Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Terex Corp (TEX, Financial) reported strong revenue of $1.4 billion and adjusted earnings per share of $2.16 for Q2 2024.
- The company is on track to deliver full-year adjusted EPS in the range of $7.15 to $7.45.
- Terex Corp (TEX) has a robust backlog of $2.4 billion, approximately 2x historical norms, providing strong future revenue visibility.
- The company is poised for consistent sustainable growth driven by mega trends and federal investments such as the Infrastructure Investment and Jobs Act, CHIPS Act, and Inflation Reduction Act.
- Terex Corp (TEX) has a healthy balance sheet with net leverage of 0.5x and is expected to generate $325 million to $375 million in free cash flow for 2024.
Negative Points
- Net sales decreased by 1.5% year over year, with strength in North America offset by declines in the rest of the world.
- The European economic situation remains unclear with conflicting indications, impacting the company's performance in the region.
- Gross profit declined to 23.8% due to unfavorable product mix and anticipated manufacturing inefficiencies.
- The MP segment was impacted by continued softness in the European market, particularly in the German-based Fuchs materials handling business.
- Interest rate anxiety in North America is causing customers to delay rental conversions, impacting sales.
Q & A Highlights
Q: Can you talk about the impact of near-term softening in Europe and general construction markets on your pricing strategy?
A: We aim to be price-cost neutral. Despite some cost reductions in steel, we still face inflation in value-added components like electronics and hydraulics, as well as logistics and labor costs. Therefore, we continue to strive for price-cost neutrality.
Q: Is the softness in the MP business exclusive to Europe, and what is the current state of inventory in the channel?
A: The softness in Europe is end-demand driven due to fewer projects, and inventory levels are right-sized. In North America, the issue is more about interest rate anxiety affecting rental conversions rather than inventory levels. Fleet utilization remains high.
Q: On access equipment, despite Monterrey inefficiencies, you raised margins. What is driving this, and can Monterrey structurally improve incremental margins?
A: Monterrey's facility is performing well, and as inefficiencies abate, margins will improve. We expect a 200 basis point margin improvement in the second half of the year. Incremental margins for this year are expected to be around 26%.
Q: Regarding materials processing, what is causing the significant decline, and do you expect this to continue into 2025?
A: The decline is primarily due to struggles in our Fuchs business in Germany and our cranes business in Italy, both affected by their respective economies. However, MP has shown consistent growth over the past decade, and we remain optimistic about its long-term prospects, especially in North America.
Q: How do you view the book-to-bill ratio for AWP in the fourth quarter, and are there concerns about overcapacity in the industry?
A: We expect the Q4 book-to-bill ratio to be better than Q3, but it's too early to provide exact numbers. We do not share concerns about overcapacity in North America and Europe, although China is a different story with undisciplined price management.
Q: How does the European Union ruling on anti-dumping impact the competitive landscape?
A: We are pleased with the ruling, which we believe will prevent a negative market spiral and ensure a level playing field. We remain confident in our competitive position in Europe.
Q: What are the current utilization trends in the US based on your telematics data?
A: Utilization remains strong, particularly for products used in mega projects. There is a divergence with local projects, but overall, utilization is holding year over year.
Q: Can you provide a sense of how much backlog you expect to deliver by the end of this year for both AWP and MP?
A: We have good backlog coverage for our 2024 outlook, with roughly two-thirds of the current backlog allocated for the remainder of the year. This is higher than our typical July coverage.
Q: How does the updated EPS guidance reflect restatements versus changes in line items for the rest of the year?
A: The adjusted EPS outlook is consistent with our Q1 guidance when accounting for call-outs. The restatement does not significantly alter our EPS guidance.
Q: How do you manage price sensitivity among customers given the current inflationary environment?
A: We maintain transparency with our customers about cost inflation in components, labor, and logistics. This approach helps us manage price sensitivity and maintain price-cost neutrality.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
