Terex Corporation (TEX) Earnings Call Transcript & Summary

Greetings, and welcome to the Terex First Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder: This conference is being recorded. It is now my pleasure to introduce your host, Paretosh Misra, Head of Investor Relations. Please go ahead.

Good morning and welcome to the Terex First Quarter 2023 Earnings Conference Call. A copy of the press release and presentation slides are posted on our investor relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. We are joined by John Garrison, Chairman and Chief Executive Officer; and Julie Beck, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by Q&A. Please turn to Slide 2 of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. In addition, we will be discussing non-GAAP information we believe it's useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to Slide 3. And I'll turn it over to John Garrison.

Thank you, Paretosh. And good morning. I would like to welcome everyone to our earnings call. And appreciate your interest in Terex. I would like to begin by thanking all Terex team members for their exceptional efforts in this challenging global macroeconomic environment and for their continued commitment to our Zero Harm Safety Culture and Terex Way values. Safety remains a top priority of the company, driven by Think Safe, Work Safe, Home Safe. Terex team members continue to work tirelessly to improve our performance for our customers, dealers and shareholders while maintaining a safe working environment. Please turn to Slide 4 to review our strong financial results. The team delivered excellent financial performance for the quarter. Sales of $1.2 billion were up 23% from last year and up 27% on an FX neutral basis. Operating margins of 12% expanded 460 basis points from the prior year. And earnings per share of $1.60 more than doubled year-over-year. As a result of our team members' continued strong execution in the first quarter and our strong backlog, we are raising full year earnings per share outlook to a range of $5.60 to $6. Please turn to Slide 5. I'm excited about the future of Terex and the opportunities in front of us. Our MP and AWP segments participate in global diverse end markets; and are well positioned for profitable growth. Infrastructure investments are increasing throughout the world but in particular in the United States. In fact, the Infrastructure Investment and Jobs Act alone is expected to drive $1.2 trillion of spending over 10 years. In addition, the CHIPS Act and Inflation Reduction Act are going to be supportive of additional spending in construction and infrastructure that should drive growth for our businesses. Our Powerscreen and Finley brands have leading positions in global mobile crushing and screening markets that will benefit from growth in aggregates. Our Genie products are needed for general maintenance, infrastructure and construction projects; and will benefit from increased government-sponsored spending throughout the globe. Another important growth driver are initiatives that support circular economy goals. The global demand for waste recycling solutions is increasing, driven by regulatory and societal changes. Our MP brands, including, Ecotec, CBI, Terex washing systems and our recycling systems are at the forefront of meeting demand for sustainability initiatives. The increasing reliance on electrification to reduce greenhouse gas emissions requires grid capacity expansion. Terex Utilities has a wide portfolio of products, well positioned to capitalize on the investments needed to enhance the electrical grid. And our Genie business, in particular, will benefit from increasing digitization, including data warehouses and chip manufacturing onshoring projects in the United States. Despite the near-term macroeconomic issues. We continue to be optimistic and excited about the opportunities for Terex growth. Please turn to slide 6 to review our backlog. Our Q1 backlog remains strong at $4.1 billion, up 2% from year-end. In fact, our backlog has remained relatively consistent for the last 5 quarters, and we've had minimal customer and dealer pushouts and cancellations. Our current level of backlog is consistent with Q1 of 2022, the highest backlog for Q1 in our recent history. Our backlog demonstrates the strength of our end markets and supports our outlook for the remainder of the year and gives us visibility into early 2024. Elevated customer fleet ages and historic low dealer inventory levels continue to support robust demand. Consolidated Q1 bookings remained healthy at $1.3 billion, resulting in a book-to-bill ratio of 105%. Turning to Slide 7 for an update on our strategic operational priorities. We continue to make progress on our execute, innovate and grow strategic initiatives that continue to strengthen our company. Our operations team had excellent execution in the first quarter. demonstrating adaptability and flexibility to overcome the dynamic supply chain environment. Our permanent Mexico facility is on time and on budget. The new facility is an important element of our strategy to improve Genie's through-cycle performance. Starting in March, Genie began to transfer bus clients from our temporary facility in Monterrey to our new permanent facility. Moves from other factories in our network will take place over the next 12 to 18 months. While these moves will have significant long-term benefits, this process will result in short-term manufacturing inefficiencies, which the Genie team is working hard to overcome. The company continues to make capital investments in our facilities around the world. These investments are paying off, and we are proud of a return on invested capital of 24%, which remains significantly above our cost of capital. We showcased 20 new innovative products at CONEXPO, ARA, World of Concrete and Bauma India. Our investments in the development are environmentally friendly, new products with superior performance will help to deliver growth. Our Parts & Service teams are investing in digital offerings for dealers and customers, including My Terex and Lift Connect. We now have more than 70,000 machines fitted with our telematics technology. Execution of our EIG strategy enabled our strong organic sales growth for the quarter. In addition, we continue to supplement our organic growth with inorganic investments. We recently acquired Marko, a manufacturer of both material handling conveyors, further growing MP segment's offerings with products that complement the existing portfolio. In February, we completed an equity investment in Neptronic, a robotics company, reaffirming our commitment to invest in technologies that enhance our product and solution offerings. Turning to Slide 8. During the quarter, our team members were active in trade shows. We saw high attendance and interest in our products. In fact, attendance hit a new record at two of the biggest trade shows, CONEXPO and Bauma India. The attitude of our customers was upbeat. The MP team displayed a Powerscreen gladiator product at CONEXPO, a fully electric wheel crushing and screening machine. After significant success with this product in North America, we recently launched a Gladiator World Series this year for sales around the world. Virginia Genie introduced our highest capacity Telehandler at the ARA's show. The 12,000-pound Telehandler is engineered to offer superior productivity and low total cost of ownership. We also introduced our first all-electric Mini-Mixer at ConExpo, expanding MP's concrete offering. Similar to our all-electric Utilities truck, the Mini-Mixer leverages our investment in Biotech to develop Zero Emission products. If you had the opportunity to visit our booth at these trade shows, I hope you took away from your visit that Terex team members are engaged with our customers and our products and services offer the features and benefits that provide value. Turning to Slide 9. At Terex, we are intently focused on developing and delivering sustainable solutions for our customers. In this example, Terex Recycling Systems sold the first all-electric powered Waste Separation solution to a customer site in the U.K. The installation with mines or waste feeder, conveyors, screens, sorters and separators. The system efficiently recovers products at higher value, including metals, aggregates, plastics and cardboard from waste, that's diverting more material from the landfill. This is another example of Terex products, making the circular economy a reality. Please turn to Slide 10. Our environmental, social and governance programs deliver stakeholder value. We continue to progress on our ESG journey and recently completed our materiality assessment. We know from our stakeholders that product development, stewardship and innovation are core business differentiators. Stakeholders regarded product quality and safety is critical for meeting regulatory requirements and customer expectations. Team member health, safety and well-being are important. We know that Zero Harm is possible. It's not just an aspiration. We designated April as safety month for teams across the globe and schedule a variety of events to reinforce and rededicate ourselves to Zero Harm. I want to thank our stakeholders who participated in our materiality assessment which provided us valuable insights. Please turn to Slide 11. We continue to operate in a challenging macroeconomic environment with inflationary pressures and supply chain constraints. We did see slight supply chain improvements. However, our hospital inventories increased in the first quarter after declining in the fourth quarter of last year. This is a clear indication of the level of disruption our teams continue to face and overcome. Overall, our market demand remains strong, and I am confident in the team's ability to continue to adapt and overcome the macroeconomic challenges that we have been facing. And with that, let me turn it over to Julie.

Thanks, John. And good morning, everyone. Let's take a look at our first quarter financial performance, found on Slide 12. Terex is in a strong financial position. We demonstrated excellent execution in a dynamic environment. Sales of $1.2 billion were up 23% year-over-year on higher volume and improved price realization necessary to mitigate rising costs. Sales in constant currency were up 27%, as foreign currency translation negatively impacted sales by $42 million or approximately 4% in the quarter as the Euro and British Pound weakened against the Dollar. Gross margins increased by 410 basis points in the quarter as volume, pricing, favorable product mix, improved manufacturing efficiencies and strict expense discipline helped to offset cost increases and the negative impact of foreign exchange rates. All segments recorded a year-over-year increase in gross margin. SG&A was 10.6% of sales and decreased by 50 basis points from the prior year, as business investment and marketing costs were coupled with continued expense management. SG&A increased over the prior year due to inflation, unfavorable foreign exchange, incremental spend on new acquisitions and increased marketing expenses on trade shows. Income from operations of $148 million was up 98% year-over-year. Operating margin of 12% was up 460 basis points compared to the prior year. Our incremental margin was 31% compared to last year. Interest and other expense of $15 million increased $4 million from the prior year due to increased interest rates. The first quarter global effective tax rate was 17.5%. First quarter earnings per share of $1.60 more than doubled, representing an $0.86 improvement over last year. This strong performance was driven by increased volume, disciplined pricing and continued cost management. This quarter includes an unfavorable earnings per share impact of $0.10 from foreign exchange translation. Free cash flow for the quarter was negative $11 million, representing a significant improvement over the prior year. I will discuss free cash flow later in more detail. Let's look at our segment results, starting with our Materials Processing segment, found on Slide 13. MP had yet another excellent quarter with consistently strong operational execution. Sales of $554 million increased 22% compared to the first quarter of 2022 with healthy demand for our products across multiple businesses. On a foreign exchange neutral basis, sales were up 28%. Bookings were up 6% sequentially. MP ended the quarter with backlog of $1.2 billion. The backlog remains robust and is approximately 3x historical norms. MP delivered operating profit of 15.4%, up 120 basis points over the prior year, driven by higher sales volumes, favorable product mix and disciplined cost management, resulting in an incremental margin of 21%. On Slide 14, we see our Aerial Work Platforms segment financial results. AWP had an excellent quarter with sales of $686 million, up 24% compared to the prior year on higher demand. On a foreign exchange neutral basis, sales increased 27%. Backlog at quarter end was $3 billion, up 4% from the prior year. Bookings remained strong with a book-to-bill ratio of 112%. AWP more than doubled their operating profit and delivered operating margins of 12.1% in the quarter, up 620 basis points from last year, with an incremental margin of 38%. The improvement was a result of higher sales volumes, favorable mix, cost reduction initiatives, manufacturing efficiencies and disciplined pricing actions to offset material supplier costs. Please see Slide 15 for an overview of our disciplined capital allocation strategy. The company's strong balance sheet provides us with financial flexibility for the future. As a reminder: Although Terex does provide customer financing solutions through our banking partners, in February of 2021, we sold our TFS assets; and no longer carry this exposure on our balance sheet. We remain diligent in monitoring counterparty exposure at risk; as well as regional, customer and supplier risk. To date, we have not seen a negative impact due to current market conditions. Free cash flow for the quarter with negative $11 million compared to negative $72 million a year ago. The $61 million year-over-year improvement in free cash flow was due to increased operating profit. Hospital inventory at the end of the first quarter was $48 million, an increase of $12 million from the fourth quarter of last year and down slightly from a year ago, reflecting continued supply chain disruptions. We continued to invest in our business with capital expenditures and investments of $30 million. We increased our quarterly dividend per share to $0.15, a 15% increase over the prior year. We repurchased $3 million of shares in the first quarter. In April, we have continued our share repurchase program and purchased $14 million of shares, partially offsetting the dilution from our compensation programs in March. Through April, we have returned $28 million to shareholders and have $175 million remaining on our share repurchase program. We will offset dilution and take advantage of market dislocation in these volatile times. We have no debt maturities until 2026, and 77% of our debt is at a fixed rate of 5% until the end of the decade. Our net leverage remains low at 1x, which is well below our 2.5x target through the cycle. We have ample liquidity of $677 million. The company is in an excellent position to run and grow the business. Now turning to Slide 16 and our updated full year outlook. It is important to realize we are operating in a challenging macro environment with many variables and geopolitical uncertainties, so results could change negatively or positively. With that said, this updated outlook represents our best estimate as of today. Thanks to the strong execution of our team members and our robust backlog, we are pleased to raise our 2023 outlook. We now expect earnings per share of $5.60 to $6. Our increased sales outlook of $4.8 billion to $5 billion incorporates the latest dialogue with our customers and our suppliers. We anticipate higher volumes, as customer demand remains strong. Our sales are expected to be relatively consistent in Q2 and Q3 and down slightly in Q4 due to lower production days. Our operating margin outlook has increased to a range of 11.4% to 11.8%. This reflects our excellent performance in the first quarter, continued strong customer demand, the latest information from our supply chain, cost-out benefits and continued strict expense management. We expect improved free cash flow in the next three quarters. And we are raising our outlook to $300 million to $350 million primarily due to higher earnings. Let's take a look at our updated segment outlook. Based upon MP's continued strong execution, which includes continued mitigation of cost pressures and supply chain challenges, we are increasing our sales outlook to a range of $2.1 billion to $2.2 billion, with an increased operating margin of approximately 15.8%. We expect MP's sales and margins to be relatively consistent for the remainder of the year. The AWP team has increased their factory output, and as a result, we are increasing our sales outlook to a range of $2.7 billion to $2.8 billion, incorporating the increased volumes, the team's cost reduction activities, pricing actions and improved manufacturing efficiencies, we are raising our full year operating margin outlook to approximately 11.5%. We anticipate AWP's sales to be relatively consistent in Q2 and Q3 and down slightly in Q4 due to normal seasonality and lower production days. AWP margins are expected to be negatively impacted by manufacturing inefficiencies due to scheduled production moves to our Monterrey facility, which will have a greater impact in the second half of the year. And with that, I will turn it back to you, John.

Thanks, Julie. Turning to Slide 17 to conclude my prepared remarks. Terex is well positioned for growth to deliver value for our stakeholders in 2023 and beyond because we participate in strong end markets, including infrastructure, electrification and environmental. We'll continue to execute our disciplined capital allocation strategy while investing in new products and manufacturing capability, along with strategic inorganic growth. We have demonstrated resiliency and adaptability in a challenging environment. And most importantly, we have great team members, businesses; strong brands; and strong market positions. And with that, let me turn it back to Paretosh.

Thanks, John. [Operator Instructions] With that, I would like to open it up for questions. Operator?

[Operator Instructions] We'll take our first question from Stanley Elliott at Stifel.

Congratulations. Can you talk about the [ 250 basis points ] increase for the AWP? How much of that is -- there you go. How much of that is price? How much of that is throughput? And kind of to what extent is the Mexico shift going to be a negative detractor there?

Thanks so much for the questions, Stanley. The AWP team just did a great job in executing this quarter. They were able to get higher sales volumes, coupled with disciplined pricing actions that had favorable regional and product mix. And then they really worked hard on cost reduction initiatives between the supply chain and engineering teams and value-added engineering efforts, getting dual supply, and those types of things. And then with the increased volumes, they also had favorable manufacturing efficiencies, so they had just strong execution, successful cost-out actions. And so that led to an incremental margin of 38%. So the Genie team had very strong volume in the quarter, as we mentioned, and so we're able to raise. In terms of the Genie impact on the Monterrey move, we started that move from the permanent to the new facility in March. More moves are going to happen over the coming quarters. And we expect their second half of the year to be impacted by manufacturing inefficiencies due to all of those product moves. So just a really great job and execution by the AWP team this quarter.

And switching gears. On the MP business, on one hand, you're talking about inventories at your channel partners being exceptionally low. And you're looking at your backlog as 3x kind of what normal would end up being. When do we think that we'll get rightsized? Within that channel, I'm assuming that most of those orders still are for retail use, as opposed to any sort of destocking, but it just sounds like there's a lot of visibility for that part of the business going forward.

Stan, you're right. There is a significant visibility with MP's backlog being at about $1.2 billion, which is similar to prior year. And it's also important to note, given the fact that we have about 3x the normal backlog, that is changing our order policies within the business. For example, in our aggregates business, in the quarter, our order book wasn't open for the whole quarter to fill Q3 and Q4 because we're still in the position of slotting orders that we had received. And the reality of it is in this business, and it's not dissimilar in AWP business, we really are in an allocation mode, so as the orders come in, we have to allocate to ensure that all dealers have the opportunity to take product and we don't cut off a dealer in a certain part of the world with no product. So demand remains strong. Dealer inventories are low. Remember about 75% of the MP business goes through a dealer channel. Their inventories are not stocking dealers in the sense they're not putting equipment on the line. Most of the equipment here goes into their specialized rental fleets that turns into rental purchase-type contracts, RPO-type contracts. And again the challenge for them is that those contracts have been converting to sales and we haven't been able to get the product back to them that they need, so they're seeing that depletion in their network and their rental fleets. And so that's helping to sustain. And again it's a global strength. Literally, across the globe, we're seeing strength in the MP segment; did see strength in North America, which we would expect, given the strength in the overall North American market. So as we continue to see improvement in the supply chain, supply output continues to improve, we'll see that return to more normal, but right now, quite strong backlog, extended visibility and historic level of visibility going forward. And I think it's also important, Stan, that this really important in both businesses and the backlog is -- and we comment on this, is what happens within the backlog in terms of order pushouts and order cancellations. And we're just not seeing that at this time. So good, robust backlog. We know that book-to-bill of overall company was 105%. It was down a little bit in MP, but that's coming off an exceptionally high Q1 of last year really in both businesses. So overall demand remains robust. We're not seeing cancellations and pushouts. And frankly, we're still in an allocation mode and we'll be continuing to open up the order book as we progress through the remainder of the year.

We'll move next to Stephen Volkmann at Jefferies.

John, I just want to pull on that thread a little bit because I feel like, if we were going to see any signs of weakness or pushout, as you just noted, it would be in the AWP and probably specifically with the smaller customers, so I guess I just wanted to hear your comments around what you're seeing from sort of the small independents on AWP orders.

Thanks, Steve. Similar market dynamics. Both the nationals and the independent customers continue to see strong market fundamentals and growth across both segments and continue to see strong utilization; and again similar dynamic, industry constraints that led to the increase in fleet ages. And we've talked about the replacement cycle on numerous times and the fact that, that replacement cycle has been delayed. I think that shows up in relatively strong used equipment values. Right now customers are still requesting more than we can deliver due to the supply constraints, so we've talked about it to customers. If supply constraints alleviate, there may be an opportunity to get more supply. And that's both with the nationals and the independents. Again here, if you look at the AWP segment, again against a very tough comp in 2022, our book-to-bill ratio was 112% in this segment. So good backlog, good order coverage. And again the reality here is that we're still in an allocation mode. And so I know this is going to sound strange, but we're in a position where we're trying to keep customers equally unhappy with the distributions we're getting. And so we're trying to keep things relatively consistent against historical patterns for the nationals and the independents. And again I think that speaks to the relative tightness that we've had in the market. So still constrained and the team is working to reduce the constraints, but again, backlog, market environment continues to appear robust across the customer base, not just in the large national accounts.

Understood. And then just to follow up there on AWP. I was a little surprised to see the hospital inventory actually up but also, of course, the margin much stronger than what we were looking for. I usually sort of assume hospital inventory means headwinds to margin, so maybe you can square that with us. And specifically, I'm trying to think about, as those hospital inventories normalize, is there margin upside that might be sort of in our back pocket here.

And as Julie started with her comments, the team really did execute well. And you're right, Steve. We did see a modest increase in our hospital inventory to about $48 million, up from $36 million at the end of Q4, so I think that speaks to the level of disruption the team is seeing, but they're continuing to work to improve the continuity of supply. And we are seeing improvement, modest improvement, in the supply base in terms of on-time delivery. We are seeing modest improvements in the quantity or the level of supply. Our teams are driving that. There was a tremendous amount of work going on in our supply chain teams around the world to really increase the number of suppliers that we're working with, dual sourcing, modifying design. And so all of that work is occurring despite that because we're in the business where you need 100% of the parts to ship a product. Despite that, we still saw a slight increase in the hospital inventory in the quarter. That does create disruption, but as Julie said in her comments, they had good efficiency on the higher output that we were able to get that we were able to take -- the team was able to take to the bottom line. So we're continuing to work hard around the globe in both segments to drive continuity, reduce the disruptions and increase the quantity of supply. A lot of hard work, but again, the disruptions we're seeing are evident in that hospital inventory. And again it just takes one part for us not to be able to ship to a customer.

We'll move to our next question from Steve Barger at KeyBanc.

Sorry. I missed your prepared comments, but with you already guiding this year above FY '24 consensus, people are going to be wondering around longer-term thoughts on your ability to drive growth, so to the extent that you can: What are your general thoughts on cycle longevity and just how you're positioning Terex for the next few years?

Yes. Thanks. And good question. And again it's early to talk about 2024, but again if you look at our strong backlog coverage that we've seen, it's pretty much consistent the last 5 quarters. Governments around the world are pointing to infrastructure as a stimulus -- and we're seeing this as a robust nature around the world. And then when you put that on top of what's transpiring in the U.S., and I mentioned this, Steve, in my opening comments, about the infrastructure act, the Inflation Reduction Act and the CHIP Act (sic) [ CHIPS Act ], those are massive sums of money that are tailwinds against the current headwind of the macroeconomic rising interest rate environment. And so if you look at the mega trends that we're dealing with in that area, if you look at the consistent performance of our MP business and then the increase in sustainability of what we're doing in some of our environmental, as we highlighted one of the solutions this time -- and so the mega trends provide some degree of tailwind for us to potentially offset the headwinds that we have on the rising interest rate environment. So if I look at MP, again consistent performance around the globe, multiple verticals that we compete in. And we believe in that environment we're going to be able to drive growth. AWP, that has been constrained. Replacement cycle both in North America and in Europe has been constrained by overall market supply. Again, the backdrop of those major infrastructure bills provide a tailwind against the headwind of a rising interest rate environment. And so as we look out with the replacement cycle, rental companies continuing to win, the industry continuing to grow, yes, we do believe, as we laid out in December, that we can be a growth company over the coming period of time. Now we all know, and as I said in December, it's not always linear, but as we set the company up, we believe we're set up to take advantage of the mega trends that are ahead of us to drive growth into the future. Obviously too early to talk about 2024 from a financial standpoint, but we have $1.1 billion of backlog for 2024. That is unheard of for us, for our business. And so we know there's a lot of cross currents out there and not the least of which is this rising interest rate environment, tightening credit conditions, but there's also some pretty significant tailwinds. And we think we'll position the business and we'll do the right course of action irrespective of what that macroeconomic environment is, but right now we -- it looks pretty strong for 2023. And again, we're not going to give guidance for 2024, and outlook, but we also never have $1.1 billion booked for the subsequent year. And so I think that also indicates there's an opportunity to potentially grow despite -- and we're not naive, despite the macroeconomic headwinds and a rising interest rate environment.

Yes. That's really great context. And to your point about the interest rate environment, I know this will be hard to answer, but there's a lot of concerns around commercial real estate and specifically office. Have you ever tried to quantify your end market exposure by project type? Or do you have a guess how much of your fleet has been allocated in the past to office construction? And I'm just wondering. Do challenges in that specific area create a fleet overhang for your customers, or is that relatively small?

So Steve, I think it's relatively -- first of all, we've tried -- we don't have precise information, so I can't give you a percentage. I do know that our -- well, especially on the AWP side, our larger customers report out where they believe their products are going, i.e., our products. And if you look at that macro environment and non-resi construction, clearly, office and retail is going to have a headwind in a rising interest rate environment. And that part of the business will be impacted. However, if you look at non-resi in totality, 40-plus percent of that is public. That's not going to be impacted in a rising interest rate environment. If you look at the CHIPS Act and the onshoring of chip manufacturing, the onshoring of battery manufacturing, those are being done for geopolitical reasons to improve the surety of supply. A rising interest rate environment is not going to adversely impact those projects. They're going to go forward. And so that's why I say there's clearly a crosscurrent out there. There's the headwind of a rising interest rate environment. And it definitely will impact things like commercial real estate, office, no doubt, but the other parts of the business are larger. And that's the macro tailwind. And that's the headwind, tailwinds that we have. And we'll continue to position the business to be able to take advantage of that, but overall, non-resi construction, especially in North America, we think, is going to be strong for the next couple of years as a result of these mega investments. My predecessor is Ron. He said, "John, don't ever talk about the infrastructure bill because I talked about it for 20 years and it never happened." This is the first time we've actually had it. And so that's -- and I get it. It creates uncertainty. We understand that. We'll position the business. We will take the appropriate actions irrespective of the environment, but we believe we'll position the business to take advantage of some positive headwinds. If they -- tailwinds, I should say. If they don't materialize, we'll take the appropriate action, but right now $1.1 billion going into 2024 is highly unusual for us. We think that speaks to the overall strength of the non-resi market.

We'll go next to Timothy Thein at Citigroup.

So John, the first one just is on AWP. And I totally get it's very early to talk anything about '24, but I'm just curious how the team at Genie is planning, with respect to that, fourth quarter production levels as you look in into '24. And there's a lot of moving pieces with what's going on in Mexico. I'm just curious, your initial thoughts. You have to be informed to some degree by what you've seen in terms of order intake and backlog, so I'm just curious how the plan is currently kind of laid out in terms of expectations as to how you're exiting the year and thus now the inventory position going into '24.

Thanks, Tim. So as Julie said in her opening comments, we are anticipating lower volume in the fourth quarter due to production days in the AWP segment, specifically the Genie business. As the supply chain begins to improve and we're able to improve our lead times -- because that's the other issue going on. We have excessive lead times right now across the industry. And as those begin to improve, I think you ought to receive return to some normalcy in customer order patterns because, customers, especially the larger customers, they were taking gear ahead of what they normally do because that's when we as -- in the industry can deliver that equipment to them. So they took things in the fourth quarter that they otherwise wouldn't. They took things in -- early in the first quarter that perhaps they otherwise wouldn't. So I think -- as the supply chain improves, demand stays strong, I think you'll see some more return to some degree of normalcy in production and rental companies in terms of -- in the northern hemisphere, where they take their products. So we're planning on in the fourth quarter for now. I mean that could change. Lower production volumes in Q4 is for no other reason than lower number of production days due to the holidays, but we're assuming a reduction in production in Q4, positioning us to improve or increase production in Q1 to meet the needs of the customers.

Got it. Okay. And then just on MP, a lot of different product segments there and none of which have the same margin profile. I'm just curious, as you mentioned how you've reconfigured over there -- or changed the order policy. Is that resulting in any -- should we think about any -- from a mix standpoint, is there any major differences as we move to the balance of the year in terms of what your -- what you expect to deliver out of that backlog?

No, not anything fundamentally different. As Julie said, we did have some favorable mix in the quarter in the aggregate segment. And we're anticipating that continues through the year but no substantive change, I will say, in the makeup. We did see some favorability in aggregate.

Yes.

We'll go next to Steven Fisher at UBS.

I'm wondering if you can comment on the price-versus-cost gap for the rest of the year. Are you expecting that to be wider, narrower or steady? And I guess, to maybe make it meaningful, how would that look excluding any of the Monterrey costs that you're going to be incurring?

Thanks for the questions, Steve. So when you think about as far in 2022, we were -- as a total company, we were price cost negative in the first 6 months and then we became price cost neutral for the year of 2022. And so in particular -- so our objective is to continue to be price cost neutral for the year. We talk about offsetting material and freight and logistics costs. So we continue to see a dynamic inflationary environment and we've seen container freight decline and while we've seen RoRo increasing. So we've taken multiple pricing actions throughout 2022. We took further pricing actions in 2023 across the company. And so we're being transparent with our customers and distribution partners regarding that level of inflation we're seeing and why we need to take pricing actions. For the -- if I look at it by business, the MP group is that they do dynamic pricing. And so they've been price cost neutral in 2022 and they continue to be price cost neutral for 2023. For AWP, they were price cost negative in the first 6 months of last year and were able to try to be neutral for the year. So we see higher pricing in the first 6 months of this year but with the objective of being price cost neutral for the whole year. So again, we're being transparent, and we expect to be price cost neutral for the year.

Okay. And then John, you mentioned a steady backlog. And when you look at the picture on Slide 20, it really shows that well, kind of a general leveling off. What's your expectation for how this is going to trend from here? I know you said there's going to be some more normalization of ordering, so does that mean just generally kind of a continued steady backlog? Or if it were to break out from here, what would be the most likely driver of that?