Q3 2024 Terex Corp Earnings Call
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Unknown Executive: Greetings and welcome to the Terex third quarter 2024 results conference call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the Terex third quarter 'twenty 'twenty four results conference call. At this time all participants are in a listen only mode a brief.
Unknown Executive: A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Derek Everett Vice President Investor Relations.
Derek Everitt: It is now my pleasure to introduce your host, Derek Everitt, Vice President, Investor Relations.
Derek Everitt: Good morning and welcome to the Terex third quarter 2024 earnings conference call. A copy of the press release and presentation slides are posted on our investor relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website.
Derek Everett: Good morning, and welcome to the <unk> third quarter 2024 earnings conference call a copy of the press release and presentation slides are posted on our Investor Relations website at investors <unk> Dot com and.
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Derek Everett: Replay and slide presentation will be available on our website.
Derek Everitt: We are joined by Simon Meester, President and Chief Executive Officer, and Julie Beck, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A.
Derek Everett: We're joined by Simon <unk>, President and Chief Executive Officer, and Julie Duck, Senior Vice President and Chief Financial Officer.
Derek Everett: <unk> prepared remarks will be followed by Q&A.
Derek Everitt: Please turn to slide two of the presentation, which reflects our Safe Harbor State. 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 online. These risks are described in greater detail in the earnings material in our reports with the SEC. On this call, we will be discussing non-GAAP financial information, including adjusted figures that we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials.
Derek Everett: Please turn to slide two of the presentation, which reflects our safe Harbor statement.
Derek Everett: 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.
Derek Everett: These risks are described in greater detail in the earnings material.
Derek Everett: Reports filed with the SEC.
Derek Everett: On this call we will be discussing non-GAAP financial information.
Derek Everett: <unk> adjusted figures that we believe are useful in evaluating the company's operating performance.
Derek Everett: Reconciliations for these non-GAAP measures can be found in the conference call materials.
Derek Everitt: Please turn to slide three, and I'll turn it over to Simon Meester.
Please turn to slide three and I'll turn it over to Simon Easter.
Simon Meester: Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. Emphasizing our commitment to our zero harm culture and the Terex Way values at the start of this call reflects what we do across the organization every day as part of our Terex operating system. As we continue to grow, our core values will continue to include keeping each other safe, treating each other with respect and dignity, and being responsible stewards of our environment. Let's turn to slide four.
Simon Easter: Thanks, Derek and good morning.
Simon Easter: I'd like to welcome everyone to our earnings call and appreciate your interest in Terex, emphasizing our commitment to our zero harm culture in a terex way values at the start of this call reflects what we do across the organization every day as part of our tariffs operating system.
Simon Easter: As we continue to grow our core values will continue to include keeping each other safe treating each other with respect and dignity and being responsible stewards of our environment.
Simon Easter: Let's turn to slide four.
Simon Meester: Before diving into our Q3 results, I'm very pleased to welcome the ESG team to the Terex family. ESG is a great strategic and cultural fit, reduces our cyclicality and makes Terex a stronger company with a bright future. ESG is a leader in the growing waste and recycling industry, where waste management and recycling solutions are critical for every jurisdiction, not only in America, but around the world. I want to thank the many team members, both on the Terex side and the Dover side, that worked tirelessly over the past couple months to complete the acquisition. In addition, our treasury team did an outstanding job raising funds at attractive rates and terms, allowing us to complete the deal and maintain a strong and agile balance sheet.
Simon Easter: Before diving into our Q3 results I'm very pleased to welcome the ESG team to the Terex family ESG is a great strategic and cultural fit reduces our cyclicality and makes <unk>, a stronger company with a bright future.
Simon Easter: He is here and the growing waste and recycling industry, where waste management and recycling solutions are critical for every jurisdiction not only in America, but around the world.
Simon Easter: I want to thank the many team members both of the turret sight and his oversight that worked tirelessly over the past couple of months to complete the acquisition.
Simon Easter: In addition, our treasury team did an outstanding job raising funds at attractive rates and terms, allowing us to complete the deal and maintain a strong and agile balance sheet.
Simon Meester: ESG is financially accreted from day one. It is expected to add approximately $40 million in EBITDA in the fourth quarter for the period following the October 8th close.
Simon Easter: ESG is financially accretive from day one.
Simon Easter: It is expected to add approximately $40 million in EBITDA in the fourth quarter for the period following the October at close.
Simon Meester: With the close behind us, our focus turns to integration. Thanks to detailed advanced planning, our cross-functional integration team hit the ground running. We fully expect to deliver at least $25 million in operational run rate synergies by the end of 2026 and realize additional commercial opportunities as we integrate ESG into Terex.
Simon Easter: With the close behind US our focus turns to integration.
Simon Easter: Thanks for the detailed advanced planning our cross functional integration team hit the ground running we fully expect to deliver at least $25 million in operational run rate synergies by the end of 2026 and realize additional commercial opportunities as we integrate ESG into terex.
Simon Meester: Turning to slide five. Our global team adapted quickly to in-quarter industry channel adjustments and continued to execute at a high level throughout the third quarter, delivering earnings per share of $1.46 on sales of $1.2 billion. Our NP and AWP teams continue to implement cost reduction actions and align production plans with demand in their respective channels. This is not the first time we've seen channels make abrupt adjustments. I'm confident that the work we did, strengthening our portfolio, fortifying our core businesses, and investing in lower cost operations, will enable us to perform better throughout the cycle than we have done in the past.
Simon Easter: Turning to slide five.
Simon Easter: Our global team adapted quickly to in quarter industry channel adjustments and continued to execute at a high level throughout the third quarter delivering earnings per share of $1 46.
Simon Easter: On sales of $1 2 billion.
Simon Easter: Our MTBE in AWP teams continue to implement cost reduction actions and aligning production plans with demand in their respective channels.
Simon Easter: This is not the first time, we've seen channels make adjustments.
Simon Easter: Adjustments I am confident that the work, we did strengthening our portfolio fortifying, our core businesses and investing in lower cost operations.
Simon Easter: Enable us to perform better throughout the cycle than we have done in the past.
Simon Meester: We expect full year earnings per share to be between $5.85 and $6.25 and EBITDA of $635 to $670 million on revenue of $5 to $5.2 billion. Turning to slide six. We increase the size and scope of our addressable markets by acquiring ESG. Within the broader waste and recycling industry, waste collection, recycling, and compaction are non cyclical markets that have resilient growth trajectory. Regardless of the macro environment, as a society, we will continue to generate waste and we'll continue to look for ways to use finite resources more effectively and more efficiently. Looking at our legacy markets, we're seeing more challenging macrodynamics as the direct view of future interest rate cuts and the upcoming U.S.
Simon Easter: We expect full year earnings per share to be between $5 85 and.
Simon Easter: $6 25.
Simon Easter: And EBITDA of $635 million to $670 million on revenue of $5 to $5 2 billion.
Simon Easter: Turning to slide six.
Simon Easter: We increased the size and scope of our addressable markets by acquiring ESG within the broader waste and recycling industry waste collection recycling and compaction are non cyclical markets that have resilient growth trajectories.
Simon Easter: Regardless of the macro environment as a society, we will continue to generate waste and we will continue to look for ways to use finite resources more effectively and more efficiently.
Simon Easter: Looking at our legacy markets, we're seeing more challenging macro dynamics essent trajectory of future interest rate cuts and the upcoming U S election are casting a shadow of uncertainty leading to a more cautious decision making.
Simon Meester: election are casting a shadow of uncertainty, leading to more cautious decision making. Although investment in infrastructure and manufacturing continue to grow, the rate of growth has somewhat slowed, and we're seeing local projects being deferred until investors have more clarity on the macro environment. Another important factor, particularly in aerials, is that lead times for new equipment have come down, largely back to pre-COVID levels. This allows our rental customers to align their equipment delivery schedules more precisely with their requirements.
Simon Easter: Although investments in infrastructure and manufacturing continues to grow the rate of growth has somewhat slowed and we're seeing local projects being deferred until investors have more clarity on the macro environment.
Simon Easter: Another important factor, particularly in aerials is that lead times for new equipment have come down largely back to pre COVID-19 levels.
Simon Easter: This allows our rental customers to align their equipment delivery schedules more precisely what their requirements.
Simon Meester: We expect a degree of caution in rental demand through the fourth quarter and into 2025 before returning to a more robust environment in 2026 and beyond. In NP, we saw dealers rebalancing inventory levels as more of their customers are renting their machines longer. When the machine is on rent, it remains on the dealer's balance sheet and limits their ability to order new machines. We see this dynamic persisting but alleviating in the fourth quarter, then starting to improve when the election is behind us and the future of interest rates become clearer. The major European economies remain generally weak and geopolitical concerns continue to muddy the water.
Simon Easter: We expect a degree of caution in rental demand through the fourth quarter and into 2025 before returning to a more robust environment in 2026 and beyond.
Simon Easter: At MTV, we saw dealers rebalancing inventory levels as more of their customers are renting their machines longer when the machine is on rent. It remains on the dealer's balance sheet and limits their ability to order new machines we.
Simon Easter: We see this dynamic persisting, but alleviating in the fourth quarter and starting to improve when the election is behind us and the future of interest rates become clearer.
Simon Easter: The major European economies remain generally weak and geopolitical concerns continue to muddy the waters I am hopeful that lower inflation and assertiveness of lowering interest rates will translate into a better outlook that said, we have a strong position in Europe.
Simon Meester: I am hopeful that lower inflation and assertiveness on lowering interest rates will translate into a better outlook. That said, we have a strong position in Europe which was solidified by a reassurance of a level playing field in aerials because of the EU's anti-dumping decision. We fully expect our teams to continue to execute well and outperform the market regardless of the macro climate.
Simon Easter: Which was solidified by our reassurance of a level playing field in aerials because of the Eu's antidumping decision.
Simon Easter: We fully expect our teams to continue to execute well and outperform the market regardless of the macro climate.
Simon Meester: We also remain encouraged to see emerging markets such as India, Southeast Asia, the Middle East, and Latin America increasingly adopt our product.
Simon Easter: We also remain encouraged to see emerging markets, such as India Southeast Asia, The Middle East and Latin America increasingly adopt our products.
Simon Meester: Please turn to slide 7. While shorter term dynamics play out in some of our markets, we continue to be highly confident in our short term growth outlook. Our portfolio of strong businesses will continue to benefit from mega trends, on-shoring, technology advancements, and federal investments, including the Infrastructure Investment and Jobs Act, Inflation Reduction Act, and the CHIPS Act. This legislative environment is driving record levels of megaprojects in data centers, EV and battery manufacturing plants, semiconductor plants, and others. with more projects expected to come online from 2025 through 2027. We anticipate increased activity from infrastructure investments from roads and bridges to airports, railways, and the power grids.
Simon Easter: Please turn to slide seven.
Simon Easter: While shorter term dynamics play out in some of our markets. We continue to be highly confident in our short term growth outlook.
Simon Easter: Our portfolio of strong businesses will continue to benefit from Mega trends Onshoring technology advancements and federal investments, including the infrastructure investment and jobs Act inflation reduction Act and the chips Act.
Simon Easter: This legislative environment is driving record levels of Mega projects in data centers, EV and battery manufacturing plants semiconductor plans and others.
Simon Easter: With more projects expected to come online from 2025 through 2027.
Simon Easter: We anticipate increased activity from infrastructure investments from roads and bridges to airports railways and the power grid.
Simon Meester: We believe these high investment levels will continue regardless of the outcome of the U.S.
Simon Easter: We believe these high investment levels will continue regardless of the outcome of the U S election. Please.
Simon Meester: election.
Simon Meester: Please turn to slide 8. Our portfolio of businesses is very strong. Our businesses are market leaders, technology innovators, and proven high performers. We've made great strides implementing our execute, innovate and grow strategy and have plenty of opportunities to continue to improve. Fixed cost management is an area where we have made some of those improvements, for example, shifting higher cost production to our new state-of-the-art facility in Monterey. We will continue to reduce fixed costs by leveraging digital technology, improving efficiency, and rethinking operating norms where better approaches are available. When it comes to innovation, we have a very exciting new product development pipeline focused on maximizing return on investment for our customers.
Simon Easter: Please turn to slide eight.
Simon Easter: Our portfolio of businesses is very strong our businesses are market leaders technology innovators and proven high performers.
Simon Easter: We've made great strides implementing our execute innovate and growth strategy and have plenty of opportunities to continue to improve.
Simon Easter: Fixed cost management is an area, where we have made some of those improvements for example, shifting higher cost production to our new state of the art facility in Monterrey.
Simon Easter: We will continue to reduce fixed costs by leveraging digital technology, improving efficiency and rethinking operating norms were better approaches are available.
When it comes to innovation, we have a very exciting new product development pipeline focused on maximizing return on investment for our customers.
Simon Meester: We also continue to leverage technology internally, making investment in robotics, automation and digitizing workstreams to make us more efficient and more flexible. This represents an important part of our roadmap to continuously become more competitive and more resilient, regardless of market dynamics.
Simon Easter: We also continue to leverage technology internally, making investment in robotics automation and digitizing work streams to make us more efficient and more flexible.
Simon Easter: This represents an important part of our roadmap to continuously become more competitive and more resilient regardless of market dynamics.
Simon Meester: Turning to growth, completing the ESE acquisition earlier this month was a significant step forward. We fully expect organic growth in that business to continue in line with its demonstrated performance over the past decade. On the utilities front, we will unlock growth potential by improving productivity and expanding capacity as the long-term demand outlook continues to expand. Our MP and aerials businesses will manage through near-term channel adjustments before returning to growth as the replacement cycle and megatrends are expected to remain significant tailwinds.
Simon Easter: Turning to growth completing the <unk> acquisition earlier. This month was a significant step forward, we fully expect organic growth in that business to continue in line with its demonstrated performance over the past decade.
Simon Easter: On the utilities front, we will unlock growth potential by improving productivity and expanding capacity.
Simon Easter: The long term demand outlook continues to expand.
Simon Easter: Our MP and aerials businesses, and we'll manage through near term channel adjustments before returning to growth.
Simon Easter: The replacement cycle and Mega trends are expected to remain significant tailwind.
Simon Meester: Turning to slide nine. I'm very proud when I witnessed some of the fantastic work our teams and our equipment accomplish around the world. Pictured on the left are Terex power screen crushers deployed in Ladakh, northern India, at one of the world's most challenging construction sites. At 19,000 feet above sea level, these machines will support building the world's highest motorway. This new infrastructure will improve access to remote villages, making it easier for residents to travel for medical care, education, and other essential services. The middle picture is a brand new joint Zen Robotics and Terex Recycling Systems installation in Norway, the first of its kind anywhere in the world.
Simon Easter: Turning to slide nine.
Simon Easter: I'm very proud of and I witnessed some of the fantastic work, our teams and our equipment accomplish around the world.
Simon Easter: Pictured on the left our Terex power screen Crushers deployed in Lubbock, Northern India, and one of the world's most challenging construction sites at 19000 feet above sea level. These machines will support building the world's highest motorway.
Simon Easter: This new infrastructure will improve access to remote villages, making it easier for residents to travel for medical care education and other essential services.
Simon Easter: The Middle picture is a brand new joined Zen robotics, and Terex recycling systems installation in Norway. The first of its kind anywhere in the world.
Simon Meester: The state of the art waste recycling plant will be fully automated, integrating AI powered robotics with advanced sorting technology. This is all about offering solutions to customers that maximize recycling rates and minimize landfill usage. Finally, the image on the right shows Terex utility vehicles supporting recovery efforts in the wake of Hurricane Helene. In the hours after the storm, crews from across the United States arrived to help restore power to devastated areas, and I'm proud that our products play an important role in rebuilding and restoring hope to these communities. All great examples of Terex at work.
Simon Easter: The state of the art waste recycling plans will be fully automated integrating AI powered robotics with advanced sorting technology. This is all about offering solutions to customers that maximize recycling rates and minimize landfill usage.
Simon Easter: Finally, the image on the right shows Terex utility vehicles supporting recovery efforts in the wake of Hurricane Lane in the hours after the storm crews from across the United States right to help restore power to devastated areas and I am proud that our products play an important role in rebuilding and restoring hope to these <unk>.
Simon Easter: Communities all great examples of Terex at work.
Julie Beck: And with that, I'll turn it over to Julie.
Speaker Change: And with that I'll turn it over to Julie.
Julie Beck: Thank you, Simon.
Julie Duck: Thank you Simon and good morning, everyone, let's look at our third quarter financial results on slide 10.
Julie Beck: And good morning, everyone. Let's look at our third quarter financial results on slide 10. Net sales of $1.2 billion were down 6% compared to the third quarter of last year, resulting from lower volume at MP, which was partially offset by modestly higher year-over-year sales at AWP. The growth at AWP was lower than we initially anticipated as rental customers adjusted delivery schedules during the third quarter to better align with their fleet requirements and shorter equipment lead times. Our NP segment continues to be impacted by softness in the European market and lower retail sales in the United States impacting dealer restock.
Julie Duck: Net sales of $1 $2 billion were down 6% compared to the third quarter of last year, resulting from lower volume of M. P, which was partially offset by modestly higher year over year sales at AWP.
Julie Duck: The growth at AWP was lower than we initially anticipated has rental customers adjusted delivery schedules during the third quarter.
Julie Duck: Better aligned with their fleet requirements and shorter equipment lead time our.
Julie Duck: Our MP segment continued to be impacted by softness in the European market and lower retail sales in the United States impacting dealer restocking.
Julie Beck: Gross profit of 20.5% reflects lower-than-expected volume and unfavorable mix, partially offset by cost-reduction assets. SG&A expenses declined by $7 million compared to last year as we executed cost reduction actions, which continued throughout the quarter and lowered incentive compensation. Income from operations was $127 million, with an operating margin of 10.5%. Interest and other expense was consistent with the previous year. The third quarter global effective tax rate was 12.5% compared to 20.4% in the third quarter of 2023. The lower rate was primarily due to a one-time increase in favorable discrete items, partially offset by higher tax related to geographic distribution of income.
Julie Duck: Gross profit of 25% reflects lower than expected volume and unfavorable mix.
Julie Duck: Partially offset by cost reduction actions.
SG&A expenses declined by $7 million compared to last year, as we executed cost reduction actions, which continued throughout the quarter and lowered incentive compensation.
Julie Duck: Income from operations was $127 million with an operating margin of 10, 5%.
Julie Duck: Interest and other expense was consistent with the previous year.
Julie Duck: The third quarter global effective tax rate was 12, 5% compared to 24% in the third quarter of 2023.
Julie Duck: The lower rate was primarily due to a one time increase in favorable discrete items, partially offset by higher tax related to geographic distribution of income.
Julie Beck: Our EPS for the quarter was $1.46 and our EBITDA was $141 million. Pre-tax flow for the third quarter was $88 million compared to $106 million in Q3 of 2023 due to lower operating income in the quarter.
Julie Duck: Our EPS for the quarter with $1 46, and our EBITDA was $141 million.
Julie Duck: Free cash flow for the third quarter was $88 million compared to $106 million in Q3 of 2023 due to lower operating income in the quarter.
Julie Beck: We're going to be looking at some backlog on slide 11. Our current backlog of $1.6 billion remains elevated compared to historical norms. We saw bookings continue to trend back towards historical ordering patterns, with Q3 being a seasonally lower bookings period. We expect our bookings and backlogs to continue to transition to normal patterns with lower lead times and AWP customers returning to customary seasonality with bookings ramping up in Q4 and Q1. Our AOT segment backlog remains relatively high at $1.2 billion when compared to historical levels, while our MP backlog is broadly in line with pre-pandemic levels.
Julie Duck: Turning to bookings and backlog on slide 11.
Julie Duck: Our current backlog of $1 $6 billion remains elevated compared to historical norms.
Bookings continue to trend back towards historical ordering patterns with Q3 being a seasonally lower bookings period.
Julie Duck: We expect our bookings and backlog to continue to transition to normal patterns with lower lead times and AWP customers returning to customary seasonality with bookings ramping up in Q4 and Q1.
Julie Duck: Our AWP segment backlog remains relatively high at $1 $2 billion, when compared to historical levels well our M. P backlog, it's broadly in line with pre pandemic levels.
Julie Beck: Please turn to slide 12 to review our segment results, starting with NP. Sales of $444 million were slightly lower than we previously expected, as macro factors continue to impact MPs primary channels. On the aggregate side, we continue to see machines on rent longer than usual. This reduces the dealer's capacity to order new machines. The European market remains weak and geopolitical concerns and the economic outlook for China as well as the U.S. election as uncertain. MP's 13.3% operating margin in the quarter was impacted by the lower volume and unfavorable product and geographic mix, partially offset by cost reduction action.
Julie Duck: Please turn to slide 12 to review our segment results starting with M. P.
Julie Duck: Sales of $444 million were slightly lower than we previously expected as macro factors continuing to impact Mp's primary channel.
Julie Duck: On the aggregate side, we continue to see machines on rent longer than usual this reduces the dealers capacity to order new machines.
Julie Duck: The European market remains weak and geopolitical concerns and the economic outlook for China as well as the U S election as uncertainty.
Julie Duck: MP is 13, 3% operating margin in the quarter was impacted by the lower volume and unfavorable product and geographic mix, partially offset by cost reduction actions.
Julie Beck: MP has proven its ability to manage its cost structure and achieve strong margins. The team is continuing to take actions, including factory and other layoffs, reduced work schedules, and other cost reduction initiatives. NP ended the quarter with backlog of $371 million.
Julie Duck: MPT has proven its ability to manage its cost structure and achieve strong margins. The team is continuing to take actions, including factoring other layoffs reduced work schedules and other cost reduction initiatives.
<unk> ended the quarter with backlog of $371 million.
Julie Beck: Please turn to slide 13, which details our AWP performance. The AWP team grew sales by 2.4% compared to Q3 last year. However, that was lower than we had previously anticipated due to delivery adjustments from our US rental customers. margins were impacted by unfavorable product mix, as well as higher freight costs than last year. Our Monterey facility performed better year over year, but that benefit was offset by lower production volumes at other facilities. The team is taking aggressive action to align cost and production levels with demand, but could not take costs out quickly enough to offset the volume reduction.
Julie Duck: Please turn to slide 13, which details our AWP performance.
Julie Duck: The AWP team grew sales by two 4% compared to Q3 last year. However that was lower than we had previously anticipated due to deliberate adjustments from our U S rental customers.
Julie Duck: Margins were impacted by unfavorable product mix as well as higher freight costs than last year.
Julie Duck: Monterey facility performed better year over year, but that benefit was offset by lower production volumes at other facilities.
Julie Duck: The team is taking aggressive actions to align costs and production levels with demand, but could not take cost out quickly enough to offset the volume reduction impact.
Julie Beck: AWP backlog of $1.2 billion remains relatively high compared with historical levels.
Julie Duck: AWP backlog of $1 $2 billion remains relatively high compared with historical levels.
Julie Beck: Please turn to slide 14. We were able to complete the ESG acquisition and maintain a strong balance. We secured funding for the deal at favorable rates and terms and maintained our corporate rating. The $1.25 billion dollar term loan is priced at SOFR plus $200, maturing in 2031, and the $750 million eight-year, three-year non-call notes are priced at 6.25%, maturing in 2032. We also upsized our revolver from $600 million to $800 million. Not only are we getting a better rate than the previous revolver, it offers greater flexibility, maturing three plus years later in October 2029. I really like this structure.
Please turn to slide 14.
Julie Duck: We were able to complete the ESG acquisition and maintain a strong balance sheet.
Julie Duck: We secured funding for the deal at favorable rates and terms and maintained our corporate rating.
Julie Duck: The $1 billion to $5 billion term loan is priced and so forth plus 200 maturing in 'twenty one and.
Julie Duck: And the $750 million eight year three year non call notes are priced at 625% maturing in 2032.
Julie Duck: We also upsized, our revolver from 600 million to $800 million.
Julie Duck: Not only are we getting a better rate than the previous revolver. It offers greater flexibility maturing three plus years later in October 2029.
Julie Duck: I really liked the structure, it's the right mix of secured and unsecured and variable versus fixed rate.
Julie Beck: It's the right mix of secured and unsecured and variable versus fixed rate. We can prepay or reprice a significant portion of the debt, and we do not have any maturities until 2029. We continue to have ample liquidity with an expected net leverage of approximately 2.5 times at the end of 2024. We plan to de-leverage in future periods as we generate increased cash flow from operations and take advantage of cash tax benefits associated with the act. We will also continue to invest in our businesses, fueling organic growth and profitability improvement. We're planning for 2024 capital expenditures of approximately $125 million with the largest investment related to our Monterey facility.
Julie Duck: We can prepay or reprice, a significant portion of the debt and we do not have any maturities until 2029.
Julie Duck: We continue to have ample liquidity with an expected net leverage of approximately two five times at the end of 2020 for.
Julie Duck: We plan to deleverage in future periods as we generate increased cash flow from operations and take advantage of cash tax benefits associated with the acquisition.
Julie Duck: We will also continue to invest in our businesses fueling organic growth and profitability improvement.
Julie Duck: We're planning for 2020 for capital expenditures of approximately $125 million with the largest investment related to our Monterey facility.
Julie Beck: We would expect CapEx and our legacy businesses to take a step down next year to the benefit of free cash flow conversion in 2025. We reported a return on investment capital of 23.7%, well above our cost of capital. Returning capital to shareholders remains a priority. through September 30, 2024. Terex has returned $66 million to shareholders through share repurchases and dividends, more than offsetting equity compensation dilution. We have approximately $101 million dollars remaining under our share repurchase authorization, and we will continue to buy back shares. remains in a very strong financial position to continue investing in our business and executing our strategic initiatives while returning capital to shareholders.
Julie Duck: We would expect Capex in our legacy businesses to take a step down next year.
Julie Duck: Our free cash flow conversion in 2025.
Julie Duck: We reported a return on invested capital of 23, 7% well above our cost of capital.
Julie Duck: Returning capital to shareholders remains a priority.
Julie Duck: September 30th 2020 for Terex has returned $66 million to shareholders through share repurchases and dividends more than offsetting equity compensation dilution we.
Julie Duck: We have approximately $101 million remaining under our share repurchase authorization and we will continue to buy back shares.
Julie Duck: Terex remains in a very strong financial position to continue investing in our business and executing our strategic initiatives, while returning capital to shareholders.
Julie Beck: Now turn to slide 15 in our full year outlook. It is important to realize we are operating in a complex environment with many macroeconomic variables and geopolitical uncertainties, and results could change negatively or positively. With that said, this outlook represents our best estimate as of today. Our outlook is largely consistent with revised guidance we provided in mid-September, updated now to include the expected fourth quarter contribution of ESG. Our sales forecast range has been updated to $5 billion to $5.2 billion, which includes approximately $200 million of fourth quarter revenue from ESG. We expect full year EBITDA of between $635 and $670 million, which includes approximately $40 million of Q4 EBITDA from ESG, or roughly 20% of ESG sales.
Julie Duck: Now, let's turn to slide 15, and our full year outlook.
Julie Duck: It is important to realize we are operating in a complex environment with many macro economic variables and geopolitical uncertainties.
Julie Duck: Results could change negatively or positively.
Julie Duck: With that said this outlook represents our best estimate as of today.
Julie Duck: Our outlook is largely consistent with revised guidance. We provided in mid September updated now to include the expected fourth quarter contribution of ESG.
Julie Duck: Our sales forecast range has been updated to $5 billion to $5 $2 billion, which includes approximately $200 million of fourth quarter revenues from ESG.
Julie Duck: We expect full year EBITDA of between 635 and $670 million, which includes approximately $40 million of Q4, EBITDA from ESG or roughly 20% of ESG sales.
Julie Beck: Please remember that the expected ESG contribution is for the period following the October 8th close through year-end. It is great to see the financial performance accretion from ESG. As I mentioned back in July, we reduced corporate and other expenses to about $18 million per quarter in the second half of the year from our previous run rate of approximately $20 million. We now expect a full year interest expense of approximately $90 million, including $31 million associated with the ESG finance. We are lowering our full year tax rate to 19% as we reflect the benefit of several favorable discrete tax items partially offset by unfavorable geographic mix.
Julie Duck: Please remember that the expected ESG contribution is for the period following the October 8th close during the year at.
Speaker Change: It is great to see the financial performance accretion from ESG.
Speaker Change: As I mentioned back in July we reduced corporate and other expenses to about $18 million per quarter in the second half of the year from our previous run rate of approximately $20 million.
Speaker Change: We now expect full year interest expense of approximately $90 million, including $31 million associated with the ESG financing.
Speaker Change: We are lowering our full year tax rate to 19% as we reflect the benefit of several favorable discrete tax items, partially offset by unfavorable geographic mix.
Julie Beck: We expect full year earnings per share of $5.85 to $6.25. Our free cash flow forecast for the full year is approximately $200 million, impacted by the lower operating income outlook and anticipated higher year-end inventory.
Speaker Change: We expect full year earnings per share of $5 85 to $6 25.
Speaker Change: Our free cash flow forecast for the full year, it's approximately $200 million impacted by the lower operating income outlook and anticipated higher year end inventories.
Julie Beck: Let's review our segment outlook. We expect MP sales to be approximately $1.9 billion for the full year, with nice margins in the range of 14.1 to 14.3%. This reflects continued pressure on volume due to adjustments we are seeing in the MP channels, as well as the impact of actions management is taking to reduce costs and align production levels with demand. For AWP, we expect our 2024 sales to total approximately $3 billion with an operating margin between 11.5% and 11.8% for the full year. We expect to see a sequential volume decline in Q4, mostly reflecting seasonality and fewer working days.
Speaker Change: Let's review our segment outlook.
We expect EM sales to be approximately $1 $9 billion for the full year with nice margins in the range of 14.1 to 14, 3%.
Speaker Change: This reflects continued pressure on volume due to the adjustments we are seeing in the M. P channels as well as the impact of actions management has taken to reduce costs and align production levels with demand.
Speaker Change: For AWP, we expect our 2024 sales to total approximately $3 billion with an operating margin between 11, 5% and 11, 8% for the full year.
Speaker Change: We expect to see a sequential volume decline in Q4, mostly reflecting seasonality and fewer working days.
Julie Beck: The lower volume will put pressure on AWP margins as we reduce production in the fourth quarter. This will be partially offset by the cost reduction action and improved operating performance at our Monterey, Mexico facility.
Speaker Change: Lower volume will put pressure on AWP margin as we reduced production in the fourth quarter.
Speaker Change: This will be partially offset by the cost reduction actions and improved operating performance at our Monterrey, Mexico facility.
Simon Meester: With that, I will turn it back to Simon.
Speaker Change: With that I will turn it back to Simon.
Simon Meester: Thanks, Julie.
Simon Easter: Thanks, Julie I will now turn to slide 16 Terex.
Simon Meester: I will now turn to slide 16. Terex is very well positioned to deliver long term value to our shareholders. We have a strong portfolio of industry leading businesses across a diverse landscape of industrial segments. The ESE acquisition increases our presence in the growing waste and recycling industry and reduces our overall cyclicality. Our AWP and MP businesses continue to drive operational improvements and deliver innovative new products that create value for our customers. We will manage through near-term market adjustments, then return to growth with the benefit of the replacement cycle and megatrends as tailwind. Finally, I want to thank our team members from around the world.
Simon Easter: Terex is very well positioned to deliver long term value to our shareholders. We have a strong portfolio of industry, leading businesses across a diverse landscape of industrial segments.
Simon Easter: <unk> acquisition increases our presence in the growing waste and recycling industry and reduces our overall cyclicality.
Simon Easter: Our AWP and MP businesses continued to drive operational improvements and deliver innovative new products that create value for our customers. We will manage through near term market adjustments then returned to growth with the benefit of the replacement cycle and mega trends as tailwind.
Simon Easter: Finally, I want to thank our team members from around the World. We have made great strides together and we will continue to grow our company together I'm very excited about the road ahead for Terex.
Simon Meester: We have made great strides together and we will continue to grow our company together. I'm very excited about the road ahead for Terex.
Unknown Executive: And with that, I'd like to open it up for questions, operator. Thank you.
Simon Easter: And with that I'd like to open it up for questions operator.
Simon Easter: Yeah.
Unknown Executive: We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Thank you we will now begin question and answer session.
Speaker Change: If you have dialed in bad times covered.
Speaker Change: One question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Speaker Change: He would like to withdraw your question simply press Star one again.
Speaker Change: If you are called upon to ask a question or listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Clay: And your first question comes from the line of Jerry Revich from Goldman Sachs. Hi, this is Clay on for Jerry.
Speaker Change: And your first question comes from the line of Jerry Revich from Goldman Sachs.
Speaker Change: Hi, This is clay on for Jay first topic, congrats on that completed the ESB acquisition.
Simon Meester: First off, congrats on completing the ESG. Good morning. Yeah. So, first question. Typically, the first production cut of a downturn is the hardest, and once production normalizes, we see decremental margins normalizing, you know, in around the low 20s range. Should we be at that level of decremental margins as we move into next year? Thanks.
Speaker Change: Thank you.
Speaker Change: Good morning.
Speaker Change: So first question are typically the first production kind of a downturn is the hardest and once production normalizes, we see decremental margins normalizing.
Speaker Change: And around the low Twenty's range.
Speaker Change: It would be at the level of decremental margins as we move into next year. Thanks.
Simon Meester: Thank you for your question. Yes, you know, we, we will see in the AWP margins in particular impacted in the fourth quarter due to lower production rates. And as we enter into 2025, you know, we will, we'll take in this adjustment in production and, and, and we'll be trending back toward normal decremental Yeah, good morning. I'll just add that we've taken channel adjustments in both businesses in MP and AWP. MP probably more impacted in Q3, AWP more impacted in Q4 from an absorption standpoint. But then on top of that, we've taken the opportunity to take additional management actions as well.
Speaker Change: Yeah. Thank you for your question yes.
Speaker Change: We will see and the AWP margins in particular impacted in the fourth quarter due to lower production rates and as we enter into 2025, we will we'll taken this adjustment in production and we'll be trending back towards normal decremental targets.
Speaker Change: Yeah. Good morning, I would I'd just add that we've taken channel adjustments in both businesses in <unk> and AWP MP, probably more impacted in Q3 AWP more impacted in Q4 from an absorption standpoint, but then on top of that we've taken we've taken the opportunity to take additional management actions as well.
Simon Meester: And then if you lump in what ESG brings to the portfolio, we're very, very comfortable with our typical 25% decremental incremental target for 2025, no matter what volumes will do for us next year.
Speaker Change: And if you if you lump in what.
Speaker Change: What <unk> brings to the portfolio, we're very very comfortable with our typical 25% decremental incremental targets for 2025, no matter, what what volumes will do for US next year.
Simon Meester: Thanks. And as a quick follow-up, can you update us on the Monterey transition, given the demand declines, you know, just how that changes, if that eases the transition, or if, you know, and how that impacts the magnitude of cost savings on the lower volume?
Simon Meester: So thanks for the question. You know, Monterey is performing really well. Monterey performed great in the third quarter. And, you know, we're pleased with the supply chain that we set up. We're pleased with our team members and, you know, what we've been able to accomplish in Monterey. And so we are, we'll be transitioning more products and taking advantage of the low cost structure that we have in the cost competitive operation we have in Monterey. Unfortunately, for the next, this quarter, Q3 and Q4, some of the favorableness in Monterey is being offset by some unfavorableness in the other locations.
Simon Meester: But overall, we're very pleased with this facility and believe it will be a competitive advantage for us going forward and provide this with a low cost manufacturing.
Simon Meester: Thanks for your questions.
Randy: Your next question comes from the line of Kyle Menges from City. Hi, good morning. This is Randy on for Kyle. I was just hoping you guys could provide some, any call you have on the ESG backlog and how that's trending and how we should be thinking about backlog coverage for ESG exiting this year. Yeah, ESG backlog is very healthy, very strong. They typically run in six month cycles. So they take their bookings two quarters before the desire to delivery. And actually, their backlog has continued to be very strong. Their book to bill has been over 100% for the last four or five quarters.
Speaker Change: I was just hoping you guys could provide some any color you have on the ESG backlog and how that's trending and how we should be thinking about backlog coverage for ESG exiting this year.
Speaker Change: Yeah.
Speaker Change: <unk> backlog is very healthy very strong they typically.
Speaker Change: Run into six months cycles, so they take their bookings two quarters before.
Speaker Change: The desire to delivery.
Speaker Change: And actually.
Speaker Change: Their backlog has has continued to be very strong book to bill has been over 100% for the last four or five quarters and so we expect that to continue in the fourth quarter setting us up for a really nice year again in 2025, So looking group looking really good strong backlog.
Simon Meester: And so we expect that to continue in the fourth quarter, setting us up for a really nice year again in 2025. So looking really good, strong backlog. But on top of that, the business has really shown to be, you know, competitive differentiator on how quickly they turn that backlog for their customers. So their throughput is really, really strong and their lead times are really strong. So we're very pleased how that business is performing.
But on top of that the business has really shown to be.
Speaker Change: A competitive differentiator on how quickly they turn that backlog for their customers. So their throughput is it's really really strong and their lead times are pretty strong. So very pleased how that business is performing.
Simon Meester: We have only 21 days since we officially closed. Greg, great. Thank you.
Only 21 days since we officially close so.
Speaker Change: Yeah.
Speaker Change: Great Great. Thank you and just a quick follow up on.
Simon Meester: And just a quick follow up on on I just wondering any visibility on the timing of the ESG synergies going in the next year? Yeah, so we're, you know, we're pleased that we've kicked off. You know, a lot of planning and a lot of good work is being done by the integration teams. And we're very excited about, you know, the start here. And we've said, you know, that we will expect $25 million in run rate synergies by the end of 2026. And we expect to see some starting in 2025. And we'll talk about that later in our Q4 year-end call.
Speaker Change: Just wondering any visibility on the timing of the ESG synergies going into next year.
Speaker Change: Yes.
Speaker Change: We're pleased that we kicked off.
Speaker Change: No.
A lot of planning and a lot of good work is being done by the integration teams.
Speaker Change: And we're very excited about them about the start here.
Speaker Change: And then we add.
Speaker Change: But we will expect at $25 million in run rate synergies by the end of 2026, and we expect to see some starting in 2025 and we'll talk about that later in our in our Q4 at year end Satcom.
Speaker Change:
Simon Meester: Got it. That's helpful. Thank you, guys. Thank you.
Speaker Change: Got it that's helpful. Thank you guys.
Speaker Change: Thank you.
Speaker Change: Okay.
Brendan: Your next question comes from the line of Angel Castillo from Morgan Stanley. Please go ahead. Hi, thanks.
Speaker Change: Your next question comes from the line of Angel Castillo from Morgan Stanley. Please go ahead.
Speaker Change: Hi, Thanks. This is brendan on for Angel.
Julie Beck: This is Brendan on for Angel. I want to touch on the revenue guidance quickly. So, you know, understand the comments that things were perhaps softer than than you had expected. I just want to clarify if that specifically softer from the September pre-announcement, you know, the overall is $150 million. Given though however ESG was 200 million plies sort of the total NPAWP guidance for revenue was lowered by 50. So if you can just talk to you know what you're seeing by by segment there relative to expectations back in September. Thank Yeah, so you know, we're within the margin of what we came out with in our, in our, in our outlook for, you know, our updated outlook in September, we're right in there.
Julie Beck: And, you know, we're able to rate as we expected, and as we Yeah, just trying to be prudent, no major, major deviations just within them still within the margin of the out. Okay, thank you.
Simon Meester: And then you noted local projects being deferred largely due to interest rate uncertainty. I'm just curious if customers have given you any indication of, you know, maybe how much lower rates would have to go before they gain sort of the needed optimism to move forward with the projects or just any other color you can provide from conversations with those local customers. Yeah, it's more it's more timing than what what kind of what the rates would need to be.
Simon Meester: Generally, the consensus that we we get is that it will probably continue to be soft going into the first half of 2025. And that will start to pick up in the second half of 2025. But that's really for the local projects and mega projects are expected to continue to be a tailwind going into 2025 and 2026. But that's we mostly pick up that six months timing.
We mostly pickup that's six months time timing issue.
Speaker Change: Yeah.
Simon Meester: Great, thank you.
Speaker Change: Okay. Thank you.
Simon Meester: Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Steve Barger: Your next question comes from the line of Steve Barger from KeyBank Capital Markets. Please go ahead. Hey, good morning. Thanks. Yeah. Good morning.
Speaker Change: Your next question comes from the line of Steve Barger from Keybanc capital markets.
Steve Barger: Please go ahead, hey, good morning, Thanks, Yeah, Hey, good morning, if I go back to the original ESG deck, you showed a 7% organic CAGR and you said you just said the backlog visibility is strong I'm not looking for specific guidance for next year, but what do you expect the organic growth rate in ESG will be for the next few years.
Simon Meester: If I go back to the original ESG deck, you showed a 7% organic kegger. Um, and you said, you just said the backlog visibility is strong. I'm not looking for specific guidance for next year, but what do you expect the organic growth rate in ESG will be for the next few years? Yeah, obviously a little too early for us to guide for Terex overall, but generally speaking, it's safe to assume that we think that Terex will be up next year, just by the nature of the ESG integration. But ESG as a business will be up, utilities will be up, and then aerials and MP are expected to be down.
Steve Barger: Yeah, obviously, a little too.
Speaker Change: Too early for Us to guide.
Speaker Change: For Terex overall, but generally speaking.
Speaker Change: Safe to assume that we think that tariffs will be up next.
Speaker Change: Next year, just by the nature of the ESG integration, but ESG as a business will be up utilities will be up and then aerials and N P or are expected to be or expected to be down and I would just in all of those cases, where we're hovering around the high single digits.
Simon Meester: And I would just, in all those cases, we're, we're hovering around the high single digits, you know, either down or up for all of those four businesses.
Speaker Change: Either down or up for all of those four businesses.
Simon Meester: That's good help. Thank you.
That's got to help.
Simon Meester: And just going back to the more legacy product lines, what's going on with customer positioning for orders on the books relative to conditions on the ground? Is anyone trying to delay deliveries or, you know, even take things sooner? So, different answer for different businesses. In MP, it's mostly rate anxiety and the utilization of the equipment is still high. just rental conversions that are being delayed by end users. And then typically our dealers only place a new order on the factory if a rented unit is converted into a purchase unit. So we expect that rate anxiety to eventually disappear and then normal activity to booking activity to pick up.
Speaker Change: Thank you.
Speaker Change: And just going back to the more legacy product lines, what's going on with customer positioning for orders on the books relative to conditions on the ground as is anyone trying to delay deliveries or even take things sooner.
Speaker Change: So.
Speaker Change: And different different.
Speaker Change: And so for different businesses in <unk>.
Speaker Change: M. P. It's mostly rate Inc, 's AACE and customers do utilization of the equipment is still high.
Just rental conversions that are being delayed by end users and then typically our dealers only placed a new order on the factory.
Speaker Change: <unk> rented unit is converted into a purchase unit.
Speaker Change: We expect that rate anxiety to eventually disappear and then normal activity to bookings 50 to pick up on the AWP side, it's really an adjustment that we've seen all of our customers, especially our larger customers are reporting.
Simon Meester: On the AWP side, it's really an adjustment that we've seen all of our customers, especially our larger customers are reporting. Strong tailwinds from the mega projects and then the smaller customers are perhaps more dependent on the local projects. So not really anyone asking to pull anything in or mostly just refacing towards what their fleets need. It's mostly about turning over the fleet. Yeah, understood.
Speaker Change: Strong tailwind from the Mega projects and then the smaller customers are perhaps more dependent on the local projects. So not really not really anyone asking to pull anything in or mostly just re phasing towards what their fleets needs, it's mostly about turning over to fleet.
Yep understood Alright.
Simon Meester: All right. Thank you. Now, thank you.
Speaker Change: Alright, thank you.
Speaker Change: Yes. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Unknown Executive: There are no more questions.
Speaker Change: There are no more questions I will now turn the conference back over to Simon Easter for closing remarks.
Simon Meester: I will now turn the conference back over to Simon Meester for closing remarks. All right. Thank you, operator. If you have any additional questions, please follow up with Julie or Derek. And thank you for your interest in Terex.
Simon Easter: Alright. Thank you operator, if you have any additional questions. Please follow up with Julie or Derek and thank you for your interest in Terex and with that operator. Please disconnect the call.
Unknown Executive: And with that operator, please disconnect the call.
Unknown Executive: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Ladies and gentlemen that concludes today's call. Thank you all for timing you may now disconnect.
Simon Easter: Yeah.
Simon Easter: Yeah.
Simon Easter: Yeah.