Terex Corp (TEX) 2013 Q1 法說會逐字稿

Good morning, my name is Stephanie and I will be our conference operator today. At this time I would like to welcome everyone to the Terex Corporation first quarter 2013 financial results conference call. All the lines have been on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the conference over to Ron DeFeo, please go ahead sir.

Good morning, ladies and gentlemen. We appreciate your interest in Terex today. On the call with me this morning is Kevin Bradley, our Senior Vice President and CFO; and also Kevin O'Reilly, Vice President of Operational Finance and Tom Gelston, Vice President of Investor Relations as well as our leadership team members, including our segment presidents.

As usual a replay of this call will be archived on the Terex website, www.terex.com under Audio Archives in the Investor Relations section. I'll begin with some overall commentary. Kevin will follow with a more detailed financial report and then I'll come back and discuss each one of the segments and open it up to your questions. We will be following a presentation. It is the presentation that accompanied the earnings release and it's available on our website. I would like to request that you ask one question and a follow up in order to give everyone a chance to participate.

Let me direct your attention to page 2, which is the forward-looking statement and non-GAAP measures explanation. We encourage you to read this as well as other items in our disclosures because the information we will be discussing today does include forward-looking material.

Turning to page 3. Let me begin. The first-quarter results for Terex were generally in line with Company expectations overall, although the results of the individual reporting segments clearly were mixed. On an adjusted basis we achieved earnings per share of $0.23 and a reported EPS of $0.18. The difference primarily relates to charges in the Material Handling and Port Solutions business as well as charges taken in conjunction with the sale of certain roadbuilding assets.

As I mentioned, our segment results were mixed in the quarter. Aerial Work Platforms had a strong quarter delivering both excellent growth, up 21% versus the prior year, as well as solid margins at 14%. The Cranes and Materials Processing business both executed their operating plan about as expected. Challenges in the quarter came from Construction, which is off to a slower start sales-volume wise, and we have taken some additional actions to streamline this business. Lastly, our Material Handling and Port Solutions business continues to show softness across its core markets. There we're focusing on further actions to get at the base cost in future periods. In the earnings release we indicated that these cost measures will likely result in Terex taking a restructuring and related charge of about $30 million to $50 million in the second quarter. We expect, however, to realize a similar amount in savings over the next 12 to 24 months.

Clearly there are some new-term challenges reflecting the continued uncertainty in many markets. Nevertheless, for the Company overall, the year is progressing about as we expected. Earnings wise at least, our 2013 EPS guidance remains unchanged. We expect $2.40 to $2.70 of earnings per share on an adjusted basis with net sales between $7.9 billion and $8.3 billion. Our performance was better than expected in terms of first-quarter cash generation. Historically, we use cash in the quarter. However, free cash flow of $135 million in the quarter reflects good progress to our overall goal of a second straight year of $500 million in free cash flow.

I will come back in a few minutes to discuss our segments, but first I'd like to turn it over to Kevin who will go through the next couple of pages and discussing the specific financial results on an adjusted and reported basis. Kevin?

Thanks, Ron. Good morning, everyone.

Turning to slide 4, I'll review our financial results for the quarter. I would like to highlight up-front the changes from foreign-exchange rates did not play a major role in either the sequential or prior-year quarterly comparisons for the total Company. Our net sales for the quarter of $1.7 billion declined from the prior-year quarter by 5.3%, or approximately $96 million. Our AWP segment increased net sales by 21.3% as we continued to benefit from improving replacement demand, particularly in North America. We're also seeing early signs of a fleet replacement cycle taking hold in Europe. The increased order activity for AWP that began in late 2012 continued into 2013, and is reflected in our backlog at the end of the quarter.

Our Cranes and Material Processing segment net sales were in line with our expectations for the first quarter. The Construction segment had a difficult start to 2013 posting a 22.9% decline in net sales for the quarter. Contributing to this decline were our compact and materials graph handling businesses in Europe as well as a decline in our rigid an articulated truck sales for most markets globally. MHPS also had a weak first quarter with net sales declining 22.6% compared to the prior-year quarter. This decrease was driven largely by softer demand for port equipment across most product categories and to a lesser extent, a decline in our industrial material handling cranes, which was spread broadly across geographies.

Gross margin as adjusted increased 100 basis points to 19.2% from the prior-year quarter as improved price realization and manufacturing efficiencies in our AWP and Crane segments more than offset the impact of the significant net sales decline in our Construction and MHPS segments. SG&A as adjusted remained relatively consistent with first quarter of the prior-year. Decrease in spending in construction and MHPS was substantially offset by increased investment in AWP, as their end markets continue to strengthen. Income from operations as adjusted remained relatively flat despite the 5% decline in net sales as we had more favorable mix of AWP and Cranes net sales during the quarter. Our AWP and Crane segments both posted strong incremental margins, AWP at 37% and Cranes at 46%. This favorable mix was largely offset by the revenue declines of roughly 23% in both our Construction and MHPS segments.

Net interest and other expense was relatively flat versus the prior-year quarter, as the benefit of debt reduction and refinancing actions executed in 2012 was offset primarily by the guaranteed payment to our minority shareholders of Demag AG. As you remember in Q2 of 2012, we began accruing for this payment. As we move further into the year, it will be neutral in our year-over-year comparisons. The effective tax rate after adjustments was approximately 42% in Q1 2013 compared to approximately 21% in the prior-year quarter, which negatively impacted our year-over-year earnings-per-share comparisons by approximately $0.08. This was mainly due to discrete benefits in the prior-year period that did not re-occur. For the full-year 2013 we are still forecasting an effective tax rate of 36%.

For the quarter, earnings per share as adjusted was $0.23 compared to $0.29 in 2012. As reported, earnings per share for Q1 2013 and Q1 2012 was $0.18 in both periods. I will walk through a bridge detailing the adjustments in a moment. Net working capital as a percentage of annualized sales was 25.7%, a decrease from the 27.3% reported in Q1 2012. The decrease was driven primarily in inventory reductions in several of our segments as well as increases in customer advances. Return on invested capital improved to 7.7% from 5.1% in the prior-year period, as our profitability continues to be the main driver of ROIC performance for Terex.

Turning to page 5, in the first quarter of 2013 we continue to execute on the initiatives launched in 2012 that position us for improving results in the future. The Construction and MHPS segments have been the primary focus of these initiatives as we are committed to materially improving the financial contribution these segments have on Terex's overall results. During the quarter we closed on the previously announced sale of our Brazilian and certain US roadbuilding businesses. We took charges in the quarter of approximately $0.03 per share related to the finalization and closing of this transaction. We also had charges related to reorganization in our MHPS segment. The impact during the quarter was $0.02 per share.

Now, let me turn it back to Ron.

Thank you, Kevin.

Turning to page 6, I'm now going to go through the presentation for each one of our business segments. First, our Aerial Work Platforms business. Overall, strong demand continues in North and South America. As Kevin mentioned, very good incremental margins at 37%. The backlog is solid, up 13% sequentially and 10% over the prior year. Very nice, we see the European business, which is different than all of our other businesses, the European businesses are actually beginning the replacement cycle. Our European business was up strong double digits in the first quarter versus the prior-year quarter. Net sales overall for the segment was up 21%. As you can see, we had a strong operating margin of 14% compared with a 9% of last year and the 10% of the prior quarter.

Also interesting is the fact that 63% of our revenue comes from North America, and the mix of our customers in North America has been different this year versus last year, with a couple of the bigger customers really strongly getting deliveries in the second quarter as opposed to the first quarter on a year-over-year basis. Western Europe, you see there, is 16%, but I would be remiss if I didn't emphasize Latin America which had a very nice quarter-over-quarter performance. Overall, I think our AWP business is headed in the right direction and if nothing else to be said about this business is a great contributor and we expect that to continue this year.

The Construction business, a little bit of a different story, continuing to have this business go through a period of reconstruction, so to speak. We sold portions of our roadbuilding business and we have a few more product lines to go, but that was good progress. We are in the process, also, of reconstructing our compact business in Europe. We are going to be selling our components businesses in Germany. That will allow us to reduce substantially the number people that work for us and focus on the most important value-added activities. We have had a pretty substantial reduction in working hours in the first quarter of this year versus last year, with very weak European demand. A substantial portion, over 50% of the demand that weakened in this business, came from Europe; a little bit of an offset in the concrete mixer truck business and we see the North American business improving.

By the numbers, $280 million of revenue, obviously 23% down from last year, a negative $13 million as reported operating margin and as adjusted, $9 million. Obviously, we are not happy with that financial performance but we do believe the change is underway. Plus a moderation of some of the reductions and revenue will contribute to meaningfully improving the bottom line performance in the back half of the year. Looking at the split of business, Western Europe is 30%, and that's a pretty significant reduction from where it had been historically where Western Europe has been well over 50% for the segment. Some good work being done to try and diversify the revenue of the Construction segment.

Turning to the Cranes business, on page 8, great incremental margins of this business up 46% in Q1 versus the prior year, reflecting the pricing and margin focus that we had put on the business. Rough terrain cranes continue to be the strongest performing product category. As predicted, our Australian crane business came down 25%. It's a very profitable business for us, but tied to the mining industry and tied to commodities, we did anticipate that this business would come down. We also, as I think everyone knows, have re-segmented and the North American Services and Utilities business has been added to this segment. The Utilities operating margin, discretely, was up 2.3 points year over year, which is a nice improvement, and a continued emphasis on this business to get its margins up. Turning to the numbers, net sales $471 million, up 4% from prior year, down 8% from the prior quarter. Not unexpected, and as reported margin at $33 million, and as adjusted, at $33 million compared with $25 million of last year. So, 5% to 7% improvement in operating margin.

Backlog is weaker than perhaps we would like, but we had a very good Bauma show, encouraged by customer activity, encouraged by the reception to our new products. I'm sure we can talk about that in a little bit, but net-net, it is hard to say whether that backlog would've been higher had Bauma not occurred in April. We are really positive about what we saw from Bauma. As you know, the revenue expectation we had for Cranes is probably one of our hardest numbers to achieve, but we're still pretty positive. Also, because of the Utilities and Services business, you might note that now 47% of our Q1 business occurred in North America versus 14% in Western Europe. The good news is that 47% in North America. The bad news is we would like that European number to be a bit higher. That is some of our opportunity going forward.

Turning to page 9, on the Material Handling and Port Solutions business, clearly a disappointment for us as a company during the quarter. This is a lumpy business. Revenue suffered, 23% decline versus Q1 2012. Industrial cranes was down 12% on global weakness. What happens here is many of our customers have pushed out their requirements for cranes. Whether it was a new factory that needed cranes or new cranes that were going in old factories, many of our customers delayed that. That occurred pretty broadly, pretty much across the world. From India, China as well as Europe and Africa, there was a lot of push out of business. The port solutions business was down 40% versus Q1 '12. We do expect some top-line growth in the second half as these large projects that we have sold begin to shift.

Many of you know that's what's impacted our backlog here. The underlying Port business, we really had a hole in the backlog that was created about a year ago at this time with soft orders and that just showed up pretty substantially in Q1. We did expect it, but the absolute negative margin contribution was probably a little bit more than we thought that would happen. Additional actions, however, are going to be taken, as I mentioned earlier. We expect a restructuring charge of $30 million to $50 million, but it will have a one to two year pay-back. By the numbers, you see what they are, $339 million versus $438 million in sales, down 23%. As adjusted, operating loss of $26 million versus, basically, a break-even during last year. The backlog is up, but a lot of that backlog won't be delivered until the second half of this year and into 2014. As many of you know, we only report backlog that is deliverable in the next 12 months. Meaning that, that $679 million actually is a larger backlog number than we are reporting here because some of the projects are for delivery second, third, and fourth quarter of next year.

You can see the concentration of our sales, not as a huge concentration in North America, pretty big exposure to Western Europe. I think that is contributed to our results. I believe the change in management is going to be helpful for this business. Steve Filipov is on the line and I'm sure can take some and any of your questions as we will discuss this business in some more depth.

Turning to page 10, our Materials Processing business delivered pretty much as expected. Mineral markets are down slightly, mainly Australia and South America. European general construction is week. North American is stronger. SG&A was stronger. SG&A was flat, by the numbers $154 million, down 9% compared to prior year. $12 million of operating profit, down moderately from $15 million a year ago. Backlog at $85 million, up sequentially from the $70 million, but down from the year-ago position. We expect this business to continue to be a solid performer. It has its pockets of problems, but it also has its pockets of opportunities.

Turning to page 11, I'm not going to go through this page in detail. We're providing it to you to have the details. We have structured this on the basis of the old reporting structures of 2013 guidance that we initiated, when we reported the 2012 numbers. On a re-segmented basis, you see where that guidance is. We did not go back and try to reconstruct the guidance by segment at this stage. Obviously, there are areas where we believe we will over achieve. There are areas where we think we will struggle to get to those numbers. But, net-net we still feel very good about the Company overall, and we wanted to also put this in context of our 2015 goals, which we are driving towards. While we had mixed results, as I indicated, some positive, some negative, we remain committed to the $10 billion of revenue, 10% operating margin, which results and a $5 plus per-share objective for 2015. It's an objective that we think the Company is focused very much on trying to get to.

In summary, on page 12, it's important to reflect on who we are and what we're trying to achieve. We are a lifting and material handling solutions company. We are focused on operational improvement, and it's obvious we have been successful with some operational improvement and have a ways to go in other areas. We believe we are a leader in substantially all product categories. We are a geographically diverse Company, which gives us exposure to many of the end markets both up and down. We believe profitable growth and consistent cash generation is an important area of emphasis, and we are really encouraged by the cash generation as is the last point here, strong free cash flow in the quarter. More work to do in the MHPS business. A little slower start of the year then perhaps was anticipated, but I think within the context of our overall guidance we remain committed to achieving those targets.

With that, I would now like to open it up, Stephanie, to questions. We'll take your questions, encouraging you to have one and a follow up.

(Operator Instructions)

Jamie Cook, Credit Suisse.

A couple questions, Ron, you had very strong margin performance in the Aerial Work Platform business of 14.2%. In particular, given it's only the first quarter and Q2, Q3 is generally stronger, so I'm trying to think about that in context with your full-year guidance and your 2015 goals? Then, also could you talk about what you are seeing in terms of the competitive environment in Aerial Work Platform, first in terms of pricing, but also how I would assume margins also get better in the back half of the year as the small and medium guy start to come back into the market, if you think that happens?

Okay

Thanks.

Okay Jamie, I will comment a little bit and Matt Fearon is on the call here with me and he can add to this. As you look at the AWP business, we are encouraged by the first quarter. It was a bit stronger perhaps than we were expecting, but at least on a margin basis. That is something that we feel is a reflection of the discipline that has taken place in the market. It is also the stage of the cyclical recovery that we are at. We have a situation where our customers are healthy and they need equipment. Our supply base is positive about supporting us, which means that we have a little bit more leverage there. So, we're getting some cost reductions from our supply base, steel and other cost.

On the flip side of that, our business is good and probably one of our biggest challenges is having our suppliers meet our needs, as we go forward. We had a tremendous reception to our SX-180 product introduction, the tallest, largest boom at least in the market that is not truck mounted. We believe that will be a great prophet opportunity contributed to our customers as well as to ourselves. As I look forward, we have a rational industry with a couple of players. There are some risks in the industry. We always hear about the Chinese player that wants to come into the business, but we haven't seen a lot of activity there. So, we are being a little bit cautious in our outlook perhaps. We are probably balancing that against an optimistic outlook, perhaps, in our MHPS business. We're not really going to go in and change anything at this stage until we see how the second quarter comes in.

I guess, Ron, just to follow up, how much did the steel or supply chain benefits help the first quarter? Do you assume that goes away in the back half of the year? Or material cost, et cetera come up? If you could just say how much that helped actually the margins?

Matt, you want to comment on that?

Sure, I will comment on the OP. Obviously, we are very happy with the performance in the first quarter. If you look at the way we entered the year, the pricing environment was very positive and we have held to that. We had a 3.4% average price increase that we announced. The other place that we're getting a boost is from the productivity. As we start to run the plants at the levels that we are at right now, our manufacturing productivity is really helping us out from an absorption standpoint. Then on the supply chain, what we're seeing is that is also favorable. It's been relatively flat. For second quarter, we think that is going to maintain. Beyond that, it's difficult to tell, but we are in good shape there. The customer mix that we mentioned earlier was also very good in first quarter. Obviously, if you look at first quarter, it was outstanding for us. If you compare first quarter of this year, it's very, very similar to the second quarter of last year's performance, which was our best quarter. We're set up for quite a good second quarter and hopefully third and fourth as well. We are feeling really good about the competitive environment. We think that we are positioned well to take advantage of a very strong market.

Jamie, we have difficulty quantifying in a way to presented it externally, what our supply chain contributed and didn't contribute. It was positive, steel cost were positive for us. We're not sure if that will carry through for the full year, however. Also, the fourth quarter is always hard to handicap for the AWP business as customers really do take -- they like to take deliveries in second and third quarters as you know.

Okay, thanks, I will get back in queue.

Ted Grace, Susquehanna.

Ron, I was hoping to come back to MHPS and see if we could walk through the Industrial segment and the Port Solutions a little more? I know in the deck outline, Industrial is down 10% or 12% year on year. I know you mentioned as broad based. In terms of what gives you encouragement that, that comes back in the back half, in the second quarter, hopefully, and thereafter, could we just start there?

Yes. Let me give you a sense -- we really have two businesses here. On the call Material Handling, which is the overhead crane business, and the other is the Port Solutions business, which is the one that is down 40%. In the Material Handling business, I said it was fairly broad-based decline. We had about a, year over year, maybe about a 12% or $34 million decline year over year. It was spread across the US, Europe, Latin America, India. India was really pretty disappointing, even Africa. It was fairly broadly based. What will give us some encouragement is talking to our customers, and while we stand this we will go to Port in a second. Steve, you want to add anything to that?

Material Handling, Ted, I would just say that Ron mentioned in the beginning there were some large projects that got pushed out into Q3 and Q4. I think we're optimistic that those are going to happen and those orders were in places like China, Latin America, the Middle East and India. Although we saw some slowdown in order intake in Europe, some of the other businesses are pushed out into Q3 and Q4, which should help us in Material Handling.

The other thing I would have is, this is a business with a very solid services area, though we saw the services business slowdown pretty markedly in Q1. We believe many of our customers also pushed off servicing their cranes, in part because industrial production being done they didn't need the services. This is not a business that goes way. We just think it will be pushed off into the future quarters.

If I can comment on the core business, the core business is a little bit more dramatic and it has always been and will be lumpier. We had about a $44 million decline year over year. That came from Western Europe and even the Middle East, which is the only place where our Middle Eastern business really slowed down. The Port business, we have big orders for and our factories are strong. They're performing now, but building product that won't be shipped until the latter part of this year. Because of our revenue recognition policies, that is different than IFRS, we're not going to recognize that revenue until they actually get installed on the customer's jobs sites.

I would just add, Ron, we are shipping product, Ted. Take an example, in January and February from China to Latin America for orders and those products aren't going to get revenue recognized until Q3 and Q4. We've got great products moving across the ocean that need to be reinstalled -- commissioned by our customers. That will happen later in the year. As Ron referenced, the larger projects is really into Q4 and into Q1 and Q2 of next year.

But clearly, Steve, not to make excuses here, our mobile harbor crane business, which has been the stalwart of the Business, is about half as strong as it was a year ago. The Lentigione factory, that we have from the historical Fantuzzi business, is an under performer that needs additional work and these things are going to be addressed in our Q2 efforts.

Okay, and that comes to the second thing I was hoping to ask you. On the restructuring, how should we think about that flowing through COGS or SG&A? In terms of, I know you said a one to two year payback, but how quickly might we look for realized benefits of the initiatives?

Some will be SG&A and some will be in manufacturing. We're really not in a position yet to split it out between direct, indirect COGS and SG&A. When we conclude that, and when the plan gets finalized, we will be able to explain that in detail. What we did want to do is give you some general information that said, we understand what -- you should understand that we've got a plan that will address a couple of these areas that we are going to finalize in the second quarter.

Okay. Guys, best of luck this quarter.

Thank you, Ted.

C. Schon Williams, BB&T Capital Markets.

I wonder if we could just maybe delve into the order activity that you have seen here in April and what that means for backlog in Q2? It seems like there's been a flurry of articles out there about record order activity in April by some of your distributors. Bauma, you talked about being very strong, and then even within Material Handling, I think there was some press out there about some successes you have had on the automated guided vehicles there. Could you talk about was there a material change for you in April maybe versus what we saw in Q1 and what are the implications for the backlog going into Q2?

This may sound a little bit odd, but we expected the year to develop this way. Part of the reason we provided guidance was, we ended the year with a pretty weak revenue picture. We expected the first part of this year to be a fairly weak revenue picture. We did expect the Bauma show, as well as general economic activity, to pick up and result in some orders. If we look at the backlog, which is in our appendix on page 14, you see that the backlog is split there by product type. Although again, our backlog is 12 months. Is what is shippable in the next 12 months. So, the $679 million of MHPS backlog compared with a prior quarter of $577 million is certainly a positive. That backlog is substantially bigger than $679 million, but that would be out for shipments beyond 12 months. It is a weak current period with a strengthening back half of the year. That's what gives us a little bit more encouragement for this business.

It won't be easy to make a ton of money on this. We still have work to do to get our margins up in this business. A 23% decline in year-over-year revenue like we experienced in MHPS, we don't think that will be the case each quarter going forward. The MP backlog isn't that significant, C, and not surprising. But the cranes backlog, $634 million versus $642 million, I don't frankly see that very different. Maybe I will ask Tim to comment how he is saying be trends in the Mobile Cranes business.

At the analyst meeting a month ago, I talked about Cranes being a business with potential. I would actually characterize it today as being a business with potential that is turning into momentum. If you look at the first quarter order pattern, each month was better than the prior month. February was better than January, and March was significantly better than February. As we went into Bauma last week, we knew that a lot of customers had pushed off orders in the first quarter going into Bauma and we saw the level of activity that we would have expected. I'm actually pretty enthusiastic about the business as we look ahead. We're coming out of a little bit of a hole, but I feel like the business opportunity is gaining strength and the momentum is beginning to build. So, we can turn this potential into real opportunity.

I will take a minute more on this question because it gives us an opportunity to look at future revenue trends. Construction, the backlog of $191 million down from $209 million, and meaningfully down from the $267 million of the prior year. Maybe I can ask the operator to open George's lineup for a second, because we had a hole in our Terex Trucks business and in our Scoops business, but maybe comment on the overall Bauma affect, George.

Thank you, Ron. It was quite exciting last week to be candid. We expected activity, but it came in and started very quickly at the beginning of the show and it was not focused on one part of the world. We saw it coming from Russia, Latin America, Africa, and also some activity in Europe. What we're seeing is, it is starting at the lower or smaller end of our construction line, where the momentum is really starting to pick up. It really hit hard last week, which was very good, which will help us through Q2 and into Q3. We did see a lot of activity on our larger construction equipment, which was quite exciting for us. I would say it was quite refreshing, and similar to Ted in Cranes. The beginning of the year started with some slowness but then turned into momentum. I feel very comfortable coming out of the show that it will really help us as we progress through the rest of the year.

Okay, thank you, George. And, I think we have already commented on AWP, so we don't need to go over that ground again.

Then, if I could just as a follow up on MHPS. It sounds like in some of your commentary the restructuring that you are putting in place, I wanted to get a little bit more detail there as to maybe what you're targeting? Because I'm a little bit confused, it sounds like some of the issues that we saw in MHPS are more timing issues of shipments. I'm wondering if you had a hole in the backlog this quarter, that seems to be going away. Why do you feel it is necessary to do the additional restructuring? It is certainly welcome, but why do you think it is necessary at this point, if most of the decline that we have seen seems to be timing issues? Could you talk a little bit more detail about what we are actually putting in place?

We are not going to be happy with this business getting back to a slightly profitable position. We need to get back -- we need to get this business, in 2015 goals, about 7.5% margin. I know Steve's goal is even higher than that. If you look at what is contributed to the negative performance, obviously we have a big issue on volume in the short term. Stepping further back from the business, you would say, our SG&A is too high. This is a business, particularly in the material handling side, that is running 23% SG&A. That is an anathema to Terex. We would like to see that substantially below that, but let's say there is 3 or 4 margin points for sure, we believe, in that SG&A that can come down. We also know we have some unproductive and excess manufacturing capacity that we have to deal with. That's going to be expensive for us to deal with, but we need to deal with that. We will work with the unions and the workers' representatives to address those plans appropriately.

Short term yes, volume issue, but there is also some structural costs and there's some SG&A and if you do those things and then the market does begin to solidify and improve, getting back to where it might have been a few years ago, you can get this business to a much healthier position. This is a good business, that is performing poorly. We've got a good franchises in the Demag Crane business. A franchise that many companies would love to have, but it's expensive, the product, and its cost structure is a bit too high.

In the Port business we have put together a range of products that really are first class, but we are at the early stages of integrating them into a real business plan that can attract even more port customers. A lot of work to do here. I know this is a quarter that none of us like, but we are going to keep a steady hand, and we're going to move down the path of doing what we need to do to get this business performing correctly.

Seth Weber, RBC.

Going back to the aerial business, you talked about Europe aerial revenues up double digits in the quarter. Can you talk about, is that a sustainable type number? Just looking in to where they were, book looks for Europe specifically, has momentum continued there? Are you still getting orders at that type of a level, or has that slow down now?

Thank you, Seth. The encouraging thing for me, and Matt will comment specifically on your question. The encouraging thing for me is that AWP is an early cycle business. I could go through each one of our other product lines and show you the weakness in Europe. It is substantive and meaningful, that weakness. On the flip side, AWP is early cycle, meaning products get old and they rust out and they need to be replaced. We are seeing that from the customer base that is basically telling us, hey look, economic activity is certainly not robust in Western Europe, but we're in business. We have products and we need to order material. Matt, maybe you can comment kind of more detail about what your sense is.

I just spent the last two weeks in Europe, the Bauma show and then the week before, visiting with customers. As you know historically, the Europe piece of our business is much bigger. It has been down longer than North America. It's really encouraging to see the signs that we started to see actually in fourth quarter, we started to see a little bit more life. That continued through first quarter. The people that are buying are the large rental houses. It's the companies that are well-capitalized. It's certainly not all over Europe. When you talk to customers in Europe, I'd describe it as tepid. It's reached a point where their fleets have aged. Some of the larger ones have got to the point where they have decided it is time to replace. Is not taking off, but it is encouraging. As far as was this a one-time deal for first quarter? I don't think so. I think looking at our backlog, we are seeing some continued good activity, especially coming right out of Bauma. We're feeling good about Europe continuing to nudge up. That offers some great potential for us.

Okay, thanks. In the US, one of your large customers talked about pulling some CapEx forward for this year. Are you seeing that for multiple customers on the aerial side? Is that contributing to the first half strength? I think you actually said second quarter was going to be tilted towards the larger national guys. Can you give us any color what you're seeing there from the demand perspective?

Yes. If I was going to describe the demand, to me it is getting much more predictable. In other words, we work closely with all the big national rental houses about what their CapEx plans are in fourth quarter. Then we lay out our plans for the year. As we progress through the year, we stay close with them to understand how is it looking. What I'm seeing is that people are getting to -- they've been through first quarter, they're performing well and they are stepping forward with some additional orders. Not everybody, some people placed early because they were concerned about lead times. In general, we are seeing steady, predictable growth. We think that we are set up to handle it really well.

Have orders actually pulled from third quarter delivery up to second quarter delivery? Or is that a one-off type scenario?

If you asked all the big rental companies, they would like to get everything in a two-month period of time. There's a lot of noise in the system about when they want to -- pulling up is a funny term in this business. There is a definite push and pull between manufacturer and rental company, and we work it out. I wouldn't assess any significance of consequence to that view.

Okay, thank you very much guys.

Rob Wertheimer, Vertical Research Partners.

My first question was on Cranes, obviously the margins were good and you talked about the order flow. The gross margin was, I think, down year-over-year adjusted. Was there anything mix related? Your pricing has been fairly disciplined. Just curious about what drove that?

Rob, this is Tim. The gross margin decline that you are referencing, really I think the primary contributor to that is going to be a mix related dimension. As Ron mentioned, we had a decline in our Australian business, pretty substantial year over year. So, I would say that business is still very healthy, but last year was an extraordinary year. The Australian business for us is a very positive and profitable business. We had some growth in our boom truck business, which is actually a lower margin business but one that we are seeing positive improvement on, overall. I think if you look at it on balance, mix was probably the most significant aspect of that. Pricing has remained steady. We have been very disciplined on that. The improvements we will see over time will come from continued operational performance both on the Crane side and in the Utilities business as well.

Okay, thanks, that was helpful. I know people have talked a lot about MHPS, but, Ron, I wondered if the change from the investor day to now and what you decided to from the restructuring, how much did you see coming? I'm just curious if you feel like you had any holes in your information systems and the speed at which you are able to see things developing versus maybe things really did fall apart quickly? Just wanted your thoughts on that?

At the investor day we had a good sense of where we were. I think I even set up the fact that there will be additional charges coming, maybe $30 million to $50 million, a bit more than what people have thought. When you are dealing with European manufacturing locations, it is easy to have that number become a fairly substantial number. The offsetting, of course, is the fact that the savings is substantial. We had a sense of it. We've had a Domination agreement in place less than one year. It will be one year in May. The Domination agreement really provided us the depth and the window to see what was going on more clearly. The revenue reduction is stronger than we thought was happening, but it is there.

We knew we needed to take SG&A cost and some of the manufacturing costs down. The one thing that we probably -- looking backwards, is in the one year between the time we got Domination and after we bought it, while we were working hard to lower cost through elimination of corporate costs that they had, there was some embedded cost creep that was happening in the SG&A area, particularly in services and in some other areas that really didn't pay off. They were adding cost at a time when the market was weakening. If you look at what our competitors like KONI were doing, you actually see that they were experiencing some of the same issues. I think we are on it now. I think the management team that is led by Steve gets this. We're going to go back and take out some that additional cost that was added as well as making sure we harvest our integration savings as planned.

Thanks.

Andy Kaplowitz, Barclays.

Ron or Tim, you guys have highlighted that new products and cranes were going to be a decent portion of your business this year, specifically a new crawler crane, a new all-terrain crane. Could you update us on what you've seen in terms of sales in those particular products? Maybe, you can talk about crawler cranes in general? I know you guys aren't big in the US, but at Bauma we heard crawlers sounding a little bit better. Maybe you can comment on that?

Andy, thanks. This is Tim. The guidance we gave back in February was that our revenue in cranes would be about 10% from the market or half from the market. I should say half from the market and half from new products. As we look at the first quarter results and as we project forward through the course of the year, I think we still feel pretty good about that split, 50/50 new products and market. The interest level we saw at Bauma for our new products was fantastic. We had sold a number of our new Super Lift 3800, 6,500 ton crane product going into Bauma, and we had a lot of interest at Bauma. We actually had a number of deals close there. A number of deals where we are continuing to finalize negotiations and hopefully bring some of those to closure as well. We had terrific interest in our new five-axle product, which won't be available until first quarter of next year, and some of our other rough-terrain categories as well that we have brought out.

So, I actually feel pretty good about the new product roll out that we've got. I think it's playing out pretty much as we thought it would. We're in a good position to be able to deliver on those orders throughout the course of this year into the first part of next year.

Ron, you've talked in the past about the competition in cranes as maybe not as focused on prices that you'd like, or maybe at times discounting. Have you seen in mitigation in price competition within cranes this year yet? Or is it just more of the same?

At this stage it's more of the same. We think we've established the right bar. That has -- we've got to get money for what we produce. We have to continue to concentrate on margin and margin improvement. We believe we lost a little bit of market share while doing that. We expect that may rebalance, or at least we're hopeful that it may rebalance in the coming 12 to 24 months. Not a lot new at this moment. We'll stay in touch. I think that's right, Tim, correct?

Absolutely.

Jerry Revich, Goldman Sachs.

Ron, big year in construction equipment with the Roadbuilding divestiture here. I was just wondering if you could frame out for us the building blocks that get you to your margin targets in 2015 for the remaining business? How much of that do you need to see a market recovery? What additional structural changes in the Business would you be comfortable flushing out here?

I'm not sure I can give it to you in clear building blocks, Jerry, exactly. The base period is shifted a little bit with the weakening revenue base. Without a doubt, as George presented at the meeting, at the analyst day, if you were to have pulled out Roadbuilding he would have been profitable for most of the past several years. Okay? So, Roadbuilding was a big anchor. While we now are pulling that out, the most profitable business in Construction, scoops or terrascoops is actually gone through a pretty severe weakening. It's still profitable, but a pretty severe weakening because of scrap steel costs. Scrap steel and that business is been cut, probably, by 40% as well as our tel-truck business has weakened. We do expect, given what we saw at the Bauma show and some feedback from our customers that those businesses will both begin to grow again.

With that growth, plus the last piece which is the German component sale, which will take out about half of our total German headcount, we think will get us to the profitability targets that we have laid out. I don't want to give you a waterfall explanation, because it has been a bit of a moving target. I just want to give you assurance that we think the pieces and the changes that we have in place help get us there.

Okay. Separately in Cranes, I am wondering, Ron, if you or Tim can expand on the comments on the strength you saw at Bauma? How much of that do see continuing into the second quarter? A couple of US rental houses are finally pushing pricing in crawlers and towers, I'm wondering are you optimistic about a sustained acceleration in quoting activity there? And Europe cranes, nice to see the replacement cycle starting for aerials. I'm wondering how far behind do you think the Crane business is?

Jerry, one of the things Kevin started when he was in this role was a weekly tracking of opportunities. I have continued that since I've taken over the business in January. What we are seeing is the opportunity list is continuing to grow. We talked to all the sales leaders around the world on a weekly basis and the opportunities that we're quoting and realizing is continuing to increase as we go forward. I actually feel pretty good about the continuing potential of this business turning into momentum and that momentum turning into orders.

And Tim is that a common on both US and Europe?

Yes, absolutely. I would say both -- Europe is surprisingly strong to be honest with you.

The question about Europe, though, is always does the product stay in Europe or is it bought in Europe ends up being used someplace else? A lot of our European customers, the equipment that they buy find its way into a lot of markets.

That's a really good point. I think the demand that we're seeing from our European customers is going into places like the STANS, the Middle East, some into Asia, that sort of thing. I think it can be misleading to look at where the customers' based. I think we need to look more where the project is based. That's a good point, Ron.

Thank you.

Matt Vittorioso, Barclays.

Just curious, you've got a very healthy cash balance here, it looks like you guys could and should continue to generate cash over the course of the year. As you approach potentially $900 billion of cash, at what point will you actually pay down some debt with that cash?

Kevin?

Thanks, Matt. As we said we were pleased with the first quarter cash generation. We have signaled that we're going to use cash generation within the year to pay down debt. That is still the plan. As we get further into the year, we will decide exactly how much and the timing on that. I would expect us to be signaling later in the year our plans for debt reduction.

Could you remind us what you feel is your minimum cash balance that you need to carry just to support the business in working capital and whatnot?

Historically, I think we have signaled something in the area of about $400 million to $500 million as a healthy balance. Obviously, things are changing in the world, predictability is different, so as the business evolves we will continually update that, but --

And the location of the cash makes a difference. Historically, we have had a bunch of that cash in Europe. As we generate cash in North America, the location of that may cause us to feel differently about it. At this stage we are not changing. We will keep everybody updated on the conference calls.

One last follow-up question, just on the cash flow. Again, very good performance on first quarter free cash flow particularly looking back at last year's first quarter. What would you say is the biggest year-over-year change in cash flow? Your EBITDA is pretty similar, working capital looks relatively similar. Was at Terex finance activity, helping finance customers last year that was the big drag on cash flow? How did you improve cash flow so meaningfully this first quarter?

I think we turned our inventory a little bit faster. Now, I know the EBITDA is pretty similar, but we got more orders in and I also think we turned some inventory into cash, particularly from our Construction business. Then, we sold a piece of the Roadbuilding which contributed to that.

Just to remind you, Matt, too, we did have a significant tax payment in 2012 Q1 that also contributed to the variance year on year. Ron points out a lot of it was from good operational results.

Great, thanks very much.

Mig Dobre, Robert W. Baird.

Unfortunately, I missed some of your early comments. I would like to ask this about AWP. Can you provide some commentary as far as growth that you have seen from the developing markets? Apparently Europe was strong. What about Asia and Latin America?

I'd turn it over to Matt, but I can easily answer that question. Our developing market business, in particular Latin America was phenomenal. We had a strong fourth quarter in Latin America, and we had a very strong first quarter, nearly three times what we were in the year-ago period. Our developing markets business was up over 50% in the AWP business, which is our strategy. This was our strategy, is to diversify, globalize this business and harvest the North American recovery, position ourselves to continue to engage in Europe, but then build out capability in the developing markets. Under Tim's leadership, we did that. It was expensive, and with Steve's help when he was run at the developing markets, we got all the teams aligned. Matt is just going to continue to execute on that same game plan.

That is great. I'm seeing here that Latin America and Asia was about 18% of your business. I think that's clearly higher than where it was last year. As we're looking at 2015, what sort of contribution from these emerging markets do you see to your AWP overall revenue mix?

We really haven't publicly laid out the 2015 by geography. Obviously, there are a number of ways to get to the 2015 number. You could probably get there and even surpass that number if you really think developing markets accelerate a lot. I am not convinced that the Chinese market becomes a huge market yet. That is a number that is impossible to handicap. If China does continue to develop, and Ken is on the call. Between China and the Middle East, those are two big opportunities. Ken is working hard to get the -- as well as our competitors are, to get the Chinese government to state that AWP products are a safe way to take people to work at height. Ken, do you want to comment on that?

Yes, Ron. We continue to essentially work on the advocacy to improve the safety for people working at height in China. I think we're making progress, but like you said it is real hard to predict when the government will actually start to enforce those rules.

Excellent, I know I'm a hog here, but if I may squeeze one last one on the Crane. I guess we have heard that some of your Japanese competitors might be using movements in the yen to their advantage as far as pricing. I'm wondering if you comment at all on that? I will leave it at that.

Mig, we do expect and we have begun to see or hear that our Japanese competitors will use currency to their advantage. Also keep in mind, we have a supply relationship with a Japanese manufacturer as well. We are working with them to make sure we bring that currency advantage to our capability as well. It's a concern, but we will continue to work our way through it. Our customers will buy the value that they see. We're going to continue to work hard to get the business that we believe is rightfully ours.

Good luck guys.

Thank you.

Damian Fulton, JPMorgan.

Hi, it is Ann Duignan. You mentioned something interesting on the Material Handling business. You noted that the services side of the business was down in Q1. When you acquired the business, that was the services business that was described as an annuity. Are we now to believe that, that business is cyclical and highly correlated with industrial production or was there an anomaly in the quarter?

You know, Ann, I think we're trying to figure that out. I think we've got that business now split, Tim Ford has the North America services business and the North American services business was down. Was -- am I wrong, Tim? (multiple speakers) So, it was the European business that was down. Maybe you can comment on that?

What you referenced earlier on the industrial production was down in Europe and that's what affected our services businesses really in Europe as Tim said, North America was up in a lot of other regions were up. Europe where we have a big footprint, Ann, is where things are down. I don't think that necessarily correlates to new equipment sales. It's really just a factor of the first quarter being slow in industrial production in Europe. But, I think it's still a good business for us and we are still investing in it.

So we made money, but we didn't make as much, or nearly enough to offset a 23% decline in overall revenue.

Okay. And then just a quick follow-up. You noted that the SG&A in that business is too high. Ron, again, isn't there a fine balance between it is a services driven businesses, you need the SG&A there? Was there some specific program they embarked on that you think just won't deliver returns?

Yes, Ann, there is a fine balance there and it is a different business than the rest of Terex. Having said that, the structure that has been in place in this business, which is a structure of regional or country wide CEOs which have their own finance people and their own salespeople and that pretty heavy structure is what is Steve is addressing.

You saw a charge actually in the first quarter, on some SG&A reduction. Some of that was attributed to reorganizing the services business. We are reorganizing things, really decentralizing the business, and just trying to figure out what battles we want to fight in what regions. That is the work that we're doing into Q2 and in Q3 on the services side.

Okay I appreciate the color. I think most of my other questions have been answered. Thanks and guys.

Sarah Magers, Wells Fargo Securities.

Most of my questions have been answered. I just wanted to quickly follow up on the free cash flow guidance. Wondering if that is consistent with what you provided in Q4? I know you mentioned the $500 million number, but I don't know if it was explicitly given in terms of guidance.

Yes it is. It is consistent with what we have said before.

Great, thank you very much.

Adam Fleck, Morningstar.

I had a follow up for George in the Construction business. I appreciate the update regarding activity at Bauma, but can you help us with the pricing environment you're seeing within that activity or maybe more generally?

Yes. Operator, can you open George's line up?

Thank you very much for the question. We are seeing a little bit of improvement in the pricing as compared to last year, candidly, to improve the volumes. We are backing down just a little, but it is positive to where we ended last year. I think it will be helpful for us as we progress through the rest of the year.

Okay, great. Thanks. Just a quick follow-up on the free cash flow discussion. Your working capital improvement was pretty substantial in the quarter. I think you talked about 22% of sales for the full year, is that still a good target?

That is still the full-year target, yes.

Great, thanks guys.

Alex Blanton, Clear Harbor Asset Management.

I wanted to ask about the rough terrain strength, rough terrain cranes. Where's that coming from? Is there a significant market in fracking for you?

Alex, this is Tim Ford. The rough terrain strength that you're referencing, we have had really good business in North America. I'm not sure that I can pinpoint it to a specific vertical market at this point., but we have had strong North American business. We have also had really good growth in our Middle East business. We sell a lot of rough terrain product out of Waverly, Iowa as well as our Crespellano, Italy factory into the Middle East. We have had some really good receptivity in those two markets in particular, and to a lesser extent but still significant Latin America as well. I'm not sure I can tie it to specific vertical market, but the potential that we have in rough terrain is continuing to grow. I think the strength that we have in those markets will help us as we continue to build momentum.

Thanks second question is on your 2015 goal for operating profit. It's not too difficult to move that to the earnings per share line, if you assume $100 million in interest and 35% tax rate. You come out to about $5 a share. I was wondering why you just didn't state that? Put it, instead of operating profit, just give us your earnings-per-share guidance, as well?

We have said, Alex, that we expect earnings per share to be $5 plus. We just didn't put it on this chart because that's what it translate to. We said $5 plus because it depends upon how much that we pay down. That would be a little bit harder to handicap. That's why, rather than doing it purely an EPS -- and frankly, Alex, I think a lot of people invest in Terex off of an enterprise value to EBITDA multiple. I think it is less about PE and more about enterprise value to EBITDA. As we reduce the amount of debt that we have, we think a lot of the opportunity for value creation will come from debt reduction and the EBITDA going up. And during the analyst day, if you may recall, we tried to say that we thought that the opportunity for a $75 stock value was there with this kind of EBIT performance, EBITDA performance and valuations within the same range as they are currently at.

Thanks very much.

Excuse me, Alex, it is Kevin Bradley. I wanted to clarify, I think you mentioned the 2015 as a guidance, it's actually a goal. I just want to be clear on that.

Okay, semantics. Thanks.

Yilma Abebe, JPMorgan.

One quick one on the credit ratings of the Company. As you look at your debt reduction goals and financial policy, any thought in terms of moving up the current rating of the enterprise?

Good question. I think as Terex focuses on our future plan, which is to be an operating company in the lifting and material handling categories, a solutions provider. Without an emphasis on acquisitions and with a focus on cash generation, we ought to be able to see meaningful credit rating improvement. But that, as you know, is a process. I think the rating agencies will want to see us live by our commitments of being less oriented to acquisitions, focused on debt pay down, focused on cash generation. We think all of that is part of the opportunity that exists within our existing portfolio of businesses.

Is there a particular ratings category that you would be targeting at this moment?

No. I don't think we have set a ratings category. Obviously, in this environment we do think there is improvement in front of us. I don't want to say at this stage, but we would like to see this move better, improve.

Thank you, that's all I had.

All right, operator.

At this time I would like to turn it back over to Management for closing remarks.

Okay, thank you, everyone, for your interest in Terex today. We appreciate it. Please, follow up with Tom or the Management Team here for additional questions. We appreciate your interest in the Company.

Thank you. This concludes today's conference. You may now disconnect.