Earnings Call Transcript - TEX Q1 2026

Operator, Operator

Greetings, and welcome to the Terex First Quarter 2026 Results Conference Call. Operator provided instructions. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Derek Everitt, Vice President, Investor Relations. Derek, please go ahead.

Derek Everitt, Vice President, Investor Relations

Good morning, and welcome to the Terex First Quarter 2026 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-Picarello, 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 greater 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 hand it over to Simon Meester.

Simon Meester, President and Chief Executive Officer

Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. We're off to a good start for the year, including our new Specialty Vehicle segment, which was in the portfolio for two months of the period and already making a meaningful contribution to the group. We grew sales by 11% on a pro forma basis, including growth in all four segments, led by Specialty Vehicles, which grew 20% compared to the same period last year. Terex Utilities was our fastest-growing business this quarter. The Utilities team is doing an excellent job ramping up production in a very bullish market. EPS increased 18% year-over-year to $0.98 or a 6% improvement with a normalized tax rate. Quarter ending backlog increased to $7.1 billion, which includes strong bookings trends, particularly in Materials Processing, Aerials and Terex Utilities, providing good forward visibility and consistent with our expectations for the year. As a result, we are reiterating our full year outlook and with the recent additions to our portfolio, remain laser-focused on execution and integration, which brings me to Slide 4. The REV integration is progressing as planned. We are executing the same playbook we used for the ESG integration, which we completed ahead of schedule and within budget with synergies above target. For the synergies with REV, we are on track to realize approximately $28 million in 2026 by eliminating duplicate overhead and have line of sight to achieving a $75 million run rate within our 24-month target. With regards to the integration effort, all work streams are at or ahead of schedule. In addition, I'm particularly encouraged by the way the legacy Terex and legacy REV teams are working together, and the two cultures are meshing really well. Last week, the Specialty Vehicles team showcased our 3rd Eye digital solution at the Fire & Emergency Trade show in Indianapolis, and we're very pleased with the level of interest it created. 3rd Eye is an AI-based solution that our Environmental Solutions segment developed for their customers to provide situational awareness around the vehicle and add tangible commercial and operational benefits. It's an integral part of what is now referred to as smart truck technology in the waste collection sector. Our digital team has already developed applications that leverage this technology for utility vehicles, cement mixers and have now added fire and emergency vehicles to their scope. So good progress on the REV integration and the synergies front. We're also pleased with the progress we are making with the strategic review of our Aerials business. We continue to engage with multiple interested 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 continue to update you as the process unfolds. Moving to Page 5. Over the past two years, we deliberately shifted our portfolio's end market exposure to more U.S.-based, resilient and predictable sectors with attractive growth profiles. As a result, Terex is far less exposed to global macro dynamics and trade policy than in the past. Based on pro forma 2025 results, about 80% of our revenue was generated in North America, of which roughly 85% was manufactured in the United States. Our end markets are more stable and our supply chain is more durable. Touching briefly on our primary verticals. Demand for fire and emergency vehicles continues to be strong. We are making strategic investments to improve production efficiency and increase capacity in key areas such as ladder trucks, where we are increasing capacity by 35% at our Ocala, Florida plant. And in South Dakota, we're increasing capacity for the pre-engineered S-180 pumpers. Both investments will help to reduce lead times and with the S-180 pumper, provide our customers with a lower cost alternative that we can deliver in about nine months. In waste and recycling, our customers are indicating that 2026 demand will be more skewed towards the second half, including anticipated prebuys ahead of the 2027 EPA changes. HAL is well positioned to outperform the market again this year due to its product portfolio, production quality and its lead times. We continue to anticipate growth in aftermarket, retrofits and digital sales this year. And of course, the long-term fundamental growth drivers for the segment remain intact. Utilities is poised for strong growth for 2026 and beyond as demand on the U.S. grid continues to increase, particularly from data center expansion and AI use cases. Industry forecasts call for 8% to 15% annual CapEx growth through 2030, and we're making good progress with our phased investment to bring 30% more capacity online by the end of next year. And finally, in construction, we see robust infrastructure activity supported by government funding. The pipeline of mega projects provides a tailwind through 2030. MP continues to grow its business in India, and we are starting to see improvements in Europe and Australia, although oil prices can potentially hamper some of that growth given the more vulnerable state both of those markets are currently in. In summary, in the past two years, we have built a highly resilient portfolio of businesses that enable us to navigate short-term macro and market-specific dynamics and deliver on our financial objectives predictably and consistently going forward. And with that, I'll turn it over to Jen.

Jennifer Kong-Picarello, Senior Vice President and Chief Financial Officer

Thank you, Simon, and good morning, everyone. Let's look at our Q1 results on Slide 6. Our operational performance was in line with our expectations. We grew sales to $1.7 billion, an increase of $505 million or 41% compared with the prior year on a reported basis. The growth was due to the merger with REV that closed on February 2 and growth in each of our legacy segments. On a pro forma basis, we grew 10.8%, led by strong growth in Specialty Vehicles, Material Processing and Terex Utilities. Excluding the impact of the merger and the sale of our Crane and related businesses, organic revenue increased 8.1% with increased sales across all legacy segments. Q1 EBITA margin was 9.9%, down 50 basis points versus the prior year, primarily driven by tariffs, which were not in effect in the prior year period, partially offset by improved performance in MP and SV. Interest and other expenses of $44 million was $1 million lower than Q1 last year. And the first quarter effective tax rate was 11%, driven by favorable one-time tax attributes. EPS for the quarter was $0.98, which included approximately $0.10 of one-time tax benefit when the Q1 tax rate is compared to our 2026 full year expected tax rate of 21%. Our operational EPS improvement was $0.05 compared to last year despite the tariff headwinds. Notably, our current Q1 EPS is based on 96.1 million shares outstanding, up from 66.9 million in the first quarter of 2025. Free cash outflow in the quarter was $57 million, consistent with Q1 last year. Terex's historical cash generation is seasonally weighted towards the back half of the year with first quarter cash outflows reversing as volume increases and working capital unwinds through the remainder of the year. Importantly, our newer businesses, particularly Specialty Vehicles, have a more favorable working capital profile with significantly less seasonality. As a result, our Q1 net working capital as a percentage of sales improved to 16.7% compared to 26% in the same period last year. We also reduced our net leverage ratio to 2.4x and remain disciplined with our capital structure, focused on maximizing value for our shareholders. Please turn to Slide 7 to review our segment results, starting with Environmental Solutions. As expected, sales growth of 3.3% in ES was driven by Terex Utilities as they begin to ramp up to meet strong demand for bucket trucks, digger derricks and products and services. Q1 EBITDA margin of 18% was lower than the prior year due to a higher mix of utilities volume, where margins continue to improve, coupled with lower ESG volume, partially offset by higher synergy realization. Turning to Slide 8. MP had a very good first quarter, growing bookings and sales and expanding operating margin. Sales of $419 million were 18.3% higher than prior year on a pro forma basis or 12% higher, excluding the impact of foreign exchange rates. Growth in aggregates was the primary driver as sales grew in every region. The handling and environmental verticals also grew in the quarter. MP EBITDA margin continued to improve, reaching 15% in the quarter as higher volume, efficiency improvements and pricing actions drove the 310 basis point increase over the prior year. The margin actions and increasing bookings and backlog sets MP up well for the balance of 2026. Moving to Slide 9. Our new Specialty Vehicle segment got off to a great start, generating $436 million of revenue in February and March, representing growth of 20% compared with the same period last year. The growth was a combination of price realization and higher unit deliveries across all product lines, partially due to weather-related delivery timing. EBITDA margin increased by 160 basis points to 14.2%, driven by higher throughput, price realization and improved operational efficiency. Turning to Page 10. Aerials had another strong bookings quarter with 132% book-to-bill, generating a $1 billion backlog, giving us forward visibility as we head into the annual selling season. Sales in the quarter were $469 million, up 4.2% year-over-year, largely due to positive foreign exchange rates. As expected, Aerials EBITDA was breakeven because Q1 is typically a seasonally low volume quarter and due to tariffs, which the business did not incur this time last year. In addition, the business faced some temporary unfavorable mix but expects favorable price/cost dynamics for the remainder of the year. Turning to bookings on Slide 11. Before going into each segment, for Terex overall, Q1 pro forma bookings of $2.1 billion represented 109% book-to-bill ratio and led to modestly higher backlog on a sequential and year-over-year basis. In Environmental Solutions, Q1 bookings were $347 million, slightly lower than prior quarters due to the timing of several large utilities bookings that were recorded in Q4. We expect bookings level in utilities to remain strong, and our focus remains on ramping up throughput to meet demand. On the ESG side, we expect orders to be more heavily weighted to the second half of the year, including additional orders for delivery in advance of the new 2027 EPA regulations. MP bookings of $623 million reflects 38% year-over-year growth on a pro forma basis. While aggregates was the main driver, bookings also increased in concrete, material handling and environmental. MP ended the quarter with $594 million in backlog, up $205 million or 53% versus the prior year, setting it up for strong performance through 2026. SV bookings came in at $501 million. As you can see on the chart, orders can be lumpy in the segment, but overall, the backlog remains elevated, and the team is focusing on bringing lead times down with calculated investments. Finally, Aerials bookings of $620 million in Q1, combined with $971 million in Q4 is 21% higher than the same six months period a year ago. While growth was strongest in North America, we also saw modest growth in EMEA, providing good visibility for the balance of 2026. Now turn to Slide 12 for our 2026 outlook. We are 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 cost to achieve the synergies, purchase accounting adjustments nor other nonrecurring items. Our first quarter performance, booking trends and backlog of $7.1 billion supports reconfirming the full year 2026 outlook that we provided in February. Overall, we continue to expect 2026 sales to grow approximately 5% on a pro forma basis to $7.5 billion to $8.1 billion. We further expect pro forma EBITDA to grow by approximately $100 million or 12% year-over-year to between $930 million and $1 billion or 12.4% EBITDA margin at the midpoint. Included in our EBITDA outlook is approximately $28 million of synergies that we are well on our way to realizing. This is in line with our goal to achieve $75 million of run rate synergies within two years of closing the merger. We continue to anticipate interest and other expenses to be approximately $190 million, consistent with pro forma 2025 based on average debt outstanding of about $2.7 billion. The effective tax rate for the full year is still expected to be 21%. We expect 2026 EPS between $4.50 and $5. Please note, the share count for quarters two through four will be approximately 115 million. For modeling purposes, approximately 25% of our full year EPS is anticipated in the second quarter as we expect profitability in Aerials and Environmental Solutions to improve in the second half. We expect 2026 free cash conversion of between 80% and 90% of our net income. Our net leverage is expected to improve over the course of the year. Looking at our segments, we expect Environmental Solutions to grow mid-single digits in 2026, led by utilities, where we continue to ramp up production to meet strong demand. We expect margin to improve in the second half due to higher volume, including digital and aftermarket, productivity improvements and improved customer mix. We do not foresee a material impact from the recent tariff changes on ES performance. Turning to MP. The strong start to the year and growth in bookings and backlog gives us confidence in our high single-digit pro forma growth outlook for the segment, largely driven by aggregates. We also expect margins to improve through 2026 due to higher volume, productivity and favorable price cost. It's important to understand that mobile crushing and screening equipment, the primary products in the aggregate vertical that we import from the U.K., are not subject to 232 tariffs. Our new Specialty Vehicles segment got off to a great start and with roughly two years of backlog provides very good visibility for the balance of the year. We continue to expect sales growth of high single digits from an 11-month pro forma prior year total of $2.2 billion. We also continue to expect meaningful margin improvement compared to the prior year EBITDA margin of approximately 12.5% due to higher throughput, price realization and ongoing operational improvements. From a modeling perspective, we expect run rate revenue and margins in Q2 and Q3 to be similar to Q1 with a modest seasonal step down in Q4 due to fewer working days. We do not foresee a material impact from recent tariff changes on SV performance. Finally, in Aerials, we continue to anticipate 2026 sales and margin to be similar to 2025. We have good visibility with over $1 billion in backlog following back-to-back quarters with strong bookings. Margins are expected to improve sequentially in the second and third quarters with higher volume, price realization, favorable customer mix and disciplined cost management. Even with a higher impact of tariffs versus last year, we expect Aerials to be largely price/cost neutral for the full year. With Q1 behind us, healthy backlog and fleet utilization, we expect the business to have bottomed and start its path to cyclical recovery. In summary, given that we are only one quarter into the year and there are macro variables that we do not control, we believe it is prudent to hold our 2026 outlook at this point in time. We will obviously refine our outlook as the year unfolds. Please turn to Slide 14, and I'll turn it back to Simon.

Simon Meester, President and Chief Executive Officer

Thanks, Jen. We delivered a solid start to 2026 with strength in Materials Processing and Utilities and a strong initial contribution from our new Specialty Vehicles segment. Integration execution is progressing as planned, and we are on track to deliver our synergy commitments. Our portfolio is more resilient and predictable with greater North America exposure and less sensitive to macro volatility and tariff changes than in prior years. Our teams are focused on disciplined execution against our strategy and our annual plan as we build on the progress that we've made to date. And with that, I would like to open it up for questions. Operator?

Operator, Operator

Operator provided instructions. Your first question comes from the line of Angel Castillo with Morgan Stanley.

Angel Castillo Malpica, Analyst (Morgan Stanley)

Just wanted to start, you delivered a very solid Q1 here in EPS. You had very strong bookings and improving margins in all the segments. And yet, you chose to hold the full year guidance constant. Jennifer, I know that you qualified it as prudent, but curious, is this primarily a function of macro tariff uncertainty or just more about conservatism? And then curious if you could add to the extent that there is conservatism in the guide, where are you seeing most areas of uncertainty within the business? Or where do you see the most room for upside risk in terms of the segments or the products?

Simon Meester, President and Chief Executive Officer

Angel, thanks for the question. The short answer is, as Jen said in her prepared remarks, that it's much more about discipline and timing than any change in how we feel about the fundamentals of the business. We're very pleased with how the year started. Q1 execution is strong, bookings and backlog improved, and we are seeing good momentum across the board. That said, we're only one quarter into the year. We're operating in an environment that still has a fair amount of uncertainty around macro conditions and tariffs. And so we believe that at this point, it's most prudent to confirm the outlook that we set in February, which already contemplated solid growth and margin expansion and synergy realization. We feel it reflects our confidence in delivering those commitments while also allowing us to see a bit more conversion and volume flow through the system. Importantly, nothing that we've seen year-to-date has changed our confidence in the underlying trajectory of the business. As the year progresses, we'll gain additional visibility, and we'll continue to evaluate the outlook based on how we execute and how things evolve at the macro level. For now, we think reaffirming is the right and responsible approach.

Angel Castillo Malpica, Analyst (Morgan Stanley)

That's totally fair. As a follow-up, Simon, I was hoping you could unpack the backlog and bookings trends a little bit more. First, curious how orders have progressed through your segments in March and April. I think you just noted that there's maybe nothing changed so far, but a little bit more color on that. Also if you could expand on the MP bookings and backlog, I think that's the strongest we've seen in a couple of years. Can you talk about what you're seeing in terms of demand there and whether that was more of a one-time step-up or if it's a continuation that you anticipate in terms of demand?

Simon Meester, President and Chief Executive Officer

We're very encouraged by the bookings in MP. We think there's strong momentum. MP is mostly a dealer model. We see fleets at a healthy level. We see utilization at a healthy level. We see RPOs coming back in, which were a little delayed in the last couple of quarters, but we are seeing the RPOs picking back up. So we're very pleased with the momentum that we see building in MP, and we expect that to carry forward in the remainder of the year. We're pleased with the bookings in Aerials. We've got now six of the nine months covered. With some of that price/cost coming our way for the remainder of the quarters, we feel good about where that's going. On ES, very strong Environmental Solutions bookings, continued bookings in utilities, although the dip in Q1 was mostly because we had bookings that we thought would drop in Q1 that moved into Q4 with Terex Utilities, so they were a bit lumpy. Secondly, we see the center of gravity for ESG bookings more in the second half tied to new product introductions, fleet replacements and potential prebuys. That explains a bit the booking pattern in ES. SV continues to be strong on bookings, although as lead times gradually and slowly start to improve, we expect bookings to start to come down at some point because as you can see from our appendix in the earnings deck, our backlog in that business has been going up consistently for the last three years. As an industry, we've been very focused on bringing that down, hence the investments I spoke about in my prepared remarks. So we should see bookings come down at some point in SV and see us working that backlog down. Bookings are a strong story this quarter and particularly encouraging in MP and Aerials where we see some early cycle signs. We see some independents picking up in Aerials, which is typically a sign that there might be some early cycle momentum building that we're encouraged by for the year.

Operator, Operator

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

Kyle Menges, Analyst (Citigroup)

Great. I was hoping if you could just talk about any changes to how you're thinking about margins across the segments for the year and tariff impacts. I think you said in the press release fairly negligible, but are tariffs at least somewhat of an incremental headwind weighing on the guide?

Jennifer Kong-Picarello, Senior Vice President and Chief Financial Officer

Right. This is Jen. On Aerials, given the great performance in Q1, we expect a further step-up in the margin profile in Q2 and Q3, driven by the higher volume support of our backlog and the higher bookings and also favorable mix and price/cost favorability in that segment. So we expect that to go up further. On ES, we expect Q2 to be very similar to Q1. Our Q2 margin profile will continue to be driven by utilities. Then we expect a meaningful step-up in the margin profile in the second half versus the first half, driven by ESG book-to-bill, as Simon referenced. We expect higher-margin digital and aftermarket to drop through into the second half. Utilities continue to drive throughput at our Waukesha and Birmingham installed facilities and continue to ramp up. For SV margin, we expect Q2 and Q3 run rate to be very similar to Q1 and then a marginal step down in Q4 due to fewer working days and customer inspections. In Aerials, we expect Q2 to have a natural step-up driven by seasonal demand. We expect Q3 a further step-up driven by favorable customer mix, favorable capitalized variances and cost actions. Then Q4 is a natural step down driven by seasonal lower demand, partially offset by realization of additional cost actions. For Aerials, Q1 was price/cost unfavorable. For the rest of the year it is price/cost favorable, which leads to a full year price/cost neutral outcome.

Kyle Menges, Analyst (Citigroup)

Got it. I'm just curious your confidence level in Aerials being price/cost favorable for the rest of the year with maybe some incremental tariff impacts. Curious if there's any ability to get additional price or getting some help perhaps from a higher mix of independents? Would love to hear that.

Jennifer Kong-Picarello, Senior Vice President and Chief Financial Officer

From a sequential standpoint, I don't see additional headwind from tariffs. The change in the 232 calculation is largely offset by the IEEPA going away. For Aerials, we have six months of backlog and can see the margin profile of that backlog. We see a favorable customer mix in our backlog and pipeline. So we are very comfortable with the price/cost favorability for the rest of the year.

Simon Meester, President and Chief Executive Officer

Good forward visibility on price, cost and mix is what's giving us confidence in the step-up in margin scenarios.

Operator, Operator

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

Mircea Dobre, Analyst (Baird)

Great to hear that tariffs are not having much of an impact. But I'm curious as to how you're managing inflation more broadly. We're seeing it in material costs, energy, freight and components. Where are you today versus where you were when you initially issued this guidance from an overall cost standpoint? What are you doing to be able to maintain positive price/cost like you talked about earlier? Is this a function of additional pricing adjustments on your end or other operational actions we should be aware of?

Jennifer Kong-Picarello, Senior Vice President and Chief Financial Officer

In terms of our cost inflation, CPI index changes usually have a three to six months lag due to our hedging program and vendor contracts that are locked in for three to 12 months ahead of time. Commodity inflation is baked into our current outlook. The main risk from a cost inflation standpoint is higher inbound freight costs for some international routes. From a mitigation standpoint, SV already baked in 6% to 8% of value-added price in backlog, which covers CPI inflation based on delivery lead times. SV also has commercial chassis on a pass-through pricing mechanism so it doesn't impact us materially. MP and ESG are more of a book-to-bill business right now given the normalization, which means that if we cannot mitigate the cost ourselves, we have the ability to flow them down as a surcharge. Our 2026 guidance already conservatively accounts for known energy and commodity headwinds. With North America representing more than 80% of our revenue, where energy inflation is more moderate and end market fundamentals remain robust, we feel well positioned to manage energy price volatility in 2026 without any material downside risk to our current outlook.

Mircea Dobre, Analyst (Baird)

Understood. My follow-up on Materials Processing: very good order performance there. Is this a function of dealers finally starting to restock? If so, relative to history, where do you think this process is? How many more innings do we have in terms of dealer restock? How do you separate that from actual end-user demand at this point?

Simon Meester, President and Chief Executive Officer

It's a little bit of both. End-user demand is picking up, particularly in the United States. We've had the tailwind of mega projects for some time. Data centers and infrastructure are driving more mobile crusher applications. That sentiment drives dealers' willingness to replenish. We also see RPO conversions picking up, which convert rental demand into procured units. So it's a mix of better end-user demand, improving sentiment and fleets being in a healthier position.

Operator, Operator

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

Timothy Thein, Analyst (Raymond James)

First question on the Specialty Vehicle segment with a bit more time under your belt owning REV. Any notable takeaways that inform you about the outlook for the business and the prospect for synergies as you look out? A brief update on REV would be helpful.

Simon Meester, President and Chief Executive Officer

We're very excited. They've had a good start to the year, though it's only two months under our ownership. We had a slightly better start than anticipated because weather in January delayed final inspections and shipments into February, which boosted February and March compared with what we expected. That's why we guided high single digits for the segment even though the first two months were double-digit growth. The focus is on production output and quality, which the team has been driving for several quarters, and we want to help them maintain momentum. We're also encouraged by synergies beyond corporate overhead—operational synergies in the supply chain are meaningful and the synergy pipeline is building. We have eight or nine work streams to integrate the business, and they are progressing well. It's been a strong first couple of months and we're excited about what the business brings to the group.

Timothy Thein, Analyst (Raymond James)

A follow-up on Apptronik. You invested in Apptronik some years ago. Remind us of your ownership stake and how, if at all, you're leveraging that technology within your operations?

Simon Meester, President and Chief Executive Officer

Apptronik is a humanoid manufacturer and we invested because we believed humanoids would have applications in warehousing, manufacturing and job sites. Our stake has appreciably increased in value over the last couple of years. We have an active technology pipeline with Apptronik. We launched our first prototype of a zero gravity arm codeveloped by Apptronik and Genie at the CONEXPO show a little over a month ago. It was recognized as one of the five best innovations shown at the show by an industry publication. The zero gravity arm significantly increases safety and allows one person in the platform to install ceiling panels or drywall while the arm holds the material in place and allows manipulation with minimal effort. Customer feedback at the show was very encouraging. Those are examples of what Apptronik brings to our industry and we are pleased with the partnership.

Jennifer Kong-Picarello, Senior Vice President and Chief Financial Officer

Tim, just to add, we account for that investment at cost for accounting purposes, so the valuation you may hear externally is not recorded in our financial statements.

Operator, Operator

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

David Raso, Analyst (Evercore ISI)

Specialty Vehicles: I appreciate the January shipments you didn't own and the benefit you got when they shipped later in the quarter. On a pro forma basis, specialty vehicle revenues for the full quarter look to be about $615 million, $620 million. When you say revenue run rate to be similar to the first quarter, is that the revenue number you're referencing? I want clarification.

Simon Meester, President and Chief Executive Officer

You're not far off on that number. It will probably step up a little in Q2 and Q3, then come down in Q4 because we have fewer working days. But you're not far off.

David Raso, Analyst (Evercore ISI)

The spirit of my question is your ability to bring better throughput to REV's factories was a key aspect of leveraging backlog this year. Why would we not see a step-up? I understand you don't want to change guidance too early, but can you explain why we wouldn't see throughput increases from that Q1 run rate? It would imply the rest of the year has very little growth relative to a year ago.

Simon Meester, President and Chief Executive Officer

We are guiding high single digits for the segment. Typically, about two-thirds of that is price and one-third is unit growth. We do have investments coming online, but most will come online in the fourth quarter and won't have a meaningful impact on 2026. Going from mid-single to high single-digit unit growth is the focus for that business in 2026 into 2027. There's two years of backlog and we expect that to eventually settle closer to a one-year backlog level, which is the sustainable level we're working toward. Units built per day will continue to step up over the course of the year.

Jennifer Kong-Picarello, Senior Vice President and Chief Financial Officer

David, to add, our guidance contemplates the cadence and the investments. Q2 and Q3 run rates are expected to be similar to Q1 pro forma, with Q4 stepping down due to fewer working days.

David Raso, Analyst (Evercore ISI)

From the earlier comments, that's why. Thank you for the clarification.

Operator, Operator

Your next question comes from the line of Jamie Cook with Truist Securities.

Jamie Cook, Analyst (Truist Securities)

Congrats on a good start. Another question on Specialty: I want to be sure I understand margins. You're going to do better than the 12.5% adjusted EBITDA margins for Specialty that REV talked about. Last quarter, you talked about roughly a 30% incremental margin on additional revenue. Is that still the right way to think about it? How are you thinking about where those margins can go longer term? Second, on Aerials: with aerial markets potentially getting better, how is that impacting the bidding process? Does a better market mean more interest and potentially a different timing for a transaction if you're pursuing a divestiture? Would you prefer to wait for stronger markets to maximize value?

Jennifer Kong-Picarello, Senior Vice President and Chief Financial Officer

Jamie, in terms of margin profile for SV, REV had previously committed to a 2027 margin profile and they are on track to achieve that one year in advance. I'm pleased with performance. On a pro forma basis for January through March, EBITDA margin is 13.1%, a 100 basis point improvement versus last year. I expect margin profile to continue stepping up sequentially more than 100 basis points year-over-year throughout the year, even with the Q4 step down. The margin expansion is supported by sourcing initiatives, clawback mechanisms with vendors and centralized sourcing that has already started. At this point, the margin profile I shared does not include any synergies outside of corporate, so I'm comfortable with margin expansion year-over-year beyond Q1 pro forma.

Simon Meester, President and Chief Executive Officer

On the Aerials process: it doesn't change the process. We've always been clear this is a through-cycle discussion and we've engaged multiple parties. Aerials is a cyclical business historically and while the cycle may be inflecting sooner than some expect, the first quarter results and bookings came in as we expected. The process and our view on the outlook remain unchanged, but it's a positive sign to see early indications of a cycle.

Operator, Operator

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

Tami Zakaria, Analyst (JPMorgan Chase)

You mentioned expecting some prebuys in ESG in the back half. How does that impact your view about orders and revenue growth potential for that segment in 2027 after the prebuy-related pickup?

Simon Meester, President and Chief Executive Officer

This business doesn't cycle strongly. The second half may have some prebuys, but we don't see a major uptick that would materially distort 2027. From a fleet expansion standpoint, 2027 looks solid. Also, there is a lot of new technology coming in the second half that we think will drive momentum into 2027. We're not guiding for 2027 today, but we're not concerned that second-half actions will have a material negative impact on 2027. There's positive momentum.

Tami Zakaria, Analyst (JPMorgan Chase)

Related to that, given you're expecting a lot of technology introductions in the back half, should we expect stronger price realization as you price for these enhancements?

Simon Meester, President and Chief Executive Officer

Our approach is market-based and to be price/cost neutral while creating value for shareholders. We will continue to create value for customers; that is what will drive pricing. The business is already operating in the high teens margin and is performing strongly due to efficient factories and well-accepted product portfolios that deliver customer benefits. We'll remain disciplined and market-focused in our pricing approach.

Operator, Operator

Your next question comes from the line of Jerry Revich with Wells Fargo Securities.

Jerry Revich, Analyst (Wells Fargo Securities)

Simon, can you give your latest thoughts on capital deployment? If you complete the Aerials divestiture, what are you seeing in the M&A landscape? How likely is stock buyback versus additional opportunities to expand the portfolio? Can you share updated views?

Simon Meester, President and Chief Executive Officer

I don't want to get ahead of myself. Our immediate focus is integration and execution to deliver on our commitments for the year. We've gone through significant change in the last two years, so completing work streams and building synergies is the priority. Whatever the balance sheet looks like down the road, as always, we'll look at what is best for shareholders. We like the optionality and the optionality is only growing for Terex, which increases our opportunity to add shareholder value. We'll make decisions when the time comes and the tiebreaker will be what's best for shareholders.

Jerry Revich, Analyst (Wells Fargo Securities)

Separately on Specialty, good operating performance in the quarter. From a booking standpoint, what kind of book-to-bill should we expect for Q2 and Q3? What's the cadence based on the awards pipeline?

Simon Meester, President and Chief Executive Officer

Bookings in Specialty are typically lumpy. Overall, we expect bookings to slowly come down as lead times improve and throughput ramps. Trucks put into use grow at a mid-single-digit CAGR, so bookings will evolve as lead times improve. We're planning for where supply and demand will meet to be around a one-year lead time. That is the longer-term plan, though it may not fully normalize this year.

Operator, Operator

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

Simon Meester, President and Chief Executive Officer

Thank you, operator, and thank you all for the questions. Terex is off to a good start to the year and the integration of the legacy REV business is progressing as planned. In less than two years, we have effectively merged three businesses into a single, much stronger company. Given that we're still early in the year and in light of ongoing geopolitical uncertainty, we believe it's prudent to maintain our full year guidance at this time, and we remain firmly focused on delivering against it. I'm particularly proud of the 17,000 Terex team members who make it all possible day in and day out. Thank you for joining us today, and we look forward to speaking with you again next quarter. Operator, please disconnect the call.

Operator, Operator

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