Terex Corporation

Good morning. My name is Marcella, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Tarex Corporation Tech's Q1 2019 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star and the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. Brian Henry, you may begin your conference.

Good morning, everyone, and thank you for participating in today's first quarter 2019 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 first quarter 2019 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 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. First, I want to thank our global team for their continued focus on our customers, which enabled our overall strong start to the year. Our Q1 performance represents a significant improvement compared to last year. The dramatic increase in operating profit in earnings per share versus the results we presented in Q1 2018 clearly demonstrates the value of implementing our strategy. Building on an excellent 2018, MP increased sales and expanded operating margin again in the first quarter. MP's global markets remained strong and backlog continued to grow up 17% on an FX neutral basis. AWP markets got off to a slower start than last year, but gained momentum throughout the quarter. AWP is well positioned heading into the main selling season with backlog of $1.1 billion. The global markets for AWP, MP, and towers and rough terrain cranes are generally stable at healthy levels consistent with 2018. Turning to slide four, the TARIC strategy continues to be focused a portfolio on great businesses, simplified the organization, and improved the capabilities needed to win in the marketplace. The transition to a more focused two-segment structure, combined with the significant progress we made improving processes, tools, and leadership talent in our priority areas, enabled us to refine our corporate operating model. Each functional area is moving forward with plans that will build upon the progress already made and deliver essential services in the most efficient manner. We are transitioning to a simpler operating structure that will reduce corporate operating expenses. Implementation has started in some areas and will continue throughout 2019. Turning to slide five, we continue to make progress implementing our strategy. The sale of the DMEG mobile cranes business is progressing on schedule. Subject to customary regulatory approvals, We continue to expect this transaction to close by mid-year. We completed the wind-down of removal crane production in Oklahoma City and sold the boom truck, truck crane, and crossover product lines. We are working closely with Todano and Custom Truck OneSource to ensure a smooth transition for our customers. We remain committed to the rough terrain and tower crane product lines in North America and around the world. We are investing in our parts and service organization to support our customers into the future. The resegmentation announced in February is complete and reflected in our financial results and operating structure. Terex Utilities is now in the AWP segment and the pick and carry crane business has transitioned to MP. Our global rough terrain and tower crane businesses are included in corporate. We continue to execute our disciplined capital allocation strategy by investing in innovative products and services and global manufacturing capability. MP announced a new UK manufacturing facility where it will manufacture the Terex Ecotech waste management and recycling product lines and Terex mobile conveying systems. This is part of MP's strategy to add capacity to meet growing demand and simplify its operations. These are new adjacent businesses that MP has created that leverage its engineering and distribution capabilities. The new utilities manufacturing facility in South Dakota remains on schedule despite some severe weather conditions in the quarter. Our commercial excellence teams are focused on improving the customer experience and driving process discipline. Another area we are focused on is improving process and tools for the dealer channel as dealers represent an important part of our overall distribution strategy. Finally, on strategic sourcing, teams in each of our manufacturing facilities are making progress implementing their wave one savings. Wave two savings are being identified and detailed plans, including the ability to fast track certain categories, are being developed. We continue to expect savings of approximately $35 million this year. Turning to slide six. While we are maintaining the full year 2019 guidance that we provided in February, as a result of our strong start, we now expect to be in the upper half of the $3.60 to $4.20 EPS range. With that, let me turn it over to John.

Thanks, John. Let me begin by reviewing our Q1 segment highlights. AWP sales totaled $728 million in the quarter. was impacted by customers postponing some deliveries until the second quarter and the week-long weather-related closures at our Washington State production and distribution facilities in February. Amir revenue was down modestly on currency and delivery timing, while AWP sales grew in Asia-Pacific. AWP's operating margin in the quarter was impacted by the strength of the U.S. dollar, particularly against the euro, which represented a significant headwind in Q1. Lower factory productivity due to a decrease in overall production volume, including the plant closures, also impacted margins. Backlog was stable at $1.1 billion. positioning the segment well entering the strong selling season. Materials processing is a consistently strong performer, evidenced by another excellent quarter. Sales were $346 million, up 10% or up 15% on an FX neutral basis, driven by continued strong global demand for crushing and screening products, material handlers, and Pick and Carry Cranes. The MP team increased year-over-year operating profit by 33% and expanded its operating margin by 250 basis points on an adjusted basis. These results were driven by improved operating performance across the portfolio and effective price-cost management. Backlog continued to grow up 11% to $499 million, up 17% on an FX neutral basis. MP is well positioned across its portfolio of businesses to deliver excellent results again in 2019. The rough terrain and tower cranes businesses that are now reported in corporate performed in line with expectations in Q1. For reference, We added quarterly 2018 continuing operations financial information that reflects the new segmentation to the investor relations section of Terex.com. Let's turn to slide 8 to review our consolidated results. Total sales of $1.1 billion were up 2% or 6% on an FX neutral basis. MP's strong performance more than offset AWP's slow start to the year, leading to a 40 basis point increase in the as-adjusted operating margin. Investment in our Execute to Win initiatives and restructuring-related charges were the primary differences between our as-reported and as-adjusted operating profit. Net interest expense increased $9 million year over year, resulting from increased borrowing and higher interest rates on floating rate facilities. On an as-adjusted basis, we generated earnings per share of 87 cents, two cents higher than the prior year on a comparable basis. However, this EPS result is 58% better than the 55 cents as-adjusted EPS We presented in Q1 2018, clearly demonstrating the impact of our strategy execution. Looking forward, we anticipate the distribution of the remainder of our 2019 earnings per share to be approximately 40% in Q2, 35% in Q3, and 25% in Q4. Turning to slide 9, we continue to deliver on our commitment to follow a disciplined capital allocation strategy. As expected, we consumed more cash in the first quarter than the prior year period. Higher inventory was a significant contributor. Several factors are driving inventory levels, including timing of customer deliveries, demand growth in certain MP businesses, Engine Prebuys, and Brexit-related risk mitigation actions. We expect inventory levels to decline over the next several months and normalize in the second half of the year. We continue to invest in our execute-to-win priority areas, although the level of investment will taper off over the course of 2019 as our internal capabilities mature. Finally, we increased our quarterly dividend by 10% to 11 cents per share. The Terex team has and will continue to generate shareholder value through the execution of our disciplined capital allocation strategy. And with that, I'll turn it back to John.

Thank you, John. Before reviewing our segments, I'll spend a few minutes discussing the recent Bama show in Munich, Germany. Bama is the world's largest trade show for the construction and mining equipment industry with over 600,000 visitors from around the world. Terex had an outstanding presence and success at Bama. We showcased our product and service innovation, including our extensive line of industry-leading hybrid and electric power equipment and our suite of telematic solutions. Over 40% of the equipment we displayed was launched since the last Bama. We featured our Genie line of hybrid booms and scissors. Under the banner of Genie Blue is your new green. As environmental regulations continue to shape demand around the world, Genie is leading the way with equipment that enables operators to work safely and efficiently while being respectful of the environment. MP showcased its Omnibiterix tablet-based control system using IoT technology, The Omni system will revolutionize the crushing and screening job site by enabling a single operator to control the entire equipment chain. This will improve safety and productivity and further differentiate our MP product lines. Our tower crane business showcases T-Link and T-Lift innovations. T-Link is an advanced system that allows multiple cranes to work in tandem. T-Lift is a built-in elevator system that safely lifts the operator to their cabin. Both of these innovations improve operator safety and productivity, driving higher customer return on investment. In addition to showcasing our new products and services, Bama provided the opportunity to speak with a diverse cross-section of customers. They expressed a consistent level of positive sentiment. There is pent-up demand for infrastructure investment across the developed markets. and tremendous potential in the developing economies, from construction growth and adoption of aerial work platforms and material processing solutions. Terex is well positioned to grow on both fronts. Obama was a great show. I was proud of our Obama team, from the core trade show team that executed the event to the sales and support team members that worked the show. Terex's passion and commitment was clear. Turn to slide 11. I'll review AWP. The global markets for aerial work platforms remain generally stable at healthy levels, and the North American utility market remains strong. The North American rental market was impacted by severe weather in several major markets in the first quarter, leading to delayed equipment deliveries. Our customers are maintaining their positive outlook for the balance of the year, and we started to see order and delivery rates increase in March. Overall demand in Europe is stable with pockets of growth, including strong demand for electric booms and scissors. AWP continues to make inroads in the Asia-Pacific region, fueled by increasing product adoption. To support our growth in Asia, we are expanding our Terex financial services capabilities in the region. While bookings in the quarter were lower than the exceptionally high level in Q1 2018, With $1.1 billion of backlog, AWP is well positioned heading into the strong selling season. A key to improving margins in 2019 is the execution of our strategic sourcing plans, including transitioning significant volume to new suppliers. The implementation process is gaining momentum as the teams complete the inspection and testing required to transition parts to new suppliers. This initiative is important for AWP as most of the $35 million savings objectives for 2019 is in this segment. In January, G&E opened another chapter in its history of innovation with the launch of its LiftConnect telematics solution. LiftConnect will convert data into actionable information. This customized solution delivers benefits to small fleet operators and large national rental companies. by providing tailored information to increase operator safety, improve uptime, and reduce maintenance cost. In short, LiftConnect is designed to increase customer ROI on Genie equipment. For the first time, we showcased a complete line of our new extra capacity booms from 40 feet to 135 feet. It is imperative to our customers that Genie is leading the industry with XC Innovations. Turning to Terex Utilities, the team continues to execute well in a stable market environment. Now that utilities is a part of the AWP segment, we are accelerating cross-selling benefits. We are leveraging our network of utility service centers across the country to service AWP customers. This will improve customer service while increasing parts and service revenue. The new state-of-the-art production facility remains on track. The site will manufacture and install aerial devices, digger derricks, and auger drills. By consolidating from 10 facilities to one, Terex Utilities will significantly improve productivity, reduce lead times, and increase capacity. Both our aerials and utilities businesses are well positioned heading into the second quarter. Turning to MPs. Materials processing is a high-performing segment that consistently delivers strong results and meets its commitments. Global demand for crushing and screening equipment remains strong. Construction activity, aggregate consumption, and environmental regulatory change are the main drivers. The global market for material handlers also remains strong, fueled by robust demand for scrap steel. and our pick and carry crane business continues to execute very well in a strong Australian market. The MP team continues to make progress in the emerging markets for environmental and mobile crushing and screening equipment. In India, for example, new highway construction reached an all-time high last year and is expected to continue to grow. Indian contractors are just beginning to fully appreciate The flexibility and productivity that mobile crushing and screening equipment provide. Instead of trucking materials over long distances, mobile equipment can process material close to the construction site, providing a significant benefit for the contractor and significant growth opportunity for MP. We have a strong foundation in India, including an excellent team at our Hosur manufacturing facility just outside Bangalore. To support the growth prospects in India, and the surrounding markets, we are expanding our manufacturing capacity in Hosur. The expansion is underway and will be completed over the course of 2019. MP operates several facilities in the UK. Our guidance assumes there are no major disruptions associated with Brexit. We continue to monitor events as the Brexit process unfolds and will continue to take precautionary measures to mitigate potential supply chain disruptions. I expect our global MP team to continue to execute at a high level and deliver on its plans again this year. Turning to slide 13. To wrap up our prepared remarks, MP started the year strong and AWP picked up steam during the first quarter. We are executing our strategic plan to focus the portfolio on high performing businesses, simplify the organization, and build capabilities and our execute to win priority areas. We expect to significantly improve our financial performance again in 2019. As a result, we expect to be in the upper half of our full year EPS guidance range. We are confident in achieving our 2020 objectives of 10% operating margin and greater than 20% ROIC. Finally, We will continue to follow our disciplined capital allocation strategy and create additional value for our shareholders. With that, let me turn it back to Brian.

Thanks, Jon. As a reminder, during the question and answer session, we ask you to limit your questions to one and a follow-up to ensure we have time to get to everyone. With that, I'd like to open it up for questions. Operator? Operator?

At this time, I'd like to remind everyone, in order to ask a question, please press star and the number one on your telephone keypad. Our first question comes from the line of Ann Duncan. Your line is open. Hi, good morning. It's Ann Duncan.

Hi, good morning. It's Ann Duncan. Good morning, Ann.

Good morning.

Maybe you could address the free cash flow of negative $257 million versus your guidance for $165 million for the full year. And it's confusing not to have slide 13 in the presentation. What happened? Are we still looking for free cash flow of $265 million for full year, or should we change that?

Thank you for the question, and yes, we are looking for free cash flow for $165 million. I'll have Jon go through that in greater detail. But just a commentary to start that. I would just say that improving networking capital and increasing free cash flow is one of the highest priorities of our leadership team. If we take a step back and look at, since we've implemented our focus Simplify and execute to win strategies. We have made great progress on our operating 10% operating margin target, our 20% ROIC target with deployed capital back to shareholders of greater than a billion dollars. The one area that we have not made the level of improvement that we need to make, and that's why it will continue to be a focus for us to drive improvement, is our free cash flow conversion to net income. So we fully acknowledge we're not happy with our Q1 results on free cash flow, but I'll have John kind of walk through where we are and then reaffirm the $165 million free cash flow target for the year. John?

Yeah, thanks, John. So, Ann, when you look at the free cash flow, the negative free cash flow in Q1, it was larger than Q1 of 18, and that was principally the result of... building higher inventories in the second half of last year, especially in the fourth quarter. In a tight labor market in the second half of last year, we were level loading production, especially in our AWP facilities in North America. And we did see lower revenue than expected. So the inventory levels grew. we did pay suppliers for a large portion of the material that we manufactured in the fourth quarter in the first quarter in accordance with our payment terms with our suppliers as we indicated in our prepared remarks we do expect that we'll sell down these inventories during the upcoming spring and summer selling season and we are not replenishing the stock levels to the same Thank you. Thank you. Our accounts receivable collection efficiency is much better than it was, but we acknowledge we have work to do on the inventory side. We are getting after the inventory levels, and I want to be very clear with you, we are absolutely committed to and are reaffirming the 2019 pre-cash flow guidance of $165 million.

Okay, thank you. I appreciate that. Maybe you could talk a little bit about the cadence of the free cash flow then going forward. When would we anticipate those inventories turning into cash? Is it Q2 or the back half of the year?

We will be... The inventories will be sold down during the second quarter and into the early third quarter as part of the spring-summer selling season. We expect to be, I guess I should be a little bit less dogmatic, we expect to be pre-cash flow positive in all three quarters of the remainder of the year.

Okay, I'll get back in line in the interest of time. Thank you.

Thank you, Anne.

Your next question comes from a line of Steve Volkman. Your line is open.

Hi, good morning, guys. Maybe just a quick follow-up there. The inventory bill, was it more weighted to AWP than MP? MP?

Yes, as I indicated, the primary inventory bill. It was also in MP. MP inventories are also up, but the majority of it is in the AWP facilities and in AWP North America.

Okay, thanks. And then obviously to reduce that, you're going to have some lower production levels, I guess, going forward since you produce less than We have, Steve.

You are correct. We have reduced the production levels for our aerial work platform segment, especially here in North America in early 2019. And the guidance, including the expectation for being in the upper half of our guidance range that we indicated today, is factored into that thinking.

Okay, great. And then just the final one on that topic. As you shift, I think one of the Johns mentioned a significant transition to new suppliers in AWP as part of your strategic sourcing. Does that require some kind of bridge inventory build A and B? Is that a risk if you're moving a lot of suppliers that, you know, there's a hiccup here that interrupts some production?

Thanks, Steve. As we indicated, the team is implementing our wave one. It is a sizable number of parts that are changing, not necessarily new suppliers. Actually, it's a consolidation of suppliers. There is bridge inventory that you have to put in place to ensure that you don't create disruption on the line. So that is a portion of the increase in inventory. But the teams have been planning for that as we move through the implementation. for the implementation of Wave 1.

Okay, thank you.

Okay, thank you.

Thanks, Steve.

Your next question comes from the line of Jamie Cook. Your line is open.

Hi, good morning. Just wanted to get comfortable... Morning, Jamie. Good morning. You know, you didn't necessarily give segment margin guidance like we did in the prior guidance, so can you talk about your comfort level with the Area Work Platform margin guidance That you gave in the last quarter, given where we started off in the first quarter, and if you can help us understand how much weather impacted the first quarter within aerials. So I guess that's my first question. And then my second question is, just obviously the quarter came in much stronger relative to the street and what you had implied with the guide you're saying. I mean, Ariel was weaker. The corporate another you said was in line. Materials processing didn't beat by that much. So I'm just trying to understand what surprised you in the first quarter relative to what you initially anticipated. Thank you.

Okay. A lot there, Jamie. So let me start with on the AWP side. Let me start with the market, kind of a market commentary, and then I'll have John speak to the margin activity. So As we said in our opening comments, the global markets are stable at healthy levels, and there's overall positive customer sentiment. As we enter into the primary selling seasons of Q2 and into the summer with a $1.1 billion backlog, we feel pretty good about where we stand in AWP. The North American rental channel, customers are seeing their end markets remain strength. We're seeing good utilization and good rental rate improvements on a year-over-year basis. So that market seems, as we say, stable at healthy levels. In Europe, we're seeing that relatively flat overall in terms of our backlog. But as I indicated in my comments, we had a lot of positive sentiment with customers at the Bama show. and then what you'll see in the results is substantial increase in our sales in Asia Pacific region and a lot of that is from our AWP business. Our growth in China and other Asian markets has been great. Our year-over-year growth in China is north of 40%. Granted, it's off a relatively small base but nonetheless, we're seeing continued growth there and so we think that market and the other Asian markets based on the strength of construction and increasing product adoption are going to continue to provide a strong underlying background for demand. And so that's the market commentary on how we're seeing globally AWP. And Jon, could you comment on the Q1 margins and margin outlook?

Jon Paterson Sure. When I think about the Q1 margins in AWP, I think there's really four factors that should be addressed. The first is FX, and that really was the largest headwind year over year that the segment was facing. The euro is considerably lower today than it was in Q1 of 2018. Q1 of 2018 The average euro-dollar exchange rate was $1.22 to the euro and in Q1 of 2019, $1.13 to the euro. We do ship a significant portion of our product for the European markets. from the United States and from China. And as a result, the decline in the Euro was a significant headwind. In fact, if you take both the transactional FX effect as well as the translational FX impact, that was an impact in excess of $10 million year over year on the segment. We do expect that that headwind will normalize over the course of the year as the euro did decline over the first half of 2018. Second factor was the factory productivity. We did have lower absorption rates from the lower volumes that we have in our North American facilities here in the first half of 2019, as well as the factory closures that we had, especially in the state of Washington in February from the winter storms in the Northwest. Third factor was Price cost for the segment was actually a slight positive with favorable price increases in the first quarter of this year that were largely offsetting the cost increases that we experienced in the second half of 2018. Fourth factor, strategic sourcing. As we have talked about, our strategic sourcing initiative will drive $35 million of savings for the company year over year with the majority, significant majority of those savings coming from the AWP segment. Those benefits are going to ramp up over the course of the year so that They were a smaller portion of the benefits in the first quarter of this year. When you think about AWP's guidance, first of all, the guidance that we provided for the segments continues to be operative. Our not providing changes in the guidance is not in any way stepping back away from that guidance, but rather it's still early in the year. We're heading into the prime selling season, and so we kept the guidance where it is and recognized that overall for the company we'd be at the upper half of the guidance range. The execution of our strategic sourcing initiative and those savings, which are going to grow over the year, will drive margin expansion for the AWP segment. Overall, we see AWP as well-positioned going into the spring-summer selling season and to drive growth and margin improvement in their business.

Okay, thank you. I'll get back to you.

Thank you. Your next question comes from the line of David Razel. Your line is open.

Hi, good morning. For the first quarter, on a pro forma basis, your company margins were up, 9.3 versus the 8.9. And just thinking through the way you gave the EPS guidance for the rest of the year, can you help us understand for the second quarter, Proforma, do you expect your margins to be up year over year, flat, just for some perspective? Second quarter proforma margins.

On an apples-to-apples basis, year over year in the second quarter for the company as a whole, we would anticipate our margins to be up for the continuing operations. Now, that said, as we demonstrated on chart three of our presentation materials today, The significant benefit or impact that the focusing of our portfolio had on our first quarter year over year results and we really tried to bring that out in the presentation. You see that our margins increased significantly, our EPS increased from Thank you for joining us.

Yeah, that's what I'm just trying to understand, sort of backing you into a true full-year EPS guy, not just the upper end of the range. Because if your margins are up year-over-year pro forma in the second quarter, with a reasonable revenue number, just so you're on track to hit the full year, it does seem to be implying a second quarter that's $1.40 or $1.45, which would then, given the rest of your cadence, imply EPS even a little bit above the high end of your I'm just trying to make sure we level set here on the second quarter. Margins up sequentially, I mean, sorry, year over year, and the revenue numbers have to be a billion three or so or something that gets you on pace for the 4.7. So maybe if you want to clarify exactly what you mean by the upper half of the EPS range, just so we all level set for two Qs.

David, look, I appreciate your seeking to back me into or back us into stronger guidance. I think we should be clear. We had a very strong Q1. We're very pleased with the results of our businesses. and we are well positioned with a very strong backlog going into the strong spring and summer selling season and as a result we indicated that we would be at the upper half of our guidance range and we expect 2019 to be a very strong year for Terex. but we also believe that we'll have much better visibility to provide a more definitive set of guidance for the full year once we get past this second quarter.

And I think I'll just leave it there. The proceeds from this sale during the course of the year, How quickly can we assume use of those proceeds? I know that's not in the guide currently, but proceeds in the door, when will we expect those to be put to work?

So the proceeds from the sale of the DMAG business, we continue to expect the DMAG sale to close mid-year. We're on track very well with that transaction. And we would put those proceeds to work immediately because as we indicated in our Q4 earnings call, we would intend to pay down borrowings with the proceeds. Okay.

Thank you, David. Your next question comes from the line of Joe Odia. Your line is open.

Hi, Joe. Hi. So similar to the walk you gave on AWP margins, if we think about the material processing margins that were very strong in the quarter, Could you give a little bit of the bridge of the contributions there? I think FX is instead a tailwind for MP in the quarter, but just so we know kind of what the benefits were and maybe some of the considerations moving into the rest of the year.

Sure. Yeah, sure. Sure. Well, Joe, and again, similar to AWP, I think I'll just provide some overarching market commentary and then have John talk specifically to the margins. But again, as we indicated in our prepared remarks, MP continues to strong execution with their sales up 10%, backlog up 11%, and significant margin improvement of 250 basis points. And that's really coming from strength across the portfolio of businesses within MP. Our core crushing and screening business continues to grow. It's relatively stable in North America, but we saw good growth in the global markets and strength in the emerging markets. The other business that continues to perform well and a good recovery is our material handling business, our Fuchs business. We saw a broad-brace growth there. One of the benefits of high steel cost is for this segment, scrap steel has remained high and that stimulates replacement demand in that business. We've also expanded our global distribution. and expanded our product line. So we're seeing good growth in material handling. And then our environmental business, as I mentioned in my comments, we've got a new factory there in Northern Ireland for our Ecotech line. We're seeing good growth in the environmental business, especially as regulatory rules around the world change for the processing of weight. And finally, our North American concrete business. We had good orders in Q4, so we went into the year with a much stronger backlog and the prior year. And overall, we are making some investments in capacity in our MP business to take advantage of the growth opportunities. We're investing in Northern Ireland and we're investing in our host sewer facility, as I mentioned as well in my opening comments. So, you know, overall, you know, MP's been consistent. It's a good growth story. And what we're pleased about is a much more important part of our overall focus portfolio going forward. So, That's kind of a macro look at MP. Jon, you want to talk specifically on the margin side?

Yeah, thanks. So, Joe, what I would say with respect to MP margins is I would focus on really four factors in this business also. First is that revenue for MP was up in the first quarter year over year by 10%. and the one thing that the materials processing team does better than anything else is execute. And when they have strong revenue, they drive that revenue through operating performance to the bottom line and that was really the case in Q1. So I would just say operating leverage was by far the biggest benefit they received in the quarter. Two, second was mix, mix of businesses. As you know, the MP business is a, the MP segment is a collection of businesses, and we did see growth, especially in our Fuchs business line in the first quarter, and that drove outsized operating margin growth for the business. Number three, price cost is positive for the MP business year over year. They have benefited from higher price and given their manufacturing is largely outside of the United States, they're not feeling the same cost pressure that, for example, our aerial work platform segment is feeling with steel prices here in the United States. And then lastly, I will acknowledge that the year-over-year change in the British pound is a bit of a tailwind to them and they did benefit to a certain extent from that. So overall, as we said in our prepared remarks, MP is really a consistent performer and they've really become an increasingly important part of our focused portfolio.

I appreciate the details. And then one, just related to the strategic sourcing plan for the year and the guide, it doesn't sound like there was anything really within MP that drove kind of unusually high margins in the quarter, and then there's a setup for AWP margins to expand over the course of the year. And given the size of the beaten 1Q, you could presumably have actually raised the range. And I guess the question is, you know, is the degree to which there's, you know, you're keeping cushion in there just because of the uncertainty around strategic sourcing. And so I think, you know, the risk being if there are any hiccups there, you know, what does that do to the full year? But, you know, how guarded do you feel against that just because of what could be cushion in the guide?

Thanks. So if we look at the strategic sourcing, as we said, WaveOne, a lot of the commodities were more oriented towards the AWP business. Also, the respective volumes of the AWP business have enabled us to attract suppliers to that marketplace. We do have savings in the relative MP businesses, but as a percentage of the overall savings, it's actually much smaller. Most of the savings this year given the commodities are in The AWP segment. So we will have some as we move through the year, but the biggest percentage of the savings is in fact in AWP as a result of the commodities and the respective volumes between the different businesses. So yes, there is some, but it's not the driving force in margin improvement throughout the year as it will be in AWP.

I'd just say, just to comment on our guidance, is that we did have a very strong Q1. We're very pleased with the results. The 360 to 420 guidance range is a, and being in the upper half of it, provides a, you know, potentially a very significant increase in but it's early in the year and while signs are positive for the year, I think that once we get past the spring summer selling season here, we'll have much greater visibility to the full year. Thank you.

Thank you.

Your next question comes from the line of Andy Casey. Your line is open.

Good morning.

Hi Andy. Good morning, Andy.

How are you doing, Jon? Hi, Jon. So I'm going to beat the dead horse. I want to follow up on some of the prior questions about EPS quarterly attribution. And I understand you've answered a lot of the questions that have been focused on this, but I just want to revisit the seasonal attribution for the first quarter and understand Has that increased permanently to the low 20s that's implied by the performance and the outlook versus the original view for 15%? A lot of the questions are looking at the AWP comments sounding like it's going to gain momentum through the year, at least versus last year. Is the variance really just related to something else which may include conservatism or are we looking at and just structurally higher contribution from the first quarter going forward.

Let me try to make some comments and see if we address your question. First of all, from a structural perspective, as a result of the focusing of our portfolio on our high performing segments, AWP and MP, the disposition of the mobile cranes businesses, we definitely have structurally lifted The operating performance of the company and you see that with the dramatic increase in the margin that the business actually reported in 2018 of below 6% to above 8% in 2019. When you think about our Q1 performance, I would say that a portion of our overperformance against the year was in the corporate and other segment. The corporate and other segment with the resegmentation we did in the fourth quarter does have our towers and European rough terrain businesses included in there. Those operating businesses performed in line with the expectations we had for them. Our corporate costs were lower in the first quarter. traditionally lower in the first quarter and ramp over the course of the year but we did also see lower spending in our corporate cost structure in the first quarter of this year than our expectation Some of that may be timing. It is absolutely our intention to capture that underspending for the full year and drive it to the bottom line. So we're managing our cost structure. We're investing in the priority areas in our higher margin businesses. And so I do think that we have I think you used the word permanently. I do believe that the higher margins you saw in Q1 2019 for the company is a permanent improvement that you'll see on a going forward basis.

Okay. Yeah, the permanent was related to the attribution by quarter. Has that changed?

No.

You mean to future years or help me with the future years? Yeah, I think you can also think about that for future periods, yes.

Okay, thank you very much. Thank you.

Your next question comes from the line of Seth Weber. Your line is open.

Hey, good morning. Good morning. Following up on Andy's question, your prior guide had called for, I think, a $75 million loss for corporate and other. I think it was like $5 million here in the first quarter. So are you suggesting that we should still think about that $75 million as the right number? We're all just trying to kind of put these numbers together, basically.

Yeah, I think that as you saw our net operating costs in the corporate and other segment in Q1 was about $5 million. That compares to about $9 million in Q1 of 18, so slightly lower. I acknowledge that if you take 75 divided by 4, that obviously 5 is much less than that. We would expect, as I said in response to Andy's question, some of... We do expect that to drive a portion, maybe a significant portion, of the underspending and corporate and other to the bottom line over the course of the year. And we'll also have greater visibility for that once we get past the second quarter. So, yes, I would think about driving some of that savings against... Thank you very much.

I guess my question is, was that weather related and or have those shipments occurred here in the second quarter? Thanks.

Yeah, so overall, yeah, we would attribute most of the push out in the Q1 out into Q2 as weather related. As John indicated, we always have weather in Q1, but the weather this Q1 was are all exceptional, especially as you looked at how it impacted our operations in Washington state in the duration of time that the plant and the shipping facilities were down. That also impacted customers as well in multiple areas. So I would attribute most of the push out, if you will, to associated with weather and would expect to see that pick up in Q2. We did see stronger momentum as we progressed through the quarter and late into March with shipments. We actually became capacity constrained, as you can imagine, in the last week of March. So good momentum, and I think the push out you can attribute most, if not all, to weather-related activity.

That's super. Thank you very much, guys.

Thank you.

Your next question comes from the line of Joel Tiss. Your line is open.

Hey, Joel.

Yeah, hold on a second. How are you doing? All right, I'm ready now. So everyone keeps asking the same question, so I'll try to go in a different direction. So once the simplification of the portfolio is done, how do we think or how do you guys think about capital reallocation? Is there going to be a little... You know, you're still going to focus on debt repurchase and share repurchase, or should we think about it differently, or it's too early?

Thanks, Joel. So, as part of our overall strategy focus, simplify and execute to win, I think it's demonstrated that it is a much stronger portfolio going forward. We've also, as part of that strategy, had a disciplined capital allocation strategy that, you know, that's really spoke to making the organic investments and innovation and engineering capital investments as required, strengthening our balance sheet and then returning capital to shareholders. That discipline capital allocation strategy has not changed. Now, we are in our ongoing strategy and strategy review process, and we obviously review that with the board of directors. But as of today, there is no change to our discipline capital allocation strategy as we move forward. but I think it is clear the portfolio of businesses that we have now are much stronger than the portfolio of businesses that we had and we also believe that there's opportunity to grow these businesses both aerials and MP around the world as we look at construction span but we also have to look at the adoption and the adoption curve. We talk about adoption with aerials but there's also significant adoption potential in emerging markets in our MP as people move to mobile crushing and screening as we move to processing more waste on the environmental stream. So overall, we think there's good growth opportunities, organic growth opportunities in this business. And our capital allocation model as it is today is not modified. That's obviously something we continue to look at. But right now, it's the same capital allocation strategy that we've been executing for the last couple of years.

Can we spend a minute on the MP business? How many competitors are out there? Any sense of what your market share is? I know it's a diverse grouping of different pieces, but is there any way to size the opportunity?

In terms of talking specific market participation, I will say this. We enjoy good market participation in our core crushing and screening businesses through our multiple brands. We enjoy a good Thank you for joining us today. and Pavers. And then environmental, opportunity to grow. That's a highly fragmented overall market. And then finally, our pick and carry business down in Australia enjoys a significant market participation rate, especially in the Australian market. So overall, these businesses, and I think that's been a key of our focus strategy, is these are businesses that enjoy strong market positions, strong brands, Good capability to drive innovation through their engineering and good distribution capability. And that's what enables these businesses to grow and to perform. So I don't want to talk specific market participation rates, but each of these businesses, our core businesses, enjoy strong market participation rates. And our developing businesses, they're highly fragmented markets where we're seeing rapid growth based on our capability. We're excited about the MP business. And the other thing about MP is the regional dispersion of the revenue. If you look at the revenue, it's 35% in the EU, 35% in North America, 20% in Asia, 10% in the rest of the world. So you've got good geographical dispersion in this business as well. So overall, this is a business worth investing in. We are investing in this business, and we think there's good opportunity in the future for our MP business.

Thank you.

Thank you.

There are no further questions at this time. I turn the call back over to the presenters.

Again, thank you for your interest and time in Terex. If you have any further questions, please do not hesitate to reach out to Brian so that we can address those questions. And again, thank you for your time and thank you for your support of Terex.