Greetings, and welcome to the Terex Third Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jon Paterson, Vice President and Treasurer.

Good morning, and welcome to the Terex third quarter 2022 earnings conference call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. I would like to take this time to introduce Paretosh Misra, who has joined Terex as Head of Investor Relations. Paretosh is looking forward to working with you. His contact information can be found on the Terex Investor Relations website and our Q3 earnings release. We are joined by John Garrison, Chairman and Chief Executive Officer; and Julie Beck, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to Slide 2 of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. In addition, we will be discussing non-GAAP information and performance measures we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP and performance measures can be found in the conference call materials. Please turn to Slide 3, and I'll turn it over to John Garrison.

Thank you, Jon, and good morning. I'd like to welcome everyone to our earnings call and appreciate your interest in Terex. I would like to begin by thanking all Terex team members for their efforts in this challenging global operating environment with inflationary pressures, production disruptions and COVID impacts. Terex team members have worked tirelessly to improve our performance for our customers, dealers and shareholders. We are proud of all Terex team members who are keeping themselves and others safe. I would like to thank our team members around the world for their continued commitment to our Zero Harm safety culture and Terex Way Values. Safety remains the top priority of the company, driven by Think Safe, Work Safe, Home Safe. Please turn to Slide 4 to review our strong financial results. The team delivered solid financial performance for the quarter, which Julie will cover later in her remarks. As a result of the team's continued strong execution in the third quarter and our backlog, we are raising full year EPS outlook to a range of $4 to $4.20 on sales of approximately $4.3 billion. Please turn to Slide 5. Terex participate in attractive end markets that are supported by favorable macro trends, and we have industry-leading brands and the capacity to support long-term growth. Our MP segment is a diversified and consistent high-performing portfolio of businesses. MP's brands have leading market positions with excellent end market product and geographic diversification. Importantly, these businesses are less cyclical in nature. The overall business continues to benefit from strong equipment utilization rates and dealers looking to replenish their inventory and rental fleet. MP's global demand remains strong, demonstrated by a total backlog of $1.2 billion, up 14% year-over-year. Environmental and recycling growth are driving demand for Ecotec and CBI products. The MP…

Thanks, John, and good morning, everyone. Let's take a look at our third quarter financial performance filed on Slide 12. We demonstrated solid execution in a dynamic environment, including significant supply chain challenges and continued inflation. Sales of $1.1 billion were up 13% year-over-year on higher volume and improved price realization necessary to mitigate rising costs. Sales in constant currency were up 21% as foreign currency translation negatively impacted sales by $78 million or approximately 8% in the quarter as the euro and British pound weakened against the dollar. Gross margins increased by 320 basis points in the quarter as volume, pricing, favorable mix and cost-out initiatives helped to offset cost increases and the negative impact of foreign exchange rates. The year-over-year gross margin increase was in both our segments with steady sequential improvement in AWP. MP continued to effectively overcome cost increases with pricing actions. SG&A was in line with expectations, but up over the prior year as a result of inflation, incremental spend due to acquisitions and prudent investments in technology and new product development. SG& A was 10.4% of sales and decreased by 10 basis points from the prior year, with business investment offset by continued strict expense management. Income from operations of $121 million was up 63% year-over-year. We were pleased to report an operating margin of 10.8%, up 330 basis points compared to the prior year and up 120 basis points sequentially. Our incremental margins were 37% compared to the prior year and 39% from the second quarter. Current quarter operating profit includes restructuring charges of $1 million in AWP associated with our Oklahoma City facility. Interest and other expense of $13 million was comparable with Q3 of 2021. The third quarter global effective tax rate was approximately 24% and A higher tax rate is…

Thanks, Julie. Turning to Slide 17 to conclude my prepared remarks. Terex is well positioned for growth to deliver long-term value for our stakeholders because we have great businesses, strong brands and strong market positions upon which we can grow the company. We participate in strong end markets supporting our growth, including infrastructure, electrification and environmental. We will continue to invest in new products and manufacturing capacity along with strategic inorganic growth. We will continue to execute our disciplined capital allocation strategy, and we have demonstrated resiliency and adaptability in an increasingly challenging environment. I am confident this will result in Terex being an even stronger company. I would like to announce Terex will be hosting an Investor Day the morning of December 13 at the New York Stock Exchange. This event will include presentations from the executive team and a question-and-answer session. We look forward to seeing you then. And with that, let me turn it back to Jon.

Thanks, John. Please refer to Terex's Investor Relations website for more information on Investor Day in the coming weeks. 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 answer as many questions as possible this morning. With that, I would like to open it up for questions, operator?

Thank you [Operator Instructions]. Thank you. Our first question comes from Nicole DeBlase from Deutsche Bank. Please go ahead. Your line is open.

Yes thanks, good morning guys.

Good morning, Nicole.

Maybe we could just start with the AWP margin guidance. So sticking with the 8% kind of embeds, I think, like 100 basis points of margin degradation in the fourth quarter. I know that typically margins do come down sequentially, but the revenue has obviously been different than seasonal pattern, too. Is that all FX or is there something else driving the step down?

Thanks so much for the question, Nicole. AWP had a terrific Q3 with a 9.6% operating margin. They were up 350 basis points from last year and up 190 basis points sequentially from the second quarter. So the year-over-year sequential improvement was the result of higher sales volumes, favorable mix, cost reduction activities and disciplined pricing actions. Included in the AWP earnings, for the quarter was a reclass from corporate and other. So it didn't impact Terex overall at all of what $5.2 million related to prior period transactional foreign exchange and if we exclude that charge, the margins for the third quarter would have been 10.4%. When we go to Q4 and look at this sequentially, the AWP business is impacted by lower sequential sales of about 10% in Q4 as a result of continued anticipated supply chain constraints. We also have lower - burden absorption on fewer production days and continued disruption and loss of productivity due to all of the supply chain issues. They also have less favorable geographic and product mix in Q4. And also the utilities business also continues to be impacted by body and chassis availability, and that results in lower burden in merchant and labor inefficiencies. So overall, the incremental margins were 32% in Q3 for this segment, and we expect higher incrementals in Q4 with our continued focus on achieving price cost neutrality for the full year.

Got it, thanks Julie that's really comprehensive. And then maybe just a follow-up, if you and John could talk about what you're seeing from a supply chain perspective, if there's any signs of green shoots or improvement out there or if it's all just really the same versus 2Q?

Thanks, Nicole, and I think it's more of the same. We didn't see appreciable improvement nor did we see appreciable deterioration. Our revenue continues to be a function of the supply chain's ability to meet our forecasted demand. We've been in the $1 billion to $1.1 billion kind of revenue range for some time now, and that's proven to be a reasonable assumption. We did see some slight improvement statistically on some of the on-time deliveries, but not enough to overcome the day-to-day challenges that we're seeing. As Julie just said on the AWP side, we have many information from our suppliers. We're anticipating you're going to have a little bit more of a challenge than we already forecasted. So a modest decline in the revenue associated with the supply chain. Again, from a component standpoint, I don't think it's any different than most industrial companies in terms of what you're seeing. Electronic components, engines have been a challenge for us and hydraulic components. And again, the teams are really doing a great job overcoming this on a day-to-day basis to produce and get products out. And I think the last indicator Nicole, we keep talking about hospital inventory, which is relatively absurd being a manufacturer. But if we look at our hospital inventory, at the end of the second quarter, we were at about $63 million. And at the end of the third quarter, we're about $63 million. Now ebbs and flows from a timing standpoint, but net-net, I think that's a reasonable indication of it hasn't gotten appreciably worse, but it clearly has not gotten appreciably better as well. And the team continues on a day-to-day basis to really battle it to get product out the door for our customers.

Thanks John, I'll pass it on.

Thank you, Nicole.

Our next question comes from Stanley Elliott from Stifel. Please go ahead. Your line is open.

Good morning, everyone thanks for taking the question. Quick question, you talked about 10% pricing this year - as we're thinking about and a lot of pricing actions over the course of the year. Within the backlog, how should we think about pricing or how should we think about pricing on the businesses into next year as well?

Thanks, Stan. And you're right, we do have significant backlog going forward. Frankly, it's a historical high backlog as we go into 2023. Our backlog, anything that is for delivery in 2023, will be priced at 2023 pricing. Our pricing strategy and philosophy has not changed. That pricing strategy is to offset the inflationary pressures we're seeing, material freight and labor and embed that in our pricing for 2023. So we have significant orders into 2023, and we're pricing those orders at anticipated inflation rates that we're expecting as we go forward. We do have the opportunity, and obviously, we don't want to exercise this, but we do have the opportunity to adjust that pricing, if needed, as we get into 2023. So, again 2023 orders at 2023 pricing with the anticipated inflation levels that we're expecting as we go forward.

Perfect, and switching gears. On the MP business, I mean there's so many ways you guys can expand this. A lot of the products are actually fairly similar. Do you need additional capacity? How are you seeing it from a footprint standpoint or maybe this is something you don't choose to expand more via M&A?

Thanks. We have done both. We've expanded capacity organically. We've expanded our facility in India. We've expanded our facilities in Northern Ireland. So we have done organic growth. We've also grown capacity in this business via acquisition. Our first acquisition of [Jaden] in China, where we made an acquisition of the manufacturing facility that produce similar types of products to what we produce. And so, we were able to get the physical facility as well as the labor force that gave us the opportunity to have production in China for the China market. So that was an example of where we expanded capacity via M&A. We also did an acquisition of Stellweld, which was a vertical integration, a key manufacturer for us that was going to be on the market. And that expanded our capacity for major fabrications that gives us the growth that we need to meet the growth aspects. So there's two examples there of where we use M&A to expand capacity and examples of where we've invested - we have a new site in [Kamcy], Northern Ireland. That's an expansion as well. So you'll see us do both organic expansion and inorganic growth. And then finally, the ProAll acquisition, which closed here in the quarter ProAll gives us - expands our market in cement mixing trucks. We have a leadership position in front discharge. We don't have a position in volumetric mixtures. They're a leader in that space. And so that expanded our serviceable market with that product line expansion. Similar to what we had done - at the end of last year to stand with our MDS acquisition, that was a product line extension as well, the data is of product lines that we didn't have that we could put - use their existing distribution for our existing products. And expand use our distribution channel to put that product, and we're seeing substantial growth in both those platforms as we go forward. And then finally, we announced the acquisitions, smaller acquisitions of ZenRobotics, and that's really a technology play that gives us the opportunity to expand some of our environmental services business where we can take a comprehensive solution for our customers. Put it together with some of our technology, marry it with the ZenRobotics technology and offer a complete solution to customers in the recycling industry. So again, a nascent move for us or a smaller move for us on ZenRobotic but again, on that theme of technology investments that enhance what we currently offer are offering or expand into other areas. And I think you're going to see more of that as we expand our - we've got the balance sheet. We've got the cash flow, and we're building our pipeline along those dimensions. We do think there's going to be an opportunity to grow our MP, not just organically, but also through inorganic investments.

And Stan, we'll always be disciplined in any M&A activity, and we want to make sure that we have - that any acquisition is accretive after the first year of purchase accounting adjustments. And also that all of our investments will be about earnings cost of capital in the first several years of ownership. So we'll be disciplined, and we think that there's a bright future lots of opportunity in the MP segment going forward.

Perfect, thanks so much for the color, congratulations and best of luck.

Thanks Stan.

Thanks Stan.

Our next question comes from David Raso from Evercore ISI. Please go ahead. Your line is open.

Hi thank you for the question - taking my question. Regarding the organic growth in Europe, I mean, obviously, the backlog is looking very strong. It seems like you have momentum into 2023. It seems like you're implying 2023 at the current time viewed as an up year, the stock is obviously not fully believing that and I'm just curious, when I think about what could change quickly as any cancellations in the backlog? It doesn't sound like the North American market has much of an appetite for canceling anything anytime soon. But I'm just curious, when I think about where you could see it, right, you think Europe, right, and seeing Europe up 36% organic this quarter, 13% last quarter, 26% in the first quarter. I mean it feels like such strength there that I'm just curious, when - you look at the backlog? Just kind of scaling the risk of where you might eventually get some cancellations to change the landscape a little bit about 2023? Your revenues are about 20% to 25% Europe. Is the backlog particularly skewed below that or above that? Just trying to scale a little bit on if we did see some of the orders in the backlog in Europe get canceled, what kind of risk profile is that given what's in the backlog?

Thanks for the question, David. It's not appreciably different than the revenue - split in terms of the backlog. And as you indicated, we have historically high backlog. Our company usually doesn't operate with the level of backlog that we have in terms of overall level of backlog. And if we look at the two respective businesses, on the MP side, at $1.2 billion, that's three times the historical norms of backlog in that business. We are not seeing - David, we're not seeing cancellations or pushouts anywhere right now in the backlog. If we look at our crushing and screening business, there's an example of why we posted our three quarters year-to-date bookings rate. Why did we do that, because it's pretty lumpy quarter-to-quarter, we have the second highest rate that we've had in both segments going forward. Our crushing and screening business, David, we didn't have our order book open for several weeks in the quarter because we were still slotting the orders that we had previously come in. And so, we'll open that order book as we go forward. In terms of Europe, you're correct, David. As we look, we see tremendous strength across both businesses in North America, good strength across Asia. We still have reasonable strength in booking activity in Europe. We look at our material handler business and books business. We did see a slowdown in order activity in our books business, specifically in Germany. We'll see what that looks like now as we go into the fourth quarter, but we did see a slight deterioration there. But again, it was made up with stronger activity in North America. On the environmental side within MP because that's the new business, David, our backlogs are up 50% year-over-year in that business. And again, that is…

And David...

Yes, no doubt. I'm sorry, go ahead, Julie.

Regarding to this David - we'll begin to see - we haven't seen yet the, spend from the three major bills passed in the U.S. None of that activity come through yet, and we would anticipate that coming through in 2023, so very strong.

Yes.

Yes, I mean you would think China next year year-over-year, given the way you approach the market this year. It was obviously also struggling with COVID lockdowns. That China being better, you would think is base case magnitude we can debate. I don't think people are as nervous about North America. It's just that 20% to 25% Europe. I mean even if it's down 20%, right, that's a 4% drag on the whole company? And the rest of the geography should be able to make up for it. But the idea that Europe is still running this strong organically is probably one of the more pleasant surprises so far. And you're saying the orders for 2023 than kind of the new take rate, so to speak, is actually still fairly stable. It's not down materially.

Yes. It hasn't - yes. And that's - I guess that's the pleasant surprise right now. But again, Randy gets - across couple of the businesses, specifically in Germany, we did see some slowdown, but again, made up in other areas.

Thank you very much.

So we'll obviously monitor this [ph] quite closely.

I appreciate it okay. Thank you so much.

Thank you, David.

Our next question comes from Steven Fisher from UBS. Please go ahead. Your line is open.

Thanks, good morning.

Good morning, Steve.

Just looking at the consensus for 2023, if your revenue run rate doesn't improve much from here, it looks like you might need around another 100 basis points of margin improvement to hit the consensus operating income estimates for next year. I guess, to what extent do you see a path to drive that 100 basis points of margin improvement? Is carryover pricing enough to deliver that? Can you get it from technology features, cost management? How do you think about that?

Yes, thank you, and it's obviously early in the year. And - but as we look to 2023, given the level of backlog that we have, we are anticipating growth in both segments, given that strength in the backlog. Now for 2023, we need to see improvement in the supply chain to capture that, and I believe we will begin to see modest improvement. We need to see slight to modest improvement in the supply chain to be able to capture the potential benefit we see there. As I mentioned earlier in my comments, our 2023 backlog is priced at 2023 expected levels, and so our pricing strategy remains. We're going to price to offset material labor and cost inflation that we're seeing so that we're at least price cost neutral. We were behind the price curve for the first half of this year. We caught up in the second half of next year, and we would anticipate remaining at least price cost neutral as we progress into 2023. So that's - and again, with the strong backlog, anticipate growth, we do need to see supply chain improvement to capture that growth. And with the backlog pricing we have we think we can maintain that price cost neutrality going forward.

Okay, that's helpful. And I guess how much is the FX headwind for 2023 looking like at this point, assuming there will be no changes from here? And it sounds like you're a little hesitant to kind of give margin specifics for next year. But I guess, how do you see the prospects for achieving double-digit margins in AWP next year at this point?

I would say that it's early for the outlook. We certainly have seen - this year, we've absorbed $0.45 of negative exchange rate from 2021. And so, if it would continue, we really are seeing - we had $0.14 and that further deterioration from 2021 into 2022 in the third quarter. And we're anticipating, another $0.05 deterioration in Q4. So if we took our Q4, we would use for our planning purposes at this point in time, rates that would be consistent with the end of the Q4. So I guess that's the best I can answer that at this point, Steve.

Okay, great helpful. Thank you.

Our next question comes from Seth Weber from Wells Fargo. Please go ahead. Your line is open.

Hi guys, good morning.

Good morning, Seth.

I guess maybe good morning. Maybe just first a clarification, Julie does the fourth quarter AWP margin include that - does that reclassification continue in the fourth quarter or is that kind of a one-time catch-up situation?

Yes, that was just an entry that we made in Q3 to reclass some transactional foreign exchange from corporate and other to the AWP segment. So that will - that continue. The foreign exchange environment though continues and so they'll be impacted by current FX rates.

Okay. But just that was a one-time.

That was the one-time, yes.

Right, okay. So Julie, I was - I think you made the comments about some adjustments and changes you're making in the European manufacturing foot environment just to kind of react to the current situation from energy, access to energy and costs and things like that? I was wondering if you could just expand on that a little bit, how you're - how Terex is sort of trying to manage the inflationary energy environment in Europe and just sort of the more challenging manufacturing environment in Europe in general? Thanks.

Yes and so overall, obviously, energy costs have increased dramatically across the European economy. The good news for us is that energy, although a component of our cost is not a significant component of our cost. One of the actions and we mentioned in our prepared remarks was around natural gas. Germany - so in Germany, we have a plant our food plant is in Germany so there what we had to do is to install propane tanks. So, that we have availability of propane if they limit natural gas supplies only to go to power generations and to other industrial applications. And so, we need that for our well. We need that for our paint systems and the likes. So there's an example where we had to put in place a backup system, if you will, for the use of natural gas. But that was specific to Germany, it's not necessary needed in our U.K. facilities nor in our facilities in Italy, at least it's not indicated at this time. So that's just an example of a precaution that we took in the advanced natural gas it was going to be curtailed and only go to the power side and not for other industrial applications.

Okay. So are you anticipating kind of just a very modest price increase manufacturing kind of cost of doing business in Europe? So nothing material, it sounds like from a cost perspective for Terex?

We're seeing - no, we're seeing high levels. Just like everybody, we're seeing high levels of inflation across. We've anticipated what we believe those inflationary aspects are going to be across all of our commodities, and we've embedded that into our 2023 price.

Okay no, I was just talking about on the energy side, but okay and then maybe just?

Seth just a little bit of clarity that the energy price - energy is about 1% of our cost of goods sold. So it's - but it's a small percentage relatively of our overall cost okay.

Got it, that's helpful thanks Julie. And then just maybe back on North America AWP, can you just talk to the source of the orders anything unusual from an IRC versus national customer cadence or anything that you'd call out there just from who - where the orders are coming from in North America? Thanks.

Yes, so again, very strong backlog at $2.7 billion, up 44% year-over-year in the AWP segment. Principally, a lot of that is driven by the North American market, seeing continued strength in the North American market and across customer segments. So our backlog is not historically any significantly different than historical past backlog. The market is quite strong as you've seen for the public companies that have reported. They're seeing really strong time utilization on the equipment. And on the Genie side, we're in a replacement cycle, and that replacement cycle has been curtailed because of the industry's ability to meet our customers' needs. So we're going to have the tailwind of the replacement cycle in the Genie business. And then, as Julie said, these significant fiscal investments in infrastructure, the Chip Act, the Inflation Adjustment Act, all that is also providing a fairly strong tailwind for the next several years. We'll begin to see that in 2023 as we go forward. So the backlog is strong. The underlying economic environment looks to be quite strong in North America, and we're seeing it historical patterns in terms of IRCs in national accounts. And again, customers are looking for more equipment, and they're looking for more equipment faster. Those are the dialogues that we're having. And so, we're right in the midst. Even with that backlog at $2.7 billion, we're right in the midst of our large national account negotiations that are ongoing. And so, we'll begin to - we'll book some of that in the fourth quarter some we'll extend a little bit into the first quarter, but that's the comp as we go forward. So pretty healthy activity and no appreciable change thus far in terms of what we are seeing between IRCs and national accounts its strength across the segment.

Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead. Your line is open.

Yes, good morning everyone.

Good morning.

Good morning, Jerry.

John, I'm wondering if you could talk about - you folks have managed the supply chain pretty well this year. But as an industry, price cost has moved in the wrong direction over the past two years. In the past that AWP had comparable sales levels, you folks would be putting up 12% to 15% margins? And I'm wondering, as we think about the price increases that you have in 2023, how much progress can we make towards getting back to those levels? And obviously, not a Terex issue, an industry issue, but I'm wondering from a Terex AWP standpoint, how you're thinking about that?

Thanks, Jerry. As we think about that over the longer term, those margin percentages that you talked about on the Genie side to get back to those levels, it's going to require investments like our investment in our Monterrey, Mexico facility. That's an important investment for us that will help improve the global competitiveness of the business, both from a cost and a capacity standpoint. And again, that project is progressing. So over time, Monterrey will become a more important facility for us. So as we look out over the next couple of years into the 2024, 2025 timeframe, we think that will add about 200 basis points of margin to the business as we go forward. The team has done a really good job, being very aggressive in taking costs out of the business, making it more resilient. Over the last couple of years, we've restructured, if you will, took $90 million or so of cost out of the business. The team will continue to be focused on that. And I guess the third piece is, if you go back in time, Jerry, when Genie delivered those types of margins, the other thing that was there was a very, very different exchange rate environment than we have today. That's back when the euro was at 1.35 to 1.40 versus where it is today. And we import a lot of Genie product into Europe, and at these exchange rates that is a headwind for that business as we go forward. And so obviously, we'll continue to work that, but I think the team is doing a good job. We're driving margin improvement. We obviously recognize we have to continue to drive competitiveness and margin improvement in that business going forward. With our product development efforts, our cost-out initiatives or pricing discipline, I'm confident the team will continue to drive margin improvement in that business.

Super. And can we just shift gears with the telematics fleets that you have now built out in North America and Europe. You folks have better real-time market information than in prior cycles. I'm wondering, can you just talk about the trends that you've seen in operating hours on a year-over-year basis in both markets, if you don't mind?

Yes, high utilization. Our data replicates what we're hearing from at least the publicly traded rental companies, I can say, through the IRCs as well. It's continued high utilization, both our utilization and time, and we're seeing that in the North American market. So it tracks what we're seeing, and it tracks why customers are looking for more equipment because they're operating at incredibly high operating levels, given the shortage of equipment out there. So utilization continues to be strong.

And in Europe, John?

Similar year-over-year, similar in Europe.

Super, thank you.

But again we are not surprised [ph].

Our next question comes from Stephen Volkmann from Jefferies. Please go ahead. Your line is open.

Hi thanks, maybe just a couple of cleanups here. I'm curious about what you're thinking around hospital inventory to exit the year? Is it sort of stay at this level? And what else is driving the increase in working capital, Julie?

Yes so, Steve thanks for the question. Really, the increase in working capital is inventory that we had we had a consistent hospital inventory, as John mentioned $63 million from second quarter to third quarter. And inventory levels remain elevated due to all that disruption, and because we have a strong backlog. So we're still bringing in inventory to support that backlog. Inventories in transit are higher due to ship - extended shipping times and changing in our shipment patterns. So as we talked earlier on the call, we're exporting from China into Europe and to Asia - I mean into Latin America and Asia. And so those lead times are longer and stuff is on the water. So we didn't lower our free cash flow forecast for the year, primarily because of inventory as well as some deterioration again from foreign exchange rates that shifting again from where we were a quarter ago. So those are the - but we had a sequential free cash flow of $53 million in Q3, and we expect sequential improvement in Q4 and positive free cash flow.

Okay great. And then maybe more broadly, I don't know if you can even answer this, John, but I'm guessing there's, been some probably fairly significant productivity penalties for operating in this kind of environment. And so just in the spirit of trying to think about sort of what normalized margins could be, is it possible to ballpark sort of the penalty on productivity that may go away as all the supply chain stuff eventually clears up?

I don't - you're absolutely spot on. I won't necessarily quantify it, but because of the disruption, what we as manufacturers normally drive year-over-year productivity improvements. We have not had year-over-year productivity improvements even on the higher volume, because of the disruption that we've experienced. So as we go forward, get to a little bit more steady state, less disruption then the teams will deliver that year-over-year productivity improvement. But you're absolutely right, that has been a headwind as a result of the disruption we've been facing. And if that disruption wouldn't there, we would be driving - the teams are disciplined. We would be driving year-over-year productivity improvements, and we're not giving this environment right now.

Okay. And maybe in the same vein, I'm guessing that utilities business margin is probably significantly below normal. Is it possible to give any color on that?

Yes, the utilities business has really been impacted by all of that supply chain disruption, the bodies and chassis. And so, the productivity there has been very negatively impacted. So, the utilities margins are lower in the quarter than the overall AWP segment.

Great okay all right thank you.

And our last question will come from Jamie Cook from Credit Suisse. Please go ahead. Your line is open.

Hi, good morning, nice quarter. Most of my questions have been asked. I guess just as you're thinking about taking orders for just because your backlog so extended in AWP. Can you just talk to what your assumptions are on HRC as you're taking orders already well into next year?

Thanks, Jamie, for the question. And so, we do have our hedging program, and so in the hedging program goal is to assure cost certainty. So we're hedging about 60% of our requirements for HRC steel in the U.S. And so, we had - our assumption for the second half of the year is about 10.50 and for Q4 at 9.50.

Okay, thank you.

We are out of time for questions today. I would like to turn the call back over to John Garrison for closing remarks.

Thank you, operator. If you have any additional questions, please follow-up with Julie, Jon or Paretosh. And then also, thank you for your interest in Terex, and I'll invite you again to our Investor Day in the morning of December 13 at the New York Stock Exchange, where you have the opportunity to engage with management and see how we're going to drive this business going forward to deliver profitable growth, profitable long-term growth for the business. And again, stay safe, stay healthy, and thank you for your interest in Terex. Operator, please disconnect the call.

This concludes today's conference call. Thank you for your participation. You may now disconnect.