Good morning. My name is Marcella, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Terex Corporation Q1 2019 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star and the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. Brian Henry, you may begin your conference.
Good morning, everyone. Thank you for participating in today's Q1 2019 financial results conference call. Participating on today's call are John Garrison, Chairman and Chief Executive Officer, and John Sheehan, Senior Vice President and Chief Financial Officer. Following the prepared remarks, we will conduct a question and answer session. We have released our Q1 2019 results, a copy of which is available on terex.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is available on our website. All adjusted per share amounts in the presentation are on a fully diluted basis. We will post a replay of this call on the Terex website under Events and Presentations in the Investor Relations section.
Let me direct your attention to slide two, which is our forward-looking statement and description of non-GAAP financial measures. We encourage you to read this as well as other items in our disclosures because the information we will be discussing today does include forward-looking material. With that, please turn to slide three, I'll turn it over to John Garrison.
Good morning. Thank you for joining us and for your interest in Terex. First, I want to thank our global team for their continued focus on our customers, which enabled our overall strong start to the year. Our Q1 performance represents a significant improvement compared to last year. The dramatic increase in operating profit and earnings per share versus the results we presented in Q1 2018 clearly demonstrates the value of implementing our strategy. Building on an excellent 2018, MP increased sales and expanded operating margin again in the Q1. MP's global markets remain strong and backlog continued to grow up 17% on an FX neutral basis. AWP markets got off to a slower start than last year, but gained momentum throughout the quarter. AWP is well-positioned heading into the main selling season with backlog of $1.1 billion.
The global markets for AWP, MP, and towers and rough terrain cranes are generally stable at healthy levels, consistent with 2018. Turning to slide four. The Terex strategy continues to be focus the portfolio on great businesses, simplify the organization, and improve the capabilities needed to win in the marketplace. The transition to a more focused two-segment structure, combined with the significant progress we made improving processes, tools, and leadership talent in our priority areas, enabled us to refine our corporate operating model. Each functional area is moving forward with plans that will build upon the progress already made and deliver essential services in the most efficient manner. We are transitioning to a simpler operating structure that will reduce corporate operating expenses. Implementation has started in some areas and will continue throughout 2019. Turning to slide five. We continue to make progress implementing our strategy.
The sale of the Demag Mobile Cranes business is progressing on schedule. Subject to customary regulatory approvals, we continue to expect this transaction to close by mid-year. We completed the wind down of our mobile crane production in Oklahoma City and sold the boom truck crane, and crossover product lines. We are working closely with Tadano and Custom Truck One Source to ensure a smooth transition for our customers. We remain committed to the rough terrain and tower crane product lines in North America and around the world. We are investing in our parts and service organization to support our customers into the future. The resegmentation announced in February is complete and reflected in our financial results and operating structure. Terex Utilities is now in the AWP segment, and the Pick and Carry crane business has transitioned to MP.
Our global rough terrain and tower crane businesses are included in corporate. We continue to execute our disciplined capital allocation strategy by investing in innovative products and services and global manufacturing capability. MP announced a new U.K. manufacturing facility where it will manufacture the Terex Ecotec waste management and recycling product lines and Terex mobile conveying systems. This is part of MP's strategy to add capacity to meet growing demand and simplify its operations. These are new adjacent businesses that MP has created that leverage its engineering and distribution capabilities. The new utilities manufacturing facility in South Dakota remains on schedule despite some severe weather conditions in the quarter. Our commercial excellence teams are focused on improving the customer experience and driving process discipline. Another area we are focused on is improving process and tools for the dealer channel, as dealers represent an important part of our overall distribution strategy.
Finally, on strategic sourcing. Teams in each of our manufacturing facilities are making progress implementing their wave one savings. Wave two savings are being identified and detailed plans, including the ability to fast-track certain categories, are being developed. We continue to expect savings of approximately $35 million this year. Turning to slide six. While we are maintaining the full year 2019 guidance that we provided in February, as a result of our strong start, we now expect to be in the upper half of the $3.60-$4.20 EPS range. With that, let me turn it over to John.
Thanks, John. Let me begin by reviewing our Q1 segment highlights. AWP sales totaled $728 million in the quarter. Volume in North America was impacted by customers postponing some deliveries until the Q2 and the week-long weather-related closures at our Washington State production and distribution facilities in February. EMEAR revenue was down modestly on currency and delivery timing while AWP sales grew in Asia Pacific. AWP's operating margin in the quarter was impacted by the strength of the US dollar, particularly against the EUR, which represented a significant headwind in Q1. Lower factory productivity due to a decrease in overall production volume, including the plant closures, also impacted margins. Backlog was stable at $1.1 billion, positioning the segment well entering the strong selling season. Materials Processing is a consistently strong performer, evidenced by another excellent quarter.
Sales were $346 million, up 10% or up 15% on an FX neutral basis, driven by continued strong global demand for crushing and screening products, material handlers, and Pick and Carry cranes. The MP team increased year-over-year operating profit by 33% and expanded its operating margin by 250 basis points on an adjusted basis. These results were driven by improved operating performance across the portfolio and effective price-cost management. Backlog continued to grow up 11% to $499 million, up 17% on an FX neutral basis. MP is well positioned across its portfolio of businesses to deliver excellent results again in 2019. The rough terrain and tower cranes businesses that are now reported in corporate performed in line with expectations in Q1. For reference, we added quarterly 2018 continuing operations financial information that reflects the new segmentation to the investor relations section of terex.com.
Let's turn to slide eight to review our consolidated results. Total sales of $1.1 billion were up 2% or 6% on an FX neutral basis. MP's strong performance more than offset AWP's slow start to the year, leading to a 40 basis point increase in as adjusted operating margin. Investment in our Execute to Win initiatives and restructuring related charges were the primary differences between our as reported and as adjusted operating profit. Net interest expense increased $9 million year-over-year, resulting from increased borrowing and higher interest rates on floating rate facilities. On an as adjusted basis, we generated earnings per share of $0.87, $0.02 higher than the prior year on a comparable basis. However, this EPS result is 58% better than the $0.55 as adjusted EPS we presented in Q1 2018, clearly demonstrating the impact of our strategy execution.
Looking forward, we anticipate the distribution of the remainder of our 2019 earnings per share to be approximately 40% in Q2, 35% in Q3, and 25% in Q4. Turning to slide nine. We continue to deliver on our commitment to follow a disciplined capital allocation strategy. As expected, we consumed more cash in the Q1 than the prior year period. Higher inventory was a significant contributor. Several factors are driving inventory levels, including timing of customer deliveries, demand growth in certain MP businesses, engine pre-buys, and Brexit-related risk mitigation actions. We expect inventory levels to decline over the next several months and normalize in the H2 of the year.
We continue to invest in our Execute to Win priority areas, although the level of investment will taper off over the course of 2019 as our internal capabilities mature. Finally, we increased our quarterly dividend by 10% to $0.11 per share. The Terex team has and will continue to generate shareholder value through the execution of our disciplined capital allocation strategy. With that, I'll turn it back to John.
Thank you, John. Before reviewing our segments, I'll spend a few minutes discussing the recent bauma show in Munich, Germany. bauma is the world's largest trade show for the construction and mining equipment industry, with over 600,000 visitors from around the world. Terex had an outstanding presence and success at bauma. We showcased our product and service innovation, including our extensive line of industry-leading hybrid and electric power equipment, and our suite of telematics solutions. Over 40% of the equipment we displayed was launched since the last bauma. We featured our Genie line of hybrid booms and scissors under the banner of "Genie Blue Is Your New Green." As environmental regulations continue to shape demand around the world, Genie is leading the way with equipment that enables operators to work safely and efficiently while being respectful of the environment. MP showcased its OMNI by Terex tablet-based control system.
Using IoT technology, the OMNI system will revolutionize the crushing and screening job site by enabling a single operator to control the entire equipment chain. This will improve safety and productivity and further differentiate our MP product lines. Our tower crane business showcased its T-Link and T-Lift innovations. T-Link is an advanced system that allows multiple cranes to work in tandem. T-Lift is a built-in elevator system that safely lifts the operator to their cabin. Both of these innovations improve operator safety and productivity, driving higher customer ROI. In addition to showcasing our new products and services, bauma provided the opportunity to speak with a diverse cross-section of customers. They expressed a consistent level of positive sentiment. There is pent-up demand for infrastructure investment across the developed markets and tremendous potential in the developing economies from construction growth and adoption of aerial work platforms and material processing solutions.
Terex is well-positioned to grow on both fronts. bauma was a great show. I was proud of our bauma team, from the core trade show team that executed the event, to the sales and support team members that worked the show. Terex's passion and commitment was clear. Turning to slide 11, I'll review AWP. The global markets for aerial work platforms remain generally stable at healthy levels, and the North American utility market remains strong. The North American rental market was impacted by severe weather in several major markets in the Q1, leading to delayed equipment deliveries. Our customers are maintaining their positive outlook for the balance of the year. We're starting to see order and delivery rates increase in March. Overall demand in Europe is stable with pockets of growth, including strong demand for electric booms and scissors.
AWP continues to make inroads in the Asia Pacific region, fueled by increasing product adoption. To support our growth in Asia, we are expanding our Terex Financial Services capabilities in the region. While bookings in the quarter were lower than the exceptionally high level in Q1 2018, with $1.1 billion of backlog, AWP is well-positioned heading into the strong selling season. A key to improving margins in 2019 is the execution of our strategic sourcing plans, including transitioning significant volume to new suppliers. The implementation process is gaining momentum as the teams complete the inspection and testing required to transition parts to new suppliers. This initiative is important for AWP, as most of the $35 million savings objectives for 2019 is in this segment. In January, Genie opened another chapter in its history of innovation with the launch of its Lift Connect telematics solution.
Lift Connect will convert data into actionable information. This customized solution delivers benefits to small fleet operators and large national rental companies by providing tailored information to increase operator safety, improve uptime, and reduce maintenance cost. In short, Lift Connect is designed to increase customer ROI on Genie equipment. For the first time, we showcased a complete line of our new extra capacity booms from 40 feet to 135 feet. It is imperative to our customers that Genie is leading the industry with XC innovations. Turning to Terex Utilities, the team continues to execute well in a stable market environment. Now that Utilities is a part of the AWP segment, we are accelerating cross-selling benefits. We are leveraging our network of utility service centers across the country to service AWP customers. This will improve customer service while increasing parts and service revenue. The new state-of-the-art production facility remains on track.
The site will manufacture and install aerial devices, Digger Derricks, and auger drills. By consolidating from 10 facilities to one, Terex Utilities will significantly improve productivity, reduce lead times, and increase capacity. Both our Aerials and utilities businesses are well-positioned heading into the Q2. Turning to MP. Materials Processing is a high-performing segment that consistently delivers strong results and meets its commitments. Global demand for crushing and screening equipment remains strong. Construction activity, aggregate consumption, and environmental regulatory change are the main drivers. The global market for material handlers also remains strong, fueled by robust demand for scrap steel. Our Pick and Carry crane business continues to execute very well in a strong Australian market. The MP team continues to make progress in the emerging markets for environmental and mobile crushing and screening equipment.
In India, for example, new highway construction reached an all-time high last year and is expected to continue to grow. Indian contractors are just beginning to fully appreciate the flexibility and productivity that mobile crushing and screening equipment provide. Instead of trucking materials over long distances, mobile equipment can process material close to the construction site, providing a significant benefit for the contractor and significant growth opportunity for MP. We have a strong foundation in India, including an excellent team at our Hosur manufacturing facility just outside Bangalore. To support the growth prospects in India and the surrounding markets, we are expanding our manufacturing capacity in Hosur. The expansion is underway and will be completed over the course of 2019. MP operates several facilities in the U.K. Our guidance assumes there are no major disruptions associated with Brexit.
We continue to monitor events as the Brexit process unfolds and will continue to take precautionary measures to mitigate potential supply chain disruptions. I expect our global MP team to continue to execute at a high level and deliver on its plans again this year. Turning to slide 13. To wrap up our prepared remarks, MP started the year strong, and AWP picked up steam during the Q1. We are executing our strategic plan to focus the portfolio on high-performing businesses, simplify the organization, and build capabilities in our Execute to Win priority areas. We expect to significantly improve our financial performance again in 2019. As a result, we expect to be in the upper half of our full-year EPS guidance range. We are confident in achieving our 2020 objectives of 10% operating margin and greater than 20% ROIC.
We will continue to follow our disciplined capital allocation strategy and create additional value for our shareholders. With that, let me turn it back to Brian.
Thanks, John. As a reminder, during the question-and-answer session, we ask you to limit your questions to one and a follow-up to ensure we have time to get to everyone. With that, I'd like to open it up for questions. Operator?
At this time, I'd like to remind everyone, in order to ask a question, please press star and the number one on your telephone keypad. Our first question comes from the line of Ann Duignan. Your line is open.
Hi. Good morning. It's Ann Duignan.
Morning, Ann.
Morning. Maybe you could address free cash flow of negative $257 million versus your guidance for $165 million for the full year. It's confusing not to have slide 13 in the presentation. What happened? Are we still looking for free cash flow of $165 million for full year, or should we take that?
Thank you for the question, Ann. Yes, we are looking for free cash flow for $165 million. I'll have John go through that in greater detail. Just a commentary to start that. I would just say that improving networking capital and increasing free cash flow is one of the highest priorities of our leadership team. If we take a step back and look at since we've implemented our Focus, Simplify, and Execute to Win strategies, we have made great progress on our 10% operating margin target, our 20% ROIC target. We've deployed capital back to shareholders of greater than $1 billion. The one area that we have not made the level of improvement that we need to make, and that's why it will continue to be a focus for us to drive improvement, is our free cash flow conversion to net income.
We fully acknowledge we're not happy with our Q1 results on free cash flow, I'll have John kind of walk through where we are and then reaffirm the $165 million free cash flow target for the year. John? Yeah. Thanks, John. Ann, when you look at the free cash flow, the negative free cash flow in Q1, it was larger than Q1 of 2018, That was principally the result of building higher inventories in the H2 of last year, especially in the Q4. In a tight labor market in the H2 of last year, we were level loading production, especially in our AWP facilities in North America, we did see lower revenue than expected.
As the inventory levels grew, we did pay suppliers for a large portion of the material that we manufactured in the Q4, in the Q1, in accordance with our payment terms with our suppliers. As we indicated in our prepared remarks
We do expect that we'll sell down these inventories during the upcoming spring and summer selling season, and we are not replenishing the stock levels to the same degree. When you look broader at working capital, we have also made very good progress as part of our strategic sourcing initiative with respect to our payment terms with suppliers for accounts payable. Our accounts receivable collection efficiency is much better than it was. We acknowledge we have work to do on the inventory side. We are getting after the inventory levels, and I want to be very clear with you, we are absolutely committed to and are reaffirming the 2019 free cash flow guidance of $165 million.
Okay, thank you. I appreciate that. Maybe you could talk a little bit about the cadence of the free cash flow then going forward. When would we anticipate those inventories turning into cash? Is it Q2 or the back half of the year?
The inventories will be sold down during the Q2 and into the early Q3 as part of the spring-summer selling season. We expect to be, I guess I should be a little bit less dogmatic. We expect to be free cash flow positive in all three quarters of the remainder of the year.
Okay. I'll get back in line in the interest of time. Thank you.
Thank you, Ann.
Your next question comes from the line of Steve Volkmann. Your line is open.
Hi. Good morning, guys. Maybe just a quick follow-up there.
Good morning, Steve.
The inventory build, was it more weighted to AWP than MP?
Yes. As I indicated, the primary inventory build was also in MP. MP inventories are also up, but the majority of it is in the AWP facilities and in AWP North America.
Okay, thanks. Obviously to reduce that, you're going to have some lower production levels, I guess, going forward since you produce less than retail demand. I assume you've that under absorption into your forecast?
We have, Steve. You are correct. We have reduced the production levels for our Aerial Work Platforms segment, especially here in North America in early 2019. The guidance, including the expectation for being in the upper half of our guidance range that we indicated today, is factored into that thinking.
Okay, great. Then just the final one on that topic. As you shift, I think one of the Johns mentioned the significant transition to new suppliers in AWP as part of your strategic sourcing. Does that require some kind of bridge inventory build, A, and B, is that a risk if you're moving a lot of suppliers that there's a hiccup here that interrupts some production?
Thanks, Steve. As we indicated, the team is implementing our wave one. It is a sizable number of parts that are changing, not necessarily new suppliers. Actually, it's a consolidation of suppliers. There is bridge inventory that you have to put in place to ensure that you don't create disruption on the line. That is a portion of the increase in inventory, the teams have been planning for that as we move through the implementation of wave one.
Okay, thank you.
Thanks, Steve.
Your next question comes from the line of Jamie Cook. Your line is open.
Hi. Good morning. Just wanted to get [comfortable].
Morning, Jamie.
Good morning. You didn't necessarily give segment margin guidance like we did in the prior guidance, so can you talk about your comfort level with the Aerial Work Platforms margin guidance that you gave in the last quarter, given where we started off in the Q1? If you can help us understand how much weather impacted the Q1 within Aerials? I guess that's my first question, and then my second question is, obviously the quarter came in much stronger relative to the street and what you had implied with the guide. You're saying, Aerial was weaker, the corporate and other you said was in line. Materials Processing didn't beat by that much. I'm just trying to understand what surprised you in the Q1 relative to what you initially anticipated. Thank you.
Okay. A lot there, Jamie. Let me start on the AWP side. Let me start with kind of a market commentary, then I'll have John speak to the margin activity. As we said in our opening comments, the global markets are stable at healthy levels, and there's overall positive customer sentiment. As we enter into the primary selling seasons of Q2 and into the summer with a $1.1 billion backlog, we feel pretty good about where we stand in AWP. The North American rental channel, customers are seeing their end markets remain strength. We're seeing good utilization and good rental rate improvements on a year-over-year basis. That market seems, as we say, stable at healthy levels. In Europe, we're seeing that relatively flat overall in terms of our backlog.
As I indicated in my comments, we had a lot of positive sentiment with customers at the bauma show.
What you'll see in the results is a substantial increase in our sales in Asia Pacific region, and a lot of that is from our AWP business. Our growth in China and other Asian markets has been great. Our year-over-year growth in China is north of 40%. Granted, it's off a relatively small base, but nonetheless, we're seeing continued growth there. We think that market and the other Asian markets, based on the strength of construction and increasing product adoption, are going to continue to provide a strong underlying background for demand. That's the market commentary on how we're seeing globally AWP. John, could you comment on the Q1 margins and margin outlook?
Sure. When I think about the Q1 margins in AWP, I think there's really four factors that should be addressed. The first is FX, that really was the largest headwind year-over-year that the segment was facing. The EUR is considerably lower today than it was in Q1 of 2018. Q1 of 2018, the average EUR/USD exchange rate was $1.22 to the EUR, and in Q1 of 2019, $1.13 to the EUR. We do ship a significant portion of our product for the European market from the U.S. and from China. As a result, the decline in the EUR was a significant headwind. In fact, if you take both the transactional FX effect as well as the translational FX impact, that was an impact of in excess of $10 million year-over-year on the segment.
We do expect that that headwind will normalize over the course of the year as the EUR did decline over the H1 of 2018. Second factor was the factory productivity. We did have lower absorption rates from the lower volumes that we have in our North American facilities here in the H1 of 2019, as well as the factory closures that we had, especially in the state of Washington in February from the winter storms in the Northwest. Third factor, price cost for the segment was actually a slight positive with favorable price increases in the Q1 of this year that were largely offsetting the cost increases that we experienced in the H2 of 2018. Fourth factor, strategic sourcing.
As we have talked about, our Strategic Sourcing Initiative will drive $35 million of savings for the company year-over-year, with the significant majority of those savings coming from the AWP segment. Those benefits are going to ramp up over the course of the year, so that they were a smaller portion of the benefits in the Q1 of this year. When you think about AWP's guidance, first of all, the guidance that we provided for the segments continues to be operative. Our not providing changes in the guidance is not in any way stepping back away from that guidance, but rather it's still early in the year. We're heading into the prime selling season, we kept the guidance where it is and recognize that overall for the company, we'd be at the upper half of the guidance range.
The execution of our Strategic Sourcing Initiative and those savings, which are going to grow over the year, will drive margin expansion for the AWP segment. Overall, we see AWP as well-positioned going into the spring, summer selling season, to drive growth and margin improvement in their business.
Okay, thank you. I'll get back in queue.
Thank you.
Your next question comes from the line of David Raso. Your line is open.
Hi, good morning.
For the Q1 reported on a pro forma basis, your company margins were up 9.3% versus the 8.9%. Just thinking through the way you gave the EPS guidance for the rest of the year, can you help us understand for the Q2 pro forma, do you expect your margins to be up year-over-year, flat? Just for some perspective. Q2 pro forma margins.
Yeah. On an apples-to-apples basis year-over-year in the Q2 for the company as a whole, we would anticipate our margins to be up for the continuing operations. Now, that said, as we demonstrated on chart three of our presentation materials, the significant benefit or impact that the focusing of our portfolio had on our Q1 year-over-year results, and we really tried to bring that out in the presentation. You see that our margins are increased significantly. Our EPS increased from $0.55 last year to $0.87 this year, or a 58% increase. That the focusing of our portfolio on our high-performing businesses that are now out-earning their cost of capital has been a significant contributor to driving shareholder value. Yes, our margins for the company will be up for continuing operations in Q2.
Yeah, that's what I'm just trying to understand, sort of backing you into a true full year EPS guide, not just the upper end of the range. If your margins are up year-over-year pro forma in the Q2 with a reasonable revenue number, just so you're on track to hit the full year, it does seem to be implying a Q2 that's $1.40 or $1.45, which would then, given the rest of your cadence, implies EPS even a little bit above the high end of your range that you gave. I'm just trying to make sure we level set here on the Q2. Margins up sequentially, I mean, sorry, year-over-year, and the revenue numbers have to be $1.3 billion or so, or something that gets you on pace for the $4.7.
maybe if you want to clarify exactly what you mean by the upper half of the EPS range, just so we all level set for 2Q.
David, look, I appreciate your seeking to back me into, or back us into stronger guidance. I think we should be clear. We had a very strong Q1. We're very pleased with the results of our businesses. We are well-positioned with a very strong backlog going into the strong spring and summer selling season. As a result, we indicated that we would be at the upper half of our guidance range. We expect 2019 to be a very strong year for Terex. We also believe that we'll have much better visibility to provide a more definitive set of guidance for the full year, once we get past the Q2.
I think I'll just leave it there.
Last question. The proceeds from the sale during the course of the year, how quickly can we assume the use of those proceeds? I know that's not in the guide currently, proceeds in the door, when will we expect those to be put to work?
The proceeds from the sale of the Demag business, we continue to expect the Demag sale to close mid-year. We are on track very well with that transaction, we would put those proceeds to work immediately because as we indicated in our Q4 earnings call, we would intend to pay down borrowings with the proceeds.
Okay.
Thank you, David.
Your next question comes from the line of Joseph O'Dea. Your line is open.
Hi, Joe.
Hi. Similar to the walk you gave on AWP margins, if we think about the Materials Processing margins that were very strong in the quarter, could you give a little bit of the bridge or the contributions there? I think FX is instead a tailwind for MP in the quarter, but just so we know kind of what the benefits were and maybe some of the considerations moving into the rest of the year.
Sure. Yeah. Sure. Joe, again, similar to AWP, I think I'll just provide some overarching market commentary and then have John talk specifically to the margins. As we indicated in our prepared remarks, MP continues strong execution with their sales up 10%, backlog up 11%, and significant margin improvement of 250 basis points. That's really coming from strength across the portfolio of businesses within MP. Our core crushing and screening business continues to grow. It's relatively stable in North America, but we saw good growth in the global markets and strength in the emerging markets. The other business that continues to perform well and a good recovery is our material handling business, our Fuchs business. We saw a broad-based growth there.
One of the benefits of high steel cost is for this segment, scrap steel has remained high, and that stimulates replacement demand in that business. We've also expanded our global distribution and expanded our product line. We're seeing good growth in material handling. Our environmental business, as I mentioned in my comments, we've got a new factory there in Northern Ireland for our Ecotec line. We're seeing good growth in the environmental business, especially as regulatory rules around the world change for the processing away. Finally, our North American concrete business. We had good orders in Q4, we went into the year with a much stronger backlog than the prior year. Overall, we are making some investments in capacity in our MP business to take advantage of the growth opportunities.
We're investing in Northern Ireland, and we're investing in our Hosur facility, as I mentioned as well in my opening comments. Overall, MP's been consistent. It's a good growth story. What we're pleased about is a much more important part of our overall focused portfolio going forward. That's kind of a macro look at MP. John, you want to talk specifically on the margin side?
Thanks. Joe, what I would say with respect to MP margins is I would focus on really four factors in this business also. First is that revenue for MP was up in the Q1, year-over-year by 10%. The one thing that the Materials Processing team does better than anything else is execute. When they have strong revenue, they drive that revenue through operating performance to the bottom line. That was really the case in Q1.
I would just say operating leverage was by far the biggest benefit they received in the quarter. Second, was mix of businesses. As you know, the MP segment is a collection of businesses, and we did see growth, especially in our Fuchs business line in the Q1, that drove outsized operating margin growth for the business. Third, price cost is positive for the MP business year-over-year. They have benefited from higher price, given their costs are largely outside, their manufacturing is largely outside of the United States. They're not feeling the same cost pressure that, for example, our Aerial Work Platform segment is feeling with steel prices here in the United States. Lastly, I will acknowledge that the year-over-year change in the British pound is a bit of a tailwind to them and they did benefit to a certain extent from that.
Overall, as we said in our prepared remarks, MP is really a consistent performer, and they've really become an increasingly important part of our focused portfolio.
I appreciate the details. Then one just related to the strategic sourcing plan for the year and the guide. It doesn't sound like there was anything really within MP that drove kind of unusually high margins in the quarter, then there's a setup for AWP margins to expand over the course of the year. Given the size of the beat in 1Q, you could presumably have actually raised the range. I guess the question is the degree to which you're keeping cushion in there just because of the uncertainty around strategic sourcing. So I think, the risk being if there are any hiccups there, what does that do to the full year? How guarded do you feel against that just because of what could be cushion in the guide?
Thanks. If we look at the strategic sourcing, as we said, wave one, a lot of the commodities were more oriented towards the AWP business. Also, the respective volumes of the AWP business have enabled us to attract suppliers to that marketplace. We do have savings in the relative MP businesses, but as a percentage of the overall savings, it's actually much smaller. Most of the savings this year, given the commodities, are in the AWP segment. We will have some as we move through the year. The biggest percentage of the savings is in fact in AWP as a result of the commodities and the respective volumes between the different businesses. Yes, there is some, but it's not the driving force in margin improvement throughout the year as it will be in AWP.
I'd just say, just to comment on our guidance, is that we did have a very strong Q1. We're very pleased with the results. The 360 to 420 guidance ranges, being in the upper half of it provides potentially a very significant increase. It's early in the year, and while signs are positive for the year, I think that once we get past the spring-summer selling season here, we'll have much greater visibility to the full year.
Thank you.
Thank you.
Your next question comes from the line of Andy Casey. Your line is open.
Good morning.
Hi, Andy.
Good morning, Andy.
How you doing, John?
Good.
I'm going to beat the dead horse. I want to follow up on some of the prior questions about EPS quarterly attribution. I understand you've answered a lot of the questions that have been focused on this, but I just want to revisit the seasonal attribution for the Q1 and understand, has that increased permanently to the low 20s that's implied by the performance and the outlook versus the original view for 15%? A lot of the questions are looking at the AWP comments sounding like it's going to gain momentum through the year, at least versus last year. Is the variance really just related to something else, which may include conservatism, or are we looking at just structurally higher contribution from the Q1 going forward?
Let me try to make some comments and see if we address your question. First of all, from a structural perspective, as a result of the focusing of our portfolio on our high-performing segments, AWP and MP, the disposition of the mobile cranes businesses, we definitely have structurally lifted the operating performance of the company. You see that with the dramatic increase in the margin that the business actually reported in 2018 of below 6% to above 8% in 2019. When you think about our Q1 performance, I would say that a portion of our over-performance against the year was in the corporate and other segment. The corporate and other segment with the resegmentation we did in the Q4 does have our towers and European rough terrain businesses included in there. Those operating businesses performed in line with the expectations we had for them.
Our corporate costs were lower in the Q1. They are traditionally lower in the Q1 and ramp over the course of the year. We did also see lower spending in our corporate cost structure, in the Q1 of this year than our expectation. Some of that may be timing. It is absolutely our intention to capture that underspending for the full year and drive it to the bottom line. We're managing our cost structure. We're investing in the priority areas in our higher margin businesses. I do think that we have. I think you used the word permanently. I do believe that the higher margins you saw in Q1 2019 for the company is a permanent improvement that you'll see on a going-forward basis.
Okay. Yeah, the permanent was related to the attribution by quarter. Has that changed?
You mean to future years or?
Yes.
To future years?
Yeah.
Yeah. I think you can also think about that for future periods, yes.
Okay. Thank you very much.
Thank you.
Your next question comes from the line of Seth Weber. Your line is open.
Hey, good morning.
Morning, Seth.
Good morning. Following up on Andy's question. Your prior guide had called for, I think, a $75 million loss, for corporate and other.
Yep.
I think it was like $5 million here in the Q1. Are you suggesting that we should still think about that $75 million as the right number? We're all just trying to kind of put these numbers together, basically.
Yeah, I think that, as you saw, our net operating costs in the corporate and other segment in Q1 was about $5 million. That compares to about $9 million in Q1 of 2018, slightly lower. I acknowledge that if you take 75 divided by four, that obviously five is much less than that. We would expect, as I said in response to Andy's question, we do expect that to drive a portion, maybe a significant portion, of the underspending in corporate and other to the bottom line over the course of the year. We'll also have greater visibility for that once we get past the Q2. Yes, I would think about driving some of that savings against as being a permanent reduction in the $75 million number that we provided in our Q4 earnings.
Okay. That's very helpful. Thank you. My follow-up question is on, John, I think in your prepared remarks, you talked about some AWP shipments. Some customers pushed out from Q1. I guess my question is, was that weather related? And/or, have those shipments occurred here in the Q2? Thanks.
Yeah. Overall, we would attribute most of the push out in the Q1 out into Q2 as weather related, as John indicated. We always have weather in Q1, but the weather this Q1 was exceptional, especially as you looked at how it impacted our operations in Washington State and the duration of time that the plant and the shipping facilities were down. That also impacted customers as well in multiple areas. I would attribute most of the push out, if you will, to associated with weather and would expect to see that pick up in Q2. As I said, we did see stronger momentum as we progressed through the quarter and late into March with shipments. We actually became capacity constrained, as you can imagine, in the last week of March.
Good momentum, and I think the push out you can attribute most, if not all, to weather-related activity.
That's super. Thank you very much, guys.
Thank you.
Your next question comes from the line of Joel Tiss. Your line is open.
Hey, Joel.
How you doing? All right, I'm ready now.
Hey.
Everyone keeps asking the same question, so I'll try to go in a different direction. Once the simplification of the portfolio is done, how do you guys think about capital reallocation? Are you still going to focus on debt repurchase and share repurchase, or should we think about it differently? It's too early?
Thanks, Joel. As part of our overall strategy, focus, simplify, and Execute to Win, I think it's demonstrating that it is a much stronger portfolio going forward. We've also, as part of that strategy, had a disciplined capital allocation strategy that really spoke to making the organic investments in innovation and engineering capital investments as required, strengthening our balance sheet, and then returning capital to shareholders. That disciplined capital allocation strategy has not changed. Now, we are in our ongoing strategy and strategy review process, and we obviously review that with the board of directors. As of today, there is no change to our disciplined capital allocation strategy as we move forward. I think it is clear the portfolio of businesses that we have now are much stronger than the portfolio of businesses that we had.
We also believe that there's opportunity to grow these businesses, both Aerials and MP, around the world as we look at construction spend. We also have to look at the adoption and the adoption curve. We talk about adoption with Aerials, but there's also significant adoption potential in emerging markets in our MP as people move to mobile crushing and screening, as we move to processing more waste on the environmental stream. Overall, we think there's good growth opportunities, organic growth opportunities in these businesses. Our capital allocation model, as it is today, is not modified. That's obviously something we continue to look at. Right now, it's the same capital allocation strategy that we've been executing for the last couple of years.
Can we spend a minute on the MP business? How many competitors are out there? Kind of any sense of what your market share is? I know it's a diverse grouping of different pieces, but is there any way to kind of size the opportunity?
In terms of talking specific market participation, I will say this, we enjoy good market participation in our core crushing and screening businesses through our multiple brands. We enjoy a good market position in our material handling business. On the concrete part of the business, we're principally in two smaller segments. We enjoy very good market positions there in front discharge concrete trucks and pavers. Environmental, opportunity to grow. That's a highly fragmented overall market. Finally, our Pick and Carry business down in Australia enjoys a significant market participation rate, especially in the Australian market. Overall, these businesses, and I think that's been a key of our focus strategy is these are businesses that enjoy strong market positions, strong brands, a good capability to drive innovation through their engineering, and good distribution capability. That's what enables these businesses to grow and to perform.
I don't want to talk specific market participation rates. Each of these businesses, our core businesses enjoy strong market participation rates and are developing businesses that are highly fragmented markets where we're seeing rapid growth based on our capability. We're excited about the MP business. The other thing about MP is the regional dispersion of the revenue. If you look at the revenue, it's 35% in the EU, 35% in North America, 20% in Asia, 10% in the rest of the world. You've got good geographical dispersion in this business as well. Overall, this is a business worth investing in. We are investing in this business. We think there's good opportunity in the future for our MP business.
All right. Thank you.
Thank you.
There are no further questions at this time. I turn the call back over to the presenters.
Again, thank you for your interest and time in Terex. If you have any further questions, please do not hesitate to reach out to Brian so that we can address those questions. Again, thank you for your time, and thank you for your support of Terex.
This concludes today's conference call. You may now disconnect.