Brian Jerome Henry - Terex Corp. John L. Garrison, Jr. - Terex Corp. John D. Sheehan - Terex Corp..

Steven Michael Fisher - UBS Securities LLC Jamie L. Cook - Credit Suisse Securities (USA) LLC Ann P. Duignan - JPMorgan Securities LLC Jerry Revich - Goldman Sachs & Co. Nicole Deblase - Deutsche Bank Securities, Inc. David Raso - Evercore ISI Group Ross P. Gilardi - Bank of America Merrill Lynch Andrew M. Casey - Wells Fargo Securities LLC.

Good day, ladies and gentlemen, and welcome to the Terex Corporation First Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. I would now like to introduce first to this conference call, Mr.

Brian Henry, Senior Vice President-Business Development and Investor Relations. You may begin, sir..

Good morning, everyone, and thank you for joining us for today's first quarter 2017 financial results conference call. Participating on today's call are John Garrison, President and Chief Executive Officer, and John Sheehan, Senior Vice President and Chief Financial Officer.

Following the prepared remarks, we will conduct a question-and-answer session. Last evening we released our first quarter 2017 results, a copy of which is available on our website at terex.com.

Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. All per-share amounts in the presentation are on a fully diluted basis.

We will post a replay of this call on the Terex website under Audio Archives in the Investor Relations section. Let me direct your attention to slide two, which is our forward-looking statement and description of non-GAAP financial measures.

We encourage you to read this as well as other items in our disclosures, because the information we will be discussing today does include forward-looking material. With that, please turn to slide three, and I'll turn it over to John..

Lifecycle Solutions, Commercial Excellence and Strategic Sourcing. Within each area, we are developing capabilities and implementing common processes to increase operating leverage and improve performance across the company. In Q1, we launched an assessment of our global services, parts, and Lifecycle Solutions.

There are areas within Terex where we have best practices today, and there are areas that frankly can be improved. Our opportunity is to leverage our strengths and develop consistently high-performing operations across the company.

Within Commercial Excellence, we focus on deploying sales management and pipeline tracking tools in our global mobile Cranes business in AWP North America. We also launched the process in our concrete business. Common approaches and tools and an emphasis on process discipline are helping us to improve execution on the commercial side of our business.

Our Strategic Sourcing program is up and running. We launched our first wave of sourcing projects in the quarter. Approximately 90 key members from across the company are on Wave 1 teams, and many others are in supporting roles.

We're following a rigorous process to ensure we maximize what we expect to be significant opportunities to leverage our global spend. The actions we are taking with our transformation priority areas are driving substantial change across the company. Turning to slide seven. We have been executing our disciplined capital allocation strategy.

In February, we monetized 7.45 million Konecranes shares for proceeds of $272 million. We retain a 15.5% interest in Konecranes, and two board seats.

As planned, we repaid our senior notes, total principal of $1.15 billion, and issued $600 million of senior notes at a lower rate, locking in that rate for eight years versus the four years remaining on our old notes. We also refinanced our term loans at a lower rate. Our new rates are the lowest in the company's history.

We expect interest savings of approximately $30 million in 2017 and $35 million on an annualized basis, providing savings and stability through 2024. Our new capital structure is sized for our focused company and provides a strong foundation for the future. We're investing in our businesses, building capabilities, and developing new products.

We continue to fund significant restructuring programs that will remove structural costs and simplify the company. Finally, we repurchased approximately 6.5 million Terex shares in the quarter for $201 million. This disciplined allocation strategy will continue to govern how we deploy capital.

At this point, I'd like to introduce John Sheehan, our new Senior Vice President and Chief Financial Officer. John has been with us for just over two months, and we're seeing the benefits from his experience and disciplined approach to leading our finance organization. John is a great addition to our executive leadership team.

John will now take us through our Q1 financial results..

Thank you for that kind introduction, and I look forward to working with many of the folks on this call in the months and years ahead. Turning to slide eight. The financial results in the quarter were broadly in line with our expectations.

Revenue of approximately $1 billion was down about 10% from the prior year, or down 8% excluding the impact of foreign exchange rates. On an as-reported basis, we incurred a loss of $0.57 per share. Accounting for the impact of restructuring, transformation, and other items, our as-adjusted EPS was $0.05 per share.

Our earnings per share includes a dividend from our Konecrane shares of $13.5 million or $0.09 per share. As expected, we consumed cash in the quarter, consistent with our historical pattern as we build for the Q2 selling season. We also funded significant restructuring actions.

We achieved net working capital as a percent of sales of 24.1%, a significant improvement compared to last year. We are benefiting from continued focus in our inventory and trade management activities.

Our growing backlog, which grew year-over-year for the first time in eight quarters, is encouraging, up in each of our business segments and up 10% for the company. Modest improvements in certain end markets and our focus on building capabilities through our Commercial Excellence program are having a positive impact on our order book.

From a guidance perspective, taking into account the impact of the Konecranes dividend and our share repurchase program, we are increasing our full-year adjusted earnings guidance to $0.80 to $0.95 per share. Let's turn to slide nines, and I'll walk you through the adjustments.

We continue to make significant investments to improve the company for the long term. In the first quarter, the net impact of pre-tax adjustments was $96 million. The largest item, $46 million, was the cost of extinguishing our debt, which was required to take advantage of the rightsizing and improvements we made to our debt structure.

The net impact of our deal-related activities was $33 million. Included in this category is the accounting associated with our holdings of Konecranes shares, which included a mark-to-market adjustment and an FX revaluation.

This quarter also included a loss contract associated with the sale of MHPS, fees for the sale of Konecranes shares, various FX gains and losses, and a gain related to our compact German construction business sale.

The remaining $17 million was split between restructuring and related charges incurred primarily in Cranes, and ongoing investments in our transformation program. Slide 10 summarizes the comparative first quarter income statement on an as-reported and on an as-adjusted basis.

Net sales were down 10%, driven by declines of 9% in AWP and 14% in Cranes, partially offset by 11% growth in materials processing. The impact of foreign exchange on sales was most pronounced in MP. Excluding the impact of foreign exchange rates, MP sales grew approximately 16%.

On an as-adjusted basis, our operating margin was 1.5%, compared to 2.6% in the prior year. Lower volume in our AWP and Cranes businesses, and the unfavorable impact of foreign exchange rates, were the primary drivers of the margin compression.

The AWP margin was also negatively impacted by provisions established for a transactional tax issue outside the U.S. On AWP, we remain fully committed to meeting or exceeding our full-year operating margin guidance of approximately 8%.

The margin headwinds at AWP and Cranes were offset in part by margin expansion in MP and the ongoing cost reduction activities. Our interest and other expenses were down sharply on an as-adjusted basis, reflecting the benefit of the Konecranes dividend. With that, let me turn it back to John..

Thanks, John. Before I review our business segments, I'll provide an update on our very successful ConExpo 2017. I was proud of our presence at ConExpo. Terex stood out as a truly global company with a wide breadth of products and services. Twelve of the 40 machines displayed on our 50,000 square foot exhibit were new products.

Seven of those were new to the world, and five were new to the North American market. We introduced our Demag brand of mobile cranes to North America, we highlighted our Genie XC booms, and our MP segment launched the new EvoQuip models in our crushing and screening line. I enjoyed spending time with many customers at the show.

While our customers continue to face challenging markets, their attitude and sentiment was generally positive, which is starting to translate into a growing order book. Starting with AWP on slide 12, I will discuss our segment performance. Please note that the financial highlights, backlog, and book-to-bill information can be found in the appendix.

AWP's first quarter's performance was broadly in line with our expectations. Global sales were down 9%. In North America, the underlying residential and non-residential construction demand is relatively strong, which is helping to mitigate the effects of the replacement cycle that we have previously discussed.

Construction demand is driving better utilization rates for rental customers. However, they are still seeing year-over-year pressure on their rental rates, which causes them to remain cautious with their CapEx. The European market is stable, we saw good growth in Asia, and the South American market remains significantly depressed.

We had two very successful shows in the quarter, ConExpo and ARA. Genie's innovative new products, including the Xtra Capacity line and the hybrid drive system, generated positive customer interest. It is clear that the Genie brand continues to be viewed as a leader in innovation.

Looking forward, we're encouraged by our bookings, up 38%, and backlog of $625 million, which is up 21% year-on-year. Backlog increased in North America, Europe and Asia. Turning to Cranes. Our Cranes segment sales were down 14% from last year, in line with our expectations.

The global crane market remains challenging, but overall it appears to be stabilizing. In Europe, demand for large crawler cranes in the wind energy sector was lower due to the changes in the German energy market. We remain positive in our longer-term view of this sector, but expect caution to prevail in 2017.

In North America, the market remains challenging. Rig counts are increasing with more stable oil prices, leading to higher utilization rates, which is helping to stabilize the market. Sales in Australia and Latin America were up modestly in the quarter.

Our new Demag line of all-terrain cranes continues to make progress in Europe, and was introduced in North America at ConExpo, where it received various favorable customer reviews. As John indicated, we continue to take significant steps to reduce our Cranes footprint and cost structure.

The year-on-year growth in our bookings and backlog are consistent with our view that revenue would decline in the first half of the year and stabilize in the second half. The Cranes team remains focused on meeting its 2017 plan and taking the transformational steps necessary to improve the business for the long term. Moving to Materials Processing.

Our MP segment had an excellent quarter. Sales were up 11%, or about 16% when the impact of foreign exchange is removed. MP grew its operating profit by $9.3 million on an as-adjusted basis, representing a margin expansion of 300 basis points and an incremental margin of 37%.

Growth was driven by our mobile crushing and screening and concrete product lines. Crushing and screening was up in North America and steady in Europe. There are also positive signs in other areas, including certain markets in Latin America, Australia, Japan and Southeast Asia.

This growth came from the aggregate sector, as capital spending on the mining side of the industry remains relatively light. Both our Powerscreen and Terex Finlay brands are recognized as leaders in innovation, driving higher productivity levels in the mobile crushing and screening industry.

This was on display at ConExpo where our new products attracted significant customer interest. Fuchs material handling sales were down slightly in the quarter, and we are seeing signs of a modest market improvement. However, channel inventory is a headwind in the near term. Concrete sales were up again in the quarter, and backlog remains robust.

Our MP segment is a consistent performer and it executes well. And it's positioned to benefit from increased construction spending. In summary, we are encouraged by our start to 2017. There is positive momentum in our order rates and our growing backlog. We will continue to implement our "focus, simplify and execute to win" business strategy.

And with that, let me turn it back to Brian..

Thanks, John. As a reminder, during the question-and-answer session we ask you to limit your questions to one and a follow-up, to ensure we have time to get to everyone. With that, I'd like to open it up for questions.

Operator?.

Our first question comes from Steven Fisher with UBS..

Thanks, good morning..

Good morning, Steven..

On the Aerial Work Platforms business, it looked like there was some incremental margin compression there, and I assume that is going to be reflecting both volume and price headwinds.

How do you think of the margin (20:02) will play out over the course of the year, and what gives you the confidence in the stronger outlook there?.

Thanks, Steven. From an AWP perspective on the revenue side, Q1 was in line with our expectations. The biggest impact on the margins was the year-over-year volume reduction of 9%, which again is consistent with what we were expecting. We did see a change in FX rates; the strong dollar relative to both the euro and the pound impacted us in the quarter.

We are seeing global pricing pressure throughout the world. It's still a very competitive market out there. And also we saw timing-of-use trades in the first quarter. At times, we take large packages from some of the larger customers. So that impacted us in the quarter as well.

And there was also a series of what I call small execution issues that added up in a low-volume, low-margin quarter, it showed up in our decremental margins, but frankly I don't expect the team to allow that to repeat going forward. And we also, in the quarter, we had the two trade shows, ARA and ConExpo.

So I think from a margins standpoint, I'm confident the team is going to recover on some of the execution issues – again, they were minor – and get back to their historical high standards of execution. And then externally, we are clearly encouraged by the backlog and the market sentiment.

So, I think we're confident in our guidance for AWP, and based on the volume and the execution, they'll get back on track for the full year..

Okay. And then, you guys have been doing a lot of work on improving visibility in your sales process and the pipeline funnel.

Do you see – do think there's Q1 booking strength in AWP and Cranes? Does this prove an anomaly, or to what extent do you have evidence from your pipeline visibility that we could see some ongoing strength?.

So, I think, yes. We've been working hard on the commercial excellence program, and really focused on channel management and sales force execution. And where we've launched the program, it started in AWP North America, and uses of technology and things like salesforce.com is helping to drive visibility. We are seeing our KPIs that we track improve.

We launched it also on our Cranes segment. We're not using salesforce.com right now, we're using some other technology so that we could get up and running. And we launched that in Europe. Same thing, seeing greater visibility to the channel, ability to track through the sales process clearly.

And now, we're in the process of rolling that out throughout the rest of the world, both in AWP and Cranes. So we are seeing the benefits of that. We do believe in the backlog, in the order – the order rates, the visibility that we're generating as a result of our commercial excellence program is clearly helping..

So, what does that tell you about the potential for ongoing order strength over the next couple of quarters?.

Again, we are encouraged by how the year has started, in terms of both the backlog and the booking. And so, we'll continue to – but as you know, we're quite seasonal. Q2, Q3 are important selling seasons for us. And so we'll see how the year plays out.

But we are clearly encouraged by what we're seeing in the marketplace, and improvements in our sales execution. So I think those two things give us confidence going forward..

Okay. Thank you..

Our next question comes from Jamie Cook with Credit Suisse..

Good morning. Two questions.

I guess my first question, broadly on the guidance, as we sit here today, when you think about your confidence in your outlook, I mean, is it fair to assume you feel like there is potential for Material Processing and Aerial Work Platforms to surprise on the upside, and that could potentially offset weaker performance in Cranes? I'm just trying to think about the puts and takes.

Then, specifically, I know Steve was asking the question, but can you comment on the order trends that you saw in April? Because there's probably a fair bit of concern out there that the strong orders that we – and backlog that we saw was related to ConExpo and ARA. So, concerns just about a pull-forward of demand? Thanks..

Thanks, Jamie. I'll take the first guide, and I'll let John talk a little bit about the guidance as well, and I'll come back to the overall kind of order rate as we go. Again, we are encouraged by what we've seen in growth in backlog across all three segments. Clearly in AWP and MP, quite strong, but, again, also rebounding in the Cranes business.

Q2 and Q3 are our major selling quarters given the seasonality of our business. Overall, again, we're encouraged by what we're seeing customer sentiment-wise across the three segments. And we need to see that order rate pull through.

Jamie, I don't want to necessarily get into in-quarter forecast, but the sentiment, the order activity hasn't changed fundamentally from what we saw in the March timeframe. I don't want to comment much more beyond that, other than to say it looks consistent with what we've seen earlier in the year.

We do absolutely, as you know, need to see that order follow-through to make any additional changes to our full-year guidance, given the seasonality of our sales in Q2 and in Q3.

John, do you want to comment on the guidance – our guidance?.

Sure. Sure. As we indicated in our comments, we increased our guidance to $0.80 to $0.95 per share on a fully diluted basis for the full year. The components of that guidance range are really three. First is the Konecranes dividend that we received during the course of Q1, $13.5 million.

That contributed $0.09 of EPS in the quarter, and that Konecranes dividend was not included in the guidance that was previously provided back at the Q4 earnings call.

Number two, we did repurchase 6.5 million shares during the first quarter, and we did make additional purchases during the month of April, such that at April 28, we had approximately 98 million shares outstanding.

And therefore, again, the share repurchases were not – any share repurchases were not included in the guidance that we provided at the end of Q4. And so, we factored those share repurchases through the end of April into the revised guidance range. And then lastly, we included the positive Q1 performance that we saw, principally in our MP segment.

And the three – those three components went into our guidance raise. I would say that we are confident in the guidance, both with respect to the company as a whole, and each of the three individual segments. One of the comments you made was about potentially the strength in AWP and MP offsetting potential weakness in Cranes.

I would just comment that with respect to Cranes, that we do expect to incur an operating loss in Q2. That operating loss would be smaller than that which we saw here in Q1. But we will offset that operating loss in Q2 with operating profits in the Crane segment in the second half of the year..

Okay. Thanks, that's helpful. I'll get back in queue..

Thanks, Jamie..

The next question comes from Ann Duignan with JPMorgan..

Hi. Thanks, guys..

Good morning..

Just to make it easy for me mathematically, how much was the share count, the reduction in share count, how much did that add to your guidance, and then how much did the Q1 beat in MP? If you could just give us the EPS impact..

So as I indicated in my first comments, the Konecranes dividend contributed $0.09. The share repurchases, to make your math easy for you, is approximately $0.04, and the remainder comes from operating performance..

Okay. Thank you. I appreciate you're making it easy today. Then my follow-up question is around inventories working capital, significant improvement there in Q1.

Can you talk about the inventory situation in each of your businesses? Where do you feel like you've rightsized inventory? Where do you feel like you still have significant inventories to work down? And then maybe just some comments, you did mention some channel inventory issues, I think for Fuchs.

Just a sense of where we are in supply chain management? Thanks..

Thanks, Ann. Again, I'll go back to last year. We have a very intense focus on managing cash and principal; part of that is around all elements of networking capital. One of which is clearly inventory.

We're all whip in (29:43) finished goods, and so as that I think about the businesses going forward, in the AWP segment I think Matt and his team did really good job managing their inventory down. So we were in a low inventory position coming into the year, based on our forecast. So we felt good there.

We have some inventory on the water, going to Europe, that we'll sell in the second quarter. So from that perspective on AWP, came into the year in a strong inventory position in the sense that we were positioned for the market that we thought we had. On the MP side, again, they're a short-cycle business, Ann.

So from an inventory position, Kieran and the team were in a good place. I would say that the one segment within MP that does have some channel inventory is our Fuchs business. There is some channel inventory, especially in Europe, that we're going to have to work through in Fuchs, but overall the inventory position for MP is quite strong.

And likewise in Cranes, finished good inventory, they had worked that down as the year went through. Channel inventory is working its way through the system. So from an inventory standpoint, I think we feel going into the year in a good position.

And I'll go back to a comment that I continually make about pricing, and the pricing dynamics are challenging in the marketplace. There's no doubt about that. One of the things that we can do as an OEM is not to oversupply the market.

And so we believe we set up our inventory position going into the year to be reflective of the market, and we feel we're in pretty good position going forward..

Okay. Could you dig a little bit deeper just in terms of Crane inventories in the different applications or the different regions? Are we right-sized in oil and gas? Are we right-sized in Europe? Just a little bit more detail, please. Thank you..

Right. Thanks, Ann. And the word I'm kind of working on, on the Crane side, is we are seeing the markets stabilizing. I can't say recovering, but we are seeing stabilizing in the markets, and that also speaks to the inventory level and the sales output.

In Europe, we did see a year-over-year drop in sales that we had forecasted based on the European wind energy, specifically in Germany. North America, on the rough-terrain boom truck side, we are seeing stability there, we are seeing some order inflow on that.

I think that that goes to the stability on the oil prices, so we're seeing some good news there. We did see it, Ann, a pick-up in an area that we have not seen on the Crane side in quite some time, in Australia. And that's a case where they did move through some all-terrain cranes from our German factories, moved through in Australia.

And then Latin America, it remains relatively weak. We've had a couple of sales in southern Latin America, but overall inventory position's okay there, it's just not a lot of – there's just not a lot of sales activity right now in Latin America.

And so that's how I'd describe kind of the Crane side and where we think we stand, from both a market look and an inventory perspective..

Okay; thank you. I appreciate the color. I'll get back in queue..

Thanks, Ann..

Our next question comes from Jerry Revich from Goldman Sachs..

Hi. Good morning, everyone..

Morning..

John, wondering if you could talk about price cost in Cranes and aerial platforms in the quarter.

How much of a headwind was it? And within the context of your guidance, with material cost picking up over the balance of the year, how much do you have to raise pricing in each business to hit the margin profile that you laid out?.

So, in terms of the – as I've said, the global pricing does remain competitive across all three segments; AWP and Cranes are no exception. It was a headwind in the quarter. And so, we're not anticipating – we did not plan on significant pricing activities in the year. We felt it would be a challenging, competitive pricing environment.

In terms of commodity costs and input costs, steel prices did – we did see steel go up in the last half of last year. In the United States, plate prices were up, as well as Europe. Europe was not up quite as much as the U.S. And so, that is a headwind. We do believe that we incorporated that headwind into our guidance at the levels they're currently at.

It is difficult to forecast steel prices. It is a big input cost for ours, but we believe – it is a headwind, but we also believe that we've got it covered to the extent in our guidance.

And, again, on steel, it's going to be interesting to see – last year, the same thing happened, a pretty significant spike early in the first quarter, and then it came down rather significantly as the year progressed, and then spiked back up in late Q4.

So, it – we're following it, and it obviously does impact our input costs, but again, we believe we have most of that covered – that headwind covered in our guide..

Okay. Thank you. And can you talk about what you're seeing in your businesses in Europe? You gave us the revenue disclosure. Can you talk about whether orders have been any better than the reported revenue performance? And can you maybe give us color by business on what you're seeing on the ink-ward (35:23) side? That'd be great..

Yeah. We are – from a Europe standpoint on AWP, sales were down in – sales on the sales side were down in the quarter. But again, I think most of that was really timing of inventory on the water, so we think that'll pick back up. From a order backlog standpoint, Europe and Middle East are up. We're seeing good, strong, stable demand there.

On the Cranes side, in Europe, we did see a decrease in sales, as well as a decrease in some of the orders and backlog. Again, that being principally driven by the wind energy subsidies in Europe impacting that.

On the MP side, we did see growth in Europe, both in Western Europe and relatively flat in Eastern Europe and Middle East, but we did see some growth in the MP business in Europe. So overall, up in AWP, down slightly kind of in the Cranes side, which we anticipated from the backlog order standpoint, and up in MP..

Okay. Thank you..

Our next question comes from Nicole Deblase with Deutsche Bank..

Yeah, thanks. Good morning..

Good morning, Nicole..

So, I just want to go into the guidance, and explicitly within each of the segments relative to you original outlook, has there been any reshuffling? And then as the second part of that question, how much confidence do you have in your original expectation for Cranes to have a margin of about negative 2% for the full year?.

Okay. I'll take the first one, on the guidance and I'll come to the Cranes. Again, we are encouraged by what we're seeing. We did not change the segment guidance, other than what John stated in terms of the MP over-performance in Q1. So that we rolled into the guidance increase that we had.

John, do you want to comment on that?.

the Konecranes dividend, the share repurchases, and then the positive performance, the excellent performance that we saw from our MP business here in the first quarter. We did not change the guidance with respect to any of our individual segments for the calendar year, as we indicated during our prepared remarks and John indicated a few minutes ago.

We'll have much better visibility to the calendar year after the second quarter, our strongest quarter of the year. And therefore, we left the segment guidance on – each of the individual segments' guidances unchanged. But I will tell you, we are fully committed to achieving each of those guidance levels..

Okay..

So, Nicole, let me walk you through – this is important as we think about Cranes. And obviously, there's a tremendous amount of work in restructuring going on in our Crane segment. And first, on the encourage side, we did see the increase in bookings and the growth in backlog which we needed to see.

Remember, we think that first half of the year is going to be kind of down mid- to high-teens compared to 2016, and then flatten out to 2016 levels. And the year right now, I would say it's playing out that way from a bookings and backlog growth standpoint.

The next thing that we would like to point to is the work of the restructuring is starting to take hold, and you are seeing it now. Unfortunately it's in decremental margins; I'd rather talk about incremental margins. But on the decremental margin side, if you look at Cranes at Q1 of 2016, we had a 35% decremental margin.

And in this quarter, again, it's decremental, but that was reduced down to a 15% decremental margin. So you're seeing the impact of some of the activities that Steve and the team are taking around SG&A, footprint, the closing of Waverly and Waukesha last year.

We do believe, as the production stabilizes and we get some better order visibility, that we're going to see improved productivity and absorption in the second half from our plants.

Once they've got some stability in the backlog and what they're building, we think that will transcend to a little bit better productivity performance across the plants, OKC and Zweibrücken explicitly. And then, we also have better product mix in the second half. We've got some larger cranes that we've booked that we'll deliver in Q2, Q3 and into Q4.

And so, that product mix gives us better visibility to some better profitability as we go forward. So as we lay out Cranes through the year, it's a challenging start, but frankly in line with our expectations.

As John said, Q2 will – we're going to see a – we need to see a smaller operating loss in Q2, and we need to see it revert to some profitability in Q3 and especially in Q4.

So as we think about the year playing out for Cranes – given our restructuring activities are back-end-loaded, things like Jinan and Montceau-les-Mines and closing our aerials business in Brazil – we'll see some of that improvement in the back half of the year. So, that's why we're maintaining our guide, if you will, on Cranes' performance.

A lot of work to do, a lot of moving parts. Some things in Germany have been pushed out; it's just a timing issue. But the team is executing to the plan, and we're confident that we're going to turn this business around and make it a profitable contributor to Terex..

Okay. Thanks, John. That's really helpful. And just as my follow-up, so at ConExpo, we saw some of JCB's new products within aerials for the first time.

And I guess I'm curious how you guys view them as a competitor, and what Terex is going to do over the course of the next aerial recovery to make sure you get your fair share of market demand?.

Thanks. First on the AWP, the aerials business, it is competitive. It's competitive today, and the competition continues to grow. I will say that we have respect for the competitors. They're good competitors, and then the new potential entrants, so the new entrant is a strong competitor. If you think about it, it is a good industry.

There's opportunity for global growth, especially when we get through this North American replacement cycle, just in adoption in other regions of the world. So the underlying market is strong.

One of our strategic priorities that you heard me talk about in my opening comments is around product and service development, and really staying ahead of the curve with things like our X-C line, things like our hybrid drive. So really driving product and service innovation, going forward, we think is absolutely essential to be successful.

Matt and the team are laser-focused on customer support and lifecycle solutions. So, products and lifecycle solutions to drive, to ensure that we can maintain and not even – or grow our market position. And I'll just say, it's a talented and competitive team.

But they also understand we've got to earn business every single day, whether it's competitors we have today or the competitors we have tomorrow, we've got to earn it. And Matt and the team are laser-focused on ensuring for our customers that our products and service provide our customers the greatest return on invested capital.

And by focusing on that, we think we'll continue to win in a competitive marketplace. But clearly it's competitive, it's competitive today, it's going to be competitive tomorrow. And we'll stay on the leading edge of innovation and product service to ensure that we retain if not grow our market position..

Thanks. I'll pass it on..

Our next question comes from David Raso with Evercore ISI..

Good morning..

Good morning, David..

The second quarter is obviously going to be an important quarter, I mean, because the – 50% of the year's earnings.

So I'm just trying to make sure I understand, you're not changing the revenue guidance, all right, but the first quarter sales, year-over-year, were down less than the full-year guide, and your orders are up 14%, and your backlog's up 10%. So if you take it as base case, we can debate second half, will it continue, we'll see.

But knowing what you have on the backlog, the orders, the second quarter itself, the shipping in the second quarter, should we expect the sales decline year-over-year in the second quarter to be less than the first quarter? Is my kind of first framework question here..

In terms of the overall guide, David, on the respective businesses, we did have slight – we guided down, MP down 12%. We came down 9% for the quarter. So perhaps slight improvement, or improvement on the revenue side. Cranes were definitely in line with what we guided, so we think that's reasonable.

And MP was up, and we anticipate MP probably being above the 1% guide that we saw in the second quarter. So, that's how I'd answer that, without – as you know, we don't give specific quarterly guidance, but that's how it answered.

John, you want to make some further comments?.

Yeah. No, I was just going to add that we don't – while we don't provide quarterly guidance as it relates to sales, you're absolutely correct that the second quarter is one of our strongest, if not our strongest of the year.

And so I think it is reasonable to assume that revenues in Q2 are going to be higher than they were in Q1, and – although down versus a year ago..

But the decline should be less, year-over-year. I'm just trying to frame it, because obviously the nice revenue story here, orders, backlog, we can debate if it continues later in the year. But sitting here today, again, the revenue should at least lean toward, hey, there's upside. But the margins weren't great in the quarter.

The second quarter is going to tell a lot about at least the near-term earnings power. And the interest expense, if you can help us, if that goes down sequentially, right, 1Q to 2Q, given some of the actions you took in the first quarter, and the share count also goes down.

So can you help frame, I guess, below the line, the interest expense and share count a bit for the second quarter? And then your confidence in the margins for 2Q? Because again, the back half of the year, the revenues, we can debate continuation.

But the 2Q, you should have an up visibility to at least give us comfort that this quarter coming up should be – and not to say you're going to guide the exact EPS, but I mean it should be a $0.45, $0.50, $0.40 kind of quarter, right? Getting you a long way to the full-year guide? So again, can you help us with those below-the-line items in 2Q, and maybe a little more granularity on 2Q margins?.

Sure. I'd be happy to. So, if I start your question with respect to the below-the-line items, you are correct that as a result of the capital allocations, the disciplined capital allocation actions that we took in the first quarter, we will see lower interest expense in the second quarter. We've talked about guidance of $70 million for the full year.

We incurred about $20 million in the first quarter, so you can think about the remainder being split over the – the remainder of the interest expense being split among the last three quarters of the year. In terms of the share count, as I indicated previously, we did repurchase 6.5 million shares during the course of the first quarter.

That was almost entirely in the month of March. I indicated that we had about 98 million shares outstanding at the end of April, as a result of additional share repurchases after the end of the quarter. For your purposes of full-year share count, I would think about a number like 101 million shares outstanding.

That's the average shares for the full year. So, I think those provide some parameters in thinking about your guidance, or your estimates for the full year. And as you said, we don't provide quarterly guidance, but the second quarter is a very strong quarter.

We are very encouraged by the growth in backlog that we saw in the first quarter, and we look forward to a strong Q2..

And be clear, thank you for that share count color.

The 98, is that a basic or diluted number?.

That's diluted..

So again, we're at 98 today, and the full year's 101, and that's because on an adjusted basis, the share count was like 107 million for the first quarter, when you dropped back the profitability for the first quarter. It's about 107 million? All right. Terrific..

Yes, sir..

All right. Really appreciate it. Thank you..

Thank you, David..

Our next question comes from Ross Gilardi with Bank of America Merrill Lynch..

Hey, good morning, guys..

Good morning, Ross..

I'm just wondering if you could help us bridge Cranes Q1 2016 to Q1 2017. Because I would have thought you guys could have done better with all the restructuring you've done. I also kind of recall in Q1 of 2016 you guys pulled out some operational issues or customer disruptions; that was a pretty sizeable number.

I wanted to confirm that, because if you adjust for that, your decremental still looks pretty weak.

Are you guys having any kind of ongoing service issues or anything, in the midst of all your restructuring? So really the bridge on some of the different components, and do I have that correct on the base?.

Yeah. In terms of – thanks, Ross -- in terms of the restructuring activities, last year the major restructuring activities in the Crane segment in terms of fixed assets were the Waverly and Waukesha closings.

The major restructuring activities that are taking place this year, the Montceau-les-Mines plant obviously was a loss last year, that plant goes with the Konecranes sales. We just exited and closed Jinan in the quarter. We had some pretty significant restructuring in our Brazilian operations associated with the team.

And we've had some head-count reductions this quarter in our German operations, both in Zweibrücken and in Bierbach. So there was a lot of activity that occurred, restructuring-wise, last year, but it really was Waverly and Waukesha. A lot more taking place this year.

In terms of last year, we did have some fairly substantial customer warranty issues and campaign issues. So this year, on a year-over-year basis, some of the improvement in our year-over-year operating margin will be improvement in the warranty and warranty rates. We are still completing some of those activities.

So we have booked an accounting reserve for those activities, and to the extent that our reserve is adequate, which we believe it is – we're not complete with the work that we're doing on those campaigns, but that extends through this year.

So, that's kind of a summary of the Cranes and the relative change in decremental margins from Q1 of last year to Q1 of this year, 35% to the 15%..

But, John, just on that, on the 15%, I guess that what I'm (51:21) questioning is, is it really 15% when you look at the underlying numbers? Because I thought in Q1 of 2016, you had like a pretty big – one or two one-offs that would have led to that, I think, 36% that you mentioned last year.

So, I'm not trying to split hairs too much, but I just – I would have thought, given the facility closes that you just mentioned, you'd have a big bucket of restructuring spend would have helped your margins a lot more in the third quarter..

Right. So, Ross, I didn't catch exactly the number that you were talking about for the cost (51:57) of quality issues, et cetera, in Q1 of 2016. There was a charge that we took in Q1 of 2016 with respect to quality issues, or a warranty charge. I think that's offsetting that here year-over-year.

Steel prices are higher, that led to additional cost on steel. FX changes were negative year-over-year. So those things are, at least to a certain extent, offsetting that benefit of not – the non-repeat of the warranty from – charge from the prior year.

And the change year-over-year in the operating profit is really driven by the reduction in revenue that's in the mid-double-digits, mid-teens, and the margin associated with that..

Okay. And just lastly, Kone is at a high and is above where you guys sold the first chunk of it.

When do you highlight (53:12)? At this point is there anything holding you back from the lock-up or technical issues like that?.

Thanks, Ross. In terms of – the stock has appreciated. As we've said, the industrial logic of the combination of Kone and our MHPS – our old MHPS segment is real. The benefits are there. As their largest shareholder, we were pleased with their Q1 results and their full-year outlook.

As we indicated, we did monetize a percentage of our holdings in the quarter. And right now, we believe that's the right approach for us, so I'm not going to comment prospectively about what we may or may not do. But again, I think the market recognizes the industrial logic of the combination..

Thanks, John..

Our next question comes from Andy Casey with Wells Fargo Securities..

Good morning. Thank you..

Good morning, Andy..

A question – I don't know if you're going to be able to answer this, but the Brazil utility business you highlighted as the last remaining divestiture to be completed.

Is that something we should expect this year?.

Yes. We should expect a sale this year. And again, it's de minimis; it's not significant, especially now going forward. But yes, we're anticipating the ability to sell that. We've got two active prospective buyers for that that are going through due diligence and contract discussions as we speak.

So yes, that's our current expectation, is that the team would be sold prior the year end..

Okay. Thank you, John. And then, the next question, I know I'm putting the cart a little bit before the horse.

But if the stabilization you're seeing in some end markets actually turns to demand improvement, how comfortably – what's your level of comfort that the supply chain is going to be ready to support growth, after Terex has lived through a relatively prolonged downturn? Especially in the context of a lot of the facility rationalizations that you've been doing?.

Right. So, in terms of the supply chain, given the – I think many of our suppliers would welcome the opportunity to increase output and demand, because they've suffered the same consequences we have with the lower demand here, the last couple of years. In terms of the factories, AWP is – they're used to dealing with the seasonal and cyclical nature.

And so they're a strong, lean organization, and they respond well to changes in demand. So, they and the supply base, we feel pretty good. Cranes, longer lead-time items on some of the larger cranes, and obviously getting better visibility will help us and our supply chain as well. And then Kieran and the MP business, that's a book-to-bill business.

So they're used to turning things relatively quickly, within a quarter, within a six-month period of time. So overall, again, it would be – most of our suppliers would say it would be a wonderful challenge to have, would be the increased production and output..

Okay. Thanks.

And if I could sneak one more in on that Cranes comment, are you able to produce for delivery in all product segments, for delivery in 2017, or are some of your products kind of extending into 2018 at this point?.

No. We're – from a lead-time standpoint it clearly varies by product, from two months to nine-plus months, but we do have product availability for sale in 2017..

Okay. Thank you..

Ladies and gentlemen, that concludes today's question-and-answer portion of the conference. I'd like to turn the call back over to our host..

Again, thank you, all, for your interest for your interest and your time, in Terex. As the quarter indicates, we're making substantial progress. We are encouraged by what we're seeing in the demand environment, and we look forward to how the year plays out. So, thank you very much for your interest..

Ladies and gentlemen, that does conclude today's presentation. You may now disconnect, and have a wonderful day..