Greetings and welcome to the Terex Corporation First Quarter 2021 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. 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 first quarter 2021 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 two of the presentation, which reflects our Safe Harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. 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 three, 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 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 towards Zero Harm Safety Culture and Terex Way Values. Safety remains a top priority in the company, driven by Think Safe, Work Safe, Home Safe. All Terex team members have contributed to our effort to continue to produce for our customers, while following the protocols and maintaining a safe working environment. Please turn to slide four. Before I discuss our Q1 results, I would like to review our commitment to ESG. Environment, social, and governance is not a new concept at Terex. It has been front and center for many years through our Zero Harm safety program and our commitment to maintaining a vibrant and supportive working environment. ESG is foundational to the Terex culture. Our company purpose is to help improve people's lives. Through our Terex Way Values, we are focused on strong governance, a commitment to diversity, equity, and inclusion at every level and supporting the communities where we live and work, including being responsible environmental stewards. First, strong governance and leadership. Our independent and engaged board with diverse backgrounds, perspectives, and experience adds value for all stakeholders. Second, we've enhanced our DE&I governance and we are energized by the engagement of our team members. And third, electrification, by introducing sustainable products, such as our new Genie electric drive scissors. We've made good progress in our sustainability program, including publishing our first annual ESG report, which enhances our ESG communications. We're working on standard reporting frameworks, which a group of company senior leaders are charged with implementing. We will keep stakeholders apprised through our investor conferences and quarterly earnings calls. We believe companies that recognize the importance of ESG are better able to identify strategic opportunities and meet competitive challenges. Turning to slide five. We're off to a very strong start to 2021. Customer demand continued to increase during the quarter, resulting in revenues exceeding our expectations. We increased operating margins and backlog in AWP and MP year-over-year. We significantly improved our first-quarter earnings per share compared to last year, and we are increasing our full-year sales, operating profit, cash flow, and EPS outlook. Despite having to address supply chain challenges, AWP delivered improved margins in Q1. Materials processing continued its strong execution by overcoming supply disruptions and delivering increased sales and profitability. As a result of the improved execution in both segments, year-over-year operating margins of the company improved by 800 basis points. Our intense focus on net working capital management and improved profitability drove $40 million of positive free cash flow in the quarter, which is an excellent start to the year. During the first quarter, our team continued to meet increased customer demand, tightly managed all costs, and delivered outstanding positive free cash flow. Overall, our Q1 financial performance demonstrated strong execution by our global team in the face of increasing supply chain challenges. Please turn to slide six. We continue to improve Terex's global cost competitiveness. Our SG&A cost reduction initiative, with a target of full-year 2021 of approximately 12.5% or better SG&A to sales remains on track. We are maintaining strict cost discipline. In addition, during the quarter, we announced the plan to move our Oklahoma City Telehandler production to Monterrey, Mexico. This action will position us with cost competitive Telehandler products to the North American market. The team is addressing increasing supply chain disruptions. Our operations team is demonstrating adaptability and flexibility to overcome the dynamic supply chain environment. Turning to innovation. We continue to listen to our customers, ensuring our products and services offer the features and benefits that provide value. We'll also invest in our connected assets and digital capabilities to better serve customers. For example, our new Genie E-Drive scissors are designed to offer significant performance improvement and reduce maintenance cost by 35% over the life of the machine. Customer and dealer integration, or CDI, is a global initiative spearheaded by our parts and service organization. Dealers are sharing their data, which allows the team to better serve customers. Finally, we continue to invest for future growth. Our MP team is in the process of executing localization plans in China to meet growing demand for industry-leading crushing and screening products, as it is the world's largest aggregate market. Terex is well-positioned for growth in 2021 and beyond because we have strong businesses, strong brands, and strong market positions. We continue to invest, including in new products, digital capabilities, and manufacturing capacity. Turning to slide seven. I'll provide some comments about our end markets and what we are seeing today. In our Genie business, in North America, fleet utilization continues to improve, rental rates are improving, and used equipment pricing is strong, which are all positive signs of a recovering and growing rental industry. In Europe, the market continues to demonstrate improvement, and in China, adoption of working safely at height with Genie equipment is driving significant growth. Globally, the secular trend towards rental continues. Turning to our utilities business. Demand is strong across its end markets of tree care, rental, and investor-owned utilities. Next, the Materials Processing. We expect global demand for crushing and screening equipment to continue to grow. Broad-based economic growth, construction activity, and aggregates consumption are the primary market drivers. We're seeing continued improvement in our cement mixer, material handler, and environmental businesses. Overall, we're seeing improved market conditions around the world for our industry-leading products and solutions. And with that, let me turn it over to Duffy.

Thanks, John. Turning to slide eight. Looking at the first quarter, we achieved net sales higher than our expectations. Throughout the quarter, we saw our end markets continue to strengthen. Overall, revenues of $864 million were up 4% year-over-year. Notably, our Materials Processing segment's revenues were up almost 20% year-over-year. For the quarter, we recorded an operating profit of $62 million compared to an operating loss of $7 million in the first quarter of last year. We achieved an operating margin of over 7% through disciplined cost control and meeting strengthening customer demand. The first quarter operating profit includes severance and charges associated with the closure of our Oklahoma City manufacturing facility, which were offset by the gain on the sale of our TFS on-book financing portfolio. Improved gross margins and lower SG&A as a percent of sales allow Terex to expand operating margin by 800 basis points year-over-year. Interest and other expenses were approximately $4 million lower than Q1 of last year, because of several factors, including lower interest expense and a $3 million mark-to-market gain recognized in other income. Our first quarter 2021 global effective tax rate was approximately 16%, driven by two favorable discrete items in the quarter. Our tax rates estimate for the remainder of the year remains 19%, consistent with our previous outlook. Finally, our reported EPS of $0.56 per share includes the nearly offsetting operating impact and the favorable benefits in other income that I just discussed. Turning to slide nine, and our AWP segment financial results. AWP sales of $477 million were down 7% compared to last year, driven by a decline in North America, offset by improvement in Europe and Asia-Pacific. The utilities market improved significantly evidenced by strong customer bookings. AWP delivered significantly improved operating margins in the quarter, driven by increased production and aggressively managing all costs. AWP delivered a 680 basis point improvement in operating margin, which includes $3 million of severance and charges for the closure of our Oklahoma City facility. First quarter bookings of $961 million were up dramatically compared to Q1 2020, while backlog at quarter-end was $1.3 billion, up 82% from the prior year. Now, turning to slide 10, and Materials Processing's Q1 financial results. MP had another strong quarter, achieving 13% operating margins as end markets are strengthening is a testament to the MP team's operational strength to deliver these consistent positive operating margins. Sales were higher at $378 million, driven by improving customer sentiment across all end markets and geographies. The MP team has been aggressively managing all elements of cost, as end markets improve resulting in incremental margin performance of 38%. Backlog of $713 million more than doubled from last year and was up 36% sequentially. MP saw its businesses strengthened through the quarter, with bookings up more than 100% year-over-year. Customer sentiment in both segments continues to dramatically improve, as equipment is being utilized and ordered as end market demand strengthens. Turning to slide 11. I'd like to update you on how we currently anticipate the full year to develop financially. It's important to realize that while the end market demand environment has improved significantly, increasing supply chain headwinds are impacting results. We have taken these factors into consideration in the outlook we're providing today. As for commercial demand, we have seen our end markets improve dramatically over the course of the first quarter. Although there are things being equal, we do expect continued end market improvement in both segments and increasing levels of AWP customer's fleet replenishment. From a quarterly perspective, we expect revenues for the full year to be slightly higher in the first half than the second half of the year, with the second quarter being the strongest of the year. Operationally, the absolute amounts of operating profit and operating margins are expected to increase each quarter year-over-year, with operating profit relatively evenly split between the first half of the year versus the second half of the year. We continue to plan for incremental margins, which meet or exceed our 25% target for the full year 2021. Corporate and other costs will occur relatively evenly throughout the remainder of the year. On April 1st, we completed the refinancing of our revolving credit facility and unsecured bond. These transactions will result in Q2 charges of $25 million, which were not previously included in our 2021 financial outlook. Including $0.30 per share of costs for refinancing of our capital structure, our EPS outlook is increased to $2.35 to $2.55 per share, based on sales of approximately $3.7 billion. Quarterly earnings per share are expected to be generally consistent with the development of operating profits during the year. For the full year 2021, we are estimating free cash flow of approximately $150 million, reflecting another year of positive cash generation. We continue to plan for capital expenditures, net of asset dispositions of approximately $90 million. The largest project included in capital expenditures is for the Genie Mexico manufacturing facility John referenced earlier. Turning to slide 12, and I'll summarize our updated 2021 EPS outlook. We expect the strong customer sentiment demonstrated in Q1 by our AWP and MP customers to continue throughout 2021. Our 2021 full-year EPS outlook comprehends, first, our Q1 outperformance. Second, the operating profit contribution on additional revenue for Q2 through Q4. Third, price and manufacturing efficiency, which is only partially offsetting increasing supply chain headwinds. And finally, reduced interest expense and one-time capital structure charges of approximately $27 million, representing $0.30 per share. Overall, our 2021 outlook represents a significant improvement in operating performance when compared to 2020. We will continue to aggressively manage costs while positioning the business for growth. Turning to page 13, and I'll review our disciplined capital allocation strategy. Our team members remain vigilant and will continue to aggressively manage production, especially within our AWP segment and scrutinize every expenditure. The strong positive free cash flow of $40 million in the quarter demonstrates the hard work of our team members to tightly manage net working capital. Terex has ample liquidity of approximately $1.2 billion available to us, with no near-term debt maturities. So, we can manage and grow the business. As discussed during the Q1 earnings call, the proceeds from the sale of the TFS on-book portfolio and our strong liquidity position allowed us to prepay $196 million of term loans in early February. This prepayment resulted in reducing outstanding debt, lowering leverage, and saving annual cash interest expense of approximately $7 million. This deleveraging action resulted in a rating agency upgrading Terex's outlook and providing positive momentum for refinancing our capital structure. Our refinancing included successfully renewing our $600 million revolving credit facility and placing $600 million of new bonds with a 5% coupon. These new bonds replaced our 5.625% bonds due to mature in 2025 and reduce annual cash interest expense by approximately $4 million. Importantly, Terex obtained lower costs, unsecured funding for the remainder of this decade. This strong action demonstrates our commitment to improving Terex's balance sheet while maintaining flexibility to execute on our organic and inorganic growth plans. Finally, we would like to thank our bank group, which supported Terex during this successful refinancing. And with that, I'll turn it back to you, John.

Thanks, Duffy. Turning to slide 14, to wrap up our remarks. Terex team members around the world are focused on the right things, safety, health, customers, and improving productivity. End markets are strong, and the team is managing the increasing supply chain headwinds. We're driving positive free cash flow. We're continuing to invest in innovative products to meet increased customer demand. We are focused on both organic and inorganic growth. As a result of these actions, Terex is well-positioned to deliver strong 2021 results. And with that, let me turn it back 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 it up for questions. Operator?

Thank you. Your first question comes from Steven Volkmann with Jefferies. Your line is open.

Great. Good morning, everybody.

Good morning, Steven.

I appreciate your guidance on AWP. Your revised revenue outlook suggests an increase of nearly 20% year-over-year, which seems conservative given the strong demand. I wonder if the difference could be attributed to supply chain concerns. I'm curious about what might be limiting those revenues in comparison to the capital expenditure budgets observed from your customers.

Thank you, Steven. First, I want to highlight that we have significantly increased our bookings and backlog globally in AWP, which we're very pleased about. Looking ahead to the remainder of the year, specifically from Q2 to Q4, we're expecting a 30% year-over-year growth in our AWP segment, indicating substantial growth in this area. The team is actively working through supply chain constraints, which, like many manufacturers, we are experiencing. Despite these challenges, we are observing strong growth worldwide for the rest of the year. We are effectively managing our supply chain, although there are disruptions that are affecting our production levels. Overall, we are very satisfied with the backlog, bookings, and the strength we are witnessing in the marketplace.

Okay. Right. Yeah. Demand doesn't seem to be the factor here, the gating factor. Maybe a little bit longer term or broader term, and then I'll pass it on. How are you feeling about margins in that business? I know that's kind of been your focus over the past several quarters, couple of years and 7% is not bad, but it's obviously still a ways to go to get back to kind of where you were a couple of years ago. So, what does that trajectory look like in your mind?

Well, thanks, Steve. Well, first of all, we've got a great management team at Genie and in our utilities business, and they are intensely focused on driving margin improvement. As you saw, we achieved a 680 basis point improvement on a year-over-year basis on lower sales in the first quarter, and we anticipate sales to be improving. So, the team is focused on driving margin improvement. We are seeing headwinds like most manufacturers on material costs. We're offsetting that action with pricing. We're continuing to be resolute in our SG&A costs. The team's done a great job managing our SG&A, and we're continuing to address our global cost competitiveness, with the announcement like we made in our Oklahoma City plants. So, the team understands that we need to be globally cost competitive. We've made great progress, but unequivocally there's more progress to be made there, Steve.

But your conviction that you can get back to those double-digit levels is unchanged, I assume.

The team is focused on getting us back to those double-digit levels, absolutely. It will take time, but unequivocally we believe that that is absolutely an achievable target for us and the team.

Super. Thank you.

Thank you.

Thank you.

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

Thank you. Good morning. Maybe I'm just going to pick up on this line of questioning here, as well. If I'm looking at your guidance, a little over $2 billion of revenue in AWP. Just a couple of years ago, this business was generating more than $2.7 billion of revenue. So, I guess, I'm wondering how you sort of see the path going forward in terms of the recovery, getting back to those kinds of revenue levels. Is that feasible? Do you think you can actually do better than this in this upcoming cycle? And to ask the question once more, given that your guidance margin, it's 7%, which is basically where you are in 2019 on a much higher revenue base. If we were to get back to those kinds of prior peak levels, what would be the right sort of margin framework for us to kind of consider?

Thank you, Mig. Let me take a moment to reflect. We are optimistic about the AWP business. If we step back and consider the current trends in the rental industry, they are clearly favorable. We believe the replacement cycle is beginning and will continue for the next couple of years. From a volume perspective, we are encouraged by what we're observing and anticipate a significant increase in volumes over time as this replacement cycle and growth progress. Along with this growth in volumes, we aim to revert to more historical levels of operating margin. The team is concentrated on driving that margin improvement. As volumes rise and following our proactive cost measures, we expect ongoing margin enhancement in that business as we advance. This is the daily focus of the team, and we will persist in executing and improving. In the present environment, we are experiencing considerable material cost increases. We have had to counterbalance some of those increases with pricing changes, which is a significant factor, but we will work with our customers to manage material cost hikes through pricing adjustments. At this time, as indicated in our outlook, we couldn't achieve that. Looking ahead, we will strive to counteract material cost increases with pricing. The Genie business has always been strong, with an outstanding brand. The management team is entirely committed to fulfilling customer needs and enhancing margins. I assure you that this remains our team's focus every day.

Mig, if I was just to add to John's comment and to build on the second part of your question, right? As you pointed out in 2018, our AWP business, our AWP segment was about $2.9 billion of revenue and double-digit margins. And our guidance here today is $2.1 billion, 7% margin. If you just look at that additional $800 million of revenue, we target a 25% incremental margin, I think you would find that to get to a double-digit margin again, wouldn't require the 25% incremental margin on that $800 million of revenue. So, we definitely see that the Genie brand, the Genie business, the AWP segment is a double-digit margin business.

That's great information. Thank you for sharing that. My follow-up question is about MP, specifically regarding margins. The implied incremental margin appears to be lower, around 20% in this year's guidance. I would appreciate more context on this. Is the pressure in this segment primarily due to costs, or is pricing a factor as well? What are the various elements influencing this situation? Thank you.

So, on the MP side, I think we take a step back and you look at just continued strong execution with the margin generation, with the top line sales growth. And they aggressively managed costs throughout their business through the multiple businesses that we have. And again, we target the 25% incremental margins. The team's done a good job of delivering on that as we go forward. They also are seeing material cost headwinds that we're having to offset with pricing as well. And again, not necessarily offsetting all material costs headwinds associated with the pricing. But over time they will be able to do that as well. So, again, if I just take a step back and look at the MP business and the execution across the businesses, across the globe, they've done a fantastic job, delivering margin improvement on the growth. And I'm absolutely confident and the team will deliver on the volume that's there in the marketplace.

Thanks, Mig.

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

Thanks. Good morning.

Good morning.

Good morning.

Just in good morning. In terms of execution, the first quarter looked very good. Looking ahead to the next couple of years, John, you mentioned that you are going to enhance execution. If your revenues in the AWP segment were to return to that previous peak, what would be required to manage that level of revenue? Is your business prepared for peak demand today? I’m just trying to ensure we don’t encounter any execution challenges.

Thank you. We have a global presence for the Genie business in China, North America, and Europe. Our capacity is set to increase. We are in the process of closing our Oklahoma City facility in the first quarter of 2022 and relocating that operation to Monterrey, Mexico. This move will provide us with additional capacity, and we will continue production in both locations during the transition. The Genie team has a strong track record of successfully managing production levels, and we are equipped to meet the demands of a growing market. This presents a significant opportunity for us as we move forward, and we are genuinely excited about the chance to meet rising demand as the market improves.

Great. And so, you mentioned the inorganic growth plans. Can you just talk about what you're thinking about on M&A, anything inorganic these days?

Yeah. Thank you. Well, first, it starts with the ability of our disciplined capital allocation and strategy, and the team's done a really nice job driving free cash flow improvement. As Duffy indicated in our opening comments, really done a great job of strengthening our balance sheet. So, now we believe we have the opportunity to look at inorganic growth. And our principal focus really is in and around our MP businesses. Specialized equipment markets, we have leadership positions in those markets, and it still remains a relatively fragmented in the segments that we compete within MP. And so, our initial focus is we're building. Our M&A pipeline is in and around our MP business and our lifecycle businesses. And we're building that pipeline, and we do believe that inorganic growth can now be part of our overall growth strategy for Terex. So, the team is working on that, and we're excited about the potential and the opportunities that we're seeing for M&A activities. But again, we'll be very disciplined in our approach to M&A, but we absolutely are looking at M&A opportunities for us going forward.

Thank you.

Thanks.

Your next question comes from the line of Ann Duignan with JPMorgan. Your line is open.

Yeah. Thank you and good morning.

Good morning, Ann.

Good morning. When we were sitting here at the end of Q4, you had talked about a hedging program that was in place for almost all of Genie's North America steel needs. And so, what's happened there? Has demand come in stronger than expected, and any incremental demand is not hedged and subject to higher costs, or a little bit more color. And actually what's happened in the quarter in terms of input costs or/and is it just raw materials, or is it other things too? Just little more quantification of actually what's happened during the quarter?

Sure. I'll begin with the steel side, and then John can add more details. As mentioned, we implemented a steel hedging program that covered the majority of our steel hot-rolled coil requirements for the North American market in 2021. However, we did not enter into any additional hedges for steel in 2021 during the first quarter. As you know, steel prices, including those in the futures market, have risen significantly, so using our hedging program would not have been financially advantageous. Any additional volume beyond our initial guidance this year was procured through our standard steel purchasing program with our suppliers. Regarding input costs, it's important to note that not just steel but also other materials like resin and logistics costs have increased over the quarter. These cost increases have been factored into the updated outlook we are providing today.

Okay. Thank you. I appreciate the color on that. That's what I suspected. And then on MP, can you give us a little bit more color in terms of the regional demand? I know you said demand improved through the quarter across all regions and all segments. But any favorable product mix this quarter, or in the outlook and any favorable regional or not favorable. But I think last quarter, again, you talked about favorable product mix, as well as favorable regional mix. So, an update there will be great. Thank you. I'll leave it there.

Thanks, Ann. I'm very encouraged by the demand we're experiencing across our businesses and regions. In our crushing and screening business, we observed strong market performance in Europe, North America, and the APAC region across our product line. In North America, our concrete and mixer truck business saw significant growth in orders, largely attributed to the residential construction market, along with substantial increases in Terex Advance. Regarding materials, while high steel costs present challenges, they also drive up scrap metal prices, positively impacting our material handling business, particularly Fuchs. We're seeing notable growth for Fuchs in Europe and North America. Our environmental business, which is relatively new with MP, is benefiting from good market demand and successful product line extensions, with growth noted in North America and Europe, and some early indicators in APAC. Additionally, our pick and carry business in Australia is performing well, with strong orders from both the mining and infrastructure sectors, showing good year-over-year growth. We've also noticed some improvement in our tower cranes business, although not as strong as in other areas. In India, despite the concerning COVID situation, we saw order strength, and our team is effectively following protocols to ensure safe production. Overall, I'm encouraged by the widespread demand across the globe and our product offerings within the MP segment. The team is excelling in a challenging market, successfully executing on this demand.

Thanks, Ann.

Your next question comes from the line of David Raso with Evercore ISI. Your line is open.

Hi, good morning. Thank you for the time. I was …

Good morning, David.

I was examining the connection between your AWP backlog at the end of the first quarter and the expected full year. Historically, that backlog represents 30% to 40% of full year revenue, with recent figures closer to 40%. If this trend continues, it suggests revenues should exceed $3 billion this year, rather than just around $2.1 billion. Can you explain why there is such a significant disconnect in converting backlog to revenue? It seems quite substantial. Is the backlog showing more orders extending into the next year than usual, possibly because customers placed orders much earlier? Consequently, we might expect fewer sequential orders than typical. How much of this is due to logistical shipping challenges? Additionally, how conservative is the guidance based on this backlog starting point?

Thanks, David. I'm encouraged by the increase in customer demand compared to last year. We received many orders early this year, particularly in Q1, leading to a significant rise in our backlog. This trend was observed globally. However, our ability to increase production is currently constrained by the supply chain. We're collaborating with our supply chain to ensure we can meet customer demand, but in the near term, specifically Q2 and Q3, the capacity of the supply base is a limiting factor for our AWP segment and, to a lesser extent, for MP as well. Therefore, the main challenge in the current environment is ramping up the supply chain to fulfill the heightened demand. The good news is that demand is strong, and our team is diligently working to secure the necessary materials to achieve a higher production rate. Overall, the primary challenge we face this year is related to material supply constraints, and the team is doing an excellent job addressing these issues to meet customer needs.

David, I would just mention that when considering our guidance, we took that into account. It's early in the year, and as we navigate the supply chain and the potential to boost production, we will include that in our guidance as well.

David, regarding your second question about the backlog beyond 2020, only a small percentage of it is allocated for deliveries in 2022. This primarily relates to our utilities business and custom truck segment. Some of the backlog has been pushed into 2022, but the amount from our 2021 backlog scheduled for delivery in 2022 is not significant. There is some, but it's not a major part, David.

I appreciate that. It's a positive that we have that much backlog. I'm trying to clarify the situation. If the main challenge is our ability to increase orders that typically come in the second and third quarters due to early ordering, we might not be able to meet new demand. I suspect this could lead to a sequential drop in orders that is greater than usual. Given the seasonality of iron orders, which should ideally come before September, I'm wondering if we should expect the orders to appear a bit weaker moving forward. Alternatively, do you think that, due to supply constraints, customers might begin placing orders for 2022 earlier, meaning they won't be concerned if they don't receive it this year because they know they'll need it in the spring? I'm just trying to understand how we should interpret the orders going forward.

I think, David …

… had conversations on 2022 already saying, well, we'll start putting orders in for 2022 earlier.

I will say this, David, there's an awareness that, in general, the supply chain is tight. And obviously, not just for us and not just for the aerial equipment for rental companies. So, they're cognizant that the supply environment is tight. We're having conversations, but I can't tell you at this time, David, this early in the year that it's going to fundamentally alter how they think about order and order placement as we go forward. So, I think we're going to have to be responsive and react to the situation. I can't tell you right now at this point in time of the year, though, that we're going to see a significant change in terms of order pattern and order flow. Although, backlogs are up across the industry and that may lead to behavior change, and we'll be prepared for that.

Thanks, David.

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

Hi, good morning. Nice quarter. I guess, two questions. The first one, can you just help us understand your approach to pricing when you put in incremental price increases? I think your peers talked about putting in a 3% in March. And just wondering if yours just comparable and is it a surcharge or an actual list price increase, and have orders changed since that price increase. And then my second question, Duffy, everyone's sort of asking questions around this, but is there any way for 2021 holistically, we can think about the incremental costs associated with whether it's supply chain inefficiencies, COVID, that cost. I'm just trying to understand what costs could be sort of incremental on 2021 that aren't necessarily there in 2022 and set Terex up for a potentially good incremental margin in 2022. If the volumes are still there. Thanks.

I'll handle the first part, Duffy, and you can take the second. Regarding our pricing and cost strategy, we're being very open with our customers about the cost increases we're experiencing. Typically, we implement a price increase for the upcoming year, which occurred in Q4 of last year for 2021 deliveries. However, due to the significant rise in material costs, particularly steel, we enforced an additional price increase in March that affected most orders placed after the end of that month. The price range you mentioned is accurate, generally in the low single digits, though it varies by business segment. We are being clear with our customers about these cost increases. As for the price-cost relationship, this year we opted not to reprice our backlog due to its size, although there were exceptions. This has resulted in a negative price-cost dynamic this year related to the backlog. However, the new pricing was implemented at the end of the first quarter on orders outside of the backlog. Moving forward, we will maintain the higher price level and keep adjusting it based on material cost trends, while continuing to communicate transparently with our customers. Duffy, would you like to address the second part of the question?

Yeah. Jamie, we included the EPS walk from our previous guide to our updated outlook in the earnings presentation today. We noted a $0.55 EPS reduction from the previous guide due to cost pressures. This serves as a good marker for the impact we've experienced since the start of the year regarding various cost increases, including those related to field operations, residents, and logistics. This is part of the reason we decided to raise prices, although we are only partially offsetting those cost increases, as John mentioned. I believe $0.55 is a significant figure to consider.

Thank you.

Thanks, Jamie.

Thanks, Jamie.

Your next question comes from the line of Tim Thein with Citigroup. Your line is open.

Thank you. I wanted to revisit the earlier discussion about order timing, specifically regarding MP. There have been very strong bookings for the segment overall, but I'm interested in the crushing and screening area. Typically, order growth at the beginning of the year is strong as it precedes the construction season, since dealers and customers prefer to have deliveries in advance. I'm curious if some of the 1Q bookings might include preorders due to concerns about longer lead times. Could it be that some orders expected later in the year were pulled into the first quarter?

Thank you. Regarding the MP segment, we noticed an improvement in order activity starting in the fourth quarter of last year, which shows continued momentum. Across all MP businesses, there has been a significant increase in order activity. We closely monitor dealer orders, and while some ordering may reflect longer lead times, which is expected since about 70% of our MP business goes through distribution channels, the primary driver is what dealers observe in their end markets. Our telematics data indicates increased utilization and a substantial shift from rent to own in that channel, prompting dealers to reorder. Despite increased sales, dealer inventory levels are decreasing. Overall, we are optimistic about our position in this business. While there may be some preordering to secure slots, it is driven by actual demand. We are particularly seeing strong market demand related to global infrastructure investments, which is positively impacting our MP business worldwide. Although there might be some preordering, the underlying market fundamentals remain robust, and we anticipate continuous strength and growth as we expand globally. The MP team has performed exceptionally well, succeeding even during down cycles and is expected to excel during up cycles.

Thanks, Tim.

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

Thanks. Good morning, guys.

Good morning.

Hey, Ross.

Can you discuss some of the actions you have taken and are continuing to take with your global sourcing strategy? Specifically, how have these initiatives helped Terex adapt to the current challenges of widespread shortages, increased localization, and overall supply chain constraints? What steps have you implemented to better prepare the company for the next cycle?

One of the major initiatives we've undertaken in recent years has been our strategic sourcing initiative. This has allowed us to strengthen our relationships with our suppliers, which becomes crucial during challenging times. We've increased engagement at senior executive levels and have become a more significant customer for our suppliers. The hard work put into our strategic sourcing initiative has positioned us well with primary suppliers, and establishing secondary and alternate suppliers has helped us navigate the challenges we've faced. The discipline and processes we've implemented are really beneficial in the current environment and will continue to support us moving forward. I want to acknowledge all our operations teams, particularly those in strategic sourcing and logistics. They've done an excellent job managing our supply chain during this challenging period, and the strategic sourcing initiatives we've established over the past few years have proven to be advantageous, positioning us well for future developments.

John, just a quick one to follow-up on that.

Yeah.

Would you say that you have moved more towards single sourcing of critical components to strengthen those relationships, or have you shifted towards dual, triple, or even quadruple sourcing in general?

Yeah. So, it's hard to say in general, because it really depends on which specific commodity of that you're looking at. From a general statement, we look to reduce our single source, if it made economic sense to do that. So, we have increased the number of alternative sources. We have absolutely had to go to those alternative sources in this environment. And so, I don't want to make a general statement because it truly does matter and what type of component, what type of commodity that we're dealing with. But I will say it's a strategic decision by commodity what is our strategy for that respective commodity as we go forward.

Thanks, Rob.

Your next question comes from the line of Brett Linzey with Vertical Research Partners. Your line is open.

Hi. Good morning, everyone.

Good morning, Brett.

Hey. Wanted to come back to some of the cost initiatives and really thinking outside SG&A, you had pointed to the manufacturing example in Telehandlers, localization of production in China. Are you able to quantify what the savings you think those actions are yielding outside some of the SG&A stuff. And then, have you identified additional repositioning opportunities on the footprint?

Thank you. Much of the activity has been in our AWP segment, particularly with Genie. The team has performed exceptionally well, as noted regarding SG&A, and that commitment will persist. Concerning our manufacturing footprint, we've taken steps including the closure of our Rock Hill facility and relocating Telehandler production from Oklahoma City to Mexico, which will provide us with a cost advantage. Additionally, our teams within the manufacturing facilities have excelled in enhancing productivity and optimizing direct manufacturing spend. As volumes increase, we expect that the optimization of indirect manufacturing costs will also support margin improvement. The team is employing a multi-faceted strategy to evaluate all aspects of our cost structure to maintain global competitiveness across all activities, including functional activities performed in the most cost-effective regions worldwide. The team has an all-encompassing plan in place aimed at improving margins, and we are determined to restore the Genie business to its historical double-digit margins over time.

And Brett, while I can't specify an exact dollar amount for the cost savings, looking at some metrics shows that the AWP segment improved by 680 basis points year-over-year in Q1, with an incremental margin of 44% for the full year based on the outlook we provided today, and a 7% operating margin. These metrics highlight the hard work on cost improvement that the AWP team has accomplished.

No doubt. Very strong start. Want to come back to the order book, is the uptake you're seeing driven by existing customers replacing equipment, or are you seeing new customer engagements driven by products or some of the front-end commercial processes? Thanks.

It's a combination of new customer acquisition and the replacement cycle, particularly in the AWP segment. There was a significant decline last year, but utilizations are improving. Customers are starting to rebuild their fleets. Looking at the replacement cycle for the Genie business moving forward, there is a strong outlook for that business. We're going to have to end it at this time. So, we can stop right at the top of the hour. We know you all have other calls this afternoon. So, I would just want to say thank you for your interest in Terex. And a public announcement, COVID-19 safety remains a priority for us here at Terex. We're continuing to follow the safety protocols. And I would strongly encourage all of us to be vaccinated when the opportunity presents itself. We no longer have a supply issue. We have a demand issue with the vaccine. So, we're working hard to convince our team members to receive the vaccine, so we can move to the other side of this pandemic. Operator, please end the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.