Operator
Greetings, and welcome to the Terex Second Quarter 2026 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. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Drew Konop, Vice President of Investor Relations.
Good morning, and welcome to the Tarex Second Quarter 2026 Earnings Conference Call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors.tarex.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 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 greater detail in our earnings materials and in 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 hand it over to Simon.
Thanks, Drew. Good morning, and thank you for joining us today. Terex delivered a strong second quarter with revenue of $2.2 billion, increasing 8.5% compared to last year on a pro forma basis. The quarter's performance reflects revenue growth in all segments, improved earnings conversion, and progress against the strategic priorities we've laid out in the past two years. Today, I'll begin with our consolidated performance and the demand backdrop we are seeing across the portfolio. I'll then discuss how each segment is executing against those market conditions before providing an update to our full-year guidance. And Jen will then take you through the detailed financials. At the consolidated level, second quarter performance was supported by revenue growth and improved earnings conversion, both sequentially and year-over-year. Adjusted EBITDA of $269 million increased $26 million, or 10.7%, versus last year on a pro forma basis, driven by meaningful improvements, especially in the materials processing and specialty vehicle segments. bookings increase 25 year-over-year on a pro forma basis our backlog of 6.9 billion dollars provides solid coverage and supports our confidence in the second half and today's updated full year outlook from a macro perspective the demand environment for our business is positive and improving in many of our verticals u.s non-residential construction is benefiting from the ongoing transition of planned projects to new starts, supporting demand across multiple segments. Year-to-date, U.S. non-residential construction start rose 18% to $368 billion, driven by momentum in data centers, energy investments, and civil projects such as bridge, water, and sewage infrastructure. Mega-project starts totaled approximately $80 billion a year to date through May, creating increased opportunities for many of our businesses. Across our end markets, we're seeing higher utilization rates for our products, increasing capital expenditures by our customers, and positive sentiment from channel partners. These indicators in our booking strength support our view that demand is growing in many of our verticals. Looking ahead, policy and infrastructure activity in Washington also provides a promising backdrop, including enactment of the 21st Century Road to Housing Act and introduction of the Build America 250 Act. The timing and implementation of these programs may vary, but the direction of public and private investment is supportive. LP municipal budgets and replacement needs support demand for fire apparatus, ambulances, refuse collection vehicles and related equipment. Within specialty vehicles, during the quarter, the City of Chicago approved the purchase of 80 fire trucks and 40 ambulances as part of its fleet replacement plan. The breadth of our specialty vehicle portfolio allows us to serve communities of all sizes, and because these are essential assets that municipalities replace on a regular cycle, They provide a recurring source of replacement demand. In environmental solutions, long-term demand is supported by a large installed base of refuse collection vehicles, digital and aftermarket activity, and robust transmission demand in utilities. While the segment is navigating a temporary softness in refuse collection vehicles, ESG's second quarter bookings increased first of the prior year, the first year of the year increased since the first quarter of 2025, indicating that a momentum could be building going into 2027. Long-term demand for refuse collection vehicles is intact, including a regular replacement cycle and customer interest in technologies such as automated side loaders, third eye camera systems, and back office software that can improve productivity and safety for our customers and their operators. TRX Utilities is benefiting from demand tied to grid modernization, renewable energy investments, data center related power needs, and storm hardening activities which we expect to support the business over the next several years. In materials processing, the U.S. mobile crushing and screening market is showing growth in fleet utilization and rent to purchase conversions we also saw increased bookings for material handling and concrete mixers which supports our view that the segment's overall demand is broadening in aerials customer demand is supported by non-residential construction activity with customer mix in the quarter skewed toward national accounts that have greater exposure to mega projects turning to execution i believe it is important to point out that after we completed the two largest transactions in our history in just the last two years, both the ESG acquisition and the merger with Rev are trending above their respective business cases to date. Across our new and bigger portfolio, our focus is to convert backlog more profitably, improve throughput, realize synergies, and continue to bring exciting new products to market for our customers. The second quarter demonstrated our progress in all those areas. Starting with specialty vehicles, the REV group integration is proceeding well, and the segment delivered record earnings performance. The teams are executing against the integration plan, and synergy realization is progressing as expected. Our near-term priorities for the segment are to improve throughput, reduce lead times, and expand capacity in targeted product categories. During the quarter, we made significant progress with the expansion of our ladder truck plant in Ocala, Florida, and we're nearing completion of the expansion in Brandon, South Dakota. The Brandon investment is intended to increase capacity of the S-180 semi-custom pumper and further reduce lead times, directly supporting our longer-term growth objectives. We expect the first deliveries from our Brandon expansion within the fourth quarter. In environmental solutions, ESG is making progress with its ongoing manufacturing efficiency improvements in an already world-class facility. In utilities, we are aggressively ramping up shipments to keep up with the accelerating demand and are executing our planned capacity expansion. Utilities also introduced the TRX product line, including four different models with different working heights, eliminating the need for a commercial driver's license. giving our customers more flexibility to operate their fleet. The product line is an industry first with a production unit of a 50-foot aerial on a Class 6 chassis. In aerials, the team continued to navigate tariff headwinds and execute mitigation efforts in their supply chain and improve operational efficiency. As expected, our price-cost position improved in the second quarter, and we believe the full year will be price-cost neutral based on the visibility we have within our backlog and our ongoing cost-out actions. Before turning to our 2026 guidance, let me provide an update on our strategic review of the aerial segment. We are pleased with the progress we are making. We have interest from multiple parties and are working towards an outcome that maximizes value for our shareholders. We do not have any specific details to share at this time, but we will update you as the process unfolds. Based on our second quarter performance, our backlog coverage, and synergy pipeline, we are raising our full year guidance. The increase reflects strong first-half execution overall, increased volume in aerials, and improved performance in materials processing. We now expect sales of $7.9 to $8.2 billion, adjusted EBPA of $960 to $1 billion, adjusted EPS of $4.70 to $5.10. cents. And with that, I'll turn it over to Jen to walk through the financials in more detail.
Thank you, Simon, and good morning, everyone. Let's review our second quarter results, starting with consolidated performance on slide four. Consolidated sales, including the results of specialty vehicles, were $2.24 billion, up $751 million, or 51% as reported. On a poor FOMA basis, excluding the sale of the Queens and Midwest businesses, sales increased $175 million, or 8.5% with growth across each of our segments. Adjusted EBITDA margin was 12% compared to 11.8% on a pro-FOMA basis in a prior year. Adjusted EBITDA increased by $26 million, driven by healthy demand for our products, operational execution, and real-life synergies, and spike up significantly higher tariffs compared to this time last year. Adjusted earnings per share was $1.37, including a net benefit of $8 million from IEPA tariff refunds, plus a one-time unfavorable customs-related accrual. Working capital continues to improve. Net working capital declined to 15.2% of sales, compared to 16.7% in the first quarter and 22.8% a year ago, primarily driven by a merger with Repu. We generated $128 million of operating cash flow and $101 million of free cash flow within the quarter. Net debt ended the quarter with $2.28 billion, including $407 million of cash on hand, and net leverage improved to 2.3x net debt of 12-month adjusted EBITDA. We also returned $20 million to shareholders through dividends in the quarter. Turning to segment performance, starting with environmental solutions on slide five. Environmental solution sales increased by $26 million of 5.9% versus the prior year to $456 million. Growth was driven by strong demand and increased shipments in tax utilities, which more than offset temporary softness in demand for ESG. Despite the temporary unfavorable mix, the segment reported an adjusted EBITDA margin of 17.5%, down 250 basis points year-over-year due to the fourth-mentioned unfavorable mix, coupled with production wrap-up inefficiencies and lower absorption in ESG. Moving to material processing on slide 6, materials processing sales increased 11.1% of $47 million to $464 million, driven by healthy demand, particularly for mobile crashes in the U.S. supported by infrastructure, data centers, and other industrial projects. Adjusted EBITDA margin expanded 440 basis points to 18.8%, reflecting a favorable product needs and price cost discipline. One-time benefits contributed approximately 180 basis points to the margin performance within the quarter. Turning to specialty vehicles on slide 7. Specialty vehicle sales increased $38 million, or 6.2%, to $650 million, driven by improved throughput and fire. As fee adjusted EBITDA margin improved 210 basis points to 14.5% compared to last year, reflecting favorable needs, operational efficiencies, and price realization, partially offset by cost inflation. Turning to ARIOS's slide eight, ARIOS sales increased 10.9% year-over-year to $673 million, driven by demand from national accounts that's supported by mega-projects. Adjusted EBITDA margin was 5.7% in the quarter, down 340 basis points from last year, which had significantly less tariff impact. As expected, areas improved margin sequentially in the second quarter by 560 basis points, reflecting improving price-cost dynamics and a higher production volume. We are on track to be price-cost neutral for the year. The IEPO refunds we receive in the quarter will offset by a one-time unfavorable customs accrual. Please note, Tarex is not accruing for future refunds not yet received. Turning to bookings on slide 9. As Simon mentioned, consolidated second quarter bookings were $2 billion, up $400 million, or 25% year-over-year on a pro-forma basis. In environmental solutions, bookings were $417 million, an increase of 18% versus last year's quarter, mostly driven by utilities. We expect bookings and utilities to be solid for years to come, and our focus is to ramp throughput to meet the accelerating demand. In ESG, bookings were up year over year, which could indicate momentum is building going into 2027. Having said that, given the conversations with our customers and suppliers, we no longer expect a Materia second-half pre-buy of RCVs ahead of 2027 EPA regulations. As a result, we're updating our second-half ES segment revenue outlook to low single-digit Materia's processing second-quarter bookings of $469 million increased 18% on a pro forma While aggregates demand was the main driver, bookings also increased meaningfully in material handling. MP ended the quarter with $599 million of back-well, up $232 million, or 63% year-over-year, supporting an updated full-year outlook of low double-digit sales growth. This implies high single-digit year-over-year growth in the second half. Specialty Vehicle's bookings were $588 million in the quarter, up 9% versus the prior year, led by the previously announced City of Chicago order. Increased throughput drove higher sales and lowered the segment's backlog, as intended. We expect this segment will execute against its backlog, and our outlook remains high single-digit revenue growth for the year. Finally, ARIA's second quarter bookings of $530 million reflect 71% growth versus last year, particularly from national customers type to large funder projects and infrastructure and non-residential construction. ARIA's end of quarter with $914 million in backlog, an increase of $200 million, or 28% versus the prior year. Given ARIA's first half performance, healthy bookings, and backlog visibility, we're updating the full-year outlook to low double-digit sales growth. Now turn to slide 10 for our update to the consolidated 2026 outlook. We're operating in a complex environment with many macroeconomic variables and geopolitical uncertainties, and results could change negatively or positively. The outlook we are providing today reflects our current portfolio and does not account for any costs to achieve the synergies, purchase accounting adjustments, or other non-recurring items. Today, we are increasing our outlook for the year with 2026 sales expected to grow approximately 7.4% at a meet point on a pro-forma basis to a range of 7.9 to 8.2 billion. We now expect pro-forma EBITDA to grow by approximately $124 million, or 14.5% year-over-year, to between $960 million and $1 billion, or 12.2% EBITDA margin at the midpoint. Included in our EBITDA outlook is approximately $28 million of synergies that we're well on our way to realize it. Updated guidance reflects 22% incremental adjusted EBITDA margin conversion at the midpoint, pro-forma, despite a dynamic tariff environment. We anticipate interest and other expenses to approximately $185 million, based on average debt outstanding of $2.7 billion. The effective tax rate for the full year is still expected to be 21%, despite favorability in the first half of the year. We now expect 2026 EPS between $4.70 and $5.10, with slightly more earnings per share in the third quarter and a typical seasonal step-down expected in the fourth quarter. Please note, the share count for the second half will be approximately $114 million. finally we expect to deliver 300 to 350 million of free cash flow in 2026 with that i'll turn it back to simon for his closing remarks thanks jen i would like to thank everyone again for joining today's call just to quickly summarize what we share today we see strong demand from most of the markets we compete in and we see clear momentum from the execution of our strategy.
The rev integration is progressing as planned, our synergy pipeline is building, and the new specialty vehicle segment is improving throughput quarter after quarter. Environmental Solutions is well positioned with its manufacturing know-how, digital offering, and multi-year demand in utilities. Materials processing is executing effectively, and together with aerials benefiting from investments in infrastructure, data centers, manufacturing and overall power generation. We are raising our full year guidance because of the performance we delivered in the first half and the visibility we have in the backlog and the momentum we're building. Taken together, these results demonstrate the strength of the new Terex, a more diversified, more resilient and higher performing company with clear opportunities to grow, improve margins, generate cash and create value. I want to thank our global team members for their dedication, our customers and dealers for their partnership, and our shareholders for their confidence in Terex. And with that, we'll turn the call over to the operator for questions.
Operator
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality if you are muted locally please remember to unmute your device please stand by while we compile the q a roster your first your first question is from the line of mig dobre from baird your line is open please go ahead go ahead thank you very much good morning everyone um maybe uh i would like to start with uh um double clicking a bit on environmental solutions here.
You know, can you give us a little perspective as to what's embedded in that low single-digit revenue outlook, revenue growth outlook, I should say, how you think about the refuse business versus utility? And, you know, I guess the second part here, just the guidance seems to imply compression, revenue compression in the second half. How should we think about the effect that would have on margins for this segment?
Yeah. Good morning, Mick. I'll take the first one and I'll let Jen weigh in on your second question. So yeah, from a top line perspective for the segment overall, obviously strong bookings, 18% year over year, sequential also growth in bookings, 20% versus prior quarter. I know you asked about refuse, but part of environmental solutions is obviously also utilities. We see a lot of accelerating demand in utilities, and we're expanding capacity to keep up. In ESG, which is the refuse collection vehicle business within environmental solutions, we actually saw bookings were up as well year over year and sequentially, and we do see momentum building for 2027. And when we look at that business, we look at booking trends, we look at fleet utilization, we look at telematics, we look at what customers are telling us, and we clearly see that in the first half, maybe even starting late last year, there was probably a little bit too much fleet in the system. It's not that America is producing less waste or that there are less garbage trucks on the road, but clearly there was a little bit of re-syncing that needed to happen between supply and demand, and we think that that happened in the first half and is now mostly behind us as we see bookings coming back up. That's the first piece. The second piece in our initial guide, we assumed there was going to be some pre-buy activity in the second half of 2026 going into 2027 when the new engine emission regulations come out. We now think that that will actually spill over in 2027 as some of those changes are grandfathered and delayed by a couple of months. So we don't see as much of an uptick in pre-buys in the second half as originally assumed. We still think that bookings will sequentially recover. We still think that 2027 is most likely a growth year for refuse. We just see it being delayed by a couple of months because of the delayed in pre-buys. Jen, you want to weigh in on the margins?
Hey, good morning, Nick. So from a margin perspective, we expect, I would say, for Q3 to be very similar based on with Q2, given that it's going to be driven, the top line growth is going to continue to be driven by the utilities, and they have a very different margin profile. But we do expect that from Q3 to Q4 to be a step up in the margins at the segment level driven by favorable product mates, favorable customer mates, and then the inefficiencies that I mentioned in my prepared remarks, specifically in utilities, to be behind us. So those are the big three drivers in terms of the step up in the margin.
I appreciate that. That's helpful. And my follow-up, maybe on specialty vehicles, and this is kind of a bigger picture question. As you're starting to operate this asset and working with the REV team, I'm curious as to what you're discovering in terms of opportunities for either manufacturing efficiencies or being able to use some of the uh the scale that terex has that could could bring to this business on a go forward basis and i i do understand that you you have communicated on the synergies near term and and also the capacity uh additions that you have so my question i guess extends extends beyond that it's possible thank you yeah i'll i'll let jen talk about the synergies but um yeah very pleased with um
how the integration is going it's it's been five months now we're very pleased that they booked a record quarter in terms of EBTA performance and and make you know this business you know the momentum that that team was building and has been building over the you know the last two to three years before we merged with Rev so we were obviously very keen and very focused on making sure we would maintain that momentum, that continuous improvement momentum, if you will. And that's exactly what has been happening so far in the first five months. We, you know, it's the exact same leadership team operationally that runs SV today that was running before the merger. And we continue to improve. We continue to improve throughput. We were up again in units produced in the second quarter. But then to your point, And, you know, with the acquisition of ESG, we think we acquired one of the best specialty vehicle manufacturers in the industry. And so what we see, what our game plan is and has been and will be, is we see that manufacturing excellence in high mix, low volume of ESG now helping Terrix Utilities. So you see Terrix Utilities margins coming up. And we expect that same manufacturing know-how to help SV going forward. You know, at the end of the day, it's all about continuous improvement and continue to try to reduce the number of hours per truck. But the most immediate focus is on just making sure we keep that momentum that we have in SV. And we're very pleased with how the integration is going and how the synergy pipeline is building. Jen, any context?
Yeah, so from a financial standpoint, we committed that $28 million of synergies for the 11 months post-merger, and they are largely corporate, and that's what I said in my previous call. We have realized about 20% of that in Q2, with a very good visibility of converting the remaining 80% in the second half of the year with a sequential stack of quarter over quarter. So like what Simon said, we're very confident of the integration that now translates to synergies that drops through the bottom line.
Operator
Next question, please. Your next question comes from the line of Janie Cook at Truist Securities. Your line is now open. Please go ahead.
Hi. Good morning. I guess two questions. First one on specialty. Can you just sort of elaborate what you're seeing in the firetruck business? I think backlog for total specialty was down about 1%. Your peers are experiencing declines. Just your growth has been better. So if you could elaborate there in terms of backlog orders and the outlook for a fire truck. And then my second question is on aerials. Just try to understand where the margins in the quarter were relative to your expectations. And given we're raising the outlook for aerials, how are you thinking about the setup for margins in the back half of the year?
All right. I'll talk about the fire truck backlog, and then Jen can talk about Aero's margins. Yeah, so quite honestly, Jamie, we want that backlog to come down because obviously our customers are waiting for a very long time for their truck. And we are focusing on ramping up, continuing to ramp up our throughput, which is what we're doing. And we're making another step in Q4 when our capacity in Ocala comes online for ladder trucks and our capacity for S-180 pumpers, which is a low lead time product, if you will, a semi-custom product, when that capacity comes online in Brandon, South Dakota. So, you know, we're pleased with our bookings. As I mentioned, we secured a large order from the city of Chicago. Our bookings continue to grow, but quite frankly, what's more important for us and what you should be expecting, if the backlog is to come down, is that actually our booked bills should stay below 100% in ASV just by the virtue of lead times improving. And that's the mission, is to get our lead times down. And we think a more sustainable number for us and for the industry is to get lead times back to about a year or so. And that's the mission. And we think that that's what the trend will be over the next 24 months or so, where you will see a consistent below 100% booked bill just because lead times are improving.
Hey, Jamie, good morning. on ARIOS questioned, from a margin perspective for Q2, they came in better than expected. As I mentioned in my prepared remarks, in Q2, we took it on favorable customer accruals in ARIOS. Without that accrual, we would have achieved 8.3% of adjusted EBITDA. Overall, it's going to be from a year-over-year perspective, still a relatively top-com because You know, last year, the Liberation Day was actually April, but we didn't really see the P&L impact hitting us until June last year. So it was one month of tariff impact last year versus three months of tariff impact this quarter. What we believe that, you know, it's important that we show from a like-for-like basis with the same kind of tariff impact is a sequential improvement that I mentioned in my prepared remarks of 560 basis point, quarter-over-quarter sequential improvement, and that is despite an unfavorable mix. Like what Simon mentioned, we saw more nationals coming in in terms of our shipments as well for Q2. For the second half of the year, we do expect that we continue to see a quarter-over-quarter improvement in our margin expansion from Q2 to Q3 and a seasonal step down from Q3 to Q4 driven by less scheduled deliveries. We expect that we will be able to continue to drive the improved price cost dynamics such that we are full year price cost neutral for the Aries business. And year over year that take into consideration that with a higher tariff, because this year we'll have 12 months versus last year, seven months, plus the one-time customer approval, that's actually a 17 million statement that we're actually absorbing and driving the cost actions and also price cost neutrality throughout the rest of the year.
Yeah, we just see, we see a lot of positive momentum them in aerials purely from a top line perspective. And we see that continuing into 2027. And so our focus is just on sequential improvement. And that's what the team is delivering at the moment.
Thank you. You're welcome.
Operator
Your next call is from the line of Andrew Castillo from Morgan Stanley. Your line is now open. Please go ahead.
You talked about some of the incremental bookings, largely being from nationals. Just a couple of things. One, what are you hearing from the independence timing or just general kind of demand underlying those customers and the implications that might have to your margins here in the second half? And then separately, are you seeing anything as you think about the nationals in particular as this demand starts to pick up from their capex? any ability to take market share or just general shifts in market share there?
Yeah, so on the independents, and we said we saw the first signs in the first quarter, and we continue to see those in the second quarter, where independents' booking sequentially continue to improve. And as you know, Angel, they're a little bit more tied to private construction and commercial jobs, which tend to be more interest rates and input cost sensitive. And so we'll have to see kind of what the long-term impact is going to be on inflation and so on. And we quite frankly think that Europe is probably in a little bit more of a vulnerable spot where we see some markets kind of hinting with stagflation. We see the U.S. market as being a lot more resilient. And as such, you know, we think that that independent bookings pattern will continue to improve. So that's encouraging. But as Jen said, the nationals just grew faster than we had originally assumed in the first half. And that's where the revised top line guide is coming from. And with that obviously comes a little bit of unfavorable mix. Thanks. Yeah, in terms of market share, we typically don't talk about market share on, you know, on public calls. I do believe in the Gini value prop, and I know I sound biased, but I do believe the team has made tremendous progress with their value proposition, the customer's, you know, centric approach. And I do believe they are on a great run, you know, commercially. So I'll just leave it there for now.
That's helpful. And then I went to 27 dynamics that you mentioned essentially led to the push out of that pre-buy on the refuse. Very good color there. But just curious, those changes, you know, including the penalties or phase kind of rollout of those engines from the OEMs, does that have any implications on, one, your ability to kind of standardize certain, you know, equipment or certain vehicles on the fire side? I think one of the strategies was to be able to, you know, kind of create a more standardized vehicle around some of these new engines. I don't know if it's the X10, but just curious if any implications on the ability to actually deliver on those, on the kind of standardization. And then separately, just as we think about any potential penalties or implications of cost of those engines, does that have any material impact on your financials or is that just all a pass through and any ability to kind of get that across?
So you cut out at the beginning of your question, I assume you're about sv yeah i'm talking just generally about the epa 27 um and the engine implications there to particularly your sv standardization of yeah the equipment yeah so um yeah so as i said um earlier is that we think that that's all kind of you know pushed out a little bit it's not canceled, so we still very much think, and it's confirmed by multiple sources, that the engine switchover will take place in 2027. It will be probably more of a phased approach. Some engines, to your point, like the X10 or some of the other engines, might go sooner or later. It really depends on what engine platform. Yeah, we knew that this was coming for quite some time, and I need to give the legacy rev team a lot of credit that they kind of started designing on where the puck was going and so as those as those engines are being introduced it will actually allow us to further optimize kind of our bill of material and our designs and our commonality so that will be an efficiency gain for us. I think that was the first part of your question. And then, Jen, you?
And, Angel, from a financial standpoint, there's no material impact to tariffs, as what Simon mentioned. And as those benefits will be in 2027, when the EPA regulation gets affected, um the you're right that the cause has passed through from oem so we we don't bear them um in es you know if if and when that that epa gets affected there's some potential benefit again um with regards to suppliers having additional flexibility um no impact from financial centering for areas and mp on this epa regulations just because um they're actually all the proposals on ongoing. So hopefully that helps.
Operator
Your next question is from the line of Tim Tyne at Raymond James. Your line is now open. Please go ahead.
Thank you. Good morning. The first question is just on the MP segment. If we think about kind of the margin progression for the year, I believe the expectation coming into the year was to have sequential margin improvement as we go through the year, but obviously you've got a bit of a bump here in the second quarter. If we exclude the 180 basis point benefit that you called out, is that still a reasonable assumption or were there some factors that may have pulled some of the performance into the second quarter? Just how are we thinking about, you know, the shape for the balance of the year is the spirit of the question.
Hey, good morning, Tim. Yes, we're very pleased with the NP, I would call it not just Q2, by first half of year performance. As you rightfully said, our Q2 year-over-year margin expansion for MP was 450 basis point, excluding the one-timer is still a very strong 270 basis point, year-over-year improvement better than Q1 as well. And that's driven by two factors, mainly on the favorable mix and also in geography mix as well and price cost discipline. As we look into the second half of the year, that would say a normalized EBITDA of like that 17% excluding the Q2 one-timers, I would only see potentially a little bit of marginal step down just because we have seen an uptake in the material handling orders, like what Simon mentioned, and that's from a margin perspective a little bit lower. But overall, still a very healthy margin expansion. We expect that the full year from an incremental perspective without the one-timers for MP to be above our normalized incremental margin.
It's mainly just been a very strong year for MP in terms of execution. They're really executing in a very disciplined manner on price costs. And that's really helping the segment benefiting from the uptick that they're seeing in bookings.
Okay, makes sense. And I get it, Simon, you want to keep the comments tight. But just on the review of aerials, I mean, just as investors think about the potential timing of a potential movement on that, is it any sense for, I mean, is this a 26 event in terms of an announcement or potentially it slips in next year? I'm sure there are a number of factors at play here, but just any sense for the timeline that folks should be thinking about?
Yeah, no, I appreciate the question, Tim. There is no predetermined timeline. We're focused, you know, we're focused on making the right decision and properly go through this review. As I said in my prepared remarks, you know, we're pleased with the progress we're making. We have interest from multiple parties, and we're just laser-focused on working towards what is the best outcome for our shareholders.
Operator
Your next question comes from the line of David Rasso at Evercore ISI. Your line is now open. Please go ahead.
Hi, just a quick clarification on the EPS cadence. Is the thought there sort of just flat sequentially, 2Q, 3Q, and then that step down in 4Q? I just want to make sure I understand the framing, and then I'll ask my question.
Hey, David. Good morning. Based on our revised guidance and outlook, we have really achieved 48% of our EPS in first half of the year. From a quarterly phasing perspective, if you back out the one-time Dutch costum accrual that we have, it's 12.8% of adjusted EBITDA at the Tarex level. So it's fair to say that maybe Q3, very similar kind of profile, and then with a seasonal step down in Q4.
Thank you. When it comes to the guide raise, because we don't have the exact margin guide by segment, when we think of the revenue guide going up $250 million, but EBITDA only up $15 million in the guide. Is that solely a function of the mix? Obviously, aerial margins below the other businesses, but just trying to understand if there are other things that change in your view on margins related to a few months ago. Thank you.
Yes. And David, you're exactly right. The change, the top line growth that you see there is primarily driven by our areas coming up from flat to low double digit and our highest most profitable segment coming down from mid single digit to low single digit. That mixed change is entirely explaining for that drop through in the margin profile. But I would say that, you know, even with the revised guy on a year over year perspective at a Tarex level, we are seeing 22% of incremental margin year over year on a pro forma basis when all our three of our four segments are operating at meet to high double digit of EBITDA, we're on a year-over-year absorbing close to about significantly higher tariff and also the customs accrual. In total, that number is about $19 million. So I would say that that's a very strong performance, 22% incremental full year despite the higher tariffs.
In summary, though, nothing changed negatively in your view. It was truly a mix issue that drove a fairly modest EBITDA bump up for the revenue. Is that a fair conversation?
Exactly. You're right, David.
Operator
Your next question comes from the line of Kyle Menges at Citigroup. Your line is now open. Please go ahead.
Great. Thank you. I wanted to dig into MP a little bit more and specifically international markets which are more important for the MP segment than others and just curious what you're seeing in international markets within MP and any impacts from the Iran conflict and maybe just broadly where would you characterize those markets being at in the cycle?
And then assuming North america is your most profitable market is it fair to to say that as international markets rebound it could be somewhat of an unfavorable mix impact hey kyle uh thanks for the question uh yeah so uh terix obviously has changed quite a bit so 80 plus percent of our revenues now is in north america but to your point two businesses that have european or overseas exposure is mp and aerials But even within MP, North America is the largest market, followed by Europe and then Asia. So the story in MP overseas is Europe started promising in Q1 and then started to cool off a little bit in Q2. It's a little bit of a touch and go. Our take on it is that the European economies are just a little bit more sensitive to the current kind of dynamic environment that we're operating in. It's more of an export economy versus the U.S. being more of a consumer economy. And so an export economy, more sensitive to input cost and rising cost of fuel and inflation and so on. And so we see a little bit of softening, still growth, but a little bit of softening in Europe. But that's baked into the guide that we shared for MP Stopline. India and Australia are the other two large markets. Both of those are actually strong. Australia driven by mining activity and India driven by infrastructure investments. And we have a big presence with MP in India, as you know. But we also have a reasonable presence in Australia. So Australia and India are creative. Europe is a little soft. And then I would say, in terms of margin impact, it's a little bit of a wash. I wouldn't give it a blanket summary that all overseas markets are dilutive. That's not necessarily the case.
Okay, that's helpful. And then on aerials, now that it's gaining momentum, returning to growth, just curious if that might change at all how you're thinking about the strategic fit of that business at all, and maybe if that's helping demand from potential buyers as well.
Not really. This is a strategic review. This has obviously long-term implications where we're not going to let how one quarter evolves versus another, you know, let us guide on how we strategically look at this. Having said that, it's obviously, you know, encouraging to see that aerials is cycling up and it's definitely a good problem to have. But no, it doesn't really impact our long-term strategic view on how we perform one quarter versus the next.
Operator
Your next question is from the line of Steve Volkman from Jefferies. Your line is now open. Please go ahead.
Hi. Good morning, guys. I just wanted to circle back to the capacity additions that you're doing in fire, I guess, and utility. I don't know if there's others happening as well. But when do we sort of expect those to come online and kind of get up to their normal run rates?
I would say 2027 for normal run rates. I would say in utilities, we still have a little bit of unfavorable absorption because we're ramping up. But by the end of the year in Q4, and certainly going into 2027, we should get into that favorable sweet spot in terms of, you know, favorably absorbing the assets that we're putting in place. It's a similar story for Ocala and Brandon, mostly coming online in Q4, getting to their run rates in 2027.
Okay, that's helpful. So is it conceivable then sort of by the end of 27 that we'll be back down to kind of the, I think you mentioned a one-year sort of backlog or lead times for these businesses? Is that possible?
Not in FHIR, no. We won't be there in just one year. But I think that will probably take two years. For us to bring the backlog down by a full year will probably take us two years. But, yeah, I think that's really only the, I think, a sustainable model is where we take lead times down to about a year in FHIR. And that's what we're aiming for.
Okay, great. That's all I got. Thank you, guys. Thanks, Pete.
Operator
Your next question is from the line of Steve Barger at KeyBank Capital Markets. Your line is now open. Please go ahead.
Thanks. As the quarter progressed, I was hearing some more investor concerns about municipal spending. What is the muni-facing sales force telling you about funding and demand visibility for the back half and into next year?
Yeah, great question. Good morning. Yeah, we don't see those concerns. We see consistent patterns, just like it has been pretty much for the last 10 years or so. So we don't see any concerns, any slowing, just a consistent pattern and cadence and sequential growth.
Got it. That's good to hear. And do you track inquiry to order conversion rates? And can you tell me just how that's trending across fire trucks and refuse trucks?
Yes, yes, we do. We actually track that in all of our businesses, not just in fire trucks. um uh typically it's a pretty it's a pretty fixed ratio um and um uh we we don't see that ratio uh going up or down uh if anything it's might might be a tad up but i wouldn't i wouldn't call it material but um the center of gravity on our focus in fire is really on throughput and making sure that we build the trucks that we have in our backlog. You know, that's really where the center of gravity is for this business. It's very much a supply business, if you will. And the center of gravity naturally moves more to kind of demand focus when you get your lead times back in check.
In the meantime, maybe I missed this, But did you talk about trends in standards or semi-custom versus custom?
I did in my prepared remarks that we have been introducing the S180 semi-custom pumper that is being very well received. It's basically a lower lead time, more custom kind of solution for our customers, and that seems to be adopting really well. If your first question is kind of tied to that second question in that particular category, we definitely see an inquiry to booking ratio going up. Got it.
Appreciate the detail. Thanks.
Operator
Your next question is from the line of Jerry Revich from Wells Fargo. Your line is now open. Please go ahead.
Yes, hi. Good morning, everyone. In environmental solutions, the margin performance is pretty good this year, considering the moving pieces on the production cut and capacity adds in utilities. I'm wondering if you can talk about, as you think about the business in 27, can we approach 20% margins as the under-absorption normalizes and as you folks get the returns from the utility capacity ads? How are you thinking about the path to the 20% plus margin targets in this line of business?
Good morning, Jerry. Thanks for the question. You know, obviously, a strong performing segment, and as we mentioned earlier on today, is that we see sequential improvement in ESG, and we see definitely accelerating demand in utilities. And I also mentioned the second data point that, you know, there's been quite some good synergies between the two businesses. And ESG has been a great manufacturer of high mix, low volume products. And that expertise is actually helping utilities to ramp up. And Jerry, you've followed us for a long time. And you kind of know where we were with our utility margins and where we are now. So that's really encouraging. Now, obviously, we're not guiding for 2027. We're not ready yet to guide, but we're very pleased with the sequential progress that we're making in both of those businesses.
And Simon, are you willing to comment on the 20% plus margin target and how much progress you think you'll make towards that in 27?
I think it's a little premature, Jerry. I would prefer to wait for our, when we are ready for our guidance for 2027.
Operator
There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Simon Meester for closing remarks.
Thank you, operator. If you have any additional questions, please follow up with Jen or Drew. Thank you for your interest in Terex. Operator, please disconnect the call.
Operator
This concludes today's call. Thank you for attending.
