Terex Corporation (TEX) Q4 2020 Earnings Report, Transcript and Summary

Greetings and welcome to Terex Corporation's Fourth Quarter and Year End 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 [Operator Instructions]. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Randy Wilson, Director of Investor Relations for Terex Corporation. Thank you. Sir you may begin.

Good morning, and welcome to the Terex fourth quarter and year end 2020 earnings conference call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. I'm joined by John Garrison, Chairman and Chief Executive Officer; and John Duffy Sheehan, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to Slide 2 of the presentation, which reflects our Safe Harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to Slide 3, and I'll turn it over to John Garrison.

Good morning and thank you for joining us and for your interest in Terex. Most importantly, I hope you and your families are remaining safe and healthy. Throughout these challenging times, we are proud of all of our Terex team members who are keeping themselves and others safe, meeting the needs of customers and helping our communities. I would like to recognize and thank our team members around the world for their continued commitment to our Zero Harm safety culture and Terex Way Values. Safety remains the top priority of the company driven by Think Safe, Work Safe, Home Safe. Our team members remain vigilant by carefully following the COVID-19 safety protocols and continuing to keep their guard up. Despite a challenging year, we delivered results for all stakeholders. We prioritized their health and safety while maintaining our Terex Way Values. Globally team members gave back to their communities with their time and donations. For our customers they are the center of our recovery and we have continued to maintain the highest levels of safety in our sales and service operations. And finally for our shareholders we minimize the operational and financial impacts related to the pandemic. Please turn to slide 4. Despite the challenging markets during the fourth quarter our team continue to meet customer demand, tightly managed all cost, aggressively reduced net working capital, especially AWP inventories and delivered outstanding free cash flow. Q4 revenue improved sequentially as end markets continue to recover despite the fourth quarter normally being seasonally slower. The sequential improvement in revenues was driven by MP whose revenues improved approximately 18%. Customer bookings in Q4 represented a continued strong improvement from Q3. Sequentially AWP and MP bookings were up dramatically. In addition to sequential strength and bookings AWP bookings were flat with last year's pre-COVID levels and MP's bookings were up 53%. The yearend customer backlog s increased 25% over prior year pre-COVID levels, our stringent cost control and producing the customer demand helped us deliver operating margins in line with prior year on 11% lower revenues even with $18 million of restructuring and related charges. AWP recorded near breakeven operating margins, including $11 million of restructuring charges and revenue down 18% from the prior year representing a decremental margin of 7% or an incremental margin of 3% when excluding restructuring and related charges. We are driving improvement in AWP's profitability to restore the segment to industry competitive margins and we will continue to take the actions necessary to deliver on that improvement. Our MP segment achieved outstanding financial results reporting up 15% operating margin while revenues were down slightly year-over-year reporting an 82% incremental margin. Throughout 2020 we write-sized our inventory levels to the customer demand environment, especially in our Genie business. Their inventory levels remain consistent with 2016, which was the last time there was an industrial downturn. In 2021 Aerial products will manufacture to customer demand. Our intense focus on net working capital management grew over $129 million of free cash flow in the fourth quarter, delivering excellent full year cash flow generation. Overall, our Q4 financial performance demonstrated strong execution by our global team. We are committed to improving these results in 2021. Please turn to slide 5. In 2020 we evolved from our focus, simplify, execute to win strategy to execute, innovate and grow. This transition is strategic priorities has strengthened our business operations. Strategy requires action. So we took swift and decisive measures in 2020 to improve, strengthen and position Terex for growth. On the cost side, we look at every aspect of the business to ensure we maximize our ability to be globally cost competitive. We aggressively took out cost. Not just manufacturing costs we also executed on SG&A cost-reduction initiative with a target of SG&A percent of sales for 2021 of approximately 12.5%. Turning to innovation. We listened to customers to ensure our products and services offer the features and benefits that provide value. We also invested our connected assets and digital capabilities across the enterprise to better serve customers. We continue to drive global adoption of our products Genie scissors and Boom for working safely at height and mobile crushing and screening products for aggregate production. Finally, we maintain our results to invest in the business for future growth. Please turn to slide 6. Looking ahead to 2021 we’ve recognized that execution is the foundation to deliver on our commitments to team members, customers and shareholders. The hard work to rescale the company's cost structure will be aggressively managed to achieve our strategy of being globally cost competitive. We will continue to invest in innovative products and services to serve our specialized markets. Terex is well-positioned for growth in 2021 because we have strong businesses, strong brands and strong market positions upon which we can grow. We will continue to invest including investing in new products and manufacturing capacity where demand calls for it and we're a more focused organization. I am confident this will result in Terex being an even stronger company. With that let me turn it over to Duff.

Thanks John. Turning to slide 7, let me begin by reviewing our Q4 financial results. I would like to call your attention to our financial reporting structure. As you will notice consistently throughout 2020 we did not report adjusted financial results. Instead we are identifying specific financial callouts which impacted our Q4 reported results. Looking at the fourth quarter we achieved net sales slightly higher than our outlook from the beginning of the quarter. Throughout the quarter we saw our end markets continue to stabilize and improve. Overall, revenue of $787 million was down 11% year-over-year. For the quarter we recorded an operating profit of $32 million compared to adjusted operating profit of $36 million in the fourth quarter of last year. The overall operating profit resulted from revenues being down combined with $18 million of severance and restructuring charges primarily in our AWP segment. We achieved this positive operating result through disciplined cost control and adapting to the market environment. Our lower revenues impacted our gross margin and resulted in elevated SG&A as a percent to sales. Our aggressive cost reduction action allowed Terex to achieve an approximately 5% decremental margin in Q4. This decremental margin was achieved despite $5 million of gross profit charges primarily due to restructuring. In addition, SG&A was adversely impacted by $13 million primarily due to team member severance and restructuring. Excluding these charges operating profit was $49 million and Terex achieved an incremental margin of 13% in the quarter. The low operating income, interest and other expense was almost $10 million lower than Q4 of 2019 because of several factors including first, lower interest rates versus a year ago. Second, $4 million of investment income and third non-recurrence of $2 million in FX losses recognized in the prior year. Our 2020 global effective tax rate was approximately 18% compared to our previous estimate of 52%. During the fourth quarter there were a few discrete items benefiting our Q4 tax rate. Finally, our reported EPS of $0.21 per share includes the adverse operating impacts on gross profit and SG&A offset by the favorable benefits and other income that I just discussed. Turning to slide 8 on our segments financial results. AWP sales of $412 million contracted by 18% compared to last year driven by end markets in North America and Europe due to the impacts from the pandemic. The Aerial products market and our sales in China remain robust. The utilities market remained stable and improved during the quarter across end markets. We continue to aggressively manage production levels in Aerial products to ensure that we are not building excess inventory. During Q4 our Aerial products production was 16% lower than Q4, 2019. This continued aggressive production control allowed us to achieve almost $180 million reduction in Aerial products inventory levels year-over-year. AWP delivered flat operating margin in the quarter driven by aggressively right-sizing production and costs to align with end market demand. AWP achieved strong decremental market performance of 7% in the quarter which includes $11 million of charges for severance and restructuring. AWP fourth quarter bookings of $753 million were flat with pre-COVID Q4, 2019 levels while backlog at quarter end was $826 million, up 10% from the prior year. Now turning to materials processing. MP had another strong quarter achieving 15% operating margins as markets continued to improve. It is a testament to the MP team's operational strength to deliver these positive operating margins on revenues down 3%. Sales were lower at $366 million driven by caution yet improving customer sentiment. The MP team has been aggressively managing all elements of cost in a challenging market environment resulting in incremental margin performance of 82%. Backlog of $523 million was 59% higher than last year and up 81% sequentially. MP saw its businesses strengthened through the quarter with bookings up 53% year-over-year and up 76% sequentially. Customer sentiment in both segments continues to improve as equipment is being utilized and ordered for 2021. Turning to slide 9, overall 2020 demonstrated the resilience of our business and team members to deliver these results against a very challenging backdrop. Significant cost actions reducing SG&A by $82 million from 2019 helped deliver 21% decremental margin and beat our 25% target. In addition strong positive cash flow generation was helped by tightly managing networking capital and aligning production to demand. Turning to slide 10. When the pandemic arose in the first quarter we quickly refocused our investment initiatives and took the decisive action to reduce our overall cost structure through temporary and permanent actions and over the course of 2020, we instituted an SG&A cost reduction initiative not just in corporate but across the entire company. We always had SG&A target going back to our 2016 Analyst Day of 12.5% sales. As detailed on this slide we took a variety of actions to reduce our cost base. Whether it was moving our corporate headquarters, improving productivity and selectively rescaling investments, we scrutinized every possible expense. The result of these actions is that we were able to reduce our SG&A cost structure by more than $100 million for 2021 versus 2019 and delivered the improved results detailed in my earlier comments. These actions have enabled Terex to come into 2021 well-positioned to meet the 12.5% target. Turning to slide 11. Now I'd like to update you on how we currently anticipate 2021 to develop financially. It is important to realize we are operating in an unprecedented period and results could change negatively or positively. Disruptions associated with COVID whether it is team member absenteeism or supply chain disruptions could impact our outlook. With that said this outlook represents our best estimate as of today. Also consistent with 2020 we do not plan to report adjusted financial results in 2021. The outlook included on this chart includes all known income and costs but does exclude the impact of potential future acquisitions, divestitures, restructuring transformation or other unusual items. As we identify currently unknown income or costs we will identify them in our reported results. As for commercial demand we have seen our market stabilize and improve over the course of 2020. All other things being equal we do expect to see markets improve due to the global deployment of COVID-19 vaccine and AWP customers [indiscernible] replenishment. However, our guidance does not include any benefit from potential infrastructure legislation. We anticipate EPS of $1.95 to $2.35 per share based on sales of approximately $3.45 billion. From a quarterly perspective we expect revenues for the full year to be relatively evenly split between the first and second half of the year with the second quarter being the strongest of the year. We look forward to returning to year-over-year sales growth in the second quarter this year. Operationally the absolute amount of operating profit and operating margins are expected to increase each quarter year-over-year with slightly more operating profit in the second half of the year versus the first half of the year. Importantly, we are planning for and look forward to reporting incremental rather than decremental margins which meet or exceed our 25% target for full year 2021. Quarterly earnings per share are expected to be generally consistent with the development of operating profits during the year. Based upon global tax laws we expect a 2021 tax rate of 19%. We are monitoring potential changes to tax laws in the United States and around the globe and we will adjust our operational and tax strategies as required. For full year 2021 we are estimating free cash flow of approximately $100 million reflecting another year of positive cash generation. We do expect Q1 cash flow to be negative which is consistent with historical patterns. We also estimate capital expenditures net of asset dispositions will be approximately $90 million. Corporate and other costs are planned to occur relatively evenly throughout the year, although Q1 is expected to be slightly lower and Q2 slightly higher than the average. We continue to monitor development associated with the UK's exit from the European Union and do not expect any material impact. Now let me turn your attention to the operating margin which on the slide. We believe it is important that the investment community understand the key elements of our operating margin improvement in 2021. First, cost reinstatements represent the restoration of team members compensation after the reductions we enacted in 2020. It is important to pay team members competitively to retain our talent. Next, I would point out that positive volume and improved manufacturing efficiency will drive much of our margin improvement. Additionally, our SG&A cost reduction effort also provides significant improvement in our 2021 operating margin. Finally, we did have severance, restructuring and other charges in 2020 that are not expected to reoccur in 2021. I think together these operational improvements drive our 2021 operating margin guidance of approximately 7%. Turning to slide 12. Now I'll review our segment guidance. We expect the improved customer sentiment demonstrated by our Genie and utility customers to continue into 2021. AWP margins are expected to be positive each quarter of 2021 with incremental margins well above our targeted 25%. Materials processing is expected to continue its consistent operating performance delivering double-digit operating margins each quarter throughout 2021. Following the run-up in steel prices in 2018 we implemented a steel hedging program with respect to our Aerials North American [indiscernible] or HRC steel consumption. Approximately two-thirds of our Aerial steel consumption is HRC. You may be aware that there is not presently any forward market for hedging plate steel. During 2020 we purchased hedges for the predominant amount of our anticipated 2021 North American Aerial HRC requirements. The guidance we are providing today takes into account the steel hedging actions we took in 2020 as well as current steel prices for the remainder of our global steel requirements. Overall our 2021 guidance represents a dramatic improvement in operating performance when compared to 2020. The swift and decisive actions taken in 2020 enabled this outlook and we will continue to aggressively manage costs while positioning the business for growth. Turning to page 13, I'll review our discipline capital allocation strategy. We introduced our strategy back at our 2016 Analyst Day. It has served the company well during the pandemic and will enable us to grow in 2021. Our team members remain vigilant and will continue to aggressively manage production especially within our AWP segment and scrutinize every expenditure so we continue to generate strong, positive free cash flow. We have ample liquidity with greater than $1 billion available to us with no near-term debt maturity we can manage and grow the business. In 2021 we have entered into a partnership with a U.S. bank to provide financing solutions to our Genie customers. In connection with this arrangement last week the bank purchased approximately $100 million of our Terex financial services portfolio receivables. As a result of our strong liquidity position including the proceeds from the sale of the TFS on book portfolio we initiated this week the repayment of approximately $200 million in term loans reducing outstanding debt and lowering leverage. In Q1 we will recognize a corporate and other operating gains of 7 million in connection with the TFS sale and an interest and other charge of $2 million related to the repayment of the term loans. Neither this Genie or the charge is included in the financial guidance we are providing today. Turning to growth. We continue to invest in the business in 2020 at reduced levels and will continue to invest in 2021 with capital spending net of asset disposition of approximately $90 million. In 2020 we executed our strong and swift actions to right-size the business, so Terex can profitably grow in the future. We remain resolute in tightly managing production and SG&A. Our strong balance sheet an expected 2021 free cash flow generation allowed our board of directors to reinstate our quarterly dividend for 2021. The board has approved a Q1 dividend of $0.12 per share as we return cash to shareholders. Our earnings power and healthy capital position provides a strong foundation for us to manage and grow Terex. And with that I'll turn it back to you John.

Thanks Duffy. Turning to slide 14. This quarter's results demonstrated progress but we have more work to do. Our Aerials team has stayed in close contact with our customers during this critically important part of the year when customers are planning their 2021 requirements. Being customer centric also means developing products that add value for customers at the appropriate price. We are delivering a new electric drive or E-drive scissor and just recently announced a brand new telehandler. These products demonstrate Genie's strength in listening to customers and responding with innovative industry-leading products. During 2020, we invested in the expansion of our world-class manufacturing facility in Chengzhou, China and completed our Watertown South Dakota utilities facility. The utilities business is a very important growth area for AWP. The TL shown at the top of the page is a new product to take advantage of the adoption of transmission line work in China. At the bottom of the page the photo shows the customer delivery from our Watertown facility. Terex utilities is well-positioned to participate in the increased investment in electrical grid infrastructure. From an operational perspective, the AWP team executed in Q4 by delivering breakeven operating margins despite $15 million of restructuring charges aggressively taking cost out of the business to improve the ability to deliver future industry competitive margins and innovating by continuing to bring new products to market. It is a competitive industry. So we are controlling what we can control; superior execution and aggressively reducing costs to improve margins and win in the global marketplace. Turning the slide 15. Once again materials processing demonstrated strong operating performance and positioned the business to benefit from improving market conditions. MP is a diversified high performing portfolio of businesses which continues to invest for future growth. The investment in our Campsie, Northern Ireland facility will enable our Ecotec business to grow in waste recycling. Shown on the slide is a new Ecotec metal shredder which supports recovery applications for the recycling and waste industries. It is a new and unique offering demonstrating MP's continued investment in new products and adjacent markets. In addition, the adoption of MP's innovative products whether it's mobile crushing and screening in China or Franna pick and carry cranes in India is just starting. The financial performance of MP relative to market conditions by achieving an operating margin of 15% in Q4 demonstrates the MP team's strong execution. MP's bookings improved and increased throughout the fourth quarter resulting in bookings being up 53% year-over-year. MP benefits from customer, product and geographical diversity and strong execution to consistently deliver outstanding results. Turning to slide 16. To wrap up our remarks Terex team members around the world are focused on the right things; safety, health, customers and improved productivity. We are reducing cost to improve margins especially within AWP. We are driving positive free cash flow by reducing working capital. Our businesses have a strong future. So we are continuing to invest in innovative products and services to be prepared as market demand returns. As a result of these actions Terex is well-positioned for an improved 2021. And with that let me turn it back over to Randy.

Thanks John. As a reminder during the question and answer session we ask you to limit your questions to one and a follow-up to ensure we answer as many questions as possible this morning. With that I'd like to open up for questions. Operator?

Certainly. [Operator Instructions] Our first question is from Stephen Volkmann with Jefferies. Your line is open.

Hi, good morning guys.

Good morning Steve.

So lots of moving pieces here. So maybe not surprisingly I'll start with AWP. Maybe first can you just remind us how much you actually underproduced retail in total for 2020?

Thanks Steve and in general say right around 80% we produced to the end market demand if you will and obviously you see that in the significant reduction in inventory that we had throughout the course of the year.

Right. Yes. That was all strong inventory reduction but I'm just thinking ahead now to 2021 where you won't be doing that I guess. So in light of that, I guess I'm struggling to think about what the end market growth that you're thinking about is because it feels like you can kind of hit your revenue target just by producing back to retailers even if things were kind of flat.

We are, as you see we are anticipating growth in that 12% - 12.5% range Steve. We did see the global end markets improve as we went through the quarter and North America we saw utilization improve. It's an important time of the year. So our negotiations with our customers in terms of their needs for 2020. So we saw some strengthening of orders there. I would also say we were encouraged by the mix. We saw the independence come back into the market. So in North America we think the market is going to rebound off some very low levels as you see but again rental customers are being cautious. They are managing their utilization. They are managing their fleets and we are anticipating growth. We'll see how it plays out but right now we're optimistic we're going to experience some growth as we move into 2021 as the fleet customers manage their inventory, I'm sorry their capital.

So Steve let me just jump in for a second if I could though because I think it's also important is that our Genie team is selling product directly to the rental customers. There is no if you will re-dealer network in between. So production doesn't really equate to sales. When we produce products it goes into inventory and so the revenue is really going to be driven by the rental channel to may at least produce it when we produce in line with retail demand that will help our cost of goods sold because we'll be more efficient from a manufacturing perspective but it doesn't increase revenue.

Okay. All right. I understand that and definitely well I have you the flip side of this is your incremental margin forecast for AWP is actually quite robust and so I guess I'm wondering if you can just give us some buckets of sort of what really drives that margin higher significantly above your incremental targets for 21 and then I'll pass it on. Thanks.

Sure. So first and foremost is what I was just referring to which is that during the course of 2021 we do anticipate that we will manufacture in line with the customer demand or the sales whereas in 2020 as John indicated we were manufacturing at about 80% of revenue for Genie. So as a result the fixed costs of the business were being spread over a much smaller base of manufacturing than they're going to be over the course of 2021. So manufacturing efficiency first. Second John has been doing an excellent job of making the manufacturing operations and the Genie team not just John but John and the Genie team have been doing an excellent job of taking manufacturing costs out of the Genie manufacturing. So that cost whether it be in the indirect side or the direct side is going to make us more efficient. Our SG&A cost reduction initiative which was company-wide is also supporting the growth in the AWP margins or the Genie margins for 2021 and then obviously the higher volumes that they're anticipating for 2021; all of those are driving the margin improvements that you see for our AWP segment principally the Genie business.

Great. Thank you guys. Well done John.

Thank you.

Thank you the team.

Your next question is from Mig Dobre with Baird. Your line is open.

Good morning everyone.

Morning Mig.

Good morning. My first question is really on your ability to ramp production going forward things are getting better. So I'm wondering how you're managing the supply chain if you're seeing any disruptions there and as far as your comments on field, I appreciated that color but I guess what I'm wondering is if you're seeing incoming orders in your order books of sales relative to your plan and to the guidance that you have provided, how flexible is your pricing going forward? Will your pricing be able to adjust to reflect these higher material costs above and beyond maybe what you bought forward at this point?

I'll take, let me start with the first one Mig on the supplier continuity and then we'll also cover just in general the pricing strategy that we are executing for 2021. So on the supplier continuity side you're correct, the opportunity this year and challenge last year was a problem. We didn't have demand. This year it's an opportunity and a challenge to meet the demand as it increases. A lot of the hard work that our strategic sourcing teams and purchasing teams have done over the last couple years has helped. We have improved our overall supply base. With that said like many manufacturers we are seeing delays in inbound material principally made that global logistics started in shipping. Shipping starting to free up right now but containers remain an issue and depending on which ports you're going into can then delay the offloading of the materials. So the team is managing that disruption day-to-day. From a COVID standpoint Mig in the fourth quarter we did see disruption with certain suppliers that had COVID related impacts. That's improved as we've moved through the quarter but again COVID is still out there. So the team's doing a great job managing that and again as a result of strategic sourcing initiatives one other thing that we did was our global logistics suppliers and so we believe we have the best in the world to help us manage through this period of time. It is creating disruption but the team's doing a really good job managing that disruption day-to-day and that will be the key as we move through the year. My personal view is as we move through the year that it will improve. All of us are highly motivated suppliers and everyone to produce and get out of what we experienced in 2020 but the team is managing the disruptions and that will be important for us to continue to do so as we go forward. So that's the supply side of the equation. On the pricing side Mig, our pricing strategy this year in the environment is really price to offset material cost inflation that we're seeing. So I'd say price cost neutrality. So we're trying to get pricing from our customers to reflect the material cost environment that we're in realizing that we have to control a great deal of it but overall that's what we're striving for in 2021 is price cost neutrality so that we can at least offset some of the material cost increases that we're seeing around the globe.

Okay, I see and then my follow-up is material processing looking at the orders you booked in a quarter quite impressive. I've not quite seen orders like this before I don't think. Can you give us a sense for some of the moving parts here? I know you've got quite a few verticals within this segment nowadays. I'm also wondering if there's anything happening with the channel in terms of potential response from your dealers? Thank you.

Thank you. So yes MP had a very strong quarter and we saw the global end markets and the encouraging thing with MP is it is truly global and it is across the verticals that we operate in. Our crushing and screening business saw good order activity. We saw that as the year progressed. We saw utilization through our telematics continue to indicate a good utilization of the equipment. You're right Mig about 70% of that business goes to dealers but this isn't, the model is the dealers really have inventory that's out in a rental purchase option type environment and so what we saw was good utilization by end customers and then conversion of those rental contracts into ownership which then enabled the dealer organizations to order back and that's what we saw in terms of the order activity and I would say was broad brushed our crushing and screening business, in the U.S. our mixture truck business would strengthen the residential area. We saw really good growth there. We saw a recovery in our material handling business which was a very challenging year in 2020 for Fuchs but as one of the benefits of rising steel prices, rising scrap prices. So we saw a recovery there in the fourth quarter in orders in that business. Our environmental business is the new business [securing] the team have built over the last couple years. Again good global growth across our biomass and our recycling side in that segment and last but not least our lifting businesses; our pick and carry business down in Australia, had a good year. Australia weathered the COVID storm a lot better than other places and they had a good year and then we saw some improvement in orders in our towers business. And finally we saw improvement in India. India was hit very hard by the COVID in the second quarter and as we moved through the year we did see some improvement in India. So what's encouraging for us about the MP side it truly is global and it is across the verticals that we compete in. So it was encouraging to see those results and we're looking forward to 2021 on both businesses but MP has been in a very good position starting the year.

Thanks Mig.

That's great. Thank you.

Your next question is from Ann Duignan with JP Morgan. Your line is open.

Yes. Hi. Good morning. Could you just address the margins in material processing in the fourth quarter? How much of the margin increase or the margins delivered was driven by the lower cost base in northern Ireland and the cost being in Pounds rather than Euro and is that a competitive advantage going forward versus your competitors who would probably be mostly cost-based Euros?

You want to go ahead and cover the margin aspect Duffy?

Sure. So I would say Ann that the principal benefit we saw in the fourth quarter for the MP margins was really the mix of product sales that they had both regionally and by business. We saw particular strength in the fourth quarter in our crushing and screening business and concrete businesses and regionally both in North America. We certainly, our MP team is really strong operationally and they have a tremendous cost focus. They are able to adjust their production and their cost structure to the industry environment that you are absolutely correct that Northern Ireland is a very advantageous cost structure for manufacturing for us. I would not say that FX whether it be the British Pound or any other currency was a significant driver of the margin performance in the quarter but rather mix of businesses, strong North American sales and finally strong cost control by the MP team.

Okay. I appreciate that color particularly on the mix and Q4. And then on AWPs on orders is there any concern or can you quantify at all any impact particularly from the independents who might be pulling forward orders ahead of anticipated price increases? I mean everybody's watching steel prices and I'm assuming all your customers are looking at that and we've been through this show before. So can you tell how much of your strong orders in Q4 might have been pulled forward of demand ahead of anticipated price increases?

Ann we did take a price increase as part of the orders that we booked in Q4 anticipating the cost increases in 2021. So now I don't think we saw any “pull forward” I think it really was the independents coming back into the market to replenish their fleets because they like the large nationals did manage their fleets over the course of 2020 in response to the market demand. So I think it's more about this response to the opportunities that they see in the marketplace and their aggressive fleet management that they had in 2020.

Okay. I appreciate that. I'll get back in queue and take my other questions offline. Thanks.

Thank you Ann.

Yes.

Your next question is from Jamie Cook with Credit Suisse. Your line is open.

Hi, good morning.

Good morning.

First question. Can you just talk to order trends that you've seen so far in January and February with some of the rental companies coming out with fairly robust CapEx numbers? I'm wondering if your orders have started to accelerate relative to what we sort of saw in the fourth quarter and then I guess my second question is John just because you've been wearing the two hats for a while now as you think about the progress that you've made in Aerial work platform what ending of the ball game are you in in terms of sort of restructuring and thinking about your ability to get margins back to sort of where your competitors are or prior peak levels? Thank you.

So Thanks Jamie. In terms of trying to provide in quarter guidance I would say that from a customer standpoint we have progressed from an order standpoint several large national accounts completed the water activity at the end in December. Several large national accounts are continuing their dialogues with us as we progress through the quarter. So that activity is ongoing and I would say we're optimistic based on on what we're seeing based on how the rental customers manage their fleet in 2020. They do need equipments in 2021. So I would say that's what would seem from a customer standpoint and then on your second question Jamie, could you repeat that please?

Yes. My second question just was just on the Aerial work platform side. You've done a lot to restructure. The business you're seeing that margin improvement in 2021 but I guess my question is what more needs to be done from your perspective? What ending of the ball game are you in terms of? What needs to happen to get the margins over time back to prior peak or more comparable to your peer levels. Thank you.

Thank you. I will say this Jamie I'm not necessarily going to speak to what inning but the management team first we have a strong management team in our Genie business and they are absolutely focused on driving margin improvement in the business. I was proud of our, we've talked about commercial excellence over the course of the last couple of years, really proud of the commercial teams and how they stayed in close contact with customers through these challenging times driving some process discipline there, improving our [psyop] process. So more to come there we have to invest a little bit more on our technology and our systems but the team made good progress. On the development side Genie has been known for strong product development with the product offerings that we have. We're going to continue to bring innovative products to the marketplace purposeful innovation of products that are more cost effective for us to manufacture or more cost effective for our customers to operate. So you can expect us to continue that activity going forward. On the manufacturing footprint we took action with some of our manufacturing footprints in the fourth quarter. The team will continue as Duffy said to manage all elements of cost, material cost, direct labor cost, indirect labor costs and we'll leverage the volume that we get as we see the improvement as we go forward. The team's done a really, it's always difficult on the SG&A side but the team's done a great job managing our SG&A and positioning the business for success as we go forward and then we would continue to invest in our technology and our processes and our systems, our parts and service and so that investment we mitigated or ameliorated it, I should say slightly in 2020. You'll see us continue to make the investments on the parts and service side of the business because we think there is still continued opportunity for us to drive improvement. So overall the team made a lot of progress but we know as you mentioned our margins are not where they need to be relative to competitors and the team and I understand that's not acceptable and so we're going to continue to drive the actions necessary to close that gap as we move forward.

Okay. Thank you. I appreciate it.

Thank you.

Your next question is from David Raso with Evercore. Your line is open.

Hi. Thank you. Within the AWP outlook the utilities business I was interested in your comments about the key part of the growth story. Can you give us a sense of the non-AWP growth you expect in that AWP segment?

Yes. Thanks David and you're right with the utility segment and let me just talk a little bit about what we saw in 2020 and then what we're anticipating for 2021. One of the things we do like about this business David is the demand is more stable. So we saw stable demand in 2020 for the investor-owned utilities, the co-ops and vegetation care part of the business. So that was reasonably consistent in 2020. What we did see fall off in 2020 and come back from an order standpoint here at the end of the year was the specialized rental channel that really focuses on the contractors, the specialized contractors in that business and like many of the rental channels we did see their demand fall off as we went through the course of the year but we did see that respond nicely here in November and December on the rental contractor side. So we're encouraged by the demand environment there. We do think we're going to see substantial growth. The team did a great job David opening a plant in the middle of a pandemic. So now we have the capacity available to meet the higher demand that we're seeing and again a much more steady stream of revenue in the utility side versus some of the other elements of AWP. So again the team had a good year challenging year but did a great job getting a new plant up and operating. We're seeing good order activity and so we like our position and opportunity to grow that business as we go forward David.

But just unclear, do you think utility is above segment average growth or the segment's being guided at 12% and use the word substantial. I just want to make sure it's really --

Call in the same ballpark David same ballpark.

And then AWPs, the rental customer conversations I assume at least give you some look into on a multi-year view how do they think of their needs, where the fleet age is and nothing really matters until they sit down and put an order and they get it but when we think about the conversations you're having today and we've all been to this stands without infrastructure bills and then they don't show up but they don't show up the way you would have thought but given what's happening in Washington with an Infrastructure Bill, are you starting to have conversations with these customers at least giving you some insight on what ‘22 and ‘23 could be, what their needs could be if there is an infrastructure bill? Is that even part of the dialogue at all yet?

David I'll answer it this way. The replacement cycle in the Aerial business principally in North America and Europe and we've talked about it but there is a replacement cycle given the age of the equipment coming up as we move into ‘22 and ‘23 and that's just based on how they manage their fleets. They understand the optimal time to sell their equipment into the used market. I might say they had a really good year in 2020. They got good used equipment sales and used equipment values. So we are unequivocally going to see a replacement cycle as we move into ‘22 into ‘23 just associated with the age of the fleets in North America and Europe. In terms of infrastructure David I'm more encouraged than I have been historically about the potential for infrastructure. Clearly infrastructure will help our business as Duffy said in his comments. We're not planning on it in 2021 but if we take a step back we're advocating strongly in my CEO role we're advocating very strongly as part of AWM around infrastructure. There is an absolute need and there's a potential opportunity for bipartisanship on one issue that being infrastructure. So I think it's too early to call the ball David but you and I've been around a long time. I think it's setting up further may actually get something done but that's going to be a ‘22-‘23 type time frame. And again we'll see how that plays out but we're absolutely confident there's a need now that issue is can we get the political will and political action to make it happen.

Thanks David. Next question operator.

Your next question is from Jerry Revich with Goldman Sachs. Your line is open.

Hi. Good morning everyone.

Good morning Jerry.

John Duffy, I wonder if you just talk about your AWP sales outlet comments within the context of rental CapEx budgets that are essentially doubling for some of your bigger customers just as they go from shrinking their fleets in ‘20 to not shrinking their fleets in ‘21. So I understand desire to be conservative coming out of the pandemic but that's a up 10% then up 100% is a pretty wide gap. So can you just expand on that and if you do need to produce up 50% plus base level do you think the supply chain can deliver if you have to flex up towards the higher end of your scenario planning for ‘21?

Yes. So in terms of our conversations have gone well with the large rental companies and as I said in my earlier comments and Jerry they're continuing for several of them. Yes, their CapEx is off a very low level. So the percentages are impressive but we have to look at the base in terms of what they did or did not spend in 2020 but again it's encouraging to see that they're managing their fleets and that they need equipment. We're getting their best look at how they're anticipating their years unfolding and we need to be in a position to meet that potential opportunities I spoke. We are seeing disruption in the supply chains but the teams are doing a good job managing that. Historically our Genie business has done a good job of ramping up and down unfortunately to demand. So what I can say is we're staying in very close contact with our customers. They are giving us their best look at what their requirements are for 2021 and we're setting up to meet those requirements. So again it's encouraging that we're talking about growth and the absolute amount of growth we'll see how the year unfolds.

Okay. And then John if demand does surprise to the upside relative to your sales guidance in AWP, how should we think about incremental operating leverage on the incremental sales? Is there upside versus the 25% target that you have simply because of really attractive absorption rates off of a low base as you pointed out?

Yes. I think you can see our current outlook calls for substantially above the 25% target in our incremental margins in 2021 and so that's what we're planning on if we get we get the volume of it will definitely substantiate that margin outlook as we go forward over time again as Duffy indicated we are getting the leverage in 2021 from the increased production level. So we are anticipating substantially better than our 25% target in 2021.

Thanks Jerry. Next question operator.

Your next question is from Ross Gilardi with Bank of America. Your line is open.

Good morning Ross.

Good morning Ross.

Hey Ross.

Hey Duffy. I was just wondering if you could talk a little bit more about your MP business which is obviously doing very well. I mean within MP, you've got some quarry and aggregate exposure. You saw orders pick up strongly in the second half. The industry bellwether has been blaming quarry aggregates for softness in their mining segment for the last six quarters and I was just wondering if you could talk a little bit more about your mobile crushing and screening business? From a top-line perspective did it outperform the broader MP segment in 2020? How fast we think it grows to the cycle and is it at all disruptive to the workings of a traditional rock quarry or mine to the extent that just wider penetration of mobile crushing or equipment could be displaced and equipment for demand for traditional pieces of equipment including trucks?

So a lot there Ross. In terms of what was seen over time you're absolutely right. The adoption of mobile crushing and screening technology has continued to increase and that principally is because you can move the equipment to the quarry. In terms of our business in terms of mining we work really we're not necessarily at the mine face. We're downstream from that but there's no doubt the adoption of mobile crushing and screening equipment is providing operators the flexibility that they need and we've seen that adoption in the more mature markets so-called at North America and Europe but we're also beginning to see the adoption of this technology in places like India and it's just starting. I mean it's just starting in China. So we do think the trend of mobile crushing and screening equipment will continue because it does drive efficiency for operators, quarry operators and customers. So that's a trend that we think will continue and we like our leadership position in that mobile crushing and screening segment and we're expanding in places like India and China to take advantage of those adoption trends.

Thanks John. Would you call quarry and aggregate like one of your softer end markets this year or has it actually been an end market that kind of outperformed to the downside through the pandemic?

I would say it's a consistent performer and it was consistent through the pandemic and then from an order activity we did see good order activity as we got into the fourth quarter. As I said that the model for that distribution channel is dealers really have the equipment out with contractors on RPO type of contracts. We saw utilization stay high and those contracts got converted which enabled the dealer organization to then order back and so we did see that activity through the course of the year especially the second half of the year.

All right. Got it. Thanks so much. Talk to you soon.

Operator next question.

Your next question is from Steven Fisher with UBS. Your line is open.

Greats. Thanks. Good morning. I wanted to just follow up on the discussion on materials processing because it was a really solid quarter and you mentioned the broad strength particularly looking at the backlog being up close to 60% but the revenue growth target still really only down at around 12%. So just curious what the disconnect is there between that backlog growth and the revenue target because I think over the last few years that backlog has been a pretty good indicator of where the revenue growth could be. Is there something, is it just sort of one or two quarter replenishment of that channel and then the back half will be weaker? What's the reconciliation there? Thank you.

Yes. Thanks Steven. Just from the way that business works is it's a shorter cycle business for the dealer channel. So shorter cycle distribution channel ordered back we see it in backlogs. They will turn that backlog quicker and then we'll see again the model is do the dealers they put it out principally on rental type of contracts, does that rental convert to ownership? If it converts to ownership then the dealers are ordering back. They are not ordering equipment in this channel to put on a lot and so we'll see how the year progresses. We're encouraged by the backlog and the early indications of the performance of the business as we move to 2021.

Perfect. Thank you.

Great. Thank you.

Our final question is from Rob Wertheimer with Melius Research. Your line is open.

Hi, good morning gentlemen.

Good morning Rob.

I wonder there's been a lot covered but I did want to ask if you give any update as you have in the past on the market development and competitive development in China and maybe a quick comment on Aerial specifically but maybe touched on the other segment and maybe a quick comment on Latin America, if there's anything interesting happening. Thank you.

Thanks. I'll answer the last question first Rob. There is not a lot going on right now in Latin America. That market has been soft and we're not anticipating significant recovery in Latin America in 2021. In terms of the China development from an Aerial’s perspective the China market recovered significantly after the second quarter and the growth of Aerial equipment in China has increased substantially. So the China market rebounded frankly as strong as any other market frankly stronger than any other market. Again the adoption of Aerial equipment and working safely at height continues in China. So we saw the overall market growth substantially and we did see growth in 2020 and we're anticipating continued growth in 2021 in the Aerial’s market. As it pertains to the other businesses within China within MP that's in the infant stages. We are doing some utilities within our AWP segment in China. We think that's a growth opportunity and mobile crushing and screening equipment we're importing into China now and that's not a long-term strategy. So we'll be looking for localized manufacturing of our equipment in MP and our Changzhou facility will help us with that. So we do think there will be growth. It's very small right now in China but we do believe over time we'll experience good growth in the MP, certain MP verticals within China as we move forward.

Thanks Rob.

Okay. Thank you.

And now let's turn the call back to presenters for closing remarks.

Thank you operator. I'd like to end today's call by thanking where I started thanking our frontline team members and also those working from home who quickly adapted to the pandemic and really are working safely to keep our customers and our communities safe. I also hope that you and your families are remaining safe and healthy by following the COVID-19 protocols and I would strongly advocate that we all do our part and being vaccinated when it's our turn. So again thank you for your interest in Terex. If you have any additional questions please do not hesitate to reach out to Duffy and Randy and have a great day. Thank you.

This concludes today's conference call. You may now disconnect.