Terex Corp (TEX) 2021 Q1 法說會逐字稿

Greetings, and welcome to the Terex Corporation First Quarter 2021 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Randy Wilson, Director of Investor Relations, for Terex Corporation. Thank you. Sir, you may begin.

Good morning, and welcome to the Terex First Quarter 2021 Earnings Conference Call. Copy of the press release and presentation slides are posted on our Investor Relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website.

I'm joined by John Garrison, Chairman and Chief Executive Officer; and John Duffy Sheehan, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A.

Please turn to Slide 2 of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied.

In addition, we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials.

Please turn to Slide 3, and I'll turn it over to John Garrison.

Good morning, and thank you for joining us and for your interest in Terex. Most importantly, I hope you and your families are remaining safe and healthy. Throughout these challenging times, we are proud of all Terex team members who are keeping themselves and others safe, meeting the needs of customers and helping our communities. I would like to recognize and thank our team members around the world for their continued commitment to our Zero Harm safety culture and Terex Way values.

Safety remains the top priority in the company driven by Think Safe, Work Safe, Home Safe. All Terex team members have contributed to our effort to continue to produce for our customers, while following the protocols and maintaining a safe working environment.

Please turn to Slide 4. Before I discuss our Q1 results, I would like to review our commitment to ESG. Environment, social and governance is not a new concept at Terex. It has been front and center for many years through our Zero Harm safety program and our commitment to maintaining a vibrant and supportive working environment. ESG is foundational to the Terex culture. Our company purpose is to help improve people's lives. Through our Terex Way values, we are focused on strong governance, a commitment to diversity, equity and inclusion at every level and supporting the communities where we live and work, including being responsible environmental stewards.

First, strong governance and leadership. Our independent and engaged Board with diverse backgrounds, perspectives and experience adds value for all stakeholders. Second, we've enhanced our DEI governance, and we are energized by the engagement of our team members. And third, electrification by introducing sustainable products, such as our new Genie electric drive scissors. We've made good progress in our sustainability program, including publishing our first annual ESG report, which enhances our ESG communications. We are working on standard reporting frameworks, which a group of company senior leaders are charged with implementing. We will keep stakeholders appraised through our investor conferences and quarterly earnings calls. We believe companies that recognize the importance of ESG are better able to identify strategic opportunities and meet competitive challenges.

Turning to Slide 5. We're off a very strong start to 2021. Customer demand continued to increase during the quarter, resulting in revenues exceeding our expectations. We increased operating margins and backlog in AWP and MP year-over-year. We significantly improved our first quarter earnings per share compared to last year, and we are increasing our full year sales, operating profit, cash flow and EPS outlook.

Despite having to address the supply chain challenges, AWP delivered improved margins in Q1. Materials Processing continued its strong execution by overcoming supply disruptions and delivering increased sales and profitability. As a result of the improved execution in both segments, year-over-year operating margin for the company improved by 800 basis points. Our intense focus on net working capital management and improved profitability drove $40 million of positive free cash flow in the quarter, which is an excellent start to the year. During the first quarter, our team continued to meet increased customer demand, tightly managed all cost and delivered outstanding positive free cash flow. Overall, our Q1 financial performance demonstrated strong execution by our global team in the face of increasing supply chain challenges.

Please turn to Slide 6. We continue to improve Terex' global cost competitiveness. Our SG&A cost reduction initiative, with a target of full year 2021 of approximately 12.5% or better, SG&A to sales remains on track. We are maintaining strict cost discipline. In addition, during the quarter, we announced the planned move of our Oklahoma City telehandler production to Monterrey, Mexico. This action will position us with cost competitive telehandler products for the North American market. The team is addressing increasing supply chain disruptions. Our operations team are demonstrating adaptability and flexibility to overcome the dynamic supply chain environment.

Turning to innovation. We continue to listen to our customers, ensuring our products and services offer the features and benefits that provide value. We've also invested in our connected assets and digital capabilities to better serve customers. For example, our new Genie e-drive scissors are designed to offer significant performance improvement and reduce maintenance costs by 35% over the life of the machine. Customer and dealer integration, or CDI, is a global initiative spearheaded by our Parts & Services organization. Dealers are sharing their data, which allows the team to better serve customers.

Finally, we continue to invest for future growth. Our MP team is in the process of executing on localization plants in China to meet growing demand for our industry-leading crushing and screening products as it is the world's largest aggregates market. Terex is well positioned for growth in 2021 and beyond because we have strong businesses, strong brands and strong market positions. We continue to invest, including in new products, digital capabilities and manufacturing capacity.

Turning to Slide 7, I'll provide some comments about our end markets and what we are seeing today. In our Genie business, in North America, fleet utilization continues to improve, rental rates are improving, used equipment pricing is strong, which are all positive signs of a recovering and growing rental industry. In Europe, the market continues to demonstrate improvement. And in China, adoption of working safely at height with Genie equipment is driving significant growth. Globally, the secular trend towards rental continues.

Turning to our Utilities business, demand is strong across its end markets of tree care, rental and investor-owned utilities. Next, in Materials Processing, we expect global demand for crushing and screening equipment to continue to grow. Broad-based economic growth, construction activity and aggregates consumption are the primary market drivers. We're seeing continued improvement in our cement mixer, material handler and environmental businesses.

Overall, we're seeing improved market conditions around the world for our industry-leading products and solutions. And with that, let me turn it over to Duffy.

Thanks, John. Turning to Slide 8. Looking at the first quarter, we achieved net sales higher than our expectations. Throughout the quarter, we saw our end market continue to strengthen. Overall, revenues of $864 million, were up 4% year-over-year. Notably, our Materials Processing segment's revenues were up almost 20% year-over-year. For the quarter, we recorded an operating profit of $62 million compared to an operating loss of $7 million in the first quarter of last year. We achieved an operating margin of over 7% through disciplined cost control and meeting strengthening customer demand. The first quarter operating profit includes severance and charges associated with the closure of our Oklahoma City manufacturing facility, which were offset by the gain on the sale of our TFS on book financing portfolio.

Improved gross margins and lower SG&A as a percent of sales allowed Terex to expand operating margin by 800 basis points year-over-year. Interest and other expense was approximately $4 million lower than Q1 of last year because of several factors, including lower interest expense and a $3 million mark-to-market gain recognized in other income. Our first quarter 2021 global effective tax rate was approximately 16% driven by 2 favorable discrete items in the quarter. Our tax rate estimate for the remainder of the year remains 19%, consistent with our previous outlook. Finally, our reported EPS of $0.56 per share includes the nearly offsetting operating impacts and the favorable benefit in other income that I just discussed.

Turning to Slide 9 and our AWP segment financial results. AWP sales of $477 million were down 7% compared to last year driven by a decline in North America, offset by improvement in Europe and Asia Pacific. The utilities market improved significantly, evidenced by strong customer bookings. AWP delivered significantly improved operating margins in the quarter driven by increased production and aggressively managing all costs. AWP delivered 680 basis points improvement in operating margin, which includes $3 million of severance and charges for the closure of our Oklahoma City facility. First quarter bookings of $961 million were up dramatically compared to Q1 2020, while backlog at quarter end was $1.3 billion, up 82% from the prior year.

Now turning to Slide 10 and Materials Processing's Q1 financial results. MP had another strong quarter, achieving 13% operating margin, as end markets are strengthening. It is a testament to the MP team's operational strength to deliver these consistent positive operating margins. Sales were higher at $378 million driven by improving customer sentiment across all end markets and geographies. The MP team has been aggressively managing all elements of cost as end markets improve, resulting in incremental margin performance of 38%. Backlog of $713 million more than doubled from last year and was up 36% sequentially. MP saw its businesses strengthen through the quarter with bookings up more than 100% year-over-year.

Customer sentiment in both segments continues to dramatically improve as equipment is being utilized and ordered as end market demand strengthens.

Turning to Slide 11. I'd like to update you on how we currently anticipate the full year to develop financially. It's important to realize that while the end market demand environment has improved significantly, increasing supply chain headwinds are impacting results. We have taken these factors into consideration in the outlook we're providing today.

As for commercial demand, we have seen our end markets improve dramatically over the course of the first quarter. All other things being equal, we do expect continued end market improvement in both segments and increasing levels of AWP customers' fleet replenishment. From a quarterly perspective, we expect revenues for the full year to be slightly higher in the first half than the second half of the year, with the second quarter being the strongest of the year. Operationally, the absolute amounts of operating profit and operating margins are expected to increase each quarter year-over-year with operating profit relatively evenly split between the first half of the year versus the second half of the year. We continue to plan for incremental margins, which need or exceed our 25% target for the full year 2021. Corporate and other costs will occur relatively evenly throughout the remainder of the year.

On April 1, we completed the refinancing of our revolving credit facility and unsecured bond. These transactions will result in Q2 charges of $25 million, which were not previously included in our 2021 financial outlook. Including $0.30 per share of cost for refinancing of our capital structure, our EPS outlook is increased to $2.35 to $2.55 per share based on sales of approximately $3.7 billion. Quarterly earnings per share are expected to be generally consistent with the development of operating profits during the year.

For the full year 2021, we are estimating free cash flow of approximately $150 million, reflecting another year of positive cash generation. We continue to plan for capital expenditures, net of asset dispositions, of approximately $90 million. The largest project included in capital expenditures is for the Genie Mexico manufacturing facility John referenced earlier.

Turning to Slide 12, and I'll summarize our updated 2021 EPS outlook. We expect the strong customer sentiment demonstrated in Q1 by our AWP and MP customers to continue throughout 2021. Our 2021 full year EPS outlook comprehends: first, our Q1 outperformance; second, the operating profit contribution on additional revenue for Q2 through Q4; third, price and manufacturing efficiency, which is only partially offsetting increasing supply chain headwinds; and finally, reduced interest expense and onetime capital structure charges of approximately $27 million, representing $0.30 per share.

Overall, our 2021 outlook represents a significant improvement in operating performance when compared to 2020. We will continue to aggressively manage costs while positioning the business for growth.

Turning to Page 13, and I'll review our disciplined capital allocation strategy. Our team members remain vigilant and will continue to aggressively manage production, especially within our AWP segment, and scrutinize every expenditure. The strong positive free cash flow of $40 million in the quarter demonstrates the hard work of our team members to tightly manage net working capital.

Terex has ample liquidity of approximately $1.2 billion available to us with no near-term debt maturities, so we can manage and grow the business. As discussed during the Q1 earnings call, the proceeds from the sale of the TFS on book portfolio, and our strong liquidity position allowed us to prepay $196 million of term loan in early February. This prepayment resulted in reducing outstanding debt, lowering leverage and saving annual cash interest expense of approximately $7 million.

This deleveraging action resulted in a rating agency upgrading Terex' outlook and providing positive momentum for refinancing our capital structure. Our refinancing included successfully renewing our $600 million revolving credit facility and placing $600 million of new bonds with a 5% coupon. These new bonds replace our 5 5/8% bonds due to mature in 2025 and reduce annual cash interest expense by approximately $4 million. Importantly, Terex obtained lower-cost unsecured funding for the remainder of this decade. This strong action demonstrates our commitment to improving Terex's balance sheet while maintaining flexibility to execute on our organic and inorganic growth plans. Finally, we would like to thank our bank group, which supported Terex during this successful refinancing.

And with that, I'll turn it back to you, John.

Thanks, Duffy. Turning to Slide 14 to wrap up our remarks. Terex team members around the world are focused on the right things: safety, health, customers and improved productivity. End markets are strong, and the team is managing the increasing supply chain headwinds. We are driving positive free cash flow. We're continuing to invest in innovative products to meet increased customer demand. We are focused on both organic and inorganic growth. As a result of these actions, Terex is well positioned to deliver strong 2021 results.

And with that, let me turn it back to Randy.

Thanks, John. (Operator Instructions) With that, I'd like to open it up for questions. Operator?

(Operator Instructions) Your first question comes from Stephen Volkmann with Jefferies.

Gosh, at the risk of sounding ungrateful, I wanted to just look into your kind of guidance in AWP a little bit. So your revised revenue guidance is still only up kind of 20% year-over-year, if my math is right. And it just seems like the demand side of the equation is much stronger than that. So I guess maybe the difference is concerns around supply chain. Maybe the question is to sort of dig a little bit deeper into that topic. And I guess I'm just trying to figure out what's holding those revenues back relative to some of the CapEx budgets we're seeing from your customers.

Thanks, Steve. And first, let me say, we did significantly increase our bookings and backlog literally around the world in AWP, so we were pleased with that. If you look at our outlook for the rest of the year, Q2 through Q4, you're talking about a 30% year-over-year growth in our AWP segment. So we are seeing substantial growth in the segment. The team continues to work. We, like many manufacturers, are seeing supply chain constraints, so we're working through those supply chain constraints. But right now, we are seeing strong growth around the world for the remainder of the year, and we're executing on our supply chain, but we are seeing disruptions in the supply chain that's impacting our production levels. But overall, really pleased with the backlog, the bookings and what we're seeing -- the strength that we're seeing in that marketplace.

Okay. Right. Yes, demand doesn't seem to be the factor here, the gating factor. Maybe a little bit longer term or broader, John, and then I'll pass it on. How are you feeling about margins in that business? I know that's kind of been your focus over the past several quarters, couple of years. And 7% is not bad, but it's obviously still a ways to go to get back to kind of where you were a couple of years ago. So what does that trajectory look like in your mind?

Thanks, Steve. Well, first of all, we've got a great management team at Genie and in our Utilities business, and they are intensely focused on driving margin improvement. As you saw, we drop -- we had a 680 basis point improvement on a year-over-year basis on lower sales in the first quarter. We anticipate, as we've indicated, sales to be improving. So the team is focused on driving margin improvement. We are seeing headwinds like most manufacturers on material cost. We're offsetting that action with pricing. We're continuing to be resolute in our SG&A costs. The team has done a great job managing our SG&A, and we're continuing to address our global cost competitiveness with the announcement like we made in our Oklahoma City plant. So the team understands that we need to be globally cost competitive. We've made great progress. But unequivocally, there's more progress to be made there, Steve.

But your conviction that you can get back to those double-digit levels is unchanged, I assume?

The team is focused on getting us back to those double-digit levels, absolutely. It will take time. But unequivocally, we believe that, that is absolutely an achievable target for us and the team.

Your next question comes from the line of Mig Dobre with Baird.

Maybe I'm just going to pick up on this line of questioning here as well. If I'm looking at your guidance, a little over $2 billion of revenue in AWP. Just a couple of years ago, this business was generating more than $2.7 billion of revenue. So I guess I'm wondering how you sort of see the path going forward in terms of the recovery getting back to those kinds of revenue levels. Is that feasible? Do you think you can actually do better than this in this upcoming cycle? And to ask Steve's question once more, given that you're already guiding margin at 7%, which is basically where you are in 2019 on a much higher revenue base, if we were to get back to those kind of prior peak levels, what would be the right sort of margin framework for us to kind of consider?

Thanks, Mig. So let me just take a step back. We're encouraged by the AWP business. I mean, if you take a step back and if you look at just -- as I said in my opening comments, the secular trends in the rental industry is definitely going to be a tailwind. We think the replacement cycle is definitely starting and coming for the next couple of years. So from a volume standpoint, we're encouraged by what we're seeing, and we think we can significantly increase the volumes over time as that replacement cycle and growth continues.

As we see that growth in volume, then we need to convert that at more historical levels of operating margin. And that's what the team is focused on, is driving that margin improvement. So as the volume returns, as we've taken the aggressive cost actions that we've taken, we should expect to see, over time, continued margin improvement in that business as we move forward. So that's what the team is focused on every single day, and we're going to continue to drive execution and improvement. No doubt, in the current environment, Mig, we are seeing significant material cost increases. We've had to offset some of those material cost increases with pricing activity. So that's obviously a factor.

But we're going to continue to work with our customers and offset material increases with pricing. Right now in this environment, as you saw on our outlook, we weren't able to do that. Longer term, we're going to strive to offset material cost increases with pricing, so that will also help as we go forward. So again, the Genie business has historically been a great business. It's got an incredibly strong brand. The management team is absolutely focused on meeting the needs of the customer and driving margin improvement. And I can assure you, every single day, that's the focus of the team.

Mig, if I was just to add to John's comments and to build on the second part of your question, right, as you pointed out, in 2018, our AWP segment is about $2.9 billion of revenue and double-digit margins. And our guidance here today is $2.1 billion, 7% margin. If you just look at that additional, say, $800 million of revenue, and you know that we target a 25% incremental margin, I think you would find that to get to a double-digit margin again wouldn't require the 25% incremental margin on that $800 million of revenue. So we definitely see that the Genie brand, the Genie business, the AWP segment is a double-digit margin business.

That's great color. And then my follow-up is on MP, and I'm going to want to talk about margin there as well. The implied incremental margin here is a little bit lower. I think it's something like 20% in the guidance this year. I'm just looking for a little more context on this. Does this particular segment see more pressure on the cost side? Or is this a factor of mix pricing? What are all the moving pieces here?

So on the MP side, I think if you take a step back and you look at just continued strong execution with the margin generation, with the top line sales growth, and they aggressively manage costs throughout their business through the multiple businesses that we have. And again, we target the 25% incremental margins. The team has done a good job of delivering on that as we go forward. They also are seeing material cost headwinds that we're having to offset with pricing as well and, again, not necessarily setting off -- offsetting all material cost headwinds associated with the pricing. But over time, they will be able to do that as well. So again, if I just take a step back and look at the MP business and the execution across the businesses, across the globe, they've done a fantastic job of delivering margin improvement on the growth. And I'm absolutely confident the team will deliver on the volume that's there in the marketplace.

Your next question comes from the line of Steven Fisher with UBS.

Just in terms of execution, Q1 looked very good. I guess looking out to the next couple of years, John, you mentioned you're going to drive execution. If your revenues in the AWP segment were to get back to that prior peak, what would you need to do to handle that kind of revenues? Is your business peak-ready today? Just kind of trying to make sure we don't run into any execution challenges.

Thanks. Yes, I mean we have the global footprint around the globe for the Genie business. In China, in North America, in Europe, our capacity actually will expand. We did close our Oklahoma City facility -- or let me say that we will be closing it in the first quarter of 2022 in moving that operation in Monterrey, Mexico. That will also give us incremental capacity, but we'll produce in both locations over the transition period of time. So the Genie team, in their history, if you look at their ability to ramp up and to ramp down, they've been quite successful in doing that. And so we have the capacity to meet the needs of a growing market. And again, that's a great opportunity for us as we move forward. And frankly, we're excited about that opportunity to meet the higher demand as the market improves.

Great. And you mentioned inorganic growth plans. Can you just talk about what you're thinking about on M&A and anything inorganic these days?

Yes. Thank you. Well, first, it starts with the ability of our disciplined capital allocation strategy, and the team has done a really nice job driving free cash flow improvement. As Duffy indicated in our opening comments, we've really done a great job strengthening our balance sheet. So now we believe we have the opportunity to look at inorganic growth. And our principal focus really is in and around our MP businesses, specialized equipment markets. We have leadership positions in those markets. And it still remains relatively fragmented in the segments that we compete within MP.

And so our initial focus is we're building -- our M&A pipeline is in and around our MP business and our life cycle businesses, and we're building that pipeline. And we do believe that inorganic growth can now be part of our overall growth strategy for Terex. So the team is working on that, and we're excited about the potential and the opportunities that we're seeing for M&A activities. But again, we'll be very disciplined in our approach to M&A but we absolutely are looking at M&A opportunities for us going forward.

Your next question comes from the line of Ann Duignan with JPMorgan.

When we were sitting here at the end of Q4, you had talked about a hedging program that was in place for almost all of Genie's North America steel needs. And so what's happened there? Has demand coming stronger than expected and any incremental demand is now hedged and subject to higher costs? Or a little bit more color on actually what's happened in the quarter in terms of input costs and/or is it just raw materials? Or is it other things? Just a little more quantification of actually what's happened during the quarter.

Sure. Maybe, John, I'll start on the steel side, and then you can add. So as you pointed out, Ann, we did talk about our steel hedging program and that we had hedged the predominant amount of our steel -- hot-rolled coil steel needs for the North American market for 2021. We have not entered into additional hedges for steel for 2021 during the course of the first quarter. As you certainly know, steel prices, including in the futures market, have increased significantly. And therefore, utilizing our hedging program would not have been a financially beneficial transaction for us. So the additional volume over and above, I would say, our initial guidance this year, we procure that as part of our normal steel purchasing program with our -- from our steel suppliers. In terms of input costs, I'll just say, obviously, not just simply steel but other materials such as resins, logistics costs, et cetera, have definitely increased over the course of the quarter. And those cost increases are built into the updated outlook that we're providing here today.

Okay. I appreciate the color on that. That's what I suspected. And then on MP, can you give us a little bit more color in terms of the regional demand? I know you said demand improved through the quarter across all regions and all segments. But any favorable product mix this quarter or in the outlook and any favorable regional or not favorable -- I think last quarter, again, you talked about favorable product mix as well as favorable regional mix. So an update there will be great.

Thanks, Ann. And again, very encouraged about the broad-based demand picture that we're seeing across our businesses and, Ann, really across multiple regions. If we look at our crushing and screening business, we saw end market strength in Europe, North America and the APAC across our product line. If we look at concrete, our mixture truck business, specific in North America, saw substantial growth in orders in that business really, and we think that's associated as much with the residential construction market but, again, substantial increases in Terex Advance. We're just talking about materials. If there's one positive of high steel costs, it's scrap metal prices are going up. And that is really helping our material handling business, our Fuchs business. And again, Ann, we're seeing that really around the globe, Europe, North America, substantially up for our Fuchs business.

Our environmental business is a relatively new business within MP. So we're seeing good market demand, but it's also a great example of product line extensions, growing that business for us. And again, a similar story, we're seeing that growth both in North America and in Europe and beginning to see some growth in that area in APAC. One business that we don't talk a lot about is our Pick & Carry business down in Australia. Australia weathered the pandemic reasonably well, and we're seeing strength in orders in that business, both from the mining sector as well as infrastructure down there. So at that business, we saw some good year-over-year growth in strength as well. And Ann, we did see some improvement not to the same level that we've seen in the other parts of the business, but we actually saw some recovery in our tower cranes and in RT business.

And finally, India, we were seeing -- we saw order strength in India. Obviously, we're all concerned about the current COVID situation in India. Our team members are doing a great job navigating that, following the protocols and keeping production running safely in India. But again, just encouraged by the broad level of demand across the globe, across our product offerings within our MP segment. And again, the team continues to do a great job in a challenging market, executing on that demand.

Your next question comes from the line of David Raso with Evercore ISI.

The relationship of your AWP backlog at the end of the first quarter to the full year, I mean, historically, that backlog is 30% to 40% of the full year rev. More recently, let's call it, closer to 40%. If that relationship held, I mean it would imply revenue should be north of $3 billion this year in AWP, not $2.1 billion and change. So can you help us bucket why the weaker conversion of backlog to revenue at that magnitude? I mean it's not even close. I mean is it the backlog is starting to have orders extending into the following year more than normal? Is it your customers ordered that much earlier so that naturally, we'll see a little less sequential orders than normal? How much is it the logistical shipping issues? And I guess, fourth, the question would be also just how conservative is that guide, just given the starting point of that backlog?

So thanks, David. And again, encouraged by the increase in customer demand after last year. So there were a lot of orders placed early this year from early -- obviously, in Q1, as you see, the backlog go up significantly. And again, we saw that, David, around the globe. In terms of the ability to increase production, we are limited right now by the supply chain. We're working with our supply chain to ensure that we can meet the customer demand. But the limiting factor in the near term, so call that Q2, Q3, is the supply base and the supply base's ability to ramp to the levels that we're at. So the supply base is unequivocally a limiting factor in the demand that we can deliver for our AWP segment. And to some extent -- not to the same extent, but to some extent, the same thing in MP.

So in the current environment, David, ramping up the supply chain is the limiting factor in our ability to meet the increased demand. The good news is the demand is there, and the team is working hard to secure the materials to be able to achieve the higher production rates. So that's basically what's driving this year thus far is material supply and material constraints, and the team is doing a heck of a job overcoming those, so we can meet the needs of our customers.

And David, I would just say that when you think about the guidance -- when we thought about the guidance, we took that into consideration. And to the extent that we -- it's early in the year right now. And as we work through the supply chain and the opportunity to increase production, we would factor that into our guidance also.

And David, the second part of your question was in terms of is the backlog for beyond '20. A very small percentage of the backlog is for '22 deliveries. And that's really more in our Utilities business than the custom truck side. And so some of that backlog has moved into '22. But there's not a significant portion of our 2021 backlog that we're showing that's for delivery in '22. There is some, but it's not a significant portion, David.

I appreciate that. I mean obviously, it's a positive to have that much backlog. I'm just trying to level set if the gatekeeper is the ability to ramp up, the orders that would normally show up in 2Q, 3Q, because of the early ordering, maybe the inability to serve new demand, I suspect that would suggest the orders sequentially dropped a little more than normal. And I'm curious, given the seasonality of taking iron, usually right along before September, August, even earlier, how do we -- I'm just trying to level set the idea the orders could look a little weak going forward. Or do you think your customers, given the supply constraints, might start putting orders in for '22 earlier? Meaning not worrying about, hey, if you can't get it to me this year, I know I'm going to need it in the spring. So I'm just trying to level set how we interpret the orders going forward. Are there conversations on '22 already, kind of saying we'll start putting orders in for '22 earlier?

I will say this, David, there is an awareness that, in general, the supply chain is tight. And obviously, not just for us and not just for the aerial equipment for rental companies. So they're cognizant that the supply environment is tight. We're having conversations. But I can't tell you at this time, David, this early in the year, that it's going to fundamentally alter how they think about order and order placement as we go forward. So I think we're going to have to be responsive and reactive to the situation. I can't tell you right now at this point in time in a year, though, that we're going to see a significant change in terms of order pattern and order flow. Although backlogs are up across the industry, and that may lead to behavior change, and we'll be prepared for that.

Your next question comes from Jamie Cook with Crédit Suisse.

Nice quarter. I guess two questions. The first one, can you just help us understand your approach to pricing when you put in incremental price increases? I think your peers talked about putting in 3% in March. I'm just wondering if yours is comparable. And is it a surcharge or an actual list price increase? And have orders changed since that price increase? And then my second question, Duffy, everyone's sort of asking questions around this, but is there any way for 2021, holistically, we can think about the incremental costs associated with whether it's supply chain inefficiencies, COVID, mat cost? I'm just trying to understand what cost could be sort of incremental in 2021 that aren't necessarily there in 2022 and set Terex up for a potentially good incremental margin in 2022 if the volumes are still there.

I'll take the first part, Duffy, and if you'll take the second part. So on the pricing and price-cost strategy, what we're doing is being very transparent with our customers and being very clear in terms of the cost increases that we're seeing. Our normal pattern is that we have a price increase for the upcoming year, so that would be in Q4 of last year, for 2021 deliveries. When we saw the substantial increase in material costs, especially around steel, we did implement an incremental price increase in March that went into effect for orders that were placed after -- for the most part, it's very bad business but, for the most part, orders placed after the end of March. That incurred the higher price that we're seeing. The range of price that you indicated is relevant. It was in that ballpark, low-single digits. It does vary across businesses the level of increase that we're asking for, again, being transparent with customers on the cost increases that we're seeing.

In terms of the price-cost relationship, as you saw in our outlook guide this year, because we had so much in backlog, we chose not to -- in general, we chose not to reprice the backlog. There are some specific situations where we had to. And so the price-cost is a negative this year as a result of that backlog but the pricing did go into effect right at the end of the first quarter and the orders and equipment that we deliver that's not in backlog going forward will be at the higher price level. And we'll continue to monitor this and we'll continue to adjust price based on material cost inputs that we're seeing and, again, being very transparent with the customers.

Duffy, you want to follow up on the second piece of the question?

Yes. So Jamie, if we look -- we included the EPS walk from our previous guide to our updated outlook in the earnings presentation today. And what you see there is that we included a line for $0.55 of EPS reduction from the previous guide as a result of cost pressure. And I think that's probably a good marker for you of what the impact has been from our -- from the start of the year in terms of the impact to us, in terms of the increases, whether steel, resin, logistics, et cetera, and that we -- the reason why we increased prices and we're only partially offsetting it -- offsetting those buffed increases, as John said. But I think $0.55 would be a good number to pick up.

Your next question comes from the line of Tim Thein with Citigroup.

Great. Just I wanted to circle back on the earlier theme on order timing but specifically on MP, obviously, very strong bookings for the segment as a whole. But I'm just curious, within that, on crushing and screening, typically, the order growth tends to start out the year strong based on ahead of the construction season, and dealers and customers want to have delivery ahead of that. But I'm curious if you think that there may have been -- within that 1Q bookings number, there may have been some kind of preordering given concerns about longer lead times. So effectively, some pull ahead of orders that may have come -- subsequent orders that may have come later in the year, did they get potentially pulled into the first quarter?

Thanks. And again, on the MP side, Tim, we actually saw order activity begin to improve really in the fourth quarter of last year. So this is the continued momentum on orders within the MP segment. Again, across all the businesses within MP, we have seen significant order activity increase. We've got a very rigorous process of looking at the dealer orders. Is there some ordering activity as a result of seeing lead times extend? Yes. That's a natural reaction that a distribution channel would have. About 70% of the business in MP goes through a distribution channel. So there may be some of that.

But I think the biggest driver in the order activity is what our dealers are seeing in their end markets. Based on our telematics data, we're seeing increased utilization. We've seen significant conversion from rent to own. There's a lot of that in that channel that's enabled the dealers to order back. So when we look at our dealer inventory levels, even with the increased sales dealer inventory levels are down. So all in all, we feel very strong about where we are in that business. And yes, there may be some preordering because they want to get slots, but they're only doing it because they see the demand in front of them.

And we're seeing, especially in all of our businesses that this whole concept of infrastructure, that's driving demand around the world, and it's not even in place yet. But it's the attitude. It's the expectation. And globally, we have seen infrastructure investments, and that clearly has helped our MP business around the world. So there may be some, but the market demand, the underlying fundamentals are strong. And frankly, we believe they're going to continue to be strong and, frankly, increase as we go around the world. So MP has done a great job, and that business is performing. It performed in a down cycle. I think it's going to perform incredibly well in the upcycle.

Your next question comes from the line of Ross Gilardi with Bank of America.

Could you guys just talk about some of the things you did and are still doing with your global sourcing strategy and how those -- how some of the critical elements of those things just sort of enable Terex or should enable Terex to cope better in this environment where we've got widespread shortages and more localization and just everything that's going on right now with supply chain tightness? What have you done to better equip the company for the next cycle?

Great. Well, one of the major initiatives that we've had over the last couple of years, and I'm very thankful that we did, was our strategic sourcing initiative. And what that enabled us to do is really strengthen our relationships with our supply base. And when things get challenged, those relationships become very important. And there's much more engagement at senior executive levels and more important, customer to our suppliers. And so the hard work that the team has put in place on our strategic sourcing initiative has really positioned us well with our primary suppliers. Also setting up secondary and alternate suppliers has helped overcome the challenges that we've had.

So the strategic sourcing initiative, the discipline, the process that we put in place is really helping us in this environment and I think will continue to assist us as we go forward. And I do want to -- hats off to all of our operations team, but especially our strategic sourcing teams and our logistics teams. It has been a challenging environment, like all industrial companies right now, and they're doing a great job managing our supply chain, focusing on continuity. And the strategic sourcing initiatives that we've implemented over the last couple of years have really served us well in this challenging environment and are going to serve us well as we move forward.

John, just a quick one to follow up on that. So would you say that -- have you moved more towards single sourcing of critical components to enhance those relationships? Or have you moved more towards dual, triple, quadruple sourcing in general?

Yes. So it's hard to say in general because it really depends on which specific commodity that you're looking at. From a general statement, we look to reduce our single source if it made economic sense to do that. So we have increased the number of alternative sources. We have absolutely had to go to those alternative sources in this environment. And so I don't want to make a general statement because it truly does in matter what type of component, what type of commodities that we're dealing with it but I will say it's a strategic decision by commodity what is our strategy for that respective commodity as we go forward.

Your next question comes from the line of Brett Linzey with Vertical Research Partners.

I wanted to come back to some of the cost initiatives and really thinking outside SG&A, you had pointed to the manufacturing example of telehandlers, localization of production in China. Are you able to quantify what the savings you think those actions are yielding outside some of the SG&A stuff? And then have you identified additional repositioning opportunities on the footprint?

Thank you. A lot of the activity was in our AWP segment, specifically Genie. The team has done a great job, as we mentioned, on the SG&A side, as you acknowledged. And that focus and discipline will continue. On the manufacturing footprint, we've taken action. We closed our Rock Hill facility. We're moving our telehandler production from Oklahoma City to Mexico, which is going to give us a cost advantage as well. And then also within our manufacturing facilities, our teams have done a great job really driving productivity and leverage with indirect manufacturing spend. And as the volumes come back, we would anticipate that, that leverage on the indirect side of the manufacturing spend will also be helpful to drive margin improvement as volumes return.

So it's been a multipronged approach by the team, looking at every element of the cost structure in ensuring that we're globally cost competitive in every activity. And I might also add that's every activity within the company. So it's also functional activities, where can that be done in the most cost-effective area around the world. So the team has a comprehensive plan. We're implementing the comprehensive plan to drive the margin improvement. And over time, we are going to drive the Genie business back to double digits historical levels of margin activity, and the team is committed to doing that.

And Brett, while, I don't think we can put a specific dollar number on the cost savings and what they've contributed when you look at just some metrics, right, the AWP segment Q1 improved 680 basis points year-over-year. The incremental margin for the full year, 44% on the outlook we provided today, and a 7% operating margin. So I think those are some of the metrics that demonstrate the cost -- the hard work on cost improvement that the AWP team has executed on.

Yes. No doubt, very strong start. I wanted to come back to the order book. Is the uptake you're seeing driven by existing customers replacing equipment? Or are you seeing new customer engagements driven by products or some of the front-end commercial processes?

It's a combination of new customer acquisition but also the replacement cycle. Especially in the AWP segment, there was a de-fleeting last year. Utilization is improving. They're beginning to build back their fleets. And we think, if you just look at the replacement cycle for the Genie business or what's coming forward, there's a strong run ahead for that business.

We're going to have to end it at this time, so we can stop right at the top of the hour. We know you all have other calls this afternoon. So I just want to say thank you for your interest in Terex. And a public announcement, COVID-19 safety remains a priority for us here at Terex. We're continuing to follow the safety protocols. And I would strongly encourage all of us to be vaccinated when the opportunity presents itself. We no longer have a supply issue. We have a demand issue with the vaccine. So we're working hard to convince our team members to receive the vaccine so we can move to the other side of this pandemic.

Operator, please end the call.

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