Terex Corp
NYSE:TEX
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Terex Corp
Earnings Call Analysis
Q2-2024 Analysis
Terex Corp
In the second quarter of 2024, Terex reported net sales of $1.4 billion, marking a slight decline of 1.5% year-over-year. Key contributors included robust performance in the Access and Work Platforms (AWP) segment with nearly 7% sales growth, primarily driven by strong demand in North America. Despite this success, the Materials Processing (MP) segment experienced challenges due to market softness, especially in Europe, affecting overall performance. The company’s gross profit margin stood at 23.8%, reflecting challenges in product mix resulting from increased inefficiencies in ramp-up production at the Monterrey facility. Nonetheless, overall income from operations reached $193 million, yielding an operating margin of 14%.
Terex closed the quarter with a backlog of $2.4 billion—approximately double its historical average—which provides a strong foundation for future revenue. Management noted that the backlog is helping stabilize future bookings as lead times normalize. Specifically, the AWP segment's backlog is notably strong at $1.8 billion, about 2.4 times the normal second-quarter levels, indicating ongoing demand and potential revenue reassurance for the near future.
Looking ahead, Terex has adjusted its full-year sales guidance to a range of $5.1 billion to $5.3 billion, primarily for the AWP segment, while expecting MP segment sales to range from $1.95 to $2.05 billion. Management anticipates operating margins improvement, increasing the range from 12.9% to 13.2%, indicating confidence in cost management despite lower sales performance. The adjusted earnings per share (EPS) forecast was reaffirmed between $7.15 and $7.45, showcasing stable earnings expectations which are consistent with the previous year.
Terex plans to invest approximately $145 million in capital expenditures for 2024, prioritizing the Monterrey facility's completion, and expects resource allocation to shift next year favorably toward free cash flow generation. Furthermore, the recent agreement to acquire Environmental Solutions Group (ESG) is expected to enhance Terex’s diversification and growth strategy, tapping into the burgeoning waste and recycling markets. The acquisition is projected to generate tangible synergies and will bolster long-term shareholder value.
The company continues to maintain a positive outlook on North American market dynamics, buoyed by strong construction activity and the return of rental customers to more normalized ordering patterns. While the European market shows signs of uncertainty, with specific references to challenges in Germany and Italy, Terex remains optimistic about potential improvements as regional economies stabilize. The management’s strategy of maintaining price neutrality in an inflationary environment indicates confidence in its long-term positioning amid fluctuating demand.
Terex reported a strong liquidity position, with net cash in the range of $325 million to $375 million, promoting strategic flexibility for continued growth initiatives and shareholder returns. The company has returned $50 million to shareholders so far in 2024 through repurchases and dividends, nearly offsetting equity compensation dilution. Moreover, their return on invested capital stands at an impressive 25.9%, underlining effective capital utilization and value generation for investors.
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Greetings, and welcome to the Terex Second Quarter 2024 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Jon Paterson, Vice President and Treasurer. Please go ahead.
Good morning, and welcome to the Terex Second Quarter 2024 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 Simon Meester, President 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. These risks are described in greater detail in the earnings material and in our reports filed with the SEC. In addition, we will be discussing non-GAAP financial information, which is 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 Simon.
Thanks, Jon, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. I first want to thank and recognize the Terex team for their extraordinary commitment and dedication to our customers, our company and our people. We closed another strong quarter, and I continue to be impressed by our team members and their passion to do what's best for our stakeholders while keeping each other safe and healthy at the same time.
Please turn to Slide 4. Over the past five years, we transformed Terex into a strong, diversified, agile company, which significantly improved financial performance. We're posting another strong quarter, generating revenue of $1.4 billion and delivering adjusted earnings per share of $2.16, and we're on track to deliver full year adjusted EPS in the range of $7.15 to $7.45.
I am proud of our global team that continues to perform at a high level, achieving our near-term objectives and implementing our long-term strategy of execute, innovate and grow to make Terex an even stronger company in the future.
Turning to Slide 5. We're seeing a mixed set of global economic variables playing out on what we believe is still a very solid long-term macro backdrop for Terex. We like the resiliency of the U.S. economy, GDP continues to outperform expectations and inflation continues to recede, including a monthly decline in June. Construction spending remains high and certain regional and local soft spots are more than offset by the ramp-up of mega projects.
Our U.S. rental customers are highly disciplined capital managers. And as the operating environment normalizes, we are seeing them return to more customary ordering patterns. In MP, many of our dealers are rebalancing their inventory as more of their customers are renting machines while the interest rate outlook remains uncertain and more predictable and shorter lead times are allowing more precise inventory management.
Overall, we expect demand in the U.S. market to remain robust. The European economic situation is less clear with conflicting indications. That said, I like our market position across the EU, which was further enhanced by the recent antidumping decision. We expect to outperform the market as the macro situation unfolds. We also remain encouraged to see emerging markets such as India, Southeast Asia, the Middle East and Latin America increasingly adopt our products.
Please turn to Slide 6. We believe Terex is poised for consistent sustainable growth, long-term opportunities driven by mega trends and continue to be bullish on our long-term outlook. This is being driven by strong market dynamics in the U.S., such as onshoring technology advancements and federal investments, including the infrastructure investment in JOBS Act, CHIPS Act and Inflation Reduction Act.
This legislative environment is driving record levels of mega projects and data centers, EV and battery manufacturing plants, semiconductor plants and others, with more projects expected to come online from 2025 to 2027. We anticipate increased activity from infrastructure investments, from roads and bridges to airports, railways and the power grid. We expect to continue driving growth on top of our current baseline through innovation while continuing to optimize our business operations.
Please turn to Slide 7. Our Execute, Innovate and Grow strategy underpins our strong financial performance and positions us well for accelerated growth. We have a very strong portfolio of businesses, businesses that are leaders in their respective markets. My [indiscernible] did a great job leading our effort to clean up the portfolio, so we are in a strong position when you look at the fundamental makeup of Terex.
Now later on, the work that we have done in the execute pillar of our strategy, focused around implementing our Terex operating system principles like ensuring alignment of manufacturing and sales plans and reducing fixed costs, help make our financial performance more consistent and predictable. I'm proud to say that we're on track to deliver more than $7 of earnings per share and more than $300 million in free cash flow for a second year in a row.
When it comes to innovation, we think about it in two broad ways. First, how do we leverage technology externally to deliver more value to our customers. Over 20% of our sales are related to products that we have introduced in the past three years. This is something of which we are particularly proud. We have a very exciting new product development pipeline that will continue to bring new products to market that increases our customers' ROI. When our customers are more successful using our equipment, we will be more successful.
Second, we're leveraging technology internally, making investments in robotics, automation, digitizing work streams to make us more efficient and more flexible. Our road map to continuously make us more competitive and more resilient regardless of market dynamics.
And last but not least, growth. Over the past several years under the leadership of its president, Kieran Hegarty, MP has grown at a double-digit CAGR and is now a $2 billion business with consistent strong financial performance. AWP is on track to generate about $3.2 billion in revenue this year. Both businesses are now posting strong operating margins. And when looking at the market fundamentals, are well positioned for long-term growth.
Then when you layer on the recently announced agreement to purchase Environmental Solutions Group, or ESG, which further diversifies our portfolio and is accretive to our performance. We're truly transforming and growing the company.
Please turn to Slide 8. Pictured here is Terex' first fully electric minerals processing multi-plant operation. Our customer, a leader in sustainable building materials, road construction and building products was looking for a solution that met its output requirements and was eco conscious. Our design dramatically reduced emissions and diesel consumption, while improving output material shape and throughput rates. A great example of the Terex value proposition, where we add tangible value in real-world applications.
Slide 9. The recently announced agreements to purchase ESG, the largest in Terex' history, accelerates long-term shareholder value growth. This acquisition checks all of our boxes. It adds a noncyclical financially accretive and market-leading business to the Terex portfolio with tangible synergies in the fast-growing waste and recycling market. We're very excited about the transaction and feel privileged to soon welcome the ESG team to the Terex family. They have truly built a remarkable business.
And with that, let me turn it over to Julie.
Thanks, Simon, and good morning, everyone. Let's look at our second quarter financial performance on Slide 10. Before I dive into our results, I'd like to remind everyone that the second quarter of 2023 was a historically strong quarter, primarily due to sales growth and operational efficiencies executed this time last year. Our net sales were approximately $1.4 billion, a slight decrease of 1.5% year-over-year, with strength in North America, offset by declines in the rest of the world.
We experienced strength in our AWP segment with rental activity and equipment replacement product cycles remaining strong. AWP net sales were up nearly 7% year-over-year and 14% sequentially. Our MP segment was impacted by continued softness in the European market. Gross profit of 23.8% declined due to unfavorable product mix and anticipated manufacturing inefficiencies as we ramp up production in the Monterrey facility.
Our SG&A expenses are comparable to prior year and approximately $2 million favorable to prior year when adjusted for the $2 million onetime gain related to the sale of our Oklahoma City facility last year and this year's $2 million severance investing charges. Corporate SG&A is down $4 million from the prior year. Income from operations was $193 million with an operating margin of 14%. Interest expense was relatively consistent with the previous year, while other expense increased $2 million from the prior year, primarily due to deal-related costs.
The second quarter global effective tax rate was 19.2% compared to 16.7% in the second quarter of 2023 due to the reversal of a state tax valuation allowance in the second quarter of 2023. We reported second quarter GAAP EPS of $2.08 per share. We believe adding adjusted EPS to our disclosures provides investors with a better view of our operating performance. Adjusted EPS, which excludes nonrecurring and unusual items, was $2.16 per share. Free cash flow for the second quarter was $42 million. The second quarter of 2023 free cash flow included the onetime proceeds on the sale of our Oklahoma City facility.
Turning to bookings and backlog on Slide 11. The quarter played out as expected. Our current backlog at $2.4 billion is approximately 2x our historical norms. We expect our bookings and backlog to continue to transition the normal patterns as lead times stabilize, including AWP customers returning to customary seasonality was bookings highest in the first and fourth quarters.
Our AWP segment backlog is approximately 2.4x normal Q2 levels. Our MP backlog is also slightly higher than pre-pandemic levels. For perspective, normalized backlog for MP covers around $400 million to $500 million.
Let's take a look at our segment results. Please turn to Slide 12. Over the past few years, MP's operational excellence delivered higher top line growth and double-digit margins in the mid-teens. For the second quarter, MP continued to demonstrate operational excellence by performing well in a dynamic market with sales of $499 million. Sales were impacted by market pressures in our German-based Fuchs Material Handling business and dealer inventory rebalancing in our aggregates business.
MP reported operating profit of $77 million, with strong OP margins of 15.4%. The change in operating profit was due to reduced volumes and unfavorable product mix partially offset by expense disciplines. MP is taking action to protect our strong margins, including reduced work schedules, factory labs and further cost reduction activities. MP ended the quarter with backlog of $558 million.
Please turn to Slide 13, which details our AWP performance. We delivered solid performance in the second quarter with sales of $882 million, up nearly 7% from last year, primarily reflecting higher demand in North America. In fact, AWP is up 9.5% in sales on a year-to-date basis. AWP reported second quarter operating profit of $134 million. Operating margins were consistent with prior year when adjusting for Monterrey manufacturing start-up inefficiencies and a onetime gain recorded in 2023 for the sale of our Oklahoma City facility. AWP backlog is at $1.8 billion, approximately 2.4x higher than normal levels for the second quarter.
Please turn to Slide 14. We have a very healthy balance sheet that enables us to continue to grow and invest through the cycle. Terex has ample liquidity with net $325 million to $375 million. Our strong balance sheet and expected free cash flow generation continues to provide significant capacity in our agreement to purchase ESG as well as return capital to shareholders.
As we close on the ESG transaction, we anticipate a net debt-to-EBITDA leverage of 2.2x, which is below our 2.5x target through the cycle, and we will utilize our enhanced free cash flow position to further deleverage. We're planning for capital expenditures this year of approximately $145 million or about 2.8% of sales at the expected midpoint with the largest investment related to our Monterrey facility. We would expect CapEx to take a step down next year and to be a benefit to free cash flow conversion in 2025.
Through July 29, 2024, Terex has returned $50 million to shareholders through share repurchases and dividends, essentially offsetting equity compensation dilution. We have approximately $105 million remaining under our share repurchase authorization. We reported a return on invested capital of 25.9%. Terex remains in a very strong financial position to continue investing in our business and executing our strategic initiatives while returning capital to shareholders.
Now turn to Slide 15 and our full year outlook. It is important to realize we are operating in a complex environment, with many macroeconomic variables and geopolitical uncertainties and results could change negatively or positively. With that said, this outlook represents our best estimate as of today. Our outlook did not incorporate any ESG activity. Our sales forecast range has been updated to $5.1 billion to $5.3 billion with strength in the AWP business, helping to offset some of the weakness in our MP business.
For Terex overall, we continue to expect the first half sales to be slightly higher than the second half was the third quarter sales higher than the fourth quarter as we return to more seasonal customer delivery patterns. We are pleased to increase our full year operating margin for Terex overall to a range of 12.9% to 13.2%, solidly above our full year 2023 performance. We have lowered our corporate and other expenses of $18 million per quarter in the second half of the year. We expect interest and other expenses of $55 million for the full year.
In addition, we are lowering our effective tax rate to 21%. Due to strong operational execution, cost out activities and prudent expense management, our outlook is an EPS range of $7.15 to $7.45 on an adjusted basis. This is the second year in a row we expect to deliver earnings per share over $7.
Let's review our segment outlook. We expect MP sales to be $1.95 billion to $2.05 billion for the full year, with margins in the range of 15.1% to 15.4%. Sales for the third and fourth quarters will be consistent with Q2 sales, while operating margins are expected to improve slightly from Q2 levels due to management actions taken. For AWP, we expect our 2024 sales range to be $3.15 billion to $3.25 billion, and operating margin in the range of 13.7% to 14% for the full year.
We expect the second half sales to be lower than the first half, with the third quarter higher than the fourth quarter as we return to normal seasonal shipping patterns. We expect margins in the second half to be approximately 200 basis points higher than in 2023 as moderating inefficiencies abate, and we realize the benefits of our new facility. We are anticipating a full year AWP incremental margin greater than 25%.
Now I will turn it back to Simon.
Thanks, Julie. I will now turn to Slide 16. Overall, Terex is well positioned, and we're excited about our long-term future. Terex is a very different company than five years ago, live alone 10 years ago. We are a diversified leader in many different industrial segments, we are more agile and less vulnerable to cyclicality with a strong portfolio, strong operating system and last but not least, a highly engaged competitive team.
I'm incredibly proud and feel blessed to have been given the trust to lead this company, and I'm very excited about the years ahead. Expect a lot more to come from Terex.
And with that, I would like to open it up for questions. Operator?
[Operator Instructions] Your first question will come from Stanley Elliott with Stifel.
Can you guys talk about -- I mean, with some of the near-term softening you're seeing in Europe and some of the general construction market, how does that impact how you all are thinking about pricing really across the portfolio with the context of the past couple of years have been so strong?
Thanks for the question. So yes, I mean, we stick to our target of being price cost neutral. That's what we're aiming for. There's still very much cost inflation in the market. Steel is coming down, but value-add components still showing signs of inflation like electronics and hydraulics, logistics, labor costs. So we're still in an inflationary environment. And as such, we're still striving for price cost neutrality at this point in the journey.
Great. And in terms of the MP business, is the softness exclusively Europe? Are you seeing anything in the Americas? And then curious, where do you think inventory in the channel is today? I understand there's a reluctance, I guess, from some to hold on to it and a lot of these are kind of on a more of a rent to own sort of an operation. But just curious kind of the health of the channel and then also kind of what you're seeing in North America?
Yes. Great question. The -- we don't think the inventory is necessarily, the issue here is -- and it's a little bit of a mixed bag. In Europe, it's very much end-demand driven. And what I mean by that is there's just lower productivity because there's less projects. And we think that the inventory in general, has been rightsized for it.
In North America, it's a little bit more complicated. There's still a lot of fleet productivity. We just see less rental conversions. Inventory, again, is not necessarily a problem, we think it's most of the rightsizing has been done. Well, what's happening is that we sell, especially in MP, a lot through rent to purchase contracts. And typically, they convert, let's say, within six months and now customers are just holding on to their rental units for just a few more months to see what's going to happen with interest rates.
So in North America, it's mostly interest rate, anxiety, if you will, and a caution for what's going to happen with interest rates. Before they convert to [indiscernible] purchase. But if we look at fleet utilization, still very high in North America. There's still a lot of work and our units are working in North America. That's kind of the next story here.
Your next question will come from Jamie Cook with Truist Securities.
Nice quarter. I guess two questions. Your margins and you're talking about an incremental margin greater than 25%, which is better than your target. So what's driving that? And to what degree do we think Monterrey can help structurally improve incremental margins? I'm just wondering if there's a better longer-term story here?
And then my second question, just on materials processing. To what degree -- I mean, I've never seen a -- I think your guide implies sales down 10%. I've never seen the business down as much. To what degree do you think this business is over-earning or the declines could continue into 2025? So I guess I'll stop there.
Okay. Thanks, Jamie. So our second quarter margins in MP, they really when you adjust for the Monterrey initiation fees, which were about $5 million, which was better than we anticipated for the quarter, so they might start to abate. Those go down last year, we also had the gain of the Oklahoma City facility. So if you take those two items out, our margins were relatively consistent last due to this year for AWP.
So going forward, we would expect to experience less disruption and this facility completes and gets to where the original intention at the end of the fourth quarter. And so we would expect to start to see those margins improve. And indeed, we put in a 200 basis point margin improvement in the second half of the year from where we were a year ago. So again, we're still in target to achieve those 200 basis points of margin improvement as we go forward.
But my question is, is there a reason to believe your incremental margins in this business can structurally be higher than the 25%?
Well, so for this year, they will be higher as there's been 25%, Jamie, our outlook implies roughly 26%. And so we'll continue to work on improving margins as we go.
Okay. And then sorry, the follow-up on materials processing.
Yes. No, thanks for the question. Yes, it's -- MP is a collection of five verticals, if you will. And within those verticals, there's a lot of things happening. If I take Fuchs, for example, our material handling our scrap handling business, a very biased to Germany, very biased to Europe, very biased to scrap prices, and that business is clearly struggling. That was what we called out in the first quarter, still what we're calling out now in the second quarter is the business that is probably struggling the most within the MP portfolio.
And because if you look at the European economy overall, it's Germany and Italy that are struggling. U.K. and France are seem to be coming back a little bit. And then Spain is [indiscernible]. So it's a little bit of a double whammy, if you will, for our Fuchs business, although we are encouraged to see the Germany steel production has been creeping up since February, our rolling three months book-to-bill is actually greater than one in June for that business.
And then also our [ quoting ] activity seems to pick up too early to call for signs of a bottom, but we do see some positive signals in Fuchs. And then the other business that has been struggling is also a business tied to Europe versus our Cranes business. And they are headquartered, as you know, in Italy, which is the second European market that's currently struggling. And both those countries, Germany and Italy are just very manufacturing focused. It's probably with the exports because Europe is down overall.
But I would just say MP, overall, in the last 10 years, that business has grown almost double digit consistently for the last 10 years and has been a very, very steady performer for us. Again, north of 15% operating margins in the current environment, we think is a great performance of the business. And the reason we're still very encouraged is because of what we're seeing in North America high utilization, and we believe that if the right thing happens with interest rates, and we are actually heading towards [ poke ] landing, there's plenty of upside in North America coming from the mega projects alone. So that's a little bit of a story around MP.
Your next question come from David Raso with Evercore ISI.
I'm trying to figure out the initial look into '25 and AWP with how you think about your book-to-bill in AWP, the rest of the year. I'm just trying to think through -- I mean before the last few years where you had a huge backlog starting the new year, the backlog would usually end the year, call it, 40% of the following year sales.
And I'm just trying to figure out to get lower than that, right, to feel '25 is more at risk of a down AWP year, than normal given you're starting the year with a low backlog. It would imply your book-to-bill, even in the fourth quarter really can even be above 1. But historically, it's well above 1. So I guess the direct question is, so far, I know it's early. Is there any reason to believe your book-to-bill in the fourth quarter for AWP should not be comfortably above 1? I just want to know how hesitant your conversations have been already on commitment at all for '25 on AWP demand.
Yes. I mean, it's a tough question to answer. Obviously, we get qualitative data points, not really quantitative, but we're not guiding for 2025 first and foremost. But yes, generally speaking, the discussions are -- that have just started, David, as you know, we typically start discussions for the next year in Q3, and then it will hit the backlog in Q4 and very often in Q1 as well.
So I would say a general response to your question is, we do expect, obviously, Q4 book-to-bill to be better than Q3. But what the exact number is going to be, it all depends on -- well, how 2025 is going to pan out, and it's too early for us to really [ add ] that down. So far, the discussions that we've had with our customers are positive for 2025. Whether it's up, down, slightly flat, it's too early for us to tell.
I know it's a bit of an unfair question, but just the whole idea of how much goodness of the large backlog that we went into '24 with we can still leave '24 with these relativity, at least getting customers bringing up the idea of there's a lot more capacity coming to the industry in '25? Or are we starting to have those conversations where clearly, you were in the driver's seat with pricing in the last couple of years and now the pendulum tower is swinging the other direction.
I'm just curious, the industry capacity issue. Be it, Chinese manufacturing in Mexico, JCB opening up San Antonio. I mean you name it. I'm just curious how that's playing out in conversations so far.
Yes. We don't share that concern overcapacity in North America and in Europe for that matter. Now China is a different story. There's definitely overcapacity and an undisciplined price management in our modest concern in terms of capacity. And we can only speak for ourselves, and we've shared on our last call, kind of where we stand in terms of capacity, we're not adding. We're just changing. But we don't think it necessarily adds up to a massive overcapacity of the industry. So I did not have any personal discussions with customers where they kind of turn it back on us saying, well, what's going on here? Is it excessive? We haven't seen that.
Your next question will come from Jerry Revich with Goldman Sachs.
Congratulations again on the acquisition announcement. Simon, I just wanted to ask you if you wouldn't mind just expanding on your comments on the European Union ruling. How does that impact the competitive landscape at face value? It looks like everyone except the French manufacturers is getting hit by a similar amount, but I'm wondering if you could just peel back the onion for us and just talk about the competitive landscape if the suggested tariffs are implemented?
Yes. Thanks for the question. I mean, we're very excited by the ruling. We were encouraged that two of the industry players filed a complaint and that the commission ruled favorably. I think it was mid-June that it came out. We were very pleased with the evidence that the commission found, there was actually dumping happening in the European market, and as such, they imposed tariffs.
So we think it's the right thing for the industry. We obviously encourage level playing field. We don't necessarily change. I think it will change much going forward. It was just -- in our mind, avoid that the market would go down this negative spiral. So we're happy that the ruling was made, and we continue to be price leaders for European market going forward, and we think we're in a great position to compete going forward. So happy with the results.
Super. And would you mind just commenting on how the utilization numbers are looking at in the U.S. based on your telematics data, it looks like based on a couple of rental company reports, pricing for AWP is still positive, but time you might be dipping year-over-year. I'm wondering if you could just talk about what your data shows on utilization specifically?
Yes. As a general statement, utilization is holding. We do see that particularly products that are more commonly used in mega projects are doing better than projects that are -- so there's a little bit of a divergence happening there. But if you add them together, still strong utilization year-over-year.
Can you give us a sense of how much do you expect to deliver a work down by the end of this year for both AWP and I'm basically trying to understand if the backlog can provide support to sales even next year.
Yes. It's kind of hard to answer the question without getting into 2025 guidance. But if we look at overall backlog coverage today, if you look at Terex, and our outlook, outlook is $5.2 billion midpoint, which means we have another 2.5-ish to go for the remainder of the year. We have $2.4 billion in backlog. Roughly, let's say, 1/3 of that is already allocated to 2025. So that means we have 2/3 coverage for the remainder of the year. And that's still higher than we are -- than where we normally are in July in terms of backlog coverage.
So we feel we are pretty good backlog coverage to get to our outlook. Now what's going to happen to 2025 is a little too early to tell and how that's going to pan out. But we feel good about our backlog coverage versus the output that we've currently laid out.
Good stand. The updated EPS guide, I think you restated the first quarter EPS and margin. So how much of the new EPS guide is driven by restatements versus changes in the different line items for the rest of the year? It seems like EPS guided essentially, is it the right way? Or is there anything to think about there?
Yes. I would take the question, Tami, and I agree with you that. But in essence, our adjusted EPS outlook is consistent with what we provided in the Q1 earnings outlook. If you take our Q1 midpoint and add in the Q1 call out, you come pretty close to what our adjusted EPS in this point is. So it's relatively consistent.
Your final question will come from Angel Castillo from Morgan Stanley.
I just wanted to go back to the price cost neutral comment. You talked about some of the dynamics perhaps within MP, but just more broadly, customer decisions to perhaps rent a little longer driven by interest rate decisions, et cetera. Just curious, from a price sensitivity perspective of your customers as you're seeing trends such as that, like can you just talk about what gives you confidence in being able to pass through kind of greater price sensitivity in both MP and AWP would be helpful.
Yes. It all comes down to just being transparent and we've been transparent all along. We are still seeing cost inflation in our industry. We need to be disciplined on how we treat the cost inflation. It was a very tough story, obviously, during the pandemic. But coming out of the pandemic, there's still [indiscernible]. And so we're just by being very transparent on the cost that we have to pass on as an industry.
And as I mentioned, in Electronics, in Hydraulics, even in heavy fabs, there's still cost inflation, but also labor, obviously, is everyone can see. And also in logistics and ocean freight, we're still in an inflationary environment. So just by being transparent until...
Anything to add, Julie?
No, that's [ good ].
Step at kind of the 2025 question. I'm just thinking about it less from maybe what you're hearing today, but just more specific to kind of the age of the fleet that you're seeing out there and some of the underlying factors that would typically drive kind of replacement demand for your products in particular. What do those kind of imply as you think about prepare of 2025 that replacement demand would be versus 2024?
Yes. I mean if you think about the last kind of wave, if you will, 2018 was a big wave of machines, making their way into the market, and that's now all hitting the 5-, 6-year mark. So theoretically, that is coming up for replacement. But I would say all our customers, as I mentioned in my opening remarks are very seasoned fleet managers and their fleet age is all within target. It's probably varying a couple of months here and there. But overall, it's in the 48 to 52 months range. So fleet age is where it needs to be. But there is a little bit of a replacement tailwind, if you will, because of the peak supply in 2018.
Your final question will come from Steve Barger with KeyBanc Capital Markets.
Simon, going back to your comment on interest rate anxiety for rental conversion and MP, where do you think the interest rate sensitivity is? Meaning 100 basis points? Just trying to figure out what they're waiting for.
Yes. Great question. I really don't know how to answer that. But I would say it's maybe not so much the number other than the perception that the market is heading towards a soft lending. I think that's more the issue. And if that's 25, 50 or 100, whatever it takes. But I think the -- we just need to get to a place where people feel confident that we're going in the right direction. That will be my answer.
There are no further questions at this time. I will now turn the call back over to Simon for any closing remarks.
All right. Thank you, operator. If you have any additional questions, please follow up with Julie or Jon. And with that, thank you very much for your interest in Terex. And operator, please disconnect the call.
Thank you. And ladies and gentlemen, that concludes today's conference. Thank you for joining. You may now disconnect.