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spk02: Welcome to T-REX Corporation third quarter 2020 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Randy Wilson, Director of Investor Relations for T-REX Corporation.
spk06: Good morning and welcome to the Terex third quarter 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 two 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 three, and I'll turn it over to John Garrison.
spk07: 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 this challenging time, we are proud of all of our Terex team members who are keeping themselves and others safe, meeting the needs of our customers and helping our communities. I would like to recognize and thank our team members around the world for their continued commitment towards zero harm safety culture and Terex Way values. Safety is and will remain 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. Our crisis response teams remain active, and our facilities continue refining their preparedness and response plans to ensure they can respond swiftly as local pandemic conditions change. I'm proud of our team members' commitment to safety, but I'm equally proud of their dedication to the Terraceway value of citizenship. Despite the challenges presented by COVID-19, our team members continue to give back to the local communities. Whether it's the AWP team members continuing to place masks and face shields, or MP team members donating PPE equipment, our team members are living our values. Our dedicated team members are delivering value for our stakeholders and shareholders. Turning to slide four, despite the challenging markets The team is meeting customer demand, tightly managing all costs, aggressively reducing networking capital, especially AWP inventories, and delivering positive free cash flow. D3 revenue, which was in line with our outlook from the beginning of the quarter, improved sequentially almost 11% as end markets continued to recover from the lows in the second quarter. AWP revenue improved sequentially by almost 8% in Q3, while MP revenues improved approximately 18%. Customer bookings in Q3 represented a dramatic improvement from Q2. Unlike the first half of the year, we did not experience any material customer booking cancellations or pushing out of orders. Sequentially, AWP bookings were up almost 100% compared to Q2, and MP bookings were up 36%. In addition to sequential strength in bookings, both segments saw improvement on a year-over-year basis. Demonstrating the strength of our Q3 bookings, TARICS backlog was consistent with backlog at the end of Q2 and down year-over-year by only 5%. Although revenue was consistent with our outlook, As a result of our laser focus on cost control and only producing in line with customer demand, profitability for the quarter outperformed our outlook from the beginning of the quarter. Importantly, our approximately 5% operating margin was achieved with both segments generating positive operating margins. Our NP segment achieved outstanding financial results, reporting a 13% operating margin while revenues were down 19 percent year-over-year. Both segments and Terex overall achieved our targeted 25 percent decremental margins, or better. We are not satisfied with AWP's operating margins. We must drive significant improvement to restore the segment to industry competitive margins, and we will continue to take the actions necessary to deliver on that improvement. Throughout 2020, we right-sized our inventory levels to the customer demand environment, especially in our aerial products business. Their inventory levels are now at a level consistent with 2016, which was the last time there was an industrial downturn. Going forward, we are now at a level where aerial products can manufacture to customer demand. Our focus on networking capital management drove $54 million of free cash flow in the third quarter, delivering positive year-to-date free cash flow. Overall, our financial performance strengthened significantly in Q3. I assure you that we will remain laser focused on consistently improving these results in 2021. Please turn to slide five. Our strategic priorities will continue to strengthen our business operations so we can succeed through all market cycles, including these uncertain times. We are taking action and we are implementing steps to improve, strengthen, and grow Terex. Through operational excellence, we are strengthening accountability with each team member doing what he or she said they would do. To win in the marketplace requires more than just knowing the score. We must understand the score and have the process discipline to drive continuous improvement in the business. On the cost side, we've been looking at every aspect of the business to ensure we can maximize our ability to be globally cost competitive. We are laser focused on maximizing revenue, aggressively taking out cost, not just manufacturing cost, but also SG&A costs. Terex targets SG&A as a percent of sales to be 12.5%, which we achieved in 2019. However, as sales have declined, our 2020 SG&A percent of sales has increased to over 14%. We are executing on an SG&A cost reduction initiative with a target of SG&A percent of sales for 2021 of 12.5%. This initiative is replacing temporary 2020 cost savings with permanent cost reductions. We are evolving into a leaner organization with fewer organizational levels. Also, as we right-size our organization, we've been reevaluating and reducing our related company-wide footprint. We recognize that to win in the marketplace, we must have globally cost-competitive company-wide footprint. We have been and will continue to take the actions necessary to achieve this objective. Turning to innovation, we are listening to customers to ensure our products and services offer the features and benefits that provide value. We will provide the right features at the right price to meet customer demand. Purposeful innovation drives improvement in return on invested capital for our customers. allowing us to support their growth. Finally, TERF is well-positioned for future growth because we have strong businesses, strong brands, and strong market positions upon which we can grow. We will continue to invest in and grow our high-performing businesses, including investing in new products and manufacturing capacity where demand calls for it. And we are a more focused organization, I am confident this will result in Terex emerging from these uncertain times as an even stronger company. With that, let me turn it over to Duffy.
spk06: Thanks, John. Turning to slide six, let me begin by reviewing our Q3 financial results. I would like to call your attention to our financial reporting structure. As you will notice, consistent with Q1 and Q2, we did not report adjusted Q3 2020 financial results. Instead, we are identifying specific financial call-outs which impacted our Q3 reported results. We continue to provide information that will help the investment community more easily compare our year-over-year results. Looking at our third quarter financial results, We achieved net sales in line with our outlook from the beginning of the quarter. Overall revenue of $766 million was down 25% year over year. That said, throughout the quarter, we did see the markets in which we operate continue to stabilize and improve. For the quarter, we recorded an operating profit of $37 million compared to adjusted operating profit of $90 million in the third quarter last year. The lower operating profit resulted from revenues being down from Q3 2019, combined with adverse impacts from a product liability judgment, severance, and restructuring charges. We achieved this positive operating result through very disciplined cost control and adapting to the market environment. While lower revenues impacted our gross margin and resulted in an elevated SG&A as a percent to sales, our aggressive cost reduction action allowed Terex to achieve an approximately 19% decremental operating margin for Q3. more favorable than our targeted 25 percent decremental margin. This decremental margin was achieved despite $5 million of gross profit charges, primarily due to a product liability judgment. In addition, SG&A was adversely impacted by $8 million due to team member severance and restructuring. Neither of these impacts were considered in our outlook going into the quarter. Excluding these charges, operating profit would have improved by $13 million and Ferrix's decremental margin would have been approximately 14% in the quarter. Below operating income, interest and other expense was $3 million lower than Q3 2019 because of lower borrowings versus a year ago. principally related to our revolving credit facility being undrawn this past quarter. In addition, other income was reduced by $1 million due to marking to market of a third party investment. We now estimate our 2020 full year global effective tax rate benefit to be approximately 52% compared to our previous estimate of 17%. During the third quarter, the U.S. Treasury revised the regulations that permit a U.S. taxpayer under certain circumstances to exclude from U.S. taxable income non-U.S. income subject to a high rate of foreign tax. This regulatory change significantly benefits Terex in 2020 by increasing our U.S. net operating loss. Most importantly, we expect that in connection with our 2020 U.S. federal tax return, that we will be able to carry back our 2020 net operating loss to 2015 and expect to receive a cash refund in 2021 of approximately $30 million. Finally, our reported EPS of $0.31 per share includes the adverse operating impacts to cost of goods sold and SG&A, which were more than offset by the tax benefits that I just discussed. Turning to slide seven and our segments financial results. AWP sales of $445 million contracted by 29% compared to last year, driven by end markets in North America and Europe being lower. The aerial products market and our sales in China remain robust. The utilities market stabilized in the quarter, but remained soft in certain customer segments. We continue to aggressively manage aerial products production levels to ensure we are not building excess inventory. During Q3, our aerial products production was 47% lower than Q3 2019. This continued aggressive production control, producing below customer demand. allowed us to achieve almost a $290 million reduction in aerial products inventory levels since the beginning of 2019. As John mentioned, aerial products inventories at the end of the third quarter were consistent with 2016 levels. EWP delivered a positive operating margin in the quarter of approximately 3%, driven by aggressively right-sizing production and cost to align with end market demand. The AWP team achieved strong decremental margin performance of 18% in the quarter, which includes almost $7 million of charges for a product liability judgment, severance, and restructuring. Excluding the impact of these charges, AWP's decremental margin performance would have been 14%, As expected, AWP's decremental margins were adversely impacted by the opening of our new Watertown, South Dakota facility, where a dozen production buildings were consolidated into one new state-of-the-art facility. Q3 was challenging for our utilities team from a production and product output standpoint as they worked through the move into the new facilities. However, throughout the quarter, the team improved their production output. AWP third quarter bookings of $404 million were 10% higher than Q3 2019, while backlog at quarter end was $478 million, down 3% from the prior year. At the end of this quarter, A higher proportion of our backlog in AWP was scheduled for product delivery in the subsequent year as compared to the end of the third quarter, 2019. Now turning to materials processing. MP had another solid quarter, achieving 13% operating margin despite challenging markets. It was a testament to the MP team's operational strength to deliver these strong, positive operating margins on revenues down almost 20%. Sales were lower at $311 million, driven by cautious customer sentiment. The MP team has been aggressively managing all elements of cost in a challenging market environment, resulting in decremental margin performance of 25%. backlog of $289 million, with 8% lower than last year, but up 10% sequentially. MP's size business is strengthening through the quarter, with bookings up 24% year-over-year and up 36% sequentially. Customers in both segments continue to operate through this uncertain time, and existing equipment is being utilized. but at lower levels. Turning to slide eight. Now I'd like to provide you with some perspective on how we currently anticipate the remainder of 2020 to develop financially. It is important to realize we are operating in unprecedented period and results could change negatively or positively very quickly. With that said, As for commercial demand, we have seen our market stabilize in the quarter, although at a much lower level of demand than 2019. Consistent with what we said during our Q2 earnings call, we continue to expect revenue for the second half of 2020 to be similar to the first half of this year. From a segment perspective, we continue to anticipate that year-over-year Q4 revenue declines will be greater in AWP versus MP. However, we expect the year-over-year revenue declines in Q4 to be smaller than Q3 for both segments. As a result of actions taken principally by Ariel Products during the month of October, we are planning for at least $15 million of severance and restructuring charges in Q4. We remain fully committed to aggressively managing our overall cost structure in line with reductions in customer demand such that we maintain our decremental margin target of 25% for the full year and the final quarter of the year. For the company as a whole, and for each of our segments, including the Q4 charges that I just mentioned. Finally, as previously communicated, we expect the full year 2020 corporate and other cost structure will be incurred equally between the first and second halves of 2020. We are intensely focused on overall liquidity and free cash flow generation. Year to date, we are already free cash flow positive. And traditionally, the fourth quarter of the year is our strongest from a free cash flow perspective. Based upon current customer demand outlook and cost reductions, we expect our full year 2020 free cash flow generation to be approximately the same as in 2019 on significantly lower revenue and earnings. networking capital reductions will continue to be a primary source of q4 pre-cash flow generation because of our strong liquidity position we have significantly reduced and expect to continue to reduce our sales of receivables as a low-cost source of financing finally we anticipate having ample cash on our balance sheet during the remainder of 2020 and would not expect to utilize our revolving credit facility. Turning to page nine, and I will review our disciplined capital allocation strategy. Despite the challenging environment, the Terex team drove positive free cash flow of approximately $54 million in the quarter, resulting in Terax being approximately $13 million pre-cash flow positive on a year-to-date basis. This accomplishment is ahead of our outlook communicated in Q2. However, our team members remain vigilant and will continue to aggressively manage production, especially within our AWP segment, and scrutinize every expenditure. so Terex continues to generate positive free cash flow. We have ample liquidity with $1 billion available to us and the right capital structure with no near-term debt maturities, so we can manage and grow the business. Turning to growth, we may have reduced our expected 2020 capital spending by 35%, but our reduced level of capital expenditures is still approximately $65 million, which demonstrates our commitment to investing in the business. The completion of the new utilities manufacturing facility is one of the largest capital expenditures in Terex's recent history. Also, we are taking strong and swift actions to right-size the business so Terex can profitably grow in the future. As John discussed earlier, we remain resolute in tightly managing production and SG&A. We will continue to aggressively manage the business and generate strong free cash flow while ensuring we have the right capital structure to manage and grow Terax. And with that, I'll turn it back to you, John.
spk07: Thanks, Duffy. Turning to slide 10. I continue to lead AWP as segment president with a laser focus on improving profitability and growth. The leadership team's execution of our improvement plans is yielding results, as demonstrated by the positive operating margin this quarter. But we clearly understand that we have more work to do. Our aerials team has always been customer focused, so we listened and acted on our customers' feedback. We reorganized our teams and are putting the processes and tools in place to increase the ease of doing business with AWP. We are investing in the expansion of a world-class manufacturing facility in Changzhou, China. The AWP team is well positioned with our strong brands and product offerings to participate in this market's growth. From an operational perspective, the AWP team executed in Q3 by driving sequential and year-over-year revenue growth in China, aggressively taking costs out of the business to improve margins, and swiftly bringing online the new utilities facility. 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 11. Material processing demonstrated, once again, strong operating performance in challenging market conditions. MP continues to develop product adjacencies and new geographies for its leading products and brands, all while demonstrating strong operational execution. The financial performance of MP relative to market conditions by achieving an operating margin of 13% demonstrates the MP team's strong execution. MP's booking stabilized and increased throughout the third quarter, resulting in bookings being up 24% year-over-year. MP is a diversified and consistently strong performer. Go to slide 12. To wrap up our remarks, Terex team members around the world are focused on the right things, safety, health, customers, and improve productivity. We are reducing cost 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. With that, let me turn it back to Randy.
spk06: Thanks, John. As a reminder, during the question and answer session, we ask you to limit your questions to one and a follow-up. Ensure we answer as many questions as possible this morning. With that, I'd like to open up for questions. Operator?
spk02: Thank you. We will now begin the question and answer session. To ask a question, please press store 1 on your telephone keypad. again that is star one on your telephone keypad our first question will come from stephen folkman great good morning guys can you hear me okay
spk01: I wasn't totally clear if that was a done deal. But anyway, thanks for taking the question. I guess if I could just kick it off, John, with you. You've been out in managing AWP now for a while. I think you probably have got your hands around some of the key issues. You're certainly talking strongly about the margin sort of efforts there. So I'm wondering if there's a time when you can sort of lay out some detail here. Is this going to take a sort of a significant restructuring program that will be announced at some point, or is volume kind of the key to getting margins where you want them to be? Is there, you know, some of the toolboxes that you've used in the past? Is it sourcing? Is it, you know, head count? Is it, you know, facilities reduction, SKU reduction? Just any details you can give us, because as you pointed out, you still have a fair amount of work to do. Thanks.
spk07: Thanks, Steve. First, let me say that Our AWP team is focused on driving margin improvement. We're also doing that by maintaining our focus on the customer. This business has a long history of being customer focused, and we're going to continue to be customer focused as we drive the margin improvement that's required. Steve, I have been out there for a couple months working with the team. And first and foremost, number one, safety. As I said, it's the most important thing we do, and the team has really done a great job on COVID safety and industrial safety on a year-over-year basis. So we can build off of that as we go forward. The second area is around margin improvement. There's near-term actions and intermediate-term actions that we're taking. On the near-term actions, we've taken restructuring actions that we implemented in Q3. We also implemented some additional restructuring actions here in Q4 that Duffy referenced in his opening comment. Those restructuring actions are looking at all costs throughout the business, both SG&A costs as well as manufacturing costs. Your comment around inventory, the team has significantly improved inventory our SIOP management process. And we now believe we're in a position that we can produce to end market demand. We've dramatically reduced our inventory during the course of this pandemic in our AWP business. And I think the good news is as we go forward, we'll be much closer to producing to retail demand. I might also say, Steve, the third thing the team is focused on is market share. We can't lose sight of driving revenue in all environment. That will be a combination of using the tools that we've implemented around our commercial excellence initiative. I think our sales team is doing a great job in these challenging times, staying close to the customer, maintaining price discipline in a challenging marketplace. And so, you know, you're going to continue to see us execute on our commercial excellence side. The other thing that's going to help market share as we move forward in revenue There's our product development efforts. The team has implemented an aggressive product development plan over the last couple years. We will continue with that as we go forward. Our new products that have come into the marketplace, the J-Series boom is going to help. Our FE booms, our XC line of booms, now that the ANSI standards are in effect, we think all of that is going to help us in the marketplace, and we are releasing an ANSI complete line of fizzers And again, from a product positioning standpoint, we think we're well positioned as market conditions improve as we move forward. And then finally, Steve, the other, being very clear with the team, is cash flow generation, just like we do throughout Terex. And that really is tightly managing all expenses. Every single dollar of expense in the enterprise has to be tightly managed while continuing to still invest because we are investing in capital. We are investing in our IT systems as we move forward. And then aggressively manage working capital. And I've got to thank the global team and the AWP team because they've done a great job reducing inventories in a challenging time, but we've also done a great job on our strategic sourcing initiative, which also will help us drive margins as we go forward, but also on our payables, and finally, working very closely with customers on the unreceivable side. So safety, margin improvement, market share, and cash flow generation is what we're focused on. And, Steve, from a timing standpoint, it's always a challenge. It won't happen as fast as I want it, but we're pushing it as fast as we can as we move forward because this business will return to industry competitive margins. That's what we're focused on, and we're going to get it done.
spk01: Okay, great. And just as a quick follow-up, can one of you guys maybe quantify the restructuring benefits you're expecting in 2021? And I'll pass it on. Thanks.
spk07: Hey, Duffy, would you like to comment more on the benefits? I think it will be in terms of our decremental and as we move forward, incremental margins. You want to comment on that, Duffy?
spk06: Yeah. No, thanks for that, Steve. And obviously, we will provide 2021 financial guidance during our Q4 earnings call. And I think that the way to think about 2021 is that we will be fully committed to our 25% or better decremental or incremental margins. And quite honestly, we look forward to returning to revenue growth in 2021. And the other metrics that we are absolutely committed to is the 12.5% SG&A to revenue that I referenced in my comments, John referenced in his comments, And we are absolutely committed to driving the team there. So rather than, you know, it's hard to say a specific restructuring benefit at this point in time. All the restructuring we are doing today will allow us to be successful with those incremental margins at 25% or better in 2021. Great. Thank you, guys. Absolutely.
spk02: Your next question comes from Joe O'Day. Your line is open.
spk04: Hey, Joe. Hey, good morning. Good morning, Joe. A question on, you know, AWP in managing some of the volatility, John, and it sounds like there's a very clear focus on you had to get a bunch of inventory out. You don't want that coming back into the system. But as you think about some of the uncertainty heading into next year and the steep capex cuts across the rental companies this year, How do you anticipate managing a move off of the bottom and scenarios where it could be a sharp move? How do you do that without inventory? How are you going to manage this differently from how the company's done it in the past?
spk07: Thanks, Joe. So first, it really goes back to that commercial excellence process and staying close to to our customers and really working with the customers to understand the range of outcomes customers are looking at so we can then plan based on those ranges and incorporate that into our SIOP plan. It's not that we're not going to have inventory. We will have inventory. We'll manage inventory very closely based on days on hand by model and by region to ensure that we have competitive lead times going into the marketplace. The Genie team historically has demonstrated the ability to flex up pretty dramatically, and that's a competency that's been built over years. That competency will remain as we move forward. I can assure you, Joe, after what the team's been through the last 18 months taking inventory out, we would love the opportunity to respond to an increase in market demand as we go forward. And I would say the Genie team historically has demonstrated very strong competency in doing that. So it's really managing the sign-off process with our commercial excellence and our sales team, staying close to the customer, understanding what their demand profiles look like, having the appropriate level of inventory to meet those needs, and then ramping our our supply chain up. And again, with the strategic sourcing initiative that we've implemented, working with fewer suppliers, we feel confident we have the ability to do that. And again, that would be a challenge that the team would truly welcome is to figure out how to ramp up significantly versus the challenges that the team's been facing here over the course of about the last 18 months. So that's how we'll do it. And again, it's process disciplines, process tools, implementing and executing those will drive our ability to meet customer demand. And we're not against inventory. We just want to make sure we have the right level of inventory, and we will manage going forward. The good news is now we can ebb and flow inventory up and down based on the retail demand. So our inventory levels may increase based on customer demand. So we'll manage that aggressively as we move forward, and the team's doing a better job of that.
spk04: Appreciate that color. And then just a second one on price cost, how you're thinking about inflationary pressures into next year, your comfort level with the ability to offset what you have line of sight to.
spk07: Thanks, Joe. Overall, I think the word that we use across the entire business is being disciplined on pricing by not overproducing inventory. I think our customers are being very disciplined in their capex and their rate pricing, so we're being disciplined as well. Within AWP, going forward, we're going to offset the increases related to ANSI and the ANSI standards implementation. We've been very transparent with customers on what those cost increases are. Again, disciplined SIOP process that we talked about to make sure that we have the right inventory at the right place at the right time. And then on the other side on pricing is part of our commercial excellence initiatives. It's really pricing waterfall management and, again, the process and tools in place to do that. and to prevent leakage of what price you're able to obtain. And so I think the team is doing a better, obviously room for improvement across everything, but the team has been doing a good job on pricing waterfall management. If we look at the MP, you know, given that 70 to 80% of that business is through a dealer channel, we do believe that we'll have the ability to offset input cost increases as we go through the year. And again, the MP business has done a good job managing their inventory throughout, and so we haven't had the significant adjustments in inventory on the MP side as we go forward. So we're going to be disciplined on pricing. We provide tremendous value for our customers, and that's how we're looking at pricing as we move forward into the fourth quarter and into 2021.
spk04: Thanks very much.
spk02: Your next question comes from
spk05: Good morning, everyone. Can you hear me okay? We can hear you fine, Meg. All right, great. So I want to go back to this comment that you made about SG&A as a percentage of sales being 12 and a half. I'm wondering kind of how you're thinking, how essentially you came up with this figure. how we should be thinking about actual dollars spent on a go-forward basis. I mean, is the idea here that you're going to keep SG&A flat and get leverage of that, or can we actually see maybe further decline in SG&A dollars spent next year? If you could elaborate on that, I think that'd be really helpful.
spk07: Yeah, thanks, Mick. I'm going to have Duffy comment on that. He's leading the charge for us as we look at SG&A as a percent of sales to, you know, throughout the entire company. So, Duffy, would you comment on that, please?
spk06: Sure. Thanks very much, John. And so, Mick, our focus is really on the 12.5% SG&A to sales. You look here at Q2 and Q3. we've had a run rate of about $100 million for SG&A in both those courses. Now, that's here in 2020. That's above 12.5% for sales because of the low level of revenue that we've been experiencing. And here in Q3, we also had about $7.5 million of restructuring charges that were included. So $100 million run rate. That $100 million run rate does include the benefit of the temporary cost reduction that we took in the beginning of the second quarter, reductions in compensation, no merit increases, reduced in bonus opportunity for 2020. All of those costs, they will return in 2021. So what our program has been focused on is not just bringing down the absolute level of SG&A, for sure we're doing that, but also being in a position that when we get to 2021, we have replaced the temporary cost reductions that we're benefiting from here in 2020 with permanent cost reductions. And they are... There's no silver bullet here. It's every single day, absolutely... questioning every expenditure and making the business more efficient, both within the businesses themselves and in our corporate cost structure. I also, though, want to make sure that you understand that we are balancing between cost reduction and making investments where warranted, such that we're in a position to continue to drive growth in the business, charts and services, engineering and new product development are examples of that. So, um, I would say is that, uh, as you think about your 2021 model, uh, our objective would be that, uh, our SG&A percent to sales will be 12.5% or less, uh, to sale, uh, uh, to, to sale, um, each quarter, uh, through 2021. Okay.
spk05: And then I guess my follow-up, John, going back to AWP, it's very clear that the inventory situation is well on hand at this point, and you've made quite a few changes to the business. My question is, looking beyond the fourth quarter and recognizing that you've got additional restructuring and things that you're going to do there, do you think that most of the changes that you had to implement structurally to that business, to that segment, are in the rearview mirror? And now we're just kind of looking at hopefully getting some better volume and traction on that? Or is there still more structural work that you need to do in 2021? Thanks.
spk07: Thanks for the question, Meg. We continue to look at all aspects of cost as we move forward to ensure that we're globally cost competitive. And so, Meg, we're going to continue to do that, again, to ensure that we're globally cost competitive as we move forward. So, we'll continue to look at all elements of our cost structure as we move forward and make the appropriate decisions to ensure that we're globally cost competitive and return this business to more of its historical operating margin performance.
spk05: Okay, thank you.
spk02: Your next question comes from Anne with JP Morgan.
spk03: Hi, good morning, everybody. I appreciate all the discussion that SG&A is 12.5% of sales, but that's not much value to us unless we know what the sales level is going to be. So can you talk about... What you're hearing out there from your customers, both the large customers, small customers, what do you think sales might look like for both segments as you head into 2021? I know you don't want to give a guidance, obviously, but just directionally, what are you hearing?
spk07: So I'll talk and thank you for the question and I know all of us are looking for what does it look like as we move forward. So I'll give a little kind of market commentary and then I'll ask Duffy to kind of speak to what we look like from a revenue development standpoint for 2021. As we look at the AWP business, Ann, we have seen equipment utilization improve as we move through the quarter. It's not up to 2019 levels, but we have seen utilization improve within North America. I think that was indicative of seeing our bookings level improve in the quarter. We do believe that the replacement cycle is going to be strong. It's not absolutely clear when it starts, but if you just look at the age of the of the aerial equipment, there is going to be a strong tailwind associated with the replacement cycle in the future. I would say similar story, Ann, in Europe, but a little bit more of a mixed story in Europe, more based on country-specific. Southern Europe has been slower to recover than, frankly, Northern Europe. But, again, we did see orders improved. We saw substantial improvement in China. That market continues to accelerate, not just the economy recovering from the COVID situation, but also with the adoption of aerial products in that marketplace. So that market's continuing to grow very significantly. And then our utilities business, we saw a little slower demand this year in the rental, especially rental customer channel. but that's beginning to pick up and that relative stability with the regulated utilities and the co-ops in that market. So we would anticipate the rental channel within the utility segment to show improvement on a year-over-year basis. If we then look at our, across our MP, and I won't necessarily go through each and every one of the businesses, But if we look at our crushing and screening side of the business, we did see improvement as we moved through the quarter. Orders were up significantly in that part of the business. I think that, you know, I think there's going to be some tailwinds there in that business as customers respond to the market conditions, to government stimulus around the world. One of our businesses with an MP that has been challenged this year was our material handling Fuchs business, and that was really two factors involved. Number one, steel prices being down pretty substantially, drove scrap metal prices down. We're starting to see that recover and recover pretty quickly, as well as that was one business within our MP segment that did have some dealer inventory at higher levels coming into the year. So the dealers have had to bleed off that inventory as we've moved through. And we think that will improve as we move into 21. Continuing to see growth in our environmental business. It's a smaller business within MP, but we've seen some really substantial growth in that business. Again, smaller, but we've seen really like our CBI business has performed extremely well here this year. I think that's a result of a lot of the storms. And then, you know, the concrete business, this is an interesting one. On the concrete side, it was very weak in Q1, but we began to see an improvement in Q2 and into Q3 where orders are actually above, significantly above prior year. And I think, Ann, that's speaking to the strength of the residential construction market and multifamily housing, which is very strong. That business serves that market segment. continue to see the other business that's performed quite well is our pick and carry business down in Australia, and we think that will continue into next year. And then our cranes business. Cranes has been a bit of a challenge. Our tower crane business saw order recovery in Q3 on the tower side, not necessarily on our RT business. The RT business, the rough terrain crane business, is is challenged. We're rebuilding the commercial team there, and that's been more of a challenge. And then finally, and India has been a good growth market for us within the MP segment. The COVID crisis has impacted India fairly substantially. And so we would anticipate as that ameliorates through the course of the fourth quarter and into next year, that we'll begin to see India return to a strong market for us. That's just a quick around-the-world look in what we're anticipating, what we're seeing now, and what we're anticipating. And as we've all said, it really does depend on the pace of recovery on the pandemic and how that changes over time. And we're going to adapt and respond to that market. So that's a bit of an around-the-world by company look at how we're seeing the markets develop. And Duffy, would you like to talk about the 2021 revenue outlook?
spk06: Yeah, sure. And just building on what John said a moment ago about the degree of uncertainty that we're experiencing, I'll refrain from providing an absolute level of expected revenue for 2021, but recognizing that you'll be building out models over the next months. What I would say is that what we're currently anticipating is in terms of revenue development over the course of the year is that our total company revenue for 2020 will be similar to the development that we saw here in 2020. The 2021 development will be similar to what we saw here in 2020 with revenue being relatively evenly split between the first and the second half of the year. is as is normal for our business. We are expecting that the second quarter revenue will be the highest of the year and that we will return to growth in the second quarter of the year. And we are currently anticipating that we'll continue to sustain that revenue growth year over year during the second half of 2021. And quite frankly, we're looking forward to being able to return to growth, to revenue growth in 2021. So those are a few thoughts, and we'll provide more absolute amounts of 2021 financial guidance during our Q4 earnings call.
spk03: I appreciate that. And just one quick follow-up. When you talk about the progression of potential revenue for 2021, could you just between AWPs versus NP, or you expect similar across both?
spk06: I think it's similar across both in terms of the comments I just made, Ann.
spk03: Okay. I appreciate it. In the interest of time, I'll get back in line. Thank you.
spk07: Thank you, Ann.
spk02: Your next question comes from Jamie Cook with Credit Suisse.
spk00: Hi, good morning, and nice quarter. I guess just two questions most have been answered. One, can you just talk to what you saw in sort of demand trends in October and understanding what you said about, you know, 2021 revenue and how to think about the progression? Are customers saying anything differently about how to think about order trends, whether, you know, we're hearing potentially there's risk they could make decisions sort of later in the year as lead times are short? So I'm wondering how you're thinking about that and whether that's changed since last quarter. And then my second question, John, I think you alluded to opportunities, you know, to improve your market share in certain markets, just sort of where you're targeting and how you balance sort of, you know, returns margins versus pricing as you think about gaining market share. Thank you.
spk07: Thanks, Jamie. In terms of the progression in conversation with customers, we haven't seen, we continue to see the improvement as we've moved through the quarter. Obviously, it's subject to what occurs with COVID, but we have seen it improve through the quarter. In terms of customers on the AWP side, Jamie, they're basically sticking to their, what I'd call their standard uh, annual operating plan process. And so that's continuing as we move through the third, um, excuse me, the fourth quarter. So we'd anticipate as we get to the end of the fourth quarter and into the early first quarter to have much better clarity in terms of the, uh, what, what customers are looking for. And I would say that's, that's, uh, North America in Europe and likewise in China. So right now we're seeing customers plan their business on their normal planning schedules. And that's what we're anticipating as we move forward. And again, we'll have, you know,
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