Terex Corporation (TEX) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the JPMorgan Industrials Conference. We're kicking off this Monday morning with Terex, and we're delighted to have the CEO, well-known to all of you, John Garrison, with us this morning. And I think with that, John, I'm going to turn it over to you. You're going to take us through some slides, and then we'll come back with Q&A. And welcome, and thank you for being with us this Monday morning.

Thank you, Ann, and thank all the investors for their interest in Terex, and I look forward to spending the next 45 minutes or so with you. As Ann said, I have a very brief slide deck, and then we'll open it up for Q&A. So if you turn to Slide 2 in the deck, we do have our forward-looking statements, so I'd encourage you to look at the forward-looking statements. If we go to Slide 3, and I think this is a very, very important slide to us is how we start meeting at Terex is around our Zero Harm, safety and environmental culture and the Terex Way values. And I can tell you as CEO of the organization, we were thrilled with the way the team responded. We could use this Terex Zero Harm safety program, the concept of think safe, work safe and home safe in the midst of the pandemic. And our team across the globe, incorporated the COVID-19 protocols throughout our operations, manufacturing office and parts and service, and we are able to keep our operations open to meet the needs of our customer throughout the pandemic throughout the world. Yes, we had disruption, but we were able to keep the operations running, and I was really proud of our team's ability to do that. Simultaneously with that, I was also incredibly proud of the team that we drove substantial improvement in our industrial safety program in the midst of a global pandemic and the disruption that we were experiencing. So again, an incredibly strong foundation for our ESG program at Terex. Likewise, the Terex Way values. Again, a foundational element, things like integrity, respect and finish and ship I was thrilled to see our team members around the world step up to help their fellow team members and their fellow citizens in their time of need. And it was really encouraging to see how they live the Terex Way values in the midst of the global pandemic and crisis. So again, important elements to our ESG program and really foundational elements for Terex. Terex Way Zero Harm, safety and environmental, coupled with the Terex Way values. If you turn to slide 4, just a really high level in terms of some of our key operational priorities around operational excellence. We did make progress in a challenging year, but we have more progress to be made around operational excellence, commercial excellence, operational excellence, parts and service. So we're going to continue to drive that. We did take aggressive action on our SG&A in 2020 with a target. I set this back in 2015, '16 to 12.5% to sales. That is our target for 2021, and the team and I are committed to achieving that target and being globally cost competitive in all aspects of our business as we go forward. Next is around purposeful innovation and again, continuing to drive innovation in our products and our service offering so that we can provide that exceptional value to our customers, things like electrification are incorporated into our product development plans as we move forward. Improving our digital offering for our customers to improve that customer experience is also part of what we're looking for. And then last but not least, growth. Obviously, we're pleased to be returning to growth in 2021 as the markets rebound and improve around the world. And again, organic growth, but we're also beginning to look, and there may be some questions about inorganic growth. We do think there's opportunity to grow the business via M&A activity as we move forward. So again, we're excited to transition out of 2020, which was an incredibly challenging year into 2021, where we do anticipate we're going to experience growth as we move forward. If you turn to Slide 5. In terms of disciplined capital allocation, one of the other things I was pleased with was our cash flow generation in 2020 in the midst of the pandemic. We did a really good job there driving cash flow generation, dramatically improving our overall liquidity, we have ample liquidity of greater than $1 billion. And then we also announced here in Q1 that we were going to exit our TFS on portfolio book. And generate proceeds of approximately $100 million, which we were then to use to repay some Term Loan B, almost $200 million of Term Loan B. So again, really getting that balance sheet in a great position for us going forward. We'll continue to invest in our organic growth activities, products, manufacturing, restructuring activities that are required there to grow the business. And then, again, to demonstrate that we are confident in our future, we did reestablish our dividend. In 2021, the Board did reestablish our dividend. And again, we'll be looking for free cash flow, the opportunity for inorganic growth as we move forward. I assure you, we will remain disciplined and rigorous, but we do think there's an opportunity with the cash flow that we will have to grow the business via M&A activity. So if you go to Slide 6, please, just a quick overall summary. We are seeing improving commercial demand environments. It still is incredibly challenging on multiple dimensions, but clearly improving from what we have seen from 2020. We're going to continue to really focus on our ESG Terex Way values, Terex Way Zero Harm culture around ensuring that we can safely produce the products and safely provide the services that we need to our customers going forward. And I think the team did a really great job of that in 2020. And we have room to improve, and we know that. And the team knows that. So we're going to continue to address our cost structure to make sure that we're globally cost competitive in all aspects of our business so we can compete successfully in the global marketplace and generate the incremental and ultimately, overall margins that we should for the type of business that we're in. We'll continue to manage our working capital aggressively as we have. And again, I think the portfolio is positioned for growth. We've got a strong foundation, and we can grow both organically and inorganically as we move forward. So Ann, that's what I had. Just a quick overview on what's going on with Terex, and I look forward to answering your and the investors' questions.

Great. Just as a reminder for investors, there is a Q&A button, if you can submit questions if you have them. Hopefully, I'll see them, and I'll be able to relay them. But if you do have questions, again, you can submit them and I'll keep an eye on those. So naturally, I have a list of questions, John, though to my left. So if I'm not looking in the camera, forgive me. And just, I think, for context, maybe you talk a little bit about some of the lessons learned from last year. I can appreciate for every CEO, last year was extraordinarily unique and unprecedented. And what are your priorities going forward beyond the usual just financial ones. But what did you learn about yourself or about the organization? And what changes did you make that you might carry forward as kind of lessons learned?

Thanks, Ann. And you're right. While 2020 was a -- I hate to say, but I've been doing this a long time, and there wasn't -- you can go back to the great financial crisis, but really nothing compared to 2020 when you think about the global health a crisis led to an economic crisis and then a social crisis in the North American marketplace. And what I -- I think what we learned and reinforced was where I started the thing in my remarks about the Terex, Zero Harm safety and environmental culture and the Terex Way values. We need and can continue to build on that as we go forward because that enabled the resiliency that we demonstrated in the face of adversity over the course of 2020. So we're -- I'm proud of the team members and the work they did. That's something we absolutely have been building on and can continue to build on going forward. We did learn, Ann, that we have to be cost competitive in all aspects through the cycle. And so it did cause us to take a really hard look at every aspect of our business and ask ourselves, are we globally cost competitive in that activity. And if we're not, what is it that we need to do to make those changes. And unfortunately in many cases, it did require -- as we reduce the size of Terex number of segments, we had to address some of our corporate costs and infrastructure as well. And we aggressively did that to position the business for success going forward. And again, the team did a great job doing that, Ann, because if you'd have told us we would have had to take that activity and do a lot of it virtually in the middle of a pandemic, I think that shows the resiliency, the innovation, the creative ability of the organization to respond to changes. So I think that gives us the opportunity to build off of that adversity and demonstrate resiliency and improvement in the business going forward. So those are some of the things. And then the other thing, Ann, is your people, you got to trust in your people, the innovation. We continue to invest in products. We launched new products in the middle of a pandemic. And to think about the teamwork required to do that on a global scale. So there was a lot of things that were incredibly challenging in 2020. But a lot of things that give you a lot of confidence about the organization going forward and the ability to overcome obstacles that are -- that will be putting in our way as we go forward. But again, I think looking back in 2020, you can see the resilience. And I also might add, and we have to remind ourselves, we're not out of woods yet. We're getting closer but this pandemic is not over. So keeping the team focused on following the protocols, focused on the safety, when everybody is tired of it is also a challenge, and the team is rising to the challenge in 2021.

Yes. Thank you for those insights. Can you give us an example or 2 where you established best practices and where you find that you came up short? Like were there typical, was it back office like accounts receivable or legal or -- where did you find that you weren't as cost competitive as you might have been? Or can you answer that?

Well, I can answer. Well, first of all, Ann, some of the things that you mentioned, our global business there, GBS centers around the world, their scenario we're over -- actually started before I got there, and we -- Duffy and I continue to accelerate it. Centralizing in regions of the world are GBS activities. And that's an activity where we've improved our control environment dramatically, improve our cost structure, and the team was able to operate through the pandemic. I will say, Ann, that we really had -- and it was hard, but we really had to take a hard look at our corporate structure as we removed some of the segments from Terex, we had legacy larger company, a cost structure that required us to address. And although difficult, the team leaned into it, did it incredibly professionally, and I think we're better positioned going forward. And then the other thing, Ann, is in AWP, corporate everywhere, is really being challenge the need to increase cost as the revenue environment improves. We've got to be resolute and really managing that so that we don't explore our cost structure as the revenue environment improves not much I exploded this the wrong way. But the mindset of, do we really need to add that incremental cost or not, how can we leverage what we have to get to that next incremental dollar without adding a significant amount of cost? And I think there were some great lessons in 2020, and we need to apply those lessons as we go forward into '21 and '22 and beyond.

So investors can be relatively assured that you've taken enough fixed costs out in order to achieve the SG&A targets you've set?

Yes. I think from a fixed cost standpoint, and on SG&A, we implemented a lot of actions. I will tell you from our manufacturing footprint, that is constantly under review in terms of what we need to do to have a globally cost competitive manufacturing footprint. So I don't think that work is ever done. But I do think we're in a good position from an SG&A standpoint. And that here, we can leverage as we go. It won't be dollar for dollar, but we'll tightly manage any increase in SG&A cost as we move forward.

Okay. Thank you for that, John. I want to switch gears a little bit now because last month, the coalition of American manufacturers of mobile access equipment, including Terex and Oshkosh filed an anti-dumping in kind of prevailing duty petition against U.S. imports of mobile Access Equipment and subassemblies from China. Can you discuss this a little bit the rationale behind it? I mean, we all look back and see what Manitowoc did. Last year, we see how that kind of p***** off or excuse the English or customers. And do you run the risk of alienating your rental company, company customers because they were the one buying this Chinese equipment. And just give us the rationale and what you expect the outcome to be? And I think you and Oshkosh would always have kind of pooh-poohed any Chinese competition is not being very valid and not being at trash. So why this by now? And why didn't you feel it was necessary?

Well, thank you for that question, Ann, it's a great question. Let me start with, as you mentioned, the crane situation, but the crane issue was really completely different. In that case, Ann, Manitowoc filed under the 232 claiming national security issues and the crane producers they went against were Japan, Germany, Austria and China as part of that filing. And then they sought to specific exclusions to include the products that they imported. And so that's not what this situation is. What we -- the coalition did filed a petition with the Department of Commerce and the International Trade Commission in response to what we believe is unreasonable pricing by certain Chinese manufacturers of aerial equipment. The complaint basically asserts that Chinese business competitors are dumping aerial equipment into the U.S. market at prices that are substantially below the cost of production. We unequivocally support free and fair trade. We have a large manufacturing facility in China. We have a really good understanding of what the cost of manufacturing of aerial equipment is in China. So we support free and fair trade in an even playing field. And we believe that free and fair trade is in the best interest and of all stakeholders, our team members, customers, suppliers, shareholders and the industry and community at large. I will also say Ann, that I've had conversations with customers on this specific issue, explained what we were doing and why we were doing it. And I can tell you that the calls that I've had with customers, they support the activity. Because they support free and fair trade as well. So again, Ann, we'll see. We think it's absolutely a legitimate complaint. Otherwise, we would not have filed it and will allow the legal process to play out as we move forward.

And what is the time line from here, John? What happens next?

They look at it Ann, the next couple of months to assess if there needs to be an intervening actions taken, and then they decide that. And if the answer is yes, then it takes another couple of months to put -- to evaluate it completely. And then there's usually some form of tariffs that are applied to their respective products and components associated with the complaint. But it will take time as all things do in this arena Ann, but that's the process.

And do you have to prove that they are dumping below their costs? I mean, to your point, your costs are higher than some of your competitors, your costs may be significantly higher than a domestic Chinese manufacturer. How do you prove that they are dumping below their cost? Their cost may be significantly lower.

Yes. We have a lot of data that we provided to the Department of Commerce and the U.S. trade as part of the coalition in terms of cost. Again, it's through a third-party legal firm. And then as I said, Ann, we have a large facility in China, and we know what Chinese local costs are because we're -- in my plant now in China, Ann, we only have 1x bet. Everything else is local Chinese national team members and Chinese cost structure. So we've got a good understanding of what Chinese cost structure is. We've got a good understanding of what the cost to manufacture is. And we've got a good understanding what reasonable prices are on a global basis.

Okay. So I we'll see how that all turns out. So we're looking at maybe 6 months before any reason behind?

It could move faster, slower, but that's a reasonable time frame. This is a very rigorous process and very in-depth process has followed as part of the complaint.

Yes. I checked the website. And it does seem to be pretty rigorous on rent. I got to switch gears again because I think there was some confusion around your fourth quarter numbers and then your guidance for 2021. In aerial platforms, you shipped 20% of your 2020 sales out of inventory, which means you technically underproduced your rental companies demand, if you want to call it, demand. But it means you did report those sales. You may not have gotten the manufacturing absorption because they were shipped out of inventory, but the sales were recorded. So when you guided to revenue up 12% this year, we should anticipate that production will be up significantly more. So you'll get the absorption, but your sales theoretically will only be up 12% because you technically ship that of inventory. So you reported the sales last year. So I want to make sure that I have interpreted that correctly. Because I think there is some misconception out there that your sales are going to be up 20% plus 12%. So if you could just clarify that and make sure we're all on the same page, I'd appreciate it.

Okay. Ann, your understanding and math is absolutely spot on. So if you take a step back and look in 2020, we came into the year with more inventory than we wanted in the aerials business. And then as a result of the pandemic, definitely more inventory. So we began to significantly reduce our production levels. And you're 80% to the prior year production levels, 20% out of inventory is a good round number. It varied by quarter, but we significantly underproduced to retail demand in 2020. So Ann, you're right, even if there was no growth, let's just say revenue didn't change. There would be improvement in manufacturing units, all right, which we would see an improvement in manufacturing overhead absorption. Add the 12% revenue growth, that's the revenue side. And you're right, we did then have to produce to that level. So the production is up in that range you talked about, 35%, 40%, which will drive an improvement in manufacturing fixed cost absorption as a result of the higher volume. So your math is spot on. It doesn't mean revenue is up 40%. Production can be 40% with revenue being up 12% because of how our production level in 2020 relative to the demand. And again, there's not a lot of inventory necessarily in the system. We have to produce finished goods inventory for the rental customers. There's no distribution channel between us and the rental customer. 95%, 96% of what we sell goes to the rental channel in the aerial business. And so it's a direct sale. So we keep the inventory, goes directly to the customer and you're right, we had to bring down our inventories. And we're in a better position now than we were, and we measure it by days inventory on hand by model, and we're in a better position now than we were in 2020. And it was painful in 2020, but it was necessary.

Why do you think your forecasting was so far off? Why did you end up coming into last year with excess inventory?

I think it was overoptimistic. We really started Ann. We went all the way back to fourth quarter of 2018. And so the demand just didn't play out the way we thought it would in a couple of regions of the world. So we built the inventory in advance. So it goes back to end. We have to improve and have improved our SIOP process, sales, inventory and operations planning process. So the sales forecast, matching that to the production forecast and tightening that up is an area of process rigor and discipline that we're focused on, and I'm focused on, and Simon and the team are clearly focused on at Genie because, frankly, we needed to do a better job of our SIOP process, and we have and we will going forward.

Okay. I appreciate that. And then switching to an infrastructure bill, I think the current administration is very confident after their last week's Recovery Act bill, and there seems to be tremendous confidence now. Let's move quickly on to an infrastructure bill. I believe leader Chuck is already talking about it on Friday. When I think Terexs' products. And I think about your 2 segments, I don't naturally think about there being huge upside to demand for aerial work platforms, maybe for telehandlers. And then perhaps an increase in demand for material processing equipment. So how much in the U.S., how much that business is leveraged to the U.S. I think maybe you could help us understand. And so where am I wrong? Where might the businesses see upside? And again, I expect we wouldn't see any upside until 2022, at least because it's going to take a long time. They'll be bickering over price tag. We've already got an extension of the FAST Act through the end of this fiscal year for government. So likely, nothing will be implemented until October, at least with the new budget. And so John, where might we see upside price from the Access side and where might we see upside from the Material Process side?

Thanks, Ann. And it's an area in my role on the AEM Board that we spent a lot of time advocating for infrastructure and infrastructure bills in North America. I share your optimism to a degree. First of all, there's an absolute need for infrastructure in the United States. And perhaps now there is a political will that can drive it. You're absolutely correct. Any passage of any infrastructure bill will not be a '21. That won't really impact '21 in any way between '22, '23 and beyond. Net -- it will be a positive though, Ann, across our businesses, the aerial business. You mentioned and then on the MP side. So on aerial side, Ann, if we do a lot of bridge work, if there's investment on bridges, that is very strong for telehandlers, yes, but also for booms. And so infrastructure will improve our telehandler business, our boom business, you're right, depending on what type of infrastructure, it may or may not have a significant impact on the scissors market. But it absolutely will help on the booms in telehandler markets. Also in infrastructure, Ann, there's a drive and a need for electrification, right, and improving the electrical transmission and distribution grids, our utilities business is positioned quite nicely for any infrastructure expansion in that space. And again, the other aspect that is 5G rollout to rural America. In most of the cases in rural America, the repeating towers are on top of live wire. If you're going to put a 5G repeater on a live wire, you have to have the insulated type of equipment that we manufacture in our utilities business. So I do think if you think about it larger than just roads and bridges, I do think that will be a good tailwind for us. On the MP side, you're right anything, our mobile crushing and screening business, we have a strong presence globally, good regional diversification. But mobile crushing and screening is anything associated with the road and road development that is a big time plus for that business because that's how it's done today is they bring the crusher and screener where it's needed for the base. So that will improve that business. Our Terex advance business, cement mixer truck business, Ann, we've seen some good rebound there. That's right now been associated with residential construction. If that move is through more of an infrastructure-related bill, that will also help that side of our business going forward. So MP will be helped Ann. If there's an infrastructure bill of any kind in the U.S., it will be a good tailwind for us as a company across our businesses.

Good. And I'm sure we'll hear from several companies around the same pieces, which kind of brings me to my next question around inflation and the cost side of the business. Are you concerned about inflation in general, just given the amount of money that's sloshing out there in the economy. Clearly, we're seeing it show up in raw material costs already. And in -- while logistics is not really an inflation -- been driven by inflation, but supply and demand. But are you concerned about the longer tailwind on inflation? And you've hedged your steel purchases through most of this year. Is that volume-related hedging? So if demand ended up being better than expected, you wouldn't be covered for the increase in volume beyond your 12%, say? Or just talk to us about what is hedged, what's not hedged and then beyond the hedging period, how concerned are you?

Right. So you're correct, Ann. We did implement -- we had the 232 tariff back in the '17, '18 time frame in the Genie business. Again, it's not an MP. We did implement a hedging program for hot-rolled coil, HRC and that did help. And again, we're just looking for forward visibility for cost structure because we're quoting pricing for -- especially in the larger rental companies for that year. And that does give us about 2/3 stability on HRC with those hedges. But you are right, Ann, it is volume dependent. So it's also depending on what our volume assumptions were. Obviously, we had enough volume to cover our forecast of what we anticipated. If it goes above that significantly, there's a band in there. But if it goes above that, yes, we would be exposed to the current steel prices. There's also not hedges associated with plate steel, and there's not a market for that. And so we're -- and then on the MP side, we don't use as much coil. And our business isn't quite as big. We import into the states, as you know, from a lot of our plants in Northern Ireland in that part of the world. But plate steel has also gone up. So your broader question is -- and we're seeing it today in steel prices. But I would say a big part of that is U.S. steel. If you see global steel prices have gone up, but they've gone up more at what I'd call a more reasonable level because of some of the 232 related activities in North America, coil, we've seen a dramatic increase in the cost of coil and plate steel in the U.S. There is a lot of monetary stimulus around the world, as you know, Ann, and there's physical stimulus to stimulate the economy to grow again globally. What we're doing is controlling what we can control. We talk to hedge program. And then working with our suppliers to push back as much as we can on the inflation increases. And then working with our customers to be as transparent as possible with our customers and say, these are the cost increases that we're seeing for the types of materials that we need. And this is why we're asking for a price increase, I'll be straight, Ann. Our objective for this year is really price cost neutrality. We're trying to get price to offset. I'm not going to get price in this environment for margin expansion. That would be great. But the reality of it is, if we can mitigate the cost increases with pricing in this environment, I think that's going to be an overall strong thing. I will say Ann, you've been around like me a long time in the industrial space. But ultimately, I got to believe U.S. steel prices are going to come down because they're going to bring more capacity on board. We're advocating for a little bit more open trade, especially from the EU for steel into the U.S. market because, frankly, if we don't fix the steel issue, it's putting us at a competitive disadvantage in U.S., and that's not what I think any of the administrations want. So it's a multifaceted approach here and now, sitting down with our customers, being transparent, showing them the cost increases we're seeing and asking for a price increase to again mitigate those cost increases. And it definitely is not as much as I'd like to tell you, Ann, it's going to drive margin expansion, if not, we are focused on mitigating the cost increases with our customers from a cost increase standpoint.

Okay. Just 2 quick follow-ups on that. Can you quantify the amount of HRC purchases you make versus plate or the importance of one versus the other I mean?

Yes, 60-40, Ann, 66, 1/3, that's a good range. That kind of depends by product, but that's a good range to think about it, 60-40, 2/3, 1/3 in that ballpark.

Okay. So plate still a significant purchase?

Yes. Yes, it is.

And then on the whole pricing side, I know you're talking neutral at best. But as I do recall, the last time we saw inflation, Terex put through a permanent price increase on products, whereas Oshkosh chose to put through surcharges. Why did you choose a permanent price increase at that time? And would that be your objective, again, would you always choose to do permanent price increases rather than surcharges?

Well, back when it went up originally, Ann, we did try to surcharge route early on and then move through the subsequent years to more permanent price increases. This year, whether it's permanent or temporary, it depends on the material environment. But this year, we're actually sitting down with customers demonstrating what we're seeing from a cost increase standpoint. And then talking that is why the price increase is what it is rather than a surcharge approach. So -- but again, being transparent on cost increases and seeking pricing as we move through the year as well, a more dynamic pricing environment as a result of the dynamic a situation we're seeing in a material world right now.

Okay. And we're moving into the springtime. So you talked about sitting down with customers right now. What are your customers saying to you right now versus even 3 months ago? Are they beginning to talk about an infrastructure bill and beginning to put plans together and don't want to be the last person ordering products because they'd be last in line to receive equipment? Or is there a healthy skepticism out there? And then how is business for them beyond all of that? I mean, we can look around all the different regions, and there's some variability, but it does seem like construction is booming in many parts of the country. So what are the conversations like? And how have those changed in the last 3 months?

So the conversations, I think, in general, Ann, and I'd say globally with customers, especially here in the states is more optimistic. And again, as we've progressed, we've seen improvement in utilization, time utilization and we've seen stability in rates for the rental customers. And we've also seen good solid used equipment value when they've been selling their used equipment. So all that shapes up is improving conditions for the rental companies. I will also say, I think the rental companies have gone through this economic crisis as compared to the previous economic crisis. It really showed the resiliency of their model, in their business model and how it's improved. And they will say that there's no doubt, nonresidential construction is a big part of their business, but there's a lot of other segments that are diversified away from just a focus on nonresidential construction, and they've seen that help their businesses as our equipment goes into those applications as well. So I think they're being prudent, Ann. They're being prudent in managing their fleet as we manage managing our production and they're looking -- and I think they're looking forward to future growth. I will also say, Ann, in the AWP space, as we -- we always talk about this replacement cycle, and it was delayed in 2020, probably a little '20, '21 but as we get to '22, '23 and beyond, the replacement cycle is going to be a big factor in the aerial specific equipment as they look to replace those machines in that 7 to 8-year time window. And they've become very good at knowing the appropriate point in time to sell the equipment for the operating cost, coupled with the used equipment values, coupled with their fleet management. They are very astute at that. And so I think we'll see that as we move forward. And then the bigger secular trend is rental is taking more and more market share in equipment ownership and more and more contractors are looking to rent rather than own. So they've got the secular tailwind of a business model change that I think demonstrated strength through this pandemic, and I would anticipate it's going to continue to demonstrate strength as we move forward. So our customers are getting stronger, financially healthy, and that's always a good thing to deal with customers that are healthy and financially strong.

Yes, John, it is interesting when you read the trade magazines. I am seeing more and more rental companies move into renting equipment in the road construction environment, which traditionally was always a some contractor purchase decision. So it is interesting to see them expand. And I guess, if we've got an infrastructure bill, if you're a contractor, you may not have great visibility even with an infrastructure bill and the notion of renting even some of that equipment probably makes sense. So it will be interesting to see how rental companies expand their offerings and in that context, can you talk a little bit about capital allocation? You talked about inorganic growth, you talked about M&A, you've talked about -- we know what a great business, mature processing is, where would you add on the Material Processing side? Obviously, you don't want to tip your hat to competitors. But where do you see the greatest opportunities? Is it geographically, if you could find greater presence in Asia or in North America itself? Or is it product breadth and expansion of products because you've got the distribution channel. Just talk us through the rationale in the M&A front, particularly on MP.

MP. Well, thank you, Ann. And you're correct. Our focus is more on the MP space. And that's for a couple of reasons. One, it's demonstrated strong performance. Now that a lot of the other segments are not on the way, you can clearly see the performance and consistent performance of the MP business. And so as we look at that business and deploying capital for via acquisition, first of all Ann, there's still a high degree of fragmentation in the segments that we compete in. It's a lot of specialized equipment. So we think there's opportunity there. Near adjacencies, where we can utilize some of our technology with a near adjacent technology, and add something of value from the customers' perspective. So we're looking at near adjacent spaces. And then you're also right, there are opportunities where we're regionally strong in one geographical region, but not quite as strong in another geographical region, and there's an opportunity to expand geographically. So really, all of the above and again, we'll be very rigorous and disciplined in terms of what we do. But if you just look at the structure of the industry, it does lend itself for opportunities for M&A activity and given the strength of the business and its consistency over time, yes, it's cyclical, I'm not saying that, but a far less degree of cyclicality than other businesses, especially with the portfolio effect, we think it's a great place to deploy capital. And we'll be looking at tuck-in bolt-on type acquisitions in that space as we move forward.

Okay. Well, I think we're running out of time. But just to finish up, what kind of leverage would you be comfortable with, John, in this environment? I mean, how much would be too much? How far would you go? Or is there...

Yes. Good question, Ann. Board management continue to discuss this. We haven't changed our 2.5x through cycle leverage. I think if anything, the pandemic teaches you, things happen. And you want to be in a strong position to deal with things if they occur. So I don't -- I'm not anticipating any significant change in that. We've had the discussion, and it could ebb and flow. But if you kind of think of that 2.5x through cycle, I think that's a reasonable place for us to be.

Okay. Thank you. And I think that's it, we're out of time, and I appreciate you taking the time with us here this morning. I know you've got lots of meetings coming up through the course of the day. So good luck with those, and we'll see you maybe in an airport before too long.

Thank you, Ann. I look forward to actually seeing you in person versus virtual and to all the investors. Thank you for your interest. Please stay safe, stay healthy. This thing is not over, but we can see the end in sight if we all stick together. So again, thank you for your interest in Terex and your time. Thanks, Ann.

Okay. Take care.