Terex Corporation Q2 2026 Earnings Call

Greetings and welcome to the Terex Second quarter 2020 Results conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question, please press star one to raise your hand To withdraw your question, press star one again As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Drew Konop, Vice President of Investor Relations.

Good morning, and welcome to the Terex Second Quarter 2020 Earnings conference call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors dot 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 Kong, Senior Vice President and Chief Financial Officer. They're 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. These risks are described in greater detail in our earnings materials and in 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 of these non-GAAP measures can be found in the conference call. Materials Please turn to slide three, and I'll hand it over to Simon. Thanks, drew.

Good morning, and thank you for joining us today. Terex. A strong second quarter with revenue of $2.2 billion. Increasing 8.5% compared to last year on a pro forma basis. The quarter. Was performance reflects revenue growth in all segments. Improved earnings conversion and progress against the strategic priorities we've laid out in the past two years. Today, I'll begin with our consolidated performance and the demand backdrop. We are seeing across the portfolio. I'll then discuss how each segment is executing against those market conditions before providing an update to our full year guidance. And Jen will then take you through the detailed financials. At the consolidated level. Second quarter performance was supported by revenue growth and improved earnings conversion. Both sequentially and year over year. Adjusted Ebit. EBITDA of $269 million increased $26 million, or 10.7%, versus last year, on a performance basis, driven by meaningful improvements, especially in the materials processing and specialty vehicle segments. Bookings increased 25% year over year on a pro forma basis. Our backlog of $6.9 billion provides solid coverage and supports our confidence in the second half. And today's updated full year outlook. From a. Macro perspective, the demand environment for our business is positive and improving in many of our verticals.

Us non-residential construction is benefiting from the ongoing transition of planned projects to new starts supporting demand across multiple segments. Year to date, U.S. non-residential construction start rose 18% to $368 billion, driven by momentum in data centers, energy investments and civil projects such as bridge, water and sewage infrastructure. Megaprojects starts totaled approximately $80 billion a year to date through May, creating increased opportunities for many of our businesses. Across our end markets, we are seeing higher utilization rates for our products. Increasing capital expenditures by our customers, and positive sentiment from channel partners These indicators in our bookings trends support our view that demand is growing in many of our verticals. Looking ahead, policy and infrastructure activity in Washington also provides a promising backdrop, including enactment of the 21st century road to Housing Act and introduction of the Build America 250 act. The timing and implementation of these programs may vary, but the direction of public and private investment is supportive. Healthy municipal budgets and replacement needs support demand for fire apparatus, ambulances refuse collection vehicles and related equipment with. Specialty vehicles. During the quarter, the City of Chicago approved the purchase of 80 fire trucks and 40 ambulances as part of its fleet replacement plan.

The. Of our specialty vehicle portfolio allows us to serve communities of all sizes and. Because these are essential assets that municipalities replace on a regular cycle, they provide a recurring source of replacement demand. In environmental solutions, long term demand is supported by a large installed base of refuse collection vehicles. Digital and aftermarket activity, and robust transmission demand and utilities. While the. Segment is navigating a temporary softness in refuse collection, vehicles. ESG second quarter bookings increased versus the prior year. The first year of year increase since the first quarter of 2025. Indicating that a momentum could be building going into 2027. Long term demand for refuse collection vehicles is intact, including a regular replacement cycle and customer interest in technologies such as automated side loaders Third eye camera systems and back office software that can improve productivity and safety for our customers and their operators. Terex utilities is benefiting from demand tied to grid modernization, renewable energy investment Data center related power needs, and storm hardening activities, which we expect to support the business over the next several years. In materials processing. The US mobile crushing and screening market is showing growth in fleet utilization and rent to purchase conversions.

We also saw increased bookings for material handling and concrete mixers, which supports our view that the segment's overall demand is broadening. In aerials. Customer demand is supported by non-residential construction activity with customer mix in the quarter skewed toward national accounts that have greater exposure to megaprojects. Turning to execution. I believe it is important to point out that after we completed the two largest transactions in our history in just the last two years. Both the ESG acquisition and the merger with Rev are trending above their respective business cases to date. Across our new and bigger portfolio. Our focus is to convert backlog more profitably, improve throughput, realize synergies, and continue to bring exciting new products to market for our customers. The second quarter demonstrated our progress in all those areas. Starting with specialty vehicles. The REV Group integration is proceeding well, and the segment delivered record earnings performance. The teams are executing against the integration plan and synergy realization is progressing as expected Our near-term priorities for the segment are to improve throughput, reduce lead times, and expand capacity in targeted product categories. During the quarter, we made significant progress with the expansion of our ladder truck plant in Ocala, Florida, and we're nearing completion of the expansion in Brandon, South Dakota.

The Brandon investment is intended to increase capacity of the S1 80 semi-custom pumper and further reduce lead times, directly supporting our longer term growth objectives. We expect the first deliveries from our brand and expansion within the fourth quarter in. Environmental solutions ESG is making progress with its ongoing manufacturing efficiency improvements in an already world class facility in utilities. We are aggressively ramping up shipments to keep up with the accelerating demand and are executing our plans. Capacity expansion. Utilities also introduced the TRX product line, including four different models with different working heights, eliminating the need for a commercial driver's license. Giving our customers more flexibility to operate their fleet The product line is an industry first, with a production unit of a 50 foot aerial on a class six chassis. In. The team continued to navigate tariff headwinds and execute mitigation efforts in their supply chain and improve operational efficiency. As expected, our price cost position improved in the second quarter, and we believe the full year will be price cost neutral based on the visibility we have within our backlog and our ongoing cost out actions. Before turning to our 2026 guidance, let me provide an update on our strategic review of the aerial segment We are pleased with the progress we are making.

We have interest from multiple parties and are working towards an outcome that maximizes value for our shareholders. We do not have any specific details to share at this time, but we will update you as the process unfolds. Based on our. Second quarter performance, our backlog coverage and synergy pipeline, we are raising our full year guidance The increase reflects strong. First half execution. Overall, increased volume in aerials and improved performance in materials processing. We now expect sales of 7.9 to $8.2 billion, adjusted EBITDA of 960 to 1 billion, adjusted EPS of $4.70 to $5.10 and. With that, I'll turn it over to Jen to walk through the financials in more detail.

Thank you. Simon, and good morning, everyone. Let's review our second quarter results, starting with consolidated performance on slide four. Consolidated. Sales including the results of specialty vehicles, were 2.24 billion, up 751 million, or 51%, as reported on a pro forma basis, excluding the sale of the Queens and Midwest businesses, sales increased 175 million, or 8.5%, with growth across each of our segments. Adjusted EBITDA margin was 12% compared to 11.8% on a pro forma basis in the prior year. Boosted EBITA increased by 26 million, driven by healthy demand for our products. Operational execution and real life synergies. In spite of significantly higher tariffs compared to this time last year. Adjusted earnings per share was one dollars $0.37, including a net benefit of 8 million from tariff refunds plus a one time unfavorable customs related accrual working. Capital continues to improve net working capital declined to 15.2% of sales, compared to 16.7% in the first quarter, and 22.8% a year ago. Primarily driven by the merger with REV Group. We generated $128 million of operating cash flow and 101 million of free cash flow within the quarter net debt. Ended the quarter with 2.28 billion, including 407 million of cash on hand. And that leverage improved to 2.3 x.

Net debt of 12 month adjusted EBITDA. We also returned 20 million to shareholders through dividends in the quarter. Turning to segment performance, starting with environmental solutions on slide five. Environmental Solutions sales increased by 26 million, or 5.9% versus the prior year, to 456 million. Growth was driven by strong demand and increased shipments in Terex utilities, which more than offset temporary softness in demand for ESG. Despite the temporary unfavorable mix, the segment reported an adjusted EBITDA margin of 17.5%, down 250 basis points year over year due to the forth mentioned unfavorable mix, coupled with production ramp up and efficiencies and lower absorption in ESG. Moving to. A material processing on slide six, materials processing sales increased. 11.1%, or 47 million, to 464 million, driven by healthy demand, particularly for mobile crashes in the US. Supported by infrastructure data centers and other industrial projects. Adjusted EBITDA margin expanded 440 basis points to 18.8%, reflecting a favorable product mix and price cost. Disciplined one time. Benefits contributed approximately 180 basis points to the margin performance within the quarter. Turning to. To specialty vehicles. On slide seven. Specialty vehicle sales increased 38 million, or 6.2%, to 650 million, driven by improved throughput and fire. As. We adjusted EBITA margin improved 210 basis point to 14.5% compared to last year.

Reflecting favorable mix operational efficiencies and price realization, partially offset by cost inflation. Turning to slide eight. Our sales increased 10.9% year over year to 673 million, driven by demand from national accounts that supported by mega projects. Adjusted EBITA margin was 5.7% in the quarter, down 340 basis points from last year, which had significantly less tariff impact as expected. Errors improved margin sequentially in the second quarter by 560 basis point, reflecting improving price cost dynamics and higher production volume. We are on. Track to be price cost neutral for the year. The. Refunds we received in the quarter were offset by a one time unfavorable customs accrual. Please note Terex is not accruing for future refunds. Not yet received. Turning to bookings on slide nine. As Simon mentioned, consolidated second quarter bookings were 2 billion, up 400 million or 25% year over year. On a pro forma basis. An Environmental Solutions bookings were 417 million, an increase of 18% versus last year's quarter, mostly driven by utilities. We. Effect bookings and utilities to be solid for years to come, and our focus is to ramp throughput to meet the accelerating demand and ease. Bookings for. Up year over year, which could indicate momentum is building going into 2027.

Having. Said that that given the conversations with our customers and suppliers. We no longer expect a material. Second half Pre-buy of RVs ahead of 2027 EPA regulations as a. Result, we're updating our second half year segment revenue outlook to low single digit growth. Materials processing. Second quarter bookings of 469 million. Increased 18% on a pro forma basis, while. Demand was the main driver. Bookings also increased meaningfully in material handling and ended the. Quarter with 599 million backlog, up 232 million, or 63% year over year. Supporting an updated full year outlook of low double digit sales growth. This implies high single digit year over year growth in the second half. Specialty vehicles bookings were 588 million in the quarter, up 9% versus the prior year, led by the previously announced City of Chicago Order in. Increased throughput drove higher sales and lower the segment's backlog as intended. We expect this segment will execute against its backlog and our outlook remains high single digit revenue growth for the year. Finally, our second quarter bookings of 530 million reflect 71% growth versus last year, practically from national customers tied to large funded projects and infrastructure and non-residential construction areas. And. The quarter, with 914 million backlog, an increase of 200 million, or 28% versus the prior year.

Given. Areas. First half performance. Healthy bookings and backlog visibility. We are updating the full year outlook to low double digit sales growth now. Turn to slide ten for our update to the consolidated 2026 outlook. We're operating. In a complex environment with many macroeconomic variables and geopolitical uncertainties and results could change negatively or positively. The. Outlook we're providing today reflects our current portfolio and does not account for any costs to achieve the synergies, purchase accounting adjustments or other non-recurring items. Today we are increasing our outlook for the year with 2026 sales expected to grow approximately 7.4% at a mid point on a pro forma basis to a range of 7.9 to 8.2 billion. We now expect pro forma EBITDA to grow by approximately 124 million, or 14.5%, year over year, to between 960 million and 1 billion, or 12.2%. EBITDA margin at the midpoint in. Included in our EBITDA outlook is approximately 28 million of synergies that were well on our way to realizing. Updated guidance reflects 22% incremental adjusted EBITDA margin conversion and the midpoint. Pro forma. Despite a dynamic tariff environment. We anticipate interest and other expenses to approximately 185 million based on average debt outstanding of 2.7 billion. The effective tax rate for the full year is still expected to be 21%, despite favorability in the first half of the year.

We now expect 2026 EPS between $4.70 and $5.10, with slightly more earnings per share in the third quarter and a typical seasonal step down expected in the fourth quarter. Please note the share count for the second half will be approximately 114 million. Finally, we expect to deliver 300 to $350 million of free cash flow in 2026, with that, I'll turn it back to Simon for his closing remarks.

Thanks, Jen. I would like to thank everyone again for joining today's call. Just to quickly summarize what we shared today. We see strong demand from most of the markets. We compete in, and we see clear momentum from the execution of our strategy. The integration is progressing as planned. Our synergy pipeline is building and the new specialty vehicle segment is improving. Throughput quarter after quarter. Environmental solutions is well positioned with its manufacturing know how digital offering and multi-year demand and utilities materials processing is executing effectively and together with Ariel's benefiting from investments in infrastructure, data centers, manufacturing and overall power generation, we are raising our full year guidance because of the performance we delivered in the first half, and the visibility we have in the backlog and the momentum we're building. Taken together, these results demonstrate the strength of the new Terex, a more diversified, more resilient and higher performing company with clear opportunities to grow, improve margins, generate cash and create value. I want to. Thank our global team members for their dedication. Our customers and dealers for their partnership and our shareholders for their confidence in Terex. And with that, we'll turn the call over to the operator for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first. Your first question is from the line of Mig Dobre from Baird. Your line is open. Please go ahead.

Thank you very much. Good morning everyone, maybe ,, I would like to start with ,,, double clicking a little bit on environmental solutions here., you know, can you, can you give us a little perspective as to what's embedded in the single digit?, revenue outlook, revenue growth outlook, I should say, how you think about the. Refuge business versus,, utility ., and, you know, I guess the second part here,, just the guidance seems to imply,, compression revenue compression in the second half. How should we think about the effect that would have on,, margins for this segment?

Yeah. Good morning. Mig. I'll,, I'll take the first one and I'll,, I'll let Jen weigh in on the, your second question., so yeah, from a top line perspective for the segment overall, obviously,, strong bookings, 18% year over year. Sequential. Also, growth in bookings, 20% versus prior quarter ., I know you asked about reviews, but, you know, part of environmental solutions is obviously also utilities., we see a lot of accelerating demand in utilities and we're expanding capacity to keep up in ESG, which is the refuse ,, collection. Vehicle business within environmental solutions. We're actually saw bookings were up as well year over year and sequentially. And we do see momentum building for 2027. And when we look at,, when we. Look at that business,, you know, we look at bookings trends, we look at,, fleet utilization, we look at telematics, we look at what customers are telling us and we, we clearly see that in the first half, maybe even starting late last year, you know, there was probably a little bit too much fleet in, in the system. It's not that America is producing less waste or that there are less garbage trucks on the road, but clearly, you know, there was a little bit of rethinking that needed to happen between supply and demand.

And we think that that happened in the first half and is now mostly behind us, as we see bookings coming, coming back up. That's the first piece. The second piece in our initial guide, we assumed there was going to be some pre-buy activity in the second half of 2026 going into 2027, when the new engine emission regulations come out, we now think that that will actually spill over into 2027 as as some of those changes are grandfathered and, and delayed by a couple of months. So we don't see as much of an uptick in Prebys in the second half as originally assumed. We still think that bookings will sequentially recover. We still think that 2027 is most likely a growth year for reviews. We just see it being delayed by a couple of months because of the delayed in in previous. Jen. You want to weigh in on the margins.

Hey. Good morning Mike., so from a margin.

Perspective,.

We expect I would say for Q3. to be, you know, very similar based on with Q2., given that it's going to be driven to top line growth is going to be continue to be driven by the utilities. And they have a very different margin profile. But we do expect that from Q3 to Q4 to be a step up in the margin., at the segment level, driven by favorable product mix, favorable customer mix, and then the inefficiencies that I mentioned in my prepared remarks, specifically in utilities to be behind us. So those are the big three drivers in terms of the step up in the margin.

I appreciate that that's helpful. And my follow up maybe on specialty vehicles, and this is kind of a bigger picture question., as. You're starting to operate this asset and, you know, working with the red team., I'm curious as to what, what are your discovering in terms of opportunities for,, either. Efficiencies or, or being able to use some of the ,, the. Scale that Terex has that could, could bring to this business on a go forward basis. And I do understand that you, you have communicated on the synergies near term and, and also the capacity., additions that you have. So my question, I guess, extends extends beyond that, if possible. Thank you.

Yeah, I'll I'll let Jim talk about the synergies, but,, yeah, very pleased with,, how the integration