Terex Corp (TEX) 2013 Q2 法說會逐字稿

Good morning. My name is Holly , and I will be your conference operator today. At this time we would like to welcome everyone to the Terex Corporation second quarter 2013 financial results conference call. (Operator Instructions). I would now like to turn today's conference over to Ron DeFeo, Chairman and CEO. Sir, you may begin.

Thank you, Holly, and good morning, ladies and gentlemen. We appreciate your interest in Terex today. On the call with me this morning is Kevin Bradley, Senior Vice President and Chief Financial Officer; with him is Kevin O'Reilly, Vice President of Operational Finance; Tom Gelston, Vice President of Investor Relations, and several of our leader ship team members including our business 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 and highlights, and Kevin will follow with a more detailed financial report, and then I'll give some comments and summarize before we open it up to questions. We will be following a presentation that accompanied the earnings release and is 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 two, 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.

So now let me begin. Turning to page three. The second quarter results for Terex reflected the lighter order environment for many of our products that we highlighted in our earnings revision back in June. We did end the month of June fairly strong accounting for our modestly better results versus the $0.50 to $0.60 EPS range that was anticipated. On an adjusted based that is we achieved earnings per share of $0.65, and a reported EPS of $0.18. The difference is primarily for charges for reductions in workforce and restructuring activity in our MHPS, Cranes and Construction segments, along with charges taken in relation to the retirement of $220 million of debt in the quarter and the accounting impact of purchasing much of the remaining equity of the MHPS segment.

As our results demonstrate our segment results were mixed in the quarter. Every work platforms had strong quarter both from a growth perspective up 17% versus the prior year as well as solid operating margins of 17%. Construction continues to be challenge as we continue to trim non-core businesses from the this segment as well as simplify our cost structure overall. Crane business continues to see a flat operating environment with weakness continuing in Europe as well as Latin America and Australia in particular.

The MHPS business continues to show softness across its core markets, and as previously mentioned in the first quarter release we are focusing on aggressive cost control. This segment incurred a pre tax charge of approximately $47 million associated with these cost adjustments. Materials Processing executed their operating plan as expected , and we are pleased with their profit contribution especially in light of relatively light end market activity. Clearly there is some near term challenges reflecting the continued uncertainty in many of our markets as such we continue to focus on those aspects of our business we think we can control.

The most significant undertaking in the quarter was the collective $65 million in expense associated restructuring and streamlining of the three segments noted. And when fully implemented, we expect to have savings of roughly the same amount annually. Lastly , free cash flow of $40 million in the quarter brings our first half cash generated to $175 million reasonably good overall execution in the part of the year that we would have traditionally seen us using cash.

Turning to page four, the page that is entitled Keys to Success 2013 to 2015. As we continue to make progress on the four short term areas of margin improvement , cash generation, MHPS integration and debt pay down we have broaden our view to the keys to achieving our 2015 goals. Simply stated these are three fold. Number one, portfolio management, that is both by products and geography. This does not mean acquisitions but rather continuous pruning. We started this process as you know and we will continue.

Secondly, simplification. We are a complicated Company, built over many years and through acquisitions as you know. We have a focus on simplification in the Company today, that we feel will reduce complexity and improve our execution.

And third, financial efficiency. We want to operational the diverse businesses that we have into more of a one Company approach where it makes sense and keep local activities also where they make sense so we can achieve a better return on invested capital. We have numerous projects in this area as we have previously discussed and we are executing. And the broadest of all terms we will apply the 80/20 methodology , focusing on the critical few items that we think will be helpful to speeding our way to achieving our goals. This is not a new direction for the Company, but rather an operating framework through which we can run all of our portfolio , capital allocation and product decisions. This will ensure that we maintain the right focus and commitment to accelerate actions that improve our chances of making our 2015 goals.

I will come back in a few minutes and provide some segment details, but I would like to turn it over now to Kevin Bradley , who will go through the financial results on an adjusted and reported basis for the quarter. Kevin?

Thanks Ron, and good morning everyone. Turning to page five , I will take us through the financial results for the quarter. Our net sales for the quarter of $1.9 billion declined from the prior year period by 5.1%, or approximately $104 million. Our AWP segment lead with growth of 17% versus the prior year, and our Crane segmented posted 3% growth. The balance of the segment showed year-on-year decline as the softer than anticipated macro environment continued to dampen our commercial efforts.

Gross margin as adjusted decreased 40 basis points to 20.9% from the prior year period. As improved price realization and manufacturing efficiencies in our AWP segment were more than offset by the impact of net sale declines in our Construction and MHPS segments . Negative sales mix in our Crane segment also contributed to the reduction. SG&A as adjusted increased to 13% of net sales from 12.6% in the prior year quarter. On a dollar basis SG&A spending levels declined as we continue to cut costs in both Construction and MHPS. These reductions were partially offset by increased engineering investment in both AWP and Cranes.

Income from operation as adjusted declined $25 million to $150 million or 7.9% of sales from $175 million or 8.7% of sales in the prior year quarter. Our AWP segment posted solid incremental margins during the quarter, approximately 26%. However performance declined in the balance of the Company driven primarily from volume reductions. We are taking aggressive action to reduce future cost and remove complexity from our operations as evidenced in our reported numbers.

Net interest and other expense was down roughly $13 million when compared with the prior year quarter. Net interest expense reduction stemming from the refinance and del ever aging actions executed in 2012 accounted for substantially all of the improvement. In the second quarter we also paid down an additional $220 million in senior term loans consistent with our strategy to further deleverage the Company. The effective tax rate in Q2 was 58.9% compared to 35.4% in the prior quarter. The increase was mainly due to losses in the quarter that did not produce tax benefit and changes in uncertain tax provisions. As reported earnings per share for Q2 was $0.18 versus $0.75 in the prior year. For the quarter earnings per share as adjusted was $0.65 compared to $0.75 in 2012. I will walk through a bridge detailing these adjustments in a moment.

Net working capital as a percentage of annualized sales was relatively flat at 23.4% a slight improvement from the 24.2% reported in Q2 last year. Return on invested capital declined to 5.6% from 7.9% in the prior period with our restructuring and related actions in the quarter as well as the reduced operating performance of the business being the main drivers of the change.

Now turning to page six. In the second quarter we continue to focus on some major initiatives that position the Company for stronger results going forward. The first adjustment is related to the retirement of $220 million in senior term loans previously discussed. As a result of this transaction we recorded a loss on the early extinguishment of debt of $5.2 million or $0.03 per share. We have taken significant restructuring and related actions in Construction, Cranes and Material Handling and Port Solution segments. In our Construction segment we continue to focus on reducing overhead and complexity. We completed the sale of our German Compact Component businesses during the quarter. The combinations of these activities resulted in charges of $0.05 per share.

In our Crane segment we have implemented cost reduction action to better align production in our all-terrain crane facility in Wallerscheid, Germany with our current view of the marketplace. This action resulted in a charge in the quarter of the $0.09 per share. For MHPS we communicated in April that we would have restructuring and related charges in the range of $30 million to $50 million. The actions taken during the second quarter resulted in charges of $46.5 million or $0.33 per share. These actions helped position us for a profitable second half in MHPS. In aggregate restructuring and related expenses accounted for $65 million of expense in the quarter and impacted EPS in the quarter negatively by $0.47 . Ron will comment on some of the specific impacts of these action in a moment when he goes through the segment results.

Lastly, we show the impact of completing the purchase of approximately 14% of the shares of Terex Material Handling and Port Solutions formally known as Demag Cranes AG, that was executed yesterday for approximately $225 million. This transaction was funded through the short-term use of our revolving credit facility, which will be paid down with existing cash and cash from operations in the coming months.

Consistent with our purchase of these shares , we reversed the guaranteed payment accrual in the first quarter and this impact of the reversal was incremental income in the quarter of $3.1 million of $0.03 per share. This purchase puts our ownership position above 95%, and enables us to acquire the remaining shares of the Company through a squeeze-out process. This action will allow us to further integrate the business and remove the public Company cost and complexity. All this brings us to a Q2 adjusted EPS of $0.65. With that, I will turn it back to Ron.

Thank you, Kevin. I will review the segment detail. I will go through these charts somewhat quickly starting on page seven , and beginning with a conversation on Terex Aerial Work Platforms. A pretty good second quarter. We have reasonable visibility through the second half of 2013. Global demand we feel continues to strengthen. Our margins are pretty solid. We are happy with a reported 17% operating margin in the second quarter. Our backlog is up compared to prior year about 38%. We see some expansion happening through our Terra Handler product line as we are adding a few new products and improving our capacity.

A couple of note worthy a points on revenue mix . You see our North American business represents 68% of our total business down from 71% last year and a flat European percentage at 13%, encouraging to us because 13% this year versus 13% last year on a business that is up 17% means that our European business is growing, which is a good sign for an overall difficult market in many of our other product categories. Latin America also had a very strong period for this business.

Turning to page eight, our Construction business. The Construction business as many of you on the call clearly recognize has had some difficult end market performance. Certainly our performance reflects that. Global markets remain soft for dirt and scrap handling equipment. Our revenue was down 29% compared to the prior year. We are focusing this business on some simplification and cost structure reductions. We sold our Compact Component businesses as we said we would. We are restructuring further cost initiatives to take some people and related expenses out, $2.7 million of charge and $3.4 million benefit. We have eliminated four facilities with a 12% reduction in team members.

Of note on the numbers we loss $2 million on 29% reduction and volume compared to last year's $10 million profit. It does appear to us though that the backlog is stabilize, $180 million this year compared with $179 million last year except for our scrap steel related product category of (inaudible). You can see the split revenue wise North American becomes more important here as North American performance is down less than the other markets. Europe actually drop here 38% to 35%. So overall the Construction segment we understand continues to require a lot of attention . We are working very hard to return this business to profitability. We continue to see some head-winds , but we expect that we will make progress and we will position it for a better 2014.

Turning to page nine, Terex Cranes. Here as well some mix performance by markets globally. Cranes actually are a bit softer than we anticipated coming in to the year. We have had some order improvement on large crawler cranes that category where we have very strong position globally. On the other side of this , there has been some negative product mix impact, and it has impacted our margins in particular a couple of areas of the world where we have strong performance have soften up. There has been a number of improvements operationally from our utilities business. We have implemented restructuring and related charge of $15 million in this business, and expect to achieve about $16 million of gains as a result of that into 2014.

You can see the numbers as we reported of $38 million adjusted EBIT or income from operations rather. Backlog is one of our biggest challenges here, down from the $815 million of last year, but as we previously stated that $815 million did include more than $100 million of backlog that we canceled that was prepositioned in an attempt by our customers to secure pricing from prior periods. So net-net we have some strengthening that has happened in North America, but we see the North American softening a tad. Latin America is down meaningfully and Western Europe is weak. We realize that the second half of the year we need to hustle to make our goals, but we have a lot of activity that is encouraging but is hard to bring it to conclusion at this stage.

Turning to page ten, our Terex Material Handling and Port Solutions business spending a minute on this. Revenue declined 16%, that is a moderately smaller decline than the 23% in the first quarter, but we see revenue improving pretty meaningfully in the second half of this year. The Industrial Cranes business was down 13%, Port Solutions down 26%, but Ports has a very big backlog. Key to this business has been to adjust our cost structure based upon the reality of the current market environment, which we do not see changing that much going forward. Western Europe as a percentage of our total dropped to 42%. The Latin America increase from 8% to 19% reflects delivery of a couple of big Port orders in June. I do not think Latin America will on an ongoing basis represent 19% of our overall business.

But on page 11 we really want to focus you to the restructuring costs. We had some broad based headcount reductions across many functions; SG&A, direct, indirect manufacturing, Germany, Italy, Brazil, India, Austria, Dubai. Across the board we think these actions were necessary to return this business to profitability at the lower volume levels. We also took some aggressive action in our Port Solution business. The Italian operations had charges of about $16 million related to the redesign of this business and to improve the results in the light port equipment business some of smaller port products that we have. It is important to mention that we expect almost as much cost savings annualized as a restructuring charges, and any time we can take action that has a one year pay back, we want to do those projects all day long.

Turning to page 12, Terex Materials Processing business. This business is reflecting the fact that the minerals markets are down. We had decent profitability in a challenging environment. Europe remains weak here. We are focusing our cost structure to help offset that. We think we performed reasonably well in the segment with $25 million of income from operations compared to $29 million in a year ago period. As you can see in the mix of business not a lot of change year-over-year. Overall this business is being lead and managed with a focus on good execution.

Turning to page 13 , which summarizes our best view by segment on how we believe the revenue and operating margins will develop across the year. Now obviously there is --, looking at this by segment, there is areas where we might feel that we have a better chance of meeting these numbers or a weaker chance, but overall I just want to focus you to the Company in total. We believe revenue will be $7.5 billion to $7.7 billion, with operating margin of 6% to 7%. And we know that compared to where we started the year that it is a full margin point down with meaningful amount of revenue reduction from the $7.9 billion to $8.3 billion that we originally expected. While that is reduced , we are focused on each one of the segments of trying to achieve both the revenue and the operating margin, and we are happy to answer your questions as we go through this on any detail related to this.

So in summary, our Company we feel is trying to extract value from the business by executing on what we can control. We reduce debt , we have taken out our highest cost capital. Those are things that we think will be important to leverage our earnings in the years forward. We are lowering our cost structure. In particular addressing aggressively the Material Handling and Port Solutions issues, some issues in our Cranes business and in our Construction business. We are going to for the midterm manage our portfolio aggressively.

We will work on simplification and financial efficiency because we think they are meaningful areas to harvest from those categories as we previously stated. We understand that our revenue goals require some improvement in the back half of the year in a relatively uncertain market, but we expect to do our best efforts to make this year as good as it possibly can be. We certainly have not given up on the full year, and you can expect that we will do our best in the coming months.

Thank you , and I now would like to open it up for your questions. Holly?

Thank you. (Operator Instructions). Your first question will come from the line of Eli Lustgarten Longbow .

Good morning, everyone.

Good morning.

It could have been a lot worse, right?

Yes.

Can you give me some idea you talked about a little stronger June at the end , which helped with above yet , obviously, the June 17th guidance was held despite the (inaudible, and as I look through the new segment forecast you set up one of the questions as , obviously , we have risk in some places. Can you talk about the segment of where your confidence level in these new guidance, particularly AWP? You actually have the margin going down in the second half of the year, I believe, versus what you had in the first half despite a little stronger market and the other market some uncertainty particular in Cranes and the European outlook. Can you give us some color on what going on as you look at the risk for the rest of the year?

Okay, Eli. I think you hit on the main opportunities and risks for sure. I think the AWP forecast is really structured on how this business would traditionally perform with the fourth quarter being the most uncertain quarter of all as customer really like to get delivery of products in the first and second quarters with a slow down of their deliveries in the third and fourth quarter, so we have structured our information here fairly traditionally. Having said that, the marketplace is telling us that they need equipment , they want equipment in general and that may be an upside but at this stage it is hard to tell.

On the flip side, we obviously have to go get some business in our Cranes area. I think we did $992 million of revenue the first half and the midpoint of that guidance we are providing is $2.1 billion, so obviously there is $100 million to $125 million of incremental revenue performance that we have to go get and we realize that and we realize that the current backlog probably does not support that. However our team is pretty dedicated and we have good lines of sights to opportunities. That does not mean we will win those opportunities, but we have good lines of sight to those things and clearly Tim can comment later on if you want.

Those are a bit of the ying and yang so to speak of the business. I do want to also point out the importance of the Material Handling and Port Solutions turnaround, and our forecast is for that business to actually be profitable in the second half of the year and to show meaningful revenue growth in the second half of the year and clearly the backlog supports that. If you look that backlog and examine the third quarter of 2012, that business backlog really bottomed out and that is really what resulted in the weakness of the first and second quarter in the revenue from that side. So it is a bit of a mix story . We know the end markets are not going to help us a whole heck of a lot, but I think you hit on the basic issues and oppotunities.

And just a quick follow-up. As you go after business in the second half of the year or so , can you talk a little bit about what you are seeing in pricing for some markets? We were surprised a little bit that Caterpillar talking about some very competitive price market particularly outside of North American particularly as it reflects to getting better margins in Cranes and, of course, the other business, but can you talk about the pricing environment?

I think pricing is different business by business. Obviously, the stronger markets will have the stronger pricing environment, but the one that is most probably on people's mind would be Cranes area. So why don't I ask Tim to comment on that.

Thanks, Ron. Eli, one of the things we have been focused on for the last couple of years is improving margins in our Crane business, and if you look at our performance on a quarterly basis and year-to-date basis, year-over-year, price is actually slightly positive. If you look at it on a sequential basis, we are also slightly positive. So I feel pretty good about the discipline we are maintaining in the marketplace. I see our compettors being relatively disciplined. There is always a deal that you lose here or there based on price. But generally speaking it feels to me like the market is fairly disciplined even in an environment where it is a challenge to get the orders.

Great. Thank you very much.

Okay, Eli.

The next question will come from the line of Jamie Cook , Credit Suisse.

Good morning. Ron, a couple of questions. One back on the Aerial side, if I could dig a little deeper because your margins in the second half versus the first half assume you are down. I think margins go from 15.5 in the first half to 13.5 in the second half with United Rentals coming out saying that their CapEx forecast could be positive and I would also assume that material costs probably are a tailwind for you in the second half versus the first half, so I just want to make sure I am thinking about this correctly.

Also I think last year people came out and announced price increases in August . Are you going do that again this year because it could have implemencations for ordering trends? And then my second question relates to the Construction business. Trying to understand at what point -- first of all, I think you sold the Component business within Construction, so is that a benefit in the back half of the year and how much? And if so, I guess I am just l disappointed that we will still be losing money if that is is a benefit. And after that I will get back in queue.

Okay. I'm going to ask Matt and George to comment on this in a second, but I do want to make a point about the Construction business. We are very conscious of what we need to do in Construction to get this business to a more respectable profit performance. The two principal businesses in Construction that have the greatest historical profit contribution are that Terex Truck business that is Terex Equipment Limited business in Scotland , headquartered in Scotland, and our Material Handler business or what has traditionally been called our Fuchs. Both of these businesses have a good history of profitability more years than not.

Having said that, the current outlook in trucks has been very challenged. In particular because we bump up against the small mining side and in the non residential construction on matriculated trucks and a substantial portion of this business also went into China through our Chinese joint venture and the kits and products that we sold into China . All of those product categories industry wide for this year at least have been pretty challenged.

And the Fuchs product line is a steel scrap product, and frankly speaking the price of steel is a real benefit to Terex over all but for Fuchs in particular embedding in our Construction business it is a real headwind. So all the work we have done within the Construction segment to get our break even costs down and to address a fairly poor end market environment we are still not able to capitalize on because of those two primary end markets of those historically fairly strong contributors. I think we will keep working this. We understand the issues, but that is kind of nut shell on the Construction. May be, Matt , you can comment on first half , second half AWP and the pricing environment, et cetera, to answer Jamie's question there.

But just to be clear, Ron, just the Components business was that losing money , is that a benefit in the second half or no?

George, do you want to answer that?

Jamie, thank you for the question, and the answer is yes. With that sale completed it was losing money and the Construction business in total Ron mentioned the two main drivers being down in the first half. We are definitely seeing some improvement on the Truck business as we look into the second half of the year which will help, and also the losses have been mitigated on the Component business sale and also we are still working through the remaining Roadbuilding buisness that had been losing that will flush through as we go forward through the rest of the year. So when you say what is the clearer picture, the Compact business is doing well. We hope for some improvement on the Truck side and also the relief from the Roadbuilding improvement will take affect in the second half.

One of the things, Jamie, on the Components business is it relieves us of our several hundred people in Germany, and while it was losing money it is not going to be the change that turns this segment from negative to positive. So it is a net positive, but it is a big change relative to the amount of people liabilities that we have going forward in that operation and provides an ability of our team to clearly focus on the product itself of mini and mid excavators and small wheel loaders so we can be the best we can be in that and get out of all the component none sense where we really do not have a lot of value we can add. I hope I have answered that question completely for you?

Yes, thank you.

Okay. And, Matt?

Yes. Good morning, Jamie, and thanks for the question. In regards to the margins in the second half versus the first half, as Ron said, we set the margins traditionally. It is an obvious question when we are expecting strong top line growth. Some of the things that come into it is we move into the back half of the year, we have been adding quite a bit of capacity on our telehandler line, and they are traditionally a lower-margin product. So there is a mix component in there.

In addition to that, we are starting to prepare for a big 2014, and we are adding second shifts. So with that, as you do the switchover, there is a little bit of operational inefficiency. The other piece on the pricing environment, it has remained stable and predictable. And the biggest price increase that customers will experience next year will be related to the Tier 4 engines. We are starting to do that conversion and it will carry through 2014. With that being said, we are considering a modest price increase for 2014.

Okay. And when will that go out to the market ? You will announce it before January, right? I am just trying to figure out whether or not that would create a prebuy ahead of the price increase.

Yes, it will be similar to last year. It will be effective for January 1.

But when will you announce it? Would you announce it January 1 or August, September, before that?

No, it will be before that. It will be before that.

Okay. And do you get a material cost benefit in the back half?

Material cost has been favorable this year. Year-to-date, the commodities have been flat, in particular, steel plate has been flat. We have seen coil start to tick up a little bit. But in general, you are right, it is a tailwind for us.

Thanks, I will get back in queue.

Thank you, Jamie.

Your next question will come from the line of David Raso, ISI Group.

Good morning. You were not breaking a completely new ground with the comment by any means, but I just want to make sure I am reading it properly. You seem to be emphasizing the portfolio management pruning commentary a little bit stronger this morning. Am I reading that properly? Are there some things afoot that there is going to be further actions coming in the next six months or so?

David, I am dedicated to managing our business and our portfolios appropriately. And I think if you know me a long time, you know that everyday I wake up in the morning, I look at our portfolio as critically as I possibly can and say, "Where can we be a winner? Where will we not be a winner?" And even though these things take time, and they take energy, we are going to continue that emphasis. I would not read that my desires and emphasis has changed at all, okay? But I would say that it is an important thing to emphasize, because we look at the realities of the market.

And the markets tell us something. We are listening to those markets. Our performance tells us something. We are listening to those performances. And if there are things that we can do to improve or accelerate or adjust, we are going to do those things. Now the problem we have is we can't tell you when we fail at trying to do something. We only tell you when we succeed. But the only thing I can say to you is please have confidence that we look at the same numbers you look at.

My direct question, MHPS, the second half of the year, and I know it is a lumpy business with some of the ports shipping and so forth in the second half and into early next year, but trying to get a feel looking into 2014 how you are thinking about this business on a profitability level. The back half of the year, the revenues are implied at $940 million, a lot higher than the $710 million or so you had in the first half. In the second half of the year, the business is slightly profitable implied in the guidance. Just, roughly speaking, frame it for us to some degree, knowing what is afoot with the work in councils in Europe and other actions you're taking.

If the second half of this year became ideally somewhat run rate revenue, $1.8 billion kind of annualized, $1.9 billion, knowing the actions afoot, how should we think about, I'm not trying to ask for 2014 margin guidance exactly for MHPS, but how should we think about the profitability of that business in 2014 if you could have similar revenues as the second half of the year?

I'm going to throw that to Mr. Filipov. Stoyan?

Yes, thanks for the question, David. For sure, we have a big back half of the year. And as Ron said, we are going to be profitable in the back half of the year, but we are starting in a pretty big hole from the first half of the year. So for sure, 2014 is going to be a better year for MH and PS. And as you know, the 2015 target is to get to 7.5% operating profit. So, I think, it's fairly easy to kind of do the math there on where we need to be in 2014. What I will say is on the other point of the works council negotiations and the restructuring, you're right, that's going to take some time.

But that's why we are doing that today, because we want to get it done with by the end of this year, so that we are set up for a good 2014. So, hopefully, that gives you some color. And I think you also should consider that next year, we still have a couple of hundred million dollars of large automation projects, and we are going to be delivering to the tune of probably about $300 million. So that's going to help us in 2014. Now we are starting to deliver --

Is that Rotterdamn?

So we have three projects right now. We have two in Rotterdam, one is Rotterdam World Gateway, the other one is APMT. And then we have got Long Beach, California, which is the third one. And Long Beach really won't start until 2014 through 2016 and 2017. So there's a big nut there. But we have got those three, I would say that there is some other projects that are on the table. I think the other thing is we tend to think of the automation business as a one-off business, but the reality is it's an ongoing business for us. I mean, there's probably 11 ports that are running our automated guided vehicles throughout the globe today. And we are the market leader in that business. So it does tend to be lumpy, but the market is really moving towards automation.

So what I was sort of fishing for is the idea of the business doesn't get a ton of attention, except for some negative news the last couple of quarters. But if this business does have those shipments in place for next year, and you're modestly profitable in the second half, so let's take the guidance for face value the rest of the year, if you could even do 3% margins next year on $1.9 billion of revenue, it's almost a $0.50 per share earnings swing year-to-year just on MHPS. And I'm just trying to get some framework for us here on how you're thinking about the business at that revenue level is even at 3%, which is not even halfway to the long-term target. Is that even realistic? Or am I not appreciating maybe some of the pricing was challenged in the win of the Rotterdam or the other projects?

I think the other piece, David, is the MH business, the Material Handing business, the Industrial Crane business, we are off substantially from last year, 13%, 15%. That is the real question that we have got to address. we are going to have some challenges there, because half of that business is in Europe, so we have got to fix that business, why it's so critical for us to really lower that breakeven point, and that's what we are focused on. So MH and PS is really two businesses, the MH business is the bigger piece of it, to be honest with you.

So that's kind of the question mark. I think Port, we have got good visibility to what's going on. And at the same time, I am really pushing to get margins up. And we are going to pass on some deals, because we have to get our margins up in the Port business, as we do in the Material Handling business. So we are going to be selective on getting the deals.

And last two quick things. Matt, you mentioned preparing for a big 2014. Was that just a telehandler comment, or was that a division comment?

Well, in general, we continue to see that the market is going to continue on the growth pattern that it has, looking at our guidance that we provided out to 2015. But it's up that we have to see steady growth over the next couple of years. So telehandlers continue to be the strongest of the product categories, but we expect that will slow down, and the rest of the product portfolio will continue to grow.

Is this based off of your theory on how the industry should play out , or are you already getting some indications for customers on 2014 for teles and Aerial?

It is both. In other words, we have modeling that goes out longer term. Typically, when we are talking to customers, it's six to nine months out where those conversations are. So we use the combination of conversations with customers and some modeling that we do internally

Thank you very much. I appreciate it.

Also, David, I'll make a point, because we spend a bunch of time around this. The point I want to make is Terex is not a one-trick pony, okay? There are opportunities in each of our segments to meaningfully change the 2014 and 2015 performance and we don't have to hit on all cylinders to make really good progress, whether that is the point you made on MHPS, opportunity in Construction, opportunity in Cranes. And, in general, there are more positive opportunities than there are negative, but there is clearly some negative places. So I think this continues to be some of the challenge that we have, but we have really, some decent things that we feel we can accomplish, if we just stay focused on our basic execution. Next question.

Our next question will come from the line of Rob Wertheimer , Vertical Research.

Good morning, every body. Just wanted to -- I guess this is for Tim. The nature of the decision you made on a little bit of restructuring in Cranes, is there anything, as you continue to sort of move into the business that you see that is more structural and you're seeing opportunities to take, or was this really a cyclical decision?

Thanks for the question, Rob. The decision that we took in Germany, in particular, really was one where we had to make a decision on how we want to structure our workforce. For the last couple of years, we have been using a methodology to manage our workforce called, short work, which includes temporary reductions and shorter work weeks for our team members. By law, in Germany, you run out of time, and you've got to make a decision on how you want to manage that.

And our view was that we would be better to take the action now and the hard decision to reduce our workforce, basically, to the level we have been operating at, but to do it in a permanent way. So this may, on the surface, look like we are reducing or restructuring our overall capacity, but the reality is what we are doing is aligning our workforce with the way we have been running the business for the last couple of years.

And we think this will be more cost effective.

Absolutely.

Makes sense. And do you see many more opportunities or situations, rather, like that right now, or do you wait and see what arises?

Yes, I would say that we are always looking at aligning our workforce and our production volumes with our outlook in the marketplace. So where markets are soft or need to be managed, we will adjust workforce accordingly. You can look around and see where the markets have been softer this year, have been a little bit in Australia, and we have taken some modest actions with our team there.

The North American market, which has been very strong in the first half, is going through a little bit of a pull back, as inventories get aligned, and we are evaluating our production needs out of our North American factories. So you can look around and see how those markets are playing out. And we are trying to be much more disciplined and much more aligned in our sales, what we call, sales-value production, really, the production value and managing it on a very close basis to our outlook from a revenue standpoint.

Thank you. If I can ask just one small follow-up. Is there any competitive or market overspill in Materials Processing? Ron, you mention on the artic trucks, just the tiniest bit of maybe interaction with low end of the mining side. Do you think there is any forward-looking risk in Materials Processing from other folks in mining?

Kieran Hegarty, do you want to answer that?

Yes, clearly, we have, as Ron pointed out, there are in the piece some exposure to minerals. But the majority of our mineral production is actually what we would consider periphery mineral production, so it tends to be construction roads and mine sites, et cetera. Overall, the biggest correlation to our business is general construction activity. So it's probably to be honest, probably more aligned better with just broad construction, whether that is commercial or housing, because the vast majority, probably 90% of our products, actually, produce aggregate, which is used in construction, as opposed to a non mineral aggregate. So while we have some mineral exposure, we have much greater exposure to the general construction cycle.

Sure. And I'm sorry if I wasn't clear, but is there any competitive impact as folks who might have more overlap in both markets see mining off?

In terms of what respect? Sorry.

Pricing pressure from your competitors.

Similar to the other segments in Construction, we get -- our competitive landscape varies tremendously by markets. There's reasonable -- there's a good pricing environment in North America based on demand and Europe. Again, and it's competitive specific. There's not a uniform picture. It depends of the country. U.K. at the moment is highly price-sensitive. All other markets are a bit more conservative. So there's not a uniform picture. Overall, there's probably a reasonable degree of stability in pricing, but it can vary dramatically by market.

Thank you.

Thank you.

Your next question will come from the line of Ted Grace, Susquehanna.

Hi, guys. How are you doing?

All right , Ted.

Ron, I realized the focus at this point is on the back half for this year and the realities of where we are in the backlog front, kind of limited visibility. But in a couple of discussions around segments, there's been brief commentary on 2014. Could give us maybe just a framework, since I realized you haven't introduced any kind of formal guidance on 2014? And then kind of how we should be thinking about the 2015 goal that you introduced at the Analyst Day? You've got a lower trajectory for sure, there's a lot of time between now and then. But just any kind of framework or commentary would be helpful.

Okay. I don't really want to do this by segment and with a tremendous degree of specificity, because our process requires that we go through each of our businesses towards the end of the year, reflect upon what's doing well, what's not doing well. In order to provide guidance for 2014, it'll be a more detailed analysis. The goals we have for 2015 haven't changed. And in my opinion, there is a reasonably big difference between goals and , okay? I think the goals are set out there, because we believe that's the potential we have in our business.

And I think that potential would add up to a $10 billion Company with $1 billion of operating income and approaching $5 a share of earnings. In order to do that, we, obviously, have to perform substantively better in a couple of our key segments, continuing the positive trend in AWP, turning our Cranes business into a little bit more growth oriented. Although I do want to point out that the Cranes revenue is not expected to get back to the prior peak, nor is the revenue in our Material Handling and Port Solutions business intended to get back to the prior peak.

So I think having lowered our guidance in 2013, it, obviously, makes that 2015 goal seem a little bit harder to achieve. Having said that, about two-thirds of what we have to do, we feel, is within our own control, while about one-third having to come from better markets. I can't predict better markets, but we are going to keep working on those things that we can control. And if we can get some better markets, Cranes, for Material Handling Port Solutions products, for some of our Construction Products, et cetera, I think we have got a good chance of making those 2015 goals.

I can't tell you at this moment whether it's a direct line, a hockey stick or a minor hockey stick between 2014 and 2015. But we are going to do our best to try, and none of the members of our management team, at all, have given up on trying to achieve those goals. The key to those goals; Portfolio management, simplification and financial efficiency.

That is helpful. So in terms of the two-thirds of the improvement that you have more control over, how should we think about the cadence of the benefits of the restructuring in terms of what you think you'll realize in the back half of this year from a cost saving standpoint versus what we should anticipate and build into our expectations for next year?

we have got some minor benefits on the back half of this year, but almost all of those benefits will take place in 2014. And that's nearly $65 million, maybe $50 million of which will be incremental in 2014.

Okay, that's great. And then the last question I just wanted to ask is to get to the $5, can you just remind us, is there any need for incremental restructuring beyond what we are aware of today?

If I was aware of the restructuring I have to do, I would have already have done it. So I think that's one of our real challenges. But I do think as part of this, we have got to keep working on our balance sheet as well. By that, I mean, pay down some more debt. I think the opportunity to get at that convert in 2015 is possible. So I think that's an element of what we have to do also.

Great. Best of luck this quarter guys.

Thank you.

Your next question comes from Schon Williams, BB&T Capital Markets.

Good morning.

Good morning.

I wonder if we can just touch again and maybe dig a little deeper on the Crane margins in the quarter, a bit incremental margins much weaker than I expected. Just kind of talk about , I think you mentioned some mix issues. Does that continue into the back half? And then also, could you talk a little bit about maybe just addressing BAUMA and the orders. Obviously, not a lot of sequential improvement in orders in Q2 versus Q1. But is there still opportunity to capture some orders as we go down the road here a little bit just from your discussions that you had back in Q2 at the BAUMA?

Well, I'll turn this over to Tim in a second. But I'd say at BAUMA, we had a lot of love, but not a lot of conversion when we got home. And I think the emotion of the market was good, but you've got to work still pretty darn hard to convert that business. But, Tim, maybe want to comment about the margin?

Yes, Schon, thanks for the question. I would characterize our Cranes market as a choppy but recovering market. And I think we left -- to Ron's point, we left BAUMA with maybe a false sense of enthusiasm around where we were in the recovery. If I look at our order intake rate on a sequential basis, we are up from second half last year to first half this year, our crane products -- or sorry, our segment revenues' orders are up about 10%.

So second half last year, first half this year, our order intake is up about 10%. That is encouraging. In addition, I also look every Monday morning on a phone call with our sales leaders around the world at our quota activity. And since April, our quota activity is up 30% in Crane and on a year-over-year basis, it's up 13% in Utilities. So that gives me some degree of encouragement that there is an opportunity for growth out there.

That being said, a lot of these deals are taking a very long time to close. These are big, complex transactions, and our customers are uncertain about where the economy is. So they're waiting until they're absolutely sure they have the business before they place an order with us. So I think that's giving as a sense of encouragement on the one hand, but recognizing that it's a long gestation period to get these orders in the other. So from a margin standpoint, clearly, we were looking for and continue to look for a margin improvement.

As I said, our pricing is up slightly on a year-over-year basis, as well as on a sequential basis. Where we have lost a little bit is on the product and margin mix -- product and geographic mix. Australia for us is down 20% to 25% year-to-date, and Australia has been a very good market for us for the past couple of years. we have had some increase in some of our lower margin product categories and a slight decline in some of our higher-margin product categories. So I think from a mix standpoint, we have seen a little bit of decrement to our overall margin standpoint. I'm not overly concerned about it. I think as we go into the back half of the year, we'll see a more normalized balance. And I'm confident that we'll be able to get back to the levels that we would've expected.

Okay, thanks. And as a follow-up, could you just talk a little bit about the cadence of the quarters in the back half of the year? And then Material Handling, I believe had some large shipments going out in Q3. Can you just talk about what should we be expecting kind of Q3 versus Q4, again, kind of versus normal seasonality?

Yes, let me just quickly comment, because we have got a number of other people on the line that I think would like to get a question in here. But, I think, in general, we expect a little bit stronger performance in the back half of the year that's different than what might be a normal cadence. It varies by business. we have commented on AWP already. What I would say about Material Handling and Ports Solutions is the third quarter tends to be the strongest quarter from a standpoint of services and parts, but the fourth quarter will be better because of some bigger shipments.

The third quarter in Cranes is likely to be a little bit weaker due to the traditional vacation periods, and this year will probably be no different than that, meaning, we expect a little bit stronger fourth quarter. The Material Processing business is probably pretty normalized. Weaker third quarter's stronger, fourth quarter kind of a situation. So I think those kind of even out. If I looked at the Company overall, I'd probably say a little bit weaker third quarter than fourth quarter, but that's not that unusual.

All right. Thank you.

Your next question comes from the line of Andy Casey with Wells Fargo Securities.

Good morning , everybody, thanks for the taking my questions. On Cranes could you talk a little more about your comments related to North American adjustments? Is that related to any specific product areas? Is it basically all expect crawlers ? I'm just trying to understand that.

Andy, thanks for the question. North America is, for us, a large, rough terrain cranes market. I would say that North American market probably got a little ahead of itself in the first half of the year. Housing is improving, but there's really a second order effect in the Cranes business with housing. The housing development goes up at the retail, the school that sort of thing that drives the crane activity. Oil and gas has been particularly strong in the Cranes market, I think, Matt would also say the same thing for the AWP business as well. And it's particularly strong in the Gulf States right through the Midwest and the heartland of the U.S. and up into Canada, for that matter. So when I talked about a bit of a pullback on the North American market, I think it has to do more with distribution, managing its inventory levels than any overall correction happening in the marketplace.

Thanks for that. And could you also provide a little more color around the Latin American market? And then, lastly, on the back half opportunity, given everything in the commentary and the release, I'm just wondering, what region should we look to for you to help fill the gap in terms of the opportunity described in the revenue guidance and then what were seeing the backlog right now?

Yes, Latin America has been weaker than we thought it would be year-to-date. we have been in that business or in that market, I should say, for several years now. And I think the overall tone and economic environment in Latin America is more uncertain today than it has been in several years, largely driven by Brazil. So I think the potential for that market still exists long term. But as we sit here today and try and handicap the second half of the year, it is very difficult to get a sense that, that particular market is going to be substantively better than it has been in the first half of the year. We have kind of baked in a relatively flat second half in our guidance, so I do not think the improvement is necessary or an improvement is necessary in Latin America for us to hit our revenue guidance.

But we are going to see some benefits in some markets like the Middle East and in some other areas that we have been working hard on. Those are where some of our opportunities are.

Okay. Thanks Ron and Tim.

Your next question from the line of Andrew Kaplowitz Barclays Capital.

Good morning , guys.

Good morning.

Ron, you talked about a pretty quick payback on restructuring across the Company and in your MHPS business. How realistic is it that you get that sort of one-year payback? What is your confidence level about that, given it's Europe, it's hard to do these kinds of things? So how confident are you that you can get it here in 2014?

Highly confident. These are definable, already determined individuals for the most part. And we are well on the road to having negotiated conclusions with virtually all of what we have announced. This is why in the previous quarter on the previous quarter conference call, we gave you the indication that we were going to do this, because we had already started the process.

Got you. And then maybe a follow-up on MHPS. One of your main competitors has talked about a pretty big pickup, maybe even a record intake in its service business and overhead Cranes in 2Q. Have you seen any of that yet? You talked about 1Q being pretty weak. Did you see any rebound in that service business as we went into 2Q?

Stoyan, do you want to comment on that?

Yes, sure. Andrew, our business has pretty much been flat Q1 this year to Q2 this year. Q2 last year to Q2 this year, services was a little bit off, but single digits minor stuff, mainly driven by some of the slowness in Europe. So I pay attention to my business, I don't know who the competitor is, but I'd be surprised if their not seeing some slowdown in that side of the business also.

Stoyan, how is your share? Are you maintaining share , or have you still been losing share in that business?

I think we are probably maintaining share. I think we lost some share in the past couple of years, but I think we are maintaining that at this point

Okay. Thanks guys.

Your next question comes from line of Ross Gilardi, Bank of America Merrill Lynch.

Good morning, thanks for taking my question. If you look at slide 15, your Crane backlog, Ron, has been shrinking pretty steadily for the last two years, and it fell again in the second quarter, and you cited negative product mix. Can you just talk a little bit more about what's happening with the long-term steady down tick in the Crane backlog. Getting away from the noise of what's happened since April and what's expected in the third quarter, why does the backlog for the Cranes business seem to go down every single quarter? And on the back of that, your new guidance seems to be implying second half earnings exceleration for Cranes. I realized that you highlighted some of the challenges but why forecast some earnings acceleration for Cranes if you've got some notable headwind and don't know necessarily when some of the orders are going to come through?

Well, funny thing has happened here. Our backlog has gone down, but our shipments has stayed fairly flat. That's kind of odd, don't you think? I mean, backlog is an indicator, it is not the indicator. It is really how we convert an order taken in today to a shipment delivered tomorrow, okay? So we said, and I don't know how many times we can say this that the $815 million backlog of last year at this time included over $100 million of preposition orders by our customers, thinking that they would get pricing for the future year, and we canceled their orders. Our initiative is to get margins up and to get a return for the business that we have, okay? And that is what we continue to try and achieve, okay?

I am not that focused just on backlog. We have to focus on geographic mix, we have to focus on product mix, and we have to focus on getting value out of our customer base. This is a business where historically, many of our customers expected us to inventory product for them and hold it after we produced it. Kevin Bradley started to change some of that, and Tim is continuing to execute on that, okay?

So I realized, and I said this at the beginning, one of the hardest numbers we have was to achieve the incremental revenue in the back half of the year. That's why Tim Ford went through a painstaking analysis of the amount of quotes that he sees, the activity, how that compares with what it was three months ago. But we are not getting the complete closure on some of those deals. We think we can, but we are not completely sure. A business is about managing the broad spectrum of opportunities that we have, okay? we are probably a little bit aggressive in the Crane business, maybe we are not aggressive enough in the AWP business, okay? If you inspect each one individually, you'll find a speckle or a problem, and that's there.

But, in general, please be careful about the backlog, because backlog is a indicator, it is not the indicator. And what you really want me to do is convert and have a healthy book-to-bill ratio, okay? That's what we are after and that's what we are trying to achieve. We share the backlog, because it's something that, historically, has been important to the Company. But you could take a simultaneous position on here, and "Gee, look at that Material Handling and Port Solutions backlog, it's grown from $228 million to $860 million. My god, that business must be increasing tremendously." It's not, okay? So please, please, I've talked about this a lot. I want to make sure we don't misunderstand this.

But just Ron, on that point about trying to get the best mix you can, you did cite negative mix in your commentary. So what is happening there? Is that a competitive issue? Can you just elaborate a bit more on what's driving negative mix if you're trying to optimize the mix?

Yes, well, Tim said, our Australian business is down 25%. He said it's one of our more profitable businesses. That's the answer.

Okay. Thanks very much.

Your next question comes from the line of Jerry Revich, Goldman Sachs.

Good morning. Ron or George, a lot of progress on the construction manufacturing footprint over the past 6 to 12 months. I'm wondering if you could just give us an update on any initiatives you have on the distribution side and any longer-term targets for distribution? And then Ron, in the portfolio discussion earlier, you didn't touch on ASVI, I am wondering if you could just talk about how that business has tracking on the opportunity set?

George , you want to comment on that?

Jerry, thank you very much for the question. And your point is well taken. Last year, we talked quite a bit about focusing on different channels to market. And I must say through the first half of the year, particularly in the U.K. and North America, we have really focused on the rental market on our Compact Equipment. And what you're seeing, even though our total segment sales are off by 29%, we have significant uptick on the compact side, specifically, into the rental market and then also with our private label initiatives that we have been successful to close on in the first half of the year. And you can see the contribution that it's making. And this is also helped by our relationship with our AWP. So it's really helping the compact piece of our business, and we are going to continue on that as we go forward with those initiatives as we continue to work on some support from our larger equipment in the Construction segment. Thank you.

And , Ron or Tim, can you talk about, within the Crane business, what your customers are seeing in terms of utilization levels and pricing? Through the first quarter in the U.S., we are starting to see excellent price realization in crawlers. I'm wondering if that continued into the second quarter based on your customer discussions? And if you could, just touch on what your customers' seeing, utilization and pricing in Europe as well?

Jerry, I would say the utilization rates are commensurate to the overall economic condition of the geography. So North America utilization rates and pricing -- utilization rates are high and pricing is improving. Europe utilization rates are mediocre and pricing is challenging. Middle East, they are very high, and pricing is very strong. So I think it depends on which market you're focusing on, And you can almost draw a straight line between kind of economic conditions of that geography and the utilization rates and the pricing.

And Tim, just briefly, on Latin America, a lot of volatility in that market for Cranes. Can you just talk about how much visibility you have there and 6- to 12-month outlook.

Well, I have as much visibility there as I have on any other market. As I mentioned earlier on the call, I hold a weekly sales meeting with our global sales leaders to review their quotations and activities. And I would say, the opportunity that we see in Latin America, it's been modestly improving over the past couple of months, but it's not robust at this point for sure.

Thank you.

Your next question comes from the line of Eric Crawford, UBS.

Good morning, thanks for taking my question. On AWP, the commentary on improvement in Europe's positive, clearly, but with North America, the key driver, I'm just curious, the longer term AWP growth you see equally spread out between geographies and if you see any potential risk in demand in North America plateaus?

Yes. Eric, the indications we have from the customer base today is that the market environment utilization, age of fleet, all would indicate continued positive trends in the North American market. And certainly, that's built into what we think is going to happen. Having said that, I think, you go back to what are a couple of irrefutable facts. One, they bought a ton of equipment between 2004 through 2008. That equipment is now getting older by the minute and in order to just maintain the average age of their fleet, they got to buy a bunch of equipment. So that factor, as long as there's not a fundamental decline in demand, is going to drive replacement. The second factor that's important is rate of growth.

We have now seen the Architecture Billing Index, which is an important indicator for this business, remain strong and get better. If you couple growth over a extended period of time with age of fleet, you end up with a pretty good market, and that's what we expect. And then if you add to that a developing and strong Latin American market, maybe not a great recovering European market but at least, a no longer declining market and a moderately improving market, with an Asian business opportunity, you end up with a pretty not strong AWP business. And that's what gives us confidence. And unless there is a substantive, global economic downturn, I think this business is in for a number of really decent years.

That's great thank you for that. And then, lastly, just not to beat a dead horse on portfolio management, but I'm curious if you could speak a bit more about the pruning geographies comment. does that refer only to selling businesses to another player or does it also include winding down the lack of investment? Maybe just how you're framing the puts and takes more broadly.

Well, Eric, I don't ever want to think that we have got a dead horse around here. Once it's dead, we will tell you, it's buried. But I think it's a question. We made substantial investments in geographies, and it's paid good dividends for us. However, we have seen meaningful changes in some geographic performance. The Indian outlook or the outlook for the country of India isn't very good.

So we are going to examine our cost structure in India and make some changes. The same thing could be said in Latin America. So we want to be responsive to those things. I think our investment in China is for the long term, but we want to examine all of our areas of investment to make sure where we have got them properly positioned. So all I'm trying to say to everyone on the call here is that we are sensitive to the realities of the market, where we have made investments, and we have gotten returns. We'll keep those investments in place, and where it has pullback, we have a responsibility to make adjustments.

Thanks, Ron.

And due to the time, we will take one final question. And your final question will come from the line of Seth Weber with RBC Capital Markets.

Adam on here for Seth. Two quick ones here. One on the mix of independent rental companies stepping up right now. What you're seeing now , what you're seeing in backlog, in your quotation activity there? And just, secondly, on MHPS, the service component. Is there some catch-up that might come or is that sort of tracked with the activity of the ports?

Yes, I'll answer the last question, then I'll turn the first question over to Matt. I don't think there's any catch up here. I think that opportunity is behind us. I don't think people catch up on service, in general. I do think as utilization improves in overhead cranes, et cetera, and factories, they will get them serviced again. So I don't think there's a catch up implied in our forward outlook. But there's a more realistic assessment of what our forward outlook is. In AWP, why don't you answer that question, Matt?

Good morning Adam. Yes. Their independents, they continue to be significant and important to us. And if you look at year-over-year, the percentage of independents actually improved in the first half, which is a good sign for us - if you look at them, they are the niche players, and they typically, they continue to buy through Q3 and Q4, where some of the large consolidator are heavy in the first half of the year. So the other thing with the independents is they are able to get financing now. So we continue to see them in the market, and we see them being healthy.

Very good.

Thanks guys.

All right. Well, I want to thank everybody for participating in our call today. Obviously, Tom, Kevin, myself and the rest of the management team are here to respond to any additional follow-up questions, you have. We look forward to answering and addressing any and all of those questions. Thank you very much for your interest.

Thank you for your participation in today's Terex Corporation Second Quarter 2013 Financial Results Conference Call. You may now disconnect. Speakers, hold the line.