Terex Corp (TEX) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Terex Corporation's Fourth Quarter and Year-End 2020 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 Fourth Quarter and Year-End 2020 Earnings Conference Call. A 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 other 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 of the company, driven by Think Safe, Work Safe, Home Safe. Our team members remain vigilant by carefully following the COVID-19 safety protocols and continuing to keep their guard up.

Despite a challenging year, we delivered results for all stakeholders. We prioritize their health and safety while maintaining our Terex Way values. Globally, team members gave back to their communities with their time and donations.

For our customers, they are the center of our recovery. And we have continued to maintain the highest levels of safety in our sales and service operations. And finally, for our shareholders, we minimize the operational and financial impacts related to the pandemic.

Please turn to Slide 4. Despite the challenging markets, during the fourth quarter, our team continued to meet customer demand, tightly managed all cost, aggressively reduced net working capital, especially AWP inventories, and delivered outstanding free cash flow.

Q4 revenue improved sequentially as end markets continue to recover despite the fourth quarter normally being seasonally slower. The sequential improvement in revenues was driven by MP whose revenues improved approximately 18%.

Customer bookings in Q4 represented a continued strong improvement from Q3. Sequentially, AWP and MP bookings were up dramatically. In addition to sequential strength in bookings, AWP bookings were flat with last year's pre-COVID levels and MP's bookings were up 53%.

Year-end customer backlogs increased 25% over prior year pre-COVID levels. Our stringent cost control and producing to customer demand helped us deliver operating margins in line with prior year on 11% lower revenues, even with $18 million of restructuring and related charges.

AWP recorded near breakeven operating margins, including $11 million of restructuring charges on revenue down 18% from the prior year, representing a decremental margin of 7% or an incremental margin of 3% when excluding restructuring and related charges. We are driving improvement in AWP's profitability to restore the segment to industry-competitive margins, and we will continue to take the actions necessary to deliver on that improvement.

Our MP segment achieved outstanding financial results, reporting a 15% operating margin, while revenues were down slightly year-over-year, reporting an 82% incremental margin.

Throughout 2020, we rightsized our inventory levels to the customer demand environment, especially in our Genie business. Their inventory levels remain consistent with 2016, which was the last time there was an industrial downturn. In 2021, Aerial products will manufacture to customer demand.

Our intense focus on net working capital management drove $129 million of free cash flow in the fourth quarter, delivering excellent full year cash flow generation. Overall, our Q4 financial performance demonstrated strong execution by our global team. We are committed to improving these results in 2021.

Please turn to Slide 5. In 2020, we evolved from our Focus, Simplify, Execute to Win strategy to Execute, Innovate and Grow. This transition in strategic priorities has strengthened our business operations. Strategy requires action. So we took swift and decisive measures in 2020 to improve, strengthen and position Terex for growth.

On the cost side, we looked at every aspect of the business to ensure we maximize our ability to be globally cost-competitive. We aggressively took out costs, not just manufacturing costs, we also executed on an SG&A cost reduction initiative with a target of SG&A percent of sales for 2021 of approximately 12.5%.

Turning to innovation. We listen to customers to ensure our products and services offer the features and benefits that provide value. We also invested in our connected assets and digital capabilities across the enterprise to better serve customers. We continue to drive global adoption of our products, Genie scissors and booms for working safely at height, and mobile crushing and screening products for aggregate production. Finally, we maintain our results to invest in the business for future growth.

Please turn to Slide 6. Looking ahead to 2021, we recognize that execution is the foundation to deliver on our commitments to team members, customers and shareholders. The hard work to rescale the company's cost structure will be aggressively managed to achieve our strategy of being globally cost competitive. We will continue to invest in innovative products and services to serve our specialized markets.

Terex is well positioned for growth in 2021 because we have strong businesses, strong brands and strong market positions upon which we can grow. We will continue to invest, including investing in new products and manufacturing capacity where demand calls for it. And we're a more focused organization. I am confident this will result in Terex being an even stronger company.

With that, let me turn it over to Duffy.

Thanks, John. Turning to Slide 7. Let me begin by reviewing our Q4 financial results. I would like to call your attention to our financial reporting structure. As you will notice, consistently throughout 2020, we did not report adjusted financial results. Instead, we are identifying specific financial call-outs which impacted our Q4 reported results.

Looking at the fourth quarter, we achieved net sales slightly higher than our outlook from the beginning of the quarter. Throughout the quarter, we saw our end markets continue to stabilize and improve. Overall, revenue of $787 million was down 11% and year-over-year. For the quarter, we recorded an operating profit of $32 million compared to adjusted operating profit of $36 million in the fourth quarter of last year.

The overall operating profit resulted from revenues being down, combined with $18 million of severance and restructuring charges, primarily in our AWP segment. We achieved this positive operating results through disciplined cost control and adapting to the market environment.

While lower revenues impacted our gross margin and resulted in elevated SG&A as a percent of sales, our aggressive cost-reduction actions allowed Terex to achieve an approximately 5% decremental margin in Q4. This decremental margin was achieved despite $5 million of gross profit charges primarily due to restructuring. In addition, SG&A was adversely impacted by $13 million, primarily due to team member severance and restructuring. Excluding these charges, operating profit was $49 million, and Terex achieved an incremental margin of 13% in the quarter.

Below operating income, interest and other expense was almost $10 million lower than Q4 of 2019 because of several factors, including: first, lower interest rates versus a year ago; second, $4 million of investment income; and third, nonrecurrence of $2 million in FX losses recognized in the prior year.

Our 2020 global effective tax rate was approximately 18% compared to our previous estimate of 52%. During the fourth quarter, there were a few discrete items benefiting our Q4 tax rate. Finally, our reported EPS of $0.21 per share includes the adverse operating impact on gross profit and SG&A offset by the favorable benefit in other income that I just discussed.

Turning to Slide 8 and our segment financial results. AWP sales of $412 million contracted by 18% compared to last year, driven by end markets in North America and Europe due to the impacts from the pandemic. The Aerial products market and our sales in China remained robust. The Utilities market remained stable and improved during the quarter across end markets.

We continue to aggressively manage production levels in Aerial products to ensure that we are not building excess inventory. During Q4, our Aerial products production was 16% lower than Q4 2019. This continued aggressive production control allowed us to achieve almost $180 million reduction in Aerial products inventory levels year-over-year.

AWP delivered flat operating margin in the quarter, driven by aggressively rightsizing production and cost to align with end-market demand. AWP achieved strong decremental market performance of 7% in the quarter, which includes $11 million of charges for severance and restructuring. AWP fourth quarter bookings of $753 million were flat with pre-COVID Q4 2019 levels, while backlog at quarter end was $826 million, up 10% from the prior year.

Now turning to Materials Processing. MP had another strong quarter, achieving 15% operating margins as markets continue to improve. It is a testament to the MP team's operational strength to deliver these positive operating margin on revenues down 3%. Sales were lower at $366 million driven by cautious yet improving customer sentiment. The MP team has been aggressively managing all elements of cost in a challenging market environment, resulting in incremental margin performance of 82%.

Backlog of $523 million was 59% higher than last year and up 81% sequentially. MP saw its businesses strengthen through the quarter with bookings up 53% year-over-year and up 76% sequentially. Customer sentiment in both segments continues to improve as equipment is being utilized and ordered for 2021.

Turning to Slide 9. Overall, 2020 demonstrated the resilience of market and team members to deliver these results against a very challenging backdrop. Significant cost actions reducing SG&A by $82 million from 2019 helped deliver 21% decremental margin and beat our 25% target. In addition, strong positive cash flow generation was helped by tightly managing net working capital and aligning production to demand.

Turning to Slide 10. When the pandemic arose in the first quarter, we quickly refocused our investment initiatives and took decisive action to reduce our overall cost structure through temporary and permanent actions. And over the course of 2020, we instituted an SG&A cost-reduction initiative, not just in corporate, but across the entire company.

We always had an SG&A target going back to our 2016 Analyst Day of 12.5% to sales. As detailed on this slide, we took a variety of actions to reduce our cost base, whether it was moving our corporate headquarters, improving productivity and selectively rescaling investments, we scrutinize every possible expense.

The result of these actions is that we were able to reduce our SG&A cost structure by more than $100 million for 2021 versus 2019 and delivered the improved results detailed in my earlier comments. These actions have enabled Terex to come into 2021 well positioned to meet the 12.5% target.

Turning to Slide 11. Now I'd like to update you on how we currently anticipate 2021 to develop financially. It is important to realize we are operating in an unprecedented period and results could change negatively or positively. Disruptions associated with COVID, whether it is team member absenteeism or supply chain disruptions, could impact our outlook. With that said, this outlook represents our best estimate as of today.

Also, consistent with 2020, we do not plan to report adjusted financial results in 2021. The outlook included on this chart includes all known income and costs but does exclude the impact of potential future acquisitions, divestitures, restructuring transformation or other unusual items. As we identified currently unknown income or costs, we will identify them in our reported results.

As for commercial demand, we have seen our markets stabilize and improve over the course of 2020. All other things being equal, we do expect to see markets improve due to the global deployment of COVID-19 vaccine and AWP customers' fleet replenishment. However, our guidance does not include any benefit from potential infrastructure legislation.

We anticipate EPS of $1.95 to $2.35 per share based on sales of approximately $3.45 billion. From a quarterly perspective, we expect revenues for the full year to be relatively evenly split between the first and second half of the year, with the second quarter being the strongest of the year. We look forward to returning to year-over-year sales growth in the second quarter this year.

Operationally, the absolute amount of operating profit and operating margin are expected to increase each quarter year-over-year with slightly more operating profit in the second half of the year versus the first half of the year. Importantly, we are planning for and look forward to reporting incremental rather than decremental margins, which meet or exceed our 25% target for full year 2021.

Quarterly earnings per share are expected to be generally consistent with the development of operating profits during the year. Based upon global tax laws, we expect a 2021 tax rate of 19%. We are monitoring potential changes to tax laws in the United States and around the globe, and we will adjust our operational and tax strategies as required.

For full year 2021, we are estimating free cash flow of approximately $100 million reflecting another year of positive cash generation. We do expect Q1 cash flow to be negative, which is consistent with historical patterns. We also estimate capital expenditures, net of asset dispositions, will be approximately $9 million.

Corporate and other costs are planned to occur relatively evenly throughout the year, although Q1 is expected to be slightly lower and Q2, slightly higher than the average. We continue to monitor developments associated with the U.K.'s exit from the European Union and do not expect any material impact.

Now let me turn your attention to the operating margin bridge on the slide. We believe it is important that the investment community understands the key elements of our operating margin improvement in 2021. First, cost reinstatements represent the restoration of team members' compensation after the reductions we enacted in 2020. It is important to pay team members competitively to retain our talent.

Next, I would point out that positive volume and improved manufacturing efficiency will drive much of our margin improvement. Additionally, our SG&A cost-reduction effort also provides significant improvement in our 2021 operating margin. Finally, we did have severance, restructuring and other charges in 2020 that are not expected to reoccur in 2021. Taken together, these operational improvements drive our 2021 operating margin guidance of approximately 7%.

Turning to Slide 12. Now I'll review our segment guidance. We expect the improved customer sentiment demonstrated by our Genie and Utility customers to continue into 2021. AWP margins are expected to be positive each quarter of 2021, with incremental margins well above our targeted 25%. Materials Processing is expected to continue its consistent operating performance, delivering double-digit operating margins each quarter throughout 2021.

Following the run-up in steel prices in 2018, we implemented a steel hedging program with respect to our Aerial's North American hot-rolled coil, or HRC, steel consumption. Approximately 2/3 of our Aerial steel consumption is HRC. You may be aware that there is not presently any forward market for hedging plate steel.

During 2020, we purchased hedges for the predominant amount of our anticipated 2021 North American Aerial HRC requirements. The guidance we are providing today takes into account the steel hedging actions we took in 2020 as well as current steel prices for the remainder of our global steel requirements.

Overall, our 2021 guidance represents a dramatic improvement in operating performance when compared to 2020. The swift and decisive actions taken in 2020 enabled this outlook, and we will continue to aggressively manage costs while positioning the business for growth.

Turning to Page 13, I'll review our disciplined capital allocation strategy. We introduced our strategy back at our 2016 Analyst Day. It has served the company well during the pandemic and will enable us to grow in 2021. Our team members remain vigilant and will continue to aggressively manage production, especially within our AWP segment and scrutinize every expenditure so we continue to generate strong, positive free cash flow.

We have ample liquidity with greater than $1 billion available to us. With no near-term debt maturities, we can manage and grow the business. In 2021, we have entered into a partnership with a U.S. bank to provide financing solutions to our Genie customers.

In connection with this arrangement, last week, the bank purchased approximately $100 million of our Terex Financial Services portfolio of receivables. As a result of our strong liquidity position, including the proceeds from the sale of the TFS on-book portfolio, we initiated this week the repayment of approximately $200 million of term loans, reducing outstanding debt and lowering leverage.

In Q1, we will recognize the corporate and other operating gains of $7 million in connection with the TFS sales, and an interest and other charge of $2 million related to the repayment of the term loans. Neither this gain nor the charge is included in the financial guidance we are providing today.

Turning to growth. We continued to invest in the business in 2020 at reduced levels, and we'll continue to invest in 2021 with capital spending, net of asset disposition, of approximately $90 million. In 2020, we executed strong and swift actions to rightsize the business so Terex can profitably grow in the future. We remain resolute in tightly managing production and SG&A.

Our strong balance sheet and expected 2021 free cash flow generation allowed our Board of Directors to reinstate our quarterly dividend for 2021. The Board has approved a Q1 dividend of $0.12 per share as we return cash to shareholders. Our earnings power and healthy capital position provides a strong foundation for us to manage and grow tariffs.

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

Thanks, Duffy. Turning to Slide 14. This quarter's results demonstrated progress, but we have more work to do. Our Aerial team has stayed in close contact with our customers during this critically important part of the year when customers are planning their 2021 requirements.

Being customer-centric also means developing products that add value for customers at the appropriate price. We are delivering a new electric drive, or e-drive scissor, and just recently announced a brand-new telehandler. These products demonstrate Genie's strength in listening to customers and responding with innovative industry-leading products.

During 2020, we invested in the expansion of our world-class manufacturing facility in Changzhou, China, and completed our Watertown, South Dakota Utilities facility. The Utilities business is a very important growth area for AWP. The TL shown at the top of the page is a new product to take advantage of the adoption of transmission line work in China. At the bottom of the page, the photo shows the customer delivery from our Watertown facility. Terex Utilities is well positioned to participate in the increased investment in electrical grid infrastructure.

From an operational perspective, the AWP team executed in Q4 by delivering breakeven operating margins despite $15 million of restructuring charges, aggressively taking costs out of the business to improve the ability to deliver future industry-competitive margins and innovating by continuing to bring new products to market. It is a competitive industry so we are controlling what we can control, superior execution and aggressively reducing costs to improve margins and win in the global marketplace.

Turning to Slide 15. Once again, Materials Processing demonstrated strong operating performance and position the business to benefit from improving market conditions. MP is a diversified, high-performing portfolio of businesses, which continues to invest for future growth. The investment in our Campsie, Northern Ireland facility will enable our Ecotec business to grow in waste recycling. Shown on the slide is a new Ecotec metal shredder, which supports recovery applications for the recycling and waste industries. It is a new and unique offering, demonstrating MP's continued investment in new products and adjacent markets.

In addition, the adoption of MP's innovative products, whether it's mobile crushing and screening in China or Franna Pick & Carry cranes in India, is just starting. The financial performance of MP relative to market conditions, by achieving an operating margin of 15% in Q4, demonstrates the MP team's strong execution. MP's bookings improved and increased throughout the fourth quarter, resulting in bookings being up 53% year-over-year. MP benefits from customer product and geographical diversity and strong execution to consistently deliver outstanding results.

Turning to Slide 16. To wrap up our remarks, Terex team members around the world are focused on the right things: safety, health, customers and improved productivity. We are reducing costs to improve margins, especially within AWP. We are driving positive free cash flow by reducing working capital. Our businesses have a strong future, so we are continuing to invest in innovative products and services to be prepared as market demand returns. As a result of these actions, Terex is well positioned for an improved 2021.

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

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

(Operator Instructions) Our first question is from Stephen Volkmann with Jefferies.

So lots of moving pieces here. So maybe not surprisingly, I'll start with AWP. Maybe first, can you just remind us how much you actually underproduced retail in total for 2020?

Thanks, Steve. In general, say right around 80% we produced to the end-market demand, if you will. And obviously, you see that in the significant reduction in inventory that we had throughout the course of the year.

Right. Yes. That was a strong inventory reduction. But I'm just thinking ahead now to 2021, where you won't be doing that, I guess. So in light of that, I guess I'm struggling to think about what the end market growth that you're thinking about is, because it feels like you can kind of hit your revenue target just by producing back to retailers, even if things were kind of flat.

We are -- as you see, we are anticipating growth in that 12% to 12.5% range, Steve. We did see the global end markets improve as we went through the quarter. And in North America, we saw utilization improve. It's an important time of the year, so our negotiations with our customers in terms of their needs for 2020, so we saw some strengthening of orders there. I would also say we are encouraged by the mix. We saw the independents come back into the market.

So in North America, we think the market is going to rebound off some very low levels as you see. But again, rail customers are being cautious. They're managing their utilization. They're managing their fleets. And we are anticipating growth. We'll see how it plays out. But right now, we're optimistic we're going to experience some growth as we move into 2021 as the fleet customers manage their inventory -- I'm sorry, their capital.

So Steve, let me just jump in for a second, if I could, though, because I think it's also important is that our Genie team is selling product directly to the rental customers. There's no, if you will, re-dealer network in between. So production doesn't really equate to sales. When we produce product, it goes into inventory. And so the revenue is really going to be driven by the rental channel demand. We produce it -- when we produce in line with retail demand, that will help our cost of goods sold because we'll be more efficient from a manufacturing perspective, but it doesn't increase revenue.

Okay. All right. I understand that. And Duffy, while I have you, the flip side of this is your incremental margin forecast for AWP is actually quite robust. And so I guess I'm wondering if you can just give us some buckets of sort of what really drives that margin higher, significantly above your incremental targets for '21, and then I'll pass it on.

Sure. So first and foremost is what I was just referring to, which is that during the course of 2021, we do anticipate that we will manufacture in line with the customer demand or the sales. Whereas in 2020, as John indicated, we were manufacturing at about 80% of revenue for Genie. So as a result, the fixed costs of the business were being spread over a much smaller base of manufacturing than they're going to be over the course of 2021. So manufacturing efficiency, first.

Second, John has been doing an excellent job of making the manufacturing operations -- and the Genie team, not just John, but John and the Genie team have been doing an excellent job of taking manufacturing costs out of the Genie manufacturing. So that costs, whether it be in the indirect side or the direct side is going to make us more efficient.

Our SG&A cost-reduction initiative, which was company-wide is also the supporting the growth in the AWP margins or in the Genie margins for 2021. And then obviously, the higher volumes that they're anticipating for 2021, all of those are driving the margin improvements that you see for our AWP segment, principally the Genie business.

Great. Well done, John.

Thank you. Thank you to the team.

Your question is from Mig Dobre with Baird.

My first question is really on your ability to ramp production going forward, things are getting better, right? So I'm wondering how you're managing the supply chain. Have you seen any disruptions there? And as far as your comments on steel, I appreciated that color. But I guess what I'm wondering is, as you're seeing incoming orders, right, in your order book of sales relative to your plan and to the guidance that you have provided, how flexible is your pricing going forward? Will your pricing be able to adjust to reflect these higher material costs above and beyond maybe what you brought forward at this time?

I'll take -- let me start with the first one, Mig, on the supplier continuity, and then we'll -- I'll also cover, just in general, the pricing strategy that we are executing for of 2021. So on the supplier continuity side, you're correct, the opportunity this year and challenge -- last year was a problem, we didn't have demand. This year, it's an opportunity and a challenge to meet the demand as it increases. A lot of the hard work that our strategic sourcing teams and purchasing teams have done over the last couple of years has helped. We have improved our overall supply base.

With that said, like many manufacturers, we are seeing delays in inbound material. Principally, Mig, that's global logistics. Started in shipping, shipping is starting to free up right now. But containers remain an issue. And depending on which ports you're going into, can then delay the offloading of the material. So the team is managing that disruption day-to-day.

From a COVID standpoint, Mig, in the fourth quarter, we did see disruption with certain suppliers that had COVID-related impacts. That's improved as we moved through the quarter. But again, COVID's still out there. So the team's doing a great job managing that. And again, as a result of strategic sourcing initiatives, one other thing that we did was our global logistics suppliers. And so we believe we have the best in the world to help us manage through this period of time. It is creating disruption, but the team is doing a really good job managing that disruption day-to-day, and that will be the key as we move through the year.

My personal view is, as we move through the year, that it will improve -- all of us, our highly motivated suppliers and everyone to produce and get out of what we experienced in 2020. But the team is managing day-to-day disruptions and that will be important for us to continue to do so as we go forward. So that's the supply side of the equation.

On the pricing side, Mig, our pricing strategy this year in the environment is really price to offset material cost inflation that we're seeing. So I'd say price cost neutrality. So we're trying to get pricing from our customers to reflect the material cost environment that we're in, realizing that we have to control a great deal of it. But overall, that's what we're striving for in 2021 is price cost neutrality so that we can at least offset some of the material cost increases that we're seeing around the globe.

Okay. I see. And then my follow-up is on Materials Processing. Looking at the orders you booked in the quarter, quite impressive. I've not quite seen orders like this before, I don't think. Can you give us a sense for some of the moving parts here? I know you've got quite a few verticals within this segment nowadays. I'm also wondering, is there any -- if there's anything happening with the channel in terms of potential reflux from your deals?

Thank you. So yes, MP had a very strong quarter, and we saw the global end markets. And the encouraging thing with MP is it is truly global and it is across the verticals that we operate in. Our crushing and screening business saw good order activity. We saw that as the year progressed. We saw utilization through our telematics continue to indicate good utilization of the equipment.

You're right, Mig, about 70% of that business goes to dealers. But this isn't -- the model is the dealers really have inventory that's out in a rental purchase option-type environment. And so what we saw was good utilization by end customers. And then conversion of those rental contracts into ownership, which then enabled the dealer organizations to order back. And that's what we saw in terms of the order activity.

And I would say it was broad-brush, our crushing and screening business. In the U.S., our mixture truck business, with strength in the residential area, we saw really good growth there. We saw a recovery in our Material Handling business, which was a very challenging year in 2020 for Fuchs. But one of the benefits of rising steel prices is rising scrap prices, so we saw a recovery there in the fourth quarter in orders in that business.

Our environmental business. This is a new business that Kieran and the team have built over the last couple of years. Again, good global growth across our biomass and our recycling side in that segment. And last but not least, our lifting businesses, our Pick & Carry business down in Australia had a good year. Australia weathered the COVID storm a lot better than other places. And they had a good year. And then we saw some improvement in orders in our towers business.

And finally, we saw improvement in India. India was hit very hard by the COVID in the second quarter. And as we move through the year, we did see some improvement in India. So what's encouraging for us about the MP side is it truly is global and it is across the verticals that we compete in. So it was encouraging to see those results, and we're looking forward to 2021 on the -- on both businesses, but MP is in a very good position starting the year.

Your next question is from Ann Duignan with JPMorgan.

Could you just address the margins in Material Processing in the fourth quarter? How much of the margin increase or the margins delivered was driven by the lower cost base in Northern Ireland and the cost base being in pounds rather than euro? And is that a competitive advantage going forward versus your competitors who would probably be mostly cost-based euros?

You want to go ahead and cover the margin aspect, Duffy?

Sure. So I would say, Ann, that the principal benefit we saw in the fourth quarter for the MP margins was really the mix of product sales that they had, both regionally and by business. We saw particular strength in the fourth quarter in our crushing and screening business and concrete businesses. And regionally, both in North America. We certainly -- our MP team is really strong operationally and they have a tremendous cost focus. They're able to adjust their production and their cost structure to the industry environment.

But you are absolutely correct that Northern Ireland is a very advantageous cost structure for manufacturing for us. I would not say that FX, whether it be the British pound or any other currency, was a significant driver of the margin performance in the quarter, but rather mix of businesses, strong North American sales, and finally, strong cost control by the MP team.

Okay. I appreciate that color, particularly on the mix in Q4. Then on AWP on orders, is there any concern or can you quantify at all any impact, particularly from the independents who might be pulling forward orders ahead of anticipated price increases? I mean, everybody is watching steel prices and I'm assuming all your customers are looking at that, and we've been through this show before. So can you tell how much of your strong orders in Q4 might have been pull-forward of demand ahead of anticipated price increases?

Ann, we did take a price increase as part of the orders that we booked in Q4, anticipating the cost increases in 2021. So now, I don't think we saw any "pull-forward". I think it really was the independents coming back into the market to replenish their fleets because they, like the large nationals, did manage their fleets over the course of 2020 in response to the market demand. So I think it's more about this response to the opportunities that they see in the marketplace and their aggressive fleet management that they had in 2020.

Your next question is from Jamie Cook with Credit Suisse.

Nice quarter. I guess my first question, can you just talk to order trends that you've seen so far in January and February with some of the rental companies coming out with fairly robust CapEx numbers? So I'm wondering if your orders have started to accelerate relative to what we sort of saw in the fourth quarter. And then I guess my second question is, John, just because you've been wearing 2 hats for a while now. As you think about the progress that you've made in Aerial Work Platform, what inning of the ball game are you in, in terms of sort of restructuring and thinking about your ability to get margins back to sort of where your competitors are or prior peak levels?

So thanks, Jamie. In terms of trying to provide in-quarter guidance, I would say that from a customer standpoint, we've progressed, from an order standpoint, several large national accounts completed the order activity at the end in December. Several large national accounts are continuing their dialogues with us as we progress through the quarter. So that activity is ongoing. And I would say we're optimistic based on what we're seeing, based on how the rental customers manage their fleet in 2020, they do need equipment in 2021. So I would say that's what we've seen from a customer standpoint. And then on your second question, Jamie, could you repeat that, please?

Yes. My second question was just on the Aerial Work Platform side. You've done a lot to restructure the business. You're seeing that margin improvement in 2021. But I guess my question is what more needs to be done from your perspective? What inning of the ball game are you in, in terms of what needs to happen to get the margins over time back to prior peak or more comparable to your peer levels?

Thank you. I will say this, Jamie, I'm not necessarily going to speak to what inning, but the management team -- firstly, we have a strong management team in our Genie business, and they are absolutely focused on driving margin improvement in the business. I was proud of our -- we've talked about commercial excellence over the course of the last couple of years, really proud of the commercial teams and how they stayed in close contact with customers through these challenging times, driving some process discipline there, improving our SIOP process. So more to come there. We have to invest a little bit more on our technology and our systems, but the team made good progress.

On the development side, Genie has been known for strong product development with the product offerings that we have. We're going to continue to bring innovative products to the marketplace, purposeful innovation of products that are more cost-effective for us to manufacture or more cost-effective for our customers to operate. So you can expect us to continue that activity going forward.

On the manufacturing footprint, we took action with some of our manufacturing footprint in the fourth quarter. The team will continue, as Duffy said, to manage all elements of cost -- material cost, direct labor cost, indirect labor costs, and we'll leverage the volume that we get as we see the improvement as we go forward. The team's done a really -- it's always difficult on the SG&A side, but the team has done a great job managing our SG&A and positioning the business for success as we go forward.

And then we've continued to invest in our technology and our processes and our systems, our parts and service. And so that investment -- we mitigated or ameliorated, as I should say, slightly in 2020. You'll see us continue to make the investments on the Parts & Service side of the business, because we think there's still continued opportunity for us to drive improvement.

So overall, the team made a lot of progress. But we know, as you mentioned, our margins are not where they need to be relative to competitors, and the team and I understand that's not acceptable. And so we're going to continue to drive the actions necessary to close that gap as we move forward.

Your next question is from David Raso with Evercore.

Within the AWP outlook, the Utilities business, I was interested in your comments about the key part of the growth story. Can you give us a sense of the non-AWP growth you expect in that AWP segment?

Yes. Thanks, David. And you're right with the Utilities segment. And let me just talk a little bit about what we saw in 2020 and then what we're anticipating for 2021. One of the things we do like about this business, David, is the demand is more stable. So we saw stable demand in 2020 for the investor-owned utilities, the co-ops and [vegetation care] part of the business. So that was reasonably consistent in 2020.

What we did see fall off in 2020 and come back from an order standpoint here at the end of the year was the specialized rental channel that really focuses on the contractors, the specialized contractors in that business. And like many of the rental channels, we did see their demand fall off as we went through the course of the year. But we did see that respond nicely here in November and December on the rental contractor side.

So we're encouraged by the demand environment there. We do think we're going to see substantial growth. The team did a great job, David, opening a plant in the middle of a pandemic, so now we have the capacity available to meet the higher demand that we're seeing. And again, a much more steady stream of revenue in the Utilities side versus some of the other elements of AWP. So again, the team had a good year, challenging year, but did a great job getting the new plant up and operating. We're seeing good order activity. And so we like our position and opportunity to grow that business as we go forward, David.

But just so I'm clear, do you think utility is above segment average growth, right? The segments being guided at 12% and you used the word substantial, I just want to make sure and it's really not...

Call it in the same ballpark, David. Same ballpark.

And then AWPs, the rental customer conversations, I assume they at least give you some look into on a multiyear view how do they of their needs, where the fleet age is. And nothing really matters until they sit down and put an order and you get it. But when we think about the conversations you're having today -- and we've all been to the stance about infrastructure builds and then they don't show up or they don't show up the way you would have thought. But given what's happening in Washington with the infrastructure bill, are you starting to have conversations with these customers, at least giving you some insight on what '22 and '23 could be, what their needs could be if there infrastructure build? Is that even part of the dialogue at all yet?

David, I will answer it this way. The replacement cycle in the Aerial business, principally in North America and Europe, and we've talked about it, but there is a replacement cycle given the age of the equipment coming up as we move into '22 and '23. And that's just based on how they manage their fleets. They understand the optimal time to sell their equipment into the used market. I might say they had a really good year in 2020. They got good used equipment sales and used equipment value. So we are unequivocally going to see a replacement cycle as we move into '22 into '23 just associated with the age of the fleets in North America and Europe.

As it -- in terms of infrastructure, David, I'm more encouraged than I have been historically about the potential for infrastructure. Clearly, infrastructure will help our business. As Duffy said in his comments, we're not planning on it in 2021. But if we take a step back, we're advocating strongly -- in my CEO role, we're advocating very strongly as part of AEM around infrastructure. There is an absolute need and there's a potential opportunity for bipartisanship on one issue, that being infrastructure.

So I think it's too early to call the balls, David. But you and I have been around a long time, I think it's setting up for their -- may actually get something done, but that's going to be a '22, '23 type time frame. And again, we'll see how that plays out, but we're absolutely confident there's a need, now the issue is can we get the political will and political action to make it happen.

Thanks, David.

Your next question is from Jerry Revich with Goldman Sachs.

John and Duffy, I'm wondering if you could just talk about your AWP sales outlook comments within the context of rental CapEx budgets that are essentially doubling for some of your bigger customers just as they go from shrinking their fleets in '20 to not shrinking their fleets in '21. So I understand the desire to be conservative coming out of the pandemic, but that's up 10%, then up 100% is a pretty wide gap. So can you just expand on that? And if you do need to produce at the up 50%-plus base level, do you think the supply chain can deliver if you have to flex up towards the higher end of your scenario planning for '21?

Yes. So in terms of -- our conversations have gone well with the large rental companies. And as I said in my earlier comments, Jerry, they're continuing for several of them. Yes, their CapEx is up, but it's up from a very low level. So the percentages are impressive, but we have to look at the base in terms of what they did or did not spend in 2020. But again, it's encouraging to see that they're managing their fleets and that they need equipment. We're getting their best look at how they're anticipating their years unfolding and we need to be in a position to meet that potential opportunities I spoke.

We are seeing disruption in the supply chains, but the teams are doing a good job managing that. Historically, our Genie business has done a good job of ramping up and down, unfortunately, to demand. So what I can say is we're staying in very close contact with our customers. They're giving us their best look at what their requirements are for 2021 and we're setting up to meet those requirements. So again, it's encouraging that we're talking about growth. And the absolute amount of growth, we'll see how the year unfolds.

Okay. And then, John, if demand does surprise to the upside relative to your sales guidance in AWP, how should we think about incremental operating leverage on the incremental sales? Is there upside versus the 25% target that you have simply because of really attractive absorption rates off of a low base, as you pointed out?

Yes. I think you can see that our current outlook calls for substantially above the 25% target in our incremental margins in 2021. And so that's what we're planning on. If we get the volume, it will definitely substantiate those -- that margin outlook as we go forward. Over time, again, as Duffy indicated, we are getting the leverage in 2021 from the increased production levels. So we are anticipating substantially better than our 25% target in 2021.

Thanks, Jerry.

Your next question is from Ross Gilardi with Bank of America.

I was just wondering if you could talk a little bit more about your MP business, which is obviously doing very well. I mean within MP, you've got some quarry and aggregate exposure. You saw orders pick up strongly in the second half. The industry bellwether has been blaming quarry and aggregate for softness in the mining segment for the last 6 quarters, and I was just wondering if you could talk a little bit more about your mobile crushing and screening business.

From a top line perspective, did it outperform the broader MP segment in 2020? How fast do we think it goes to the cycle? And is it at all disruptive to the workings of a traditional rock quarry or mine to the extent that just wider penetration of mobile crushing equipment could be displaced in equipment for demand for traditional pieces of equipment, including trucks?

So a lot there, Ross. I think in terms of what we've seen over time, you're absolutely right, the adoption of mobile crushing and screening technology has continued to increase and that principally is because you can move the equipment to the quarry. In terms of our business in terms of mining, we weren't really -- we're not necessarily at the mine phase. We're downstream from that. But there's no doubt the adoption of mobile crushing and screening equipment is providing operators the flexibility that they need. And we've seen that adoption in the more mature markets, so call that North America and Europe. But we're also beginning to see the adoption of this technology in places like India. And it's just starting, I mean just starting in China.

So we do think the trend of mobile crushing and screening equipment will continue because it does drive efficiency for operators -- quarry operators and customers. So that's a trend that we think will continue. And we like our leadership position in that mobile crushing and screening segment. And we're expanding in places like India and China to take advantage of those adoption trends.

Would you call quarry and aggregate like one of your softer end markets this year? Or has it actually been an end market that kind of outperformed to the downside through the pandemic?

I would say it's a consistent performer. And it was consistent through the pandemic. And then from an order activity, we did see good order activity as we got into the fourth quarter. As I said, the model for that distribution channel is dealers really have the equipment out with contractors on RPO type of contracts. We saw utilization stay high and those contracts got converted, which enabled the dealer organization to then order back. And so we did see that activity in -- through the course of the year, especially the second half of the year.

Our next question is from Steven Fisher with UBS.

Great. Wanted to just follow-up on the discussion on Materials Processing because it was a really solid quarter. And you mentioned the broad strength, particularly looking at the backlog being up close to 60%, but the revenue growth target still really only down at around 12%. So just curious what the disconnect is there between that backlog growth and the revenue target, because I think over the last few years, that backlog has been a pretty good indicator of where the revenue growth could be. Is there something -- is it just sort of a 1- or 2-quarter replenishment of that channel and then the back half will be weaker? What's the reconciliation there?

Yes. Thanks, Steven. Just from a -- the way that business works is it's a shorter-cycle business for the dealer channel. So shorter-cycle distribution channel ordered back. We see it in backlog. They'll turn that backlog quicker. And then we'll see -- again, the model is the dealers, they put it out principally on rental type of contracts, does that rental convert to ownership? If it converts to ownership, then the dealers are ordering back. They're not ordering equipment in this channel to put on a lot. And so we'll see how the year progresses. We're encouraged by the backlog and the early indications of the performance of the business as we move through 2021.

Our final question is from Rob Wertheimer with Melius Research.

I'm wondering, there's been a lot covered, but I just want to ask if you gave any update, as you have in the past, on the market development and competitive development in China? And maybe a quick comment on an Aerial specifically, but maybe you touched on the other segment. And maybe a quick comment on Latin America, if there's anything interesting happening?

Thanks. I'll answer the last question first, Rob. There's not a lot going on right now in Latin America. That market is -- has been soft and we're not anticipating significant recovery in Latin America in 2021. In terms of the China development from an Aerial's perspective, the China market recovered significantly after the second quarter and the growth of Aerial equipment in China has increased substantially. So the China market rebounded, frankly, as strong as any other market. Frankly, stronger than any other market. Again, the adoption of Aerial equipment, working safely at height continues in China. So we saw the overall market grow substantially, and we did see growth in 2020 and we're anticipating continued growth in 2021 in the aerials market.

As it pertains to the other businesses within China within MP, it's in the infant stages. We are doing some utilities within our AWP segment in China. We think that's a growth opportunity. And mobile crushing and screening equipment, we're importing into China now and that's not a long-term strategy. So we'll be looking for localized manufacturing of our equipment in MP and our Changzhou facility will help us with that. So we do think there will be growth. It's very small right now in China, but we do believe over time, we'll experience good growth in the MP -- certain MP verticals within China as we move forward.

I'd now like to turn the call back to presenters for closing remarks.

Thank you, operator. I'd like to end today's call by thanking where I started, thanking our frontline team members and also those working from home who quickly adapted to the pandemic and really are working safely to keep our customers and our communities safe.

I also hope that you and your families are remaining safe and healthy by following the COVID-19 protocols. And I would strongly advocate that we all do our part in being vaccinated when it's our turn.

So again, thank you for your interest in Terex. If you have any additional questions, please do not hesitate to reach out to Duffy and Randy, and have a great day. Thank you.

This concludes today's conference call. You may now disconnect.