Terex Corporation (TEX) Q2 2014 Earnings Report, Transcript and Summary

Good morning. My name is Jody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Terex Corporation Second Quarter 2014 Financial Results Conference Call. [Operator Instructions] I would now like to turn today's conference over to Mr. Ronald DeFeo, Chairman and CEO of Terex Corporation. Please go ahead, sir.

Thank you, Jody, and good morning, ladies and gentlemen. We appreciate your interest, as always, in Terex today. On the call with me this morning is Kevin Bradley, our Senior VP and Chief Financial Officer; Kevin O'Reilly, Vice President of Operational Finance; Tom Gelston, Vice President of Investor Relations; and most of our leadership team, including our business segment presidents, who will be available on the call to answer your questions later on. As usual, a replay of this call will be archived on the Terex website, www.terex.com, under Audio Archives in the Investor Relations section. I'll begin with some overall comments; Kevin will follow with a more detailed financial report; and then I'll come back and provide a little bit more detail before we open it up to your questions. We will be following the presentation that was sent out with the earnings release. And I would like, when it comes to the question-and-answer period, to ask that you only ask 1 question with a follow-up to give everyone a chance to participate. And given the other news other companies reporting today, we'll try to get this call done in a timely fashion and stick to about an hour. But we'll stay around as long as you have questions as well. Let me direct your attention to Page 2, which is the forward-looking statement and non-GAAP measures explanation. We'll encourage you to read this, as well as other items in our disclosures, because the information we'll be discussing does include various risks and uncertainties as explained in detail in our 10-K and 10-Q public filings. Now turning to Page 3. Second quarter results for 2014 delivered earnings per share of $0.76 from continuing operations. This represents a 59% per share increase compared to the prior year reported EPS of $0.17 and a $0.12 increase compared to the prior year adjusted earnings per share. Performance in the quarter was mixed, both from a geographic and product perspective. We continue to believe that an overall economic recovery is underway, as well as a recovery for our lifting and material handling products. However, end markets remain somewhat difficult to predict and somewhat uncertain, depending upon where you are around the globe. Overall growth was an encouraging 10% compared with the prior-year period. Growth came primarily from our Aerial Work Platform and MHPS businesses, which grew at 18% and 17%, respectively, in the quarter. Construction and MHPS performance were generally in line with expectations. And our Cranes business, while down slightly compared with year ago, had a positive order intake and continues to improve, supporting our expectation for a stronger second half 2014. Our MP business, Materials Processing business, is up slightly over the prior-year quarter, but a little bit below our expectations from a revenue perspective. Free cash flow for the quarter was moderately negative at $19 million, in line with our expectations. We are reaffirming our 2014 guidance of $2.50 to $2.80 per share, with free cash flow of $200 million to $250 million. We're making some minor modifications to that outlook that I'll cover later in the call. Let me now turn it over to Kevin Bradley, who will take you through the specific numbers for the quarter and the half year.

Thanks, Ron, and good morning, everyone. Let's turn to Slide 4, which provides the year-over-year comparison of the second quarter on both an as reported and as adjusted basis. Although there were no adjustments in 2014, details of 2013 adjustments can be found in the appendix. Net sales for the quarter of $2.1 billion increased from the prior year by 10.4% or approximately $193 million. Changes in foreign exchange rates accounted for approximately 3 percentage points of the increase. Our AWP business boasted 18% growth and MHPS was up 17%. Construction was flat compared to the prior year. And Materials Processing, although up 4%, fell slightly short of our expectation. Our Cranes business, although down 3% compared to the prior year, showed strong sequential growth, up 28% over Q1. We are starting to see the benefits of the stronger order pattern reported over the last 3 quarters in this segment. Gross margin, as adjusted, decreased 50 basis points to 20.6% from the prior year, driven by product mix, primarily in AWP and Crane; and start-up manufacturing cost related to our Oklahoma City facility. SG&A, as a percentage of sales, decreased from 13.1%, as adjusted, in 2013 to 12.8% for the quarter. Income from operations increased $12.5 million compared to the prior year, as adjusted. As a percentage of sales, operating margins decreased slightly to 7.8% for the quarter. Net interest and other expense increased slightly over the prior year, driven largely by an increase in the average outstanding balance in our revolving credit facility. The effective tax rate was approximately 31.2% in the quarter compared to 38%, as adjusted, in Q2 of '13. This improvement was mainly due to the reduced impact of losses not benefited in the period. For the quarter, earnings per share was $0.76 compared to an as adjusted earnings of $0.64 in '13. Our as-reported EPS for Q2 2013 was $0.17. Net working capital as a percentage of annualized sales was 24.5%, an increase from the 22.9% reported in Q2 of last year. The increase was driven primarily by increases in accounts receivable, reflecting the higher sales in the quarter, as well as an increase in inventory levels anticipating strong second half growth, largely in our AWP and MHPS segments. Return on invested capital increased to 10.6% from 5.3% in the prior year. Now turning to Page 5. We show our year-to-date results compared to '13. Sales growth for the period was 5.5%, again led by strong AWP business, up 17%; and growth in our MHPS business, up 13%. Construction and Cranes were down 4% and 10%, respectively; while Materials Processing was flat for the first 6 months. Gross margins during the period were in line with the prior year as adjusted results. Volume benefits in AWP and MHPS were offset by negative product mix in AWP and Cranes and lower factory utilization in our Cranes segment affecting Q1. Operating margin remains unchanged for the first 6 months. Net interest and other expense increased slightly over the prior year and our effective tax rate was approximately 30% compared to 39.2%, as adjusted, in 2013. Similar to our quarterly results, the decrease was mainly due to the reduced impact of losses not benefited in the period. Earnings per share for the period was up $0.17 or roughly 20% versus the same period in 2013 on an as adjusted basis. Now on Page 6. We provide a bridge breaking down the $148 million increase in liquidity during the quarter. Free cash flow, which we define as cash from ops less CapEx, was a use of $19 million and in line with our expectations for the quarter. During the quarter, we completed the divestiture of our Off-Highway Truck business for $160 million. The majority of the proceeds were utilized to reduce the outstanding revolver balance in June. We continued our stock repurchase and dividend programs with a combined use of $37 million during the quarter. And lastly, the Other category mainly reflects a reduction in the amount of LCs used -- issued in outstanding under the company's revolving credit facility. With that, I'll turn it back to Ron.

Yes. Thank you, Kevin. And moving onto Page 7 of the presentation of the net sales bridge for the quarter. Our revenue overall was up primarily, as mentioned, from AWP and MHPS, as noted on that slide. Our Cranes segment revenue was down about 3%, but experienced about 28% sequential improvement over the first half quarter, which was, as you know, weak. Regarding AWP, it's interesting to note that this represents an all-time record quarter for net sales. On Page 8, we review the revenue performance for the company by geography. In general, and I think this is a common theme, the traditional -- or developed markets of Europe and North America grew, while the balance of the world saw some softness. North America represented 44% of our business, while Europe was 29% and the rest of the world was 27%. While on this slide, I'm going to discuss some more details on our each -- on each segment relative to our geographic performance, although that data is not included on the slide. For somewhat competitive reasons, I'm not going to give you specific percentages, but general percentages, on how our individual businesses performed by geography. For AWP, the second quarter performance was led by North America, where net sales rose more than 25% versus the prior-year period. Europe also grew more than 15%. However, on a year-to-date basis, European growth is actually outpacing North American growth, reflecting the improving trend in Europe. But still, of course, Europe is way below the past prior peak. Offsetting this is a challenging environment in Latin America, which declined over 30% in the quarter. Although this business is quite small, we are encouraged by the progress we're making in China. Orders and backlog for the segment overall continue to be quite solid. Customers are performing well for AWP and we expect continued strength, particularly in North America and Europe. Turning to the geographic performance of Construction. North America was basically flat with year ago, but Europe grew over 15%. And for this segment, Europe represents over 40% of our business. Our North American Concrete business is strong, but we are experiencing some weakness in our Compact business in North America. Overall, orders and backlog are about as expected. Cranes' performance continued to be strong in Europe. In fact, Europe represented all of our growth, with revenue up well over 50% compared with the prior-year period for the second consecutive quarter. Conversely, North America was down 15% for the second consecutive quarter and Australia continues to decline. Overall, bookings were about in line with backlog. So for 3 consecutive quarters, we've had a positive book-to-bill ratio for this segment. First half orders were about 12% above last year, supporting our expectation for a stronger second half. The Material Handling & Port Solutions business was mixed, with basically flat net sales from the Material Handling business and about 50% growth from the Port business. We're encouraged by the stabilization of the Material Handling business compared with the prior-year period and deliveries related to the large port equipment project continue, particularly in Europe. The backlog remains flat on a year-over-year basis and is about as expected. Materials Processing net sales were positive in North America and Europe, growing double digits in both regions, but somewhat offset by a meaningful decline in Australia and Latin America. So overall, for the company consolidated, developed markets are strengthening, while developing markets remain challenging. I do expect the developing markets will improve, if not later this year, probably in 2015. On Page 9, operating profit improved in the quarter, up about $13 million compared with the year-ago adjusted levels. Our AWP business continue to deliver good margins at 15.8%. While volume was strong, the mix of business, planned investments and new product development and manufacturing footprint have continued to put modest pressure on the incremental margins in the short term. Construction improved in the quarter to report a profit of $4 million. The decrease in operating profit for the Cranes segment is primarily volume-related, with a modest decrease versus last year. MHPS performance improved as a result of the higher sales and volume and the restructuring actions of 2013, but we continue to expect MHPS to be profitable during the remaining quarters of the year. In fact, pretty similar to last year, the operating margin should improve meaningfully in the back half of the year. MP's performance was roughly in line with the prior year. Now turning to Page 10 and our 2014 outlook. Given we're at the mid-point of the year, we thought it would be helpful to update our current view on guidance. And as you see, we've lowered the upper end of sales -- of the sales range as a result of a more tepid recovery in many markets. The lower sales level has had a modest impact on margins with our range lowered 25 basis points at both the high and low end. Essentially, lower volume will somewhat, but not completely, be offset by the effects of cost reduction activities and a better product mix. Other small changes we expect include $5 million less in interest and other expense, as well as adjusting the tax rate down to 30% to 33% from the prior 33% to 35%. We think we're getting the benefit from losses not benefited and actually expect our long-term tax range to be coming down over time. Other considerations, such as a slightly lower share count of $116 million, will -- lead us to reiterate the range of EPS $2.50 to $2.80. On Page 11, we try to provide some commentary as additional perspective to the outlook change. Those changes are noted in bold. AWP is now anticipated to grow net sales for the full year to slightly a higher percentage, while moderating our growth expectations for both MHPS and MP. In terms of the operating margins, we're looking at slightly lower margins in both our Cranes and MHPS segments as we believe underperformance in the first quarter for Cranes and customer delays in MHPS will make it too difficult to achieve the overall range previously given despite both segments anticipating a stronger back half of 2014. So to conclude, on Page 12, AWP is expected to continue to perform well, both in terms of sales and margin opportunities. We remain positive about Construction, MHPS and MP segments responding to improving market conditions. We are encouraged by the recent order trends in Cranes, but we'd really like to see that momentum continue. We expect some acceleration of EPS in the back half of the year as happened in 2013. So consequently, we are reiterating our EPS guidance of $2.50 to $2.80 a share. Fundamentally, we're positive about the improvements going on in the company. Our operating environment remains somewhat challenged, depending upon where you are in the world. Our organization is functioning generally well, continuing to invest in new products and new sales initiatives. We do have some margin challenges around the company, but we're confidently addressing them. So I'd now like to open it up to your questions. So, operator, please open the lines and let's begin the questions.

[Operator Instructions] Your first question comes from the line of Nicole DeBlase from Morgan Stanley.

So maybe just a question on the longer-term outlook. Clearly, end markets are coming in a bit weaker than you had expected in the second half. But my question is, given that setup and what we've seen in order and backlog trends, what's your level of confidence in your $5 target for 2016 at this point?

Nicole, I don't think anything's changed here for us. We set a goal of $5 a share. We believe that's achievable. We've said that about 1/2 -- from this point on, about 1/2 of it has to come from the markets and about 1/2 will come from things that we can control and initiate ourselves. We don't think that's changed. There's a few bumps in the road at this point in time relative to end markets and perhaps a little bit of our own execution. But we're in businesses that have performed at that level before and not all of our businesses have to perform at peak levels to achieve that in 2016. Again, it's a goal. It's not guidance. But we think, as an organization, that's within our reach to achieve. And we're going to do everything we can within our ability to execute to make that happen. We've got strings we can pull relative to cost, relative to manufacturing footprint, relative to sales initiatives, new products that are underway. And by 2016, all of the difficult challenges of the Tier 4 engine conversion will be behind us and we will have fresh new products in the marketplace. So we're pretty confident that we can achieve that level. Timing is always a bit of a challenge when you're looking out 2-plus years. But I don't think anything's changed.

Okay. That's really helpful, Ron. And then, secondly, I'm going to dig a little bit into AWP margin. Can you guys give a sense of the impact of the manufacturing facility move there? I'm just trying to get a sense of -- 11% incremental is really a little bit weaker than we had expected this quarter. But where could they go in the second half, given that mix is still a headwind?

Well, no doubt that incrementals were a little bit disappointing for us. I've tried to guide the marketplace to a more balanced view of the margins for AWP because there's a whole mix of things underway within this segment. I mean, fundamentally, 15-plus-percent operating margins for a business in this category are pretty good. But we have a lot of work to do in our Aerial Work Platform business to position this segment for better through the cycle performance. And that includes changing our manufacturing footprint from being less West Coast-centric to more balanced around the world. It includes introduction of new products that position us competitively at the top end of the product range. It includes managing our supply base in a more global way. So there's a lot of things underway at the AWP business to kind of position this segment for continued solid performance. But it also includes some customer pushback to us on a few parts of the product category where they'd like to see a little bit better returns. And whenever our customer base is telling us things like that, we've got to make sure we stay competitive. Also, the Tier 4 engine conversion continues to affect this side of the business. Now you specifically asked about second half margins. So I'm going to ask Matt to try and give you a sense of that -- with that beginning commentary. Matt?

Yes. Okay. Thanks, Nicole. The -- obviously, Q2, it was a historic record for us on the sales side at 18% year-over-year increase, but the margins only came up 11%. So our gross profit line...

Incrementally.

Incrementally. The gross profit line at 22.9% was down 1.3%. I'll try to give you a little bit more detail on the breakdown of that. There's 3 main contributing factors to the incremental margin deterioration. The first one is the mix and it's basically driven by a client shift to the telehandlers product line, where we have typically not had a full product line and we have not had significant share. It's also the fastest growth category. And to give you a perspective on it, in the first half of the year, year-to-date, our sales on telehandlers are up 50%-plus. And if you look at the other categories where we typically get our revenue, the second highest category is scissors and then booms would be the smallest. But all of those are double-digit growth, so they're all big healthy growth categories. The second piece of the incremental margin deterioration is in manufacturing productivity. A lot of it has to do with the manufacturing startup of telehandler production in Oklahoma City. Again, that's a planned investment in capacity. It's going to be a multi-year endeavor. The first units shipped in June, which was a great milestone for us. And what we expect going forward is we're going to continue to see efficiency gains out of the Oklahoma City plant as they get more unit production underneath their belt. We also -- from a manufacturing productivity perspective, we had a bit of inefficiency around inventory conversions. So we could see that the market was good as we went through Q1 and customers wanted a large part of the products in Q2. So we built up the inventory and we had to do some inventory conversions and that required overtime and some inefficiencies that we will work through as we go through Q3 and Q4 because we know that we've got the inventory out of here and we're starting to really dial in on our productivity. The final piece that contributed was steel. If you look at our North American plate cost in 2013, we were getting benefits from the way we were buying steel. And in late 2013, steel plate prices went up and we're seeing the effect of that. So we do expect to see some improvement over time, but we're sticking to the margins stable in the mid-teens.

Your next question comes from the line of Jamie Cook from Crédit Suisse. Jamie L. Cook - Crédit Suisse AG, Research Division: Two questions. Ron, I guess, the first relates to your guidance. I guess, just given that some of the markets are behind your expectations and I understand that you have tax, which is more favorable, and slightly lower interest expense, but just based on the numbers you're putting out there, I have a hard time, under any scenario, getting to the higher end of the range. And if anything, I feel like the low end to the mid-point -- or between the low end to the mid-point is more of a reasonable expectation given where we are in the second quarter. So can you just help me understand, if you had a good probability on hitting the high end or why you can keep it out there just given the headwinds that we've seen in the first half? And then, I guess, my second question, it's either Ron or Tim, relates to Cranes. You mentioned strength in Europe. If you could just provide a little more color in why the U.S. markets were weaker. Is it a competitive dynamic thing? Is it Terex' market share, or is it more market related? And just sort of overall your confidence level that the Cranes cycle is recovering.

Okay, Jamie, thank you. Certainly, this is something, the range of our EPS guidance, we've talked long about within the company. And we certainly did consider the possibility of taking down the top end of the range. But when we examined our business segment by segment, market by market, we still think there's a meaningful possibility that we can come within, if not the exact top end of the range, somewhere in the middle, if not north of the middle. But of course, the same probability could be said with coming in at the bottom end of that range. So that's why we kept the range still at about $0.30 a share. I think it's important to point out what the incremental margins have to be for us compared to the second half of last year, that they have to be in the low 20s. That's not an unreasonable expectation for us given where we see the revenue, which is now a little bit lower than what we had previously said. So all in all, segment by segment, we went through a pretty good analysis and we feel the range is still the right range. Jamie L. Cook - Crédit Suisse AG, Research Division: But, Ron, in terms of the segments that would drive that, is it just Aerial? As you work through some of the issues, the margins perhaps surprise on the upside in Crane, like, what are the 1 or 2 segments you think really need to drive the potential for the mid to the upper end?

Well, I think the big change that should happen similar to last year will be MHPS. And it typically gets a pretty strong service and parts business in the third and fourth quarters, as well as having a very strong expectation in the revenue from port deliveries. And Steve could address that if you like. But we really are expecting a lot more port deliveries -- port equipment deliveries in the second half of this year. Now probably not as much as we would at the beginning of the year would have liked because we've -- as we've mentioned, we said there's about a $50 million pushout that's likely now to be pushed out into 2015. But it's not insignificant, the Crane second half margins, particularly when you consider that first quarter was basically zero. So if you're going to be profitable for 2 quarters in the second half of 2014, meaningfully profitable, as we expect, with an order level that supports that, the incremental margins are going to be driven by Cranes as well. So I think that's how I look at it. We can talk about it in more detail. But I wanted to have Tim answer your second question as well.

Yes. Jamie, your question about backlog and sort of overall environment in North America and Europe, we saw at CONEXPO a pretty healthy order intake by our North American customers. Many of those orders were for, let's call it, late 2Q, 3Q delivery. So we've seen some improvement in overall order activity and our backlog in North America is at a very healthy level. A lot of those shipments will occur in the third and early fourth quarter. The overall North American market is really driven by energy. It's heavily dominated by the gulf region and some in Canada in the Upper Midwest where the frac-ing activity takes place. So North America is down, but it's not unhealthy. Europe, on the other hand, is improving. And I think what we see going on there is strength in Northern Europe, particularly in the U.K. and some of the Northern European market. And keep in mind that a lot of the largest crane rental companies in the world are headquartered in Northern Europe. So a lot of activity happens through those customers and we see -- we're seeing strength from the larger players who are taking jobs and placing equipments around the world. So when you sum it all up, Europe is improving. The larger customers are seeing that and taking more product in, which we think is a healthy time for the market. Jamie L. Cook - Crédit Suisse AG, Research Division: But in terms of the North America commentary and just the strength in energy, I mean, in terms of whether there was more orders in the first quarter because of CONEXPO and it didn't happen in the second quarter, so there was pull forward, or was there some competitive dynamic?

Well, there is -- we've said for the last couple of quarters that there's been more field inventory that's been out there. And I think we saw even into the second quarter that sales will take a little bit longer than we anticipate it to happen. But as we sit here today, I think we're feeling this is more balanced in the overall field inventory compared to where we were, let's say, 6 months ago. I wouldn't characterize it as an extraordinary competitive dynamic.

Your next question comes from the line of Ted Grace from Susquehanna.

Ron, I just wanted to follow up on Jamie's question on guidance and the comment you made on incrementals in the back half. And I definitely don't want to get bogged down on math on the call. But when we played with kind of the numbers that were in your deck versus what you did in the first half, I guess we were coming out with an incremental closer to 60. And I was wondering if you could just quickly bridge what you're -- the 20% you were talking about, what that implies for -- or just what the revenue gain and what the operating income improvements were, just so we are talking apples-to-apples?

Sure, Ted. Really, the difference we're talking here is I'm comparing it to the second half of last year and you're comparing it with the first half of this year. And a huge difference, of course, is the fact that, in the first half of this year, there was zero margin in the first quarter in Cranes and a little bit of a decremental in the AWP kind of situation. It's clearly not the kind of incremental we would like. So let's not get bogged down. If you do compare it simply year-over-year, we've got to do a little bit better in the second half this year than we did in the second half last year. But if you compare the splits of 2013, we did a lot better in the second half than we did in the first half in 2013. So I think with a little bit more revenue with Cranes on an upward trajectory versus a negative trajectory in 2013 -- remember, the crane falloff that bottomed in the first quarter really began in Q2 of last year. So we had progressively negative performance in Q3, Q4, with the worst performance in Q1. And we think, at least that's the management team's view, that we're in a progressively improving environment. How high is high is something yet to be determined. But that's what we think is happening.

Okay. That's super helpful. So kind of related in the second question I was hoping to ask is -- and I don't know if it's Ron or Steve walking through MHPS. But maybe just an update on kind of where Rotterdam stands in Long Beach? And in terms of the -- it looks like about $100 million of pushout based on your revenue revisions. Could you just walk through kind of what the composition of that looks like and how we should think about that timing?

Right. Steve, why don't you address that?

Yes, sure. Hello, Ted. Let me walk through a couple of things and maybe also to answer some of Jamie's questions. And I think what makes me or the team believe in MH&PS on the back half is in 3 buckets. And one is the backlog that we have just in our core business. We have several facilities that have a very nice backlog for the rest of the year. We know that we've got deliveries in Q3 and a lot in Q4. So many of us will not have a Christmas again like last year, but that's the nature of our business. The second area is automation. So as you mentioned, Ted, I don't think the gap is that big. So let me walk through it. But our plan was to deliver $294 million of automation project. We mentioned a $50 million delta, which we think will put us at about $255 million this year. Year-to-date, we delivered $67 million. And our plan is to deliver $190 million in the second half of this year. So we're pretty confident that, that's going to happen. As I said before, the product is at the port. It's really just a revenue recognition issue. And I'm pretty confident that, that's going to happen. The last bucket is really in the MH improvement. And as Ron mentioned, the back half of the year for MH is a big services business. And we see momentum in the first half of services and parts and we're going to continue to see that in Q3 and Q4. So hopefully, that gives you a little bit more color to we believe that, at least, within MH&PS, we can deliver.

And in terms of the cost savings benefits that you realized in the second quarter, can you maybe just walk through what you realized and how much incremental benefit we'll have in the second half?

Cost savings -- because it got muffled a little bit -- cost savings project?

Yes, yes. I'm just hoping to get an update on what the realized cost savings benefits were in the second quarter and kind of what the update is on the second half expectation of benefit.

Hang on. let me look that up, Ted.

I think Kevin has -- Kevin Bradley has that.

Steve -- I can take that for Steve. In the quarter, between $4 million and $5 million. And we're still looking at the total in the -- this full year for Steve for MHPS of $20 million.

Okay. And, Kevin, just the last thing I want to ask is corporate expense in the quarter was a little higher than we were modeling. Was there anything unusual in the second quarter? And how should we think about that, kind of, in the back half?

Yes. And on a year-over-year basis, the quarter was high, up about $9 million. There were some things that we shouldn't anticipate in the run rate going forward. TFS was a little bit high on investment in rate buy-down subsidies. We had some extra FX in the quarter. And then, lastly, just the timing of when things hit between Q1, Q2, we should expect the run rate in corporate and other in the $6 million to $7 million. And that's what we're seeing for the back half of the year per quarter, $6 million to $7 million negative.

Your next question comes from the line of Andrew Kaplowitz from Barclays.

Ron, so this is related, I think, to Ted's question a bit. But maybe if you could step back and talk about the progress you've made on self-help. It's been sort of a big initiative for you guys. You just sort of gave the cost breakdown for MHPS, but the segment there was still just above breakeven, which I think is a little disappointing to some people that that's where it is. Is that just sort of the delays in the work and self-help has been what you thought, or has it been a little harder than you thought?

Well, Andy, this -- the answer to your question is a complicated answer because it really crosses all of our segments and it includes both operating initiatives, as well as the kinds of initiatives that drive lower tax rates and improve our corporate efficiency, okay? So and if your question is focused on MHPS, there's a number of things there that are progressing but do take time and the cost come out gradually. The restructuring expense took place through right away, but the cost come out gradually. And I think the last question was asked and answered on what that is and what we expect this year versus next year. But let's not get bogged down just on MHPS because it's a glass half-empty or half-full conversation there because if I look at MHPS' second quarter performance compared to last year, where we had a substantive operating loss with a little bit less revenue, we are at a breakeven and we had a number of unusual expense items in the second quarter of this year. But businesses have unusual expense items. So I don't want to call those out as one-time costs, but that really hit that segment. If I can back up and talk about the kinds of things underway in the company, of self-help, it is about the manufacturing footprint changes at Aerial Work Platforms. It is about the new product initiatives at Aerial Work Platforms. If I turn to the Cranes business, it is about a complete redesign of several of our higher cost products in Cranes to get substantive cost out of those cranes so that, when we sell those cranes in the future, we make a greater margin than a lesser margin that we currently have. And it is about eliminating about 30% of the models that we offer in Cranes. Those are kind of self-help initiatives. If I turn to the MHPS business, there's more to be done in MHPS. I'm not about to make news today here, but we've got work to do in our manufacturing footprint. We have work to do in our sales and services centers around the world. And those are things that we have identified for a fair amount of time that we're still going to do. If I then turn to the Construction business, while we made $4 million of profit in Q2, that certainly isn't the high watermark in our view of what that business can do. And we've got a number of, let's call it, product and market initiatives that are underway that will introduce some new products and product changes later this year, early next year in that segment. And frankly, we are expecting that, as steel prices increase, our Fuchs business, which has been a highly profitable business, will rebound and profits will improve there. If I then turn to the kinds of corporate initiatives that we've identified. Shared services, we're going to move from over 70 corporate accounting locations to 8, okay? We are going to not just do accounts payables, receivables management, but we're going to do the accounting initiatives and the -- and relieve a lot of our field teams from doing the kind of local accounting to consolidating them through enterprise-controlled systems. That's an initiative over the next couple of years. The tax changes that are underway are not just related to lowering our tax rate, but they're related to servicing our customers better. As we create Terex Global, we can now invoice our customers for 10 of our products that would have previously required 10 different invoices from 10 different legal entities, simplifying the lives for our customers and improving our own ability to collect receivables, which, by the way, is a big working capital opportunity, while working capital on receivables and payables management. So there's a lot of self-help still left in Terex for me to give you a P&L balance sheet here today and that's why I try to keep it simple. About half of what we're trying to do is going to come from self-help, but we do need some help from the market. That's why I try to keep it simple. I hope that helps, Andy. We are unlikely to give you a reconciliation of all those things, but I think you can get a sense that they're pretty significant.

Ron, that is helpful. So just following up. I mean, you mentioned Construction, first time that I can remember a profit in a very long time. You still call for breakeven for that segment for the year, but why would have margin continued to be contingent improved or at least be what it was in the quarter if Europe is improving for you guys and Fuchs is slowly getting better. I know you've got some North American weakness, but the cement mixers are pretty good. So maybe there's a little bit of upside there?

There might be. But at this stage, that little bit of upside isn't going to move the needle for the company right now. And so, we really didn't think it was appropriate to change that outlook at this stage.

Your next question comes from the line of Jerry Revich from Goldman Sachs.

It's Matt Rybak on behalf of Jerry. Starting off, could you just maybe talk a little bit about your prospect list for additional Port Solutions projects going forward?

Good question. I'm going to let Steve answer that carefully, so that he doesn't give our competition a roadmap to our business.

Yes. Thanks, Matt. Yes, I mean, we have a pipeline, for sure, of automation projects. And I would say we have good visibility to about half a dozen right now. And I don't want to mention where they are, but they're all over the globe. And we're planning on, at least, trying to get, hopefully, one of those done by the end of this year, beginning of next year.

Got it. That's helpful. And then, could you maybe just talk a little bit about the cadence of orders in Europe that you saw over the course of the quarter?

In Port Solutions, Matt?

In general. For the entire business.

In general. Okay. Why don't we start with our Cranes guys and then I'd ask Matt to comment on that as well.

Yes, okay. Matt, thank you. This is Tim. Europe, for us, has continued to improve through the -- really since the low point of the third quarter last year. We saw a number of customers continuing to place orders for us and I think we're feeling strong -- feeling good about our European business. Our tower crane business, which is based in Europe, is seeing continued improvement. So I think we feel reasonably good about our European operation -- European order flow...

And, Matt -- be careful, someone on the call is moving papers around, it makes a little noise. But, Matt, if you're on line, why don't you comment a little?

Yes. As far as the cadence of orders in Europe for AWP, what we saw is we had a very strong quarter right out of the Fuchs in Q1. And as Ron mentioned, Q2, it carried on at about 15%. But the other thing that happened at -- in Q2, is our backlog continued to climb slightly, but it climbed in Europe in the end of Q2. So we've -- we're seeing that it's continuing to be strong. One of the differences that we're seeing is that the U.K., in particular, which has a large concentration of Aerial Work Platforms, has really picked up and you can see it in the market data. So Europe, we're very encouraged about.

Okay...

[indiscernible] go ahead.

Matt, I'll just make another overall comment. If I compare Q2 to Q2 -- Q2 of '14 to Q2 of '13, every business was north of growth -- growth north of 5%, more likely in the double digits and even higher double digits and that's a similar pattern to what we saw in Q1. So all of our businesses in Europe are beginning to show year-over-year meaningful improvement.

Your next question comes from the line of David Raso from ISI Group.

I just wanted to make sure. I just kind of can't let it pass, as the math is not making sense. And it seems like from the guidance, I mean, when you look at the segment, it would seem roughly you're looking for revenue upside to the $7.4 billion. I mean, if you just do the math on the segment, it would imply upside of revenues. But then, Ron, you can do 20-plus-percent -- 25% incremental in the second half to get to the number. But the way the guidance was laid out for total sales, it is implying now you do need to do 45%, 50% incrementals in the second half. So I mean, just looking at the math, I mean, could we just summarize it as maybe the revenue guide is on the light side on what you think you can do internally than allow that lower incremental? I mean, the math is the math. I mean, it is implying a big incremental second half of the year if you really only do $7.4 billion in the second half -- for the full year sales.

Compared to the first half, David, but not...

No, no, no. Ron, the realignment with the Volvo truck sales, when you sold hauler [ph], the math is the math. I mean, the release that they sent out in late February providing that restatement of year-ago quarters. If you have revenue growth only 3.4% in the second half of the year, to do this $7.4 billion for the full year, you're going to need margins. I mean, to be clear, though, tax rate for the second half of the year is only 31.5%, right?

Right.

That's the right tax rate?

Well, the mid-point of the range.

The midpoint of the range.

Yes. So I'm just trying to -- I mean, it is what it is. But then, again, on your segment guidance, I can see the implied -- yes, maybe we can do more like $7.5 billion. I'm just trying to make sure the Street understands leaving this call that if the revenue is with the total company guidance, it's a big incremental. So maybe there's revenue upside?

Yes. So, David, obviously, we've got to reflect strong improvement in the back half. We've got to be at the top end or better at the range on revenue. We've got to be at the low end of the range on that in order to get into the top half of that EPS guidance, as well as the interest and other -- to be on the better side of that. And we've got to get the mix, right? The math is pretty clear, a lot of that -- a lot of the growth has to come from that and it's going to have to be at a lot stronger incremental margins than we've shown in the first half of the year. But we think we've got the ability to do that and deliver it. So there's always a risk to the top half of the range, absolutely, just as Ron said, but we have a couple of paths to get there. And a lot of it has to do with both AWP and Cranes having much stronger second half, both on growth and on their incrementals.

Yes. And to that point, obviously, the volumes hurt Cranes in the first half. But the second half -- and I'm sorry, I hopped on the call late -- the second half, besides volume, you also have a better mix in Cranes, right? That's already -- the backlog already has a better mix for second half shipments than we saw, right?

Yes, it does...

That's a big help. And lastly, I don't know if you gave a clear -- I'm not sure if you want to, but the tax rate exiting the year, if we had to model a tax rate for '15, keep the second half run rate or could it move lower? And if you don't mind trying to quantify it, it would be helpful.

Sure, yes. So, yes, we see where we are at Q2, right, continuing through year end. And certainly, that's being driven by the losses not benefited. Just to give you a little bit of color on that, a lot of our losses not benefited has been coming out of Southern Europe, India and China. A lot of the initiatives that we've taken the lead on have addressed those in those geographies. The restructurings we did in Italy and in India has helped. Getting the profitability in our AWP factory in China has helped. Less losses in some of our JVs on the crane side in China has certainly helped. So a lot of this self-help around addressing problem issues in P&Ls in these countries is improving. And, David, we would expect that to continue into next year. At the same time, and Ron touched on it, the jurisdictional mix, in particular, as we drive more of this global trading model to improve our commercial, how we face off with our customers is also going to increase its impact going into '15. So, yes, I would expect this lower level as we leave the year to stay the same and potentially has the ability to improve into the first half of '15.

It's all of it.

Your next question comes from the line of Eli Lustgarten from Longbow Security.

I have a lot of questions, but can you just give me maybe a little bit more help on the top line guidance and what's really changed? Because in order to -- when I play with the numbers, in order to stay in the $7.3 billion to $7.5 billion, almost all of your guidance has to be at the low end change at this point. Because we knew this bubble of sales was going to go through and we've strengthened the AWP outlook actually somewhat. So what's really changed? Where are the big number changes? Because we knew about the sales of the division. We knew about the $50 million deferral of a port solutions shipment. So, I mean, what's really changed to drive the numbers down to $7.3 billion, $7.5 billion? Or is that still maybe a little bit conservative kind of number? I just have trouble getting there unless eliminations turned out to be a huge number.

Well, I don't think there's going to be eliminations. When we provided the initial range of revenue, it did not include the port business being pushed out. It was pushed out of the first quarter into what we thought was the end of the year. It's now moving out of the year into next year. That's approximately $50 million, okay? So that's not the whole amount. We also have seen weaker businesses in Latin America and in Australia than we expected. And those are pretty meaningful. But on the other hand, there's some more positive business in our European operation. So I guess, in the overall view of the company, revenue has been hard to come by even though we produced a 10 percentage point increase in revenue in the quarter, but only 5.5% for the first half. So as we look at things, we don't want people to be overly optimistic. But at the same time, we don't want people to be overly negative either. And that's a delicate balance to walk. So we thought it's more appropriate to take the top end of the revenue guidance down a little bit and for us to work on those things that we can control to get the margins up. Eli, at the end of the day, the revenue, we're going to try and get as much revenue as we possibly can because, obviously, if we grow our AWP revenue at 15-plus margin, it helps everything. If we can get the Cranes guys to grow their revenue and deliver, their margins are improving. So those are 2 really important areas that will drive the net-net for the company.

Ron, the only thing I would add, too, is on the MP business. Although not our largest segment, clearly, we were calling for growth that's not showing up, basically flat year-on-year in the first half. And the second half growth that we had called out in the initial guidance doesn't seem to be materializing, so there's risk in the MP, although it's not the biggest segment.

Yes. And I guess, in the growth rates, I think you said 3% top line. The 3% top line came from foreign currency, I think is what you said at the beginning.

That's right.

You have a foreign currency. Was there any impact from foreign currency on profitability? And you have a -- are you basically foreign currency neutral in the second half?

Yes, modest increase -- I mean, modest effect on profitability. And it's really more from our European-based businesses than AWP. And I think, trying to forecast foreign currency in the second half of the year, we're not doing. So I would say it's probably not built into our forecast.

Ladies and gentlemen, due to the allotted time set for questions, we do have time for 2 further questions. Your next question from comes from the line of Vishal Shah from Deutsche Bank.

[Audio Gap] on the line for Vishal. I'd just like to get some questions answered on the demographics of the Crane backlog. What does your product mix look like? What are margins like compared to where they are currently? And what percentage of the backlog will be delivered in 2014?

Okay, I'll take that. Our Crane backlog has 3 components to it. One is, of course, the Crane product businesses and then we have a fairly sizable backlog in our Utility products business. The Utility products are mostly North American-based. And I would say the Crane piece of it, so the Crane products piece of our backlog, is strongly oriented to European delivery, with the second piece of that really being North American delivery. The profile of the backlog, I'm not going to get into the details of it, but I would say that the mix of the backlog from a profitability standpoint is moving in our favor, with some of the higher margin products strengthening and -- with the exception of our Australian business. But overall, I think the profile of our Crane backlog looks pretty good as we head into the second half of the year.

Great. And I'll stick with Cranes for my next question. So could you give an update on where you think we are in terms of the rough terrain business? To what extent is there overcapacity still? To what extent is there inventory adjustments required? And how far off of a bottom are we?

Yes. The rough terrain product line really serves 3 markets. It serves North America, it serves Latin America and it serves the Middle East. The Middle East got off to a very slow start. We had a very depressed first quarter, but that's beginning to sell through and we're beginning to see some improvement. The Latin American business is still relatively weak, but we're seeing a few pockets of improvement. Now I wouldn't characterize it as strength, but a few pockets of improvement. In the North American business, as I said earlier on the call, we took a lot of orders at CONEXPO for rough terrain products that will start shipping here in the third quarter and into the early fourth quarter. And as we talked to the sales teams, I think we feel like the rough terrain business is beginning to improve. The -- it feels inventories are more in line than they have been at any point in the last 6 to 8 months and I think we feel like it's beginning to improve.

Your next question comes from the line of Mig Dobre from Robert W. Baird. Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division: It's Mig Dobre. My question here is on AWP. I'm just looking for some clarifications from you, Ron. You talked about some of the headwinds to margin, such as mix, some investment. To me, it sounds like this is something that could be with you for a while. Is it fair to say that some of these challenges would extend beyond the second half of the year maybe into '15, or should we think otherwise?

Well, I think, in the context of excellent overall margin, I think we are going to continue to try and reshape the business somewhat. I think what I would like to just say at a high level is that I wouldn't want to model the margins where incrementals continue forever, okay? I think we have said that we expect mid-teens, kind of, margins on the business and I think that's where we should model the business. I don't think we should try and model the business at this stage at dramatically higher margin business. I don't think our customers will allow us to make that level of money. I think the long-term investment required for the business is such that we're going to have to continue spending some money on product and manufacturing footprint. But at the same time, I expect multiple years of continued positive performance on this business and I think the net effect of our initiatives will actually be longer term to get the margins up. But I think it's still a little bit in our future as opposed to what you should expect next quarter.

At this time, there are no further questions. I will turn it back over to the presenters for closing remarks.

Well, I want to thank everybody for their interest. We tried to keep this call within about an hour. We recognize there's other people reporting today. But clearly, if there's any information or a follow-up required, please call us. Tom, Kevin, myself or anybody within the company will be happy to address any and all of your questions. And thank you for your continued support of Terex. We appreciate it.

Thank you. That concludes today's conference call. You may now disconnect.