Terex Corporation

As a reminder, this conference is being recorded. And it is now my pleasure to introduce your host, Derek Everett, Vice President, Investor Relations. Please go ahead.

Good morning and welcome to the Terex First Quarter 2025 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. We are joined today by Simon Meester, President and Chief Executive Officer, and Jennifer Calm, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by a 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. These risks are described in greater detail in the earnings materials and in our reports filed with the SEC. On this call, we will be discussing non-GAAP financial information, including adjusted figures that we believe are 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 Simon Measer.

Simon Measer Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. A fundamental part of our journey to becoming a world class operating company is achieving world class safety performance. I want to thank our global team members for their ongoing commitment to safety and our Terex values. As we grow and transform our company, our values will continue to include keeping each other safe, treating each other with respect and dignity and being stewards of our environment and our community. Turn to slide four. Our overall Q1 financial performance exceeded our initial outlook. We delivered earnings per share of 83 cents on sales of $1.2 billion and return on invested capital of 15%. Aerials and MP operating margins were impacted by production cuts in the past two quarters that exceeded the decline in sales for that period. Those actions were necessary to manage inventory and rebalance supply with demand. The impact is largely behind us, and we expect to see margins improve in Q2. Environmental solutions, which includes ESG and TEREX utilities, accounted for one-third of our global sales in the quarter, and earned 19.4% operating margin, strong execution by our ES team. Looking ahead in the current environment, it's difficult to predict where we're going to land in terms of tariffs. The good news is that we have been proactive in terms of forward placing inventory and are, like everyone else, working around the clock to mitigate what is currently right in front of us. We are maintaining our full-year EPS outlook of $4.70 to $5.10, including the assumed impact of the recently announced tariffs, fully realizing that things can change fast. For our full-year sales outlook, we continue to expect lower year-over-year sales in aerials and MP in line with our previous 2025 outlook and slightly better growth in environmental solutions. Moving to slide five. Adding ESG makes Erics a more U.S.-centric company, which is obviously helping in the current environment. Approximately 75% of our 2025 U.S. machine sales are expected to be generated by products that we produce in at least one of our 11 U.S. manufacturing facilities. Environmental Solutions' full line of refuse collection vehicles, utility vehicles, compactors, and digital solutions are all designed and made in America. Genie Manufacture is the vast majority of the booms and scissors sold in the U.S. in Washington State, representing about 70% of its U.S. sales. Telehandlers and other products manufactured in Monterrey, Mexico, totaling approximately 20% of its U.S. sales, qualify on the USMCA trade agreement and are currently exempted from the recently announced tariffs. Materials processing has our most globally diverse footprint. Approximately 40% of the segment's 2025 US sales, including cement mixers and certain environmental and aggregate products, are made in the United States. It is important to note that our primary aggregate's product lines are produced in Northern Ireland, which is part of the United Kingdom and not expected to be the target of long-term trade action. In total, about 85% of MP's 2025 U.S. sales are generated by products made in the U.S. or the U.K. Cranes and material handlers manufactured in the European Union represent less than 10% of MP's U.S. sales. Like other industrial companies, we have a global supply base and exposed to tariffs on imported material. A key element of our tariff mitigation plan was working closely with our global suppliers to absorb the added costs and forward-place inventory to buffer the impact. We are leveraging our global sourcing capabilities to rebalance supply to more favorable sources, among other actions. We will work to mitigate as much cost inflation as we can to limit the burden on our customers. That said, the cornerstone of our pricing strategy will continue to be maintaining price-cost neutrality. Continuing to page six. Our portfolio of businesses compete across an attractive and diverse set of end markets. Waste and recycling, which represents approximately 25% of our global revenue, characterized by low cyclicality and steady growth. About 20% of our business is related to infrastructure, where significant investment continues to be put in place in the United States and around the world. Utilities is about 10% and growing due to the need to expand and strengthen the power grid. These three markets representing more than half of our revenue are highly resilient and less exposed to macroeconomic or geopolitical dynamics than any other area. General construction, which in the past had represented the majority of our end markets, is now less than a third. Mega projects and publicly funded demand remains healthy while private sector demand is cautious. Turning to Europe, we continue to see a generally weak economic environment in the near term with a more encouraging outlook for infrastructure and related spending growth in the medium to longer term. We also remain encouraged by increasing adoption of our products in emerging markets such as India, Southeast Asia, the Middle East, and Latin America. Please turn to slide seven. We continue to implement our updated execute, innovate, and grow strategy. Integrating ESG into TEREX is on track and we fully expect to deliver more than 25 million in operational run rate synergies by the end of 2026. We are leveraging ESC's expertise to improve throughput and increase capacity for certain utilities' product lines that have backlog stretching into 2027, a clear demonstration of synergy within our ES segment. We continue to evaluate our global footprint, focusing on opportunities to reduce fixed costs while improving operational performance efficiency and flexibility. When it comes to innovation, we have an exciting new product development pipeline focused on maximizing return on investment for our customers, and we are expanding our suite of digital solutions. We are investing in robotics, automation, and digitizing work streams for the benefit of our customers and to make our operations more flexible and efficient at the same time. Turning to growth, completing the ESG acquisition was a significant step forward. We fully expect organic growth in that business to continue, driven by demographics, product technology adoption, share gains, and further penetration of our digital solutions. Our aerials and MP businesses continue to execute their growth strategy by accelerating adoption and exploring new channels and markets. Overall, we have a $40 billion addressable market with significant upside for our businesses. Turning to slide eight. At the core of our product development process is working with our customers to develop solutions that address their challenges and capitalize on their opportunities. A great example is ESG's third eye digital suite of onboard applications for waste collection vehicles. In addition to revenue generation and operating efficiency applications, ThirdEye helps our customers improve safety performance. The middle picture is a great shot from atop a Genie Superboom at a recent PGA event. We see growth in sports and entertainment applications as Genie products provide safe, stable, and flexible solutions. The image on the right is our new CBI wood chipper. The CBI team worked with their customers to design a machine with exceptional performance and industry-leading ease of maintenance. CBI is part of our MP environmental vertical, providing solutions to the growing biomass, wood processing, and vegetation management sectors. Each of these examples demonstrate the strength and leverage of the Terex portfolio to maximize ROI for our customers. And with that, I'll turn it over to Jem.

Thank you, Simon, and good morning, everyone. Let's look at our Q1 financial results in slide nine. Total net sales of $1.2 billion were 4.9% lower than prior year, or negative 3.6% at constant exchange rates. Excluding ESG, our organic sales declined by 25% year-over-year in line with our expectations, driven by continued channel adjustments coupled with timing of our backlog conversion. Our book-to-bill was 124%, demonstrating a second consecutive quarter of book-to-bill above 100%. And our backlog remains strong at 2.6 billion, up 13% sequentially. ES delivered a strong quarter, representing one-third of Tarek's sales, confirming Simon's point that we are becoming a more resilient and less cyclical company. Our operating margin was 9.1%, 350 basis point lower than prior year. This was slightly better than anticipated due to strong performance in ES. I do want to mention that while our Q1 operating margin was lower than prior year, it was 130 basis point sequential improvement versus Q4 24 on similar volume. Excluding ESG, our organic operating margin declined by 760 basis points. Approximately 75% of the organic margin declined is driven by volume, with the remaining 25% margin declined driven by unfavorable adoption, partially offset by $20 million of SG&A reduction and cost productivity. Interest and other expenses were $41 million 26 million higher than last year due to interest on ESG acquisition financing. The first quarter effective tax rate was 21%, slightly higher than prior year. EPS for the quarter was 83 cents and EBITDA was 128 million. It is important to note the impact of factory under-absorption associated with the production rate takedowns in areas and MP. was approximately 31 cents per share in Q1. Free cash flow improved compared to Q1 last year due to better working capital performance despite lower earnings. Please turn to slide 10 to review our second results, starting with areas. Sales of $415 million were consistent with our expectations. Approximately half of the sales were generated in March, as our rental customers began to ramp up their deliveries, heading into the seasonally higher construction period. That pattern is continuing into Q2. Operating margin was 3% without the last year, but slightly higher sequentially. Half of the margin deterioration was driven by lower sales, while the remaining was due to under-absorption from the production cuts that are largely behind us. We expect areas to return to double-digit operating margins in the second quarter as we ramp up production in line with seasonal demand. Turning to Spike 11, MP sales of $382 million were in line with our 2025 planning. We continue to see a high fleet utilization rate in the United States. Quotation activity across our dealer network is positive, with dealer stock levels declining but slowly. However, MAC-1 certainty and higher interest rates remains a hit-win for rent-to-own conversions, and the European market remains weak. Our concrete business delivered a solid Q1 with improved margins driven by new customers. Despite lower volume and unfavorable absorption in the quarter, MP was able to maintain double-digit margins due to cost reduction actions, including reducing SG&A by 12% of $6 million as compared to last year. We expect Q1 to be the lowest margin quarter for MP as we anticipate sequential improvement over the course of the year. Please turn to slide 12 to review environmental solutions. Our ES segment had an excellent quarter, generating approximately $400 million in sales which represents a third of our total TARIC sales in Q1. As Simon mentioned, ESG achieved record throughput, resulting in record sales. Q1 shipments from hub were certainly higher than prior years. Operating margin for ES was 19.4%, which included consistent year-over-year margin performance in TARIC utilities and meaningful improvement at ESG. On a pro forma basis, this translates to a year-over-year 420 basis point margin improvement when we include ESG in our Q1 2024 baseline. We expect margins to remain strong going forward, but slightly moderating from their Q1 level. I look forward to consistent strong performance from this segment. Please turn to slide 13. We continue to maintain strong liquidity and a flexible capital structure with the right mix of secured and unsecured debt and variable versus fixed rate. As stated previously, we can prepay or reprice a certain portion of the debt, and we do not have any maturities until 2029. We end the Q1 2025 with $1.1 billion of liquidity consistent with our outlook. We plan to do leverage in second half of the year as we generate increased cash flow from operations. We will also continue to invest in our businesses, fueling organic growth and profitability improvements. In Q1, we reported a return on invested capital of 15%, well above our cost of capital. Returning capital to shareholders remain a priority. In the first quarter, we repurchased 32 million of Carex stock and paid 11 million dividends. We will continue to take advantage of market conditions to repurchase shares at favorable price levels. Carex is in a strong financial position to continue investing in our business and executing our strategic initiatives while returning capital to shareholders. Turning to bookings and backlog on slide 14. Our bookings and backlog trends have returned to seasonal patterns supported by strong bookings and errors in the first quarter. Our current backlog of 2.6 billion is up 300 million or 13% higher than prior quarter as you can see in the backlog chart in the appendix. It is consistent with seasonal historical levels and supportive of our outlook. We continue to see strong errors book to bill of 144% in the quarter, predominantly driven by replacement demand. MP's backlog increased 33% sequentially and is in line with pre-COVID norms. MP has returned to his traditional book to bill with approximately three months of backlog. Environmental Solutions' backlog of 1.1 billion continues to demonstrate strong demand in both ESG and tax utility. Now turn to slide 15 for our 2025 outlook. We are operating in a complex environment with many macroeconomic variables and geopolitical uncertainties, and results could change negatively or positively. Our outlook assumes approximately 40 cents of net Paris impact, which includes easing of the current rate. We continue to expect full year 2025 sows up between 5.3 and 5.5 billion, representing between 200 to 400 million higher sows than prior year as the ESG acquisition more than offset 8 to 12% lower organic sows consistent with our previous outlook. We continue to expect segment operating margin of approximately 12% resulting from the plan improvements in areas and MPs, continued strong performance in EES, and ongoing actions to largely mitigate the impact of tariffs. We also continue to expect interest and other expenses of about $175 million, an expected tax rate of 20%. As a result, we are maintaining a full-year EPS outlook of 470 to 510. From a quarterly EPS perspective, we still expect Q2 and Q3 to be stronger than Q1 and Q4. We continue to expect a significant increase in free cash flow compared to 2024, anticipating between $300 and $350 million in 2025 driven by working capital reductions and a full year of ESG cash generation. We'll continue to invest in our business with expected CapEx of approximately $128 million. Looking at our segments, we're maintaining our areas and MP sales expectations and increasing our sales outlook for ES. In areas, we have planned conservatively with the assumption that our rental customers are primarily deploying replacement CapEx this year. Our bookings, actual deliveries, and ongoing discussions continue to give us confidence in the ARIS outlook of down low double digits. We expect ARIS to return to double-digit margins in Q2, including the impact of tariffs. In MP, our backlog coverage as well as the underlying machine utilization rates, part consumption, and code activity continue to give us confidence in our down high single-digit outlook for the year. We expect MP to achieve full-year decrement margins well within our 25% target. ES had a great first quarter, and we're increasing our full-year outlook of sales up high single digits. And with that, I turn it back to Simon.

Thanks, Jen. I will now turn to slide 16. Terex is well positioned to navigate the current dynamic environment and deliver long-term value to our shareholders. We have a strong, more synergistic portfolio of industry-leading businesses across a diverse landscape of industrial segments with attractive end markets. We will improve our through-cycle financial performance as we integrate ESG and realize synergies across the company. As always, I want to close by thanking our team members around the world. We have embarked on the exciting path forward, building and growing a new Terex. And with that, I would like to open it up for questions. Operator?

Thank you. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, simply press star 1 again. We also ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Jerry Rivage with Goldman Sachs. Please go ahead. Yes, hi. Good morning, everyone.

Hey, good morning.

Good morning. I was really impressed by the ES margin improvement in the quarter. I'm wondering if we could just expand on the comments you made, Jennifer, on the margin outlook in coming quarters. Looks like you were right about 17% margins for most of last year. If that's the cadence for this year, it looks like operating profit for the business would be up over 30%. So I just want to make sure I understand the moving pieces within that and drivers of the really strong margin performance in the first quarter.

Sure. Good morning, Jerry. So a strong Q1 ES performance is driven by three factors. That's, of course, the 6% of sequential increase in sales from Q4 to Q1 on a pro forma basis. And second, we did, like what Simon mentioned, we had a record Q1 in terms of throughput. So that actually drove very favorable factory absorptions and ESG. And also, we also had some integration synergies realizing NT1. As we go into the remaining of the three quarters, we see that moderating back to the normalized rate, mainly because we don't see that there were some expenses that we will be incurring to ramp up the production and to support some of our one-off expansion as well.

Yeah, we had a couple of one-off items in the first quarter that we don't think repeat in the next three quarters.

So we did have a really good quarter.

Well done. And then just to shift gears, Simon, I appreciate the comments you made about maintaining price-cost neutrality. Can you just talk about how you're handling orders that you folks are booking today? Is there a surcharge mechanism in place? And You know, I saw the guidance comments spoke about the assumption around where tariffs move going forward. Can you just expand on those assumptions? And if tariffs are worse, how is what's priced and backlog going to play out to maintain price cost neutrality?

Yeah. Yeah. Thanks for the question. Obviously, you know, we're in a very dynamic environment and things change all the time. And it's difficult with what will happen in the next couple of months. And we laid out some assumptions that we are operating by. But obviously, you know, we are in full mitigation mode. Actually, we have been in full mitigation mode for quite some time because As early as late last year, beginning of this year, we started pulling forward material. So we bought ourselves a little bit of time there in material and finished goods. We also started to pull back on discretionary spend. And now the priority is fully on mitigating the tariff impact through our supply chain and exploring alternatives. we're kind of pausing on the longer-term actions just to see things stabilize first. But then obviously, to your point, pricing is one of the leaders as well. And we have taken some surcharges in certain areas already, but the price-cost dynamics are very different by business, by segment, even by vertical, because you need to put it in the context, obviously, how much we can mitigate by business, by segment, what our competitive position is, our market conditions, and so on and so forth. But overall, our strategy is to maintain that price-cost neutrality and where price is one of our levers to pull. But the priority for now is to mitigate through supply chain. Thank you.

Your next question comes from the line of Jamie Cook with Truist Securities. Please go ahead.

Hi, good morning and congratulations on a nice start to the year. Just want to understand, I guess, Jennifer, the puts and takes of the guidance. Obviously, we beat the first quarter, but I think you said you're going to have a 40 cent headwind related to tariff. So if you can just walk us through, and I guess maybe ES is a little better, but just the puts and takes of how we're maintaining the guide given the different dynamics there. And then I guess my second question is not what we know about tariffs today and where you're manufacturing your products because it looks like a lot of your products are manufactured in the U.S., which is just wondering if there's a market share or competitive advantage for tariffs in certain product lines or segments. And if so, could you just highlight where that could be? Just wondering if there's a market share or outperformance story here. Thank you.

Hey, Jamie, you broke up at the beginning of your second question. Can you repeat? Sorry.

Yeah, sorry. The second question, just, you know, based on what's going on with tariffs and you're saying you manufacture 75% of your products in America or made in America, I'm just wondering if there's certain product lines where you have a competitive advantage because of your manufacturing footprint, and if so, where that would be so that you could potentially gain market share. Thanks.

Hey Jamie, good morning. So I'll take the first question. I'll let Simon answer the second question. So our Q1, we bid our original outlook by about 30 cents and that's largely, like you see, driven by ES and we expect that to flow through the year. And that will offset partially the 40 cents tariffs that we'll pick into our outlook. And then we also offset that by our share count that will actually drive our EPS higher and also some of our operational efficiencies. As you can see, we continue to reduce our SG&A itself. So that actually walks back out how we actually maintain our guide at this point in time.

Yeah. And with regards to your question on market share and product lines, we like our overall position, Jamie. If I break it down by segment, starting with environmental solutions, I mean, it's all made in the United States and sold in the United States. So obviously, we like our position there. In aerials, 95%, if you include USMCA, you know, built in North America, for North America. So we like our position there. And in materials processing, I don't see any major difference between us or our competitors in terms of where we're sourcing from. Maybe in the margin a little bit, but overall, I don't see the global footprint. I actually think we're at an advantage more so than a disadvantage overall, but it would be hard for me to call out a specific product line. we would certainly be at an advantage versus obviously some of our Asian competitors.

Thank you.

Your next question comes from the line of David Russell with Evercore ISI. Please go ahead.

Hi, thank you. Two questions. One on the aerial margin progression 1Q to 2Q, and then the full year thoughts around material processing. For Ariel's, can you give us some help on how you're viewing your revenue growth sequentially? I'm just trying to get a sense of what the sequential incremental margins implied to go from the 3% operating margin in the first quarter to 10%. Yeah.

So obviously we were very pleased with our, uh, uh, booked bill, uh, in the, uh, in the first quarter. So we were, we're set up to, um, to make a nice jump going to Q2. It would be our normal seasonal jump up, David. And so overall, our full year sales outlook is still to be down low double digits, but with a nice ramp up in Q2. I don't think we have actually articulated specifically what the number is, but it's the normal seasonal jump up. And that volume will obviously help us to get back to that double-digit operating margin in aerials that we spoke about in the prepared remarks. And then on MP, yeah, MP has a three-month backlog coverage. We were pleased with our Q1 bookings in MP. But obviously, that's a slightly lower backlog coverage than in aerials. In aerials, we have more than seven months forward visibility. So with MP, the current sales outlook assumes kind of a sequential ramp up as we progress through the year. It's not going to be kind of a V-shaped versus 2024. But, you know, more like a U-shape, if you will. But technically, what our outlook is implying is that Q1 would be a bottom for MP. Now, that's all within the context of, you know, what's going to play out with tariffs in the remainder of the year and what's that going to do to confidence. But inventories are roughly where they need to be. Are fleets being used in MP, in aerials? So we're, and some of that fleet starts to age now in MP. So we're looking at a potential compounded replacement effect there as well. But the current assumption is a very gradual ramp up on the by quarter in the MP sales outlook.

Thank you. I wanted to ask an MP question. I'm so sorry. I wanted to follow up on the 1Q to 2Q margin comment for aerials. When you say the normal ramp, obviously utilities pulled out, right? So I can go back and restate, obviously, some of the years. But are we saying about a 20% to 25% sequential on revenue, roughly? When you say normal, how do you define normal in the new aerial segment with utility? Just so I'm clear.

Yeah, I'll let... Jim, chime in on the margins. But if you think about what we said in the opening remarks is that half of our Q1 revenue was booked in March, and you just draw that forward. So that's kind of the ramp up for Q2.

Right. Hey, David, good morning. So in terms of like walking from Q1 to Q2 on the double-digit margins, we mentioned earlier that in Q1 we had about 550 basis points of impact and margin due to the deliberate production cuts that we poke. So if you add that, that will not repeat again in Q2. And then on top of that, the step-up in volume that will get us to the double digits.

Okay. And the idea of maybe some landed product, I'm trying to get a sense of the tariff impact on 2Q. Is it fairly light on aerials, particularly given I know the manufacturing base is already helpful? But, you know, the idea, you sort of seem to get ahead of the curve a bit on steel and a variety of things. I'm just trying to get a sense of the things that can make that easier. And as you said, under absorption is reduced. You have some volume sequential. And then on price-cost, it seemed like, if I remember correctly, you got a bit ahead on some of the cost issues too, just to gain more comfort. Because obviously that's a big driver, the sequential EPS 1Q to 2Q.

Right. Yeah, I mean, it's a great question. When it comes to the net tariff impact, we spoke about 40 cents in the prepared remarks. That is mostly going to be on raw material imported from China, and it's mostly impacting aerials, and it's mostly in Q3, although some of it will hit Q2 and some of it will hit Q4. It's important to know what our assumptions are on the 40 cents. And as I said, we're not assuming a dramatic change in any of the other tariffs other than the de-escalation of the China tariffs. So we baked in some sort of conservative continuation on the tariffs of the rest of the world. but we do expect de-escalation of the China tariffs to kick in in the next month or two. That's what that 40 cents is based on. And then obviously that USMCA qualified goods continue to remain tariff free. That's baked into that 40 cents. But to answer your question directly, we do think we have line of sight to get back to double digits in aerials in Q2. might just get there in Q3, maybe high single digits in aerials for Q3, and then back to normal decrementals in Q4. That's kind of the walk for aerial margins for now.

I appreciate that. That's what I was thinking. You have enough costs landed for 2Q. You get some volume ramp. The tariff issue is more of a back half story for aerials, but maybe that gives you a little bit of time to try to push price where you can and mitigate in other ways. Okay, I got it. I really appreciate it. Thank you. All right. Thanks, David.

Your next question comes from the line of Meg Dolbray with Baird. Please go ahead.

Thank you. Appreciate all the good color on what's baked into this $0.40. But one thing that I guess I did not hear you talk about is any tariff on the UK. Now, I don't know if I have my facts straight here, but that reciprocal tariff of 10%. I guess it's there, and I'm wondering how that impacts MP and what's baked in at this point.

Yeah, I mean, it's a fair question. As I mentioned earlier, our focus is to first and foremost offset this through our supply chain and explore alternatives. So that's the lion's share of the 40 cents is just basically raw material on China. So then there are obviously also some finished goods tariffs that we're dealing with and we're trying to absorb as much as we can to basically not burden our customers or our competitive position. But, yes, surcharges and pricing is one of the levers that we'll pull if we have to, if we can find the mitigation.

So, just to be clear, are you raising the price on MP, and this is basically the offset, or is this impact just not factored into the 40 cents?

I wasn't giving a specific comment on what we're actually doing because we just want to highlight the difference in price-cost dynamics by business. So I'm not comfortable in actually going into specific detail what we do for each business make.

Very well. And then my last question is on ES. really good margin performance here um I guess you know going back to the way this business I recall performing under previous ownership some years back the margin profile here is quite a bit better than what used to be here historically now that you're the owner of this asset and you're kind of looking into what has happened from a cost perspective and margin perspective How sustainable do you think current margins are beyond maybe 2025? Is there something unique in the price-cost dynamic or anything else that investors need to be aware of as they think maybe two to three years out? Thank you.

Hi, good morning. So, yes, like what you saw, what we disclosed in the poll format, you did see a big improvement in ES margins throughout the years. And we also mentioned that the synergies just now, Simon mentioned $25 million. Largely, that's analyzed for 2026 so that you would see that too into our profitability increasing. However, right now, the Q1 is our record throughput. We would definitely need to make some investment to keep on continuing up and catching up with the demand. Our backlog is really strong in ES with about eight months. and we're good set up for a good start for the year. But we'll expect that the synergies that come to you in 2026 that will further improve the margin profile as well.

Okay, thank you.

Your next question comes from the line of Tammy Zakaria with JP Morgan. Please go ahead.

Hey, good morning. Thank you so much, and very good results. So I wanted to follow up on that 40 cents comment. Is that assuming China tariffs stay at the 145% or what rate is assumed for China to get to that 40 cents? Because I think in the presentation you mentioned you expect some easing of tariffs, so I just wanted to clarify.

Yeah, thanks for the question, Tammy. Good morning. Yeah, so what is included in the 40 cents assumption is that there will be some level of easing on particularly the China tariffs to the tune of roughly, you know, 50% of where it is today. So we don't expect to go all the way to zero, but there would be a significant de-escalation happening in the next month or two.

Understood. That's very helpful. And then my second question is on MP or broadly for Europe. I think there was a stimulus plan package that was passed for Germany. How big is Germany for you? And any thoughts on which end markets could benefit from a package like that and how that relates to your portfolio, especially MP, that might benefit in the coming quarters or even years?

Yeah, great question. We were at the BALNA trade show a couple of weeks ago, and it was talking to customers and talking to dealers and partners. It was the first time that we really started to hear some positive news coming out of Germany, to be very honest. And yeah, that will definitely... a favorable impact, which, by the way, is not baked into our sales outlook for now because we think it will mostly start to kick in for us in 2026. But it would directly benefit our material handling business, which is very Germany dependent. It would favorably impact aerials. And it would favorably impact MP's aggregate business. So, and the German economy, as you know very well, obviously being very important as part of the greater EU economy. So, that was an encouraging bit of news that came out. So, we're excited about that.

Okay, great. Thank you.

Your next question comes from the line of Tim Thien with Raymond James. Please go ahead.

Great. Thank you. Good morning. I'll just pack the two questions together. The first is on the ES performance in the quarter, I'm curious if there were any purchase price adjustments that were included in the quarter. And then the second question just is on operating costs and that separate from the The tariff discussion, just curious how you are, I believe, hedged from a steel perspective for the year. Obviously, that's just in North America, but maybe just a discussion regarding general operating costs, just in light of some of the fluctuations in commodity markets, how you're thinking about the balance of the year. Thank you.

Yeah, there was no, I'll take the first and then I'll ask Jen to take the steel hedge question. Yeah, there was no specific pricing action for the first quarter other than what was part of the normal annual negotiations that drove that overperformance in Q1 for ES. It was predominantly just execution. Execution drove the overdrive and there were a couple of one-off orders that we were able to fill in the first quarter that gave us the upside. It wasn't driven by any surcharge or anything.

Jen, you want to take the steelhead question? I'm sorry. I wasn't clear on that. I meant if there was an accounting adjustment, like a purchase price adjustment related to the merged accounting. Add that on to Jen as well.

So hi, Gabriela. So yes, we have about 10 million purchase price adjustments in ES, just a typical base on the acquisition accounting. And so with regards to your second question on the still, we do not have any material impact from still inflation because, first of all, we do not import any raw stills. And then about 70% of what we use is HRC. And we also have, um, uh, 50% of that hatch at a very favorable rate. So, um, the. Important still in pre fiber painted parts are already part of our 40 cents and the others are not material.

Got it. Thank you.

Thanks. Your next question comes from the line of Kyle Mangus with city group. Please go ahead.

Thank you. It sounds like you guys are now expecting the ESG synergies to come in a little bit more than that 25 million target. So we'd just love to hear what's giving you confidence in that and just where so far synergies are looking to be a little bit better than expected.

Yeah. Thank you for picking up on that. That is correct. And we just go by our pipeline of projects, which is – It's going really well, so we're just very, very pleased with what ESG is already doing in terms of within its own segment, within environmental solutions and the synergies that it brings with the Terex Utility business, but also what it brings with other parts of Terex. It's really unlocking the full Terex portfolio, and we see synergies everywhere we look. We have adjusted our pipeline for probability, for execution, for risk. So it's not that we are counting ourselves rich here. And so we're confident with our line of sight to exceed that $25 million run rate by the end of 2026. So yeah, it's going really well.

And then just a second question on the Monterey facility. Just how are you thinking about Patrick Corbett- production shifts from the US to Monterey assuming that you've kind of pause that for now. Patrick Corbett- And then just how are you thinking about looking at alternative sources into that Monterey facility just in the supply chain and sorry if I misheard, but I thought you guys had said that. Patrick Corbett- Only 20% of the products from the Monterey facility or USMCA compliant sorry if I misheard that, but just if you could comment on that as well.

Jan Bogaert, Know we said that 20%. Jan Bogaert, If you include the US mca source that would fall under the US mca would would get us to 90% of what we sell in in North America comes out of North America. Jan Bogaert, The three other Monterey facility so obviously in the current environment we're not going to. take any drastic long-term action until we see things stabilize first. So we have been kind of pacing ourselves a little bit on our product moves. We're very happy with our Monterey facility because it's a world-class state-of-the-art facility and it's a very competitive facility. So that's another tool that we have in the toolbox to leverage and gives us optionality that once we see things stabilize, that we can leverage that facility more than what we do today. But, yeah, at the moment, we're kind of taking a breather to see where things are going to pan out over the next couple of months.

Makes sense. Thank you.

Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Good morning, and thanks for taking my question. I was hoping you could put a little bit of a finer point on the ES segment than just the margin moderation that you expect in 2Q. And as we think about the progression of maybe tariffs as we get maybe toward the back half of the year, if you could just fold that in along with the maybe greater success on the synergies as well as maybe resizing the one-offs that you mentioned would be helpful. Thank you.

Hi. Good morning. So, yes, when I say that it's moderating in Q2 and throughout the rest of the year, Like what I mentioned, there are some one-off good guys that we took in Q1. We had a record output in Q1 that actually drove up the factory adoption really favorably. And we do not think that that would sustain itself until the end of the year. Second, in terms of when I say one-off, there are also one-off expenses that will be incurring for the next nine months that were actually to drive up and support the volume growth that we will to support the backlog conversion as well. And then when I mentioned the synergies, we did see a piece of the synergies coming through in Q1, but not mature enough. Like what Simon mentioned, we expect the annualized 25 million synergies to come to in 2026.

Got it. That's helpful. And then maybe just on, I wanted to go back to MP. I think this was the first quarter where you saw backlog growth since maybe kind of 2022. And I know that that's been normalizing, but just curious if there's anything specific, you know, maybe even related to what you were talking about with Germany or more broadly, any step change in that business that gives you maybe confidence that we've, we found a bottom and maybe can even grow from here or just how should we read that improvement in the backlog and what you're hearing from customers?

Yeah, I wouldn't say that it's coming from Germany. So we are at a three-month backlog, which is our kind of normal season from a historic standpoint, our normal backlog coverage. And so, yeah, dealer inventories have been largely adjusted. This has been historically a book-to-bill business. So in that regard, it's a pretty normal pattern. And Q1 bookings did come in favorably year over year, so we were pleased with that because, quite frankly, the fleet in North America, and that's what's driving probably most of the upside, is the fleet utilization is still healthy. The fleet is starting to age. There is work. There is pull-through from megaprojects, from infrastructure projects. The smaller projects are still kind of sluggish, so to say. But what we're seeing is mostly that North America is ready for that replacement demand. Now, having said that, you know, we also obviously are cautious that the tariff talk doesn't become some sort of self-fulfilling prophecy and will start to eat into confidence. So we'll have to see how that's going to pan out in the next couple of months. But the current outlook assumes that there will be a gradual slow recovery in MP and mostly driven by North America and driven by replacement demands.

So just to be clear, that assumption is embedded in the 2025 cadence? Correct. Got it. Okay. Thank you. Thank you.

And that concludes our question and answer session. And I will now turn the conference back over to Simon Meester for closing comments.

Thank you, operator. If you have any additional questions, please follow up with Jen and Derek. Thank you for your interest in Terex, and with that, operator, please disconnect the call.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.