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Terex Corporation (NYSE:TEX)

Barclays Industrial Select Conference

February 21, 2013 9:45 am ET

Executives

Ronald M. DeFeo - Executive Chairman and Chief Executive Officer

Kevin Bradley - Chief Financial Officer and Senior Vice President

Unknown Analyst

Okay, I think we need to get started here. We were very excited to have Terex with us. Terex has come a long way over time, a leader in many businesses, obviously, work platforms, cranes, constructions, material processing, runs a really creative global company. We're very happy to have Ron DeFeo with us, who is the Chairman and CEO; and Kevin Bradley, who is now officially the CFO, right?

Ronald M. DeFeo

In a couple of weeks.

Unknown Analyst

Okay, a couple of weeks. And Tom Gelston, who is the VP of Investor Relations. You know the drill. We're going to do this fireside chat format. I want to do a couple of automated questions in the beginning. But maybe, Ron, I'll start out. And as I'm walking over, I'll sort of ask you about your goals that you just recently gave us yesterday, where you talked about $5 of EPS and $7 billion in sales. What do you need to see to sort of get to those goals within the macro environment? And then, where are the sort of pressure points? What are you most confident about in sort of your guidance? And what are you most worried about in your guidance?

Ronald M. DeFeo

Sure. Terex has been a company that's changed substantially over the past couple of years. We really tried to change ourselves from being that other construction equipment-type company into a more directed, differentiated company. And with the sale of our Mining business and the acquisition of our Materials Handling & Port Solutions business, it really allows us to call ourselves a lifting and material handling solutions company. That puts us into product categories, where we can be real leaders with real growth opportunity that are specialty oriented and not just another Caterpillar or another large machinery company.

The 2015 the targets we've set for ourselves represent our best view of what the opportunity is in each one of our segments, consolidated into an overall position, where if you frame it in a 2012 versus 2015 perspective, we'll be growing from about a $7.3 billion company to a $10 billion company, for an operating margin of about 6.4% adjusted in 2012 to 10%, an EPS that will translate to $5-plus per share from $1.83 that we reported yesterday on an adjusted basis, and a return on invested capital from 8% to 15%. So pretty substantial opportunity to improve within things we can control with little or no acquisition -- with no acquisition assumptions. No acquisition assumptions. And it's clearly not our objective to go out and look for major new businesses to buy, because the opportunity for us to improve rests within the things that we currently own.

Now you got to break that into pieces and say, "Well, how believable is that? Is that a long-term target that the company can achieve? Can -- have you ever been there before?" Well, the assets we own today, if you added them up from their strong periods, would up to $11 billion in revenue, okay? So to me, it's believable from a macro perspective. And then if you look at it from a micro perspective of each one of the segments, there's some conservatism built into some of our revenue assumptions. So for example, our crane assumption for 2015 is $2 billion. The last peak on that business, we achieved $2.75 billion, okay? Now conversely, the Aerial Work Platform business, the last peak there was probably more like $2.6 billion, and we believe we can achieve $3.3 billion in 2015. Why? Because developing markets are playing a much bigger role, and because we believe the product category has been expanding even though the past couple of years have been difficult years. So -- and I could really probably walk you through each one of the segments. And the same thinking would be, therefore, the margin opportunity. So in the AWP margin assumptions, our margin assumptions are probably less than the last peak. And the same in the current crane business, they're less than the last peak.

So in looking forward to the 2015 period, we tried to put bands of revenue and bands of margin together, and then add that up to the total company, not the Goldilocks scenario, where everything -- all is a great, all at once. But rather, what we consider to be a fairly midpoint opportunity that stretched us, but didn't -- wasn't illogical and wasn't grounded in what we believe is executable. So you step away from that and you say, "We got to do what's in our control." And there's 3 things that we did in 2012, which was margin improvement, cash flow generation and Demag integration. And if you add growth to that, because we wanted to get the margin before we turn back to growth, and you put that into a category of 4 things, we think a large portion of what our future opportunities are rests within our ability to execute. Okay.

Unknown Analyst

Great. And let me ask you, specifically, about the AWP goal in the sense that, Tom and I went to China 2 months ago. We saw that they were expecting significant growth there. Emerging markets are going to play a much larger role over the next couple of years in that AWP business. So maybe you could talk about the confidence of the growth in emerging markets in AWP. I mean, as we learned about in China, like, they didn't really -- it's a big transition to go to more safe-type aerial work platforms that you guys do versus just some archaic thing that falls over and people get hurt. So talk about that, and also in Europe, sort of your expectations for European improvement. Because Europe is also a pretty low percentage of your business now versus history.

Ronald M. DeFeo

Yes. Latin America is a good example, where in a country like Brazil, when the country finally says safety is important, the product category grows. Several years ago, the Brazilian government made a specific commitment to workers' safety, particularly workers' safety at heights. And all of a sudden, from almost nothing, we have a several hundred million dollar business in Latin America, okay? The opportunity in China is difficult to predict. It's difficult to handicap. The Chinese will not pay for putting someone to work at height with the same product design and the same product configurations, as we have in the United States and Europe. But we are introducing several new models in China from our Chinese factory, that will be somewhere in the range of 1/3 of the cost of our global products to the customer base, that we think put people to work at height cost effectively. Now as I said in breakfast this morning, it's possible that those first couple of product executions will be a flop. But we will learn from that. And simultaneously, we're working with the Chinese government to establish safety regulations for work at height. And so we think if we can deliver a product that's fairly cost-effective to replace bamboo scaffolding, coupled with a government that takes initiative for workers' safety, that can really make a difference in the Chinese market. And don't think of China as 1.3 billion people. Think of China as 300 million people living a very high lifestyle along the coast. And that 300 million people is as big as the United States. So the opportunity to be Chinese in China, to deliver a safe way to put people to work at height is what we're trying to achieve. And we don't have a huge amount of upside for -- in our 2015 forecast for China. But we have planted seeds, and this is very different than our last peak. Whereas in Europe, Europe represented 28% of our overall revenue, approximately, in the last peak. Today, it's only in the 15% level, okay? And we're right at the beginning stages of a European replacement cycle, not a recovery in end markets but a replacement cycle, very similar to the United States -- the U.S. recovery in Aerial Work Platforms is not because there's so much more construction work out there. It's because the fleets are damn old, and everything they bought in 2004, 2005, 2006 and 2007, time is a wonderful healer for the business. They rust, okay? And they need to be replaced. And that's what's driving the U.S. market today, and is the beginning of what's driving the European market today. So my confidence in Aerial Work Platform is not because it's a pure GDP play. It's a pure play based upon replacement in North America, beginning replacement in Europe and some developing market opportunity that's already paying dividends in Latin America.

Unknown Analyst

So would you say -- is it fair to say that your guidance is dependent on the URIs of the world continuing to spend equally with the independent guys sort of ramping up in the U.S., equally with Europe getting better and then some emerging market growth. Is that kind of how we would look at it?

Ronald M. DeFeo

Yes, I think a 15% to 25% growth in Aerial Work Platforms is what we're saying for 2015 -- 2013, rather, sorry. Certainly, suggests continuation of product requirements with the major rental companies. But not 30%, 40% increases in CapEx, just replacement, similar to what they did this past year with the market deepening with independence and Europe beginning to grow again.

Unknown Analyst

Okay, great. Let's do automatic question one, if we could, just to get some sentiment in the room. You guys can vote, too, if you like.

Ronald M. DeFeo

We can vote? We can vote? How many times? Am I in Chicago?

Unknown Analyst

This is like American Idol. Okay, do you currently own a stock? One, yes, overweight; two, yes, equal weight; three, yes, underweight; or four, no.

[Voting]

Unknown Analyst

Okay. So 31% overweight. Believe it or not, that's one of the higher ones that we've seen in machinery. So that's kind of interesting. Let's go to question 2. What is your general bias towards the stock right now? One, positive; two, negative; or three, neutral?

[Voting]

Unknown Analyst

Okay. So more positive than negative or neutral. That's good. Let me ask you in conjunction with that. You made sort of a subtle change in your strategy for 2013 versus 2012, where you sorted through, you talked about the 3 sort of things you were focused on in '12 and then you threw growth again into it in '13. And I asked you this in -- at breakfast. Well, let me ask you in a different way. Like the shift toward growth, again, for Terex makes me a little nervous in the sense that you've always been good at sort of generating revenue, but maybe not quite as good at generating margin if you go back over the last 10 years or so, except for 2012, which you did a fantastic job at margin. So as you sort of gear the company more toward growth, what's the risk that you lose a little bit of the execution that you did so well in 2012?

Ronald M. DeFeo

Well, that's why we wanted to get the margin first, okay? I guess the good and bad of being in a job a long time is that you get to learn from all of your mistakes and try to correct them and to understand that to achieve a long-term journey does require some adjustments. As we came out of the financial crisis in 2010, the underlying company was -- had shrunk to a pretty dangerous place. We had about $4.5 billion of overall revenue. And it was going to be hard to make that -- to make money at that level. And still maintain the kind of commitment we had to improvement. So we put a pretty aggressive strategy in place to grow. And we grew from approximately $4.5 billion to $6.5 billion in 2011 but didn't produce very attractive incremental margins. But we did begin to get our factories operating. We began to get our businesses working again, which gave us leverage with our supply base and importance with our customer base. And ultimately, if you're in my business, you've got to have both. You've got to have leverage with the people that you're buying components from, and you've got to have importance to the people that are buying your products, okay? So 2011 kind of positioned us to choose margin over growth in 2012. And I put Kevin in charge of my Crane business in 2011, and he took a lot of cost out that paid dividends in 2012. And that was pretty systematic across the company. And so now, as we are sitting with a 6.4% overall margin but quite varied by business because AWP is at a positive -- substantially positive margin north of 10% and construction at a slightly negative margin in '12 rather, in 2012. We look at it and say, "What amount of growth is reasonable?" So rather than take the 8% to 13%, and say, "Well, that's reasonable as a company overall." We went back, of course, and did it by segment -- segment by segment, geography by geography. And the 8% to 13% is a result of business-by-business analysis, okay? Biggest number on the page is 10% to 20% growth in Cranes. So maybe I'd ask Kevin to comment on why do you think you're going to get 10% to 20%. I shouldn't say biggest number, most challenging number. Because I don't believe that 15% to 25% AWP growth is nearly as challenging as the 10% to 20% growth from an outsider's perspective looking in, that we're looking for in the Crane business. So why are we going to?

Kevin Bradley

Crane has been sitting on the, I guess, the growth sideline for about 3 years now. We've been pretty much flat for 3 years, focusing, as Ron points out, on margin expansion and cash generation. But it's actually a pretty healthy crane market overall globally. And so we see the opportunity. We just -- it hasn't been our focus. We wanted to get our financial profile to a point where we were comfortable in focusing more on growth. Our quoting activity is up through the fourth quarter and into even early stage of the first quarter. Quoting is good. I mentioned on the call yesterday, we've got 3 very important products coming out in the all-terrain crane, large crawler and rough-terrain crane categories. The way we're were looking at it, easily more than 50% of our growth year-on-year could come from those 3 products alone. So...

Ronald M. DeFeo

And they are new [ph] -- I mean, we're not competing in those product segments today.

Kevin Bradley

No, it's 1,000 tunnel terrain crane. It's a new product, very unique in the marketplace. There's really nothing like it out there from our competition. We had it at bauma Shanghai in November, got a great reaction and some orders. We've got the 650-ton crawler crane, the Superlift 3800. It will be at bauma this year. And the market is very excited about it. In fact, Tim mentioned on the call yesterday that we've already taken substantial orders for a reasonable percentage of our production capacity for 2013 is already taken up in the first 6 weeks of this year. So we're very excited about the Superlift 3800. And then this 100-ton, rough-terrain crane, we've had a strong presence in rough terrains. We all know the market has been up for rough terrain in North American and globally. But one of our weaker points, especially in North America, has been the 100-ton class. And this new product at 110 ton, we're getting a great reaction to, and we think we'll have a meaningful uplift from that product as well.

Unknown Analyst

Kevin, let me ask you about the new products. When I hear new products I get excited. But it's a bit of a double-edged sword, right, because they're new, so demand could be a little capricious. And it seems like your guidance is partly based on these new products selling well in 2013. So what's the risk to that? I mean, it seems that the risk is mitigated by the fact that you already have taken orders -- significant orders. But maybe you could talk about sort of pinning your guidance to some extent to these 3 new products.

Kevin Bradley

Yes. I don't think it's -- we're not completely relying on it. It's certainly a meaningful impact. But we're pretty confident that it's going to be there. The other thing I would say is within developing markets, we have not taken as much of a direct approach as some of our competition. And so -- I was just down in the Middle East in December, toured around 4 countries. And the opportunity there and we've been participating in it but not at our, what we view to be, our fair share. So going into places like the Middle East in a more direct basis is going to be another meaningful part of how we get our revenues up.

Ronald M. DeFeo

But to specifically answer your question, Andy, the new all-terrain crane, that's a crane that we tried to introduce 3 years ago, came out with a version, but never put it into the market because we weren't comfortable with the safety characteristics of it. Redesigned it, then put new prototypes into the market for a year, tested it with key customers, and the guy we tested it with bought the first couple of cranes, okay? So -- and the lattice boom crane Kevin is referring to has been something we've been working on for some time. So yes, there is always risk when you introduce new products. But in this particular case, in the crane area, I think these are products that we feel very confident about their performance.

Kevin Bradley

And I don't know if people will remember, we actually had a meaningful backlog already established for that specific product, that when things went sideways, we had to actually pull out a backlog. So we're confident that demand is there for the product.

Unknown Analyst

Kevin, could we talk about the developing markets in cranes? Your competitor had talked about actually seeing some improvement in the developing markets toward the end of the year and, I guess, early this year. So are you seeing that same improvement? And then, when you said you're going to go penetrate the market, how do you go about doing that? Is it sort of increasing your sales distribution? I assume it's not all in price.

Kevin Bradley

No, it's not prices. It's better coverage, not just for sales. But one of the things with range is people want to see a meaningful investment in product support ahead of the buying. So some investment in product support in key markets for us is going to be a big deal, as well as sales coverage. The hotspots for us have been recently, and we expect for 2013, the Middle East absolutely, including Turkey. Turkey is becoming a very meaningful part of our plans and Brazil. Brazil, we see good growth for.

Ronald M. DeFeo

I was in Turkey a couple of months ago. The opportunity for us in that region is probably 3x and 4x what it's been. And that's off of a pretty strong position. I mean, if you go to Azerbaijan, Baku, these are areas that are looking to Turkey for kind of the service and support. And Turkey will be in Iraq and in other places. So as that part of the world can stabilize with energy or oil-related capital, I think there's a tremendous opportunity there. And we've got a great, great dealer for us in Turkey.

Unknown Analyst

And Kevin, in the U.S. business, still you see pretty high utilization amongst your products. And what about dealer inventories in cranes that you're seeing?

Ronald M. DeFeo

Yes, U.S. -- North America, in general, remains pretty strong. We're seeing a little bit of a shift in demand from RTs into truck cranes, which we're comfortable with. We're actually ramping up capacity on truck cranes right now. Boom trucks are gaining strength for us, and rough terrain stays -- we think will stay strong.

Unknown Analyst

And I want to go back to the previous question around sort of the guidance, and we've gotten some question already around your margin guidance and that maybe it is conservative, sort of the opposite of what I said that we're worried about execution. Is it because there are so many variables out there and you want to continue to show execution that you guide to margins that are kind of similar to what they were in 2012 in your 2 big divisions while forecasting such good growth because, theoretically, cranes [ph] should be much higher?

Ronald M. DeFeo

Yes. I think we live in an uncertain world. And so I think it's responsible of management to take a balanced view. I don't think it's responsible to take the Goldilocks view that all good things are going to happen all at once. I mean, policymakers have proven time and again that they can screw up a good market, okay? And I think the underlying demand for our product categories are -- is pretty damn good. But you have to believe that the guys at United Rentals and Ashtead and those companies, they're looking at what the policymakers do also. And so, if they have some uncertainty, the first thing they do is stop spending money. And they can always stop spending money for a period of time. So I think it's important for management teams to look at the world as a glass half-empty view as well. And so what we've tried to do in our margin guidance is we've tried to understand what the middle is and be comfortable that we can deliver the middle under pretty good conditions -- pretty normal conditions. And I've been doing this job now 20 years, and there's been 16 years where it's felt like today. And it's been 4 years that it's felt different, 4 years where the 2 years when you could do no wrong, 2006 or 2007, 2008; and the 2 years where you could do no right, okay, 2009, 2010. But the rest of the time is always somewhere in between. And so when we structure our guidance, we try to find that midpoint for each one of the businesses and then add them all up. But within that context, there are tails. There's ranges. And so if you look at the negatives -- all the negatives, the incremental margins don't makes sense. But if you look at all the positives, the incremental margins are crazy good. So it won't happen on the tails and on the sides. But that gives you a chance to narrow in on the middle, which I think is the most important part of guidance, that you try to say, this is where I think -- I think things being normal, meaning not all good, not all bad, we can deliver.

Unknown Analyst

Let me ask you one more question. Then I want to open up to the audience in case they have any questions around the Construction business. Construction business has been a bit of a thorn on your side, I'm sure you would say, over the last 10 years or more. But it seems like you're finally sort of getting to where you want to be. Is that sort of the right feeling to have? Is that -- you're getting closer to where -- I look at the page, and you've get 5% margin sort of modeled [indiscernible] 2015. A lot of times, honestly, I would say, "No, they're not going to earn 5% margins in that business." Maybe now, as you do this sort of rightsizing stuff, maybe that can be a reality.

Ronald M. DeFeo

Yes. That's where we're going to -- we're working toward. There's some things that I can state out here today that are good and positive and will improve -- and will allow us to achieve that margin. And there's some things that we're working on that we hope will come to pass that may allow us to solidify that margin and even do better than that margin. But I think if you take the business into a couple of pieces, it will help explain this. The Roadbuilding business for us was an investment we made in 2001 right before 911. And trust me, it looked like this country of the United States was going to invest in a lot of road and infrastructure work before 911. So we took a bit. We bought CMI Company, which was the alternative to Astec back then. And we did it -- it was a publicly traded company. And we did it, and 911 came along and everything changed. And we have been kind of reeling, more or less, to try and figure out how to either buy something or now, eventually, how to exit the business. And it's going to take us a little bit more time and a little bit more pain to exit that loss-making business. Brazil made money for us, a large amount of money, once. And so you can't plan your future on that. And so Brazil is going away in that business. And a good portion of our product line in roadbuilding is going away. So that will help us. 2013 still a little bit more pain, but that will help us. Then there's 3 businesses left: the truck business in Scotland, the steel scrap-handling business in Germany and the compact equipment business in Germany and the United States. Okay? The steel scrap handling business, our material handler of the Fuchs product line is an excellent product. It's the #1 leader in scrap handlers. It's a strong performer. It has delivered double-digit margins in good times and mid-single-digit margins in bad times. And it's still delivering mid-single digit margins today, which is pretty bad for steel scrap-handling products. So it's a good business. It's a keeper, okay? My truck business in Scotland. It's been a good business and a bad business at times. I think we have the #1 truck franchise in China. That's the good side of it. We sell a lot of components to China. The bad part of it is that it's very cyclical in Europe and the rest of the world. I think we've got it in a place where it's mid-single-digit margins. It can go to double digits, but mid-single-digit margins will be just fine. And then the German and U.S. compact equipment business in Construction. In Germany, we're getting out of all of the ancillary businesses, and that's the charge -- one of the charges we took in the fourth quarter. That will take the rest of this year to flush through the system, okay? And the ASV products that we have in North America. We -- you may notice -- you remember that we announced a private branding with Takeuchi. So we're now manufacturing for Takeuchi. There maybe other companies that we can private brand for in several of our businesses. So the bottom line there is regionalize the business, focus on those businesses that have moneymaking potential, exit all the ancillary stuff and then see where you are. And I think we're at that place in '14 and '15.

Unknown Analyst

Okay, that's helpful. Any questions from the audience? Is there anyone who wants to ask a question? All right. Well, I will continue. Let's first do automatic questions 3 and 4, if we could. In your opinion, through cycle EPS growth for Terex will be: one, above peers; two, in line with peers; three, below peers?

[Voting]

Unknown Analyst

Okay. So I mean I think that people are pretty convinced that you can have above-peer growth. And so I think that's good. Let's do question 4. In your opinion, what should Terex Corporation do with excess cash? One, bolt-on M&A; two, larger M&A; three, share repurchases; four, dividends; five, debt paydown; or six, internal investment?

[Voting]

Unknown Analyst

Okay. So very predictably, the investors say debt paydown for you guys. But we -- you've already been able to pay down some of the debt. Your balance sheet looks a lot better than it looked even just 2 years ago. So how comfortable are you right now with your situation? And then, as we look over the next 2 years, what do you -- you've acquired things in the past. You sort of pruned the business also. What does Terex look like in terms of cash deployment strategy as we go through 2015?

Ronald M. DeFeo

Okay. Well, this is very helpful. I have to say, I agree with you guys, okay? And I think it's very important to understand where we are at this moment in time in our history. We had a good 2012 from the standpoint that we started the year with a leverage ratio of 4.9x. We ended it with 2.3x, okay? We took a substantial portion of our debt. We restructured it, termed it out and lowered the rate. Now what we want to do this pay down more of the debt. Every dollar of debt that we pay down is money we think can flow to the equity, okay? And we believe, internally, that people loan us more because of a -- on a valuation point of view, from EBITDA multiple rather than an EPS multiple. That's -- I've been back and forth on this over many, many years. And I think the faster we pay down debt, it has a direct correlation with the valuation of our equity. And frankly, we're at a time where we're maturing as a company. We needed to buy businesses in order to have businesses to have be core and work on. We do not need that to do tomorrow, okay? And what I'll tell you is that we may make a bolt-on, small deal here or there, but we're not in the market for substantial M&A activity. And it's just logical, okay? It's just logical. Because if you look at our capital structure, 2.3x net debt also includes carrying a $0.5 billion, $648 million approximately, of cash. A large portion of that cash is sitting in Europe or in other places. But still, over the next 2 to 3 years, we achieve the kind of performance that we've got forecast out to 2015, a lot of money can move from the leverage side of the house to the equity side of the house. And therein, lies a great opportunity. And this is not insignificant. I've got about 1.5 million shares myself that I have some interest in. So some of which I will never get, unless the stock gets above $60 a share, okay? So there's 2 peg points for me. Yes, 125,000 shares at $45 and 125,000 shares at $60. So that's important to me, I mean. So my -- I'm sitting where you are, okay? So I think we've got a good alignment. And I'm making sure the rest of the team feels the same way.

Unknown Analyst

Ron, let me ask you about the second most popular choice there, internal investment. You've got a business that you just bought. Clearly, you're sort of in the process of integrating and fixing that business. So what do you think about sort of their view about the internal investment is a good place for your money. And I assume that's where you would channel it to some extent, but there may be any other places that you would channel internal investment.

Ronald M. DeFeo

There definitely is opportunity to lower our costs by investing in a few of our businesses. We're going to be spending some capital expenditures in our Materials Processing business. That's an unheralded business, more or less, because it's not as big as AWP or it's not as big as the other segments. But it's a -- in the 14-or-so years that we've owned that business, it has only had one negative year from a margin point of view, has been a good, solid producer. We'll probably build a new factory. We're going to modernize our equipment. We're going to do some of that. At AWP, we need to change our manufacturing footprint -- continue to work on changing that manufacturing footprint. And I think that will lower our costs further or utilize some of our existing manufacturing footprint. So I think internal investment is my #2. I would agree -- that's why I said I would agree with you on that. I would add agree with everybody on the room on that.

Unknown Analyst

Okay. And maybe we could talk a little bit more specifically about the MHPS segment. You talked at breakfast about how it really is 2 businesses. And Germany did weaken in the quarter. So I mean, that's one of the reasons why your business weakened. But what do you see as the prognosis? I mean, we know what your guidance is. But how much can you affect the prognosis of the business versus sort of what you're doing versus just being at the whim of the European economy?

Ronald M. DeFeo

Well, part of what management's job is, is to affect the outcomes, okay? So we don't do our work if we just buy a business and watch it. I call that watching television, okay? And what I tell everybody that works for me is, "You're not here to watch TV. You're here to get on the field and make a difference." So -- and part of the difficulty of making acquisition in Germany of a publicly traded company is it takes time to get control of the complete process. We're now in control of the complete process with the management change I announced the middle of January, putting Steve Filipov in charge of that business. And with the leadership transition taking place in mid-year, there will be no confusion about who's going to do what, when and how with that business. And let me be clear, in the Port Equipment business, we've got very good position. But the margins are too low. And we've got a few businesses that are still loss-making. So we're going to go back in, and we're going to look at -- it's an oligopoly. It's really ourselves and 1 or 2 other players. So we're going to push the margins up. We're going to examine our whole backlog, and we're going to look for ways to add money, increasing our margins. If we lose a little market share, so be it. Now that won't happen in 2013, but you'll see the effects in '14 and '15, okay? And we'll also benefit from running the businesses more tightly in Port business because the manufacturing process is too expensive. So we're going to work on both of those ends in the Port business. But it's a product category I must say where we think, long term, it's a growth category. Because moving merchandise around the world is going to be more aggressive, more -- it's just going to grow, because where the development is, is where there's people, which is where there's oceans, okay? Turning to the Material Handling business, which is the overhead cranes in the factories, it's got a very good services business, but it has a 25% SG&A. 25% SG&A is like the anti-Christ for Terex, okay? I mean, it probably should have a different SG&A than the rest of our business. It's going to be -- have a higher SG&A than the rest of our business. But 25% is too much. So we've got to get at that cost. And part of the reason that cost is there is because of history, okay? History of being a German company, history of running a lot of independent subsidiaries. There's an independent subsidiary in Austria. There's an independent subsidiary in France. There's one in Switzerland. There's one in the United Kingdom. There's one in Australia. I mean, you just go through the list. And all of those independent subsidiaries are company-owned. They all have Heads of Sales. They all have a CEO. They all have financial people. That's opportunity for me. Now it's hard work, though. If you expect -- the old days, you used to be able to go in and take a big restructuring charge, get rid of all the people and see the benefits tomorrow. The way accounting works is today, you may be able to take some restructuring charge. But those expenses run through your P&L, because they just take a long period of time to get them out. But the best way to start a journey is with a good first step. And we're at that next level of execution. We did the $35-plus million of integration in 2012. That we probably did more. But the market's not as good as we'd like. So we know we need to do more. This crisis just gives us a chance to go at it aggressively.

Unknown Analyst

Kevin, I think when we're on the plane together, actually, one thing that intrigued me was sort of the potential synergies between cranes and your MH&PS business. And the amount of integration there could actually lead to more cost cutting. And I don't think you guys really get that many questions on that. Kind of feels like you're doing it behind the scenes. Can that also be significant for how you improve MHPS over time?

Kevin Bradley

Yes. I mean, there's synergy opportunities in a couple of areas. One is just sharing technology and innovation, especially in our 2 big German businesses. Another one is just leveraging the service organization that they've invested in over the years. It's an area that cranes need to do more in. It's product support and services, especially in developing markets. We need to collaborate within MHPS to make sure that we do that in an efficient and productive way. The other way is just pretty straightforward, supply base. It's actually a decent overlap in supply base that we've got to take advantage of, get more scale and get a little more leverage.

Unknown Analyst

I want to make sure, any of you guys have any other questions that you want to ask?

Unknown Analyst

Again, 2 questions. First on Europe, what percentage of sales would Europe represent in 2015?

Ronald M. DeFeo

Okay. We didn't do a forecast by market, okay? But sitting here, I would say probably about 1/3 of our business would still come out of Europe, okay? So as a percentage comparison of today, it probably goes down a little bit. We're probably sitting at about 38%, 40% today. The numbers are in there some place. But my expectation is that Europe is a relative percentage of overall Terex that's going to come down. It's -- Western Europe is 27%, but yes.

Unknown Analyst

Just one follow-up question. I love the fact that you own stock. I wish more of your peers operated the same way. My question is, do you have any requirement for the management team to own stock? Or do you encourage that? Or how do you approach that?

Ronald M. DeFeo

Our management team is heavily stock-incentivized. And while I would tell you, we looked at ratio requirements of management. And I think we may have one of 3x their salary or something in that range. The reason that I don't have it off the top of my head because when we did the analysis, every one of our guys is way past that, is way past that. And we have a 3-part incentive compensation strategy. One is base salary, which -- I look at base salary as not a given, but you do have to do something for it. Secondly is short-term bonus, which is based on an annual ROIC objective, return on invested capital objective for the company at large. And thirdly is a stock incentive plan with typically annual grants. 80% is performance-based for Kevin and I, and 50% is performance-based for the next level of the management. And the performance base for our stock -- so in order to vest the stock, typically, it's a 2-part metric: one, being TSR; and the second one, being EPS, as a performance metric. So I think every one of us are pretty heavily incentivized on getting the equity price up. That's easy. It's easy to say that. But this is years of working to get to this position. And I think it's important that we finish the job here.

Unknown Analyst

We could do automatic questions 5 and 6. In your opinion, on what multiple of 2013 earnings should Terex Corporation trade? One, less than 10x; two, 10 to 12; three, 13 to 15; four, 16 to 18; five, 19 to 21; or six, higher than 21x?

[Voting]

Unknown Analyst

Okay. So 10 to 12 or 13 to 15. Let's move on to question 6. What do you see is the most significant investment issue for Terex Corporation? One, core growth; two, margin performance; three, capital deployment; four, execution strategy?

[Voting]

Unknown Analyst

I know we're a little over time. So I'm going to keep it brief. But it's -- I felt like it would be more balanced for you guys, because it's all about sort of core growth generally in machinery. It's also about execution. So I think it's good for you guys to see that, because you have to balance it when it comes down to it.

Ronald M. DeFeo

And we agree.

Unknown Analyst

Thank you, everyone. Appreciate it.

Ronald M. DeFeo

Thank you for your interest.

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