Terex Corporation

the Tarex Second Quarter 2025 Earnings Conference Call. A copy of the press release and presentation slides are posted on our investor relations website at .tarex.com. In addition, the replaying slide presentation will be available on our website. We are joined today by Simon Meester, President and Chief Executive Officer, and Jennifer Kong, 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 detail in the earnings material and in our reports filed with the FCC. 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. Reconciliation 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 Meester.

Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Tarex. I want to start by thanking our global team for their continued focus on our customers and our operational performance while navigating through a very dynamic environment. Some of our businesses have more tailwinds or headwinds than others, but our overall performance in the second quarter was in line with expectations. We deliver earnings per share of $1.49 on sales of $1.5 billion with an operating margin of 11%. In addition, we achieved $78 million in free cash flow, a significant increase compared to this time last year, representing a cash conversion of 108%. The power of our evolving portfolio was evident in the quarter as strong performance in environmental solutions offset industry-wide headwinds in aerials. Materials processing executed well, delivering strong sequential growth and margin improvement, looking ahead, we are maintaining our full year EPS outlook of $4.70 to $5.10. We expect stronger ES performance in the second half compared to our previous outlook, as both ESG and Tarex utilities are well positioned with healthy backlog, operational momentum, and synergies ramping up ahead of schedule. We are assuming independent rental customers will remain cautious with their capex deployment, impacting the sales mix and margin outlook for aerials, while we continue to expect NP to improve margins in the second half compared with the first half of 2025. With respect to tariffs, we fully understand that things change quickly, and it is difficult to predict where final rates will eventually end up. Our outlook assumes that tariffs broadly remain at current rates, and reasonable deals are made with key countries. To that point, let's move to slide four to discuss that in a bit more detail. As we communicated last quarter, we are well positioned from a manufacturing footprint standpoint, as about 75% of our 2025 US machine sales are expected to be generated by products that we produce in at least one of our 11 US manufacturing facilities. Environmental solutions, full line of refuse collection vehicles, utility vehicles, compactors, and digital solutions are all designed and made in America. Genie manufactures the vast majority of the booms and scissors sold in the US in Washington state, representing about 70% of its US sales. Telehandlers manufactured in Monterrey, Mexico, totaling approximately 20% of its US sales, qualify under the US MCA exemption. Approximately 40% of MPs 2025 US sales, including cement mixers and certain environmental and aggregate products are also made in the United States. Our primary aggregate product lines are produced in Northern Ireland, which is part of the United Kingdom. As we anticipated, the UK reached agreement on the 10% tariff rate consistent with our previous outlook. Approximately 85% of MPs 2025 US sales are generated by products made in the US or the UK. Cranes and material handlers are manufactured in the European Union and represent less than 10% of MPs US sales. Like other industrial companies, we have a global supply base and are exposed to tariffs, mostly on imported material. We are working closely with our suppliers and executing our mitigation strategy, but we are seeing direct and indirect tariff related inflation on materials. Based on our current outlook, we estimate the overall net impact of tariffs to be roughly 50 cents for the full year, which includes the recently announced 15% reciprocal tariff on the European Union. We will continue to follow the ongoing trade negotiations for all of our key markets. Moving to page five, macro cross currents are impacting end market demand and channel dynamics. We view the big beautiful bill as largely positive as key provisions, particularly the reinstatement of 100% bonus depreciation to be supportive of equipment demand and increased US industrial activity. Moreover, the bill includes new bonus depreciation for qualified production property, which marks the first time that newly constructed non-residential real estate can benefit from 100% bonus depreciation, which we believe will support increased US manufacturing capex. The bill also includes significant allocations to construction spending, particularly for border infrastructure and defense. One encounter to these policy tailwinds are persistently high interest rates and tariff related uncertainty that continue to impact capital decisions in certain areas. A building strength of the tariff's portfolio is the diversification of our end markets. Waste and recycling now represents approximately 30% of our global revenue and is characterized by low cyclicality and steady growth. Utilities is about 10% and growing due to the need to expand and strengthen the power grid. About 15% of our business is related to infrastructure where significant investments are being made in the United States and around the world. These three markets representing more than half of our revenue are highly resilient and less exposed to macroeconomic or geopolitical dynamics. General construction, which in the past has represented the majority of our end markets is now less than a third. On balance, we continue to see a two speed profile in US construction with strength in large projects and infrastructure and softness in local private projects persisting through the second half of 2025. Turning to Europe, we are seeing a generally weak economic and construction environment in the near term with a more encouraging outlook for infrastructure and industrial related spending growth in the medium to longer term. We're also encouraged by increasing adoption of our products in emerging markets such as India, Southeast Asia, the Middle East and Latin America. Turning to slide six, around this time last year, when we announced the ESG acquisition, we started to communicate the opportunity to unlock increasing synergies across tariffs. I'm pleased to report that we are running well ahead of our initial targets and are finding more opportunities for leverage across our portfolio of businesses. A great example of creating synergy value is extending the capabilities of ESG's third eye digital platform to advanced mixer and tariff utilities. In the second quarter, we launched modules that provide vehicle operators enhanced situational awareness for better maneuverability and safety. The system also provides fleet operators real time visibility into driver performance, chassis and body activity and equipment status which reduces operating and liability costs. Third eye generates an important and growing subscription or software as a service based revenue stream for ESG and we're excited about the prospects for new digital revenue streams across the tariff's portfolio. The middle picture is a tariff's utilities high ranger bucket truck, which was part of a significant order we received through a historical ESG customer. Relationships matter and this recent order is a great example of how strong customer relationships in one area can open doors for other parts of the business. As a result, Derrick's Utilities is building 80 plus bucket trucks and digger Derrick's for a customer that was not in their previous sales plan. We will continue to explore incremental opportunities as we leverage relationships and channels across the group. Finally, the sourcing savings are starting to build up as well helping offset tariff and inflationary pressure. So far the teams have leveraged our increased scale to secure better rates and terms in categories such as steel fabrications, hardware, consumables and transportation. There's more opportunity added as we systematically work through all areas of our bill of materials. Overall, I'm very pleased with the work of our integration teams and look forward to unlocking considerably more synergies going forward. And with that, I'll turn it over to Jen.

Thank you, Simon and good morning everyone. Let's look at our Q2 financial results on slide seven. Our overall performance in the quarter was in line with our expectations despite tight monetary policies, changing trade policies and geopolitical tensions. This is a testament to the strength of the tariff portfolio that havens faced by Ariel will offset by ongoing strong performance and environmental solutions supported by Ampey delivering on their planned sequential improvement. Total net sales of 1.5 billion grew 80% year over year or 7% at constant exchange rates. Excluding ESG, our legacy sales declined by 12% or 13% excluding the end type of effects, consistent with our expectations. Our operating margin was 11%, down 310 basis points year over year, consistent with our planned sequential improvement of 190 basis points. Stronger ESG margins offset lower than expected margins and areas. Excluding ESG, legacy operating margin declined by 560 basis points driven by volume, tariffs and net, partially offset by SG&A reductions. Inches and other expenses were 44 million, 29 million higher than last year due to interest on ESG acquisition financing. The second quarter effective tech rate was 18.3%. About 170 basis points better than planned due to net favorable discrete items residing from utilization of certain non-US tech attributes. EPS for the quarter was $1.49, which includes a three cent benefit from the favorable tech rate. EBITDA was 182 million, a .2% of sales. We generated 78 million of the cash flow in Q2, which was 35 million better than last year despite lower earnings due to better working capital performance. ESG generated cash well above the interest expense associated with the acquisition financing. We continued to execute our capital allocation strategy, returning value to shareholders while investing for longer term organic flow. Please turn to slide eight to review our segment results, starting with areas. Sales of 607 million were consistent with our expectations in total, but the customer makes with more heavily weighted from our national customers than we anticipated. Independent rental customers are more exposed to smaller interest rate sensitive projects compared to the national for benefiting from that greater exposure to the larger projects. Outlook's operating margin improved 500 basis points sequentially on better manufacturing absorption. That was about 200 basis points lower than we expected, largely because of cut earnings. Turning to slide nine, NP sales of 434 million were 9% lower than last year, but in line with our expected step up in Q1. We continue to see high state utilization rate in the United States and deal with levels from normalize. However, macro uncertainty and high interest rates remain a hit for rental owned conversion. And the European market remains weak, although showing early signs of recovery. NP generated .7% of operating margin in Q2 in line with expectations. As cost controls and pricing actions largely affect tariff impact. This was a 270 basis point sequential quarter over quarter margin improvement from the 10% lower in Q1. Most of the improvement was in the aggregate vertical, while the cranes and handling businesses remain challenging. Please turn to slide 10 to review environmental solution. Our ES Sacklin had another great quarter, generating 430 million of sales with .9% year over year growth on a pro forma basis and 8% sequential growth versus Q1. The strong growth was driven by improved throughput and delivery of refuse collection vehicles and utilities. ES delivered a .1% operating margin, representing a 230 basis point improvement on a pro forma basis compared to last year. Utilities benefited from positive customer and product needs and improved operational execution. I look forward to consistent strong performance from this action. Please turn to slide 11. We have strong liquidity and a flexible capital structure with the right mix of secure and unsecure debt and variable versus fixed rate. As stated previously, we can prepay or reprice a significant portion of the debt and we do not have any maturities until 2029. We ended the second quarter with 1.2 billion of liquidity consistent with our outlook. We plan to de-leverage in second half of year as we generate increased cash flow from the operation. We will also continue to invest in our businesses to fuel organic growth and profitability improvement. Returning capital to shareholders remains a priority. In the second quarter, we repurchased 21 million of tariff stocks, increasing our first half total to 53 million. We are also announcing the authorization of a new 150 million share buyback program with 33 million remaining at the end of Q2 from the previous authorization. The new authorization will provide us flexibility to take advantage of market conditions when appropriate. In addition to the buyback, we paid 11 million in dividends in the quarter. H is in a strong financial position to invest in our business and execute our strategic initiative while returning capital to shareholders. Turning to bookings and backlog on slide 12. Our bookings trends have returned to normal seasonal pattern supported by a 19% -over-year pro-forma growth in the quarter. Our bookings grew 70% -over-year with a sequential decline consistent with historical seasonality. Despite the macro uncertainty, MP bookings grew 24% -over-year, driven by aggregate which saw a positive demand uptake in the United States and India. In environmental solutions, bookings reflect a return to normal seasonal ordering pattern and the healthy backlog provides strong forward visibility. Our overall tariff backlog sits at 2.2 billion and supports our second half outlook. Now turning to slide 13 for our 2025 outlook. We're operating in a complex environment with many macroeconomic variables and geopolitical uncertainties. And results could change negatively or possibly. We're maintaining our full year EPS outlook of $4.70 to $5.10, which now includes 50 cents of net tariff impact. We continue to expect full year 2025 sales of between 5.3 billion and 5.5 billion. Representing between 200 to 400 million higher sales than per year due to the acquisition growth of ESG more than offsetting lower market retail. We continue to expect segment operating margin of approximately 12% residing from stronger ESG margin and planned sequential improvements from MP which will help offset second half hit wins and arrows including the impact of tariffs. We now expect interest in other expenses of about 170 million and an improved effective tax rate of approximately .5% for the full year. From a quarterly perspective as opposed to our historical cadence, this year we expect our Q4 EPS to be higher than Q3 due to the ramp up of tariff mitigation action and higher Q4 margins at MP which more than offset the sequentially lower sales volume and hours. We continue to expect a significant increase in pre-cash flow compared to 2024 anticipating between 300 million and 350 million in 2025 driven by working capital reduction and a full year of ESG cash generation. While investing in our businesses with expected capex of approximately 120 million. Looking at our segment, we're maintaining our arrows and MP sales expectations and increasing our sales outlook for ES. In areas we expect full year sales to be in line with our previous outlook of down low double digits. We also expect the unfavorable customer mix dynamics that we saw in Q2 to exist in the second half. This coupled with the timing of tariff impact will put pressure on arrows margins in the second half. In MP our backlog coverage as well as the underlying machine utilization rates, heart consumption and cold activity gives us confidence in our down high single digit outlook for the year. We expect MP to achieve full year decrement for margins well within our 25% target. ES had a great first half and we expect a strong momentum to continue into the second half. We're increasing our full year sales outlook again this quarter and are now expecting full year sales to be up low double digits. We expect margins to moderate slightly in the second half due to customer and product mix. And with that, I'll turn it back to Simon.