Terex Corp (TEX) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Terex Corporation fourth-quarter 2013 financial results.

(Operator Instructions)

Thank you. I would now like to turn the call over to Ronald DeFeo, Chairman and CEO. You may begin.

Thank you, Victoria; and good morning, ladies and gentlemen. We appreciate your interest in Terex today, and on the call with me is Kevin Bradley, Senior Vice President and CFO; and Kevin O'Reilly, Vice President of Operational Finance; Tom Gelston, Vice President of Investor Relations; and available either in the room or on the phone will be members of our leadership team, including the business segment presidents.

As usual, a replay of this call will be archived on the Terex website, www.terex.com under the Audio Archives section of the Investor Relations area. I'll begin with some overall commentary and highlights, and Kevin will follow with a more detailed report, and then I'll give some comments on where I think we're headed, and summarize before we open it up to your questions.

We will be following a presentation, which was included with the earnings release, and is available on our website. I'd like to request when it comes to the question time, 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. So now let me begin.

Turning to page 3, about 12 months ago, I mentioned that Terex was going to focus on improvement by concentrating on the things we can control. Namely, portfolio management, simplification, and financial efficiency. Now looking back on the year, we feel positive about the improvements we were able to deliver to our shareholders.

While the year started slowly, we have seen recent improvements in net sales growth, with the second half growing over 6% versus the prior year, and the fourth quarter growing about 12%. This led to substantially better earnings in the back half of 2013, up 59% from the first half and 84% from the same period in 2012.

We made a number of portfolio decisions during 2013 that will help focus our energy and attention on those markets where we have a substantial presence and a likelihood to succeed. We were able to complete the process of acquiring 100% of the Terex Material Handling & Port Solutions AG shares, which will have the benefit of eliminating a guaranteed dividend payment to those shareholders. And we made progress in our debt structure, paying back roughly $220 million of bank debt.

Putting numbers to our quarterly annual performance, we achieved an earnings-per-share of $0.65 on an adjusted basis in the quarter, and compared with the year-ago adjusted $0.17 per share in 2012. For the full year, we achieved an earnings-per-share of $2.25 (Sic-see presentation "$2.23") as adjusted in 2013 versus $1.58 per share in 2012.

As a reminder, these results reflect our off-highway truck business as accounted for in discontinued operations, due to the impending sale of that business. We believed the consensus numbers had included the truck business, both looking backward and looking forward.

In 2012, we will continue and accelerate our efforts on internal actions and internal improvements, and we fully expect this will be beneficial in the coming years. I'll come back in a few minutes to give you some highlights. Kevin will run through the specific numbers.

I'll turn it over to Kevin now. Thank you.

Thanks, Ron, and good morning, everyone. Turning to slide 4, I'll review our financial results for the quarter.

Our net sales for the quarter of $1.8 billion increased $192 million or 11.9% when compared to the prior-year quarter. Foreign currency exchange rates contributed approximately 1.6 percentage points to the increase.

AWP and MHPS led the segments, with growth of 31% and 27% respectively, while the cranes business decreased approximately 6%. Our construction and material processing businesses remained relatively flat versus the prior-year quarter.

Gross margin, as adjusted, was stable at 20.6% as the favorable mix of business and margin expansion in both AWP and MHPS was offset by the decline in gross profit margin in our crane business, which was negatively impacted by product mix in the quarter. SG&A, as adjusted, both in dollars and as a percentage of sales, decreased compared to the prior-year quarter, as we continued to focus on expense reductions. The restructuring efforts in construction and MHPS are taking hold, and we are leveraging our cost structure as we grow our AWP business.

Operating profit, as adjusted, increased approximately $50 million or close to 70%, as growth in AWP and MHPS and the improved financial performance in construction was partially offset by a decline in our cranes business. Operating margins increased 230 basis points to 6.7% for the quarter, and our incremental margin was approximately 26%.

Net interest and other expense, as adjusted, improved roughly $8 million when compared with the prior-year quarter. The improvement is driven by the capital structure actions taken in late 2012 and in 2013, including debt reduction, repricing of the term debt, as well is the squeeze out of the remaining outstanding minority shares in Terex Material Handling & Port Solutions AG, which we completed last month.

The effective tax rate, as adjusted, for the quarter was 21.1%. This compares to an as adjusted tax rate of 45.3% in the prior-year quarter. The lower tax rate was mainly driven by a reduced impact of losses not benefited, and a reduction in the provision for uncertain tax provisions.

For Q4, earnings-per-share was $0.72., compared to a loss of $0.30 in the prior-year quarter. On an as adjusted basis, fourth quarter EPS was $0.65, compared to $0.17 for 2012.

Networking capital as a percentage of annualized sales was 24.8%, an improvement from the 26.9% reported in 2012. Although we have made improvements from the prior year, we missed our target of 22%. Free cash flow for the year of approximately $377 million also fell short of our greater than $400 million target. Finally, return on invested capital increased 8.1% from 6.9% in the prior year, driven by an improvement in net operating profit after-tax.

Now, let's turn to page 5, and I'll discuss our adjustments for the quarter. Adjustments in Q4 for restructuring and related items lowered our reported EPS from $0.72 to $0.65. The adjustments relate primarily to previously announced restructuring actions in our construction, crane, and MHPS businesses.

The cost to execute these programs is now below our original estimates. The impact of these items in the quarter was an increase in income from operations of $10 million, an $8 million increase in income from continuing operations, and they added $0.07 per share.

With that, let me turn it back to Ron.

Thank you, Kevin. So let me give some commentary beginning on page 6, where we provide a bridge on our fourth-quarter sales performance when compared with the prior year.

As I mentioned, overall revenue was up 12%. But the portfolio of businesses and geographies each had a slightly different impact on that result. Aerial Work Platforms and Material Handling Port Solutions showed pretty dramatic improvement in top line performance compared with a year ago. Typically, this is a slow quarter for AWP, but our AWP business continued to see strong demand from the North American market, and even Europe has begun to rebound.

Globally, we believe the AWP product category is becoming more broadly accepted in new markets as a good tool on the job site. And we see very good growth continuing from non-traditional markets. The Q4 revenue growth was 31%, which we feel is outstanding.

Turning to Material Handling & Port Solutions, we achieved a 27% year-over-year growth in the quarter, and we think this was driven by a second-half recovery in the base port business, as well as the commencement of shipping a large portion of the automated port projects, or beginning that shipment process.

As an overall market for Terex, North America was the biggest driver, up 32% in the quarter, while Europe or overall Terex was a more modest increase at plus 8%. But we think that's a positive sign, and we're starting to see some growth in European businesses. We're please with the overall 12% revenue growth in the quarter.

Turning to page 7, we're providing a similar bridge on operating profit, showing an increase for Terex to 70% versus the prior-year's quarter. Following the revenue, AWP had a strong incremental margin of 33% in the period. Construction profitability improved somewhat, as the business stabilized.

Cranes results were down year over year, with the Australian and Southeast Asian markets softening somewhat. And Material Handling & Port Solutions returned to profitability on the back of better revenue performance and lower operating costs from the beginning of the restructuring efforts in the second quarter.

Turning to page 8, we thought it would be important to review some of the significant improvement actions accomplished during the year. We reduced debt by over $100 million, as well as repricing our senior bank debt to achieve a lower interest cost.

As previously mentioned, we were able to complete the purchase of shares for the Terex Material Handling & Port Solutions AG at a cost of $228 million in 2013, and roughly $77 million more in the first quarter of 2014. This removes the annual guaranteed dividend of approximately $17 million, which was also an expense that was not tax-deductible.

We initiated, as you know, a quarterly dividend of $0.05 in December, and announced at the same time that the Board had authorized a repurchase of shares of approximately $200 million over the next couple of years. At the end of 2013, we had purchased roughly $30 million in stock under this program.

We continued to review the portfolio of businesses we were in, and we came to the decision to exit the road building off-highway truck and construction components businesses during the year. This allows us to focus management time and energy on products where we think we can grow.

Lastly, Material Handling & Port Solutions went through some significant changes. And the end result will be a leaner more agile organization that is expected to deliver meaningful financial improvements to our shareholders going forward.

On page 9, we thought it would be helpful to give a little bit more perspective on just how different the back half of 2013 was compared with the prior period. In terms of net sales, second half of 2013 was a marked improvement over the prior year, and a pretty meaningful improvement from the first part of 2013.

Taking a look at the operating profit performance, however, highlights an even more stark comparison, with the second half of 2013 delivering substantially more operating profit than any of the comparative periods shown. As discussed, Material Handling & Port Solutions was a substantial driver of this turnaround, and Aerial Work Platforms continued its strong sales growth driven by the North American market.

On page 10, we showed two charts highlighting the change in backlog versus the prior year and prior quarter. For the year-over-year comparison, AWP shows a decline, due to the timing of orders for some large North American customers. Let me reassure you that we see strong 2014 early order patterns for this product category, and remain quite positive about them and markets here.

Cranes backlog, which was down versus year ago, actually was up a little versus the prior quarter. This first sequential quarterly increase since 2012, we think, is a first sign of encouraging opportunity here.

MHPS continues to show a strong backlog, driven by the large automated projects that are in our order book for delivery over the coming year. Sequentially, construction was the major change, as we think dealers are beginning to place orders for their 2014 needs, and some moderate improvements in Europe.

Now turning to page 11, and our outlook for 2014. Overall, we're looking for moderate top line growth of between 3% and 8%. Operating margins, which were adjusted at 6.8% in 2013, we expect to be 7.5% to 8.5% in 2014, or a pretty meaningful improvement overall.

Again, we want to emphasize our self-help program. Because we think we can improve our margins with very modest revenue growth. This leads to an overall EPS range of between $2.50 to $2.80 per share, up from the $2.23 achieved in 2013.

We expect the first quarter to be the weakest quarter of 2014, with roughly 10% to 12% of the full-year earnings being delivered in that period. And we expect about 45% of our earnings to be in the first half of the year.

Page 12 presents our expectations for net sales by segment in 2014. Leading the growth is the MHPS segment, mainly benefiting from shipments that are underway to the Rotterdam Port expansion. Although it's important to point out that, at this point in time, we know about $50 million of our planned first quarter revenue will be pushed to later periods in the year, as our customer isn't yet ready to accept this merchandise.

Our Aerial Work Platform business is expecting high single-digit to low double-digit percentage growth, fueled by continued buying from the North American marketplace, as well as improving trends in Europe and the contribution from certain new products.

Our Materials Processing business is expected to increase moderately, while our crane business is also anticipating modest growth.

For construction, we are planning around a flat year overall. We feel this is a balanced approach to the sales forecast, as many global markets are still uncertain.

Page 13 presents the operating profit outlook for the Company by segment. Again, as with our sales, we are expecting a solid improvement in profit for MHPS, as the increased revenues and restructuring benefits favorably impact overall profitability.

We are looking to achieve moderate growth in operating margin for cranes in 2014, and a slight improvement for our construction segment coming off a challenging year. For our Aerial Work Platform business and Materials Processing businesses, we anticipate that their operating margins will remain relatively in line with 2013 performance, although higher profits as a result of net sales growth is expected.

So to conclude on page 14, where are we headed? 2013 clearly turned out to be a weaker demand environment than we originally anticipated. We expect steady performance in the first half of 2014, and some acceleration in the back half of the year.

Critical to our success is remaining focused and disciplined in pursuit of our internal initiatives to maximize the returns to our shareholders through higher EPS and ROIC. If the markets prove to be stronger, there should be sufficient upside in our performance. But we feel it's prudent to remain cautious.

We still view our $5 plus EPS goal to be the right one for the Company, overall. Although given the fact that 2013 was a year where we didn't see any growth meaningfully materialize, we think it's probably more appropriate for 2016 now than 2015.

Our 2013 revenue was about 65% of the prior peak revenues for our segments. So growth is still a key part of our plan. If you couple this with the anticipated margin expansion and a disciplined capital deployment approach, we have a lot more value opportunity to capture internally.

Thank you. And operator, I'd now like to open it up for questions.

Certainly.

(Operator Instructions)

David Raso with ICI Group.

Hello, good morning. I appreciate the EPS cadence color. Can you give us some help, Ron or Kevin, about the sales cadence throughout the year to get to the full-year growth rate midpoint of roughly 6%?

Yes, as we started out 2013, we anticipated end markets frankly to be stronger than they actually were. If I go at this a little bit by segment, I think we were pleased with AWP performance, but the balance of our segments struggled on the revenue line a little bit throughout the year.

If you pull out the big port projects, even from our Material Handling & Port Solutions business, it still had relatively flat year-over-year type sales performance. So we're entering the year with a focus that says we're going to grow our profitability, irrespective of whether we get a lot of help from the markets.

Now frankly, as we go segment by segment, it's quite possible to be more positive than negative about the opportunity in our markets. And the probability is that growth will be in our future much more likely than a decline.

For perspective, our cranes business is only 15% above its last trough. Meaning, it's in the range of 50% below where it once has been in terms of revenue opportunity. But we don't really see dramatic improvements in the crane business, particularly non-residential construction in the early part of 2014, although I think we're getting some signs from our customers that they're beginning to see some work there.

And cranes will be an important part of our change on a year-over-year basis. It can move the needle for us.

We're pretty solid about AWP, and think that our high single-digit low double-digit growth rate is clearly deliverable. Our construction business, we're being very cautious about.

That business is seeing some improvements already from the scrap handler business, where we've got some decent backlog entering 2014, and beginnings of some orders from our European dealers. That business, for perspective, now that we have the truck business out of it, is only at 45% of its last peak. So I think that business has a lot more potential for growth looking forward.

So we're being somewhat conservative, I think, on our revenue forecast for 2014.

Materials Processing, we're going to push for growth in that business, although our forecast is for relatively moderate performance. And MHPS, as I already indicated, it's really a story about big deliveries in the port business, but not a lot of growth in the Material Handling or overhead crane business.

So overall David, I think the 3% to 8% revenue growth, which of course includes probably a tad bit of pricing, is pretty conservative. But I think given what happened to us in 2013, we'd rather be a little bit more on the planned for less success and deliver more success side, than planned for a lot of revenue growth and have to back off on that in 2014. Does that help?

Again, I appreciate all the color. But just on the cadence, potentially we're looking at roughly $0.30 in the first quarter going up from $0.90 in the second quarter. And seasonally, the second quarter is seasonally a lot stronger than the first quarter.

But just going from $0.30 up to $0.90, can you help us a little bit with -- is the sales in the first quarter flat to down, and then the second quarter you're expecting high single-digits top line? Just to get people comfortable with that big a jump from 1Q to 2Q. If you can help with the sales growth cadence, it would be great.

David, this is not unusual for us. It's both sales and profitability and margin delivery. And I fight this battle many, many years, over the years, where Q1 tends to be a fairly weak quarter and Q2 tends to be a pretty strong quarter.

And if you just look at this past year on an adjusted basis, Q1 was $0.22 or $0.23 a share and Q2 was $0.65 a share. And the revenue in each one of those Qs was $1.65 billion, and $1.86 billion, Q1 and Q2 respectively.

So, you don't have to have a huge amount of extra revenue to deliver a more efficient -- you're really operating your business on three full months, April, May, and June, whereas the month of January is a startup month, and people coming back from vacations, European vacations, and so you're much more efficient in the April, May, June period. So we're not uncomfortable with the cadence commentary that you provided.

Okay, I appreciate it. Thank you very much.

Andy Kaplowitz with Barclays.

Guys, good morning. It's Alan Flemming standing in for Andy this morning. I just want to Ron, if I could press you a little more on the comment you made about the strong early order patterns in AWP that you're seeing.

Can you talk a little bit about the tone of the conversations you're having with your large independent rental customers and relative to their buying plans next year? What's giving you confidence to say that you're seeing a pickup in the order activity?

I'm going to turn it over to Matt Fearon, who runs that business who probably has more personal commentary than I do. So, Matt, why don't you answer that?

Yes, our outlook on orders is positive. I guess most recently last week was the ARA Show down in Orlando. And that show is typically attended by small rental companies, midsize, and the larger ones, and the sentiment down there was very positive, mostly North American customers.

But what they're seeing is that the market is good. They are seeing non-residential construction continue to improve, and so they're feeling more confident. So as we talk to our different customers large and small, we're seeing that people are very positive about the outlook. And quarter-to-date, our order rate has -- we're very pleased with.

I think the other thing I would add is historically, some customers would close the year and give you a big pre-order. So they encouraged you to negotiate with them aggressively for pricing for the following year. And frankly, a few of the leading big customers have changed that practice and that's okay by us.

Because we have a pretty good window into their replacement rates, and their overall capital requirements, and none of the things that we've seen in the early part of January would suggest a slowdown in their requirement for Aerial Work Platforms.

Let's remember that fundamentals drive the business, and the fundamentals are pretty clear here. High utilization, high used equipment valuations, and an old fleet.

If you put those three things together, plus a pretty solid financial performance on the basis of these rental companies, equipment requirements are our business. And we've got a large market share in the Aerial Work Platform business, and we've got well accepted products and we're very positive about this segment.

I appreciate that. If I could switch gears and ask about your crane business.

You talked about some continued softness in Australia. As you look out to 2014, can you talk about your cranes outlook for that part of the world, and your confidence that maybe that business has at least bottomed?

Sure. Well I'm going to turn that over to Tim Ford. Tim?

Alan, thank you for the question. Australia was a tough pill to swallow for us this year. The business was down about 35%, and I think it really -- we started to feel it significantly in the second and third quarter.

More recently, we've seen some stabilization in that business. In fact, probably in the November/December time frame, we started to see a little bit of a pickup in orders. And I think overall, the business as I talked to our team there and I was just with our leader from the Australian business last week, our team is feeling pretty confident that we've reached bottom.

The first half of the year we will continue to bounce along the bottom, and maybe the second half we'll see a little bit of order strengthening. But we're pretty confident that the Australian business is at its trough for sure.

Thanks guys, I'll turn it over.

Thank you.

Ted Grace with Susquehanna.

Good morning, guys. A question for Ron and Matt. You framed the cranes as being about 50% being below peak. And I was just wondering, if we just think about aerials, you've restated or moved the revenue round a bit, but the prior peak was $2.6 billion, your guidance would have us doing $2.3 billion, $2.4 billion in 2014.

How would you encourage people just to think about where the cycle can get to? Given you just touched on its an older fleet, the demographics can play in to how cycles play out, the strong utilization, the rental penetration, and all the other factors.

Are you comfortable we can exceed $2.6 billion? Will it be dependent on North America more so than non-North American markets, or how would you frame that out?

Ted, let me start, and then I'll ask Matt to comment on this. Because this is something that I've been looking at for many, many years. And while Matt is younger than me, he's been looking at it for the same number of years.

I've been watching this category continue to reach new highs as we believe the product category continues to grow. And fundamentally why is that? Because this is a safe work tool that improves productivity.

You might be surprised to learn that we're already at the prior peak in North America. 2013 was either equal or about at that prior peak of what happened in North America.

Having said that in 2013, we were only at 40% of the prior peak in Europe. And we're working very hard to develop the category in new markets like China, and we've been tremendously successful at developing the category in Latin America.

But the product line still remains a cyclical product category, but we think the fundamentals for several more years of positive performance are there. So, North America is going to grow. It's not reached its height. It will go past its prior peak, and I have a lot of confidence that actually Europe will grow and go past its prior peak.

And so I think the opportunity for this business, we don't want to get ahead of ourselves. But the opportunity to put these products in the hands of people that know how to use them to lower their cost of doing business to put people to work at height, I think more and more as the days go by people are finding new ways to use these tools.

Matt, do you want to add anything to that?

Yes, I think that Ron brought up that we exceeded our North American peak in 2013. But Europe still has a long way to go. And as the markets -- as we broaden out to other geographic regions, we see that as good for the long-term.

Some other things to take into consideration is when you're looking at the North American market, is that the -- there's deeper penetration. And so what I saw in 2013 was rental companies were shifting from just refreshing their fleets to actually growing their fleets.

And with non-residential construction still on the growth pattern, we think there's still legs in North America. So oil and gas is another driver that was not as strong in the prior cycle, and we expect that to help carry it along.

Good. That's helpful. And then the second thing I wanted to ask was just on restructuring and restructuring benefits.

If recollection serves me right, we're expecting most of the year-on-year gain in 2014 to come from MHPS and cranes. Can you just help calibrate us for what we should be looking for? I want to say the number was $50 million plus of incremental benefits, but is that right or has there been any change to that expectation?

Kevin, why don't you answer that?

Sure. In 2013, we got a benefit from the restructuring that we announced back in June. Just over $10 million. Incremental to that in 2014, we expect it to be just over $30 million in 2014, and about two-thirds of that should be in Steve's business, MH&PS.

So we got a little bit more benefit in 2013 than we had initially expected. So the incremental difference in 2014 is a little bit less than what we had previously thought.

And then we'd expect about $20 million in 2015 and beyond.

Okay. And so just to be clear the, $10 million in 2013 primarily came in the fourth quarter?

Yes. The largest piece was in the fourth quarter slightly less than the third.

Okay, great. Well congratulations, and best of luck this year, guys.

Thank you.

Nicole DeBlase with Morgan Stanley.

Good morning, guys.

Hello, Nicole.

Hello. So, I saw that you guys are pushing out the EPS target, the $5 to 2016. Just backing into what we need to assume, it's about a 37% EPS CAGR from the midpoint of 2014 guidance or 34% from the high-end. So, I'm just curious, Ron, in your level of conviction that you can reach that, and how much is being driven by end markets versus self-help?

Okay, Nicole. We've got pretty good conviction that this is well within our capability to achieve. If you take this in a -- well, let me answer the question in two ways. One in a fairly simplistic way, and then in a little bit more detailed way.

In a fairly simplistic way, Terex in 2013 was at about 65% of our overall past peak revenue. We think we can make that past peak in that revenue probably in the 2016 timeframe. That adds several billion dollars, you can run the numbers, to the revenue base even after taking out the [Tell] business, and the road building business, the truck business et cetera.

In addition, we're building off a 6.8% operating margin. And if you just assume fairly normalized incrementals, and you add that several billion dollars of revenue, you're going to get leverage on your margin. And achieving a 10% type operating margin is well within the reach of our ability to achieve.

And then if you basically take a moderate improvement in our tax rate and a modest use of cash to pay down either some dividends or to buy some shares back or something like that, you're at that number or perhaps slightly better. So in a fairly simplistic way, this is the right goal for us as a Company.

Frankly, we're disappointed we didn't achieve growth in 2013, but we did achieve improvement in earnings despite not having end market help except for the AWP business. And frankly, what happened was the AWP business grew, but some of our other businesses did not and actually went moderately backward.

But we don't see much in the way of backward market events happening in the next couple of years. So that gets to the more detailed kind of question. So, what are the primary opportunities that give me confidence? Number one, I think we're going to have really continued positive performance in our Aerial Work Platform business.

You can take the conservative approach, and the number is good. You can take an optimistic approach, and the number is phenomenal. So, find some midpoint there, and I think that's reasonable.

The real change business is the crane business. And the question becomes how high is high? We have a $1.9 billion business in 2013, but the business was well over $3 billion at the past peak. Well over $3 billion.

So how far do we get along that continuum by 2016? That's hard to answer. It's hard to answer.

But fundamentally, I don't think we stay at the $2 billion level. We are going to see some growth in that business, and that's just a matter of one or two more years of time.

The other businesses will be positive contributors, particularly MHPS side of the business. But when you look at MHPS, I'll ask you also to remember that we carry about 2.5 to 3 percentage points of margin in the DNA line because of the acquisition of Demag Cranes. And the step up amortization, a 7% operating margin is much more like a 10% EBITDA margin for that segment overall. So it depends on how you look at it whether the Company's valuation on an EBITDA basis or EPS basis.

So, there's a lot earnings momentum I think still possible in the Company. I think 2015 is going to be a very good year for us. The question is, frankly, if you just -- straightforward, you just can't see getting to the $5 a share number in 2015 knowing what we know about current markets.

Could the markets turn around quickly? Unlikely, and we all know that hope isn't a strategy. So, I think the practical thing for us to do is to suggest 2016 is the better timeframe.

Okay. Thanks, Ron, that was really, really helpful color. Maybe one more, just one thing that stood out to me in your comments was that Europe sales were up 8% during the quarter, which was much stronger than I would've anticipated. So, can you just give some color around the segments that saw strength in that region?

Why don't I let Kevin -- Kevin can you do that?

Yes I can. So for Europe, AWP -- actually MHPS had the strongest growth in the quarter, followed by AWP, which was close to double-digit growth. We had a small reduction in cranes in Europe, and also in construction. But again, more than offset by the growth in MHPS and AWP for the quarter.

Great, thank you, guys. I'll pass it on.

Thank you, Nicole.

Jamie Cook with Credit Suisse.

Hello, good morning. I guess a couple questions. One, Ron, you I guess addressed it Raso's question, but mathematically I can't get to the low-end of your guide. So, is there something I'm missing on the MHPS side in terms of when the structuring benefits hit, or service, what you're seeing also on the service and Material Handling side? And do you -- as we look at the profitability throughout the year, do you expect to earn a profit each quarter within MHPS?

I guess my second question is, it relates to cranes. I think last quarter you talked about some excess inventory in the channel. Where are you on that, and can you talk about order trends in the first two months of this quarter? Or do you think most of the quarter will be relying on what we see at ConExpo?

And then I guess my last question is, your peers in AWP and cranes are looking for low 30%s incremental margins in 2014, why don't you guys think you can do the same? Thanks.

Well, Jamie, you got a few good ones in there. I appreciate that. I'm going to push the crane question off to Tim in a second, and the AWP question to Matt in a second. But on the MHPS question, let me answer that one this way.

You heard me say in my comments probably that we have a customer that has asked us to push off deliveries of $50 million of port equipment from the first quarter to later in the year. That's simply a timing question, because the port isn't ready to accept deliveries. It's a lumpy business. And by all definitions, the port side of it is probably the lumpiest side of the business.

Our Q1 is going to struggle to make a profit in MHPS. We're targeting to try and make that happen, but given the fact that we're pushing off $50 million of revenue to the latter part of the year, and we had a lot of big deliveries at the end of the year, there will be a pretty substantial revenue change between the $529 million of revenue that the MHPS segment delivered in Q4 to a slower quarter. And I'm not starting revenue and profit guidance by segment by quarter here, so I just want to give you a sense that is some meaningful variation there.

And that will be the contributor. But frankly, there's a lot of good things happening in that segment. The second, third, quarter and third quarter in particular in that segment is typically a strong quarter, and I think Steve and the team are quite positive about what they're doing. But the restructuring activity really hits us more strongly in the second quarter and the third quarter.

So that's how that calendarization is going to happen. Now I know you asked the question about the low end of the guidance. I think you get to the low-end of our guidance simply by taking the most conservative assumptions we provided and adding them up.

So that's not out of the realm of possibilities. But we don't think that necessarily -- you can't take the most conservative or the most optimistic and say all good things happen or all bad things happen, but that's why we provide the range. So, did I answer that question or do you want Steve to add more color?

No, I think that's fine. I appreciate it. Thank you.

Okay, Tim, on cranes?

Jamie, one of the things I've learned in the crane businesses is the order to delivery cycle is longer than it is in the Aerial business. And though we had a reasonably good or fairly good order intake in the fourth quarter, the timing of our revenue in the current year is going to depend largely on how the orders come in through the course of this year. So, I'm reasonably optimistic from an order intake standpoint that things are moving in the right direction. And when I --

That continued in January and February, or are we just waiting for ConExpo?

Given the fact that January was January, I was pleased with the orders that we took in. That said, however, the revenue that we have this year is going to depend on the timing of the orders. And so if the orders come in in the first quarter, we'll be delivering them in the second and third quarter. If they don't come till the second quarter or even into the early part of the third quarter we'll be challenging ourselves to get the order turned into revenue.

I think as we look at the market, and I'm actually in Europe this week meeting with customers, the tone is cautiously optimistic. But getting the actual purchase order out of somebody's hand until they have the job in hand is still a challenge. But people are starting to see work, and beginning to feel like things are moving in the right direction.

And then, sorry, on the incrementals? I would guess my last question was both on -- your peers -- Manitowoc is guiding supplies at 30% some incremental. Oshkosh's guidance on aerials implies a 30% some incremental, why can't you guys do the same?

Well I think we've got to convert the revenue into -- or sorry, the orders into revenue. And as we look at the year, I think we're assuming a relatively stable price environment. We will get some positive improvement from an operational standpoint. But our factories are still climbing up, and the incremental comes from driving volume through the factories.

Jamie, I'd also answer it this way. I think we've delivered the incrementals on AWP. They've been pretty amazing, pretty good.

And we're sitting with industry leading margins in AWP by several margin points if you allocate all costs in a similar way. And our margins in cranes are not below our primary competitor, if you allocate everything also despite the fact that our product mix is probably more negative than their product mix given the geography and the history. So give us some time.

I think the incrementals will come on the crane business. We just suffered through a pretty difficult period with our most profitable market and our most profitable product line in 2013 seeing a 35% decline.

That's what caused our decrementals to happen the way they are. And frankly, it's not like we have bad margins, they're just not at the levels we would like them to be in the crane business yet.

So I think we want to be cautious in AWP, because, and I'm answering the question for Matt here, so I apologize Matt. But we want to grow our telehandler business, and the telehandler product line has a slightly lower margin typically on it than some of the other products. So I'd rather have 15% margin on something than a high-margin on nothing.

And so we want to be balanced. Growth and margin, and it doesn't all happen on the same product in the same way.

All right, thank you. I'll get back in queue.

Ann Duignan with JPMorgan.

Hello, good morning, guys. This is Damien on for Ann. Can you guys just comment a little bit on the divestiture of TEL? Do you guys have something earmarked for the proceeds already?

Cash is always spongible, and we have a pretty clear set of priorities for the cash deployment. We have the potential to pay down debt. We have the potential to do share repurchase. And we have an investment planned for capital in our own business. And of course we have the businesses that will generate plus $250 million type of cash in 2014 is our anticipation.

So, I think we'll do the things that drive shareholder returns as fast as possible. That's our game plan.

Got it. And then looking forward to ConExpo, are you guys sensing any sort of pent-up demand either in AWPs or cranes going into the event? Are you expecting any sort of big surge in orders or anything like that?

No. I think these shows tend to be a great opportunity to visit with your customers, but they tend not to be big order writing shows. We got a little bit enthusiastic at the Bauma Show, because some of our European and Middle Eastern customers, they were pretty positive about the environment and gave us quite a few orders last year. I think that was a mistake in terms of us judging the health of the industry.

Having said that, everything I hear about ConExpo, is it's going to be a blowout show with huge attendance, with excellent enthusiasm from the customer base. So I think what we're going to see is very plannedful business being done, where the jobs that people have credit and cash to do, they're going to need equipment.

And I believe the customer base will balance their equipment requirements both from rental and from purchase. And I think that will be played out over the next several years, principally in North America.

Great, thank you, guys.

Seth Weber with RBC Capital.

Hello, good morning, guys. I guess going back to the Aerial margin discussion, can you just comment on the pricing environment with tier four, how that's being treated? How your customers are reacting?

And with the increase in IRC, I would think historically that's typically a little bit of a higher-margin sale for you. And I guess the tack on to that would be are you -- are those customers -- do they have access to capital, and if they don't are you going to be more active with Terex Financial to help them?

Matt, why don't you address that.

As far as the pricing, I would describe pricing as stable. Tier 4 definitely is having an impact. It's being phased in, we phased in about half of our boom product line in 2013, and the remainder will go in 2014. And as each of those tier 4 hits, there's also a price increase associated with that.

So the market needs to digest that. It is a big uptick, especially as a percentage on the smaller sized machines, like a 40-foot machine, the percentage is pretty significant. You get up over 100 feet, it's not so much.

But that has been sticking. Everybody is in the same boat from a competitive standpoint. The actual timing is a little bit different from each of the OEMs, but we are seeing that we're able to pass that through.

As far as access to capital, the large national rental companies, they have no problem getting access to capital nor have they over the last couple of years. And the independents, they also are able to get capital, but we are being active with our TFS team helping them get back in the market. So access to capital, I wouldn't say is a constraint right now in the market.

Okay, thank you. And I'm sorry if I missed this, but somebody had asked I think about the crane inventory just across the industry. Is there any color on that? I think previously you had mentioned it was high. Has that been right sized at this point?

Yes, I would say the inventory that we saw at the end of the third quarter has more or less been normalized through the fourth quarter. It's more or less in line with where we'd expect it to be.

I was at a yard in Houston back in January, and much of what I was reported to be there from the industry had been sold off. So I think we're in a pretty good place there.

Okay, thanks very much, guys.

Rob Wertheimer with Vertical Research Partners.

Hello, good morning, everybody. Well this is a big picture question. You and your major competitor in aerials both had the same pattern of a great quarter, and then orders that didn't come through in line with the seasonal pattern and I know the industry has been much more disciplined on pricing lately.

So I'm just curious as to whether you've heard large pushback from customers on pricing. I don't think there's a lot of other options for people to go to or whether people are testing the waters on other suppliers, or maybe what caused that shift, Ron, that you mentioned and the timing of orders. And just real quickly, whether the January orders filled in the Q4 hole or not.

I'm going to turn that over to Matt. But basically say, the practice of pre-buys wasn't as big a practice this year as last year. Matt?

We have a very good understanding of what's going on. And like Ron said, there's one of the national rental companies has changed there pre-buy strategy.

But that being said, the major rental companies are all lined up to accept equipment, so quarter-to-date we're pleased with the order rate, and we're feeling confident in the year. Especially if you take into consideration as cold as it's been in North America, and across the Midwest and the Eastern seaboard, we're really pleased and we think we're set up for a very good year.

Let me also add that one of the mistakes that a big pre-buy may make is that you think you're going to get such a better price if you go put this -- place this big order, whereas in reality we're going to sell the biggest customers at the right price for the size business they make. Irrespective of whether they put a big order in or a little order, because of the nature of them being the size customer that they are. So practically speaking, it makes no more sense to put this huge order in.

In addition, the last thing you want to do if you're a big rental company is have this big order, try to allocate equipment by branch, and it always goes to the wrong branch. So you'd rather be able to order the equipment for the right branch, at the right time, on the pricing that you would have normally gotten anyway.

So I think it's a practical adjustment. I applaud the rental companies for doing it this way, because it just results in less waste in the industry.

Great, that's very helpful. Thank you.

And then maybe a follow-up on the cranes gross margin, it had a high point for while there and it's been contracting and you've talked about some of the issues to it. And by the way, thank you for disclosing gross margin data upon division, it's really helpful.

I'm curious whether pricing degradation was a big part of that, or whether it was really just trying to balance production in some markets that were weak, and what the pricing environment is now? And I'll stop there, thanks.

That's fine, Rob. Tim, why don't you answer that.

Yes pricing, Rob, actually has been very stable. For the most part, we've seen good competitive markets, but not any degradation from pricing. Our gross margin degradation is really a function of two things, volume and mix. And we talked a little bit earlier about the impact of our Australia business.

We were also down in our rough terrain category, which is North American, Latin American, and Middle Eastern category. And being down in those markets has hurt us from a margin standpoint. So it's really those two things that have affected us more than anything else.

Thanks Tim.

Eli Lustgarten with Longbow Securities.

Good morning, everyone. And I don't think you're getting enough credit for how nice the quarter was, if you just strip out all the noise you showed you're ability to execute.

I think my real question is really on volume in two areas. And one, we saw very strong buying in the fourth quarter, and a lot of construction, particularly AWPs an even in Cranes. And there seems to be, and particularly with rental companies, that they did a lot for tax purposes with the expiration of both depreciation and section 179.

And that may be the question whether or not maybe 2014 we have a little but more modest expectation for your guidance is probably not unreasonable. But, can you give some idea of whether you think rental companies actually exercise the tax fines, because they're run by bean counters? And whether or not that also explains why you don't need any of those big orders as you go through the year or just balancing your purchases? And it's particularly true in AWPs and cranes.

Well, I'll give you my two cents, and Matt of Tim can add to this. I think every rental company and every customer we have will take advantage of any tax benefit that is given to them or offered to them. But fundamentally, the tax benefits don't -- aren't sufficient enough to encourage people to buy equipment they don't really need.

So while you may be able to move a couple weeks of demand from one period to the next period because of that, I don't think it will materially impact our business. Matt do feel the same way?

I agree with what Ron just said. You do hear some customers talking about the tax benefits, but taking equipment in the fourth quarter is a tough time of year for a rental company because typically their utilizations start to dip. So they have more incentive than the tax. In other words, they see that the market is going to be good, that they have demand, and so they're willing to sign up and take the equipment.

And I do not expect there to be some kind of a vacuum in first or second quarter, because people bought so heavily in fourth quarter. I actually see it as a very positive sign that it's a good setup for 2014.

And can you give us some color more on the port system MHPS business. How much of the current backlog is going to be shifted in 2014? And probably the bigger question is, is what kind of activity are you seeing to perhaps follow-on orders from the big orders that you have, that you receive over the next couple of years?

Steve, why don't you address that.

Sure. Thanks, Eli, for the question. And I'll start with automation, and I think the automation business is something very positive for us, and we see that as a growth area.

We have several projects that are out there that we're quoting right now, and our objective is to try to get an order for another large project this year or in the beginning of next year. So we see a lot of good business there.

We're also investing in that area. We have a couple of small software businesses that are within Port, and those businesses are doing very well and growing very quickly.

So I think automation is going to be a big part of our business going forward, and really not a project business anymore. It's part of our core business.

On the backlog piece, we'll probably ship about $300 million of large projects in 2014. So, hopefully that answers your question on what we'll ship out of the backlog this year.

So do you expect to be able to reprice the backlog that's being shipped from these big orders this year, so we don't have any timing issues as we look into 2015 and 2016?

We're going to try, but it's a big order. $300 million is a big piece to replace. I would say that the projects we're looking at are -- some of them are that big. So, it could be a potential for us.

What I'd say, Eli, is that some of the base Port business has been weaker over the past couple of years than it was several years ago. So we'll probably get a meaningful automation order. But we'll probably see some strengthening of our other base Port business, so that the net-net of it all doesn't cause a big hole in our revenue going forward.

Ron, maybe I could just follow-on to that. Eli, the container business, the forecast is to be up single digits. Now the opportunity there is, is customers are getting bigger and bigger ships and moving more and more boxes or containers, which means that they're going to be moving more and more boxes on the ports, which is going to help our core business.

So I think that's the opportunity, even though the container traffic looks like it's going to go up modestly, there's going to be a lot more movement within the ports and that's going to help our core businesses within reach stackers an empty container handlers and things like that.

All right. Thank you very much.

Schon Williams with BB&T Capital Markets.

Hello, good morning, thanks for taking my call. I just wanted to follow-up on the comments around working capital and free cash flow. I think you mentioned early on in the call that expectations coming out of 2013 maybe were little bit below your own internal targets, and I just wonder if there's -- are there additional steps you're taking to improve working capital and free cash flow?

Obviously, you've got very good goals set up for next year. I just want to see, is that all market driven or is that internal efforts?

And then my follow-up to that would be, where is the focus for the -- for uses of the free cash flow? I know it's similar to an earlier question, but I wanted to clarify, do you have specific targets of debt reduction and share repurchases already built into the guidance? Or would that potentially be on top of the guidance that you have out there? Thank you.

Let me answer that last question first. No, we don't have specific debt reduction or share repurchase considered in the guidance. It's provided as is, where is. But nor would I say is there a huge opportunity to move the needle that much, because our debt is relatively low-cost, and our highest cost debt is difficult to get at at this point in time for another year or two.

The thing that I would point out, however, is in 2015, we will be addressing the convert, which matures in June of 2015. And that's a pretty significant dilution for the Company, because that's accreting at I think a book accretion of about 11%, even though the cash interest cost is 4%.

So in 2015, that's a pretty good-sized opportunity for us. So that's the guidance and what's built into our business perspective. Do you want to address the working capital comment, Kevin?

Sure. On working capital, it's our goal to hold our working capital where it is as we grow in 2014. We think we can do that, especially with inventory. And also just adding around the comments about free cash flow, we are into our revolver so we've been using our free cash flow in 2014. One of our priorities is to obviously to get out of that facility.

Get out of it, meaning pay down the revolver.

We do have initiatives, Schon, I don't want you to think that we're just sitting back and waiting for the inventory and working capital things to just happen on us. We've got a massive effort to focus on moving our raw material inventory down. Each one of our segments is improving processes relative to sales and operations planning.

Because ultimately, your ability to be efficient on a working capital basis is directly related to your ability to forecast your revenue, because of the time and cycle time associated with the build rates in our business. So there are specific lean initiatives in each one of our business segments to manage our working capital better. So we're not going to sit back and just watch it, although frankly it's a very challenging area for us to drive working capital down, particularly as we expect the revenue to moderately increase.

All right. Thanks, guys.

Mig Dobre with Robert Baird.

Good morning, thanks for squeezing me in, guys. I want to go back to AWP for my first question. Can you give us a little color on where you stand from an overall capacity standpoint? Especially as you mentioned, North America demand is back to prior peak, do you need to invest in capacity in order to meet demand going forward?

Matt?

Yes, over the last few years, we've been investing heavily in expanding our capacity. The easy wins are adding second shifts, which we've done at most of our facilities. But we also are looking at or have started initiatives in our Oklahoma City facility, which is going to give us additional capacity, and we still have capacity if you start to look globally in our European factories and in our China factories.

So from a capacity standpoint, we've seen it coming. And we've been investing heavily along the way. So we think we're in a real good position to handle the continued growth.

But you wouldn't highlight 2014 as being some kind of an unusual investment year for you in that regard? It goes back to a prior question asked on incremental margin in this segment.

No, it would not be. We have capacity investment plans that are pretty consistent with what we've done historically. Perhaps a little bit greater in some things we're doing around our Oklahoma facility. But our Oklahoma facility is a Terex multi-product facility, where we have crane production, Materials Processing production, and Aerial Work Platform production that is in the beginning phases in the middle part of the country.

That facility used to be a roadbuilding facility, but when we sold off our road building products we're retooling their facility. So that's mainly a Terex Corporation kind of decision.

That facility will lower our cost. It has access to a supply base that's efficient, and a workforce that we believe is attractive.

Excellent. And then my last question is on material processing, nobody asked any questions there.

Performance there pretty good, bookings growth over the last couple of quarters, and it seems to me like you're maybe outperforming some of your peers, like [Metzel] for instance. I guess I'm wondering what's driving some of that performance, and again how we should be thinking about incremental margins on your volume guidance going forward?

I don't know if Kieran is still there. Do want to answer that question?

Yes, I'm here, Ron. So hopefully you can hear me, I'm dialing in from Belfast.

Yes, we've seen some of the other segments we're cautiously optimistic for the start of our recovery. We're seeing fairly decent order intake in North America in January, and a reasonably bullish outlook in North America as that economy recovers.

Seeing bits of it in Europe, it's not Europe-wide. We're seeing confidence returning in markets like the UK reasonably strongly, and also some strength in Germany.

Compared to the question on versus our peers, we're probably not as mining dependent as a peer competitor like a Metzel. Metzel would be much more exposed to the commodities. We would be probably more broadly aligned to the general construction trends as opposed to just a mining play.

We are impacted somewhat in some markets by mining, but not nearly as much we believe as a peer such as Metzel. In terms of the margins, again, as Ron gave in terms of the overall commentary, we believe it's steady as she goes. We don't -- whilst there's some pricing pressure in certain markets, overall we're fairly confident that we're not actually going to see any margin erosion, and would be reasonably comfortable if volumes recover then that will translate into higher profits.

Thank you for the color.

And due to time constraints, we have time for one last question. Adam Fleck with MorningStar.

Hello, good morning. Thanks so much for sneaking me in there.

Just wanted to follow-up on AWP. I appreciate the comment about developing the market in Latin America, but maybe if you could provide the growth in that segment in that region for the quarter, and then what you're expecting for 2014?

Yes, Matt, why don't you do that.

Yes, Latin America for us in 2013, was our highest growth region and it was again driven by Brazil. But that being said, we are seeing growth in other countries in Latin America, as well as other parts of the world.

So when we talk about developing markets, what we're looking at is year-over-year what are the percentage growths we're seeing and our highest percentage growth was in the international markets. So that trend, again it's driven by safety, our products put people at height to work more safely and more efficiently. And as we see labor rates climbing up, we typically see the adoption of our products increasing.

I look at Brazil and I think Brazil has had a phenomenal run. It's probably going to soften up little but. But we've got a lot of other places where we can offset some of that.

And then just as looking forward, your question about Brazil in 2014. Brazil can be fairly volatile, if you look at it over time. It's on a definite growth period, but with the World Cup and the Olympics we are expecting that they're going to continue to have good growth, but it bounces around quite a bit from year-to-year. We are expecting to continue to see growth in 2014 though.

Okay, great. That's helpful. And then just one quick follow-up on the South American region. Are you seeing or having concerns about currency fluctuation and how maybe that will affect your business here in 2014?

No, I don't think so at this stage. There's always been a bit of currency fluctuation that our customers try to offset, and it may catch us by surprise for a particular quarter at a particular time. But I don't think at this moment we see anything that concerns us.

Okay, great. Thanks so much.

I'll now turn the call back over to the presenters for any closing remarks.

I want to thank everybody for their interest. You've been very patient with us. It's been an hour and 15 minutes on the call, and if we missed any of your questions we apologize.

Please follow back up with Tom, or Kevin, or any one of us. Thank you very much for your interest in our Company today.

Again, thank you for your participation. This concludes today's call. You may now disconnect.