Terex Corp (TEX) 2014 Q1 法說會逐字稿

Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the Terex Corporation's first quarter 2014 financial results conference call. (Operator Instructions) Thank you. I would now like to turn the conference over to Mr. Ronald DeFeo, Chairman and CEO of Terex Corporation. Please go ahead, sir.

Thank you, Jody, and good morning, ladies and gentlemen. We appreciate your interest in Terex today. On the call with me this morning is Kevin Bradley, our Senior Vice President and Chief Financial Officer; and Kevin O'Reilly, Vice President, Operational Finance; Tom Gelston, Vice President of Investor Relations, and several of our group presidents, and we're all here to try to address any questions you have later on in the call.

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'm going to begin with some overall commentary and highlights as usual, then Kevin will follow me with a more detailed financial report, and then I'll come back to give more specific comments on where we're heading and summarize it before we open it up your questions.

As usual, we'll be following a presentation that accompanied the earnings release and it 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 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 material we will be discussing today includes forward-looking information.

Now let me begin. Turning to page 3. We announced last night that our first quarter 2014 earnings were $0.28 a share, a modest improvement over last year. This result was largely in line with our expectations. The quarter did reflect the mix performance within our businesses.

Most notably, our AWP business, in spite of some significant weather conditions in the US, posted record first-quarter sales. Construction, MP and Material Handling & Port Solutions delivered results in line with expectations. Our Cranes business, on the other hand, was disappointing, with a particularly weak performance in North America and in many developing markets.

As I look forward, I'm encouraged by the trends in our order intake and backlog for Cranes, and in general, when combined with our results in the quarter, we are reaffirming our 2014 annual guidance of $2.50 to $2.80 per share, and a free cash flow target of $200 million to $250 million. We do expect the back half of the year to be the stronger of the two fiscal year halves, with the first half EPS comprising between 40% to 45% of our full-year results.

I'll come back and provide some more highlights, but, first, I'd like to turn it over to Kevin who will go through the financial results for the quarter. Kevin?

Thanks, Ron, and good morning, everyone. Let's turn to slide 4, which provides a year-over-year comparison of the first quarter on both a reported and as adjusted basis. Although there were no adjustments in Q1 of 2014, details on 2013 adjustments can be found in the appendix of the presentation. Net sales for the quarter of $1.7 billion were flat with the prior year.

Our AWP business posted 15% growth, and MHPS was up 9%. Construction and Material Processing were down 7% and 3%, respectively. Although we planned for a slow start to the year in Cranes, the 16% decline in sales was greater than we had anticipated. Gross margin was 20.1% for the quarter, up from 19.6% as adjusted in 2013. An improved mix of business including growth in AWP and MHPS was partially offset by the decline in Cranes.

Margins in our Cranes segment were negatively impacted by a combination of decreased sales, lower factory utilization and unfavorable product mix. SG&A increased slightly to $258 million in the quarter. AWP increased SG&A spending dollars, but declined as a percentage of sales to 8.7% in the quarter from 9.1% last year. We continue to invest in new product development and manufacturing footprint diversification in the AWP segment.

Construction and MHPS SG&A declined on both a dollar and as a percentage of sales basis, as we have realized benefits from our 2013 restructuring actions. SG&A in Cranes, as compared to last year, was up driven largely by increased investment in Tier IV engineering, as well as higher marketing costs associated with trade show activities. Overall, we remain focused on cost efficiency and leveraging our overhead.

Operating profit increased slightly over last year's adjusted levels, coming in at $75 million, or 4.5% of sales. Growth in AWP and improved financial performance and construction and MHPS were partially offset by the reduction we experienced in Cranes. Net interest and other expense increased slightly when compared to the prior-year adjusted numbers. Lower net interest expense, which reflects the benefits of the capital structure actions taken in 2013, was offset primarily by foreign exchange losses in the period.

The first quarter 2014 effective tax rate was 26.7% as compared to 42.8% as adjusted in 2013. Improvements in the quarter were primarily due to the reduced impact of losses not benefited, and from a greater benefit from uncertain tax provision releases compared to the first quarter of 2013. We expect an effective tax rate of between 33% and 35% for the full year.

For Q1, earnings per share was $0.28. This compares to $0.22 as adjusted and $0.17 as reported in the prior year quarter. Net working capital as a percentage of annualized sales was 27.6% compared to 25.7% reported in 2013. This increase was driven primarily by inventory expansion in AWP where we built stock in anticipation of a strong Q2.

Also contributing to the increase was the delayed commissioning of roughly $50 million worth of automation equipment in our Port Solutions business, as previously communicated. Finally, stronger net operating profit after tax growth drove an improvement in ROIC from 7.2% last year to 8.6% in the quarter.

Now let's turn to slide 5 and discuss changes in liquidity for the quarter. Given the capital allocation activities we discussed at the end of 2013, we thought it would be helpful to walk through the impact those changes had on liquidity in the quarter. We began the year with $736 million in liquidity. Free cash flow, which we define as cash from Ops less CapEx, was $6 million in the first quarter. Although only slightly positive we have historically been a net consumer of cash in the first quarter of the year due to the seasonal nature of many of our businesses.

During the quarter, we completed the purchase of the remaining minority shares in Terex Material Handling & Port Solutions AG for $71 million, bringing our ownership to 100%. This will eliminate the remaining guaranteed payment associated with these shares which had an effective cost to the Company of roughly 8%. It will also allow us to more quickly address structural costs now that it is no longer a public Company.

We also repurchased an additional $33 million in Terex shares within the quarter, $24 million of which settled in the quarter, bringing the total repurchase amount to $63 million since the inception of this program in December of last year. We paid a quarterly dividend of $5 million during the quarter and ended the quarter with liquidity of $632 million. As Ron mentioned, we are reconfirming our full-year free cash flow guidance of $200 million to $250 million for the year. With that, let me turn it back to Ron.

Thank you, Kevin. Some additional commentary. First, turning to page 6, our net sales bridge. For the overall Company, net sales were flat compared with the first quarter of 2013.

In North America, which is our largest market at about 41% of Q1 net sales, performance was down slightly from year ago with wide variances between a positive AWP with double-digit growth offset by a double-digit decline in Cranes. We were encouraged with the overall Company growth we have experienced in Europe, which is 31% of Q1 net sales, as net sales were up over 30% with all segments growing in Europe. This was the fourth quarter in a row with sequential European growth.

The remaining markets, mostly developing markets, were down meaningfully in the first quarter virtually offsetting our European gains for now. From a segment perspective, our AWP business remains strong with 15% top line growth, and improvements in all three product categories, booms, scissors and telehandlers. The story remains a strong rental market in the US and improving business conditions in Europe.

Our Cranes sales declined $77 million, or 16%, in the quarter versus year go with most regions starting the year slowly, except for Europe. From a product perspective, we saw declines in our rough terrain and all-terrain product categories, with improving sales in our large crawlers and tower cranes. MHPS sales improved 9% in the quarter driven by growth principally in our port business.

Turning to page 7. Operating profit and operating margins improved slightly in the quarter. Our AWP business continued to deliver strong margins with operating profit up 13% from Q1 2013. Planned investments in new product development, CONEXPO expense, and manufacturing footprint has put modest pressure on incremental margins in the short term, and perhaps a modest mix as our telehandler product line was strongest in the first quarter.

Construction continues to make improvements as our discipline around cost control, along with improving order rates, has better positioned the business toward profitability over the balance of 2014. The decrease in operating profit for the Cranes segment is primarily a volume story. Lower sales, plus factory underutilization, which is created by the lower sales levels, coupled with increased investment in our engineering spending for Tier IV yielded a break-even quarter for Cranes. We will detail why we believe net sales will improve in a few minutes.

MHPS performance improved as a result of higher sales volume and the 2013 restructuring actions. We expect MHPS to be profitable during the remaining quarters of the year, similar to last year, the operating margin should improve throughout the year. Page 8 illustrates strong year-on-year, quarter-on-quarter backlog growth. AWP has seen a shift in the ordering patterns of customers moving orders from the last quarter of the year to closer to when customers actually need the equipment.

Increased orders for the Cranes segment has been driven by recovering orders in North America and improved conditions throughout Europe. MHPS has also received good bookings from China and Europe in the first quarter of 2014. Overall, an encouraging quarter with regards to bookings indicating solid revenue for the remainder of 2014.

Construction is seeing good orders activity in the US following CONEXPO, as well as in the UK. When looking at the first quarter of 2013 as a comparison, MHPS is the large driver, as certain large port automation projects are now being reported in the next 12 months backlog category. On page 9 we have provided a chart that takes a deeper look at our Cranes bookings and backlog.

The orders are improving with the highest quarterly bookings in nearly two years. For our Cranes segment, we booked $533 million of orders in Q1 on top of $512 million in Q4 of 2013. This is why the trailing six-month averages shown on the bottom left chart on page 9 finally reflect a building backlog. Consequently, the past two quarters have had greater than 100% book-to-bill ratios with 138% in Q1 2014.

We expect this to result in an improved second half performance with the first half modestly worse than initially anticipated for the year. On page 10, we have provided the book-to-bill trends for all of our segments. This includes all orders taken during the periods, not just those for delivery in the next 12 months. A few points to note.

First, the nearly $800 million of orders taken in our Aerial Work Platforms segment in Q1 2014, clearly an indicator of a positive year and a positive environment. Also, fairly broad-based progress on these ratios across the Company, as you can note by segment. We think this supports our modestly improved trend point of view. So to conclude on page 11, during the first quarter, we delivered earnings generally in line with our guidance.

We continue to see AWP performance as strong and we remain positive about the Construction, MHPS, and MP segments responding to improving market conditions. We're encouraged by recent order trends in Cranes, despite struggling with lower sales and earnings in the first quarter. We continue to expect gradual performance improvement in the first half of 2014 and some acceleration in the back half of the year.

We reiterate our EPS guidance of between $2.50 and $2.80 a share. Critical to our success is to stay focused and disciplined in our pursuit of internal initiatives to maximize the returns to our shareholders through higher EPS and ROIC, which we expect to continue over the next several years. Thank you, and, Jody, I would like to open up the lines for questions.

(Operator Instructions) Andrew Kaplowitz from Barclays.

Ron, can I ask you about your inventory situation? I remember you going into the year you weren't that happy with your inventories, especially in Cranes. It looks like you still built some inventories in the quarter, so can you talk about the situation as you go into 2Q and beyond? Do you still need to under produce, especially in Cranes, to get your inventories to a more manageable levels, and did you clear out your inventory in AWP?

Yes. Our inventory would normally build a little bit in Q1, and I don't think it's that alarming that it did build in Q1. Some of that was anticipated, in fact, most of it was anticipated. The build in AWP was clearly part of a plan to normalize production.

Obviously, if you try to back off production and then increase production in rapid short periods of time it does nothing but add cost. So I think we're pretty much as expected in our Aerial Work Platform business. The other area of build in inventory is in our MHPS business, and our MHPS business is really building these big port projects, and offsetting that somewhat are big cash advances that we have from some of our customers. So that's not that big of a concern.

And the third area is a rather small, actually, inventory build in our Cranes business relative to the sales miss that we had. So and, Tim, you have a comment about that?

Actually, if you look at our overall segment inventory, Cranes was -- the Cranes product piece was slightly up. The rest of the segment was down. So we had actually ended up year-over-year in the Cranes segment with a slight reduction in inventory, which, of course, plays back into the whole sales and absorption discussion. We lowered our production to manage the inventory which caused the absorption discussion that Ron mentioned earlier.

So I think we're mostly out of the woods with regard to the underutilization, maybe it impacted April a little bit, but for the overall quarter, I think we're mostly out of the woods on that issue.

Okay, Ron, that's helpful. And then, you mentioned that the first half will start a little slow versus what you previously thought, but can you step back and talk about your conviction level regarding meeting your EPS guidance for the year?

I know you reiterated the guide, but the sell side is at the high end of the range, so how much improvement do we need to see in Cranes to really get toward the higher end of the range here? And then AWP, we would assume, would improve when it comes to margin performance over time?

Andy, the $2.50 to $2.80 guidance, we think, is a realistic view of what we can do as a Company. There's an optimistic case on every one of our segments, and then there's a pessimistic case on every one of our segments. I don't believe the pessimistic case will happen, and I don't believe the optimistic case will happen. That's why we have provided the range that we provided.

I think the Cranes revenue miss in Q1, taken without an increase in backlog, would be particularly concerning. But with the increase in backlog, it begins to reflect customer confidence that is building for improving non-residential construction and improving project work, not just for the remainder of 2014, but well into 2015 and 2016, which is pretty much what we've expected.

The only caution I would put out is that back 12 to 24 months ago we got a bit of a head fake with regard to Cranes improving business performance, as well, and we want to see it sustain itself a little bit more in order to add our confidence. Clearly, AWP is in a solid place. Cranes is in a big upside from their current performance, whether it's last year's performance or even the start of this year. MHPS is a building story with restructuring, as well as a number of initiatives underway, but MHPS is probably best days are not going to be in 2014, but rather, again, building in 2015 and 2016. Not that we will have a bad 2014, we'll have quite a good 2014 relative to last year, but I think that's the story for Terex.

And the very good thing, I'd say, is, AWP, most of our customers are managing their fleet in a way where we're not going to be jerked around by 25% growth and then 25% decline. So I think we've got a pretty positive balance.

And then, of course, you have Construction, which is going to be a positive contributor for us, and then our Materials Processing business, which has always been a pretty solid contributor. So I would not try to articulate the most optimistic story for the Company at this stage. We need to get deeper into the year, but I think the guidance we provided is realistic, but the upside is clearly there for 2015 and 2016.

Thanks, Ron, appreciate the color.

Nicole DeBlase from Morgan Stanley.

Good morning, guys.

Good morning, Nicole.

So my first question is on MHPS. If you could, just comment on the Rotterdam situation? The $50 million of revenue that pushed out from 1Q, how much confidence do have that this will actually ship during 2014?

Okay, I'm going to turn it over to Steve.

Hi, Nicole, thanks for the question. So let me just give you a picture of Rotterdam and where we are. As you know, there's two projects, and one of the projects is AP&T and that's pretty much on time. And in the quarter, we shipped about $30 million of automation, and, again, the plan was to ship about $80 million, so $50 million of that got pushed out. Really the issue is with Rotterdam World Gateway and it's more of an infrastructure problem.

(Inaudible) and I'm actually traveling with Ron and Kevin to visit the site in two weeks to get a perspective of what's going on. I would say there's probably $30 million to $40 million, Nicole, of risk right now that we're trying to mitigate and pull back into 2014. So that's kind of what the customers are telling us, but I will tell you that we're trying to figure out other ways to get $30 million or $40 million of revenue in Port outside of automation to mitigate for that.

But the other thing I would like to highlight is, from a cash perspective, we are getting the cash, so as we erect the equipment, and we've now erected about half of the automated stacking cranes, so about 30 units are on site, they are fully erected. We get 80% of that cash up front, and then the remainder of that comes as we install them or finally commission those units.

So that's kind of where I see the risk and, again, internally we're trying to mitigate that risk. I think all have a better picture on the next call as to what is the scope of --

And what we've been able to do to offset in other areas.

Right, we're working, honestly, pretty close with Rotterdam World Gateway to see what else we can do to recognize, some battery exchange stations, some other things that we can do. And the last one is, just to give you an update maybe on Long Beach. Long Beach is going well, we've got 26 automated guided vehicles on the ground right now. We have to deliver the six remainder in May, and then pretty much that looks like it's going to be on time. So those are the three big projects that we have ongoing.

Okay.

I would emphasize Long Beach, done well, will really be a showcase product in the United States for other ports. And while there's no specific order that is in negotiation right now, Long Beach working becomes a real testimony for us to sell other people down the road.

Okay, that's really helpful, Ron and Steve, thanks for that. And then my second question is around AWP, the orders were just really robust this quarter, and I'm wondering how much of that is being driven by the big rental houses coming in and placing orders that carry us throughout the year? Or do think it's more about strength of demand, US construction demand increasing, European replacement demand increasing, I'm just trying to get to the sustainability of that strength?

Okay, Matt is on the call from Australia. So, Matt, why don't you address that? Matt? Maybe, Jody, I don't know, have you opened up this line?

Matt, your line is open.

Okay, can you hear me now?

Yes, I can, Matt, yes.

Okay. Thanks, Nicole. We, obviously, had a great order quarter and what -- it's pretty much what we've expected. We continue to see a steady US market, and its both the large rental companies and the independents. But we're also seeing improving conditions in Europe and other places around the world.

I say the real shift is the timing. So you used to see some of the big order entry come in as early as fourth quarter the prior year, and now you're starting to see it shift more to when they actually need the equipment. And so, it's a very positive sign, it's nice, healthy growth, and it was pretty much what we expected. So far into Q2 it has remained pretty steady, so it's looking really good.

Okay, great, thanks. I'll pass it along.

Okay, thanks, Nicole.

Jamie Cook from Credit Suisse.

Hi, good morning, can you hear me?

Yes, we can, Jamie, thanks.

Two questions. First, can you just comment on, the crane orders, obviously, were encouraging in the quarter. Can you talk about the trends you saw throughout the quarter? Was it just driven by March and CONEXPO, or was it more evenly distributed? And then, did you see the crane orders continue into the month of April because the concern would be CONEXPO would have pulled forward some orders? And, I guess, the second question is on the margin front on Cranes.

How are you thinking about Cranes margins for the year? And I'm trying to get a sense in the quarter, how much -- are at the Tier IV engineering costs, do they continue throughout the year? Is it a continued headwind? And can you also just talk about -- you mentioned trade show costs, I'm just trying to figure out sort of what's one-time in the quarter versus incremental costs that will continue throughout the year? Thanks.

Okay, Jamie, I'm going to let Tim answer that question. Just to remind people, in 2013 there was trade show expense in the second quarter with VAMA, and in 2014 there was trade show expense across the Company in March. So it's really a matter of timing for the trade show commentary. Tim, why don't you answer that?

Yes, thanks, Jamie, for the question. We started to see order improvement back in October. In fact, if you recall, I made the comment on our third-quarter call that we had seen our best month of 2013 in the month of October. And since that time, we've seen continued order improvement. There's a natural dip in order placement whenever you go through either a year-end time cycle, or you have a trade show like we had in March.

So there, clearly, was a build in the quarter, but some of that is, customers are holding orders in anticipation of the trade show pomp and circumstance to have a little celebration. So I felt pretty good about where we were through both the fourth quarter and the first quarter in our order intake, and I feel the order improvement that we're seeing will continue as we go forward.

So I'm feeling much, much better about the order intake from where we were at this time a year ago and through the summer months of last year. Regarding the SG&A, we do have, and will have, continued SG&A increase, particularly in the engineering spend, as we work to finalize our Tier IV product line. We have about 15% increase in engineering spend this year versus last year to finalize a number of the products that we had begun development of last year and we'll finish this year.

So you will see some incremental spend in engineering through the course of the year, but to the point that Ron made earlier, we have planned that, so that is baked into our expectations through the course of the year as we plan our actual overhead spend.

And then do you care to talk about, or answer, how you think about margins for Cranes by year-end, what you would be happy with, or what is a reasonable margin assumption?

Well, I think the business profile that we identified when we did the year-end fourth-quarter results is still in line with our expectations. Obviously, getting off to a little slower start than we had hoped put some pressure on that, so we're going to continue to work on improving margins through the course of the year. It would be my expectation, as leader of the business, that we should continue to see improvement each quarter as we go through the course of the year.

Great, I appreciate the color as always, thank you.

All right, Jamie, thank you.

David Raso from ISI Group.

Hi, good morning. My question is on the margins. You mentioned the Cranes margins for 2014, but as you said last quarter, we were given sales and margin guidance by segment, so I'm not trying to nail you down to the exact percentage here, but can you help us a little bit with what's changed since that guidance? Again, the Cranes margins, you say, could be similar to the last guidance.

Can you help us where, if we are a little concerned about the Cranes margins not being able to get to that level, where do you see the other segment margins where there's potentially some upside from the old guide?

Okay, so without providing a re-segmentation guidance, which we don't want to do at this stage, we'll take a re-look at it at the end of the second quarter. I would say the obvious answer here, and that is, strong AWP, maybe offsetting a little bit of the Cranes and MHPS is probably about as expected. Construction might be a little bit better, and MP is probably not a lot of change. But I would say it's fairly nuanced today because it's difficult to extrapolate off of Q1, which is still relatively a small margin quarter for us compared to the full year.

Your backlog right now is about 40% of the sales you need for rest of the year to hit the revenue guide. Sort of the same spot we were in last year. So you had the orders in backlog, but is there something about the price/cost in the backlog, or the mix in the backlog to give us more comfort on your ability to execute on the margin side?

At the moment, it doesn't seem to be much of a revenue debate, it's your ability to execute. So if you can help us a bit with, again, mix or price/cost maybe in the backlog would be helpful?

Well, I think in general, David, we're pretty positive about our material costs. We've seen good progress in driving some cost down from our supply base. The only offset to that is a bit of a concern, not real in fact, but of a bit of a concern in some steel costs that may go up as we progress through the year. We think we're offsetting through pricing most of the Tier IV implementation, so that's not an issue.

We're not going to add a lot of manufacturing overhead to our business beyond what we're doing. We're adding a little bit of overhead in our AWP business, but that's really to begin to build a new factory in Oklahoma City within our old factory. So the bottom line is, we just have to execute against the plan that we have laid out. I would say I want to see more backlog not less backlog.

So I wouldn't say I'm completely comfortable with the amount of backlog we have here, and I want to see our backlog grow because it's not the 2014 that I'm focused on alone, I'm focused on 2015 and beyond that. The most encouraging thing that I would say is the European change that we've seen. It has been a long time since all the arrows were green in all of our segments in Europe. And it's 31% of our sales, but in reality, it's our biggest footprint.

It should be equal or greater than North America in a recovered environment. So I don't look at it exactly the same way, David, as you explained it, I look at it in where is my potential. And my potential is, drive growth in Europe and begin to mitigate the falling developing market issues with additional growth, and I think those two things, coupled with a stable North America, will result in pretty dramatic earnings performance for Terex in 2015 and 2016.

Okay, I appreciate the color, thank you.

Ann Duignan from JPMorgan.

Hi, good morning, guys.

Hi, Ann.

Hi. On the Cranes segment, with the commentary that you made about orders being kind of pleasantly positive since last October, I guess my question is why haven't revenues picked up then? Are these orders that have been placed as far as deliveries, or, I'm just trying to get an understanding of if this volume is so important why the revenues haven't picked up faster?

Sure, Ann. I'll turn it over to Tim, but, as you probably know, this is not a short-cycle business, this is a little bit of a longer-cycle business. So, but, Tim, go ahead why don't you answer that?

Ann, thanks for the question. The cycle of crane production is very much driven by the product category. So we do have some shorter-cycle product categories, but none of the product cycle, or product production cycle in Cranes is a short as they are in, say, AWP.

So the shortest production cycle we would have in our manufacturing portfolio would be the rough terrain and boom truck category. The longest, of course, would be some of the larger crawler cranes. And what is encouraging for me is, as the order intake has improved over the past couple of quarters, we're seeing a lot of the higher-value longer-lead crawler cranes and tower crane production begin to increase.

So that takes a little bit longer to get through the production cycle, but the tower crane business in particular is encouraging because it's an indicator of non-res construction. And so I expect the impact of these orders will begin to be realized here as we go through the year. And, of course, if we can drum up some orders for some of the faster-cycle business that will help us, as well.

Okay, that's helpful. And just a quick follow-up. Ron, did you say that your book-to-bill, these are orders that can be more than 12 months out, or did you clarify that orders are 12 months or less? Sorry.

On page 10 of the presentation, these are orders -- all orders that come into the Company. So some could be more than 12 months here. And that's why historically we haven't provided this because our backlog is only 12 months.

So this is bookings against billings, but it would be hard to go back for us, very tedious and probably lead to inaccuracies if we try to go and pull out 12 months, or less than 12 months, but it does provide a trend of all the orders we take in. Kevin, go ahead?

The only thing I would add, Ann, is that the vast majority of that impact would be in MHPS. MHPS, and, obviously, the total Terex including MHPS.

Okay, that's helpful, thank you. And then, I just wanted to clarify that. Ron, I know you talked about Europe, a bit more color on Europe maybe? Is it Europe for Europe, is it European rental companies? Because other regions are stronger and they're doing projects in other regions, just a little bit of color around what you are actually seeing on the ground in Europe?

Okay. First of all I would frame it and say, when you go down so far, your first bounce up seems like a big one. And this is really a bounce off of the bottom of Europe. And then when you look at each one of our product categories, you'd say, hey, this is the second year going for AWP, so there must be more to it than that.

But nevertheless, the AWP category is probably still only at 40% to 45% of its historical highs in Europe. So lots of room to move in AWP. In the Port business, yes, we're shipping some port equipment, as Steve has mentioned, for European consumption. But even the Material Handling side of Steve's business is stabilized, and maybe going to show some positive trends, but really pretty small at this stage, but positive. And then our Cranes business had a very bad 2013 in Europe. Very bad.

But now some of our customers, particularly our bigger customers, are asking for delivery because they are in anticipation of good projects, some of which will be in Europe, but some of which will be outside of Europe, as well. There's no way the Netherlands can consume all the cranes [thereby.]

And then our Construction business, which albeit is a compact equipment business, is actually got a big -- a bigger backlog, which is quite encouraging for the small compact products, and the steel scrap product, Fuchs, has finally got a decent backlog after about a year-and-a-half to two years of scrapping for every order it could possibly get.

And that leaves the Materials Processing business for us -- Kieran Hegarty's business -- which historically has had a strong European business, but it has been quite weak. And where Kieran has got most of his business has been in North America and in developing markets, and now we're beginning to see a little bit of growth in Europe there. So overall, it is a bounce off of a pretty weak recent history, but a solid one, and an across the board one.

Great, thanks, Ron, I really appreciate the color. I'll get back in line, thanks.

Vishal Shah from Deutsche Bank.

Hi, thanks for taking my question. Ron, just wanted to get your sense on competition, and how you think some of the Asian players are dealing with the recovery in the Cranes business here in North America? And are you seeing any pricing pressure?

I think we're seen very little presence from Asian players in Cranes in North America. A lot of aspiration, but not much perspiration, and certainly the quality concerns remain. Do you want to add to that, Tim?

I would say that's an accurate statement, Ron. I would also add, from a pricing standpoint, we've actually seen neither price degradation nor price increases outside of Tier IV activity. The market, I would characterize, is pretty equally balanced. There's nobody out there using price as a mechanism to get orders by and large. It's clearly a competitive industry, but that's not a leading method for order taking at this stage.

That's helpful. And just on the Cranes business, where do you think the orders are coming from, which segment within the Cranes? Is it crawler cranes? Tower cranes? Where are you seeing the strength in orders? And what percentage for backlog is from Europe? Thank you.

Yes, Vishal, the tower cranes business is improving substantially. Our order intake there is up quite significantly in the last two quarters in particular, which is encouraging because it is a leading indicator of non-residential construction. Keep in mind, we're a relatively small player in the tower crane industry relative to some of our global competitors, but it is encouraging, nonetheless.

With respect to Europe, our order intake in Europe has been strong in the last couple of quarters, as well. I would rather not break down the backlog by region, but I would tell you that it has improved substantially from where we were a couple of quarters ago, and I feel relatively good about the quote activity that we're seeing in Europe.

Thank you.

Joel Tiss from BMO.

Hi, Joel.

How is it going?

All right.

I wonder, just two things I'll ask them both at once. The emerging markets. I just wondered if you could give us a little bit of color, you have been so helpful on Europe and everything else, about what's behind -- what caused the big drop there?

And then, can you just talk about, as you're going through your portfolio, it sounds like everything is very strong and improving and back on solid footing. But can you talk about, if there are other businesses inside there that you could sell, or just sort of M&A, like what are you thinking there? Thank you.

Okay, Joel. The developing markets or emerging markets have generally been negative in recent past. I don't think we should be alarmed by this. I don't think it is unusual for developing markets to go through rapid periods of expansion, and then periods of consolidation of that expansion.

I would say, as we look to different parts of the world, our business in Latin America tends to be either flat or down. The Brazilian business has probably been under a little bit more pressure than we would have expected. I think Middle East is a mixed bag, and as we look out for the remainder of the year, it's one of the hardest ones for us to predict. And it's been good for us.

China, in general, has stabilized for our business, but the internal Chinese players are probably feeling a very difficult period of time because they benefited from such rapid, rapid growth and some of those companies have eight to 15 months of receivables on their balance sheet. That's not the product categories that we're competing in. So in the areas where we're competing, such as our Aerial Work Platform business, we're seeing good solid performance there. Some of our Materials Handling business, Steve's business, and overhead cranes has, in fact, begun to improve which is a positive sign for China.

So, again, a bit of a mixed bag there. And as you go into India. India today is pretty negative, but they are right in the midst of elections. So once the elections are behind us, we're cautiously optimistic about India. So it's a bit of a mixed bag, and that's one of the reasons why I said we grew in Europe, but for now the emerging markets have somewhat offset that.

That trend changes over a period of time in my opinion, and Europe will remain strong for some time and developing markets will begin to recover, which I think is the key for really driving overall Terex revenue growth. So that's it on kind of the commentary on emerging markets. With regard to portfolio, I think we're pretty much done with portfolio management from a what are we going to sell and what are we going to buy at this stage.

We're not in a big acquisitions mode, but, as you know, we always have looked at what might be additive to the Company, and we will continue to look at that, but we're in an internally focused mode. I think, I want to harvest all the hard work George has done, and is still doing and construction, and certainly, we're not pleased with negative performance, but I expect the full-year to be positive in Construction and that business is really only at about 50% of the revenue that that business has achieved in prior peaks.

So if we can kind of break even at this level of volume, I'm sure as the market comes back we'll be able to drive a more positive performance. So I'm pretty -- we want to finish the sale of our Terex Equipment Limited to Volvo. That is still in a -- we're waiting, pending the Chinese antitrust review, which we think is still within the next 30 to 60 days. But let's get that done and I think our portfolio will be in pretty good shape.

Great, thank you very much.

Eli Lustgarten from Longbow.

Good morning, everyone.

Good morning, Eli.

Just one quick clarification. You said the tax rate will be 33% to 35% for the next three quarters, or for the full year, or the same thing? I just want make sure, the first quarter tax rate?

That's for the full year, Eli.

Okay. So there will be an adjustment somewhere to bring it up?

That's correct. First quarter being such a small piece of the total annual pie, we would not want people to over react to the tax rate in Q1.

All right. Can we talk a little bit about the mix of orders in AWP? Such an outstanding number in the quarter, particularly when you give us the chart you show the full pattern. Can you give us an idea of geographic breakdown and type of customers between rental companies and independents? It's just such a dramatically higher quarter, can we see where it came from?

Okay, Matt, why don't you give some color on that?

Yes. On the orders, I guess I'd start with just the customer sentiment. They just remain confident, both in the US and in Europe. It's definitely improved. The backlog distribution globally, it is still driven mostly by North America, but the one that has grown as a percentage more than other places is Europe.

So that's really the difference, so it's where you are seeing the shift happening, and that's what we've been talking about throughout the call. And that's been going on for a couple quarters in a row, so we're feeling really good about it being -- it wasn't just a blip for one quarter, we're seeing it go through quite a few quarters in a row.

Was that 70% North America and 25% Europe and 5% rest-of-the-world? Can you give a rough idea of how that split worked? Can you do it by customer type? Major rental houses, independents, what have you?

Well, if you look in the North America, start with that. If you look at the split of the large consolidators versus the independents, we did see a little bit of an uptick if you compared first quarter of 2014 to the first quarter of 2013, we did see more independent business, a couple percentage more.

Overall, the North American business is around 63%, or so, and that moves quarter to quarter, and the remaining 37% is rest-of-the-world. So that's starting to shift, and that's why we keep mentioning Europe.

Okay, and basically the mix of that business with telehandlers was a much bigger piece, this is sort of relatively new entry into the business, that it would keep the margin mix pretty much what we're seeing now or does it go back to more traditional products?

Well, for us, with telehandlers, the mix on telehandlers would affect North America way more than it would Europe. So the North American mix is shifting a little bit more towards telehandlers in Europe which has a traditional mix.

All right, thank you very much.

Yes.

Thank you, Eli.

Rob Wertheimer from Vertical Research.

Ron, just a step back a bit. You've been very vocal from time to time on US infrastructure and investment in repairing and building and so forth. Do you have any general comments, or your own view, on whether there's a way out, a more structural fix or how things are going to go?

I think I'd characterize it as let's hope for the lame-duck session, okay? Because in the lame duck session, Congressmen and women can actually make courageous decisions, and right now it looks like funding is up for grabs unless Congress acts by mid to late summer.

And everybody knows we need spending more. The administration proposed a very nice, huge increase in the transportation highway bill, but with no suggestions on how to fund it. Knowing full well that tax reform is not going to happen this year, they suggested tax reform to fund it. So it's a little bit like me wishing I was 50 pounds lighter. Unless I do something about it the probability is something that's not going to happen.

I think we've got to hope for a lame duck session where some leadership takes place. And what I think you'll see there is an increase in the gas tax, at least that's what I'm hoping. And then in the years that follow real tax reform and real dedication to transportation infrastructure, which I think will happen, but it will have to happen with a new Congress.

That was helpful, thank you. Actually, just one small one if I may on Cranes. Could you talk about, just I think you said weakness in RT Cranes in North America. Is that just a fracking being built out? Is there no take up in demand on the commercial side? Maybe just a quick comment on that, and I'll stop, thanks.

Okay, I'll let Tim comment on that.

That's not a fracking related comment. If you recall, Rob, we talked in the second half of last year about the buildup of inventory in the channel, and what we saw was that got sold down through the second half of last year, frankly, even into the first quarter of this year. Our expectation going forward is that we will see a more normal balance of RTs as a part of our portfolio.

I kind of think we have some encouraging orders in North America, but for delivery later in the year in RTs.

Thank you.

All right.

Ted Grace from Susquehanna.

Ron, I was wondering if you can touch on your restructuring plans or benefits for this year? And maybe just focus on the anticipated benefits in MHPS and Cranes? What we realized in 1Q, how that compared to plan, and how we should think about that layering in across 2Q, 3Q, 4Q?

Okay, maybe I'll turn that over to Kevin Bradley.

Sure. Ted, we had, in Q1, we had about $5.5 million in benefit in the numbers from restructuring, and about half of that came out of Steve's business, MHPS. For the remainder of the year, we had an additional about $25 million coming across all three segments, MHPS, Cranes and Construction for a total of just over $30 million in the year.

In the year-over-year benefit?

Yes.

Okay. And just as a reminder, is that -- for some reason my notes I had -- we were looking for something more like north of $40 million, something in the mid-$40 million. Did we realize some of that early in the fourth quarter last year? Or is it just taking a little longer to get in places like Europe?

I think we realized a little bit last year and we're expecting some tails on that in 2015.

Okay, that's helpful. And then, just for clarity sake, of the remaining $25 million how much of that comes from MHPS?

For the remainder of the year, that would be about a little over $6 million.

$6 million incremental out of MHPS?

Yes.

Okay, that's helpful. And then, the second thing I was hoping to ask about is, Ron, I know you touched on, and Tim did as well, a shift in Aerial order patterns from 4Q into 1Q. As we just think about order patterns across the rest of the year, could you give us any hand holding how to think about how second quarter is likely to play out vis-a-vis history? You got the benefit of April in your back pocket, and just if there are any other discernible shifts we should be factoring into our expectations?

The only thing I would say, and, Matt, please chime in here when I'm finished. But the only thing I would say is we expect the year to play out pretty much like it has historically. And last year, we had a stronger fourth quarter than we probably expect we'll have this year. And we did some things intentionally to drive fourth-quarter business last year, which may or may not be able to be pulled off again.

So probably that's the only variance I would suggest there. Matt, do you want to add anything to that?

No, I agree with that. To me, it's feeling like a normal year. I think that you're going to see second quarter will be the biggest and third and fourth taper off. Like Ron mentioned, last year we had a really good fourth quarter. We'll hope to get that again, but I think it would be -- what we're expecting and what we've built into our outlook is a traditional year.

And that was specific to Aerials, right, Matt?

Yes, that's specific to Aerials.

Yes.

Okay, perfect.

Kevin Bradley wants to add one thing.

Yes, Ted, I just want to correct something. The MHPS remainder of the year, more in the $16 million to $17 million.

Right, that was for the previous question, not for Ted, butt that was the previous question, not on restructuring.

Okay, perfect. That actually makes me feel a lot better, I was kind of worried there for a second. Great, guys, best of luck this quarter.

Thank you.

Jerry Revich from Goldman Sachs.

Hi, good morning.

Hi, Jerry.

Ron, I'm wondering if you could talk about how the telehandler product rollout is tracking, what was mix like in the quarter? And then, can you calibrate us at this point in the cycle as the mix of Aerials in Europe rises? What does that mean for margins for your business, presumably it helps absorption a lot, but I wonder if you could flesh that out for us?

I think our product plan is pretty much on track. I think the launch of the SX-180 has really been very well received in our Aerials business. We're shipping pretty aggressively, our customers are pretty happy with it. We believe we're ahead of our competition, we believe our product has benefits in transportation that our customers appreciate, that is an advantage over our primary competitor.

I think in the Crane area we're getting very well -- very good commentary on some of the new products we introduced at CONEXPO or introduced at VAMA. Some of the new products we introduced at VAMA really didn't get -- they got ordered but not shipped until really, going to be shipped first quarter and the remainder of this year. So I think the receptions of those new products was pretty positive, and some have very specific advantages over what the competitors are showing.

So in general, I'd say our new product implementation is pretty much as expected. With regard to absorption utilization, I think the worst is behind us from underutilized or unabsorbed manufacturing operations. Some small pockets of concern in places like Brazil or India or China, but overall, our bigger factories are pretty much absorbed and/or likely to continue to be highly absorbed.

And any mix implication of European Aerial Work Platform business ramping up at this point in the cycle? Is that better, worse margin than North America?

Historically, it has been only minor differences in margins. The only thing I would say is as the telehandler business grows in North America it has a slightly less margin for us than the booms business, but we don't really have much telehandler business in Europe. So that's really not an issue. But I don't think there's much mix difference between Europe and North America in margins.

Okay, and, Ron, can you flesh out for us what you're seeing in Latin America order trends? Are there any businesses where that region is more stable versus others? Can you just provide some more color there?

Yes, I guess I'd say Latin America overall is probably a negative picture, and there is some opportunity in the Port business. That's been up a little bit in Latin America, but in general it's a fairly negative picture. I don't think it's negative forever. I think there are still opportunities there -- forever, I mean the next nine to 24 months. I think there's still opportunity there.

I think our team has come together in Latin America under a new leader, and I think that's encouraging. We've got new feet on the street in the Cranes area, and we're aggressively going back to some of the big historical crane customers in Brazil to try and recapture some share that we lost in Cranes. So it will take a little bit of time, but I think, I am a little concerned about the market overall, but I think our position will strengthen there.

Thank you.

(Operator Instructions) Seth Weber from RBC Capital Markets.

Hey, thanks. Good morning. Actually, just first, I have a clarification, and then a question. In a prior answer to a question, you talked about, you're not seeing any Asian competitors in North America in the Crane business. Was that meant to be about China, or does that hold for Japanese competitors, as well?

Good clarification. That's China we were talking about. Japanese are well established in North America.

Okay, thank you. And then, just on the AWP business, we've heard some recent commentary about more aggressive pricing in Europe and Latin America. Have you seen anything like that on the AWP business?

Matt, why don't you comment on that?

Yes. I guess what I would say on pricing is that it is mostly stable and consistent. There are some pockets where we're seeing irrational pricing and turns. But in general it has been pretty stable and consistent, and that's been steady, I would say, over the last few years. I'm not seeing anything that's a lot different.

What we are seeing is that with some of the Tier IV coming in, the price of the equipment has gone up to a point where rental rates are not keeping up with new equipment costs. And we're seen timing of when each manufacturer switches. There are some games that go on as to who has Tier IV and who doesn't, but other than that, it's kind of working through the system and it's been stable.

Okay, thanks. And then, maybe just last, real quick, Ron, any update on the tax planning process to try and lower your tax rate going forward?

I'd say it is on track. It's on track with what we expected.

Okay, thank you very much.

Mig Dobre from Robert W. Baird.

Good morning, thanks for squeezing me in. Ron, I'm sorry, but I'm still confused as far as the Cranes segment is concerned. You came into the quarter with $500 million in backlog, you had orders better than $500 million in the quarter, yet revenue was less than $400 million, lowest in three years. By your own comments you said this was a pretty disappointing quarter. I'm trying to understand what was it that prevented you from recognizing higher volume or higher revenue this quarter? And how do you think about revenue next quarter given your backlog?

Well, customers didn't want the product. That's what prevented us from shipping more inventory in the first quarter. We don't operate like big construction equipment companies that floor plan inventory to dealer networks. We sell directly to rental companies and rental companies want the product when they want it. But, Tim, you want to --

And I would also say, Mig, earlier on the call, I made the commentary that the backlog is interesting but what you've got to understand is what's in the backlog. And if the backlog is a bunch of nine-month production product, then you're not going to ship it in three months.

And if you look at our order intake in the third quarter of last year, it was relatively low. So I think we're working through the system. I think the first quarter revenue that we saw here is really a reflection of what transpired from an order standpoint in the middle of last year.

Make no mistake about it, we're not happy with the level of revenue we had in Q1. But that really was a function of the orders that we took in Q3, and maybe even before that, but in that time period. What we were hoping, and we all know that hope is not a strategy, that we could actually book and ship more orders in Q1 than would have been obvious.

We definitely had some inventory to ship in Q1 if our customers had wanted the product then. We're disappointed, we're concerned, but we're encouraged by some of the orders we've actually taken for future delivery.

Can you calibrate us on Q2 at all?

No. I don't want to calibrate on Q2, other than the things I've already communicated because it will be better. It will be building, and we believe it will be a solid quarter for us in Cranes, but probably not our best quarter of the year.

All right, thank you.

Andy Casey from Wells Fargo Securities.

Good morning, everybody. A lot has been asked, so I just wanted to ask kind of a holistic question about a comment you made earlier, Ron, about 2015 in 2016 being driven by a little bit higher growth in Europe than is probably likely in the US.

Do you think that is likely going to follow the same sort of cadence we've seen in the US, meaning higher initial growth from AWP, and potentially over there MHPS followed by Cranes? Or is it looking like it's a little more synchronized than what we've seen here?

My experience, Andy, would suggest that AWP is in its second year of a recovery in Europe and is leading the pack. And our Crane business will actually improve in 2015 and 2016 in Europe faster than our Material Handling business which is an MHPS, which is more of an industrial recovery business. And it is a business that we haven't had historically, but through the Demag AG acquisition is a business we have.

That short-term weakness is somewhat offset in the MHPS business with the Port business carrying those bigger orders for Rotterdam and the Netherlands and some other ports in Europe. So I don't want to forget the crushing and screening business, which I think can and will have an improving order -- I know Kieran Hegarty has been on the call. Kieran is our only European of our management team, so I think his view is probably moderate and positive in Europe, no great increases, but probably positive and then George's business, as well. Kieran, do you want to add anything to that?

Yes, I think first of all can you hear me? My line is not muted?

Yes.

I think from a historical point of view, Europe, certainly from back of the prior peak in the 2007, 2008, still significantly trends below, and that is, obviously, clear in the MP business than some of the other businesses. We're seeing Western Europe, particularly markets like the UK, have a very, fairly healthy recovery, right.

Southern Europe still remains a challenge and it is still a long way off the peak, but clearly there is good potential upside in Southern Europe. The Italys and the Spains has really come off the bottom for the last three, four years. But Eastern Europe, I think, still remains a good opportunity for growth. So we would be reasonably bullish, I think, Western Europe (inaudible) historically much more stable, but we be fairly bullish on solid European upside over the course of the next two years.

Okay, thank you, Kieran.

Okay, thanks for that. And then, just one quick one on construction. You are continuing to show good margin improvement there. From here, are we really looking for volume to drive significant improvement from where we are outside of maybe trade show, timing impact, and all that?

I'd say, yes. I'd say, yes. We need to get volume, we need to get a recovery, we got a pretty stable cost base. You'll see it first from North America, particularly our cement mixer business where we do have a good backlog and trends are positive, and their profitable, and margins are actually improving in that area.

Then next from our material handler, in the Fuchs business, we're seeing some strengthening there. We're a small, small player in the compact equipment business, but we're a niche player. We're working on the product, as I've said before, we still have some work to do to get that product more rental ready, but down the road we think there's an opportunity there.

Okay, thank you very much.

Schon Williams from BB&T Capital Markets.

Ron, I wonder if you could address, you talked a little bit about emerging markets, but I know Australia was a bit of a headwind last quarter. Could you just talk about any developments you're seeing there? I think you thought that maybe you were seeing some bottoming, but has that changed given what you saw this quarter?

Australia, Matt is in Australia right now, but I'm going to speak for the Company overall. Australia was negative for us in Q1, meaningfully negative, and importantly, negative in the Crane business. And importantly, negative in the MHPS business. So overall, pretty negative. It's an important market for us.

Offsetting some of those negatives were a couple of positives, with AWP being the most positive but on a fairly small base. It's a bit of a mixed bag. I think it's bottoming, but I don't think we've completely seen the bottom. Had the Cranes business in Australia been a little bit better we would've had a little bit better results. But I wouldn't blame Australia for our Crane issues, it is just a piece of it.

Okay, and then, as my follow-up, I wanted to maybe address something that you guys brought to light in the Analyst Day last year, just talking around the global trading initiative, and kind of changing, streamlining the customer interface, having the factories and the customers go through what you were calling Terex Global, as opposed to kind of a hodgepodge of interactions with Enterix.

At that time, I think you talked about that being a possible incremental $0.50 to $0.75 of EPS. I just wanted to see, do you have any update from where we were, a year on now? Do you still think that those types of savings are [possible]?

Schon, I will give you a quick update. As you know, Terex, a lot of acquisitions. A big initiative for us is trying to pull the Company together. This is one of the things that we're doing to become easier to do business with. So getting a more consistent commercial experience for our customers as they transact with one kind of global trading platform over time is something that we've been working on for a while.

We are making good progress. As Ron said, I think we're on track and we will have benefit in the year. In terms of the exact sizing over the couple-year horizon, we're going to hold off on that right now. But we're making progress, we're committed to it. We think it will make us more commercially effective, and more operationally efficient as we get standardization and control throughout our business, which has been grown through acquisition. We think this is a big positive, both internally and externally.

I don't think we can provide any more insight numerically, than what we said before. The ability to drive value and to hit the numbers is directly dependent upon how much income we make. So I don't think there's anything that would change our prior point of view.

Okay. Last question?

Alex Blanton from Clear Harbor Asset Management.

Good morning, thanks for fitting me in there. I wanted to discuss Europe for a minute. You said that AWPs were 40% to 45% of the historical high there, and that's pretty much in line with what [ARSCO] said about their business over there in AWPs. But that was in 2008, that high.

Now since then, the last six years, and that market at that point was considerably behind the North American market in the adoption of AWPs for the various applications. So that's been a driver of the growth in North America is using AWPs for more and more things. So Europe was behind the US at that point. Has there been any progress in that?

Has that market expanded, the potential market, let's say, expanded from what it was in 2008 to any degree? Or are we just looking at going back to the high?

Our ability to metric the adoption of a product category and talk factually about it is difficult, Alex. I think we use guts and judgment when we talk about adoption of a category. We know it's not adopted, for example, in Asia.

That's right.

But we know it's more adopted in the United States than it probably is in Europe. So I'd say my instinct would say, it's fairly well adopted in Europe. You have high labor rates, you have a number of factors that would contribute to the product category being well received.

But there's probably some more opportunity for growth as the Eastern European markets continue to improve their economic success. So I think there's more room to run in Europe. The opportunity for the peak is probably greater than 2008, but, frankly, the same thing is true in the United States because we're close to the prior peak in the United States yet we continue to see growth.

Our first quarter AWP performance was double digits in North America of growth. So some of that may be our success and some of it is probably the category continuing to find new applications.

Thank you.

Okay.

Thank you. There are no further questions. At this time, I will turn it back over to management for closing remarks.

Thank you, Jody. We appreciate everybody's interest in Terex today. Please follow-up with us if you have any additional questions or commentary.

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