Terex Corporation
Q4 2007 Earnings Call Transcript

Published: 21 Feb 2008

[Operator:]

Good morning. My name is Lorie and I'll be your conference operator. At this time, I'd like to welcome everyone to the Terex Corporation Fourth Quarter 2007 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I will now turn the call over to Ron DeFeo. Please go ahead, sir.

[Ron DeFeo:]

Thank you, Lorie. Good morning ladies and gentlemen and thank you for your interest in Terex today. On the call and available for your questions, is Steve Filipov and Tim Ford, as well as Rick Nichols and Bob Isaman, our group Presidents. Also, in the room this morning is Tom Riordan, our President and Chief Operating Officer and Phil Widman, our CFO. To accommodate our audiences in earlier time zones or anyone unable to listen, there will be a replay of this teleconference. The replay will be available shortly after the conclusion of the call and can be accessed until Thursday, 28th of February at 5 pm Eastern Daylight Time. To access the replay please call 800-642-1687 and international participants can call 706-645-9291 and enter conference ID 342-720-53. Now that the administration is done, I'd like to make a few opening comments. Phil will follow me to discuss the fourth quarter and the full year; Tom Riordan will provide some further operating and market commentary; and I'll come back and give you a summary of the outlook and open it up to your questions. We would ask that any question should be followed with one follow-up question if possible, so that we're fair to everyone on the call. Overall, we are pleased with Terex's operating and financial performance in 2007. This was a pretty important year for us. We faced a number of challenges and we feel we handled them reasonably well, with an ability to continue to build capability for the future. Meaningful shifts took place in our business. These shifts support the overall growth and margin improvement strategies that are being deployed. For the full year, non-U.S. business represented 70% of our total net sales. The sales downdraft from U.S. housing began in mid-2006, so we had a full year effect in 2007. We were able to offset rather small exposure that we do have to the U.S. housing market, to begin and continue to grow our business in markets, where aerial work platforms and cranes and mining equipment are still relatively quite strong. Internationally

[Phil Widman:]

Thanks Ron, and good morning. Before I begin, let me remind you that we will discuss expectations of future events and performance of the Company on today's call, and that such expectations are subject to uncertainties related to macro-economic factors, interest rates, governmental actions and other factors. A fuller description of these factors that effect future expectations is included in the press release and our other public filings, which I encourage you to read. We closed out 2007 with a flurry of activity. Net sales reached a record for a quarterly period at $2.6 billion, up 19% excluding the translation impact of foreign currency fluctuations, while our income from operations of $240 million was the second largest quarterly amount in our history. Income from continuing operations increased to $1.67 per share from $0.97 in the prior year period. We generated $396 million in cash from operations as profitability and a turnaround in our working capital performance came through. Return on invested capital reached a record level of 43.3%.The net sales increase in the fourth quarter was driven mainly by the significant level of mining product deliveries, largely mining trucks, which represented 43% of the equipment deliveries for that group in the fourth quarter 2007, compared to 16% in the prior year period. Large crawler and mobile telescopic crane deliveries also accelerated in the current quarter, as a result of throughput improvements. We also had strong volume performance in the Aerial Work Platform and Construction segments. Income from operations increased to $240 million, an operating margin of 9.3%, compared to a $169 million with an operating margin of 8.3% in the prior year. Leverage from the volume growth in our more profitable segments and the positive impact of pricing adjustments more than offset the unfavorable effect from the mix impact from the mining truck volume mentioned earlier and unfavorable performance of certain product lines, namely the concrete cement mixer truck business. SG&A expenses, although slightly less as a percentage of net sales from the prior year, increased by $52 million, mainly due to the buildup of sales and service infrastructure in international markets, to handle the increasing growth. Investment in our strategic sourcing initiative, the Terex management system and certain performance related incentives as well as $16 million for the translation impact of foreign currency fluctuations. The effective tax rate for continuing operations in the fourth quarter was 26.3%, which included an out-of-period adjustment, which reduced the income tax expense by $10.9 million. The rate in 2006 in that current period was 35.7%. The full year 2007 effective tax rate was 33.2%, compared to 35.5% in the prior year. As I mentioned, return on invested capital reached 43.3% for the trailing 12 month period, as we benefited from working capital improvements in the fourth quarter and the excellent full year profitability. You'll recall that our ROIC target for the year was 41.9%. We improved our level of working capital, as a percent of annualized trailing quarter net sales to 18.5% in the fourth quarter from 23.2% in the third quarter. We were somewhat higher than 2006, due to the increased level of international shipments as well as some impact from supplier constraints on parts availability. We continue to maintain our focus on process improvement in this area. Debt less cash and cash equivalents decreased to $109 million in the quarter to $80 million, representing 3.3% of total capitalization, which is down from 4.7% at the end of 2006. Cash flow from operations of $396 million was generated mainly from income and working capital reductions of $157 million in the quarter. We spent $154 million on acquisitions; $38 million on capital expenditure; share repurchases totaled $95 billion in the quarter; and $167 million year-to-date. We issued $800 million in senior subordinated notes in the fourth quarter at 8% in anticipation of the deterring credit markets and an improving market for opportunistic acquisitions. Let's move on to a quick review of the full year performance. Our growth trajectory on net sales continues to put us on track to achieve our 12/12 in 2010 objective, as we grew to $9.1 billion or 13% over the prior year, excluding the translation effect of foreign currency fluctuations. Operating margin of 10.5% was up from 9.3% in 2006, which reflects the volume leverage and pricing effects in our highly profitable segments, improvement in our construction segment to roughly 3% on our journey to delivering a more significant contribution to the overall company's result. Partially offset by the unfavorable effect of the increase in lower margin mining truck volume relative to other mining products. The road building businesses, mainly the cement mixer truck product line, the phase down loss of roughly $10 million in our Terex Asset Services Re-rental business, and a $2 million loss in a distribution business, where we recently assumed full control. This overall margin performance should continue to improve, as we realized the benefits of our internal initiatives and market dynamics. 2007 income from continuing operations of $614 million or $5.85 per share compared favorably to the $397 million and $3.85 per share in 2006, as we continue on our journey to realize our full potential. With that I'll turn it over to Tom to discuss end markets and operating initiatives.

[Tom Riordan:]

Thanks, Phil and good morning everyone. I will cover our current use of end markets, discuss how each of our businesses are performing and then get into some of our key operating initiatives. The end markets for Terex continue to be reasonable strong on average as the trend to improve global infrastructure drives the basic demand for our products. However, there are clear differences between various geographies, and we believe we're generally well-positioned for the current environment. The Aerial Work Platform market continues to be somewhat bifurcated, with North America flat to moderately down and international still relatively strong. The European market which includes Eastern Europe and the Middle East remains quite strong, although expectations for 2008 are for almost a strong growth, compared to the last two years. Asia-Pacific and Latin America are robust as well, and we expect these trends to continue. Globally the construction equipment market for traditional products is quite varied. North America continues to be depressed but stable. Europe overall remains strong, with Eastern European countries continuing their very strong growth and Western Europe showing moderate growth, Middle East, Africa and Asia are very strong markets. The end markets driving Material Processing and Mining products also remain globally strong and still positive in the U.S. These markets are non-residential infrastructure and commodity-based mining categories. With the continuing strength in commodity pricing, we have a robust level of quotations in orders, particularly in Australia and Asia. Cranes is all about the large infrastructure projects under development around the world, and is likely to remain this way for some time. The North American housing market is having a modest negative impact on the small end of the range, but overall the applications where cranes are more desired and profitable are very strong, particularly the mid-sized and larger sized of our product ranges. The overall robustness of demand is something our team tells and we have never seen before at least in recent times. Lastly, the U.S. road building industry continues to be flat to down and the utility product categories are flat to slightly up. Let's discuss what this means for Terex. 2007 was a very good year and we're very proud of what we were able to accomplish. We made excellent progress in expanding our global reach, as measured by 70% of our sales were outside the U.S. market. We continue to improve our core operations and service to customers. The team is optimistic getting into 2008. Aerial Work Platform business performed very well in the quarter. The North American Aerial Work Platform business was slightly softer in Q4 than what we expected, down high single-digits compared to Q4 2006. Europe continues to be quite buoyant and most of our Asia-Pacific business continues to be very strong. Latin America is up significantly from a year ago. Overall, our international business grew nearly 50% in the quarter. The year 2007 finished pretty much what we thought it would and AWP had a very good cash conversion for the quarter, indicating our improving working capital situation. Going into 2008, we expect the North American markets to be a little choppy, although we are seeing some encouraging order rates apply with our larger customers. The tone of the market is probably a bit better than what we might have thought a few months ago. Our other markets continue to be strong to very strong, although we don't expect another year of 40% plus growth rate outside the U.S. That said, for the overall segment we're expecting mid-to-high single-digit revenue growth. Backlogs are flat from a year ago and in-line with our expectations. We're working diligently to keep our lead times reasonable. Moving on to the Construction segment, they continue to make solid progress. Our U.S. business is softened substantially, and down mid-teens percentage. It represents approximately 13% of this segment's net sales. We are generally aligned with the market, although in several products we are making small share gains. The weak U.S dollars continue to negatively affect our U.S competitiveness with our primarily European-based plans and these issues are clearly being factored into our longer-term plans. The strength of our Eastern European, African and Middle Eastern business has more than affected any weakness in the U.S. and we expect these markets to continue these aggressive growth patterns. The Western European markets may moderate somewhat as the year progresses. Our backlog has more than doubled from a year ago and our profit margins are strengthening. We expect low-to mid-teens percentage increase in revenue in 2008. The recently announced acquisition of ASV is very exciting. We think that got a terrific product line and a terrific management team. We look forward to closing the transaction. Terex Cranes continues strong growth. With the exception of continuing weakness in North America for small truck cranes and boom trucks, all regions demonstrated very robust demand, particularly in the Middle East. Backlog is at record levels, over $2 billion shippable orders in the next 12 months, and we're very aggressively working to increase to build capacity in our plants. As Phil mentioned, with 32% growth in Q4 and 58% improvement in operating profit, we're very pleased with the trajectory of this segment and expecting mid-to high-teens increases in revenue this year in 2008. Material Processing and Mining also continues to be very strong, with backlog up almost 75%. As Phil mentioned, our margin was somewhat reduced by the heavy mix of mining trucks in the fourth quarter. The underlying profitability of all the separate businesses is on the right track. They also had a terrific cash conversion quarter. With the continued growth in this segment, we're expecting mid-to-high teens increased in revenue growth, we're aggressively working on capacity bottlenecks and site preparation will start shortly on our new material processing plant near Bangalore, India, with production starting around year-end. This will be the first plant of three to be part of our manufacturing campus for Terex. Our acquisition in November, Superior Highwall, is turning out to be a great add for the Terex family. Our road building and utility segment, despite aggressive cost reductions, continues to struggle. Overall, our sales were down almost 10% for the year, virtually completely driven by the concrete mixer truck business. The root cause is the mixer market shrinking by over 50%, tied in the U.S housing and road building. Utility basically had a flat year in both revenue and profitability that made significant progress in operating improvements that will show results in 2008. We're seeing some minor improvements in order rates, particularly on our Utility business. Our concrete mixer truck business order book is full for the next few months and is stable. While we expect the revenue to be about flat with 2007 for this segment, we should see improved margins. Phil has already covered the non-operating items and expenses that were shown in this segment for 2007. Moving on to our key initiatives, the supply management team is up and running. The team is focused on cost-reduction from leveraging our global spend, as well as bringing additional focus to supplier capacity and delivery challenges. We are challenged moderately with supply chain capacities and deliveries, with the situation improving as we expand our base of capable partners. Substantial effort has gone into improving our materials planning and forecasting methods, and we're seeing improvements in some other areas as a result such as fill rates for parts and lead times. With the working capital, Terex dropping to 18.5% of sales, I'm pleased with our progress. We're in process of starting up sourcing teams in India and China to fully support our quality delivering cost objectives. These teams will be up and running in the next few months. One key area I'd like to cover is material pricing. In the last few days there are indications of significant iron ore price increases to Asian steelmakers. We're monitoring this increase closely, and are putting together continuous planning, accordingly for potential steel price increases. It's unlikely what the impact will be, but it is of concern. Internally within Terex, we recently rolled out eight key initiatives to help drive additional value to our businesses by working together. In addition to the supply management, the initiatives include new product identification and development process, diversity inclusion, how to ensure we continue to find and attract the brightest available talent in the marketplace, the Terex business system education and assessment, developing markets and strategic accounts, which we announced that Steve Filipov will head up, aftermarket service and logistics, customer satisfaction, and of course, the Terex Management System with our ERP based IT system. I won't get into the specifics of these, other than state that each of these are critical to our future success. And we'll update you periodically in the future. At this point, I'll turn it back it over to Ron.

[Ron DeFeo:]

Thanks, Tom, and now I'd like to comment on the 2008 outlook. We surely understand that the financial headwinds are hard to read right now. We look for signs every day of change and how these changes may affect our business. So far, our customers have endured because the work is there and the need remains. And because much of this need is outside the United States, the risk is moderated somewhat. We will obviously pay close attention to the economic conditions and adapt accordingly as the 2008 year progresses. With rental companies in the U.S being much better managers of fleet, we do not expect they will need to access capital markets in 2008 to support their purchases of equipment. In other words, internal cash flow and normal fleet rotation is what we expect. Furthermore, there is a lot we already know about our 2008 opportunities

[Operator:]

(Operator Instructions) Your first question comes from the line of David Raso of Citigroup.

[David Raso:]

Hi, good morning. Two questions one on the crane backlog. Historically you do not put anything beyond 12 months in the backlog, nor any slot orders that you have not put pricing on. So, just trying to calibrate truly the demand for cranes looking out, can you somewhat quantify for us how many -- we'll define it as orders but people wanting cranes beyond the next 12 months, that you're already well aware of. But you're just not putting the backlog officially and also how far you guarantying pricing out right now?

[Ron DeFeo:]

Okay that's first question I will turn it over to Rick.

[Rick Nichols:]

Okay. David I think we've significant backlog falling into 2009, and 2009 is not priced yet. Okay, so we've order slots and commitment out into 2009. But we've reservation on pricing in the 2009 because we want to be very careful of the steel dynamics going forward. So 2009 is beginning to fill from a total calendar year. But we're not going to give you the specific amount on that. But let's put it this way, it's meaningful.

[Ron DeFeo:]

Yes, it's meaningful.

[David Raso:]

And regarding '08 pricing, so everything that has a delivery date in '08 has a price already, if I mentioned correctly? But is there a price escalator if raw materials move higher than you thought?

[Rick Nichols:]

Little bit. There is a combination David. We also have fairly good provisioning on steel pricing out of the Europe and into the U.S. also in this business. So, you've a combination of things provisioning from steel as well as some potential in the pricing area.

[David Raso:]

Okay. And last question, a big picture on the margins. Clearly we can appreciate the costs related to raw materials, and potential risks to the upside there in the cost. But is there a way you can quantify, and there are always some unintended consequences, when you're building a lot of new plans and so forth, but if your midpoint of guidance is implying roughly about a 50 bps margin improvement year-over-year? How much can '08 be dragged down by structural improvement that you're trying to make, clearly recognizing the European manufacturing base with the challenging and so forth? Is there a way you can quantify that, I'm just trying to think about the margin improvement for '09 and beyond? How much of '08 being dragged down?

[Phil Widman:]

David, the way I look at this is pretty simple. We won't get '08 unless we invest in the business, and we won't achieve '09 and 2010 unless we invest in the business. So, in a certain sense we can either go backward or we go forward. We're just choosing to go forward. And so the money we spend is what's going to help us unlock the 12% margin opportunity. If the markets are better than we expect, that margin could go up beyond 12%, if they're not, we still think we can hit the 12% because of margin improvements in other areas. So, that's how we're looking at that. I mean, I wish I could be more definitive. But frankly, this is about what happens when the company grows from $3 billion, which we were in 2002, to nearly $10 billion just five years later, you're going to end up spending money in order to position yourself for that next level of growth past that. You want to add something here, Phil?

[Phil Widman:]

I was just going to comment that the manufacturing footprint changes are largely not going to be up and running until later in '08. There are some that are starting. So, it's going to be more like CapEx portion next year and I'll call the logistics are getting in organized and maybe margin contributions except for source.

[Tom Riordan:]

The infrastructure that's going in, is arguably going to be over the next two to four years. But it's difficult to peg exactly what we're going to spend in '08 and '09 and '10 going forward. I think I would echo Ron's comment about it one kind of goes with the other. If we expect growth in emerging markets we need to have a platform to work off there and that's really what it's all about.

[David Raso:]

Okay that's all. I'm just trying to think through we've a multiyear investment philosophy and I completely appreciate supporting the growth. So I'm not disputing why you are doing it? It's just we should think about '08, '09 '10 clearly the investments if they're going on is a very positive story for the top line but it's a multiyear process. I'm just trying to….

[Ron DeFeo:]

It is and of course David you know that our measurement scheme is returns on capital. So, we're very conscious of this.

[David Raso:]

Okay. Great. Thank you very much.

[Ron DeFeo:]

Thanks.

[Operator:]

Your next question comes from the line of Terry Darling of Goldman Sachs

[Terry Darling:]

Thanks. I guess first question is sort of a follow-up in terms of the pace of your internal investments. In the fourth quarter, your eliminations expense jumped up quite a bit in absolute terms and in terms relative to your revenue base. Can you discuss what's driving that and what we should expect in 2008 on that item?

[Phil Widman:]

It's Phil Terry. The impact in the fourth quarter on the eliminations regarding the operating expense was largely related to the performance based incentives. You saw the ROIC exceeded our 41.9% objective. That has an effect on performance stock grants that we had as well as annual incentive. So, that was the biggest piece of specific dollar increase that was in there.

[Terry Darling:]

Okay. I think there was a reference in the press release that there were some IT and other efficiency enhancement investments in there, so that's not really the big driver there?

[Phil Widman:]

Well, there are some in there, but they weren't the biggest piece.

[Terry Darling:]

Thank you. And going forward, what should we expect on that?

[Phil Widman:]

I don't think we have indicated specific, other than it's in the total guidance that we've given for next year.

[Terry Darling:]

Okay. Second question, can you talk in a little bit more detail about your strategy on Financial Services on a longer-term basis, and some language in the press release sounds like you are accelerating some efforts there, and just trying to think about how the unique environment we have in the credit markets, creates an opportunity or a challenge as you try to build that out?

[Phil Widman:]

We've built the infrastructure for the Financial Services organization in '07, and we are starting some work on originating and servicing, but our initial plans are more to sell portfolios, but still keep the visibility and connection with the customer. It's going to be a gradual growth. It's not going to something that will be noticeable in terms of the overall balance sheet, and our intention is really to grow incremental sales as opposed to taking sales that we currently get and finance through others. It's really to provide incremental benefit. So the incremental revenue should justify the returns regarding any investment on the balance sheet that we have. We are seeing some effect in the low-end dirt, engaging products in terms of the people that supply those products in terms of credit exposure, but our bread and butter in the US is really more in Aerial Work Platform business, and we still see pretty good activity in that regard. But our intention on the Financial Services Group in the short term, is really to be incremental sales drivers not to make money in Financial Services, but to provide that customer access and intimacy.

[Tom Riordan:]

We're growing from crawling to walking.

[Terry Darling:]

Yeah. I understand just sounded in a press release there is low acceleration going there. Is there anyway you can now give us the amount of capital you've got to invest in the business today and how much investment you're looking to make in 08?

[Phil Widman:]

There is nothing invested in terms of on balance sheet there at this stage, but I would say it could grow to $50 million to a $100 million potentially.

[Terry Darling:]

Yeah, it's a still very low numbers. Thanks very much.

[Phil Widman:]

Yeah, right.

[Operator:]

Your next question comes from the line of Jamie Cook of Credit Suisse.

[Jamie Cook:]

Good morning and congratulations. Ron, I guess my first question when you look at your guidance for the first quarter, it implies that earnings are going to be about 19% of the full year, if you just take your guidance at the midpoint whereas if we looked and I think over the past two years, it has been more in the 30% range. So I'm just trying to figure out is there anything unusual in the first quarter where the year is going to be more backend loaded is at Aerial Work Platforms or if you could just give your thoughts on that?

[Tom Riordan:]

Jamie, I'd ask you to go back and double check it, 30% number. I don't think that number is correct. Typically, our first quarter is somewhere in the 20% range and the second quarter is 30% to 35% range and I am not going to continue here, because there is no typical with what I was trying to say in my comments. So I don't find anything unusual about our guidance in the first quarter.

[Jamie Cook:]

Okay. And then I guess just my second question as it relates to Aerial Work Platforms, I think you noted in your prepared comments, I think in North American AWP was a little softer than you thought. Could you just elaborate that and how you see orders trending for the year? Is it more backend loaded as you speak to sort of the windfall customers?

[Tom Riordan:]

I thin it was more a normal seasonal pattern really and whereas '06 was the less normal seasonal pattern. But let me turn that over to Tim to give some commentary because I think the overall outlook in North American is probably a little better than we thought. Tim?

[Tim Ford:]

Yeah Jamie, in the fourth quarter as Tom said our sales were down high single-digits. I think what we saw was customers were reluctant to commit in the environment we saw in the fourth quarter, but as we got late into the quarter and into the early part of '08, the order pattern has actually been quite encouraging. Orders were reasonably strong in the fourth quarter and into the early part of the first quarter with some of the largest customers placing some orders early.

[Jamie Cook:]

Okay. And then I guess just lastly just to build on that Tim. As you look at, I mean, I guess the concern for most of the investor based out there as well, the first half may look good at this point, and I think people are concerned about potential cancellations in the back half of the year. So I guess what you do at start to mitigate that and are you assuming any of that in your forecast?

[Tom Riordan:]

Yeah, go ahead Tim.

[Tim Ford:]

Yeah. The first half is obviously where we've greater visibility for the year. Our customers have made indications to us on what they expect to spend for the year. The pattern that we've so far for deliveries looks relatively consistent with previous years. So I am not overly concerned at this point about the second half, obviously as we get closer to it we'll have a better look at it. But at this stage, I don't know that I can give you any further guidance on what the second half might look like relative to where we said today.

[Tom Riordan:]

We're sitting with basically the same amount of backlog as we had a year ago, and the thing that I would say that's encouraging is that, some of the developing markets are starting to use more aerial work platforms. And we're going to hustle to get some of that business in some of those developing markets, because it's a race. But I don't see anything that is significantly different. But we got to pay attention as I said in my 2008 opening comments on outlook.

[Jamie Cook:]

All right. Thanks. I'll get back in queue.

[Operator:]

Your next question comes from the line of Andrew Obin of Merrill Lynch.

[Andrew Obin:]

Yes. Good morning. Just a follow-up on Terry's comments on the corporate expense. It is fair to assume though that you're not going to have this bonus expense for the first, second and third quarter next year, right?

[Phil Widman:]

Yeah. It would, whatever we typically would accrue to our budgeted performance levels so it's more timing issue.

[Andrew Obin:]

Can I just also ask you a question on the sale of JV, and just trying to reconcile what I see on the cash flow statement? How much was exactly the gain on the sales? Did you read, if I missed then I'm sorry.

[Phil Widman:]

I don't think we indicated. Specifically, it's about $3.5 million.

[Andrew Obin:]

Okay. And so then if I look at the proceeds of sales, it matches the $3 million that we see in the cash flow statement?

[Phil Widman:]

That's correct.

[Andrew Obin:]

Thank you very much.

[Ron DeFeo:]

All right, Andrew

[Operator:]

Your next question comes from the line of Henry Kirn of UBS

[Henry Kirn:]

Good morning, guys.

[Ron DeFeo:]

Good morning, Henry

[Henry Kirn:]

My first question, if raw material would escalate what kind of lag would you expect before you'd be able to pass through either a surcharge or price increase?

[Phil Widman:]

Well, raw materials have been escalating, and we have been passing on price increases ,and that's how we've been running our business each and every day, probably for the last 36 months. So this is not an unusual event. The only thing that's potentially different here is that steel prices could go up a little bit more like they did two or three years ago. And I think we're ready to react if steel prices go up like they did two or three years ago. I think some of our competitors have already announced some price increases on that. But I think, frankly, we did that in anticipation some time ago. So I'm not sitting here fearful of the lag time other than the fact that it just does take a little bit of time and that's kind of have been our plan.

[Henry Kirn:]

That's already baked into the guidance for '08.

[Phil Widman:]

Well, within reason. Steel goes up 30% to 40%, that's not baked in the guidance, okay. So we'll have to adjust accordingly. And there maybe some pain in there, but if I knew that answer, I'm reminded of what my mother used to say to me, if it was a horse, you could ride it and there are certain contingencies that I can only do contingency planning for. Not to really think that that's what's going to happen in our business.

[Henry Kirn:]

Fair enough. I guess my follow-up is could you talk about what you're doing with the Indian and Chinese facilities? What you tend to manufacture there and whether they're geared for local or export demand?

[Ron DeFeo:]

Rick, why don't you talk about India and Tom, maybe you can talk about, or Tim could maybe talk about China.

[Rick Nichols:]

Okay. If I started with India, Henry, I think we're a whole concept around the Indian factory is a campus type of way out. The initial products going into that are, the Powerscreen and Pegson truck crushing and screening equipment. The facility is under design, and we're expecting to break ground soon, with late 2008 really beginning to have production rolling out of that factory. That site, more than likely our next follow on products into that region will be products out of the crane group, which will follow on construction very closely behind the materials processing building structure.

[Ron DeFeo:]

Yeah. Tom, why don't you comment on China?

[Tom Riordan:]

Yeah, I think in China, we've got a number of things going on both in Tianjin, which is up north of Beijing. We've got a joint plant between the cranes team and the mining team. We are in the process of putting together. The impact will probably be early '09, and the AWP business is in the process of final negotiation for, again, another Terex campus site, a couple of hours away from Shanghai that we believe is an appropriate area, and that will again be kind of an '09, '10 process. In each case, we believe we're going to have a mixed development, as I would call it, as it relates to products for the China domestic market and the Asia Pacific region. And then, on an opportunistic basis, looking at export products back to Western Europe, products and/or components back to U.S and Western Europe markets, okay?

[Henry Kirn:]

Okay. Thanks a lot. Good quarter, guys.

[Ron DeFeo:]

Thank you.

[Operator:]

Your next question comes from the line of Robert Wertheimer of Morgan Stanley.

[Robert Wertheimer:]

Hi. Good morning, everyone.

[Ron DeFeo:]

Hello, Robert.

[Robert Wertheimer:]

I just wanted to ask on the gross margin in 4Q, I know it's lumpy so I don't want to get to precise. But you have a sequential decline that's a little big bigger than the sequential declines you've had in the past periods. And I'm wondering if you could, sort of break up what happened there into materials or maybe it was turning on production lines on AWPs in Europe? Just explain the nature of the decline.

[Ron DeFeo:]

Are you talking the total company or it is--

[Robert Wertheimer:]

We'll, I actually started with total and then I switched to AWP so both. But you had a sequential decline in both.

[Phil Widman:]

Let me comment I guess on the mix of on the total company, and then Tim wants to comment specifically on AWP. But we did have as I mentioned it in my comments, a very high mix shift to mining trucks, its quarter-over-quarter this quarter, fourth quarter versus last year was about one margin point on the MPM segment itself. So, that was a pretty significant shift regarding that business. I think some of the investments that we've had in AWP in turn may add to this. But we've more significant investments in our international infrastructure and that's been increasing on a trajectory as we go through the year as well as in some of the other segments as well. And I think it will be construction, infrastructure and regional organization and getting that some of our Asian investments as well. So, I think most of the incremental margin we've looked at, a gross margin level looks reasonable as you explained the mining truck mix, and the S&A growth has really been more in these investments and infrastructure. Tim, if you want to comment on AWP.

[Tom Riordan:]

Yeah actually for AWP our gross profit improved by 70 basis points in the quarter, which we thought reasonably good about. We had an 80 basis point negative impact in SG&A, which was really as Phil just said driven by our increased investments and selling expense principally international markets like we have in Europe, the Middle East, and some of our Asian markets as well. So, the 10 basis point decline in operating margin was really the function of the investment in our international growth.

[Robert Wertheimer:]

And I either repeat, I was looking more at the sequential I do know it's lumpy, believe me, but you are down I think 390 bps sequentially and there was a pretty good 3Q. So, I guess the question was, are you surprised by raw materials or was it maybe turning the plans on that you're staring to expense some stuff or it is just nothing?

[Ron DeFeo:]

No for the quarter I mean the fourth quarter for us is typically a quarter of lower production, and we tend to have obviously higher expenses, as a result of that. In '06, we were producing near full steam right straight through all year and the fourth quarter this year was more of a seasonal pattern.

[Robert Wertheimer:]

I'm sorry, let me just straight this up.

[Ron DeFeo:]

Well go ahead.

[Robert Wertheimer:]

Well broadly are you surprised of the upside in raw materials in 4Q or no?

[Ron DeFeo:]

No.

[Phil Widman:]

No

[Robert Wertheimer:]

Okay. Thanks.

[Ron DeFeo:]

No. You're looking at sequentially thinking that our margins are coming down, and frankly that's just a matter of how we schedule our productions through the year. It has nothing to do with our costs going up from a raw materials point of view.

[Robert Wertheimer:]

That's helpful thanks.

[Ron DeFeo:]

Okay.

[Operator:]

Your next question comes from the line of Charlie Brady of BMO Capital Markets.

[Charlie Brady:]

Hi, thanks good morning. With respect to the material processing and mining segment, I just want to square up your guidance calls for mid to high teens revenue growth, but you got commentary in your release talking about capacity issues for the impede acceleration of the growth is that you imply then that once additional capacity comes online on a normalized basis you'd see even greater accelerating growth or are you factoring something else into your guidance in case to square that up? And also with regard to Superior Highwall Miners, it looks though they've recently received an order out of Russia that simply been a pretty North American business, and could you comment about some of the opportunities you might be seeing outside North America now that is the part of the Terex family?

[Ron DeFeo:]

Okay I'll let Rick handle that second question in the

[Tom Riordan:]

Superior Highwall

[Ron DeFeo:]

No, Rick will handle the Superior Highwall.

[Charlie Brady:]

Okay.

[Ron DeFeo:]

What was the first question, I kind of --

[Charlie Brady:]

Capacity growth.

[Ron DeFeo:]

In the mining business, I got it. I think, what we've done is we've been working on adding capacity. So, our guidance is based upon what our production we can achieve right now. I think to be honest with you, if we could get capacity up further, our revenue could go faster. So, our guidance is really based upon the productivity improvements we've already implemented, and are soon to implement rather than things that you should expect more of in the future and on Superior Highwall, Rick?

[Rick Nichols:]

Okay. Yes. We're very excited about Superior Highwall. And I think one of the key elements that drove our thinking of acquiring Superior Highwall is, that it was a predominantly North American, Eastern U.S primarily sales oriented business and opening up Russia, China, India and Australia, where we've key operating entities, already from a mining standpoint, really has significant opportunities to grow that business over a period of time, and it's a great product to add to the portfolio of business we have in mining. So, we're very excited. Russia was a nice deal and there are several others on the table around the world that really are incremental to what that business was when we acquired it.

[Charlie Brady:]

Perhaps if I could just a quick question on the AWP business could you give us, how much were Telehandlers as part of that segment declining in to nine months was down on 10. What was that for the Q4 and for the year?

[Rick Nichols:]

I don't think we ever said Telehandlers was down 10%.

[Charlie Brady:]

Fine. I guess, I'm sorry, it's a partly a percentage of the segment of revenues. It's declined from being around I guess 19% of that segment of revenues, down only 10%.

[Rick Nichols:]

I see.

[Charlie Brady:]

Where is that as a percentage of revenues? Where is that on a mix, where that's come in from now?

[Rick Nichols:]

Yeah. I can't give you that specific number but and we really don't like to give specific individual product line summaries. But I will say generally that our fourth quarter Telehandlers business across the board in our aerial work platform business actually was up year-over-year moderately.

[Charlie Brady:]

Thanks. That's helpful.

[Rick Nichols:]

Okay.

[Operator:]

Your next question comes from the line of Joel Tiss of Lehman Brothers.

[Joel Tiss:]

Good morning. How is it going?

[Ron DeFeo:]

Hi, Joel.

[Joel Tiss:]

Can you just -- first a clarification, can you give us which segment ASVI is going to go into when you consolidate it.

[Phil Widman:]

It will go into our construction segment on a financial reporting basis. I'm sorry.

[Ron DeFeo:]

Yeah. That's not -- we don't include that in our guidance, Joel, till it's acquired. That's what you're getting at.

[Joel Tiss:]

Yeah. No I just read. I just want to put it all together so I have the right basis and all that.

[Ron DeFeo:]

Yeah. The other point I wanted to make about that before, my guys are going to cut me off, I was going to say that while it will be in the construction segment, I expect it to be part of the overall Terex family. And I think there are other opportunities there that it can add to the whole companies business.

[Joel Tiss:]

Okay. And the first question, can we just spend a minute on the crane business, you made some comments that some parts of the business are seeing supply demand coming into a little bit better balance, and other areas are still sold out. Can you give us any sense of what parts of the portfolio, what percentage of the portfolio of cranes are seeing the supply-demand getting into better balance? And if you could also tie it back to end markets, is it construction related or are you seeing anything in the infrastructure side of things that would indicate any supply-demand coming into balance.

[Ron DeFeo:]

Well, I want to be careful about supply-demand coming into balance. What we said was, our very small equipment in North America, like a boom trucks and the very smallest cranes we make, we were the only one, but we didn't see any affect of the North American slowdown on it. Virtually in all of the remaining parts of our crane product line, we're running very fast to try and catch up with demand. And I would say that our order rate outstrips our ability to produce at this stage. Rick, you want to add, is there anything?

[Rick Nichols:]

No. I would agree with that. I think being in the business a very short period of time, I definitely see real opportunity to grow capacity and capability of the cranes business, both locally, and on a much larger geographic basis, and the demand is there, if we can grow that capacity and capability, both from a footprint standpoint and from a supply chain standpoint.

[Ron DeFeo:]

Steve, do you want to add anything from your experience?

[Steve Filipov:]

No. The only affect that we had is in North America on the smaller boom trucks. Everything else is full out, and I think the other question was a little bit around the markets that are driving it and I think we commented in the statement that, it's really about infrastructure and energy and developing markets. Whether it is nuclear, coal power, renewable energy, liquid natural gas, that's really what's driving the crane business today. And there are a lot of projects still to be done in infrastructure in developed markets, such as North America with highway build. In Europe there is still a lot of development for energy and power, and infrastructure. And when we talk about infrastructure, its hospitals, its schools, it's roads, it's really everything that needs to be done. So I think the outlook is positive. And I don't think that like as Ron said, you know we still are ramping up and we still need to ramp up because demand is still very strong for the product.

[Ron DeFeo:]

And we expect you to sell a bunch more in those developing markets.

[Steve Filipov:]

I'll right.

[Joel Tiss:]

And any indication or anything you can help us with on the percent of the portfolio, that's energy related versus construction related?

[Ron DeFeo:]

Joel, that's very hard for us to do. But you're on an important area because energy at Louisiana as a state on a per capita basis has more cranes per state than any other state in the nation. Why is that? It's because of the oil refineries, and it's the gasoline refineries rather that are located there. And every gasoline refinery has to be turned down every number of years, and they use a tremendous amount of cranes. But it's very hard for us to do that. I mean I heard a statistic the other day that wind power has dramatically gone up, and how do the wind propellers get erected? Through the use of cranes. And so it's a tough thing that you're asking us to narrowly focus on per of end use because we sell through rental companies and we don't have that visibility so.

[Joel Tiss:]

Okay. Just a question. Then the last one any difference in the margins in the area where platforms inside the U.S. versus rest of the world?

[Ron DeFeo:]

I would say generally not although the currency has clearly helped us in the rest of the world, but sometime we have to give up a little bit to get a little bit too, so it's hard for us to discretely analyze that.

[Joel Tiss:]

Okay. Thank you very much.

[Operator:]

Your next question comes from the line of Andy Casey of Wachovia Securities.

[Andy Casey:]

Good morning.

[Ron DeFeo:]

Hi, Andy.

[Andy Casey:]

Two questions. First, kind of short-term on AWP for backlog, did that include North American rental customer orders for '08 or did those orders come in Q1? And then back of that was that the same pattern in Q4 '06 or did the rental companies ordered in Q4 for'07?

[Ron DeFeo:]

Tim?

[Tim Ford:]

The backlog at the end of '07 did not include much in the form of '08 early orders from large customers. So there wasn't a lot of forward ordering at that stage. '06 probably had a little bit more in it than earlier ordering than -- it certainly had more early ordering than we had in '07. That's for sure.

[Ron DeFeo:]

Right. That's right.

[Andy Casey:]

Okay. So it's not a direct comparable because of the timing there?

[Ron DeFeo:]

But what we're seeing now Andrew, is probably more consistent with the historical patterns of this business.

[Andy Casey:]

Okay. Then, on the construction margin performance. SG&A as a percentage of Q4 sales, decreased more than I expected and it was well below the average for '07, is the Q4 performance a result of the internal improvement work or is that totally a function of strong sales growth?

[Ron DeFeo:]

Yeah. Bob, do you want that question?

[Bob Isaman:]

I think it's predominant with group wise sales, although, we do have substantial amount of optimization of our current portfolio from across our (inaudible) that standpoint.

[Andy Casey:]

Okay. With the backlog at least near term that should be roughly sustainable prior to ASVI inclusion?

[Ron DeFeo:]

Yeah. Prior to ASVI. Right.

[Bob Isaman:]

That's correct

[Andy Casey:]

Okay. Thank you very much

[Operator:]

Your next question comes from the line of Chris [Walter] of Robert W Baird

[Chris Walter:]

Good morning, guys. A quick clean up questions. Do you have the revenue impact of Highwall in the quarter and how much backlog it added?

[Phil Widman:]

It's insignificant in terms of the revenue in the quarter. I am not going to give a specific amount.

[Bob Isaman:]

I think we bought the business in middle of November. So basically it's insignificant and… Chris Walter - Robert W Baird (inaudible), Bob?

[Bob Isaman:]

Yeah. I don't even think we could find it.

[Chris Walter:]

What about the backlog contribution?

[Bob Isaman:]

We're not going to give that out. That's specific in rental.

[Chris Walter:]

Okay. Could you talk about the pricing environment you're facing, particularly in North America versus Europe and to what extent, a more active Terex Financial Services help you compete in that regard?

[Phil Widman:]

In the pricing environment

[Bob Isaman:]

Well, I think the pricing environment continues to be little uncertain, stable at the moment, but frankly, I think there is some concerns we mentioned earlier, on steel pricing what the impact is going to be, Ron had mentioned and we've seen some more competition being right on front with some fairly aggressive price increases, or moderating it, but excluding this factor, frankly, it's been a quite fairly moderate point in terms of pricing both from a raw material standpoint and the finished products standpoint from our perspective.

[Chris Walter:]

Is there any material difference between North America and Europe at this point?

[Phil Widman:]

No, frankly Europe may be a little bit more aggressive in terms of the pricing environment both our finished product as well as the raw material but not substantially so.

[Chris Walter:]

Okay. Thank you.

[Tom Riordan:]

I'll comment on the financial services, if my voice holds out then I'll try to answer. But what we're really trying to do with that financial services group, is provide good creative solutions to customers that need that avenue to purchase the equipment. So, when you talk about incremental orders, what's the cost per month of that equipment? Can we go in with a solution that is creative and flexible to meet the customers need, and I think that we're growing and trying to improve in that area, and particular in North America and certain areas in Europe. We've investment and a JV in Europe as well, which provides some of that coverage currently. But it's a growing opportunity for us.

[Chris Walter:]

Thank you.

[Operator:]

Your next question comes from the line of Kent Green of Boston American Asset Management.

[Kent Green:]

Yeah. I just had a quick question on the margins over the mining equipment segment. Has there been any pricing on the trucks that are there, or is it just too many producers because we're hearing a lot of comment about big cranes in the mining equipment, which are getting very good price increases?

[Rick Nichols:]

Well I think the truck business; this is Rick by the way Kent. The truck business has been somewhat of a challenging business for us over a long period of time. We've done a good job of increasing margins in the business. But it still is on a relative basis, a lower margin product then our excavator products or our drill products or our new Superior Highwall mining products. So, when you've a larger sales mix move to a lower margin project, I think it just swings the portfolio a bit. And historically, we've been quite outsourced with our mining truck business in an effort to keep our fixed cost down given the fact that this business is so lumpy. 60% of our total cost is from the drive system and the engine and we don't make either one of those. So, we've a better margin than as a distributor, but not as a good a margin as if we were a true manufacturer.

[Kent Green:]

Just a follow-up question the crane competitor has made a lot to do about division, the crane care, 24 hour service, parts of business that kind of stuff, where it's up to 15% or 20% of their total sales. Have you started such an initiative, or is it ongoing, or could you disclose whether there is any indication that you'd want to increase this part of your business?

[Ron DeFeo:]

Steve, do you want to comment on that?

[Steve Filipov:]

Sure yes. Ken, I'd say that we're doing a similar program, it's much more by geography for example in North America our crane service team is located in Wilmington, North Carolina and we've a 24 hour on call service in Europe it's based in Germany and we've a facility now in Dubai. So, I'd say that we're doing similar things as our competitors to serve our customers. But we still have much more work to do. I think this is an opportunity for not only the cranes business, but Terex in general to improve on and we need to continue developing it. I think that the competitor you're talking about probably market it does a good marketing job with it rather than how we go to market but opportunity and we're doing it.

[Tom Riordan:]

Yeah. And I'd say our parts and service business is probably not a lot different from a revenue perspective. So it's just I think marketing wise, maybe we could blow our horn a little bit better, and I think that's something we'll consider and general in the aftermarket for all Terex products in the future.

[Kent Green:]

Thank you.

[Operator:]

(Operator Instructions) Your next question comes from the line of Robert Marcin of Defiance Asset Management.

[Robert Marcin:]

Good morning guys. Congratulations on a great year, and it looks as though the global infrastructure lives despite the U.S. housing market and structural finance market issues?

[Ron DeFeo:]

Thanks.

[Robert Marcin:]

With all the initiatives you have, this is not a question but just an observation. How about one of the initiatives to improve your forecasting capabilities two years ago, you guided that to $6.7 to $7 billion and $3 and you did $7.7 billion and $0.04 a share on earnings. Last year you guided to $82 billion to $85 billion in revenue, and $5 to $5.40 in earnings, and delivered $9.1 billion and almost $6 a share in earnings. So, with all those initiatives, maybe we could put something together that gets us closer to an outlook that's closer to the fundamentals, or are we're being very conservative on an ongoing basis, where we're being not only surprised by how strong this global infrastructure boom really is? My question is regarding the mining business with what's happening with iron ore prices and coal shortages and all this stuff. What inning, are we in the mining infrastructure spend cycle, and as the follow up is there still more bolt on transactions we could do in the mining business at less than two times revenues? Thank you very much.

[Ron DeFeo:]

Less than two times revenues?

[Robert Marcin:]

Yeah, Ron we've become a gross stock acquirer out there with the last two transactions. We've

[Ron DeFeo:]

The future is what determines how you make decisions of course. And I think your comment about forecasting and trust me I think Tom Riordan has had that conversation with a number of our operating teams. But frankly…

[Phil Widman:]

Although being said, we've got a team in Ron's office currently polishing-up this crystal ball.

[Robert Marcin:]

Just you guys being very conservative, I hope, anyway. On the mining business, where do we stand in your opinion and still opportunity for bolt-on. I just can't imagine the excavator business or the drilling business not just booming for another few years with all of the new projects in iron ore and coal etcetera that are all in the place of global mining companies?

[Ron DeFeo:]

I think we're in the fourth or fifth innings here. I'd say a very good future potential in my opinion. I think we in the industry believe that we're in a protracted global commodities boom. I think, what's driving that is the same thing that everybody else says, and that is basically 2 billion to 3 billion people coming into the modern age. And with those 2 billion or 3 billion people coming into the modern age, the requirements for copper, iron ore, coal, oil, and all the things that drive consumption of some of our products is going to be high. So I'm very positive about that. Our ability to find both on acquisitions in the mining area, we're working on them. I think they're impossible to handicap and I don't think anybody should look at us and say, we're going to do a huge mining deal because we are not. But I think there are opportunities in certain markets to do things and complement on mining business and we're oriented to do that.

[Robert Marcin:]

Thank you very much. Congratulations on a great 2007. Looking forward to being a significant shareholder into a great 2008.

[Ron DeFeo:]

Thanks Bob

[Operator:]

Your next question comes from the line of Seth Weber of Bank of America.

[Seth Weber:]

Hi, thanks. Good morning, everybody.

[Ron DeFeo:]

Good morning, Seth

[Phil Widman:]

Good morning, Seth.

[Seth Weber:]

Just of my questions have been frankly asked and answered, but couple of quick clarifications and sorry, if I missed it, but could you give the aerial split U.S international for the fourth quarter and what you think that will be for next year? And then a follow-up question is, I think last quarter you talked about, there were some backlog that, maybe 10% of the backlog that didn't get shipped. I mean, was that part of the tailwind here for the fourth quarter? Is that reconciled at this point or is that still kind of out there?

[Phil Widman:]

Let me answer the second question, we still have approximately I think, 10% or say, high single digits to 10 that's past due. It's largely in the crane's group, the rest of the segments seem to be catching up in terms of what we have.

[Ron DeFeo:]

And I think that's important, Phil, to point out because it will cause some lumpiness in our cash flow.

[Phil Widman:]

That' right.

[Ron DeFeo:]

Because we're still working to try and get those orders through the system, but I think we did catch-up. They were actually even more, I mean we caught up on some of the longest term ones, but what went into the bucket also was pretty substantial. And on that split between North America and Europe, I don't have that at this time. Tim, do you have that at your finger tips?

[Tim Ford:]

Yes, I do. For the fourth quarter, North America was actually below 50% and our international business was greater than 50%.

[Seth Weber:]

Okay.

[Tim Ford:]

For the year it was about 55%-45%.

[Ron DeFeo:]

Okay. Great. The year ended pretty much where we thought it would end then.

[Seth Weber:]

Okay. And then for 08, it should be little bit, maybe more than 50% international than it sounds like.

[Ron DeFeo:]

No. I wouldn't say that necessarily more than 50% international. I would say, we are probably in the 50-50 or a little bit more North America than international.

[Seth Weber:]

Okay. Thanks very much guys.

[Ron DeFeo:]

Okay.

[Operator:]

Our next question comes from the line of Steve Barger of KeyBanc.

[Steve Barger:]

Hi, good morning.

[Ron DeFeo:]

Hi, Steve.

[Steve Barger:]

Just a quick one on the guidance, your assumption for share counts 104 million, which is I think basically flat year-over-year but you have the buyback in place. Does the guidance account for any share buyback?

[Phil Widman:]

Share count is not as easy to calculate as you might think with the accounting rules that we have. Share count change is based on stock price levels and also the performance based shares that we have. Our stock grants are linked to performance of the Company. So, we have included all of those factors, including share buybacks and our estimates. And I'm not going to give you specifics as to how much in either direction at this stage?

[Steve Barger:]

Okay. Thanks very much.

[Phil Widman:]

Welcome.

[Operator:]

At this time, there are no further questions. I would now like to turn the call back to Ron DeFeo for closing remarks.

[Ron DeFeo:]

All right. Thank you very much Lorie and thank you everyone on the call. We appreciate your interest in Terex this morning. Please call Tom Gelston, Phil Widman, myself or others if you need follow-up information. Thank you.

[Operator:]

Thank you. That does conclude today's Terex Corporation's fourth quarter 2007 earnings release conference call. You may now disconnect.