Good morning. My name is Shelly, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Q4 2018 Terex Corporate Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Brian Henry, Senior Vice President, Development and Investor Relations. You may begin your conference.

Good morning, everyone, and thank you for participating in today's fourth quarter 2018 financial results conference call. Participating on today's call are John Garrison, Chairman 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. We've released our fourth quarter 2018 results, a copy of which is available on 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 adjusted per share amounts in the presentation are on a fully diluted basis. We will post the replay of this call on the Terex website under Events and Presentations, 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 Garrison.

Good morning. And thank you for joining us and for your interest in Terex. Overall, our global team executed well in the fourth quarter, completing a year of significant growth and considerable earnings improvement. We made progress implementing our strategy and are seeing the results in our performance, expanding operating margins and doubling full year earnings per share. Our global markets remain strong, we increased backlog in every segment, up 19% overall. This growth is on top of the strong backlog, we had at the end of 2017. A clear indication, that our commercial strategies are working and the markets we serve continue to grow. AWP grew sales by 24% in 2018 and expanded their operating margin by 200 basis points. We're encouraged by the strength of the North American rental markets, where our customers continue to anticipate growth and continue to increase their capital expenditure plans. Cranes delivered on its commitment to generate a profit in the fourth quarter. Improvements made in materials management, enabled better manufacturing productivity and customer deliveries. MP continue to execute at a high level, growing the fourth quarter sales by 20% and expanding operating margin by 150 basis points. For the full year MP grew sales by 17% and increased operating profit by 32%. A great year for our global MP team. Turning to slide four. We made progress implementing our strategy in 2018, an area of intense focus for us, is safety. We're developing a zero harm safety culture across Terex. That put safety first in every aspect of our business. We continue to make progress in 2018, reducing our lost time rate by 27% and improving total recordable rate by 13%. Good results by our team in a year that saw us onboard thousands of new team members across our global sites.…

Thanks, John. Let me begin by reviewing our Q4 segment highlights. AWP increased sales by $86 million or 19% compared to last year, driven by growth in North America and Asia. Fourth quarter bookings were similar to last year at a very healthy $831 million, fueling year-end backlog of $868 million, a 14% year-over-year increase. AWP's operating margin of 4.9% was significantly impacted by material cost headwinds including higher steel cost, direct and indirect tariffs and unfavorable product mix. Moving to Cranes. Improvements in materials management and operational performance enabled revenue growth of 12%, and as expected the Crane segment returned to profitability in the fourth quarter. Materials Processing closed out the year with another excellent quarter, sales were $340 million, up 20% driven by global demand for crushing and screening products, material handlers and environmental equipment. The MP team increased year-over-year operating profit by 34% and expanded operating margin by 150 basis points despite material cost headwinds. Backlog grew 54% to $490 million. Both AWP and MP are well positioned for another strong year heading into 2019. Let's turn to slide 10 to review our Q4 consolidated results. Total sales increased by 16%, MP's higher operating margin and lower corporate expenses more than offset the impact of margin pressure at AWP leading to overall margin expansion and 30% higher operating profit on an adjusted basis. Investments in our transformation program and asset impairment charges related to our Oklahoma City based cranes operation were the primary differences between our as reported and as adjusted operating profit. Net interest expense increased $5 million year-over-year, resulting from increased borrowing and higher interest rates on floating rate facilities. A one-time non-cash charge of $67 million related to the annuitization of our U.S. pension is included in our as reported results. We reduced our…

Thanks, John. I'll review our segments starting with AWP, which now includes Terex utilities. The global markets for the Aerial Work Platforms are stable at healthy levels and the North American utility market remains strong. Following the strong 2018, our AWP team enters 2019 with a backlog including utilities of $1.1 billion, 21% higher than the prior year. The underlying construction, utility and industrial markets in North America remain strong. Our rental customers continue to see improving rental rates and higher equipment utilization. Rental market growth and replacement cycle demand is driving the anticipated growth in 2019. Product adoption is continuing to fuel growth in China and other developing areas around the world. Material costs rose considerably in 2018, driven by higher steel prices and tariffs. We reset prices heading into 2019 to help offset these higher material costs. To improve margins, the AWP team is fully committed to executing their strategic sourcing plan, including transitioning significant volume to new suppliers. In the aerials market, the Genie brand is synonymous with technological leadership and innovation. The Genie team maintains a steady cadence of new product introductions and enhancements. In 2019, we'll continue to add more fuel efficient hybrid products and fill out the extra capacity line. The XE line is important for Genie, as the new anti-standards governing load levels take effect later this year. The AWP team use the NC standard change as an opportunity to innovate and add customer value. Our new XE family of boons [ph] increases the platform capacity, allowing contractors to safely lift more workers, tools and equipment. In some cases a single XE machine can do the work of two competitive machines. These innovations were part of a long-term product development strategy. The extra capacity line will create value for our rental customers and…

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?

[Operator Instructions] Your first question comes from the line of Jamie Cook from Credit Suisse. Your line is now open.

Hi, good morning. I guess two questions to start off, one just on - announcement on the sale of the part of the Crane business there. I'm just trying to understand the timing given that we're at the bottom of the cycle, would it made more sense to wait until the cycle improves and perhaps catch a better price tag? And just how we should think about your ability to compete competitively on the remaining Crane business and whether or not that's strategic to you? And then my second question just some help on the Aerial guide, obviously, as we look from 2019 to 2018 it's sort of an apples and oranges comparison. So within your core Aerial business can you help us understand what you're assuming in terms of volumes price cost mix? Thanks.

Thanks, Jamie, and good morning. Just a couple of comments on the transaction that we announce on Friday, first and foremost it is consistent with the focus element of our strategy, selling the Demag Mobile Crane business to Tadano. I think if you take a step back and look at independent of where you are in the cycle or proceed where you are in a cycle, there's clear and compelling industrial logic for the combination in the global crane market. We ultimately believe that this combination will be good for the customers, team members and our shareholders and it's going to create a combined company that's much stronger together than either of the companies could have been independently and their common core focus on the business of lifting. So from selling the Demag to Tadano, we just think there is very strong compelling logic independent of where one may believe you are in the cycle. As it pertains the second part of the announcement, which is also important is that we are exiting the OKC produced North American mobile crane product lines. And that we have an ongoing strategic analysis and review and we basically came to conclusion that the current and anticipated return profile of these products did not meet our criteria would require substantially more investment and the time to get a return on that investment was not acceptable. And it was for that reason that we decided to exit those OKC product lines. Now with that said, the crane businesses that we're retaining are strong businesses, the rough terrain cranes out of our Crespellano facility in Italy enjoy a strong presence, especially in Europe, in the Middle East we are going to continue to operate our tower cranes business, again has a strong global presence and executes…

So in respect to AWP as we indicated, revenues of $3.1 billion does include the Terex Utilities business, which comprises $400 million of revenue and a 9% to 10% operating margin. Therefore the AWP growth rates, the 3% to 6% revenue growth and the operating margin that we are providing guidance for today wouldn't be different with or without the utilities businesses included.

Sorry, and your assumptions on price cost on excess this year?

In terms of the pricing for AWP, Jamie, so the pricing actions that we're taking are designed to offset the higher material costs and it does represent a majority of the revenue increase in our 2019 guide. I think it's well chronicled what's happened on material cost over the course of 2018. We've been very transparent with our customers about the cost increases we're seeing as we went into our 2019 negotiations. Our commercial excellence initiatives, the teams are working hard on that to maintain process discipline and reduce any leakage that you get. It's a challenging pricing environment, the team is doing a good job. We're really focused on selling at value proposition of the acquisition price or cost to operate in residual values. So net on pricing in AWP, in 2019, our intention is to offset the input cost increases with our 2019 pricing. We did roll our surcharge from 2018 into our 2019 pricing. So that was designed to offset the material cost increases that we've seen.

Okay. Thank you. I'll get back in queue.

Your next question comes from the line of Steven Fisher for UBS. Your line is now open.

Thanks, good morning. Wondering if you could talk about the visibility that you have to achieving the midpoint of the guidance in terms of what you're assuming for AWP orders for the second half of the year, both from the national rental companies and the independent rental companies. And then, maybe since there is a bit of a wide range, what does the upper end and lower end of the guidance range reflect?

Thanks. I'll take the first part overall, kind of just looking at the markets and then I'll have John talk about the guidance range. As you saw we did end the year with backlog up 14% and that's on our traditional AWP products, if you include the utilities business backlog is up about 21%. What we're seeing in North America is the rental channel remains strong and their CapEx plans show year-over-year increases. I will say that that does vary by major customer. It was good utilization, a good rental rates, fleet grow, there is still - we're anticipating fleet growth in 2019, clearly at slowing over the 2018 fleet growth that we saw. But we do the replacement demand cycle is beginning to increase that's North America. If we look at Europe, we're anticipating Europe to be flat. There is a geopolitical challenges in Europe. And so year-over-year, we're seeing a flat impact in Europe. Again in mature market we're seeing some of the replacement cycle kick in there. And we're continuing to see good growth in Asia Pacific, Australia and China as we continue to see increasing product adoption. So we think we're going into the year in a reason of good position with the backlog that we have for the year. John, would you like to comment on the guide?

Yes in terms of our AWP guide, as well as the overall guide for the company in the first quarter, I did mentioned in my prepared remarks the impact of the winter storms that we saw in the Pacific Northwest here over the last 10 days, which actually were quite unusual and resulted in our principle AWP manufacturing facilities being closed for over a week. We are currently assessing the impact of those winter storms on our results and may have some impact on the Q1 results for AWP. That said, we aren't anticipating that the storms would have any impact on our full year guidance that we're providing today. Our teams are now back up and running and they are meeting customer demand.

Thanks. But I guess curious just sort of the upper end and lower end of the ranges, I mean, with upper end mostly be driven by buybacks or better than expected buying in the second half of the year or something in the remaining crane businesses if you could kind of frame that range?

Yes, I think that the ranges reflect the markets in which we're operating and recognition that there is a lot of orders still to be booked for the full year that would play into that. Material cost also very dynamic area with respect to material cost and steel prices at the moment. So that's a factor that goes into the guidance range that we provided. And the guidance that we're providing today does not include share repurchase - any share repurchase assumption. So it assumes the currently outstanding shares. So those are some of the factors I guess that I would refer to Steve.

Okay. And then just a follow up, now that you have done some of the resegmenting and I guess it sounds like on AWP maybe the margins are not that different. But just curious since you've talked in the past about 25% incremental margins for the business, how should we think about those incremental margins going forward for the overall company given some of these resegmenting and maybe within some of the segments?

Yes, as we've talked about the expectation that we have for our businesses to achieve 25% incremental margins and that holds true actually for the remaining cranes businesses that we have - that we still have in our portfolio. And so, I wouldn't think about our expectation changing there in any material way.

Terrific, thanks a lot.

Your next question comes from the line of Dave Raso for Evercore ISI. Your line is now open.

Hi, good morning. You touched on this a little bit earlier about the remaining crane business, but sort of bigger picture let's assume the Tadano proceeds come in you're going to end 2019 with your net debt to EBITDA down about 1.2 times. And I'm just trying to think philosophically John now that we've made some hard decisions on the crane business looking forward and I know end markets how their acting will dictate this to some degree, but how should we think about how you think of a leverage any cash flow kind of beyond 2019. How do you think about the business set historically tariffs in pretty acquisitive, but how do we think about post 2019 and the new framework and you running the company? How to allocate cash flow moving forward?

Thanks, David. Again, we embarked couple of years back on a strategy of focus, Simplify and Execute to Win and the actions that we're taking over the course of time have been clearly indicative of the focusing on businesses that have the opportunity to out earn our cost of capital through the economic cycle. So we've also been focused on simplify and we have more work to do as a result of the transactions that we've announced today. And then, our Execute to Win priorities around commercial excellence, life cycle solutions and most importantly strategic sourcing we've made significant investments in strategic sourcing and we need to being to see the impact of that in our operating margins. Around that David, we had a discipline capital allocation strategy, where we fundamentally believe in focusing and improving our free cash flow. We have to drive improvement in our free cash flow in 2019 and using that free cash flow to invest in organic opportunities as you see our CapEx for the year is up substantially. We believe those are significant returns to shareholders, these types of projects, so we're going to continue invest in that. We're going to continue to invest in engineering and innovation. And if there's capital available, we'll continue to look at share repurchases and returning capital to shareholders via repurchases and dividends. So, right now, David, I would not anticipate a significant change to the strategy that we've embarked on. As we grow, as we execute, there could be a change as we go forward in the future. But right now, we believe that the strategy we're on is driving value for our customers, our team members and our shareholders, so we're going to remain consistent.

Can I take that answer to mean we should not think of a reduced leverage at the end of the year as a recipe to look forward acquisitions? It should be more about reinvest organically and more debt reduction or repo. Is that a fair?

That is a fair summary, David. Our discipline capital allocation strategy that we've outlined many times remains in effect. We believe that there is more for us to do to achieve the organic growth of the businesses we have. And we have not changed our thinking surrounding the leverage in the company at 2, 2.5 times through the cycle. So that we're going to continue to operate this business and drive value for our shareholders.

And lastly, related to the asset sale. Tadano's interest in the tower crane business or even the RTs. Where is that conversation go, I would have thought that might be something they would also think would be attractive given Tadano's lack of exposure in towers, in particular?

David, I would just say that the conversations that we've had really did focus on the product lines that in our Zweibruecken, our Demag Mobile Crane business that was our principal area of interest and I think was a mutual area of interest for both companies.

I appreciate it. Thank you.

Thank you, David.

Your next question comes from line of Ann Duignan from JP Morgan. Your line is now open.

Hi, good morning. Maybe you could talk a little bit more about strategic sourcing. Where you negatively impacted you were looking for $40 million in savings and then $80 million by year 2020. You reduced those a little bit this morning. Can you just talk about what the impact of the sale of the Mobile Cranes business had on strategic sourcing, does it, take out some of the volume, some of the savings? Just a little bit more color around Wave 1 and Wave 2, please?

Thank you, Ann. Again, we're continuing to execute on the strategic sourcing process that we've outlined over the course of the last year, year and half. You're correct Ann. It did decrement the savings that we had anticipated slightly, previously we were anticipating about $40 million of savings in 2019 and $80 million of savings by the end of 2020. That was decremented by about $5 million in 2019 and that $5 million carryover into 2020. So I would say not a substantial decrement in strategic sourcing savings. The significant savings in strategic sourcing really are being generated in our AWP business to some extent, some of the MP businesses. The teams are in the implementation phase now significant number of suppliers are changing hands. So the good news is, we are seeing the savings that we had anticipated, we are reducing the number of suppliers that we're working with which I believe overtime is going to help us. Clearly, it's been a very dynamic environment on the supply side to be engaged in the strategic sourcing process. But the teams are executing and we need to deliver savings this year and next year. And then, our Wave 2 - as you indicated our Wave 2 teams now are right in the middle of process beginning to get the RFPs and RFQs back. Beginning to determine, which suppliers we're going to visit to enter into detailed negotiation. So Wave 1 is in implementation, Wave 2 is in the supplier selection process and we're committed to continuing to execute this to drive margin improvement.

And John, I would just add in response to the previous question asking about what would drive us in the upper end and the lower end of the range, right. One thing that I didn't mentioned was strategic sourcing. That's certainly an opportunity that I should have mentioned.

That's correct.

Okay, I appreciate that. And then similar question on the $140 million of CapEx , your depreciation is running about $53 million. So that's a significant multiple on depreciation. Can you just talk about specifically what you're investing in? Should we be concerned that we're over investing at the peak of the cycle and just give us some confidence in where that CapEx has been spent and why now?

Sure, happy to Ann. That if you follow our discipline capital allocation strategy, it starts with making organic investments in the businesses that are going to drive growth for us in the future. The $140 million of CapEx that we're projecting for 2019, the largest single investment is for our utilities business and a new manufacturing center in Watertown, South Dakota. The utilities business as I talked about a little bit earlier is a $400 million business, 9% to 10% operating margins. And they're constrained in their ability to grow and to expand margin by the manufacturing structure that they have in place today. So that's our largest business and we're really excited - our largest investment and we're excited about the investment in that business. Aside from that, we are also investing in Northern Ireland in our Materials Processing businesses. We also have IT investment that we're making in 2019. And you look - so for 2019, the CapEx is exceeding the depreciation that we have. But I also would say that over time, we do see our CapEx converging with the level of depreciation that we're spending. So good investments from our perspective, we're going to continue to follow the disciplined capital allocation strategy and generate strong returns from those investments for our shareholders.

Okay, I appreciate that. Just real quick, of the $140 million, how much is going to South Dakota? And then I'll turn it over.

Yes, no problem. Roughly 50% of the CapEx for 2019 is related to our facility in Watertown, South Dakota.

Okay, thank you. I appreciate it.

Thank you, Ann.

Your next question comes from the line of Steve Volkmann from Jeffries. Your line is now open.

Hi, good morning.

Good morning, Steve.

Maybe just a couple of cleanup items. What's the cash that you're expecting from the sale of Demag?

Yes, we would expect to have net proceeds from the transaction of approximately $125million, Steve.

Okay, thanks. And then, would you expect any write-downs or charges as you exit the U.S. businesses.

So we did take a charge in the fourth quarter of about $6 million, that's included in our U.S. GAAP results. Here for the fourth quarter, we obviously will be winding down those businesses in the North American cranes over the first half of the year. And at this point, I wouldn't - I won't comment on whether that would be future charges that we need to take.

Okay, fair enough. And then maybe just sort of a bigger picture question, John, other John. I noticed that you sort of still talking about your 10% EBIT margin target, but obviously the transaction gets you quite a bit of the way there. Are you being sort of aggressive enough in your view, is there a way to take that target higher, now that you have a different business mix, or is this still the right way to think about it?

I think right now, Steve, I think it is the right way to think about the business. Clearly the announcements have taken us a significant way towards achieving that objective. We're going to continue to drive revenue and margin improvement in our MP and AWP business. Obviously, strategic sourcing is a very important part of that margin opportunity growth as we go forward. So I would hold that for now and then as things unfold, we'll be back to you in terms of any potential changes.

Sounds good, thank you.

Your next question comes from line of Joe O'Dea from Vertical Research Partners. Your line is now open.

Hi, good morning.

Good morning, Joe.

Could you expand a little bit on the AWP 4Q margin and then the 2019 doesn't really seem to appear to carry over any of the softness that we've seen in the fourth quarter. So just kind of what happened there and then the confidence in no carryover from that?

Yes, sure. I'll start there Joe. In terms of the fourth quarter for AWP - and I mean I'll start with they had a really strong 2018 revenue up 24% expanded their margin by 200 basis points. In the fourth quarter there were three primary issues that affected the segment first, was material cost and that really had the largest impact on our operating margins. It was really a dynamic period in the fourth quarter for material costs, especially when you look at the 301 tariff and the impact both on a direct tariff as well as an indirect tariff basis. So material cost was the number one impact. Second were freight cost that were higher than the prior year. And then lastly, the product mix profile was unfavorable. We did have a higher share of telehandlers in the fourth quarter, with a different margin profile. So we did have some challenges in Q4, but we did increase the overall operating margin for the business by 200 basis points over the course of 2018. From a looking forward 2019 perspective, as John Garrison indicated earlier, our 2019 pricing does encompass the material cost increases that we experienced here over the course of 2018, including the fourth quarter. And so that's why the issues will not continue into the first quarter or into our 2019 guidance.

That's helpful, thanks for those details. And then, second question on the remaining cranes piece and really the RTs and towers and whether or not there's any synergy value to a broader product line from a revenue perspective. And as you move forward without the Demag line and some of the mobile lines what that means from an ability to compete do you lose some of that synergy opportunity on deals? And just kind of how you feel about your competitive positioning in those product lines with a much smaller cranes footprint moving forward?

Yes, thanks Joe. With respect to RTs and towers both are stable in their profitable business with good relative market positions. Towers really has always been operated as an independent - fairly independent business independent of the mobile crane operations. So frankly I don't think there's going to be that much impact there's a not a lot of packaged deals with towers necessarily in mobile crane. So I don't - we don't think there's going to be a significant impact there. On the rough terrain crane side, it's going to be our global manufacturing center there maybe some impact in the North American market associated with RTs, but that crisp line of business has a very strong European RT presence and Middle East RT presence. Again operates relatively independently of the other elements of the crane business. So we think there's opportunities for these businesses going forward. They're good businesses, well run, well managed and we think there's opportunity for us as we go forward into the future.

Thanks a lot.

Your next question comes from the line of Andy Casey from Wells Fargo Securities. Your line is now open.

Good morning everybody.

Good morning.

Just a couple of follow up questions, on that Joe's question about AWP is there any delay that we should expect in the pricing realization outside of the one week production issue that you mentioned?

No Andy, the pricing for 2019 for the vast majority of what is in backlog is at 2019 pricing, so no there should not be any impact. There is a very small number of units that carryover that we have built a delivery commitment and a chain that for whatever reason we could not achieve that would carry it, but it's a very small percentage. So the majority of the backlog, the vast majority of the backlog is at 2019 pricing.

Okay, thanks John. And then on the movement of towers and RTs into Corporate and other a few questions there. First, I'm not sure if my understanding is correct, but if I historically thought RT was a bigger product for the North American market. First is that right? And is that why you're highlighting EU and Middle East, you might have some dis-synergies from the divestiture?

We were a little bit inversed compared to most. You're right, the RT market in North America is the largest market. Our relative market position there was the weakest. We have a much stronger market position in the RT business in Europe and Middle East. So we were a bit unique there compared to the overall industry.

Okay. Thank you. And then…

Go ahead. Sorry.

Any incremental stranded cost from the divestiture incorporated into the corporate and other guide for 2019?

Yes. So when you look at our - well first when you look at SG&A in total, SG&A in total for 2018 at 12.3% was actually below the commitment that we made in December of 2016 in our Investor Day for a 2020 SG&A target of 12.5%. When you look at the Corporate and Other segment, we have been centralizing cost into Corporate, strategic sourcing, global parts elements of the commercial excellence initiative and IT are all examples of that. And to your exact question, there is in corporate and other up to $20 million of stranded cost that we will be getting after and reducing over the course of 2019. So we're continuing to manage our overall cost structure, as you can see by the discipline we had in the overall SG&A as a percent of sales. But we're also going to continue to invest in the prior - the Execute to Win priority areas.

Okay, thanks, John. And then one last question, if I look at the placement of towers and RTs into corporate and other. Historically, Terex has ultimately walked away from some of the revenue that you put into corporate and other. Can you discuss what metrics you're considering to determine whether that revenue that's now in corporate and other remains a part of Terex?

Yes. The core reason we're putting it in the corporate really has to do with the SG&A efficiency. Maintaining a three segment organization with $750 million of revenue or so we just didn't believe was efficient. And so these two businesses that have been put in there are strong businesses as I've indicated. They've operated a relatively independent anyway. And these are in businesses that are strong market positions, good return businesses that we're going to invest and to continue to grow those businesses going forward.

Thank you.

And your final question comes from the line of Seth Weber from RBC Capital Markets. Your line is now --.

Hi thanks for setting me in here. This is Brendan [indiscernible] on for Seth. Just kind of touching on AWP, again, your commentary has been very optimistic very positive. And it was a little bit of a difficult comp year-over-year. But I was wondering anymore color you could give on the 2% decline this quarter in orders?

No, I think just if you look at the relative backlog, we had a very, very strong 2017, we were able to build the backlog up 14% on a year-over-year basis off a very strong comp. And so overall, no, I wouldn't read anything more into that, it's still a good solid environment, stable and healthy is what is the words that we would use. So I wouldn't read too much into that I'd look more at the backlog and the relative size of the backlog given that we had a strong backlog in 2017.

Okay, thanks. That's all for me.

I'd now like to turn the call back over to John Garrison, for closing remarks.

Thank you all and for your interest in Terex. And if you have any additional questions, please do not hesitate to follow up with Brian. Again thank you for your interest.

This concludes today's conference call. You may now disconnect.