Terex Corp Q2 FY2025 Earnings Call

Greetings and welcome to the Tarek Second Quarter 2025 Results Conference Call. At this time, all participants are in a listen-all 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, Tarek Everett, Vice President, Investor Relations.

Good morning and welcome to the Tarek Second Quarter 2025 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. We are joined today by Simon Meester, President and Chief Executive Officer, and Jennifer Kong, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by a Q&A. Please turn to slide two of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in detail in the earnings material and in our reports filed with the SEC. On this call, we will be discussing non-GAAP financial information, including adjusted figures that we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to slide three, and I'll turn it over to Simon Meester.

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

Thank you, Simon, and good morning, everyone. Let's look at our Q2 financial results on slide seven. Our overall performance in the quarter was in line with our expectations, despite tight monetary policies, changing trade policies, and geopolitical tensions. This is a testament to the strength of the tarot portfolio, that hate wins faced by materials were offset by ongoing strong performance in environmental solutions, supported by MPs delivering on the planned sequential improvements. Protonet sales of $1.5 billion grew 8% year-over-year, or 7% at constant exchange rate. Excluding ESG, our legacy sales declined by 12%, or 13% excluding the impact of FX. consistent with our expectations our operating margin was 11 down 310 basis point year over year consistent with our plan's sequential improvement of 190 basis points stronger years margins offset lower than expected margins and areas excluding esg legacy operating margin declined by 560 basis points driven by volume, Paris, and May, partially offset by SG&A reductions. Interest and other expenses were $44 million, $29 million higher than last year due to interest on ESG acquisition financing. The second quarter effective tax rate was 18.3%, about 170 basis points better than plan due to net favorable discrete items resulting from utilization of certain non-U.S. tax activities. EPS for the quarter was $1.49, which includes a $0.03 benefit from the favorable tax rate. EBITDA was $182 million, a 12.2% of sales. We generated $78 million free cash flow in Q2, which was $35 million better than last year despite lower earnings due to better working capital performance. CSG generated cash well above the interest expense associated with the acquisition financing. We continue to execute our capital allocation strategy, returning value to shareholders while investing for longer-term organically. Please turn to slide 8 to review our segment results, starting with ARIOS. Sales of $607 million were consistent with our expectations in total, but the cuts were mixed with more heavily weighted to our national customers than we anticipated. Independent rental customers are more exposed to smaller interest rates, sensitive projects, compared to the nationals who are benefiting from their greater exposure to the larger projects. Our risk operating margin improves 500 basis points sequentially on better manufacturing absorption. But what's about 200 basis points lower than we expected, largely because of cutting-edge? Turning to slight numbers. NP sales of $434 million were 9% lower than last year. but in line with that expected step-up in Q1. We continue to see high fleet utilization rates in the United States and deal with levels anomalous. However, maximum uncertainty and high interest rates remain a hit-link for rent-to-own conversion, and the European market remain weak, although showing early signs of recovery. NP generated 12.7% of operating margin in Q2, in line with expectation. as cost controls and pricing actions largely upset tariff impacts. This was a 270 basis point sequential, quarter-over-quarter margin improvements from the 10% floor in Q1. Most of the improvement was in the aggregate vertical, while the cranes and handling businesses remained challenging. Please turn to slide 10 to review environmental solutions. Our ES segment had another great quarter, generating 430 million of those with 12.9% year-over-year growth on a pro-forma basis and 8% sequential growth versus Q1. The strong growth was driven by improved throughput and delivery of refused collection vehicles and utilities. ES delivered a 19.1% operating margin, representing a 230 and 130 basis point improvement on a pro-forma basis compared to last year. Utilities benefited from positive customer and product mix and improved operational execution. I look forward to consistent strong performance from this section. Please turn to slide 11. We have strong liquidity and a flexible capital structure with the right mix of secure and unsecured debt, and variable versus fixed-week. As stated previously, we can prepay or reprice a significant portion of the debt, and we do not have any maturities until 2029. We ended the second quarter with $1.2 billion of liquidity consistent with our outlook. We plan to deleverage in the second half of the year as we generate increased cash flow from the operations. We will also continue to invest in our businesses to fuel organic growth and profitability improvement. Returning capital to shareholders remains a priority. In the second quarter, we repurchased $21 million of tariff stocks, increasing our first half total to $53 million. We are also announcing the authorization of a new $150 million share buyback program with $33 million remaining at the end of Q2 from the previous authorization. The new authorization will provide us flexibility to take advantage of market conditions when appropriate. In addition to the buyback, we paid $11 million in dividends in the quarter. Parix is in a strong financial position to invest in our business and execute our strategic initiatives while returning capital to shareholders. Turning to bulking and backward contract as well, our bulking trends have returned to normal seasonal patterns supported by a 19% year-over-year pro-forma growth in the quarter. Aries bulking grew 70% year-over-year, with a sequential decline consistent with historical seasonality. Despite the macro uncertainty, MP bulking grew 24% year-over-year, driven by aggregates, which saw a positive demand uptake in the United States and India. In environmental solutions, bulking reflects a return to normal seasonal ordering patterns, and the healthy backlogs provide strong forward visibility. Our overall carriage backlog sits at $2.2 billion and supports our second half outlook. Now turn to slide 13 for our 2025 outlook. We're operating in a complex environment with many macroeconomic variables and geopolitical uncertainty. And results could change negatively or positively. We're maintaining our full year EPS outlook of $4.70 to $5.10, which now includes $0.50 of net tariff in tax. We continue to expect full-year 2025 sales of between $5.3 billion and $5.5, representing between $200 to $400 million, higher sales than prior due to the acquisition growth of CLG, more than offsetting lower legacy sales. We continue to expect segment operating margin of approximately 12%, resulting from stronger ESG margin and planned sequencer improvements from MPs, which will help offset second-half gatewind scenarios, including the impact of tax. We now expect interest in other expenses of about $170 million and an improved effective tax rate of approximately 17.5% for the full year. From a quarterly perspective, As opposed to our historical cadence, this year, we expect our Q4 ETFs to be higher than Q3, due to the ramp-up of tariff initiation actions and higher Q4 margins at MP, which more than offset the sequentially lower sales volume in average. We continue to expect a significant increase in pre-cash flow compared to 2024, anticipating between $300 million and $315 million in 2025. driven by working capital reduction and a full year of ESG cash generation, while investing in our businesses with expected CapEx of approximately $120 million. Looking at acceptance, we're maintaining our hours and empty sales expectations and increasing our sales outlook for ES. In Arians, we expect full year sales to be in line with our previous outlooks of down to low double digits. We also expect the unstable customer mix dynamics that we saw in Q2 persist in the second half. This, coupled with the timing of terrorist impacts, will put pressure on errors margins in the second half. In NP, our backup coverage, as well as the underlying machine utilization rates, Part consumption and cold activity gives us confidence in our down-high single-digit outlook for the year. We expect MPs to achieve full-year decremental margins well within a 25% target. ES had a great first half, and we expect a strong momentum to continue into the second half. We're increasing our full-year sales outlook again this quarter, and are now expecting full-year sales to be up low double digits. We expect margins to moderate slightly in the second half due to customer and product And with that, I'll turn it back to Simon.

Thanks, Jen. I will now turn to slide 13. Terex is well-positioned to navigate the current dynamic environment and deliver long-term value to our shareholders. We have a strong, more synergistic portfolio of industry-leading businesses across a diverse landscape of industrial segments with attractive end markets. We will continue to improve our through-cycle financial performance as we integrate ESG and realize synergies across the company. As always, I want to close by thanking our team members around the world. We will continue our exciting path forward, building and growing a new terranx. And with that, I would like to open it up for questions. Operator?

Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We kindly ask everyone to limit themselves to one question and one follow-up only to accommodate as many questions as possible. Thank you. Your first question comes from the line of Stephen Bultman with Jeffries. Please go ahead.

Great. Good morning, everybody. Thank you for taking the question. It feels like ES margins especially are the gift that sort of keeps giving. So I wanted to delve into that a little bit. You know, it seems like they've been coming in ahead of your expectations as well as ours. So I'm curious, you know, what's driving that? I think you mentioned some mix in there as well. So is there much difference between utility and refuse and just kind of a little more color on what's driving that?

Hey, good morning, Steve. Yes, so we're very happy with the ESQ2 OP performance, another strong quarter. It's driven by three factors and that 19%. First, we continue to see strong throughput in ESG driving the operational efficiencies and favorable factory adoption, similar to what we saw in q1 we expect that to continue into second half of the year second for the very first time we see that there is better execution and utilities driving operational efficiency which we are also expecting to see that in the second half of the year now the discrete item that happens in q2 is related to the favorable customer and the product mix in utility, which we do not expect to recur in second half of the year.

Okay. Any color, I think you said maybe moderates in the second half, but kind of what does that mean in your mind?

So, moderate means probably like a percent lower, just the second half of the year.

Yeah. The favorable mix in Q2 is not expected to come back in Q3 and Q4.

Understood. Thank you. I'll pass it on.

Thanks, Steve. Your next question comes from the line of Nick W with Bayard. Please go ahead.

Thank you for the question. Good morning. And I guess where I would like to start is with your updated EBITDA guidance, maybe a little bit of color in terms of what drove the $20 million adjustment. And I heard you talk about tariffs and mitigation maybe into the fourth quarter.

Maybe you can help us understand exactly what your plans around mitigation would be um presumably that's not all pricing related there there might be something else that uh we should be aware of in there as well hey make good morning um i'll take the first question on the ev sign i'll i'll hand it over to um simon to talk a little bit about the tariff mitigation so our 20 million lower um ibiza is driven by you know a couple of puts and takes the very first one And of course, with a stronger outlook in ES, driving more margin. But it's largely offset by the unfavorable makes that we see in areas in Q2, and also we expect for the rest of the year. And then coupled with the higher tariffs.

Yeah, and when it comes to mitigation and tariffs, so our story is we are really dependent on trade deals with basically four markets, the UK, the EU, China, and Mexico. So two of those, or three of those four are pretty much locked in, and we've all read the headlines on China, so we'll see what comes out of that. But we're getting more and more firm on what our tariff is going to be going forward. And then in terms of mitigation, so yeah, we're still in that 40, 50 cent ball uh ballpark if you will and holding pulling our outlook but yeah we started the year um by by pulling in some supply just pulling it forward because we we knew that you know there was risk of tariffs coming and so we pulled material forward we pulled some fgi forward and then ever since you know we like like you would expect we've been working very hard with our suppliers to to absorb as much as they could. And obviously also looking at alternative supply solutions options, including re-engineering or insourcing, making it ourselves and other cost-out actions. And then obviously in our toolbox that, you know, is one of the tools that we're using, but the preferred option is to just work it out with our supply chain.

Okay, then my follow-up is on AWP. I guess I'm curious as to how you think about margins within the context of what you just said here for the second half of the year. It sounds to me that we should be thinking margins down relative to what you've been able to put up in Q2. And I'm also curious as to how comfortable are you with this implied top line guidance for the back half? Because if I do the math right, it seems to imply it's something like down this single digits, and yet, you know, backlog continues to erode, at least in theory, you should have quite a bit of pressure on production in the back half of the year. So, I know it's kind of a lot in this question, but I appreciate it.

Thanks for the question. I'll take the backlog part, and then I'll let Jen start with the margin outlook.

Right. And so, on the margin outlook, look, we clearly, for areas of going through some challenging times. I do want to re-emphasize that despite all the, I would call it, the very, the channel adjustments that we made, and now the Trump tariffs in Q2 is still a step up versus a Q1 of a 500 basis point of sequential margin improvement. For the rest of the year, what we're expecting is that the Q3 OP will be a mid-single digit, a step down versus Q2, largely driven by the Trump Paris. Second, the lowest sequential volume in Q3 versus Q2. And then the third is the unsavorable customer mix that we see in Q2 to proceed for the rest of the year.

Yeah, and then on the backlog coverage, so we ended the second quarter with a little over four months of backlog coverage in aerials. We're now approaching August, so we have pretty good forward visibility of what the rest of the year looks like. We are firmly back to normal seasonality with higher booked bill in our traditional higher booked bill in Q4 and Q1. and fueled by higher sales in Q2 and Q3. The nationals are strong, obviously, as you know, because of their exposure to large projects. Booked bill on independence did not quite come in as strong as we expected in Q2. Fleet's still healthy, a healthy project pipeline. Main driver is replacement demand. We do see some recovery happening in Europe, which gives us which gives us confidence and other pockets of uh you know like africa middle east are strong um so with what we're currently seeing in the backlog uh we we feel pretty confident about that aerials outlook for the remainder of the year all right thank you thanks nick your next question comes from the line of david draco with evercore partners please go ahead Yeah, hi, thank you.

The ES backlog coverage is big, and we appreciate that. But back to MP and Ariel, I just want to make sure now that we're sort of back into the normal coverage, I mean, Ariel's a little higher than historical norms. But as you said, right, these conversations for 26, can you give us a sense of the customers, their sense of timing when they're willing to engage in conversations. I'm just curious, you know, obviously people have spoken about uncertainty ad nauseum for months now, but given some of the trade agreements, the passage of the legislation on bonus depreciation and thinking about next year broadly, can you give us a sense of those conversations right now? Is it a level of uncertainty or are they pushing the timing of engaging in orders back or maybe not?

I'm just curious, the tone on 26, given we're back to normal coverage and that can include mp as well ariel yeah i would say larger customers stick to their cadence uh and so we we typically start those negotiations in this quarter in q3 and will typically end in q4 sometimes spills over in q1 normal cadence there normal normal discussions As I mentioned, fleet utilization, quite where we would expect it to be. Smaller customers are a little bit more hesitant, and especially when you get into Tempe, which tends to be a book to build business anyway. Those are kind of just ongoing discussions, if you will, and there's definitely still some caution. And so far, I've been talking about North America. In Europe, we do see the narrative changing and gets a little bit more upbeat, started actually at Bama earlier in the year, and we see more and more kind of momentum building. I wouldn't call it quite a V-shaped type of recovery that we're anticipating, but definitely we do see Europe slowly kind of coming around in both aerials and in NP.

The conversations, though, anything about replacement demand levels versus this year, any sense of timing or maybe pushing back even a little bit more on even with tariffs, push them back on price. Just some early vibe of how they're discussing it versus historical norms. And then, Kim, real quick, the comment about EPS in the second half, is it sort of $1.25 than $1.35, like the comment of fourth quarter a little higher? Is that roughly the right way to think about that comment? 25 or $1.35 fourth.

Yeah, thanks, Dave. I'll talk about replacement demands. Yeah, normal discussions on replacement demand in aerials. In MP, we actually see some signs of fleets aging a little bit in certain sub-segments within MP. And so what we are working on actually is trying to avoid we get back into that same pattern where all of a sudden everything needs to be replaced and then we get into a supply issue again. So we're having those discussions right now to make sure that the fleet doesn't age too much on the MP side. And that's mostly, that's especially in handling, but also in aggregates. But in aerials, very normal kind of replacement.

And David, good morning. So, yes, for Q4, we're expecting that Q4 EPS to be slightly higher than Q3. I would call it, you know, 10-20% higher than Q3 just because of the timing of our mitigation actions and our cost recovery actions as well.

I appreciate it.

Thanks, David. Your next question comes from the line of Tammy Zakaria with JPMorgan. Please go ahead.

Hey, this is for Tami. Thanks for taking my questions. So, you know, I want to get some incremental updates on NP. I believe margins are expected to sequentially rise over the remaining balance of the year, you know, getting absorption under control. You've got some customer mix, positive business mix, and crushing and screening.

I just want to confirm this is still on track and any other incremental updates on NP and sort of what you're hearing on the ground in Europe or any any green shoots would be great thanks yeah so we definitely some gradual sequential improvement in MP and it's expected to continue into the second half obviously there is still caution in the pipeline if you will you know trying to gauge what what tariffs is going to do to demand what rates are going to do to demand, but definitely what we are assuming is a continuous gradual sequential improvement. As I mentioned earlier, we do see healthy fleet utilization in NP across the board in both North America and the EU, so the fleet is working, and this is the kind of machinery that you can't sweat too long because it's being heavily used. we do see rental conversions extending that's why i mentioned that you know fleet is aging a little bit beyond historical norms because there's still a little caution in converting but yeah we are back to basically normal coverage and with what we're seeing in terms of booking cadence is is we're confident in that kind of sequential gradual improvement in our outlook well i'll let Do you want to weigh in on margins?

So the margins, exactly what Simon mentioned, skewed towards the Q4 due to the higher factory absorptions and also some favorable geographical mix. You're welcome.

Your next question comes from the line of Kyle Menges, which is the group. Please go ahead.

Thank you. I was hoping if you could elaborate just on changes to the assumed tariff impact. It looks like last quarter you had assumed $0.40 impact for the year, now assuming $0.50. So it would be helpful maybe if you could unpack what you were assuming last quarter, what you're assuming now, or I guess tariff rates and mitigation efforts.

Perfect. Hey, good morning, Kyle. So if I could just walk from last outlook of the $0.40 to current outlook of the $0.50, it's largely driven by three factors. First, in our $0.50, we have included the EU reciprocal tariffs increasing from 10% to 15%. And as what Simon mentioned earlier, that deal has been signed. Second, it also includes secondary tariff impacts higher than what we have originally expected in April. And third, it also includes the 232 still tariff doubling from 25% to 50%. When we add all of those three factors together, that offsets the lower China reciprocal tariff that we have assumed back in April.

Great. That's helpful. And it would be helpful to hear just that you expand on trends you're seeing really in North America, material processing. Yeah, I guess what you're seeing, aggregates and material handling. And, I mean, any early discussions with customers that have pointed to maybe more of a willingness for customers to come to the table to look at a new machine with bonus depreciation going back up to 100%?

Yeah, we see in North America still a little bit of caution, especially in smaller projects, but there's a lot of tailwind from the mega projects, and we expect that to continue for several years. We definitely expect that to continue to be a good guy for us. But then another thing that we see ramping up very clearly is transmission and distribution jobs. which is – and we believe we're still at the beginning of the growth cycle there. So we see a lot of upside in utilities, which will obviously, you know, help our outlook for ES. But overall, it's a little bit of a – yeah, stronger manufacturing construction, strong in data centers, strong in infrastructure. We see transmission and distribution coming online, and we see a lot of upside there. and then obviously a lot of strength in waste and recycling. Aggregates is still a little bit on the fence and replacements being pushed out. And that's a little bit of a function of interest rates and just overall confidence and sentiment in the market. And then the last one I would call out is probably concrete. We see our concrete mixers continue to get good bookings. They get a lot of pull from infrastructure jobs and construction jobs. We had a high booking year in Concrete Mixers last year, and they're holding up that booking profile for this year. So that's kind of the mix as we see it in North America.

And then I guess just any early indication that bonus depreciation is driving customers to come back to the table to order a new machine.

Yeah, I mean, the way we look at it, obviously it puts cash in the pockets of our customers, And that's always a good thing. And so for us, it's not a question of, you know, if it will eventually lead to incremental investments, it's more when. So we think that most companies are just trying to figure out what the cash benefits are going to be, what the tariff headwinds are going to be. But at some point, we assume that that will lead to incremental investments. The key question is, I don't personally expect a lot of upside in play for 2020. Got it.

Helpful. Thank you. Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Thanks for taking my question, and good morning. You mentioned on the independents that you expect them to remain cautious. So just kind of tying in with a lot of this discussion we've been having, I guess, how would you characterize the risk into the second half If OBB, VA, I guess, doesn't necessarily kick in until maybe 26 in terms of demand, what's kind of the risk here that things actually may be worsening a little bit or that customers on the independent side choose to kind of postpone purchases to more next year given we're kind of this far into the construction season already?

Well, we are back in our normal seasonality, so that's obviously one factor. The other one is, yeah, so we do see a continuation of strong demand coming from larger jobs, especially infrastructure, manufacturing, data centers. Data centers continue to be very strong, and we see upside in manufacturing construction as well. And then on top of that, as I mentioned earlier, we clearly see some early signs of transmission and distribution jobs starting to come online pretty soon. On the flip side is just the smaller local private projects. And, yeah, we did see an uptick in inquiries and starts, and we'll have to see if that translates in spend. And that's the big question, and it might be tied to what's going to happen with interest rates, but it's mostly a confidence factor, and we need to see if that confidence factor is going to kick in or not.

Understood. Thank you. And two quick ones on MP, if I could. Just on the One Big Beautiful Bill or some of these changes, any desire or kind of changes in incentives to actually move some of this production in MP, perhaps, to North America, given some of the changes? And then given your comments around in terms of renting, conversion to buying, just curious, I guess, is there anything – is a choice to kind of continue to rent and not convert as quickly? Is that simply just interest rate or macro kind of demand uncertainty near term? Or is this a bigger question of kind of customer's preference here?

No, I would say on your second question, it's mostly interest rate driven and overall sentiment. Just a little uncertainty on what's going to happen in the second half, and that's causing a little bit of that delay in conversion. Definitely not a change in profile as we see it. And if you think about mobile crusher, our mobile crushing business, the reason we like that business is because that's where the market is going. It's a much more flexible product. It's a product that you can, you know, you can have it travel with the job and it just gives customers a lot of flexibility and typically they will want to own the rent. So we don't see the profile changing per se. It's mostly just the confidence factor. And then on your first point, yeah, there's also a cash benefit for us, which we have included in our 300 to 350 outlook. We are constantly assessing our footprint. We have been making some changes, but we want to see the current dynamics stabilize a little bit over the next six months before we get a little bit more firm on what we're going to do with footprint and where and when.

Thank you. Thank you. Your next question comes from the line of Michael Fedger with DEC of America. Please go ahead.

Yeah, thanks, guys. Thanks for putting me in. when we're talking about tariffs you mentioned section 232 with steel is that impacting the cost profile in the second half or does that start to filter more into 2026 i'm just trying to understand because i think you guys do some hedging on the steel side for that and just my my follow-up question just on the esg side um you know good performance just are you seeing any changes in the order ordering and purchasing uh plans from your customers with maybe trying to get in front of tariffs or if tariffs are impacting any of their kind of quarterly or yearly cadence in terms of how they're kind of doing their plea buying.

Thank you.

Yeah, thanks for the questions. I'll ask Jen to weigh in on 232, and I'll take the bookings question.

Right. Hey, good morning, Michael. So I just want to mention on the bill, on your question of the bill, we do not have material impact from a still inflation perspective because we do not import raw stills and 70% of what we use is HRC and approximately half of our second half of the year consumption is really hatched like you said is a very favorable rate and our second half the year future price at it stands right now that we can is only at most one to 2% inflation versus current rates or rates, so it's in material. And the imported still as part of our, you know, parts import is really part of our 50 cents guide.

Yeah, and on the ES bookings, yeah, we see strong demand for both ESG and utility products on top of the eight months backlog coverage that we have. But bookings came in line with this time last year, especially when you take the shorter lead times into account. Historically, Q2 is the softer booking quarter for this segment. In a normal year, most negotiations will complete in Q4 and some in Q1. And so we were expecting and are expecting for the backlog to continue to come down and return to more normal levels as lead times continue to improve. But overall demand profile very strong for both ESG and utilities. With the current coverage and what our customers are saying, we have good line of sight to the second half of 2025 in their first take on 26 customers are very deliberate and their cadence around fleet replacement fleet management but also fleet upgrades and what we like is that we just continue to see esg performing really really well because of their competitive lead times but also because their overall competitive value prop you know the technology that they bring to this space is really making a difference and what we like about this business is that that's where the market is moving as well so we're moving towards where the puck is moving and that really sets us up for the long term for a really a nice run here and then the last point i want to make within this segment we also see utilities growing taking share the ious and public power companies are upgrading their fleet to maximize uptime and we see significant upside coming uh transmission and distribution jobs uh going forward so overall very bullish on that on that segment thank you your next question comes from the line of steven ferger with keyback

capital markets please go ahead hey thanks good morning if i heard correctly esg margin will be about 100 basis points lower in the back half, which I guess full year high 18% range. Understanding that mix can move around quarter to quarter, is that how we should think about normalized run rate for the time being, or do you think that that picks up as we go into next year just from synergies and operational efficiencies?

Hey, Steve. Yes, you're right. about second half of the year, about, I would call it 1%, a higher basis point, lower than first half of the year. But we continue to expect that the operational efficiency, highest throughput with a fixed cost structure in those ESG and utilities that happened in Q1, favorable to us to continue for the rest of the year. And, of course, the customer mix and product mix sometimes, but it does change over the last second half of the year. but currently that's not in our outlook. You talk a little bit about the synergies. Yes, so currently just now Simon talked about that we're running ahead in terms of our synergies, annualized more than $25 million. That hasn't really dropped to entirely in this year, and that will be realized next year, and you would see that in the OP.

Got it. Okay.

And then, Simon, just a quick one. you talked about third eye and digital revenue streams uh i think you said there's other digital revenue streams you envision in the future can you talk a little bit more about that yeah as i as i mentioned in our uh opening remarks so we are uh now bolting uh third eye technology onto our concrete mixers and our utility trucks and there's there's a lot more coming, but, you know, whatever helps operator safety, whatever helps, you know, vehicle productivity, vehicle efficiency, health monitoring, there's just a lot of use cases that we're exploring with Third Eye, and it's a real gem in the portfolio. And, you know, it really does what, it really does intrinsic value, adds intrinsic value who are very pleased with the momentum that we have in Third Eye and we see more use cases coming.

So, yeah, you said there's a lot more coming. Does that mean you're expanding the Third Eye product specifically, or there's a lot more digital revenue streams outside of Third Eye that you think are on the drawing board?

I would say both. So we see our Third Eye offering expanding and we see the use cases.

I've got it. Okay, thanks.

Thank you. The next question comes from the line of Team 10 with Raymond James. Please go ahead.

Thank you. Good morning. I just had a question, if I heard correctly, what the higher expected EPS in the fourth quarter into the third, I believe, Jen, you cited MP margins. I'm just curious if you could maybe, if I heard that correct, maybe expand on that.

Is that product mix you have in the backlog that you see shipping? is it um well anyway i think it's somewhat counter to seasonal trends and the fact that that's called out as a driver i just i just wanted to clarify that in terms of what's supporting that hey tim good morning so yes our q4 eps is going to be higher than our q3 i would call it you know 10 to 20 higher and that's driven by three things first is like i mentioned earlier the tariff mitigation actions is going to flow through more in Q4 versus Q3. Second is the timing of our tariff cost impact is largely in Q3 and less in Q4. And then finally, yes, I did mention about the MP, the sequential improvement in the margin profile driven by better factory adoption and also favorable geography makes.

Got it.

Okay. And then just a small one, but the reduction in the tax rate from 20 to 17 and a half, I don't know, as we think about it, with ES being U.S. accounting, ES driving more U.S. profitability, is that a run rate to think about for 26 or or not um just curious yeah yeah sorry go ahead yeah so of course um we're not guiding 26 at this point in time but our 17.5 percent of full year revised outlook here um are driven by discrete items and it's looking forward you know we expect our etr to normalize of course in that

ballpark of 19% range as we fully utilize our global tax attributes. I think while ES margin is coming higher, we also are doing very active tax planning.

Understood. All right. Thanks a lot.

You're welcome.

Thank you. There are no further questions. I would now like to turn the call back over to Simon Mister for closing remarks.

Thank you, operator. So if you have any additional questions, please follow up with either Jan or Derek. And with that, thank you for your interest in Terex. Operator, please disconnect the call.

Ladies and gentlemen, that concludes today's conference. You may now disconnect your line.