positioned to capitalize on several mega trends that are expected to drive continued growth in the coming years.
Across the globe, the public and private sectors have made significant infrastructure investments.
Which are critical to support economic growth.
And meet the needs of increasing population and urbanization.
Global annual spending on infrastructure is approximately five trillion dollars.
The U S is starting to Modernise infrastructure after decades of under investment.
And the infrastructure investment and jobs Act alone is expected to drive 550 billion of additional spending over five years.
Both are segments are well positioned to benefit from accelerating infrastructure spending.
For example, our power screen and firmly brands have leading positions and global global crossing and screening markets that will benefit from growth and the demand for aggregates.
Terrace utilities offers a wide portfolio of products well positioned.
To capitalize on the investments needed to enhance the electric grid.
And our Genie Booze scissors and Telehandlers are essential components of any infrastructure project.
In addition to.
<unk> and the inflation reduction act are expected to generate more than 600 billion of spending related to digitization.
Chip manufacturing clean.
Clean energy and onshoring over the next several years.
In fact manufacturing spending in the U S is up 56% in the last 12 month period.
His multibillion dollar and multiyear investments related to summit conductor manufacturing clean.
Clean energy and Evie battery projects are beginning.
Our Genie business will benefit from growth in data warehousing and chip manufacturing onshoring projects.
While terex utilities has leading capabilities in place to support strengthening demand from clean energy related electrification initiatives.
Further waste disposal and recycling regulations are becoming more stringent globally.
In response to increasing focus on sustainability.
RMT brands, including Ecotec C.
C B I and tourists washing systems at the <unk>.
Front of the market provide.
Providing customers with innovative recycling solutions.
We are excited about the opportunities AD for <unk> to capitalize on these megatrends by delivering innovative products and solutions for our customers.
Please turn to slide six to review our backlog.
For more than two years, we've been constrained in our ability to increase deliveries due to supply chain challenges.
Our backlog of 3.7 billion remain significantly above historic levels.
And has the second highest backlog for Q2 in recent history.
Customer and dealer pushups and cancellations remained minimal.
Consolidated Q2 bookings remains healthy at $1 billion, which is consistent with last year.
Our backlog demonstrates the strength of our end markets.
Ports or improved outlook and gives us visibility into early 2024.
In addition, elevated customer fleet ages, and low dealer inventory levels continue to support demand.
And our Genie business the industry replacement cycle is still ahead of us and.
And we are not at pre pandemic levels, which creates an opportunity for future growth.
And are empty segment, our bookings were up 9% year over year.
Turning to slide seven for an update on our strategic operational priorities.
We continue to make strong progress on our execute innovate and grow strategic initiatives.
Our operations team had excellent execution during the second quarter allow.
Allowing us to improve deliveries to our customers and increase sales by 30%.
Supply chain performance did improved during the quarter.
But we continued to experience lingering supply chain disruptions in the system.
Our team members reduced our hospital inventory levels by half.
And our persistence focus on cost reduction and productivity improvements.
Contributed to a margin improvement of 540 basis points.
Or work on the permanent Jeanie facility in Monterrey, Mexico remains on time and on budget.
And Q2, we made good progress and continued to transfer product lines to the new permanent facility, where the focus on two telehandler lines.
We started production of one model in early April .
Which was followed by the second model and May as planned.
In the coming quarters, we anticipate additional product moves from other factories on our network.
We also expect our in house paints system to be operational in the second half of the year.
While the new plant less significant long term benefits the.
The ongoing process will result in short term manufacturing inefficiencies, which the Genie team is working hard to overcome.
Our investments in the development of superior performing.
Environmentally friendly new products.
Also help us to deliver on our growth plans.
I want to congratulate our Genie team members for winning the 2023.
Sustainability Award.
Strong recognition for their contribution to reduce carbon emissions and improve energy efficiency.
Turning slight ache to reveal some examples of purposeful innovation.
The folks material handling machines are capable of working in a wide range of applications for.
For example, our first name recently launched a new model focused on fourth street and treats there at the lignum Tradeshow in Germany.
The global demand for waste recycling solutions is increasing driven by regulatory and societal changes.
Terrorists washing systems recently developed an innovative solution to process hydrovac waist and the products that generate revenue for our customers while.
While recycling water and reducing waste disposal.
We see a bright future ahead for our environmental businesses by leveraging existing competencies and capitalizing on attractive market opportunities.
Please turn to slide nine.
We are committed to our ESC program that will deliver value for all stakeholders.
During each quarterly Investor call, we will feature of one of the pillars of our ESG strategy.
This quarter, we are highlighting governance.
At <unk>, we are proud of our firm commitment to strong governance practices.
We haven't engaged experienced diverse and independent board of directors.
Committed to maintaining strong governance practices.
We also maintain expensive shareholder engagement.
We conduct an annual say on pay boat and a substantial portion of executive compensation is directly linked to company performance.
Our board of Directors also provides oversight versus sustainability efforts.
We are firmly committed to protecting our reputation by making decisions and taking actions that align with our terris way values and the framework outlined error code of ethics.
Please turn to slide 10.
We continue to operate in a challenging environment with macroeconomic and supply chain uncertainties.
We remain diligent in monitoring credit and interest rates market conditions that continue to evolve.
We saw improvement in supply chain during the quarter.
Our team was able to reduce but not eliminate our hospital inventories.
Which indicates that we are not back to pre pandemic levels.
Additionally, inflationary pressures are moderating, but overall our costs continue to increase.
I am confident in the team's ability to continue to adapt and overcome the macroeconomic challenges that we have been facing.
And with that let me turn it over to Julie.
Thanks, John and good morning, everyone, let's take a look at our second quarter financial performance found on slide 11.
We demonstrated excellent execution and a dynamic environment.
<unk> of $1.4 billion for up 30% year over year at higher volume and improved price realisation necessary to mitigate rising costs sales.
Sales in constant currency were up 31% as foreign currency translation negatively impacted sales by $10 million or approximately 1%.
Gross margin increased by 460 basis points and the quarter as volume pricing improved manufacturing efficiencies and strict expense discipline helped to us that cost inflation.
SG&A increased over the prior year due to inflation incremental spend on new acquisitions and increased marketing engineering and technology expenses S.
S G&A with 95% of sales at decrease in 60 basis points from the prior year district expense management and higher sales.
Compared to last year income from operations of $210 million more than doubled operating large enough, 15% was up 540 basis points and are incremental margin with 33%.
Interest and other expense of $18 million increased $3 million from the prior year due to unfavorable mark to market expenses, and third party investments and higher interest rate.
Second quarter global effective tax rate was 16.7% due to the reversal of a valuation allowance.
Second quarter earnings per share of $2.35 more than doubled.
Representing $1.28 improvement over last year.
This strong performance was driven by increased volume disciplined pricing and continued cost management.
This quarter includes an unfavorable earnings per share impact of three cents from foreign exchange translation.
Free cash flow for the quarter was $135 million, representing a significant improvement over the prior year I will discuss free cash flow later in more detail.
Let's look at a segment result, starting with our materials processing segment and on slide 12.
And he had yet another excellent quarter with consistently strong operational execution.
Sales of $577 million increased 20% compared to the second quarter of 2022 with healthy demand for our products across multiple businesses.
And a foreign exchange neutral basis sales were up 22%.
M P operating profit increased 23% over the prior year, driven by higher sales volumes favorable product and geographic mix.
Proved manufacturing efficiencies and disciplined cost management withdrawn operating margins a 17 per cent.
Bookings were up 9% over the prior year.
And in the quarter with backlog of $1.1 billion. The backlog remains robust and is approximately two and a half times historical norms.
And slide 13 tier aerial work platforms segment financial results.
<unk> had an outstanding quarter with sales of $825 million up 38% compared to the prior year at higher demand disciplined pricing actions to offset cost pressures improves supply chain and a reduction of our hospital inventories.
AWP more than doubled their operating profit and delivered operating margins of 16.2% in the quarter up 850 basis points from last year with an incremental margin of 38%.
Improvement was the result of higher sales volumes favorable geographic mix cost reduction initiatives and manufacturing efficiencies offsetting increasing costs.
Bookings of $513 million were at a healthy level.
<unk> has a strong backlog of $2.7 billion.
Please see slide 14 for an overview of our disciplined capital allocation strategy.
<unk> is an excellent financial position.
Strong balance sheet provides us with financial flexibility to invest in our future growth.
Free cash flow for the quarter was $135 million compared to $44 million a year ago.
91 million dollar a year over year improvement and free cash flow was due to increased operating profit.
Sale of our Oklahoma City facility.
Hospital inventory at the end of the second quarter was $23 million a decrease of $25 million from the first quarter of the year. Thanks to the hard work of our team members.
We continued to invest in our business with capital expenditures and investments of $25 million, which was more than offset by $33 million in proceeds from the sale of our Oklahoma City facility.
In July we announced a 13% increase in our dividend to 17 cents.
This follows a 15% increase we announced earlier this year the.
The combined increases put our dividend, 31% above last year and reflect our continued confidence in the company's strong financial position and future prospects.
We repurchased $31 million of shares in the second quarter, we have fully offset dilution associated with incentive caught for the year and have $159 million remaining on our share repurchase program.
We continue to believe Tariq shares are an attractive investment and we intend to take advantage of market dislocation.
We have no debt maturities until 2026, and 82% of our debt is that a fixed rate of 5% until the end of the decade.
Our net leverage remains low at 0.7 times, which is well below are two and a half times target through the cycle.
Have ample liquidity of $763 million and we reported a return on invested capital of 28.2%.
The company is in an excellent position to execute our plan and grow the business.
Now turning to 515 and are updated full year outlook.
It is important to realize we are operating in a challenging macro environment with many variables and geopolitical uncertainties. So results could change negatively or positively.
With that said this updated outlook represents our best estimate as of today.
Thanks to the strong performance of our team members and robust backlog, we're raising our 2023 outlets to approximately $7 per share.
Our increased sales outlook of approximately $5.1 billion incorporates the latest dialogue with our customers and our supplier.
Sales in the second half of the year are expected to be lower than the first app due to normal production seasonality and lingering supply chain constraints.
We have increased our operating margin outlook to approximately 13%. This reflects our excellent performance in the first half of the year continued robust backlog the latest information from our supply chain.
Cost benefit and continued strict expense management, partially offset by cost increases and manufacturing inefficiencies related to the product transfers and our Janie network.
We expect improved free cash flow and the second half of the year and we are raising our outlet to approximately $375 million due to higher earnings.
Let's take a look at our updated segment outlook.
Based upon M. P's continued strong execution, we are increasing our sales outlook to approximately $2.2 billion in an operating margin of approximately 16%.
We expect M P sales and margins to be relatively consistent for the remainder of 2023.
<unk> P team is increase their factory output and as a result, we are increasing our sales outlook to approximately $2.9 billion.
Incorporating the increased volumes the teams cost reduction activities.
Reising actions and improved manufacturing efficiencies, we're raising our full year operating margin outlook to approximately 13.8%.
We anticipate AWP sales in the second half to be lower than the first half due to fewer production days and lingering supply chain constraints.
AWP strong margins in the second half of the year are expected to be negatively impacted by lower seasonal volumes cost increases and manufacturing inefficiencies related to schedule production moves to our Monterey facility and with that said I will turn it back to you John .
Thanks, Julie turning to slide 16 to conclude my prepared remarks.
Turks as well positioned for growth to deliver value for our stakeholders in 2023 and beyond because.
Cause we participate in strong and markets, including infrastructure electrification and environmental.
We'll continue to execute are disciplined capital allocation strategy, while investing in new products and manufacturing capabilities, along with strategic inorganic growth.
We have demonstrated resiliency and adaptability in a challenging environment.
We have great team members.
Businesses strong brands and strong market positions and with that let me turn it back to pair tosh. Thanks.
Thanks, John as a reminder, minder during the question and answer session. We asked you to limit your questions to one and a follow up to ensure we answer as many questions as possible. This morning, but that I would like to open it up for questions operator.
Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad switch all your questions.
Okay.
Our first question comes from Steven Fisher from you B S. Please go ahead your line is open.
Thanks, Good morning on a nice corner on the margins. There you know you guys have been vocal about wanting to have a bit lower back log in reducing lead times for your customers. So I I guess, but looking at your main a W. P competitor that showed that.
Clogged roads yesterday, what do you think is.
Main difference between their experience and yours during the quarter.
Yeah.
Thanks fever is a lot of timing activities, but I'll just again looking out of my <expletive> level, having overall company backlog at 3.7 billion reflects three times are historical norms. We did have a strong bookings in the quarter of a billion dollars, which again was consistent with last year and I think what's also important is.
Is that we continue to see minimal cancellations and push out across the backlog across both segments and given the level of backlog. We think that's really important the other comment as we're broke $1.5 billion for 2024, so that gives us some early visibility into 2024, and as you and I have spoken out spoken with investors.
I'm out on the on the bankers' confidence.
<unk> unique set of circumstances and that we have a strong demand environment.
But over time, we could be looking at declining backlog and why is that in a strong demand environment, because we're beginning to see the improvement in production and providing better service to our customers and delivering products closer to when they need it.
And again the other thing is that as our lead times improvement, we're still have extended lead times, but as they move back more historic norm. It's possible. We're gonna see book to Bill rates decline, but we may still continue to be in a strong demand environment, which is what we're currently seeing why does that because lead times, we'd be normalizing and again that helps us and helps.
Customers from a planning cycle.
So overall, we're seeing a strong demand environment now as it pertains specifically to AWP I think it's more timing or anything or backlogs $2.7 billion conversations with customers very bookings Barry at different times, given the disruptions that we just talked about and then overall as we looked at our market share.
For the last 12 months.
And our AWP segment, it's been relatively consistent with no significant change one way or the other and so I think it's as much timing with conversations potentially with customers is anything but the underlying market demand is remains strong and we've got some good visibility in the early 2024, which is how you've been covering up.
A long time, it's highly unusual we have this level of backlog going and.
Going into 2024, so that's how I would approach it again unique circumstances and and and.
Again, it's it's.
Kristin dynamics, you're going to have strong demand with declining backlog in book to build that may be be declining, but that's more about production reduce than it is overall demand so interesting environment and again three.
Three 7 billion. It's three times are historical norm is Steven just to add a little bit of that demand remains straw and due to the high utilization rate the aging fleets and the electrification projects and we expect multiyear strength.
In you know as a result of that is that.
Replacement demand and growth of customer relatively it's due to strong residential construction and onshoring and and to be further supported by those multiple infrastructure bills as well. So we expect strong demand going forward with.
<unk> with the the good visibility into 2024.
That's very helpful and you know it's a bit early but you do have a good amount of backlog for 2024, I think you mentioned 1.5 billion.
Likeliest scenario is it that you're costs.
Actually be lower next year or is it sort of an inevitability that that they're gonna be still somewhat higher.
So overall I think it's a broader supply chain and cross question again on a good news side, we did see improvement on our supply chain in the quarter, although we're not back to pre pandemic levels, but the improvement is clearly help we have seen similar lingering supply disruptions in in terms of the inflationary side.
You know, we continue to see inflation in in our materials as we go forward.
Especially labor is global labor rates have gone up that's being incorporated into material cost. So.
We continue to see component cost increases on.
On the positive side, we have seen a decline in ocean freight rates and land right.
Rates, which we think will help but Matt Matt anything that we're booked into 2024, we're anticipating what the 2000 to 2004 cost structure will be and we are anticipating increased cost in 2024.
Very helpful. Thanks, so much.
Mmm. Our next question comes from Steve Berger from Keybanc Capital markets. Please go ahead. Your line is open.
Hey, Thanks, good morning.
Nancy your guidance.
Your guidance assumes maybe a mid 30 per cent consolidated incremental which is you know nicely above the 25 per cent you typically talk about.
If you generate top line growth next year.
Single digit or better does that the above trend incremental this year detract from next year or it's 25 per cent achievable on that incremental growth.
Yeah.
Thanks for the question D as in a bit early to talk about 2024 at this point, but you know we would long term our goal is 25% incremental margins.
Got it but but is there anything you know like structurally that you would see that could.
Hinder that.
Mmm not at this time, it's early to talk about 2024.
I understood.
And and looking at the <unk>.
[noise] environment and your backlog can you talked about capacity constraints for next year or do you have enough capacity to grow revenue for instance, 10% or something next year. If the demand is there in the supply chain constraints are resolved.
Yes.
Yes, we do have the capacity if you just look at our you know if we look at our AWP segment, we're producing a at levels lower than where we were in 2018 and 2019. So we have the physical capacity, we have our new clients in Monterey again that was for global competitiveness reasons, but it will it will give us a capacity if we look.
At R. M. P businesses were been investing if you look at our capital expenditures would've been investing through the cycle and Capex. We've made investments in India were made investments in Northern Ireland, we're making investments on our German plant. So we've been addressing all along in our plants and our capabilities and capacity. So we're well positioned.
To meet the growth needs.
[noise] materialize or when they materialized in 2024.
That's great I appreciate your time thanks.
Thanks, David.
Our next question comes from Steve Boeckman from Jeffries. Please go ahead. Your line is open.
Alright, good morning, because I see what we're doing here, leading with the speeds.
[laughter].
These two go ahead [laughter].
Just just glad to be part of the group that's all.
So my question is on sort of the second half margins and.
W. P and I'm curious if you have any guidance for us relative to sort of the two the cadence of the second half and also maybe a little more sharper pencil around the impact of the moves down to Monterey.
Okay. Thanks for your question, Steve Happy too. So you know we look at our AWP business for the second half.
Uhm it implies a sales outlook of of of $1.4 billion in the second half of $2.9 billion for the year, we anticipate lower sales in the second half of the segments feces lingering supply chain constraints and the sales will also be impacted by fewer production days as is typical in the fourth.
Border for my operating margin perspective are are a fiscal year outlook is 13.8%.
Which reflects a 590 basis point improvement year over year and some of the factors that impact the second half things like manufacturing inefficiencies.
Related to that scheduled production moves throughout the Gd network, we estimate that to be somewhere between 10 and $15 million in the second half again, those fewer production days as is typical and that impacts.
Manufacturing efficiencies in that in the fourth quarter in particular less favorable products and regional mix and we're assuming flat hospital inventory for the rest of the year. So the team.
[noise] done an outstanding job of execution.
And they are delivering a 400 basis point improvement year over year, So I'm really.
Happy with Ah AWP, they're doing a great job managing customer orders cost inflation supply disruptions in production changes to deliver that significant year over year improvement.
Got it okay. Thanks for that and then maybe a little earlier on this topic, but I'm curious, how you're thinking about electrification in a W. P.
My guess is that sort of a ripe area for electrification, but my guess is also it's pretty small so far so I'm curious sort of you know how many models of Carnival electric Awp's are available and and do you see people sort of shifting from ice to electric and that product and then the <unk>.
Final piece of that is.
What do you think that does to your margins overtime hours the margin on an electric versus a nice product.
Thanks for the question and the <unk> and then also.
Also utilities, but we've had a very active electrification program Steve.
In the Genie business and just the drought some statistics for 76% of the total scissors revenue that we have today is already electric power, 66% of all of the services offered either hybrid or electric. So you can see almost three quarters of the scissor volume is already there electric and will continue to.
Adapters, we'd go to electric more electric drive more electric over hydraulic in the future. If you look at our boom products 30 per cent of our products are either offered in hybrid or electric in in from electrification standpoint, and I think this is also important because part of the progress of margin expansion in the Great War.
The team's doing this in our new product development, 65% of the products over the last three years of were brought to market have been either a hybrid or electric and they enjoy good margins one of the things that we strive for new product development is are we bringing products to market that meet the needs of the customer, but we're also looking at it can we drive gross margin.
An improvement as well so I think the team's not a really good job of that so right now as well over a third or almost a third of the total revenue is attributed to some type of electrified piece of equipment and I think that will continue to grow over over time and then the other thing that you saw the investment we may not but.
Is important with an accurate or inaccurate, what's really going to help us on battery battery technology, bringing these things to market from a certification standpoint, as well and so Ah electrification is incredibly important to our product portfolio across the portfolio and and I think jeannie as well positioned as we go forward, but one product line.
Perhaps will wag on electrification is telehandlers and that's really more around the duty cycle, but there's activity occurring until the handlers as well and then our utility segment. As you know we we introduced the first all electric a bucket truck into the market.
Sales of that are continuing and again, we were brought that to the industry first so electrification very important overall.
As well and are empty segment, and it's an area that we're spending a lot of investment dollars in our in our technology and ultimately we anticipate that the margins of that product over time will be similar to the margins. We enjoy a nice early on it may not be but over time. It definitely is tracking in that direction.
Great. Thanks, John I appreciate the Colorado pass it on but I do think you're out of Steve's.
[laughter] will work out it [laughter] our next question.
And I will come from <unk> from Wells Fargo. Please go ahead. Your line is open.
So close well.
Especially.
Appreciate your slot slotting in I wanted to ask about the the strength and the M. P orders you know some of your peers.
Good orders on the crushing.
Crushing and screening side of the of the business I I'm wondering if you could maybe just disaggregate. Your your M. P orders a little bit talk about.
What you saw crushing it screening, particularly or maybe some of the other categories that were better. Thanks.
Sure so and so overall MPR really strong quarter with their sales up 20% over the prior year and particularly strong in North America bookings were up 9%. There is some caution and some softness in Europe and I'll talk about that in a couple of our product of offerings on the aggregate side sales and bookings were up year over year.
Here and backlogs remain elevated we continue to see lumpy order processing, they're given when the order book is open or not open in the aggregate, but again continued good demand globally four in the Edgar aggregates side of the business.
Concrete side salesman bookings were up year over year, However, backlog was down slightly but remains at a healthy level. We think that is gonna bounce back based on the infrastructure.
Build an infrastructure activities.
Our concrete businesses more tied to residential construction of any of our other businesses and you saw the decline in residential starts we think that's going to bottom out here on the second third quarter, and then and then pick back up so it will be watching that and that business was also impacted more by chance the availability and supply chain issues.
Had to deal with.
Fuchs business or material handling business over in Germany sales were flat and Q2 and bookings in backlog, we're up year over year and I think this is really a good news story of what this team has done is around the diversification because scrap steel has been a little softer prices came off dealers that we're just focused on scrap steel saw some.
Slight build an inventory, but with the new products were bringing into other markets. The products that were bringing into recycling. We highlighted in there are earlier comment.
I'm moving into tree care that diversifications really helping our fuchs business environmental strong word by Europe , but as the world continues to change and adopt environment environmental practices that business continues to grow for US and then in our lifting business sales were flat in both bookings and backlog declined we call back.
Last quarter, principally it's are tower cranes business in Europe .
We saw some softness or Arctic acquaintance business did recover nicely and a quarter and then on <unk> business down in Australia has well over a year's worth of demand and the Australian market remains strong. So again overall strong demand a backlog at two and a half times historical norms and and really what's important here.
You're seeing minimal cancellations and minimal push out in the order broken that's what we're really continue to focus on hopefully that helps that.
Yeah. That's it that's great. Thanks, John and then maybe just a follow up for Julie I appreciate the color of up to $10 million to $15 million cost.
Pick up with the with the move to Mexico is there any way to think about what that number might be for next year and how that compares to the 2023 and.
Impact so I'm just trying to understand if that gets worse in 24 or less bad.
Again, you know again early for 2024, and and you know to talk about that but we will be continuing our moves throughout the Genie network into 2024, so there will be some disruption in 2024.
And not not hire I wouldn't anticipate that we will still have some inefficiencies in the system as we make those private client list.
Okay. Thank you.
Our next question comes from Jamie comes from Credit Suisse. Please go ahead. Your line is open hi, good morning, and congrats on a nice corner I guess.
Cute.
Thanks, John I'm Julie.
<unk>, you know yourselves and your.
You know margins are are moderating in the back half C. D ear, but the incremental margins are actually improving significantly I think when you see most other company talking about incremental margin starting to taper off so I'm just wondering what's going on in Arab what's price cost person you know stuff that might be more structural and then my second question just is.
S understanding supply chain is in totally back to normal but it is getting better I'm. Just wondering if there is you know an opportunity on the inventory side is you just get a little more comfortable with what's going on or do you still feel the need to hold a.
A lot of excess inventory just because of that you know supply chain issues. Thank you.
So do you need a couple of questions I'll I'll start with you know I I would just say that that the.
<unk> in particular has really really done an outstanding job in cost reduction in value added engineering in manufacturing efficiencies improved and so they they've just been a really great job and that's what's really at delivering the improved.
Margin so there.
They've they've increased their operating margins by 590 basis points to 13, 8.8%.
David managing the supply chain disruptions and and you know there again, they're they're they're opening up this new facility as well so they're really big.
Improvement is really in the genie costs, and and they've done a really nice nice job and that we're starting to see that in the bottom line and we expect that to continue in the second half of the year.
And then kind of inventories Jamie again, there is there is more inventory in the channel. So is Julie said the team did a really good job in the quarter.
We reduced our hospital inventory by half and we are anticipating it's going to stay at that level.
The remainder of the year. The bad news is we're still talking about hospital inventory, but again, we are seeing improvement also believe over time I don't think it's going to be substantial Jamie but be given the level of disruptions with all fell in the supply chain over the last couple of years I do think there's gonna be some level or higher inventory.
That's carrie to insure that we reduce the level of disruption that won't experience does that mean that just in time inventory management practices are over no, but I do think it's going to require a little bit more inventory in the system for us to to do a better job of meeting our delivery commitments for our customers as we go forward. So.
Higher level of inventory substantially higher perhaps not but again, we're still seeing disruptions and you'll see it in our inventory levels and are working capital levels doing really good job in receivables. They were great payables are good inventory.
It is an area that we're focused on and it's being driven by that disruption.
Thank you.
Our next question comes from David Roswell from Africa ISI. Please go ahead. Your line is open.
Hi, Thank you for the time I was curious to backlog in AWP can you help us a bit with some color on the mixed with and it can we can we speak of the mix of products maybe.
Maybe the mix of and market, you know, meaning more majors or independence and then also geographically, it's just trying to get a sense of what's in the backlog as it sits today with assuming that's where some of the visibility to be on mixed to start the spring shipments on 24.
Right. So so thank you David and in terms of a backlog if we look at our customer mix start there no fundamental change really in in customer mix. It's closed it ebbs and flows a little bit quarter to quarter in terms of of independence and national accounts again, it's been <unk>.
You know, we're trying to keep customers equally happy and so that that backlog Max reflects the sales mix and it does not reflect any significant change over historical norms from a product standpoint, I would say similar story from a product standpoint.
We ramp up production Telehandlers in Mexico, I think that's gonna help telehandler market's been quite strong and so we need that increase production out of our out of our plant down in Mexico for foretell. The handler. So again no no for US no dramatic shift in in.
And product mix and then if you look at geographical mix. The geographical mix is definitely skewed more towards North America and to some extent Europe , David we made the choice a year ago, we would have had more backlog in China.
But given the Chinese market and the softness that we've seen in the Chinese market.
We chose to take the product from China and export it to other regions rather than.
The pricing levels, frankly that were that were going on in China. So so from a mix standpoint, it's actually a bit favorable mix for us and that is more North America slash Europe oriented versus a year ago, we would have had more backlog.
In China.
Does that help David from our customer product and geographic standpoint, just add a little bit we also seeing strength in Asia the middle East.
As well yeah.
Yeah. It's it's helpful. Just trying to think about 24 be the bigger picture right. This year sales.
We're going to be similar to 2018.
I would argue geographically all in utilities everything North America is probably pretty similar about two thirds of.
Of the mix.
And I'm, assuming you're W. P. As similar kind of you know 70 273 per cent of the mix. So.
At first blush, it doesn't look terribly different but obviously this year has a lot more pricing right. When you. When you look at the revenues it looks similar but as you said you were volumes are not back to where they were in a team, but the margins about 350 bps or so higher and I'm just trying to think about 24 with the.
<unk> currently in the backlog, but also just if I asked you.
Revenue. This year is 2018, but the margins are 350 basis points higher <unk>.
The main driver at first blush to themselves as B price cost I don't see it in the obvious mix.
Can you help us a little bit wider margins are higher at lower volumes the answer might be just right price cost and how that might enlighten us a little bit to think about 20 fours margins.
Really good question, David and it's not all price cause remember our pricing strategy, we're seeking price cost neutrality and we achieved that we were negative for the first half of last year.
Recovered this year, but I think if you look at the specific the AWP segment Cugini and utility teams, they've really been focused on improving their global cost competitiveness and really have dramatically changed the cost structure of these businesses. If you look at our fixed and variable cost ratios.
We focused intently on improving total cost productivity and flex productivity and the team is doing a really good job on that even in this disruptive environment cost out programs and Ah Julie talked about the value added engineering program those have been going on for years behind the scenes, it's taken longer because it takes longer to get prototype parts now.
[noise] supply chain challenges, but as we are seeing some better volume those things are starting to show up in the in the in the P&L they've been very disciplined that would take this as a cross terrorists, but especially in the genie.
Utilities businesses around SG&A and leveraging that is our sales increased now with that said we are going to continue to invest in product in engineering and technology, but they're doing a great job their strategic sourcing and plans and again developing that Mexico supply chain. I know you were down on the plant David So thank you, but it's a big part of what.
We have to do and there's a ton of work that has to happen as we go forward in our Mexico supply chain, but they've been doing a really good job managing the strategic sourcing and the suppliers in this challenging environment as we go forward and bad his health and then as your pricing disciplined process efficiency and effectiveness, making sure that we're staying rigorous.
On pricing discipline, but again I'm, we spoke the story about new product development, and really bringing new products to the marketplace, but are really focused on providing value to our customers, but also driving gross margin improvement that that's a mindset you can't bring it out at a lower gross margin than the product. It replaces instead of the teams really working hard.
On that and then our parts and service business.
Is also an.
Important so if you look at that you know the teams done a lot of good work, we think we're positioned very well as we go forward and that was all about AWP and then David the other part of the businesses RMP business and if you just look at what they have done and have been executed through multiple cycles, great margin, we're making investments in that business.
<unk> are incremental margin isn't quite always at that 25% right why because we are investing in our environmental business, we're investing in our technology site and they consistently deliver quarter after quarter time time again, so again, David we're not going to talk about 2024 digit where we will end, but we think the demand.
That's gonna be good we're going to be resilient and we're going to be adaptable whatever the end market turns out to be David though for it just to add on M. P is 50 per cent of our our our operating profit and they have improved their margins as well since 2019.
No I appreciate that one last quick one little bigger picture, maybe 2025 thoughts more than 24.
The amount of capacity, that's police being discussed about being added and we know.
Plans can change, but at least it feels like right now 20 fours and start with enough strength you would think some of the discuss capacity additions and you know the players from.
Players in China to Canada, you know the players I mean, it sounds like enough capacity is coming off Italy's raises an eyebrow for profitability in 25, 26, if you'd Wanna look out long ground. What's your earnings power of terrorists just kind of curious.
Do you Wanna give us your thoughts on how to think about that capacity coming on it feels a little more Kelly, maybe then aerials for some players, but other ones that classic.
And in smaller phones, just curious to get your thoughts out to think about that.
That's it that's it for me.
Thanks, David.
<unk> raised in question.
All western manufacturers, we all played by the same rules.
And so I I have no concern there in terms of the capacity adds could've been better being brought on by the Western manufacturers. China market is is very slow right now and so you're seeing Chinese players you know look to other parts of the world that's always a bit of a wildcard, but again when it comes to those products and it comes with the type of products that we.
So you know the importance of the life cycle of the product you know it's not just acquisition cost is cost operates residual value. That's how we that's how we battle of the Chinese competitors all over the world and on an equal playing field.
We can win and then finally, all the process improvements that the team is implemented and executed one of our values as continuous improvement or never will never satisfied with where we are at team's gonna continue across terex, we're going to continue to drive that continuous improvement mindset. So that we can deliver reasonable return on capital and operating margin not just this.
Here, but but into the future and again I would just say this we will adapt and we will be resent or whatever the market conditions are in the table deliver.
Thank you.
Our next question comes from <unk> J P. Morgan. Please go ahead your line is open.
Hi, good morning. Thank you. So much. So my first question is I think he's having a good visibility your next year.
And you're also anticipating cartoon information too.
So what kind of type thing I expect them to be alive.
Four times four.
So what I will say our pricing strategy hasn't changed.
In terms of.
Pricing strategy design also material frequently <unk> cause we have implemented pricing actions that very again by product by region of the world, where it's manufactured again designed to offset those costs.
Working hard to manage those caused some pushback as I spoke earlier, we're still in a dynamic.
Inflationary environment, especially around components positive good news on freight rates were going to be transparent with our customers and distribution partners on the level of what we're saying and our pricing will reflect that and and again price price Cross neutrals. The objective that we have.
Got it and and if I can ask one quick one what was that trying to <unk> each of the segment in the second quarter.
Tammy you know the the the.
Total overall company you know the volume with with with 27%.
Price was in that 4%, we said, we'd be 3% to 5% for the for the year and you know and that's F X as a negative 1%. So when we think about volume.
Volume the AWP side, you know they had the overall you know increased 38 per cent increase of Ah Ah Ah Ah. They has a higher volume increase whereas the M. P. I had a 20 per cent increase in volume and awp's with with higher than that and then uhm on the pricing side because M T dynamically prices.
So the pricing as they go through the through that dealer network their pricing is a bit lower than that average and AWP is a is a bit higher than that average.
Got it thank you so much.
Our next question comes from it can find from Citigroup. Please go ahead. Your line is open.
Great. Thanks, I I I'll, just keep it to one.
The question is just an M P just going back to an earlier.
Question around aggregates, but I guess it's.
More broad than that it's just from the standpoint of you know so much of that business goes through.
<unk> I'm just curious John if you've heard much just given the moon, we've seen an enraged.
And interest rates are you starting or have you seen any.
Impact of pushback from the distribution channel just regarding.
Maybe a little bit more version of holding inventory I know, there's not much of it like that are you seeing any impact from that.
Especially given how some of the seasonal influenza products and that it.
Destroyed so.
Get more of a high level, but just curious if that's come up there and.
Much of an issue for you as an M. P. Thanks, Yeah, yeah. Thanks, again overall global aggregate demand remains strong.
Inventory.
Levels are relatively low and remember in this in this space, especially in the aggregate space steal your inventory really is a deal with a rental fleet and it goes under rent to own type contracts.
So dealers are looking to replenish their inventory on the good news side the image to the.
Utilization rates of the equipment out on rant has been has been high and continues to remain high credit.
Credit conditions or not.
We're not hearing about credit conditions impacting the dealers ability to fund what we have heard and seen a little bit, which we will watch and and it kind of makes sense and rising interest rate environment is the rental.
Staying on rent longer than.
Than previously before they convert to a final sale and that's at customer kind of building that equity overtime. So I'll watch that but again still overall good strong demand environment on a global basis, and it's not just Virgin aggregates that we process and that businesses construction demolition as well and that part of the market has been strong.
So that's what we're seeing watching it closely the good news is dealer inventories you know need to be built up dealer rental fleets, utilizations, hi, expanding a little bit longer on ramp will watch that and see what impact that has as we go forward.
Okay. Thank you.
Our next question comes from Jerry Ravitch from Goldman Sachs. Please go ahead. Your line is open.
Yes, hi, good morning, everyone.
Derek laughs John .
Julie.
Looking back journalist <unk>, you're essentially at your twenty-seven margin targets for both segments four years earlier.
Give us an update.
What's gone better that you folks expected. Since then when you think about what twenty-seven might look like is there an opportunity to get the type of margin expansion.
Current levels that you have outlined in terms of margin expansion of 22 levels.
Nine months ago or so.
Thanks, very well again I think the team has executed well across both RMT segment and AWP in the first half of.
The year is again, it's showing up now but this was work that's been going on behind the scenes for for years now he was evaluated engineering activities of cost out programs that they're working on.
Using the hospital inventory actually saw for the first time in a long time, some some improvement in manufacturing efficiency as our volumes increase and so they continued to to make progress. The the manufacturer network optimization of Monterey, that's going to be.
There's still a lot of work that has to go on over the course of the next 18 months as we move products from around the globe.
[noise] facility, they're going to continue to bring as I spoke on the new products to market place. That's an important part of the overall program and so yes the team.
We should have confidence we had confidence when we put out the targets.
Given the progress debate it gives us more confidence that those those targets are absolutely achievable for the for the team as we can continue to drive improved execution going forward.
Mmm Super.
Can I ask in terms of you know with the supply chain ramping up just.
This cycle is a little bit different pharmacies analogies standpoint, as we think about the production schedule you to early 24, just applying normal seasonality off a fourth quarter numbers.
Why you're year gross deliveries.
First quarter in April 1st half of the year and I just want to make sure. There's been no shift in terms of the seasonal pattern considering just how abnormal this year has been from supply chain standpoint.
And again it will provide the 24 outlook.
Two four call, but but no the seasonality as a matter of fact juries if things improve we're going to return to more normal seasonal patterns over time with our customers and so so it's supply chain improves that will drive more to more normal seasonality as we go forward.
Super Thank you.
Thank you.
We have no further questions in queue I'd like to turn the call back I'll forget John garrison for closing remarks.
Thank you operator, if you have any additional questions. Please follow up with Julia your genre or pair to US please stay safe and healthy and thank you for your continued interest interrex operator, please disconnect the call.
This concludes today's conference call. Thank you for your participation you may not disconnect.
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