Terex Corporation 2026 Q3 Earnings Call

Good morning, and thank you for joining us. Today I will cover our third quarter performance, the demand environment across our businesses, and our updated full year outlook. I will also discuss the process around the separation of the Aerials segment before Jen takes you through the financial results in more detail. At a consolidated level, Terex delivered higher sales, adjusted EBITDA, and cash flow in the third quarter versus prior year, while expanding margins and further strengthening the balance sheet. Sales of $2.2 billion increased approximately 12% year-over-year, and adjusted EBITDA of $286 million rose approximately 14% on a pro forma basis. Materials Processing and Specialty Vehicles delivered strong performance. Aerials improved again sequentially, and Environmental Solutions continued investing in Utilities capacity to support rapidly growing customer demand. Consolidated earnings also increased sequentially despite slightly lower sales, demonstrating improving execution and earnings conversion.

Order activity improved significantly during the quarter, with pro forma orders up 53% year-over-year and backlog reaching $7 billion. Bookings were higher in all four segments, and orders exceeded sales in Materials Processing, Specialty Vehicles, and Environmental Solutions. Consolidated book-to-bill was approximately 103%, which is greater than our typical seasonality, providing an optimistic forward outlook across the portfolio. Specialty Vehicles continues to provide particularly good forward visibility. Materials Processing backlog reached a two-year high, and Environmental Solutions backlog increased from the second quarter. Jen will cover the segment level bookings and backlog trends in more detail later. Turning to slide 4. The underlying demand drivers remain attractive across infrastructure, utilities, power, and data centers, while municipal replacement demand supports fire and emergency equipment in the U.S. Refuse collection vehicle demand is improving sequentially.

U.S. commercial and residential construction remain below historical levels, but have largely stabilized, while Europe is mixed. Turning to execution on slide 5. We are making progress integrating the expanded portfolio. With foundational work across all workstreams now completed, more of our attention is shifting towards value capture. The launch of our centralized procurement organization was an important next step. By coordinating sourcing across the enterprise, we can better leverage our scale, simplify the supply base, and reduce product complexity. These actions should support our synergy commitments and enhance earnings power over time. We are also applying a more consistent execution discipline across the company. As integration activities mature, our focus is increasingly shifting towards operational improvement opportunities. We are deploying proven operating practices, digital manufacturing tools, and standardized operating routines to improve throughput, productivity, and quality. Early results are encouraging, and we see a growing synergy pipeline.

As reflected in the results I outlined earlier, that operating discipline supported growth and margin expansion in Materials Processing and Specialty Vehicles, as well as sequential improvement in Aerials. In Environmental Solutions, demand remains healthy, and we are expanding Utilities production capacity to support secular growth. As expected, the expansion created temporary ramp-up inefficiencies that affected near-term profitability. The team, however, is making progress improving production flow, throughput, and cost absorption, and we remain confident in the long-term opportunity to accelerate earnings. Alongside these operating initiatives, we continue to invest in our strongest businesses and brands through product development and innovation. Heil recently introduced its next generation automated side loader for residential refuse collection. It was designed to improve safety, efficiency, and productivity while establishing a foundation for fully autonomous operation when paired with our 3rd Eye digital offering.

Finlay also introduced Elektro, a new range of hybrid crushing equipment designed to reduce fuel consumption and operating costs while supporting more sustainable customer operations. Our commitment to product development is also receiving external recognition. Earlier this month, Genie's next generation Slab Scissor Lift were named Product of the Year in the Scissors Lift and Vertical Mast category, reflecting our continued focus on quality, productivity, and total cost of ownership for customers. The third quarter also marked significant milestones for several of our brands, including the 60th anniversaries of Powerscreen and Genie, and the 50th anniversary of Road Rescue ambulances. These milestones reflect decades of customer relationships, large installed bases, and application expertise that support repeat purchases, aftermarket growth, and enduring brand value. At the same time, we continue to simplify the portfolio and direct investment where we see the greatest long-term opportunity.

The exits from Capacity and LayMor further reduce complexity and cyclicality and allow us to concentrate resources on businesses with stronger market positions and more attractive long-term returns. Combined with our cash generation, these actions preserve our capacity to return capital to shareholders. With that strategic and operating context, let me turn to our updated full-year outlook. Based on our third quarter results and updated expectations, we are refining our full-year outlook. We now expect sales in the range of $8 billion-$8.2 billion, and adjusted pro forma EBITDA of $930 million-$960 million, reflecting typical fourth quarter seasonality. The updated outlook reflects our current assumptions for fourth quarter demand, production, and costs. Looking beyond the near term, integration savings, operating improvements and portfolio mix provide a foundation for sustainable earnings growth. Before turning it over to Jen, I want to update you on the Aerials separation process.

Since our last update, we've made good progress, advanced the carve-out work, and moved from evaluating inbound interest to active engagement with multiple strategic counterparties. While the process continues, the team remains focused on serving customers, growing the business, and improving performance. Our priority is to achieve a successful outcome that reflects Genie's strong brand, global footprint, and differentiated products, and maximizes value for Terex shareholders. Given the active nature of the discussions, we will not comment on individual counterparties or establish a specific timeline. Across Terex, our focus remains straightforward, advanced operating performance, realize the synergies of the transformed portfolio, and translate the strength of our brands and end markets into higher earnings and cash flow. With that, I'll turn it over to Jen to walk through the financials and our updated outlook in more detail.

Thank you, Simon, and good morning, everyone. Let's review our third quarter results, starting with consolidated performance on slide 6. Consolidated sales, including Specialty Vehicles, were $2.2 billion, up $810 million, or 58% as reported. On a pro forma basis, excluding the sale of the Cranes and Midwest businesses, sales grew $229 million, or 11.6%, as growth in Aerials, Materials Processing, and Specialty Vehicles more than offset lower sales in Environmental Solutions. Adjusted EBITDA margin was 13%, compared with 12.8% on a pro forma basis in the prior year. Adjusted EBITDA rose $35 million to $286 million, supported by higher sales, operation execution, and realized synergies, which more than offset year-over-year tariff and inflation headwinds. Adjusted diluted EPS was $1.50. Higher volume, synergies, and operation execution drove improved earnings, while working capital efficiency supported stronger cash generation.

As a percentage of sales, net working capital was 15%, compared to 18.1% a year ago on a pro forma basis, primarily driven by lower inventory and the merger with REV. We generated $241 million of operating cash flow, and $209 million of free cash flow during the quarter. Capital expenditures of $32 million included maintenance and growth investments aimed at increasing production at select sites, efficiency, and safety. Net debt at quarter end was $2.2 billion, including $407 million of cash on hand, and net leverage was 2.3x net debt to 12 months adjusted EBITDA on a pro forma basis. During the quarter, we returned $91 million to shareholders, including $72 million of share repurchases and $19 million of regular cash dividends. In addition, we paid down $113 million of debt.

Finally, the board approved a new $500 million share repurchase authorization, adding to the $111 million remaining under our prior authorizations as we exited the third quarter, for a total of $611 million capacity. The new program provides management flexibility to remain opportunistic within a balanced capital allocation framework. Turning to segment performance, starting with Environmental Solutions on slide seven. Environmental Solutions sales decreased $35 million, or 8%, from the prior year to $400 million. The decline was driven by industry channel adjustments in REV's refuse collection vehicles, partially offset by healthy demand and higher shipments in Terex Utilities. Utility sales benefited from the expansion at the Birmingham facility, where Waukesha is transitioning from a service center to a full install facility. The segment reported an adjusted EBITDA margin of 15.3%, down 390 basis points year-over-year.

The decline was primarily due to the unfavorable mix from higher utility sales, inefficiencies related to the Waukesha production ramp-up, and lower volume absorption in ESG. Moving to Materials Processing on slide eight. Materials Processing sales grew 11.3%, or $44 million to $434 million, driven by healthy equipment utilization and demand, particularly for mobile crushers and screeners in the U.S., supported by infrastructure, data center, and other construction projects. Adjusted EBITDA margin expanded 530 basis points to 19.3%, driven by higher shipment volume, favorable mix, price cost discipline, and improved absorption related to higher production volumes. Turning to Specialty Vehicles on slide nine. Specialty Vehicles sales rose $49 million, or 8.1% to $657 million, driven by increased sales of fire apparatus and to a lesser degree, RVs.

Specialty Vehicles adjusted EBITDA margin improved 300 basis points to 16% compared with last year, supported by favorable mix, operating efficiencies, and price cost discipline, partially offset by inflationary pressures. Turning to Aerials on slide 10. Aerials sales grew 32% year-over-year to $709 million, driven largely by national account demand in the U.S. associated with large infrastructure projects. Adjusted EBITDA margin was 8.7% in the quarter, down 180 basis points from the prior year when tariff impacts were lower, but 300 basis points higher versus the second quarter due to higher production volumes and cost reduction actions. Mitigation actions were partially offset by unfavorable customer mix, tariffs, and other inflationary pressures. Turning to bookings on slide 11. Consolidated third quarter bookings were $2.3 billion, up $781 million, or 53% year-over-year on a pro forma basis with growth across all four segments.

In addition, the bookings for all segments are trending up, providing us with an optimistic outlook for future demand. In Environmental Solutions, the timing of the bookings explain the modest sequential sales increase outlook for the fourth quarter. Segment bookings increased 14% year over year to $445 million, led by 36% growth in ESG, where bookings reached a seventh quarter high as refuse collection vehicles orders improved for a second consecutive quarter. Utilities demand remains healthy. TU production ramp-up inefficiencies continue to limit near-term shipments. We are now seeing a full-year sales outlook for the segment to be approximately flat year over year. In Materials Processing, broad-based demand and a two-year high backlog support our existing full-year forecasts. Third quarter bookings grew 41% on a pro forma basis to $511 million, with gains across each vertical and notable increase in concrete equipment orders.

Backlog nearly doubled to $676 million, its highest level in two years, providing approximately five months of coverage. We continue to expect low double-digit sales growth for the year. In Specialty Vehicles, demand remains healthy, where normal fourth quarter seasonality impacts sequential sales. Third quarter bookings rose 30% year over year to $665 million, with growth across all end markets. Notably, backlog grew even as throughput and sales increased approximately 8% versus the prior year, reflecting continued strong demand. To further shorten lead times and reduce backlog, we are expanding capacity in a measured way, with the first units from the newly expanded Birmingham facility expected to ship in the fourth quarter. Fourth quarter sales are typically lower because of fewer inspections and delivery days around the holidays, and we expect the typical approximately 15% sequential decline.