Terex - Earnings Call - Q2 2013
July 25, 2013
Transcript
Speaker 0
Good morning. My name is Holly, and I'll be your conference operator today. At this time, we'd like to welcome everyone to the Terex Corporation Second Quarter twenty thirteen Financial Results 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.
I'd now like to turn today's conference over to Ron DeFeo, Chairman and CEO. Sir, you may begin.
Speaker 1
Thank you, Holly, and good morning, ladies and gentlemen. We appreciate your interest in Terex today. On the call with me this morning is Kevin Bradley, Senior Vice President and Chief Financial Officer. With him is Kevin O'Reilly, Vice President of Operational Finance Tom Gelston, Vice President of Investor Relations and several of our leadership team members, including our business segment Presidents. As usual, a replay of this call will be archived on the Terex website, www.terex.com under Audio Archives in the Investor Relations section.
I'll begin with some overall commentary and highlights and Kevin will follow with a more detailed financial report and then I'll give some comments and summarize before we open it to questions. We will be following the presentation that accompanies the earnings release and is available on our website. I'd like to request that you ask one question and a follow-up in order to give everyone a chance to participate. Let me direct your attention to page two, which is the forward looking statement and non GAAP measures explanation. 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 materials.
So now let me begin. Turning to page three. The second quarter results for Terex reflected the lighter order environment for many of our products that we highlighted in our earnings revision back in June. We did end the month of June fairly strong accounting for our modestly better results versus the $0.50 to $0.60 EPS range that was anticipated. On an adjusted basis that is, we achieved earnings per share of $0.65 and a reported EPS of $0.18 The difference is primarily for charges for reductions in workforce and restructuring activities in our MHPS, Cranes and Construction segments, along with charges taken in relation to the retirement of $220,000,000 of debt in the quarter and the accounting impact of purchasing much of the remaining equity of the MHPS segment.
As a result as our results demonstrate our segment results were mixed in the quarter. Area Work Platforms had a strong quarter both from a growth perspective up 17% versus the prior year as well as solid operating margins of 17%. Construction continues to be challenged as we continue to trim non core businesses from this segment as well as simplify our cost structure overall. Cream's business continues to see a flat operating environment with weakness continuing in Europe as well as Latin America and Australia in particular. The MHPS business continues to show softness across its core markets.
And as previously mentioned in the first quarter release, we're focusing on aggressive cost control. This segment incurred a pretax charge of approximately $47,000,000 associated with these cost adjustments. Materials Processing executed their operating plan as expected and we're pleased with their profit contribution especially in light of relatively light end market activity. Clearly, there are some near term challenges reflecting the continued uncertainty in many of our markets. As such, we continue to focus on those aspects of our business we think we can control.
The most significant undertaking in the quarter was the collective $65,000,000 in expense associated restructuring and streamlining of the three segments noted. And when fully implemented, we expect to have savings of roughly the same amount annually. Lastly, free cash flow of $40,000,000 in the quarter brings our first half cash generated to $175,000,000 reasonably good overall execution in the part of the year that we would have traditionally seen us using cash. Turning to page four, the page is titled Keys to Success 2013 to 2015. As we continue to make progress on the four short term areas of margin improvement, cash generation, MHPS integration and debt pay down, we've broadened our view toward the keys to achieving our 2015 goals.
Simply stated these are threefold. Number one, portfolio management that is both by products and geography. This does not mean acquisitions, but rather continuous pruning. We've started this process as you know and we will continue. Secondly, simplification.
We are a complicated company built over many years and through acquisitions as you know. We have a focus on simplification in the company today that we feel will reduce complexity and improve our execution. And third, financial efficiency. We want to operationalize the diverse businesses that we have into more of a one company approach where it makes sense and keep local activities also where they make sense, so we can achieve a better return on invested capital. We have numerous projects in this area as we have previously discussed and we are executing.
In the broadest of all terms, we will apply the eightytwenty methodology focusing on the critical few items that we think will be helpful to speeding our way to achieving our goals. This isn't a new direction for the company, but rather an operating framework through which we can run all our portfolio, capital allocation and project decisions. This will ensure that we maintain the right focus and commitment to accelerate actions that improve our chances of making our twenty fifteen goals. I'll come back in a few minutes and provide some segment details, but I'd like to turn it over now to Kevin Bradley, who will go through the financial results on an adjusted and reported basis for the quarter. Kevin?
Thanks, Ron, and
Speaker 2
good morning, everyone. Turning to page five, I'll take us through the financial results for the quarter. Our net sales for the quarter of $1,900,000,000 declined from the prior year period by 5.1 or approximately $104,000,000 Our AWP segment led with growth of 17% versus the prior year and our Crane segment posted 3% growth. The balance of the segment showed year on year declines as the softer than anticipated macro environment continued to dampen our commercial efforts. Gross margin as adjusted decreased 40 basis points to 20.9% from the prior year period, as improved price realization and manufacturing efficiencies in our AWP segment were more than offset by the impact of net sale declines in our Construction and MHPS segments.
Negative sales mix in our Crane segment also contributed to the reduction. SG and A as adjusted increased to 13% of net sales from 12.6% in the prior year quarter. On a dollar basis, SG and A spending levels declined as we continued to cut costs in both construction and MHPS. These reductions were partially offset by increased engineering investment in both AWP and cranes. Income from operations as adjusted declined $25,000,000 to $150,000,000 or 7.9% of sales from $175,000,000 or 8.7% of sales in the prior year quarter.
Our AWP segment posted solid incremental margins during the quarter approximately 26%. However, performance declined in the balance of the company driven primarily from volume reductions. We are taking aggressive action to reduce future costs and remove complexity from our operations as evidenced in our reported numbers. Net interest and other expense was down roughly $13,000,000 when compared with the prior year quarter. Net interest expense reduction stemming from the refinancing and deleveraging actions executed in 2012 accounted for substantially all of the improvement.
In the second quarter, we also paid down an additional $220,000,000 in senior term loans consistent with our strategy to further deleverage the company. The effective tax rate in Q2 was 58.9% compared to 35.4% in the prior quarter. The increase was mainly due to losses in the quarter that did not produce tax benefit and changes in uncertain tax provisions. As reported, earnings per share for Q2 was $0.18 versus $0.75 in the prior year. For the quarter, earnings per share as adjusted was $0.65 compared to the $0.75 in 2012.
I'll walk through a bridge detailing these adjustments in a moment. Net working capital as a percentage of annualized sales was relatively flat at 23.4%, a slight improvement from the 24.2% reported in Q2 of last year. Return on invested capital declined to 5.6% from 7.9% in the prior period with our restructuring and related actions in the quarter as well as the reduced operating performance of the business being the main drivers of the change. Now turning to page six. In the second quarter, we continued to focus on some major initiatives that position the company for stronger results going forward.
The first adjustment is related to the retirement of $220,000,000 in senior term loans previously discussed. As a result of this transaction, we recorded a loss on the early extinguishment of debt of $5,200,000 or $03 per share. We have taken significant restructuring and related actions in Construction, Cranes and Material Handling and Port Solutions segments. In our Construction segment, we continue to focus on reducing overhead and complexity. We completed the sale of our German compact component businesses during the quarter.
The combination of these activities resulted in charges of $05 per share. In our Crane segment, we have implemented cost reduction actions to better align production in our all terrain crane facility in Wallersheide, Germany with our current view of the marketplace. This action resulted in a charge in the quarter of $09 per share. For MHPS, we communicated in April that we would have restructuring and related charges in the range of 30,000,000 to $50,000,000 The actions taken during the second quarter resulted in charges of $46,500,000 or $0.33 per share. These actions help to position us for a profitable second half in MHPS.
In aggregate, restructuring and related expenses accounted for $65,000,000 of expense in the quarter and impacted EPS in the quarter negatively by $0.47 Ron will comment on some of the specific impacts of these actions in a moment when he goes through the segment results. Lastly, we show the impact of completing the purchase of approximately 14% of the shares of Terex Material Handling and Port Solution formerly known as DMAC Cranes AG that was executed yesterday for approximately $225,000,000 This transaction was funded through the short term use of our revolving credit facility, which will be paid down with existing cash and cash from operations in the coming months. Consistent with our purchase of these shares, we reversed the guaranteed payment accrual in the first quarter and this impacted the this impact of the reversal was an incremental income in the quarter of $3,100,000 or $03 per share. This purchase puts our ownership position above 95% and enables us to acquire the remaining shares of the company through a squeeze out process. This action will allow us to further integrate the business and remove the public company cost and complexity.
All this brings us to a Q2 adjusted EPS of $0.65 With that, I'll turn it back to Ron.
Speaker 1
Thank you, Kevin, and I'll review the segment detail. I'll go through these charts somewhat quickly starting on page seven and beginning with the conversation on Terex Area Work Platforms. A pretty good second quarter. We've got reasonable visibility to the 2013. Global demand we feel continues to strengthen.
Our margins are pretty solid. We're happy with the reported 17% operating margin in the second quarter. Our backlog is up compared to prior year about 38%. We see some expansion happening through our telehandler product line as we're adding a few new products and improving our capacity. A couple of noteworthy points on revenue mix.
You see our North American business represents 68% of our total business down from 71% last year and a flat European percentage of 13% encouraging to us because 13% this year versus 13% last year on a business that's up 17% means that our European business is growing, which is a good sign for an overall difficult market in many of our other product categories. Latin America also had a very strong period for this business. Turning to page eight, our construction business. The construction business as many of you on the call clearly recognize has had some difficult end market performance. Certainly our performance reflects that.
Global markets remain soft for dirt and scrap handling equipment. Our revenue was down 29% compared to the prior year. We're focusing this business on some simplification and cost structure reductions. We sold our compact component businesses as we said we would. We're restructuring further cost initiatives to take some people and related expenses out $2,700,000 of charge and a $3,400,000 benefit.
We've eliminated four facilities with a 12% reduction in team members. Of note on the numbers, we lost $2,000,000 on twenty nine percent reduction in volume compared to last year's $10,000,000 profit. It does appear to us though that the backlog is stabilized $180,000,000 this year compared with $179,000,000 last year except for our scrap steel related product category of Fuchs. You can see the split revenue wise. North America actually becomes more important here as North America performance is down less than the other markets.
Europe actually dropped here 30% to 35%. So overall, the Construction segment we understand continues to require a lot of attention. We're working very hard to return this business to profitability. We continue to see some headwinds. But we expect that we'll make progress and we'll position it for a better 2014.
Turning to page nine, Terex Cranes. Here as well some mixed performance by markets globally. Cranes actually are a bit softer than we anticipated coming into the year. We have had some order improvement on large crawler cranes, a category where we have very strong position globally. On the other side of this, there's been some negative product mix impacts and it's impacted our margins in particular a couple of areas of the world where we have strong performance have softened up.
There's been a number of improvement operationally from our utilities business. We have implemented a restructuring and related charge of $15,000,000 in this business and expect to achieve $16,000,000 of gains as a result of that into 2014. You can see the numbers as we reported a $38,000,000 adjusted EBIT or income from operations rather. Backlog is one of our biggest challenges here down from the $815,000,000 of last year. But as we've previously stated that $815,000,000 did include more than $100,000,000 of backlog that we canceled that was pre positioned in an attempt by our customers to secure pricing from prior periods.
So net net we've got some strengthening that's happened in North America, but we see the North American market softening a tad. Latin America is down meaningfully and Western Europe is weak. We realize that the second half of the year we need to hustle to make our goals, but we've got a lot of activity that is encouraging,
Speaker 3
but it's hard to bring
Speaker 1
it to conclusion at this stage. Turning to page 10, our tariffs material handling and port solutions business spending a minute on this. Revenue declined 16%. That's a moderately smaller decline than the 23% in the first quarter, but we see revenue improving pretty meaningfully in the second half of this year. The industrial cranes business was down 13%, Port Solutions down 26%, but ports has a very big backlog.
Key to this business has been to adjust our cost structure based upon the realities of the current market environment, which we don't see changing that much going forward. Western Europe as a percentage of our total dropped to 42%. The Latin America increased from 8% to 19% reflects delivery of a couple of big port orders in June. I don't think Latin America will on an ongoing basis represent 19% of our overall business. But on page 11, we really want to focus you to the restructuring costs.
We had some broad based headcount reductions across many functions SG and A direct indirect manufacturing Germany, Italy, Brazil, India, Austria, Dubai across the board. We think these actions were necessary to return this business to profitability at the lower volume levels. We also took some aggressive action in our Port Solutions business. The Italian operations had charges of about $16,000,000 related to the redesign of this business and to improve the results in the light port equipment business some of the smaller port products that we have. Overall and it's important to mention that we expect almost as much cost savings annualized as a restructuring charges and anytime we can take action that has a one year payback we want to do those projects all day long.
Turning to page 12, Terex Materials Processing business. This business is reflecting the fact that the minerals markets are down. We had decent profitability in a challenging environment. Europe remains weak here. We are focusing our cost structure to help offset that.
We think we performed reasonably well in this segment with $25,000,000 of income from operations compared with 29,000,000 the year ago period. As you can see in the mix of business, not a lot of change year over year. Overall, this business is being led and managed with a focus on good execution. Turning to page 13, which summarizes our best view by segment on how we believe the revenue and operating margins will develop across the year. Now obviously there is but looking at this by segment there is areas where we might feel that we've got a better chance of meeting these numbers or a weaker chance.
But overall I just want to focus you to the company in total. We believe revenue will be 7,500,000,000.0 to $7,700,000,000 with an operating margin of 6% to 7%. And we know compared to what we started the year that it's a full margin point down with a meaningful amount of revenue reduction from the 7,900,000,000.0 to $8,300,000,000 that we originally expected. While that is reduced, we're focused on each one of the segments of trying to achieve both the revenue and the operating margin. We're happy to answer your questions as we go through this on any detail related to this.
So in summary, our company we feel is trying extract value from the business by executing on what we can control. We've reduced debt. We've taken out our highest cost capital. Those are things that we think will be important to leverage our earnings in the years forward. We're lowering our cost structure, in particular addressing aggressively the material handling and port solutions issues, some issues in our cranes business and in our construction business.
We're going to for the midterm manage our portfolio aggressively. We will work on simplification and financial efficiency because we think they are meaningful areas to harvest from those categories as we previously stated. We understand that our revenue goals require some improvement in the back half of the year in a relatively uncertain market, but we expect to do our best efforts to make this year as good as it possibly can be. We certainly have not given up on the full year and expect you can expect that we will do our best in the coming months. Thank you.
And I'd now like to open it up to your questions. Holly?
Speaker 0
Thank you. And your first question will come from the line of Eli Lustardan, Longbow.
Speaker 4
Good morning, everyone. Good morning, Eli. It could have been a lot worse, right?
Speaker 5
Yes. Can you give me some idea? Zuldupam, you talked about a little stronger June at the end, which helped with above. Yet obviously the guidance was held the June 17 guidance was held despite the beat. And as I look through the new segment forecast, you set up one of the questions is obviously we have risk in some places.
Can you talk about the segment of ways your confidence level in these new guidance? I mean particularly AWPs you actually have the margin going down in the second half of the year I believe versus what you had in the first half despite a little stronger market. And then the other markets there's some uncertainty particularly in cranes and the European outlook. So can you give us some color on what's going on as you look at the risk for the rest of the year?
Speaker 1
Okay, Eli. And I think you hit on the main opportunities and risks for sure. I think the AWP forecast is really structured in how this business would traditionally perform with the fourth quarter being the most uncertain quarter of all as customers really like to get delivery of products in the first and second quarters with a slowdown of their deliveries in the third and fourth quarter. So we've structured our information here fairly traditionally. Having said that, the marketplace is telling us that they need equipment, they want equipment in general and that may be an upside.
But at this stage it's hard to tell. On the flip side, we obviously got to go get some business in our cranes area. I think we did $992,000,000 of revenue in the first half and the midpoint of that guidance we're providing is $2,100,000,000 So obviously there's 100,000,000 to $125,000,000 of incremental revenue performance that we have to go get. And we realize that and we realize that the current backlog probably doesn't support that. However, our team is pretty dedicated.
We've got good lines of sight to opportunities. That doesn't mean we'll win those opportunities, but we've got good lines of sight to those things. Clearly Tim can comment later on if you want. But those are the a bit of the yin and yang so to speak of the business. I do want to also point out the importance of the Material Handling and Port Solutions turnaround.
And our forecast is for that business to actually be profitable in the second half of the year and to show meaningful revenue growth in the second half of the year. And clearly the backlog supports that. If you look at the backlog and examine the third quarter of twenty twelve that business' backlog really bottomed out and that is really what resulted in the weakness of the first second quarters in the revenue from that side. So it's a bit of a mixed story. We know the end markets aren't going to help us a whole heck of a lot.
But I think you hit on the basic issues and opportunities.
Speaker 5
And just a quick follow-up. As you go after business in the second half of the year or so, can you talk a little bit about what you're seeing in pricing versus the markets? I mean, we're even surprised a little bit Caterpillar talking about some very competitive price market particularly outside North America. And particularly as it reflects to getting better margins in cranes and of course the other businesses, but can you talk a about the pricing environment?
Speaker 1
Yes. I think pricing is different by business. And obviously the stronger markets will have the stronger pricing environments. But the one that's most probably on people's minds would be cranes areas. Why don't I ask Tim to comment on that?
Speaker 4
Yes. Thanks, Ron. Eli, one of the things we've been focused on for the last couple of years is improving margins in our crane business. And if you look at our performance on a quarterly basis and on a year to date basis year over year, price is actually slightly positive. And if you look at it on a sequential basis, we're also slightly positive.
So I feel pretty good about the discipline that we're maintaining in the marketplace. I see our competitors being relatively disciplined. There's always a deal that you lose here or there based on price. But generally speaking, it feels to me like the market is fairly disciplined even in an environment where
Speaker 1
it's a challenge to get the orders.
Speaker 5
Great. Thank you very much.
Speaker 1
Okay, Hila.
Speaker 0
And your next question will come from the line of Jamie Cook, Credit Suisse.
Speaker 6
Hi. Good morning. Ron, a couple of questions. One, back on the aerial side, I guess still if I could just dig a little deeper because your margins in the second half versus the first half assume you're down. I don't know I think margins go from 15.5% in the first half to 13.5 in the second half with United Rentals coming out saying that their CapEx forecast could be positive.
And I would also assume that material costs probably are a tailwind for you in the second half versus the first half. So I just want to make sure I'm thinking about this correctly. And then also I think last year people came out and announced price increases for in August. So are you going to do that again this year because it could have implications for ordering trends? And then I guess my second question relates to the construction business.
Just trying to understand at what point I mean first of all I think you guys sold the components business within construction. So is that a benefit in the back half of the year? And how much? And so, I guess I'm just disappointed that we'll still be losing money if that is a benefit? And after that I'll get back in queue.
Speaker 1
Okay. I'm going to ask Matt and George to comment on this in a second. But I do want to make a point about the construction business. And we're very conscious of what we need to do in construction to get this business to a more respectable profit performance. The two principal businesses in construction that have the greatest historical profit contribution Our Tel Trucks business that's Terex Equipment Limited trucks business in Scotland, headquartered in Scotland and our material handler business or what has traditionally been called our Fuchs business.
Both of these businesses have a good history of profitability more years than not. Having said that, the current outlook in trucks has been very challenged in particular because we bump up against the small mining size and in the non residential construction on articulated trucks. And a substantial portion of this business also went into China through our Chinese joint venture and the kits and products that we sold into China. All of those product categories industry wide for this year at least have been pretty challenged. And the Fuchs product line is a steel scrap product.
And frankly speaking, the price of steel is a real benefit to Terex overall. But for Fuchs in particular embedded in our construction business, it's a real headwind and has so all the work that we've done within the construction segment to get our breakeven cost down and to address a fairly poor end market environment, we're still not able to capitalize on because of those two primary end markets of those historically fairly strong contributors. So I think we'll keep working this. We understand the issues, but that's kind of a nutshell of the construction. Maybe Matt you can comment on first half, second half AWP and the pricing environment etcetera to answer Jamie's question there.
Speaker 6
But just to be clear Ron, when you just the components business was that losing money? Is that a benefit in the second half or no?
Speaker 1
George, you want to answer that? Yes, Jamie, thank you for the question. And the answer is yes. With that sale completed, it was losing money. And the construction business in total, Ron mentioned the two main drivers being down in the first half.
We are definitely seeing some improvement on the truck business as we look into the second half of the year, which will help. And also the losses have been mitigated on the component business sale. And also we're still working through the remaining road building businesses that had been losing that will flush through as we go forward for the rest of the year. So when you say what is the clearer picture, the compact business is doing well. We hope for some improvement on the truck side and also the relief from the road building improvements will take effect in the second half.
One of the things Jamie on the components business is it relieves us of several 100 people in Germany. And while it was losing money, it is not going to be the change that turns the segment from negative to positive. So it's a net positive, but it's a big change relative to the amount of people liabilities that we have going forward in that operation and provides an ability of our team to clearly focus on the product itself of mini and mid excavators and small wheel loaders so that we can be the best we can be in that and get out of all nonsense where we really don't have a lot of value that we can add. So I hope I've answered that question completely for you.
Speaker 6
Yes. Thank you.
Speaker 1
Okay. And Matt?
Speaker 7
Yes. Good morning, Jamie, and thanks for the question. In regards to the margins in the second half versus the first half, as Ron said, margins traditionally and
Speaker 2
it's
Speaker 7
an obvious question when we're expecting strong top line growth. Some of the things that come into it is as we move into the back half of the year, we've been adding quite a bit of capacity on our telehandler line and they are traditionally a lower margin product. So there's a mix component in there. In addition to that, we are starting to prepare for a big 2014 and we're adding second shifts. So with that, there's a little bit of as you do the switchover, there's a little bit of operational inefficiency.
The other piece on the pricing environment, it's remained stable and predictable. And the biggest price increase that customers experience next year will be related to the Tier four engines. We're starting to do that conversion and it will carry through 2014. With that being said, we are considering a modest price increase for 2014.
Speaker 6
Okay. And when will you when will that go out to the market? I mean, you'll announce it before January, right? So I'm just trying to figure out whether or not that would create a pre buy ahead of the price increase?
Speaker 7
Yes. It will be similar to last year. It will be effective for January 1.
Speaker 6
But when will you announce it? Would you announce it January 1 or August of Will be
Speaker 7
before that. It will be
Speaker 6
do get a material cost benefit in the back half?
Speaker 7
Material cost has been favorable this year. Year to date, the commodities have been flat. In particular, steel plate has been flat. We have seen coil start to tick up a little bit. But in general, you're right.
It is a tailwind for us.
Speaker 6
Okay. Thanks. I'll get back in queue.
Speaker 1
Okay. Thank you, Jamie.
Speaker 0
Your next question will come from the line of David Raso, ISI Group.
Speaker 8
Hi. Good morning. You're not you weren't breaking completely new ground with the comment by any means, but just want to make sure I'm reading it properly. You seem to be emphasizing the portfolio management pruning commentary a little bit stronger this morning. Am I reading that properly?
Are there some things afoot that there's going to be further actions coming in the next six months or so?
Speaker 1
David, I'm dedicated to managing our business and our portfolios appropriately. And I think if you know me a long time, you know that every day I wake up in the morning, I look at our portfolio as critically as I possibly can and say where can we be a winner, will we not be a winner. And even though these things take time and they take energy, we're going to continue that emphasis. I wouldn't read that my desires and emphasis has changed at all, okay? But I would say that it's an important thing to emphasize because we look at the realities of the market and the markets tell us something.
We're listening to those markets. Our performance tells us something. We're listening to those performances. And if there are things that we can do to improve or accelerate or adjust, we're going to do those things. Now the problem we have is we can't tell you when we fail at trying to do something.
We only tell you when we succeed. But the only thing I can say to you is please have confidence that we look at the same numbers you look at.
Speaker 8
My direct questions. MHPS, the second half of the year and I know it's a lumpy business with some of the port shipping and so forth in the second half and into early next year. But trying to get a feel looking into 2014, how you're thinking about this business on a profitability level.
Speaker 4
The back half of
Speaker 8
the year the revenues are implied at $940,000,000 a lot higher than the $710,000,000 or so you had in the first half. In the second half of the year the business is slightly profitable implied in the guidance. Just roughly speaking frame it for us to some degree knowing what's afoot with the work councils in Europe and other actions you're taking. If the second half of this year became ideally somewhat run rate revenue $1.8 kind of annualized 1,000,000,000 point dollars Knowing the actions afoot, how should we think about I'm not trying to ask for 2014 margin guidance exactly for MHPS, but how should we think about the profitability of that business in 2014 if you could have similar revenues as the second half of the year?
Speaker 1
Well, I'm going to throw that to Mr. Filipov. Steve?
Speaker 9
Yes. Thanks for the question, David. For sure, we've got a big back half of the year. And as Ron said, we're going to be profitable in the back half of the year, but we're starting in a pretty big hole from the first half of the year. So for sure 2014 is going to be a better year for MH and PS.
And as you know the 2015 target is to get to 7.5% operating profit. So I think it's fairly easy to kind of do the math there on where we need to be in 2014. What I will say is on the other point of the worst council negotiations and the restructuring, you're right that's going to take some time. But that's why we're doing that today because we want to get it done with by the end of this year so that we're set up for a good '14. So hopefully that gives you some color.
And I think you also should consider that next year we still have a couple of $100,000,000 of large automation projects that we're going to be delivering to the tune of probably about $300,000,000 So that's going to help us in 2014. Now we're starting to deliver Steve, that the Rotterdam? We have so we've projects right now. We have two in Rotterdam. One is Rotterdam World Gateway.
The other one is APMT. And then we've got Long Beach, California, is the third one. And Long Beach really won't start until 2014 through 2016 and 2017. So there's a big nut there. But we're we've got those three.
I would say that there's some other projects that are on the table. I think the other thing is we tend to think of the automation business as a one off business. But the reality is it's an ongoing business for us. I mean there's probably 11 ports that are running our automated guided vehicles throughout the globe today and we're the market leader in that business. So it does tend to be lumpy, but the market is really moving towards automation.
Speaker 8
Well, I mean what I was sort of fishing for is the idea of the business doesn't get a ton of attention except for some negative news the last couple of quarters. But if this business does have those shipments in place for next year and you're modestly profitable in the second half, so let's take the guidance for face value the rest of the year, if you could even do 3% margins next year on $1,000,000,000 of revenue, it's almost a $0.50 per share earnings swing year to year just in MHPS. And I'm just trying to get some framework for us here on how you're thinking about the business at that revenue level is even a 3% which is not even halfway to the long term target. Is that even realistic or am I not appreciating maybe some of the pricing was challenging to win the Rotterdam or the other projects?
Speaker 9
I think the other piece David is the MH business, material handling business, the industrial crane business. I mean we're off substantially from last year 13%, 15%. That is the real question that we've got to address. We're going to have some challenges there because half of that business is in Europe. So we've got to fix that business why it's so critical for us to really lower that breakeven point and that's what focused on.
So MH and PS is really two businesses. The MH business is the bigger piece of it to be honest with you. So those are that's kind of the question mark. I think port, we've got good visibility to what's going on. At the same time, I am really pushing to get margins up.
And we're going to pass on some deals because we have to get our margins up in the port business as we do in the material handling business. So we're going to be selective on getting the deals.
Speaker 8
And last two quick things. Matt, you mentioned preparing for a big 2014. Was that just a telehandler comment? Or was that a division comment?
Speaker 7
Well, it's in general, we continue to see that the market is going to continue on the growth pattern that it has. Looking at our guidance that we've provided out to 2015, that sets us up that we have to see steady growth over the next couple of years. So telehandlers continue to be the strongest of the product categories, but we expect that will slow down and the rest of the product portfolio will continue to grow.
Speaker 5
And is this based off
Speaker 8
of your theory on how the industry should play out? Or are you already getting some indications for customers on 2014 for Teles and Aerials?
Speaker 7
It's both. In other words, we have modeling that goes out longer term. Typically, when we're talking to customers, it's six to nine months out that where those conversations are. So we use a combination of conversations with customers and some modeling that we do internally.
Speaker 8
Thank you very much. I appreciate it.
Speaker 1
So David, I'll make a point because we've spent a bunch of time around this. The point I want to make is Terex is not a one trick pony, okay? There are opportunities in each of our segments to meaningfully change that 2014 and 2015 performance and we don't have to hit on all cylinders to make really good progress whether that's the points you made on MHPS, opportunity in construction, opportunity in cranes and in general there are more positive opportunities than there are negative, but there's clearly some negative places. So I think this continues to be some of the challenge that we have, but we've got really some decent things that we feel we can accomplish if we just stay focused on our basic execution. Next question?
Speaker 0
Your next question will come from the line of Rob Wertheimer, Vertical Research.
Speaker 10
Hi. Good morning, everybody.
Speaker 7
Hi, Rob.
Speaker 10
Just wanted I guess this is for Tim. The nature of the decision you made on a little bit of restructuring in Cranes, is there anything as you continue to sort of move into the business that you see that is more structural and you're seeing opportunities to take? Or was this really a cyclical decision?
Speaker 4
Thanks for the question, Rob. The decision that we took in Germany in particular really was one where we had to make a decision on how we want to structure our workforce. For the last couple of years, we've been using a methodology to manage our workforce called short work, which includes temporary reductions and shorter workweeks for our team members. By law in Germany, you run out of time and you've got to make a decision on how you want to manage that. And our view was that we'd be better to take the action now and the hard decision to reduce our workforce basically to the level we've been operating at, but to do it in a permanent way.
So this may on the surface look like we're reducing or restructuring our overall capacity. But the reality is what we're doing is aligning our workforce with the way we've been running the business for the last couple of years.
Speaker 1
And we think this will be more cost effective. Absolutely.
Speaker 10
Makes sense. And are you seeing many more opportunities or situations rather like that right now? Or do you wait and see what arises?
Speaker 4
Yes. I would say that we're always looking at aligning our workforce and our production volumes with our outlook in the marketplace. So where markets are soft or need to be managed, we will adjust workforce accordingly. You can look around and see where the markets have been softer this year, have been a little bit in Australia, and we've taken some modest actions with our team there. The North American market, which has been very strong in the first half, is going through a little bit of a pullback as inventories get aligned and we're evaluating our production needs out of our North American factories.
So you can look around and see how those markets are playing out. And we're trying to be much more disciplined and much more aligned in our sales what we call sales value of production really the production value and managing it on a very close basis to our outlook from a revenue standpoint.
Speaker 10
Thank you. If I can ask just one small follow-up. Is there any competitive or market overspill on materials processing? Ron, mentioned on the Arctic truck just the tiniest bit of maybe interaction with low end of the mining side. Do you think there's any forward looking risk in materials processing from other folks in mining?
Speaker 1
Kieran Hagerty, you want to answer that?
Speaker 11
Yes. I mean, we have as Ron pointed out earlier in the piece some exposure to minerals. But the majority again majority of our mineral production is actually what we would consider periphery mineral production. So it tends to be construction roads and mine sites etcetera. Overall, the biggest correlation to our business is general construction activity.
So it's probably to be honest, probably more aligned better with just broad construction, whether that's commercial or housing, because the vast majority, probably 90% of our products actually produce aggregate, which is used in construction as opposed to a non mineral aggregate. So whilst we have some mineral exposure, we're much greater exposure to the general construction cycle.
Speaker 10
And sure. And I'm sorry if
Speaker 1
I wasn't clear, but is
Speaker 12
there any
Speaker 10
competitive impact as folks who might have more overlap in both markets see mining off?
Speaker 11
In terms of any in terms of what respect, sorry?
Speaker 10
Pricing pressure from your competitors.
Speaker 11
I mean, similar to the other segments in construction, we get our competitive landscape varies tremendously by market. There's reasonable there's a good pricing environment in North America based on demand in Europe. Again, and it's competitive specific because it's not a uniform picture. It depends on the country. U.
K. Is at the moment highly price sensitive. You've other markets are a bit more conservative. So there's not a uniform picture. Overall, there's probably a reasonable degree of stability in pricing, but it can vary dramatically by market.
Speaker 10
Thank you.
Speaker 1
Thank you.
Speaker 0
Your next question will come from the line of Ted Grace, Susquehanna.
Speaker 13
Hey, guys. How are you doing?
Speaker 1
All right, Ted.
Speaker 9
Ron, I realize the focus at this point is on the back half
Speaker 13
of this year and the realities of where we are in the backlog front kind of limit the visibility. But in a couple of discussions around segments, there's been at least brief kind of commentary on 2014. Could you
Speaker 7
give us maybe just kind
Speaker 13
of a framework since I realize you haven't introduced any kind of formal guidance on 2014? And then kind of how we should be thinking about the twenty fifteen goals that you introduced at the Analyst Day? I mean you've got a lower trajectory for sure. There's a lot of time between now and then, but just any kind of framework or commentary would be helpful.
Speaker 1
Okay. I don't really want to do this by segment and with a tremendous degree of specificity because our process requires that we go through each of our businesses toward the end of the year, reflect upon what's doing well, what's not doing well. In order to provide guidance for 2014, it will be a more detailed analysis. The goals we have for 2015 haven't changed. And in my opinion there's a reasonably big difference between goals and guidance.
Think the goals are set out there because we believe that's the potential we have in our And I think that potential would add up to $10,000,000,000 company with a $1,000,000,000 of operating income and approaching $5 a share of earnings. In order to do that, we obviously have to perform substantively better in a couple of our key segments continuing the positive trend in AWP, turning our cranes business into a little bit more growth oriented although I do want to point out that the cranes revenue is not expected to get back to the prior peak nor is the revenue in our Material Handling and Port Solutions business intended to get back to the prior peak. So I think having lowered our guidance in 2013, it obviously makes that 2015 goal seem a little bit harder to achieve. Having said that, about two thirds of what we have to do we feel is within our own control with about a third having to come from better markets. I can't predict better markets, but we're going to keep working on those things that we can control and if we can get some better markets cranes for material handling, port solutions products for some of our construction products etcetera.
I think we got a good chance of making those 2015 goals. I can't tell you at this moment whether it's a direct line, a hockey stick or a minor hockey stick between 2014 and 2015. But we're going to do our best to try and none of this none of the members of our management team at all have given up on trying to achieve those goals. The key of those goals portfolio management, simplification and financial efficiency.
Speaker 13
That's helpful. And so in terms of the two thirds of the improvement that you have more control over, how should we think about the cadence of the benefits of
Speaker 7
the restructuring in terms of
Speaker 13
what you think you'll realize in the back half of this year from a cost saving standpoint versus what we should anticipate and build into our expectations for next year?
Speaker 1
We've got some minor benefits in the back half of this year, but almost all of those benefits will take place in 2014. And that's nearly $65,000,000 maybe 50,000,000 of which will be incremental in 2014.
Speaker 13
Okay. That's great. And then the last question I just wanted to ask is to get to the $5 can you just remind us do you have is there any need for incremental restructuring beyond kind of what we're aware of today?
Speaker 1
If I was aware of the restructuring and have to do I'd already have done it. So I think that's one of our real challenges. But I do think we as part of this we got to keep working on our balance sheet as well. By that I mean pay down some more debt. I think the opportunity to get at that convert in 2015 is possible.
So I think that's an element of what we have to do also.
Speaker 13
Got it. Great. Best of luck this quarter guys.
Speaker 1
Thank you.
Speaker 0
Your next question comes from the line of Sean Williams, BB and T Capital Markets.
Speaker 11
Hi. Good morning. Good morning.
Speaker 14
I wonder if we could just touch again maybe dig a little deeper on the crane margins in the quarter a bit incremental margins much weaker than I expected. Just kind of talk about I think you mentioned some mix issues. Does that continue into the back half? And then also could you talk a little bit about maybe just addressing Bauma and the orders? Obviously not a lot of sequential improvement in orders in Q2 versus Q1, but is there still opportunity to capture some orders as we go down the road here a little bit just from your discussions that you had back in Q2 at the Bauma show?
Speaker 1
Well, I'll turn this over to Tim in a second. But I'd say at Vommel we had a lot of love but not a lot of conversion when we got home. And I think the emotion of the market was good but you got to work still pretty darn hard to convert that business. But Tim, maybe you want to comment about the margin and
Speaker 4
Yes. Sean, thanks for the question. I would characterize our cranes market as a choppy but recovering market. And I think we left to Ron's point, we left Bauma with a false maybe a false sense of enthusiasm around where we were in the recovery. If I look at our order intake rate on a sequential basis, we're up from second half last year to first half this year.
Our crane products or sorry, our segment revenues orders are up about percent. So second half last year, first half this year, order intake is up about 10%. That's encouraging. In addition, I also look every Monday morning on a phone call with our sales leaders around the world at our quote activity. And since April, our quote activity is up 30% in cranes.
And on a year over year basis, it's up 13% in utilities. So that gives me some degree of encouragement that there is an opportunity for growth out there. That being said, a lot of these deals are taking a very long time to close. These are big complex transactions and our customers are uncertain about where the economy is. So they're waiting until they're absolutely sure they have the business before they place an order with us.
So I think that's kind of giving us a sense of encouragement on the one hand, but recognizing that it's a long gestation period to get these orders in on the other. From a margin standpoint, clearly, we were looking for and continue to look for margin improvement. As I said, our pricing is up slightly on a year over year basis as well as on a sequential basis. Where we've lost a little bit is on the product and margin mix, product and geographic mix. Australia for us is down 20% to 25% year to date and Australia has been a very good market for us for the past couple of years.
We've had some increase in some of our lower margin product categories and a slight decline in some of our higher margin product categories. So I think from a mix standpoint, we've seen a little bit of decrement to our overall margin standpoint. I'm not overly concerned about it. I think as we go into the back half of the year, we'll see it more normal a more normalized balance. And I'm confident that we'll be able to get back to the levels that we would have expected.
Speaker 14
Okay. Thanks. And then as a follow-up, could we just talk a little bit about the cadence of the quarters in the back half of the year? I know material handling, I believe, had some large shipments going out in Q3. Can you just talk about what we should be expecting kind of Q3 versus Q4, again kind of versus normal seasonality?
Speaker 1
Yes. Let me just quickly comment because we're we got a number of other people on the line that I think would like to get a question in here. But I think in general we expect a little bit stronger performance in the back half of the year that's different than what might be a normal cadence. It varies by business. We've commented on AWP already.
What I'd say about Material Handling and Port Solutions is the third quarter tends to be the strongest quarter from a standpoint of services and parts. But the fourth quarter will be better because of some bigger shipments. The third quarter in cranes is likely to be a little bit weaker due to the traditional vacation periods and this year will probably be no different than that meaning we expect a little bit stronger fourth quarter. MH, I mean the material processing business is probably pretty normalized, weaker third quarter stronger fourth quarter kind of situation. So I think those kind of even out.
If I looked at the company overall, I'd probably say a little bit weaker third quarter than fourth quarter, but that's not that unusual.
Speaker 12
All right. Thank you.
Speaker 0
Your next next question comes from the line of Andy Casey with Wells Fargo Securities.
Speaker 3
Good morning, everybody. Thanks for taking my questions. On cranes, could you talk a little bit more about your comments related to North American adjustment. Is that related to any specific product areas? Is it basically all except crawlers?
I'm just trying to understand that.
Speaker 4
Andy, thanks for the question. North America is for us a large terrain crane market. I would say the North American market probably got a little ahead of itself in the first half of the year. Housing is improving, but there's really a second order effect in the crane business with housing. The housing development goes up and it's the retail, the school, the that sort of thing that drives the crane activity.
Oil and gas has been particularly strong in the crane market. I think Matt would also say the same thing for the AWP business as well. And it's particularly strong in the Gulf States right through the Midwest and the heartland of The U. S. And up into Canada for that matter.
When I talk about a bit of a pullback on the North American market, I think it has to do more with distribution managing its inventory levels than any overall correction happening in the marketplace.
Speaker 3
Okay. Thanks for that. And could you also provide a little more color around the Latin American market? And then lastly on the back half opportunity, given everything in the commentary in the release, I'm just wondering where what region should we look to for you to help fill the gap in terms of the opportunity described in the revenue guidance and then what we're seeing in the backlog right now?
Speaker 4
Yeah. Latin America has been weaker than we thought it would be year to date. We've been in that business or in that market, I should say, for several years now. And I think the overall tone and economic environment in Latin America is more uncertain today than it's been in several years, largely driven by Brazil. So I think the potential for that market still exists long term.
But as we sit here today and try and handicap the second half of the year, it's very difficult to get a sense that that particular market is going to be substantively better than it has been in the first half of the year. We've kind of baked in a relatively flat second half in our guidance. So I don't think the improvement is necessary or an improvement is necessary in Latin America for us to hit our revenue
Speaker 1
guidance. But we're going to see some benefits in some markets like The Middle East and in some other areas that we've been working hard on. Those are where some of our opportunities are.
Speaker 3
Okay. Thanks, Ron and Tim.
Speaker 0
Your next question comes from the line of Andrew Kaplowitz, Barclays Capital.
Speaker 15
Good morning, guys. Good morning. Ron, you talked about a pretty quick payback on restructuring across the company and in your MHPS business. How realistic is it that you get that sort of one year payback? What's your confidence level about that given it is Europe, it's hard to sort of do these kind of things.
So how confident are you that you can get it here in 2014?
Speaker 1
Highly confident. These are definable, already determined individuals for the most part and we're well on the road to having negotiated conclusions with virtually all of what we've announced. This is why in the previous quarter on the previous quarter conference call we gave you the indication that we were going to do this because we had already started the process.
Speaker 15
Got you. And then maybe a follow-up on MHPS. One of your main competitors has talked about a pretty big pickup, maybe even a record intake in its service business in overhead cranes in 2Q. Have you seen any of that yet? I mean you talked about 1Q being pretty weak.
Did you see any rebound in that service business as we went into 2Q?
Speaker 1
Steve, you want to comment on that?
Speaker 9
Yes, sure. Andrew, our business has pretty much been flat quarter Q1 this year to Q1, Q2 this year, Q2 last year to Q2 this year. Services was a little bit off, but single digits minor stuff, mainly driven by some of the slowness in Europe. So I pay attention to my business. I don't know who the competitor is, but I'd be surprised if they're not seeing some slowdown in that side of the business also.
Speaker 15
Steve, are you seeing how is your share? Are you maintaining share? Or have you still been losing share in that business?
Speaker 9
I think we're probably maintaining share. I think we lost some share in the past couple of years, but I think we're maintaining that at this point.
Speaker 15
Okay. Thanks guys.
Speaker 0
Your next question comes from the line of Ross Gilardi, Bank of America Merrill Lynch.
Speaker 16
Hey, good morning. Thanks for taking my question. Just if you look at slide 15, I mean your crane backlog Ron has been shrinking pretty steadily for the last two years. Fell again in the second quarter. You cited negative product mix.
Can you just talk a little bit more about what's happening with the long term steady downtick in the crane backlog? Getting away from the noise of what's happened in since April and what's expected in the third quarter, why does the backlog for the cranes business seem to go down every single quarter? And on the back of that, your new guidance is implying seems to be implying second half earnings acceleration for cranes. I realize that you highlighted some of the challenges, but why forecast earnings acceleration for cranes if you've got some notable headwinds and don't know necessarily when some of the orders are going to come through?
Speaker 1
Well, funny thing has happened here. Our backlog has gone down, but our shipments have stayed fairly flat. That's kind of odd, don't you think? I mean backlog is an indicator. It is not the indicator.
It is really how we convert an order taken in today to a shipment delivered tomorrow, okay? So we said, I don't know how many times we can say this that the $815,000,000 backlog of last year at this time included over $100,000,000 of pre positioned orders by our customers thinking that they would get pricing for the future year and we canceled their orders. Our initiative is to get margins up and to get a return for the business that we have, okay? And that's what we continue to try and achieve, okay. I am not that focused just on backlog.
We have to focus on geographic mix. We have to focus on product mix and we have to focus on getting value out of our customer base. This is a business where historically many of our customers expected us to inventory product for them and hold it after we produced it. Kevin Bradley started to change some of that and Tim is continuing to execute on that. I realize and I said this at the beginning that one of the hardest numbers we had was to achieve the incremental revenue in the back half of the year.
That's why Tim Ford went through a painstaking analysis of the amount of close that he sees, the activity, how that compares with what it was three months ago, but we're not getting the complete closure on some of those deals. We think we can, but we're not completely sure. A business is about managing the broad spectrum of opportunities that we have, okay. We're probably a little bit aggressive in the crane business, maybe we're not aggressive enough in the business. You inspect each one individually, you'll find a speckle or a problem and that's there.
But in general, please be careful about the backlog because backlog is an indicator. It is not the indicator. And what you really want me to do is convert and have a healthy book to bill ratio, okay? That's what we're after and that's what we're trying to achieve. We share the backlog because it's something that historically has been important to the company.
But you can take the simultaneous position on here and yes, gee, look at that Material Handling and Port Solutions backlog. It's grown from $228,000,000 to $860,000,000 My god, that business must be increasing tremendously. It's not, okay? So please, please I've talked about this a lot. I want to make sure we don't misunderstand them.
Speaker 16
But just Ron on that point about trying to get the best mix you can. You did cite negative mix in your commentary. So what is what's happening there? Is that a competitive issue? Can you just elaborate a bit more on what's driving negative mix if you're trying to optimize the mix?
Speaker 1
Yes. Well, Tim said our Australian business is down 25%. He said it's one of our more profitable businesses. That's the answer. Okay.
Speaker 16
Thanks very much.
Speaker 0
Your next question comes from the line of Jerry Revich with Goldman Sachs.
Speaker 12
Good morning.
Speaker 17
Ron or George, a lot of progress on the construction manufacturing footprint over the past six to twelve months. I'm wondering if you could just give us an update on any initiatives you have on the distribution side and any longer term targets for distribution? And then Ron in the portfolio discussion earlier, you didn't touch on ASVI. I'm wondering if you could just talk about how that business is tracking and the opportunity set?
Speaker 1
George, you want to comment on that? Yes, Joey, thank you very much for the question. And your point is well taken. Last year we talked quite a bit about focusing on different channels to market. And I must say through the first half of the year particularly in The U.
K. And North America, we have really focused on the rental market on our compact equipment. And what you're seeing even though our total segment sales are off by 29%, we have significant uptick on the compact side specifically into the rental market and then also with our private label initiatives that we've been successful to close on in the first half of the year. And you can see the contribution that it's making. And this is also helped by our relationship with our AWP friends.
So it's really helping the compact piece of our business and we're going to continue on that as we go forward with those initiatives as we continue to work on some support from our larger equipment in the construction segment. Thank you.
Speaker 13
And
Speaker 17
Ron or Tim, can you talk about within the crane business what your customers are seeing in terms of utilization levels and pricing? Through the first quarter in U. S, we're starting to see excellent price realization in crawlers. I'm wondering if that continued into the second quarter based on your customer discussions. And if you could just touch on what your customers are seeing utilization on pricing in Europe as well?
Speaker 4
Jerry, I would say the utilization rates are commensurate to the overall economic condition of the geography. So North America utilization rates and pricing utilization rates are high and pricing is improving. Europe utilization rates are mediocre and pricing is challenging. Middle East they're very high and pricing is very strong. So I think it depends on which market you're focusing on and you can almost draw a straight line between the kind of economic conditions of that geography and the utilization rates and the pricing.
Speaker 17
And Tim just briefly on Latin America, a lot of volatility in that market for cranes. Can you just talk about how much visibility you have there and six to twelve month outlook?
Speaker 4
Well, I have as much visibility there as I have in any other market. As I mentioned earlier on the call, I hold a weekly sales meeting with our global sales leaders to review their quotations and activities. And I would say the opportunity that we see in Latin America, it's been modestly improving over the past couple of months, but it's not robust at this point for sure.
Speaker 1
Thank you.
Speaker 0
Next question comes from the line of Eric Crawford, UBS.
Speaker 12
Thanks for taking my question.
Speaker 1
All right, Eric.
Speaker 12
On AWP, the commentary on improvement in Europe is positive clearly, but with North America the key driver. I'm just curious the longer term AWP growth you see equally spread out between geographies? And if there's any if you see any potential risk that demand in North America plateaus?
Speaker 1
Yes. Eric, the indications we have from the customer base today is that the environment market environment, utilizations, Asia fleet all would indicate continued positive trends in the North American market. And certainly that's built into what we think is going to happen. Having said that, I think you go back to what are a couple of irrefutable facts. One, they bought a ton of equipment between 2004 through 02/2008.
That equipment is now getting older by the minute and in order to just maintain the average age of their fleet, they've got to buy a bunch of equipment. So that factor as long as there's not a fundamental decline in demand is going to drive replacement. The second factor that's important is rate of growth. We've now seen the architectural billing index which is an important indicator for this business remain strong, get better. If you couple growth over an extended period of time with age of fleet, you end up with a pretty good market and that's what we expect.
And then if you add to that a developing and strong Latin American market maybe not a great recovering European market, but at least a no longer declining market and a moderately improving market with an Asian business opportunity, you end up with a pretty darn strong AWP business. And that's what gives us confidence. And unless there is a substantive global economic downturn, I think this business is in for a number of really decent years.
Speaker 12
That's great. Thank you for that. And then lastly just not to beat a dead horse on portfolio management, But I'm curious if you could speak a bit more about the pruning geographies comment. Does that refer only to selling businesses to another player? Or does it also include winding down via lack of investment?
Maybe just how you're framing the puts and more broadly?
Speaker 1
Well, Eric, I don't ever want to think that we've got a dead horse around here. Once it's dead, we'll tell you it's buried. But I think it's a good question. Substantial investments in geographies and it's paid good dividends for us. However, we've seen meaningful changes in some geographic performance.
The Indian outlook or the outlook for the country of India isn't very good. So we're going to examine our cost structure in India and make some changes. The same thing could be said in Latin America. So we want to be responsive to those things. I think our investment in China is for the long term.
But we want to examine all of our areas of investment to make sure where we've got them properly positioned. So all I'm trying to say to everyone on the call here is that we're sensitive to the realities of the market where we've made investments and we have gotten returns. We'll keep those investments in place. And where there's pullbacks, we have a responsibility to make adjustments.
Speaker 13
Great. Thanks Ron.
Speaker 0
And due to the time, we will take one final question. And your final question will come from the line of Seth Weber with RBC Capital Markets.
Speaker 2
Hey, guys. Adam on here for Seth. Thanks for taking the call. Or the question. Two quick ones here.
One on the mix of independent rental companies stepping up right now. What you're seeing now? What you're seeing in backlog and your quotation activity there? And just secondly on MHPS as a service component, is there some catch up that might come? Or is that sort of track with the activity at the ports?
Thanks.
Speaker 1
Yes. I'll answer the last question then I'll turn the first question over to Matt. I don't think there's any catch up here. I think that opportunity is behind us. I don't think people catch up on service in general.
I do think as utilization improves in overhead cranes etcetera in factories they will get them serviced again. So I don't think there's a catch up implied in our forward outlook. But there's a more realistic assessment of what our forward outlook is. And AWP, why don't you answer that question Matt?
Speaker 7
Yes. Good morning, Adam. The independents, they continue to be significant and important to us. And if you look at year over year, the percentage of independents actually improved in the first half, which is a good sign for us. And then the if you look at them, are the niche players and they typically continue to buy through Q3 and Q4, whereas some of the large consolidators are heavy in the first half of the year.
So the other thing with the independents is they are able to get financing now. So we continue to see them in the market and we see them being healthy.
Speaker 2
Very good. Great. Thanks guys.
Speaker 1
All right. Well, I want to thank everybody for participating in our call today. Obviously, Tom, Kevin, my self and the rest of the management team want to be responsive to any additional follow-up questions you have. We look forward to answering and addressing any and all of those questions. Thank you very much for your interest.
Speaker 0
Thank you for your participation in today's Terex Corporation second quarter twenty thirteen financial results conference call. You may now disconnect. Speakers, hold the line.
