Terex Corporation

Good morning, my name is Shelly and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2018 Terex Corporation earnings conference call. All lines will be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. And if you would like to withdraw your question, press the pound key. Thank you. Brian Henry, Senior Vice President, Business Development and Investor Relations. You may begin your conference.

Good morning, everyone, and thank you for participating in today's fourth quarter 2018 Financial Results Conference Call. Participating on today's call are John Garrison, Chairman and Chief Executive Officer, and John Sheehan, Senior Vice President and Chief Financial Officer. Following the prepared remarks, we will conduct a question and answer session. We have released our fourth quarter 2018 results, a copy of which is available on Terex.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. All adjusted for share amounts in the presentation are on a fully diluted basis. We will post a replay of this call on the Terex website under Events and Presentations in the Investor Relations section. Let me direct your attention to slide two, which is our forward-looking statement and description of non-GAAP financial measures. We encourage you to read this, as well as other items in our disclosures, because the information we will be discussing today does include forward-looking material. With that, please turn to slide three, and I'll turn it over to John Garrison.

Good morning, and thank you for joining us and for your interest in Terex. Overall, our global team executed well in the fourth quarter, completing a year of significant growth and considerable earnings improvement. We made progress implementing our strategy and are seeing the results in our performance, expanding operating margins, and doubling full-year earnings per share. Our global markets remain strong. We increased backlog in every segment, up 19% overall. This growth is on top of the strong backlog we had at the end of 2017, a clear indication that our commercial strategies are working and the markets we serve continue to grow. AWP grew sales by 24% in 2018 and expanded their operating margin by 200 basis points. We are encouraged by the strength of the North American rental markets, where our customers continue to anticipate growth and continue to increase Their capital expenditure plan. Crane's delivered on its commitment to generate a profit in the fourth quarter. Improvements made in materials management enabled better manufacturing productivity and customer deliveries. MP continued to execute at a high level, growing their fourth quarter sales by 20% and expanding operating margin by 150 basis points. For the full year, MP grew sales by 17%, and increased operating profit by 32%. A great year for our global MP team. Turning to slide four, we made progress implementing our strategy in 2018. An area of intense focus for us is safety. We're developing a zero harm safety culture across Terex that puts safety first in every aspect of our business. We continue to make progress in 2018, reducing our lost time rate by 27% and improving total recordable rate by 13%. Good results by our team in a year that saw us onboard thousands of new team members across our global sites. It is important to understand that safety performance is highly correlated with overall performance. Companies that execute well on safety execute well in all aspects of their business. Turning to slide five, we have announced the sale of our DMAG mobile cranes business, which sells all-terrain and large crawler cranes produced at our facilities in Freiburg in Germany. The DMAG mobile cranes business has been an important part of Terex for many years, with dedicated team members that have made significant contributions to Terex and to the crane industry. However, after a strategic evaluation, we determined that as a standalone business, DMAG Mobile Cranes was unlikely, within an acceptable time period, to out-earn its cost of capital over the cycle. The combination is based on strong industrial logic. The DMAG Mobile Crane business will become part of a global crane company that is well-established in the industry. Subject to customary regulatory approvals, We expect this transaction to be completed mid-year, and we'll use the proceeds to invest in our existing businesses and reduce outstanding borrowings. We're also exiting the North American Mobile Crane product lines, manufactured in Oklahoma City. These changes will simplify the OKC operation, which will continue to produce telehandlers and refurbished units for AWP and products for materials processing. Reshaping our mobile cranes portfolio is consistent with our strategy to focus on businesses that provide the greatest return to our shareholders. These actions will significantly increase our operating profit, margins, and earnings per share, and will improve our free cash flow and lower our net leverage. We will continue to manufacture Terex-branded rough terrain, tower, and pick and carry cranes. We will also maintain parts, Thank you for joining us today. Our global team will continue to provide exceptional service to our customers. Turning to slide six, during 2018, we continued to implement the simplify and execute to win elements of our strategy. We initiated strategic investments to expand our global manufacturing footprint, including the new utilities manufacturing center in South Dakota and MP locations in the UK and India. These actions are consistent with our disciplined capital allocation strategy. Execute to Win is about dramatically improving our capabilities by investing in people, processes, and tools in our three priority areas, commercial excellence, lifecycle solutions, and strategic sourcing. The improved process discipline from our commercial excellence program is translating into growth and margin improvement. We continue to develop our parts and service organization in the fourth quarter and completed the implementation of a new best-in-class parts pricing system in AWP, utilities, and portions of the MP business.