Terex Corp Q2 FY2025 Earnings Call

Greetings, and welcome to the Terex Second Quarter 2025 Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Derek Everitt, Vice President, Investor Relations.

Good morning, and welcome to the Terex 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 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. 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 3, and I'll turn it over to 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 have 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. Materials Processing executed well, delivering strong sequential growth and margin improvement. Looking ahead, we are 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 Terex 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 4 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. Genie 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. Telehandlers 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 aggregates product lines are produced in Northern Ireland, which is part of the United Kingdom. As we anticipated, the U.K. reached agreement on the 10% tariff rate, consistent with our previous outlook. Approximately 85% of MP's 2025 U.S. sales are generated by products made in the U.S. or the U.K. Cranes and material handlers are manufactured in the European Union and represent less than 10% of MP's U.S. 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 $0.50 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 5. 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 nonresidential 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. And 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 Terex 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 had represented the majority of our end markets, is now less than one 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 6. 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 3rd Eye digital platform to Advance Mixer and Terex 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. 3rd Eye 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 Terex portfolio. The real picture is a Terex Utilities Hi-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, Terex 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 ahead 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 7. 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 Terex portfolio, but headwinds faced by Aerials were offset by ongoing strong performance in Environmental Solutions, supported by MP delivering on the planned sequential improvement. Total net sales of $1.5 billion grew 8% year-over-year or 7% at constant exchange rates. 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 points year-over-year, consistent with our planned sequential improvement of 190 basis points. Stronger ES margins offset lower-than-expected margins in Aerials. Excluding ESG, legacy operating margin declined by 560 basis points, driven by volume, tariff and mix, 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 planned due to net favorable discrete items resulting from utilization of certain non-U.S. tax attributes. EPS for the quarter was $1.49, which includes a $0.03 benefit from the favorable tax rate. EBITDA was $182 million or 12.2% of sales. We generated $78 million of free cash flow in Q2, which was $35 million better than last year despite lower earnings due to better working capital performance. ESG 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 organic growth. Please turn to Slide 8 to review our segment results, starting with Aerials. Sales of $607 million were consistent with our expectations in total, but the customer mix was more heavily weighted to our national customers than we anticipated. Independent rental customers are more exposed to smaller interest rate sensitive projects compared to the national who are benefiting from the greater exposure to larger projects. Aerials operating margin improved 500 basis points sequentially on better manufacturing absorption, but it ended up basis points lower than we expected, largely because of customer mix. Turning to Slide 9. MP sales of $454 million were 9% lower than last year, in line with our expected step-up from Q1. We continue to see high fleet utilization rates in the United States and dealer stock levels normalize. However, macro uncertainty and high interest rates remain a headwind for rent-to-own conversion, and the European market remained weak, although showing early signs of recovery. MP generated a 12.7% operating margin in Q2, in line with expectations as cost controls and pricing actions largely offset tariff impact. This was a 270 basis point sequential quarter-over-quarter margin improvement from the 10% floor in Q1. Most of the improvement was in the aggregates 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 sales 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 refuse collection vehicles and utilities trucks. ES delivered a 19.1% operating margin, representing a 230 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 segment. Please turn to Slide 11. We have strong liquidity and a flexible capital structure with the right mix of secured and unsecured debt and variable versus fixed rate. 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 Terex stock, 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. Terex is in a strong financial position to invest in our business and execute our strategic initiatives while returning capital to shareholders. Turning to bookings and backlog on Slide 12. Our bookings trends have returned to normal seasonal patterns, supported by a 19% year-over-year pro forma growth in the quarter. Aerials booking grew 20% year-over-year with a sequential decline consistent with historical seasonality. Despite the macro uncertainty, MP bookings grew 24% year-over-year, driven by aggregates, which saw a positive demand uptick in the United States and India. In Environmental Solutions, bookings reflect a return to normal seasonal ordering patterns and the healthy backlog provides strong forward visibility. Our overall backlog sits at $2.2 billion and supports our second half outlook. Now turning to Slide 13 for our 2025 outlook. We are operating in a complex environment with many macroeconomic variables and geopolitical uncertainties, and results could change negatively or positively. We are maintaining our full year EPS outlook of $4.70 to $5.10, which now includes $0.50 of net tariff impact. We continue to expect full year 2025 sales of between $5.3 billion and $5.5 billion, representing between $200 million to $400 million higher sales than prior year due to the acquisition growth of ESG more than offsetting lower legacy sales. We continue to expect segment operating margin of approximately 12%, resulting from stronger ESG margins and planned sequential improvements from MP, which will help offset second half headwind scenarios including the impact of tariffs. We now expect interest and 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 EPS to be higher than Q3 due to the ramp-up of tariff mitigation actions and higher Q4 margins at MP, which more than offset the sequentially lower sales volume in Aerials. We continue to expect a significant increase in free cash flow compared to 2024, anticipating between $300 million and $350 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 our segments, we are maintaining our Aerials and MP sales expectations and increasing our sales outlook for ES. In Aerials, we expect full year sales to be in line with our previous outlook of down low double digits. We also expect the unfavorable customer mix dynamics that we saw in Q2 to persist in the second half. This, coupled with the timing of tariff impact, will put pressure on Aerials margins in the second half. In MP, our backlog coverage as well as the underlying machine utilization rate, parts consumption and quote activity gives us confidence in our down high single-digit outlook for the year. We expect MP to achieve full year decremental margins well within our 25% target. ES had a great first half, and we expect the 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 mix. 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 Terex. And with that, I would like to open it up for questions.

Your first question comes from the line of Stephen Volkmann with Jefferies.

It feels like ES margins, especially, are the gift that sort of keeps giving. So I wanted to delve into that a little bit. It seems like they've been coming in ahead of your expectations as well as ours. So I'm curious 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.

Yes, so we're very happy with the ES Q2 OP performance and 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 the second half of the year. Second, for the very first time, we see that there is better execution in utilities driving operational efficiencies, which we are also expecting to see in the second half of the year. Now the discrete item that happened in Q2 is related to the favorable customer and product mix in utilities, which we do not expect to recur in the 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 moderating probably like 1% and lower, just the second half of the year.

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

Correct.

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

I would like to begin with your updated EBITDA guidance and could you provide some insight into what led to the $20 million adjustment? I heard you mention tariffs and mitigation as we approach the fourth quarter. Can you clarify your plans regarding mitigation? I assume it's not solely related to pricing; there may be additional factors we should consider.

I'll take the first question on the EBITDA, and I'll hand it over to Simon to talk a little bit about the tariff mitigation. So our $20 million lower EBITDA is driven by a couple of puts and takes. The very first one, of course, with a stronger outlook in ES driving more margin, but it's largely offset by the unfavorable mix that we see in Aerials in Q2 and also we expect for the rest of the year and then coupled with the higher tariffs.

Yes. We are heavily reliant on trade agreements with four main markets: the U.K., the EU, China, and Mexico. Currently, three of these markets are stable, while developments regarding China remain uncertain. However, we are gaining clarity on our tariff expectations moving forward. Regarding mitigation, we continue to estimate costs in the range of $0.40 to $0.50 and maintain our outlook. At the beginning of the year, we proactively secured some supply due to potential tariff risks, pulling materials and finished goods inventory ahead of time. Since then, we have been diligently collaborating with our suppliers to maximize their absorption capabilities and exploring alternative supply solutions, including reengineering, in-sourcing, and other cost-saving strategies. Price adjustments are also a tool we are utilizing, but our preferred approach is to resolve these issues collaboratively with our supply chain.

Okay. My follow-up is on AWP. I'm curious about how you assess margins in light of your earlier comments for the second half of the year. It seems we should expect margins to decrease compared to what you achieved in Q2. I'm also wondering how confident you are in the implied revenue guidance for the second half. If my calculations are correct, it suggests a decline in the mid-single digits, and given that the backlog is continuing to decrease, you should face significant production pressure in the second half of the year. I realize that's quite a lot to ask, but I appreciate your insights.

Thanks for the question. I'll address the backlog part and then let Jen discuss the margin outlook. On the margin outlook, we acknowledge that Aerials is facing some challenges. I want to emphasize that despite the channel adjustments we've implemented and the Trump tariff in Q2, we still achieved a sequential margin improvement of 500 basis points compared to Q1. Looking ahead, we anticipate that the operating profits in Q3 will be in the mid-single digits, which is a decline compared to Q2, mainly due to the Trump tariff, lower sequential volume in Q3 compared to Q2, and an unfavorable customer mix that we experienced in Q2, which will carry on for the remainder of the year. Yes. As of the end of the second quarter, we had just over four months of backlog coverage in Aerials. Now that we’re nearing August, we have a clear view of the rest of the year. We're back to our usual seasonal trends, with a higher book-to-bill ratio expected in Q4 and Q1, driven by increased sales in Q2 and Q3. The national accounts are performing well due to their involvement in large projects. However, the book-to-bill ratio for independents was not as strong as anticipated in Q2. Our fleet remains healthy, and we have a solid project pipeline, primarily fueled by replacement demand. We are noticing some recovery in Europe, which gives us confidence, and other regions like Africa and the Middle East are also performing well. Based on our current backlog, we are optimistic about the Aerials outlook for the rest of the year.

Your next question comes from the line of David Raso with Evercore Partners.

The ES backlog coverage is big, and we appreciate that. But back to MP and Aerial, I just want to make sure now that we're sort of back into the normal coverage, I mean, Aerial is 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, obviously, people have spoken about uncertainty ad nauseam 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 as Aerial.

Yes. I would say larger customers stick to their cadence. And so 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 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 MP, which tends to be a book-to-bill 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. It gets a little bit more upbeat, started actually at bauma 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 MP.

What are the current conversations regarding replacement demand levels compared to this year? Is there any sense of timing or a possibility of delays, especially with tariffs affecting pricing? Can you provide an early indication of how discussions are evolving in relation to historical trends? Also, could you briefly comment on the expected EPS in the second half? Is it in the range of $1.25 to $1.35, with the fourth quarter anticipated to be a bit higher? Is that an accurate way to interpret your earlier comments about $1.25 to $1.35 for the fourth quarter?

Thank you, David. I will discuss replacement demand. We are seeing some signs of fleet aging in specific subsegments of MP. We are currently working to prevent a situation where a sudden need for replacements leads to supply issues again. Our discussions are focused on ensuring that the fleet does not age too significantly on the MP side, particularly in handling and aggregates. Meanwhile, in Aerials, we are having typical discussions about replacement demand.

David, so yes, for Q4, we're expecting that our Q4 EPS to be slightly higher than Q3. I'll call it, in that 10%, 20% higher than Q3 just because of the timing of our mitigation actions, and our cost recovery actions as well.

Your next question comes from the line of Tami Zakaria with JPMorgan.

I would like to get some updates on MP. I believe margins are expected to increase sequentially for the rest of the year as absorption is managed. There’s a favorable customer mix and positive business trends in crushing and screening. I just want to confirm this is still on track and hear any additional updates on MP, as well as what you're experiencing on the ground in Europe or any signs of recovery.

Yes, we are seeing a gradual improvement in MP, which is expected to continue into the second half of the year. However, there is still some caution in the pipeline as we assess the impact of tariffs and rates on demand. We anticipate ongoing gradual improvement. We are observing healthy fleet utilization in MP across North America and the EU, indicating that the fleet is being utilized effectively. The machinery is being used heavily, which limits how long it can be underutilized. Rental conversions are extending, leading to an aging fleet beyond historical norms due to caution in conversions. However, we are returning to normal coverage levels, and based on current booking trends, we are confident in the outlook for sequential gradual improvement.

Great. So the margin is exactly what Simon mentioned, skewed towards the Q4 due to the higher factory absorptions and also some favorable geographical mix.

Your next question comes from the line of Kyle Menges with Citigroup.

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 for, I guess, tariff rates and mitigation efforts.

Perfect. 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 tariff increasing from 10% to 13%. And as what Simon mentioned earlier, that deal has been signed. Second, it also includes secondary tariff impact higher than what we have originally expected in April. And third, it also includes the 232 steel tariff doubling from 25% to 50%. When we add all of those three factors together, that offsets the lower China reciprocal tariffs 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 in really in North America material processing. Yes, I guess, what you're seeing in 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%?

We observe some caution in North America, particularly regarding smaller projects, but there is significant momentum from larger projects that we anticipate will persist for several years. This will serve as a solid indicator for us moving forward. Additionally, we are noticing a clear increase in transmission and distribution jobs, and we believe we are just at the onset of a growth cycle in that area. This presents considerable opportunities in utilities, which will positively influence our outlook for Engineering Services. In general, the sectors of manufacturing, construction, data centers, and infrastructure are performing well. We see transmission and distribution projects coming into play, providing further potential for growth, along with noticeable strength in waste and recycling. However, aggregates remain somewhat uncertain, with fleet utilization and equipment replacements being delayed, influenced by interest rates and the overall market confidence. Lastly, in concrete, we continue to see strong bookings for our concrete mixers, driven by infrastructure and construction projects. Last year was a record year for concrete mixer bookings, and this strong demand is continuing into this year. That's the general landscape as we perceive it in North America.

Got it. 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?

Yes, we see it as beneficial for our customers as it puts cash in their hands. Our perspective is not whether this will eventually lead to additional investments, but rather when it will happen. Most companies are assessing the cash benefits and the challenges posed by tariffs. At some point, we anticipate this will result in more investments. The main uncertainty is the timing; I don't expect significant benefits in the second half of the year, but it could definitely influence activities in 2026.

Your next question comes from the line of Angel Castillo with Morgan Stanley.

You mentioned on the independents that you expect them to remain cautious. So just kind of tying in with a lot of the discussion that we've been having, I guess, how would you characterize the risk into the second half if OBBBA, I guess, doesn't necessarily kick in until maybe '26 in terms of demand? What's kind of the risk here that things actually maybe worsen 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, yes, we do see a continuation of strong demand coming from larger jobs, especially infrastructure, manufacturing, data centers. Data centers continues 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, it's just the smaller local private projects. And yes, we did see an uptick in inquiries and starts, and we'll have to see if that translates in spend. 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 that we need to see if that confidence factor is going to kick in or not.

Understood. I have two quick questions regarding MP. First, regarding the One Big Beautiful Bill and the recent changes, do you have any plans or changes in incentives to potentially move some of this production in MP to North America? Second, in light of your comments about customers being cautious about converting rent to buying, I’m curious if the decision to continue renting instead of converting quickly is simply due to interest rates or near-term macro demand uncertainty, or is it more about customers' preferences for owning the equipment?

I would say regarding your second question, it's mainly driven by interest rates and overall sentiment. There’s some uncertainty about what will happen in the second half, which is causing a delay in conversion, but we don't see a change in the profile. In terms of our mobile crushing business, we like that sector because it aligns with market trends. It’s a more flexible product that can be transported easily, providing customers with significant flexibility. Typically, customers prefer to own these assets rather than rent them. So, we don't anticipate any changes in that profile; it's primarily about confidence. As for your first point, there’s also a cash benefit for us, which is part of our $300 million to $350 million outlook. We are continuously evaluating our operations. We’ve made some adjustments, but we want to wait for the current dynamics to stabilize over the next six months before finalizing our plans on operations and timing.

Your next question comes from the line of Michael Feniger with Bank of America.

When discussing tariffs, you mentioned Section 232 related to steel. Is that affecting costs in the second half of the year, or will its impact become more apparent in 2026? I'm trying to understand, as I believe you have some hedging strategies for steel. Additionally, on the ESG front, you've had good performance. Are you noticing any changes in your customers' ordering and purchasing plans in light of tariffs, or are these tariffs affecting their quarterly or yearly plans regarding fleet purchases?

Yes. I want to mention that regarding steel, we do not experience a significant impact from steel inflation because we do not import raw steel, and 70% of our usage is hot rolled coil. Additionally, the consumption for the second half of the year is contracted at very favorable rates. Currently, the future price for the second half is only showing 1% to 2% inflation compared to current spot rates, which is negligible. The imported steel included in our parts is reflected in our $0.50 guidance.

Yes, we are experiencing strong demand for both ESG and utility products, along with an eight-month backlog coverage. Bookings this year are consistent with last year, particularly considering the shorter lead times. Typically, Q2 sees softer bookings for this segment, with most negotiations concluding in Q4 and some in Q1. Therefore, we anticipate the backlog will gradually decrease and return to typical levels as lead times improve. The demand for ESG and utilities remains very strong. Based on our current coverage and customer feedback, we have a clear view extending into the second half of 2025 and initial indications for 2026. Customers are being thoughtful in their approach to fleet replacement, management, and upgrades. We are encouraged by the strong performance of ESG due to competitive fleet times and overall value proposition, as their technology is making a significant impact. This aligns with market trends, positioning us well for the long term. Additionally, we observe growth within the utility sector, with IOUs and public power companies enhancing their fleets to optimize uptime. We expect considerable opportunities in transmission and distribution projects moving forward. Overall, we are very optimistic about this segment.

Your next question comes from the line of Stephen Berger with KeyBanc Capital Markets.

If I heard correctly, ESG margin will be about 100 basis points lower in the back half, which get 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?

Steve, yes, you're right, about second half of the year, about, I would call it, 1%, 100 basis points lower than first half of the year. But we continue to expect that the operational efficiency, higher throughput with a fixed cost structure in both 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 it does change over the last second half of the year, but currently, that's not in our outlook. You talked 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 through entirely in this year, and that will be realized next year, and you would see that in the OP.

Yes, you said there's a lot more coming. Is that mean you're expanding the 3rd Eye product specifically? Or there's a lot more digital revenue streams outside of 3rd Eye that you think are on the drawing board? I would say both. So we see our 3rd Eye offering expanding, and we see the use cases expanding for 3rd Eye.

The next question comes from the line of Tim Thein with Raymond James.

I have a question regarding the higher expected EPS in the fourth quarter compared to the third. Jen, you mentioned MP margins. Could you expand on that? Is it related to the product mix in your backlog that you expect to ship? It seems somewhat contrary to seasonal trends, so I wanted to clarify what is driving that increase.

Tim, so yes, our Q4 EPS is going to be higher than our Q3, I'll call it, 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 in 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 absorption and also favorable geography mix.

Got it. Okay. And then just a small one, but the reduction in the tax rate from 20% to 17.5%. As we think about it, with ES being U.S. accounting and ES driving more U.S. profitability, is that a run rate to consider for '26 or not? Just curious.

Yes. So of course, we're not guiding '26 at this point in time. But our 17.5% full year revised outlook here are driven by discrete items. And looking forward, 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, so.

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

Thank you, operator. So if you have any additional questions, please follow up with either Jen 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 lines.