Terex Corp (TEX) 2008 Q1 法說會逐字稿

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to the Terex Corporation first quarter 2008 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Now.

I would now like to turn the call over to Ron DeFeo, CEO.

Thank you. Good morning, ladies and gentlemen, and thank you for your interest in the Terex Corporation today. On the call and available for your questions will be Steve Filipov, Rick Nichols, Bob Isaman, and Tim Ford, our Group Presidents. With me participating in the call is Tom Riordan, the Terex President and COO; and Phil Widman, our Chief Financial Officer.

A little housekeeping to accommodate our audiences in earlier time zones or anyone unable to listen in. There will be a replay of this teleconference. That will be available shortly after the conclusion of this call. If can be accessed until the 1, of May at 5:00 p.m. Eastern daylight time. To access the replay, call 800-642-1687 and for International participants, 706-645-9291 with a conference I.D. number of 42839012. Obviously you can also access our information through our website.

So, let me get started. The first quarter performance we feel is another positive step in what we expect to be a milestone year for Terex on our way to the 12 by 12 in 10 goal. We have many accomplishments to be proud of but also numerous opportunities to address along the way. We're still a freshman in high school but I do expect to graduate later this year to be a sophomore. Hopefully in today's call, you can see that while there's some cross currents that need to be addressed, we can and we will respond to these cross currents as we achieve our near term goals. The first quarter illustrates some of what I mean. Earnings per share. They were up 46% and net sales increased a bit over 17%. Reflecting upon the revenue, we did benefit by approximately 8 percentage points on net sales in the first quarter relating to acquisitions and currency. Meaning that our net sales were up 9% on an organic basis. This organic growth rate alone will get us to about the $12 billion level in 2010 but of course, we would expect to be making some acquisitions during this period plus I'm hopeful that we can do better than this 9% organic growth rate. All is not doom and gloom in our markets and I hope you get that sense from our press release.

In the quarter, we had an operating margin of 10.8% up from the 10% level of last year. This is probably the most challenging part of our goal as achieving the 12% operating margin requires dealing with some of the challenging cost environment that's in front of us. But in fact, some of the same reasons why infrastructure spending globally is so strong and the 70% of our business which is outside the United States is so strong, also causes our input costs to rise. So, don't fret. It is an issue but it is not -- it is not something that cannot be overcome. To deal with this, we need to aggressively explain to our customers the cost increase story and get price increases appropriately. While we will be doing this, it does make for some choppy forecasting which, as Phil will explain, is why we have increased our average guidance but not pushed the full-year up outside the higher end of the range we previously provided. It is simply too soon to provide that certain of a view of how the timing of the pricing and cost increase developments will play out in the back half of the year. However, we also have the opportunity at Terex to fix some of our underperforming businesses from a margin perspective and we are doing this. In fact, we think some of the moves we can make to help both our road building and construction businesses simultaneously will begin showing benefits in 2009 and 2010. And this will be in the area of shared manufacturing assets.

Lastly, we have some really strong businesses that we expect will stay this way and in fact, balance out our business portfolio. Look at the strength in cranes with a growth of 26% year over year in the quarter. Materials processing and mining with a growth of over 42%. I know some had thought the area work platform business was teetering on the brink but the first quarter actually illustrated growth in both North America and International. For our construction business, there's definite softening of certain countries in Western Europe and the housing market in the U.S. remains quite weak. However, we continue to view the current market place more as an opportunity than as a near-term risk.

As our construction business has relatively low market shares that we feel we can grow as we build out capability today for the future. All in all, Terex remains strong and is getting stronger. We welcome ASV into the Terex family of businesses as well as the bridge inspection equipment Company of Hydra that is being added to our road building operations. Superior high wall miners has already shown great prospects for us as well, focused on coal which, as you know, is a strong area of future growth.

Now, I would like to turn it over to Phil Widman who will cover the corporate performance and then our president Tom Riordan will highlight some of the noteworthy operating activities then, of course, we'll take your questions. Phil?

Thanks, Ron. Good morning, everyone. Before I begin, let me remind you that we will discuss expectations of future events and performance of the Company on today's call. And that such expectations are subject to uncertainties related to macro economic factors, interest rates, governmental actions and other factors. A fuller description of the factors that affect future expectations is included in the press release and our other public filings. I encourage you to read them.

Net sales reached a record for the first quarter at $2.4 billion, up 9% excluding translation impact of foreign currency fluctuations and acquisitions. While our income from operations of $256 million increased 28%. Net income increased to $1.59 per share from $1.09 in the prior year period. You will recall that in 2007 we had an $0.08 per share negative impact related to the early extinguishment of senior subnotes. Cash used in operating activities was somewhat higher than last year but fairly typical for this time of year. Return on invested capital which we now measure on an after tax basis was 27.3% for the trailing four quarter period. The net sales increase in the first quarter was driven mainly by materials processing and mining and crane segments.

As worldwide infrastructure and commodity needs continue to provide significant demand for our products. We also had overall net sales growth in the iron work platform segment although a little different than our geographic expectations. Excluding acquisitions and the impact of currency, the remaining two segments were relatively flat over the comparable prior year period. Income from operations increased to $256 million and operating margin of 10.8% compared to $201 million with operating margin of 10% in the prior year. Volume growth in our more profitable segments, the positive impact of prior pricing adjustments and the trend toward higher capacity crane and mining products contributed positively to the result. However, we're also dealing with commodity cost increases, efficiency challenges and the negative impact on the quarter of the inventory valuation and amortization effects of the recent acquisitions in some of our businesses.

SG&A expenses increased in relation to net sales volume and on an absolute basis. Representing our investment to improve our business processes and capitalize on developing market opportunities. You'll note that our crane and materials processing and mining segments where we expect sustained strength in end markets contributed 60% on the operating profit in the period while we still maintained excellent AWP results. The effective tax rate in the first quarter was 33.8% compared to 37.5% in the prior year period. The effect of recently reduced statutory rates in several European countries had a positive effect relative to the prior year as well as the fact that the first quarter of 2007 rate included a discreet charge for the repatriation of national cash.

Return on invested capital reached 27.3% again on an after tax basis for the trailing 12-month period as we benefited from the excellent trailing profitability. Our 2008 target excluding the impact of ASV is 25.6%. The impact of the ASV acquisition will tend to dampen this metric in the short term somewhat. We used $190 million in cash from operating activities. $25 million more than 2007 period due in part to a decrease in customer advances as we completed commissioning and delivery of large crane and mining products. As well as a decrease in receivable discounting. As is typical, our working capital increases in the first quarter in anticipation of increased volume in the midyear period. The level of working capital that trailing annualized net sales reached 24.9%. 0.8% of a percent which relates to the inclusion of recent acquisitions and 0.5 of a point to the difficulties caused by the major flooding in Australia during the quarter. This compares to 21.5% in the prior year period.

Our challenge with inventory is to improve processes throughout the supply chain. Specifically, logistics and planning. We continue to maintain our focus in this area. Debt less cash and cash equivalents increased $522 million in the quarter to $769 million. Representing 23.3% of total capitalization, mainly due to the completion of acquisitions, share repurchases of $52 million and the operating cash activities mentioned earlier. We will continue to pursue opportunistic acquisitions and invest internally for profitable growth while executing our share repurchase program. With regard to backlog levels, we continue to experience significant overall growth. Up to $4.8 billion from $3.4 billion in the prior year. Again, this represents orders that are deliverable in the next 12 months.

You will note this quarter we have not included approximately $210 million in potential backlog related to rough terrain, crane products until we finalize pricing for 2009 deliveries. This is expected to be resolved in the third quarter. Given our strong first quarter performance, and assessment on the challenges and opportunities in some of our end markets, the anticipated steel cost pressures and our response to these factors, we're increasing our full year 2008 guidance to a net sales level of 10.5 billion to $10.9 billion and earnings of $6.85 to $7.15 per share. The EPS midpoint would represent a 20% increase over 2007 levels. With that, I'll turn it over to Tom.

Thanks, Phil. Good morning, everyone. I will cover our current views of end markets and business conditions, review how some of our businesses -- how our different businesses are performing then ramp up with an overview of some of our key initiatives and challenges. The markets continue to be reasonably strong on average as most regions continue to improve their infrastructure which drives demand for our products. There are clear differences in the relative strength of various geographies. We believe we're reasonably well-positioned for the current economic environment. The area work platform market continues to be somewhat bifurcated. North America is still a solid but flat market. The U.K. has slowed down based on recent customer consolidation and most of Europe continues to be very strong along with the Middle East and Latin America.

We're pleased with the performance of our AWP business in the quarter. North America was up mid single digits, EMEA, which is Europe, Middle East, and Africa was up high teens and Latin America was up solid double digits with Asia Pacific down for us based on recent severe weather in Australia that Phil mentioned along with some localized Asian market softness. We expect Asia Pacific to rebound fairly quickly. Our margins were good at 18%. We made very good progress in continuing to build our global sales and service infrastructure. As part of that, we recently announced our plans to build a new plant in Shenzhou, China. This is very much in line with our intent of having production capability located to serve regional markets along with taking advantage of lower cost sourcing and assembly capability for our global markets. Our AWP backlog and lower trends continue to be very much in line with our expectations but the North American market up slightly and the European market down somewhat.

Moving on to the global construction equipment market, we see it continues to be quite varied. North America continues to be depressed but stable. Eastern Europe continues to be strong. Softness in the U.K. and southern Europe and stable in the rest of western Europe along with the Middle East, Africa and Asia all continuing to be very strong. Our construction equipment business had a tough quarter. While our net sales were up nearly 10%, this increase was driven by exchange rates and by the ASV acquisition which is doing very well. Cost pressures from steel and fabricated parts had an impact this quarter along with some operational issues. Overall, our order rates are solid, our backlog is up significantly from a year ago and we expect good midterm performance from this group. Our first mini excavator was recently produced and sold in Shenzhou, China.

Large infrastructure projects around the globe are driving the demand for our cranes. The larger capacity cranes are continuing to see unprecedented orders which is the core of our product offering. Our cranes business had a very good quarter with significant increase in backlog and a 300 basis point improvement in operating margins. We continue to work on supply constraints diligently including our own bottlenecks. We would hope to announce new plant capacity expansion plans in the near future. The general environment for mining and processing markets continues to be very strong. Basic material industries are investing heavily to upgrade and expand their capacities which is driving our product demand. We expect to see these trends continuing for the foreseeable future.

Our material processing and mining business had a terrific quarter with net sales up over 40% and profitability up nearly 50%. Similar to our cranes business, we continue to stretch our suppliers in our own capacities and are making good progress to relieve these constraints. The recent severe rains in Australia also affected our mining business which we expect to make up in the coming quarters. In addition to the plant for India for material processing previously announced, we hope to announce additional new capacity expansion plans for both of these businesses in the near future. Backlogs has continued to increase and we see very strong quoting and bid activity particularly in mining.

The road building utility business continues to struggle although we have continued to cut costs and overhead, fundamental sales and overtrends in the U.S. remain soft. I mentioned in the fourth quarter call that I expected to see improved margins in this segment in 2008. With the steel cost increases we're seeing and the competitive environment, we're likely to see very moderate improvement of profitability this year.

Let me come back to the current steel cost situation. With recent significant increases in iron ORE, coking coal, scrap steel, energy and other costs associated with the manufacturer's steel, we're heavily engaged in managing both availability and cost of steel and related components. We have a number of fixed price contracts that we expect our steel supply partners will continue to honor. Many of these raw steel supply agreements with expire at the end of the second quarter although many fabrication component supply agreements continue past that. As price increase requests continue to come through our supply chain, we're seeing strong cost pressures in Europe and moderate pressures elsewhere. Our focused supply and management team is working closely with local business leaders and sourcing teams to ensure visibility and transparency with these cost challenges.

Many of our larger and longer lead time products such as cranes and mining equipment already have built in cost escalation contracts with our customers. Shorter lead time products such as those in our construction business have minimal pricing protection from existing orders. That said, we also expect to be able to raise prices or add surcharges in the vast majority of our businesses and products. While we're sensitive to our customer's needs and aggressively working to find other costs offset, we can and we will be raising prices to cover these steel cost increases. Although there is no assurance it will be 100% successful and there will be some timing issues, we're confident that, in general, we'll recover the majority of these cost increases.

Working capital continues to be an area of focus. We traditionally built inventories in the first quarter in anticipation of the selling season in quarters two and three and this year is no exception. With the strong growth and demand for many of our products, along with the ASV acquisition, our working capital as a percent of sales is somewhat high. The positive side of this is the natural hedge against some of the cost increases cited earlier as well as helping to mitigate the supply disruptions. While inventory is always considered waste in lean companies, we're prudently working to strike the right balance for the benefit of our customers and our stakeholders.

The last area I would like to cover is the CHARTs management system or our new company wide ERP system we're migrating to. The implementation of our three pilot sites will occur around midyear. While we have significant focus and some last-minute tweaking that needs to happen, we're still very confident of the benefits and are busy preparing for the next sites to be implemented in Q1 2009. At this point, I'll turn it back to Ron.

Thank you, Tom. Thank you, Phil. A final point before going to questions. Really, a point of reflection upon valuation of our Company. If you examine three of our key business segments, our materials processing and mining segment, this is a business that revenue was up 43% this quarter and a total revenue -- on a total revenue basis, it approximates the amount of revenue of a couple of public comparables. It is a high mid teens operating margin business and we think a high return on invested capital business and the equity valuation attached to that certainly should be significant.

Reflecting upon our crane business, which grew 26% in the quarter with a huge increase in backlog, probably an unparalleled position in large cranes globally which should be giving us some sustained performance, there is another public comparable out there from a valuation point of view, leading to pretty substantial equity valuations to be contributed from this segment. And, of course, the area work platform business which is a business of $2.5 billion in revenue approximately tremendously good returns on capital, of course and high teens operating margin, 18% in the quarter. And there is another public comparable from a valuation point of view.

Just those three plus, of course, the opportunity that exists in our construction business and in our road building and utility business which we intend to improve should argue for a substantially higher equity valuation than we have today. We believe in this. We're going to work on it. And we're going to continue making the changes necessary in this Company to take us to the kind of performance that we think is possible for Terex over the next several years. So, with that, I would like to open it up to your questions.

(OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster. Your first question comes from Terry Darling with Goldman Sachs.

Thanks. I just wanted to come back to the price steel cost issue which I think you guys covered very well but a couple of follow-ups there. First, can you talk about what you expect in terms of order of magnitude, the price increases you're looking at to offset those pressures?

Terry, we are trying not to be so specific that somebody can simply paintbrush a price increase because it really is all about each one of our individual businesses. And we expect, frankly, to recover the full amount of our cost increases. But that obviously will vary because, in our crane business, as we said, we have the opportunity to have some escalation, particularly in our larger cranes. In our mining business, I think something similar to that is true. However, our area work platform business will be a little bit more challenged, particularly in the short term to recover that increase although we're going to work hard to do that. So, it really varies by business. But it is our intent with -- within the next six to 12 months to fully recover our entire cost. If you reflect upon the last time steel went up significantly, which is in the 2004 period, most companies, ourselves included, were caught a little bit flat-footed, relative to how to price to recover these kinds of increases. I think we learned our lessons. But that doesn't make it any easier. And we -- I think have a pretty good road map. So, while others are out there saying we're going to take prices up 5% or up to 5%, I just don't think that's an appropriate way to give guidance here. Because we want to take prices up as necessary to recover the cost, no more but certainly no less.

Understood. Maybe come at it from a different angle. Within your guidance, what increase have you assumed for maybe just raw materials broadly?

I don't think we can tell you that, Terry, to be perfectly honest with you. We have looked at what our variances are. We think we have some sensitivity handicapped. But if we give you that number, you're going to look at it and say what is your contingency to your EPS guidance. And what I would just like to say is we look at this rather holistically because, of course, there are other things that are happening that are positive that may be offsetting this. So, that is kind of the way we approach this.

You've got great orders here and the backlog enhancing visibility. You guys have touched on it. The big uncertainty is this price cost differential. I'm trying to get a sense in terms of how conservative or how aggressive your raw material assumptions in the back half of the year might be. That's just where I'm going with the question.

Here's the challenge to answer that question precisely, Terry. And I know this is a little bit frustrating. Is that as Tom indicated, we have some -- we have some agreements that we're seeing, you know, no increases in steel to speak of because we have commitments from those suppliers but those contracts run off in the third quarter. And we're not sure yet, frankly, whether or not we're going to have 5% increases or 20% increases. From some of our steel, and we think there's some marketing that's taking place on the part of steel that would have them argue for greater increases. And simultaneously, we're going to argue for substantially lower increases because we are combining our purchasing power at this stage. So, we're in a -- we're in kind of a supply battle where, on one extreme, you might say there is $100 million of risk and on another extreme, you might say we can mitigate virtually all of that, both through pricing and through some purchasing leverage. So, that's kind of the state of play.

One more related then I'll get off. Can you help us understand the timing of when you will be in a better position to know about that second half steel cost profile? Is that April, May, June? Can you help us with that at all?

I would think that, again as Ron mentioned, the state of play with suppliers and increases within the industry, I'm not sure we're going to be able to give much more visibility before the next quarter's earnings call which would likely be late July. I think we need to be cautious about announcing any strong intent here because one, we've got a very widely varying situation with our products and geographies and secondly, I think we also got a widely varying sensitivity on the part of different end markets relative to pricing receptiveness. So, all in all, I think it is going to be somewhat choppy. The steel companies themselves continue to posture and change their position somewhat in real time as we speak. And I think the story likely will come out over the next 90 days or so.

Appreciate the help.

Okay.

We're trying to be helpful, Terry. Frankly, we think we've got pretty solid guidance here and it would have been easy to try and give a simple answer but it is a little bit more complicated.

Your next question comes from Andy Casey with Wachovia Securities.

Good morning, everybody.

Good morning.

A little bit of clarification on the revenue and input cost guidance and the comments. Are you including this expected raw material pricing in the increased revenue guidance? It really doesn't look like you are.

In the increased revenue guidance?

Not specifically, Andy. One of the increases in there is also ASV. That's part of it.

Yes.

It was not pricing that caused us to increase our revenue guidance.

I just wanted to clarify that, thank you. And on the normal 50/50 first half to second half seasonal earnings mix, do you expect that within this guidance to shift more heavily to the first half?

No.

Okay. And then lastly, on the U.K., AWP customer consolidation issue, do you expect that to, persist through this year or is it just pretty much contained in the first half?

Tim, would you like to answer that?

Sure. We think that the consolidation has a first half effect. We believe that the customers, once they get a sense for what their situation is will begin to release some orders for second half.

Okay. Thank you very much.

Okay.

Your next question comes from Jamie Cook with Credit Suisse.

Good morning and congratulations. I guess my first question, I think you guys, on the area work platform side, I think in your prepared comments, you said North America was up mid single digit or at least it seemed pretty solid. I think when you guys had originally given guidance, you talked more about a flat market. I guess I'm surprised by the strength of the market. Was it market share, was it pull forward? And can you just talk about what you're hearing from your customers anecdotally giving the weak AVI numbers, commercial construction numbers in general, how you think that market sort of -- how we see the market evolve throughout the rest of the year.

Tim, why don't you answer that.

Our North American market has remained more buoyant than we thought it would. In the fourth quarter, Jamie. The customer base in the U.S. is -- continues to perform well. We've had some market share gains that have been favorable for us. And frankly, all of our customers haven't put orders in for the year. So, we think that we're in a pretty good position for the remainder of the year in North America. We think North America will be a decent story for us this year.

Okay. And then I guess, too, can you just talk to some of the your comments, while it was more related on the construction business but within western Europe, it sounds like the macro environment has deteriorated a little which is a big part of the area where platform business. Outside of the customer consolidation that you saw, how are you looking at those markets and how big is the developing markets at this point? Because I think the obvious concern is the area where platform which is a significant percentage of your profits is going to -- this is the best to come and I think everyone is pretty concerned about how we should look at 2009.

Okay, Jamie. Well, there are several things of good news to emphasize, really. First, our area work platform profit was up over a year but as a percentage of our profits actually meaningfully down. And that's really due to the improving profit performance of our crane business and our materials processing and mining business which we have been saying for several years but I think frankly, I think has been falling on more deaf ears than people listening. So, from my point of view, I think that's a good sign.

The other thing that we have said for some time is the diversification of our revenue base outside of traditional markets. And that continues. If you examine our business while the western European markets particularly markets like the United Kingdom, Spain, some of the southern European markets have shown weakness, not just in area work platform business but also in construction, our construction product businesses, that is more than offset in most of our businesses, at least, by the strength in the eastern European markets and the oil booming regions of the Middle East and, in fact, some beginning significant improvements in our revenue in Russia. So, we are seeing a move east and south from our European factories that is being reflected both in our area work platform business and to a degree, in our construction business. The crane business remains pretty solid across that range. And the mining and materials processing business remains pretty solid across those ranges. So, I'm feeling like -- and Steve Filipov here, he's got a lot of work to do. But as you examine the performance of our business, we're really seeing our western European business actually slow somewhat and our developing markets continue to accelerate.

Let me ask you this. In the area of platform business then I'll get back in queue. You only report backlog through the end of the year. I mean what -- do you have orders that would go into 2009 and how would that compare to last year?

We do report, Jamie, remember, 12 months.

So beyond the 12 months, I guess.

So -- our backlog for 12 months is as reported, there is a small amount beyond that that we have that is not reported.

In the area work platform division.

Right.

And how would that compare if we were to compare this year versus last year, would a lot more go beyond the 12 months?

I would say it is pretty much steady state like it was a year ago.

All right. Thanks. I'll get back in queue.

Your next question comes from Alex Blanton with Ingalls and Snyder.

Good morning. On the customer consolidation, I think you said was in the U.K. In the AWP business, I take it those were rental fleets that you're referring to and could you give us some details on what exactly that was?

Our market in the U.K. has really seen a consolidation in the last 90 to 120 days where two or three companies have been merged together and those companies -- the acquiring company is evaluating the fleet overall and is assessing what their needs are going to be as they go forward.

Alex, this is really -- this is pretty typical in our industry. I think in the short term, it causes orders to be canceled as fleets get rationalized but frankly, that's good news. I would rather have that happen than for us to continue to push inventory into the market place that's later going to be rationalized with a more disruptive downturn.

And I think if I reflect upon, I guess my nearly 20 years experience in this business, now, which is frightening for me to think about, frankly. But I think it has given me some perspective. What we're seeing is a much more thoughtful and analytical approach to fleets, to mergers, to combinations than I have seen historically. We have seen companies that don't go up to the edge and fall over. We see companies that look at the market place and say the market is changing, therefore, we're going to change and we're going to make our company stronger and I think that's frankly good for our business.

All right. Tim, could you give us the names or could you care to mention the names of the companies that have merged together?

We really don't want to do that. I don't think that's appropriate for us to do. But I think if you -- probably ask our competitors, maybe they'll let you know.

Well, I can pursue that later. The second question is on ASV which I followed at one time before you bought it.

We do know that, Alex.

You said they're doing well. Of course, we only have one month of sales in your numbers that you have disclosed. So, we really can't tell from that what the results are. Year over year. Could you give us some more details on that? Because they were being heard, of course, by the housing business, dropped off substantially for them in the last year or two. And I wondered if there is a recovery taking place there and to what degree.

Alex, I'll first make a comment and then pass it over to Bob Isaman who is leading that integration. But when we say ASV is doing well, it is doing well against the goals and objectives that we set for ourselves. We want ASV to be an important contributor to the Terex Corporation. We have specific things we want to accomplish with that business. Both the build franchise and North America to expand it more globally, to help integrate some of our other products. And we couldn't be happier with the leadership team that's there. And with their openness and willingness to participate in the same goals and objectives that we have. So, in our opinion, doing well at this stage is about seeing the same opportunity and attacking that opportunity with passion and vigor. We do think that the U.S. housing industry is down. We are certainly glad we did not go long with the number one franchise in that industry. And because we think they will have a difficult time in the short term but we think that provides us opportunities. Bob? You want to add anything?

Well, yes. We currently have ASV in the integration process. In the Terex integration process. But if you look at their platform and their technology, there is a lot of runway to take their technology, their undercarriage technology and integrate it with our current light construction product line. There is tremendous opportunity to use the ASV base in Minnesota as a manufacturing platform for us in the Americas which will help to offset the effects risk that we have. I think lastly, there is tremendous runway for us to move that product line into Europe. And they've recently got certification in Europe. So, we're very excited about that.

Have you done anything about that in terms of moving their business overseas which most of it was over 90% was U.S. or domestic, I should say, U.S. and Canada.

Certainly more to come. Answers, yes. But again, we're into this less than two months.

Thank you.

All right.

Your next question comes from Charlie Brady with BMO Capital Markets.

Thanks. Hey, with regards to the crane segment, you highlighted the RT cranes as having a backlog priced, can you comment on what it looks like beyond the 12 months for crawlers and for the all terrain crane market?

Rick, you want to comment on that?

Well, is this a pricing comment? I don't quite understand.

Overall demand and sort of build slots beyond the next 12 months and I guess that also accounts for pricing into that as well. But obviously you have the escalators give you some protection on that.

We certainly have build slots scheduled for our customers on the all terrain cranes and the crawler cranes out through 2009 and probably into 2010 in some cases. We do have escalation built in to protect us on price in most cases. So, we are booked out farther than the current backlog.

Our backlog, again, is a 12-month backlog. It is product that we expect to deliver. In addition, we have that $210 million that we highlighted but we do have customers that are reserving slots well past the next 12 months. What that tells us is two things. One, that the opinion of our customers is that they expect infrastructure-related projects to remain quite strong because it is mostly the big cranes that, here that work. And the kind of things we're talking about is cranes to build nuclear power plants, cranes that build wind power. Cranes that move massive bridges. And, it is the type of cranes that really aren't available from many other manufacturers in the world. So, if you are in the business of renting and positioning those cranes, you want to get build slots. But it also tells us that in this crane business, we have to work to increase our capacity. Because customers waiting three years for cranes, if they can find an alternative is also not a particularly good position to be in. So, that's what we're doing.

With regard to the capacity increase you talked about within cranes and also in the mining segment, would anything you're contemplating have an impact on 2008 or is that really sort of a 2009 beyond impact.

2009, I think. Primarily 2009. We should have some minor late fourth quarter 2008 incremental help on some primary fabrications, et cetera. But it is primarily 2009 and 2010.

Within the construction segment, you commented on the Motherwell, Scotland facility, can you sort of expand on how do you define temporary shortfall and when you might expect the volume opportunity and cost reduction opportunity to come through.

Sure. What we did in Motherwell, Scotland was we took two manufacturing lines that made arctic trucks, articulated off-road trucks and combined them into one mixed use line. And we did that to tree free up -- to free up space to be able to manufacture more rigid trucks in order to put more throughput through that manufacturing facility. Whenever you do that, you have a temporary disruption in your ability to produce. So, that's a short-term, one-time issue, we expect the second quarter to be back up probably a little bit higher than where we thought we were going to be in first quarter.

One final question. I'll get back in the queue. On the road building segment, would you expect Q1 to be the last quarter to see a loss in '08 or are we still having some problem here in the first half?

My belief is that the loss in Q1 is not acceptable performance between road building utilities. I think there are a number of things that are challenging. I'm not certainly in a position to guarantee strong profitability but I do believe our second quarter and balance of the year performance will be improved as compared to our Q1 performance.

Thanks very much. Great quarter.

Thank you.

Your next question comes from Steven Volkmann with JPMorgan.

Good morning, guys. Just maybe some comments on the cash outlook. Maybe Phil, but as I look forward on the year here, how should I think about how working capital as we go forward and it sounds like there is a few things you're doing on the capacity side which maybe flows through into CapEx I assume and give us a sense of what we should be looking for there.

Okay, Steve. Start with the last piece of the CapEx side. We're staying at our guidance level of $160 million for the year which includes several investments in capacity expansion which Tom alluded to earlier. In terms of working capital, it is still one of our challenges as I mentioned in the release. I would expect we'll see improvement as we go through the year but with the very large products in mining and cranes, it does cause some lumpiness. But from a process standpoint and programs that we've got in place, we should see improvement as we go through the year. Typically, we generate most of our cash in the back half, however, because of the high second quarter volume we have is kind of a neutral quarter and then we generate in the third and the fourth quarter periods. But I would say our working capital as a revenue relationship should come down as we get further into the year.

Okay, great. The tax rate, I was interested that you changed your ROIC to after tax. Should I read that as incentivizing the team to focus on the tax rate and try to bring that down?

You can believe that, Steve. It is the prime measure for near term objectives and--.

And incentive comp.

And incentive comp, that's right.

Should it be down over the course of the year here?

I think long-term, we really believe we can make a big difference here. Handicapping it immediately is kind of challenging.

Okay. Fair enough. And then the comments about the cash, the working capital, Phil, in terms of -- I don't have the words right in front of me but something about the mining and crane that you get cash payments, I guess when you get orders and then those go away when you deliver them or something.

The advances, yes.

I'm sorry. So, I guess I'm trying to square up the fact that that was a negative on cash. With the fact that you still seem to be getting lots of orders. How should I think about that?

The timing of when you get cash on some of these products, there is usually -- I'm talking in the very large mining equipment and cranes. Maybe 10% to 15% when you get an order and as you get closer to the delivery time frame, when it is ready to ship, you might get 60% of the cash and then the remainder closes out as, when you recognize revenue basically on commissioning. So, in the fourth quarter, we were in the process of delivering several of these including the twin boom 8800 we talked about over several quarters actually. We finally completed that in the first quarter of the year. So, it is again, the lumpiness of that. We still will achieve cash advances on the larger orders but given those and the RH400s we delivered in Canada, again, very large. We're really getting the 60% kind of number in the prior year and then completing it this year, they roll through.

That's what I was referring to.

One quarter to the next, it can swing cash 20 million to $40 million in that range.

Very lumpy.

I can't really read anything with respect to like your filling out orders for really big stuff but taking in orders for smaller stuff or something like that.

No, because of the mix, again, the percentage over the time. It is going to be fluctuating.

You also should not read into that, any change in our terms practice either.

Fair enough. Good. Then just a final one from me. Just starting to make some decent headway on the margin side, I guess on a bunch of the business, is there any change in terms of what your expectations are for the longer term in terms of margin opportunities in the segments and specifically, I guess I'm thinking as you've talked about localizing production more globally and I assume that perhaps as a potentially bit of a headwind on margins because you're probably getting some benefit from currency and export and so forth now that you might not get in the future. So, I'm just trying to square up how I should think about that longer term.

It's a good question, Steve. And in fact, the way I think about it is reflected in my 12 by 12 in 10 goal because when I committed to the 12 by 12 in 10 goal, I did expect that we would have both positives as well as negatives. The currency won't always help us. But, raw material costs won't always be a strong a headwind as we have here as well. And we won't always have construction at a very low margin and road building and utility at a very low margin. Nor did I expect necessarily that AWP would stay at an 18 to 20% margin all the time. But nor did I expect cranes to continue when we started at the high single digits margins which is now in the 13% operating margins. So I really looked at this in the fullness of a cycle and said hey, we ought to be able to deliver 12% operating margin when not everything is going well. Which means that if, per chance and it has never happened since I've run this Company now for 15 years, everything goes well at once. Our margin ought to be in mid teens.

On the flip side, if everything goes bad, all at once, which has happened once or twice but not recently. But now, I think we got ourselves positioned so we're in the high single digits at least. So, I really think our business is so different today than it was a number of years ago and it has to be. Almost by definition. We've come from nothing. We're a 10 billion to $11 billion Company that has the best returns on capital in the industry and if not, the best clearly right there with the best. And so my feeling is that we have totally changed how this Company has been positioned. Yet we don't have deeply rooted processes that we can say are as sustainable as we would like to have. Which is why we're building in the lean processes, why we're building in a Terex management system. Why we are changing our manufacturing footprint, supply chain. Why we're initiating many supply chain programs. That is what's going to take Terex from being a sophomore in high school which we aren't quite yet to the university. And so I'm very optimistic but I know we have -- we have some choppy markets and choppy situations to still work through.

Okay. Great. If I could just sneak one more in. You made a comment that intrigued me, Ron. You said you're going to make sure that you get pricing to offset your raw material costs but no more, I think. And I don't know, hopefully I'm not putting words in your mouth. But I was intrigued by that because clearly in your end markets, there ought to be an opportunity to maybe get a little more and it is maybe make hay while the sun shines and is there a philosophy there that you want to talk about?

Well, we have fortunately some of our customers absolutely listen in to these calls and we want to assure our customers that we are not going to use the raw material cost situation to have their cost of business go up unnecessarily. Because it is easy to say when times are good you should get every last penny but that comes back and haunts you. We're interested in building relationships with our customers and have our customers understand that when they buy a piece of equipment manufactured by Terex Corporation, they're going to get the highest returns on capital possible because we will deliver to them great value, great performance, good follow-up support, and they have confidence, therefore, when they purchase from us that we're not just about making today's return. We're about making a long-term relationship. And that's what's going to take Terex from a number three franchise player in the globe to a bigger, more diversified and successful enterprise.

Thanks. I appreciate the time.

Okay.

Your next question comes from Andrew Obin with Merrill Lynch.

Good morning. Great quarter, guys. Just -- most of my questions have been answered but just have a couple of technical questions. In terms of this one-time item, roughly $7 million, that we got, should I expect this benefit to continue throughout the year?

Which one-time item are you referring to?

Not a one-time item. I think it is other income of $6.6 million.

Oh, some of the exchange of minority interests. Not necessarily.

No, not necessarily. That doesn't fluctuate quarter to quarter. Minority interest in there is there for different acquisitions and so on as well as some of the currency gains.

Should I be modeling it at zero roughly for the end of the year? Is that safe?

I think that's safe, yes.

The second question, just -- I noticed a language change on road building where you are talking about possibility of revalidating the fair value of the business. Could you elaborate on that a little bit?

Sure. As disclosed in our 10-K, we do an annual assessment on fair value of our goodwill and intangibles. As of October 1. The road building portion of our business is the one that's the closest to the fair value difference versus what we're carrying. When you look at the performance of that business, if there is a triggering event, their performance doesn't meet our expectations, we may have to reevaluate that. We didn't quite get to the second step of reevaluation in the first quarter but if continued performance doesn't realize versus our plans, we may have to go further in terms of that. In total, we have about $34 million of goodwill in that business. So, that would be let's say the worst case. But again, as of this stage in the first quarter, there's not a need to do that.

And I know the question on the tax rate has been asked but just want to clarify. What should I model for the rest of the year?

Again, Andrew, we're not changing from our guidance of the 35% but, it is one area that we're expecting some opportunity in.

Thank you. So, there could be changes through the year but you're just not modeling them right now.

Andrew, I think, as you reflect upon Terex with your constituencies, I would suggest that we still are pretty positive. We still feel very positive about our Company. And you've been following us a long time and I would encourage -- I really would encourage you to look at the total valuation of us because I think there is opportunity here.

Thank you, Ron. I appreciate it.

Your next question comes from Charlie Rentschler with Wall Street Access.

Yes, good morning. You've given us -- I guess you've snugged up the guidance for '08 and repeated the goal for 2010 which gives us kind of a trajectory to think about but what I'm wondering is as cranes and material processing and mining become bigger engines in pulling the Terex profits say relative to AWP, I'm wondering -- I sort of think of a lot of that equipment as being late cycle. Maybe I'm old-fashioned but I think of that as late cycle and AWP is maybe early mid. But can you talk a little bit about your thoughts about '09 because -- do you think that those businesses will stay strong just because they're global and they benefit from infrastructure and nuclear, et cetera?

I think, Charlie, the thing I would like to say and I clearly do not want to come across here as having the answer but I will give you my perspective on this because I don't think there is an answer. But over the course of time, our businesses have essentially been North American and European based. And our industry has essentially been North American and European based. And when North America went down, Europe was sure to follow. And we got a periodic boost from Asia but it really wasn't that big of a driver of the businesses. That is clearly different today in a very, very big way. And that we're seeing in our material processing, in our mining business, and we're seeing that in our crane business as well. And in part, that's because we do have economies that are being driven by some of the changes in raw materials as those economies go through drastic growth periods. You know it, India, China, Russia, many other markets in Asia. Many markets in eastern Europe. And as you see the petro or the oil effect which is essentially taking dollars from those that need the oil to dollars that -- to markets that have the oil, and then having those markets reinvest in their own infrastructure. Such as the Middle East. That's what's different today. And that's not about late cycle. It is about longer cycle. And the longer cycle is clearly in play in our crane business and is clearly in play in our materials processing and mining business.

I do believe it is long enough to take us well past 2010 and I think whatever disruptions or bumpiness we'll see in our area work platform business, will be back in a strong period in the 2010 period and I also think that area work platforms will be a product for the developing markets also. And then, if you back up and say well, what's going on with construction products, that's another big opportunity for us because we plan to participate in those developing markets and while we are still not one of the big players, a big A player in a market that needs equipment can be a big growth opportunity for us. So that's why I'm generally bullish about our overall business.

Okay? All right. Let's take the next question.

Next question comes from Robert Wertheimer with Morgan Stanley.

I keep getting surprised by the currency that there is not more flow through the margin and revenues. And maybe this quarter provides the answer. Is euro denominated sales related occasionally maybe of 10% of the business? Or is that why the currency flow through on the revenue line was low?

I missed part of your beginning, Robert but I think I know what you're getting at. The way we look at our translation effect on revenue, AWP, we distribute through the U.K. There wasn't much movement on the sterling year over year. So, we're looking at converting that. In Australia, versus the U.S. dollar, the U.S. dollar -- weakened quite a bit versus Australia and part of the impact of the flooding caused some of that impact downward year over year. There is some sterling to Euro that may be a little higher than what we've got in the release that we're looking at.

I also think that one of the reasons there's less currency effect in AWP is because frankly, in the first quarter, we had more revenue in North America. Sorry, Tim? We had more revenue in North America than we did last quarter where our European business was stronger.

That I understand but just to be super clear. In France if you sell AWP, it is nominated in euros, not pounds, right. I'm wondering if you know the euro value of the sales in the euro zone.

We denominate our products in both pounds and in sterling -- in euros.

One other factor in this, Rob is we're increasing local content in euro zone purchases so that's also kind of a negative against that exchange rate.

On the margin line, yes. Okay. Then I guess the last question is the mining business was very solid. Can you talk about the sustainability of the production. You've had a lot of years of growth. Can you -- was there any pull forward from Q2 and can you continue to grow that production?

Robert, maybe I'll take that one. We did not have any Q2 pull forward. In fact, I think we -- we're still a bit behind some of our customer expectations. We've done a really excellent job at most of our mining facilities in taking lean to a really higher level to get productivity out and production out the door. I think we're bumping up as Tom mentioned earlier against some capacity constraints, not just in the supply base but in pure factory footprint. And we're -- as a part of our capital plan, both this year and into next year, we're going to be taking both the German facility up in footprint and beginning to transition some of the products into lower cost markets. So, we do have to address the capacity for the '09 volumes that we expect to see.

Okay. Thank you.

Your next question comes from Robert McCarthy with Robert W. Baird.

The strength of the crane market, with--.

Rob? Could you repeat yourself because I don't think she had you on speaker until you got part of the way into your question.

No problem. I wanted to follow-up on the discussion about the strength in the crane market. And the exceptional strength that you're seeing in the rough terrain market. And I'm wondering if you could -- given that there's exposure in that business to building buildings, if you will, which is a weak market in North America. The actual application, could you talk about what's driving the strength in that product class specifically and whether some of the strength you're seeing is really a reflection of pent up demand from the dealer base related to all of the work that you've done at Waverly over the last 18 months and the better availability of product now.

I think, Robert, we would clearly see some effects of the housing market in the crane business. Boom trucks would be down per se. On a year over year basis.

Right.

But as Ron mentioned a little bit earlier, our mix in the business is changing to the much larger crane part of our portfolio. With the larger rough terrain cranes, the larger crawlers and the larger all terrain cranes that is really where the meat of the market is and it is where really the larger global demand is in the product.

Does that mean that a lot of this incremental RT business is going offshore?

Some of it is. Some of it is, Robert. In addition, I would say don't discount the fact that some of these RTs are very good at working on petrochemical operations and nonhousing-related applications. It is easy to say that everything is housing related but the reality is this country's got infrastructure, it's got energy resources that are rusting away. And we have a crane rental fleet that got pushed out of this country in the last downturn has been replaced, still is in need of being replaced and so I'm still pretty positive about the RT opportunities.

Okay. Thanks. And I think I heard you say as part of your -- this would be for you, Tom, I guess. I thought I heard you say as part of your prognosis for the road building and utility segment that you're looking at, moving -- or doing some plant consolidation, which I presume would involve some incremental expense and I wonder, in your comments about the road building segment remaining challenged this year to show a lot more profitability than what we saw in the first quarter, is part of what you're thinking that you're going to have these incremental expenses or would they be an additional issue beyond the soft performance that you're getting right now.

The clarity answer as I would describe it is Ron made a comment about beginning to synergize manufacturing assets between construction and road building. The specifics behind that, frankly, is not necessarily plant consolidation as much as it is an opportunity to take a number of product lines in the construction arena that we are underserving North America on the basis of what we believe to be an eventual turnaround over the next several years of the U.S. market, begin to produce some of these products in the U.S., and position those in road building excess facility plants that we've got today. So, my comments on the profitability of the segment are really nothing related to any consolidation or excess cost of facilities.

Okay, great. Thanks. I appreciate it.

your next question comes from [Robert Martin] with Defiance Asset Management.

Congratulations on another excellent quarter. The mining business is currently I guess had a quarter that was bigger in revenue than one of the publicly traded companies that's approaching a $5 billion market cap. While the margins aren't quite similar, there's opportunity to expand them in the mining business over the next couple of years as you stated in the past. What are the primary drivers behind the materials and mining business growth? Is it as much materials processing as it is iron ore and coal or is it weighted toward one of those two? Thank you.

I think, Robert, we see strength clearly in both. The materials processing pieces are aggregates business, that has historically been a very dependable, very high margin business for us with very reasonable growth. But the real change, the delta in that segment has been the substantial increase in our mining shovel business, our (inaudible) shovel business as well as some growth in our mining truck business and some growth in our drill business and the addition of superior high wall which is a great franchise improvement.

Could you give us an update on that? Is the globalization of that product taking off as you expected with your increased distribution?

Yes. Yes. We've actually sold one unit into Russia and we have several deals pending on a global basis. And I think -- it is early on in the integration process but we're looking at opportunities to leverage synergies on a component side across the other businesses plus take advantage of our more global distribution network in the mining group. So, we see real opportunities with SHM.

Thank you, sorry.

To be a meaningful contributor. Okay.

Okay. And secondly, you guys had a -- I think you had an infrastructure summit here, conference in the U.S. Infrastructure spending has, particularly nonresidential construction that is spending. Some people think is about to implode or fall off a cliff like the construction business. I kind of look at it differently as a percent of GDP. It has just come up from a very low level and in fact, if you do it on a real basis, it is not that much off the bottom because construction material costs have gone up so much. What did you guys conclude from your infrastructure, domestic infrastructure summit and is there a chance that the public spending, the roads, bridges, highways, tunnels, water, power, infrastructure, energy infrastructure can sort of hold up while office tower and shopping center construction and gaming casino construction falters in this domestic economy and credit crisis.

Robert, the simple answer to that is if our infrastructure spending implodes, so will our way of life. And I don't think that's going to happen in this country although with the level of politics, the way it is, sometimes I have a level of fear with that also. I mean what my conference -- fundamentally proved was that we are underinvesting in our infrastructure in this country and when you get people together like we did at this conference which was the head of the AFL-CIO John Sweeney with former Governors Pataki, Governor Engler, the Assistant Department of Transportation Secretary, Jim Oberstar who is the guy that's in charge of -- Chairman of the Infrastructure and Transportation Committee. What this proves is that we have to find a way for both public and private partnerships to collaborate, to deal with our crumbling infrastructure. It is not a matter of if. It is a fundamental need.

Jim Oberstar basically went on record as saying we need to double the country's spending level on our highway bill from $280 billion to over $500 billion. But I think it is easily said in a political environment. What we need is vision and we need will. And that's where we struggle. So I hope that the leadership of the country can get its act together to deal with this issue. It must. But it is going to take some pressure from both business as well as the investment community and I encourage you and anybody on this call to take this up because it is a real risk for our country's way of life. Fundamentally, infrastructure investment, equals economic prosperity. They are attached at the hip.

Thank you.

Okay. Can we take one last question.

Your final question comes from the line of Seth Weber with Bank of America.

Thanks. Good morning. Squeaked in here at the end. Ron, couple of questions on the -- something you said about the crane business with lead times extending out here, have you noticed any increased competition from the Asian, the Chinese manufacturers, do you feel like you're losing share, you're losing opportunity there? First question.

I think we have, for now, nearly two years, identified the fact that China will be a player and a manufacturing source for cranes which is why we made the investment in our [Chen Chang] crane JV in [Loujio], China. We do see the beginnings of some entrants from China into western markets. But to me, this is about being intimate with our customers and making sure we demonstrate the value that's implicit in our products. A Chinese-produced crane may have a low price today but over the long-term, they'll be moderation of currency differentials, there will be a lot of reasons. It is a long way to bring a crane into western Europe from China or into the United States from China and it is a big risk because fundamentally, you have that asset which is what you do business on. And if that asset valuation can't be assured, then you need to -- your business model becomes vulnerable and services clearly what is going to be important. We have got a history of decent service.

Right. Okay. Just going back to your RT comments on the '09 pricing and backlog, is the -- am I misinterpreting that the crawler customers are more willing to take escalator or is that incorrect?

No, I think it is just a function of size. I mean size. When you're dealing with somebody that's ordering a $0.5 million piece of equipment, it is a little bit different than someone ordering a $150,000 or a $200,000 piece of equipment.

And it is also a function of the lead times that are involved in terms of some of the larger products that we have where typically, you're not talking about two or three month lead times in many cases. You're talking 9 to 12 or longer lead times and as a result of that, obviously there is pricing protection, cost production that both sides are looking for in any negotiations.

Right. Which is why I was surprised you didn't make the same comment about your crawler business that you made about the RT business or am I just misinterpreting that?

Well, I think you're probably misinterpreting it. The crawler business is primarily over 300 tons and would fall into really a large purchase price for customers such that, we would be negotiating a price with escalations in it where an RT would be significantly less in value.

Okay. Last question on the aerials business, the U.S. aerials business, is there -- where are you seeing the strength there? Is it coming from more the mid tier rental companies or have the big -- your more traditional larger rental companies stepped up maybe more than you would have thought?

I think we've seen a combination of all of the above. I think a few of the big rental companies have stepped up. A few haven't yet. So, the good news is some of our better customers still haven't ordered but some of our also better customers have ordered. It is really -- it really is a bit of a broad spectrum of customers.

Okay. Thanks very much, guys.

Thank you. And thanks, everybody for their interest in Terex today.