管理層發言
Greetings, and welcome to the Terex Second Quarter 2026 Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Drew Konop, Vice President of Investor Relations.
Good morning, and welcome to the Terex Second Quarter 2026 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 today by Simon Meester, President and Chief Executive Officer; and Jennifer Kong, 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 our earnings materials and in reports filed with the SEC. On this call, we will be discussing non-GAAP financial information, including adjusted figures that we believe are 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 hand it over to Simon.
Thanks, Drew. Good morning, and thank you for joining us today. Terex delivered a strong second quarter with revenue of $2.2 billion, increasing 8.5% compared to last year on a pro forma basis. The quarter's performance reflects revenue growth in all segments, improved earnings conversion and progress against the strategic priorities we've laid out in the past two years. Today, I'll begin with our consolidated performance and the demand backdrop we are seeing across the portfolio. I'll then discuss how each segment is executing against those market conditions before providing an update to our full year guidance, and Jen will then take you through the detailed financials. At the consolidated level, second quarter performance was supported by revenue growth and improved earnings conversion, both sequentially and year-over-year. Adjusted EBITDA of $269 million increased $26 million or 10.7% versus last year on a pro forma basis, driven by meaningful improvements, especially in the Materials Processing and Specialty Vehicles segments. Bookings increased 25% year-over-year on a pro forma basis. Our backlog of $6.9 billion provides solid coverage and supports our confidence in the second half and today's updated full year outlook. From a macro perspective, the demand environment for our business is positive and improving in many of our verticals. U.S. nonresidential construction is benefiting from the ongoing transition of planned projects to new starts, supporting demand across multiple segments. Year-to-date, U.S. nonresidential construction starts rose 18% to $368 billion, driven by momentum in data centers, energy investments and civil projects such as bridge, water and sewage infrastructure. Mega project starts totaled approximately $80 billion year-to-date through May, creating increased opportunities for many of our businesses. Across our end markets, we're seeing higher utilization rates for our products, increasing capital expenditures by our customers and positive sentiment from channel partners. These indicators and our bookings trends support our view that demand is growing in many of our verticals. Looking ahead, policy and infrastructure activity in Washington also provides a promising backdrop, including enactment of the 21st Century Road to Housing Act and introduction of the Build America 250 Act. The timing and implementation of these programs may vary, but the direction of public and private investment is supportive. Healthy municipal budgets and replacement needs support demand for fire apparatus, ambulances, refuse collection vehicles and related equipment. Within Specialty Vehicles, during the quarter, the city of Chicago approved the purchase of 80 fire trucks and 40 ambulances as part of its fleet replacement plan. The breadth of our Specialty Vehicles portfolio allows us to serve communities of all sizes and because these are essential assets that municipalities replace on a regular cycle, they provide a recurring source of replacement demand. In Environmental Solutions, long-term demand is supported by a large installed base of refuse collection vehicles, digital and aftermarket activity and robust transmission demand in utilities. While the segment is navigating a temporary softness in refuse collection vehicles, ESG's second quarter bookings increased versus the prior year, the first year-over-year increase since the first quarter of 2025, indicating that momentum could be building going into 2027. Long-term demand for Refuse Collection Vehicles is intact, including a regular replacement cycle and customer interest in technologies such as automated side loaders, third-eye camera systems and back-office software that can improve productivity and safety for our customers and their operators. Terex Utilities is benefiting from demand tied to grid modernization, renewable energy investments, data center-related power needs and storm hardening activities, which we expect to support the business over the next several years. In Materials Processing, the U.S. mobile crushing and screening market is showing growth in fleet utilization and rent-to-purchase conversions. We also saw increased bookings for material handling and concrete mixers, which supports our view that the segment's overall demand is broadening. In Aerials, customer demand is supported by nonresidential construction activity with customer mix in the quarter skewed toward national accounts that have greater exposure to mega projects. Turning to execution. I believe it is important to point out that after we completed the two largest transactions in our history in just the last two years, both the ESG acquisition and the merger with REV are trending above their respective business cases to date. Across our new and bigger portfolio, our focus is to convert backlog more profitably, improve throughput, realize synergies and continue to bring exciting new products to market for our customers. The second quarter demonstrated our progress in all those areas. Starting with Specialty Vehicles, the REV Group integration is proceeding well, and the segment delivered record earnings performance. The teams are executing against the integration plan and synergy realization is progressing as expected. Our near-term priorities for the segment are to improve throughput, reduce lead times and expand capacity in targeted product categories. During the quarter, we made significant progress with the expansion of our ladder truck plant in Ocala, Florida, and we're nearing completion of the expansion in Brandon, South Dakota. The Brandon investment is intended to increase capacity of the S-180 semi-custom pumper and further reduce lead times directly supporting our longer-term growth objectives. We expect the first deliveries from our Brandon expansion within the fourth quarter. In Environmental Solutions, ESG is making progress with its ongoing manufacturing efficiency improvements in an already world-class facility. In utilities, we are aggressively ramping up shipments to keep up with the accelerating demand and are executing our planned capacity expansion. Utilities also introduced the TRX product line, including four different models with different working heights, eliminating the need for a commercial driver's license, giving our customers more flexibility to operate their fleet. The product line is an industry first with a production unit of a 50-foot aerial on a Class 6 chassis. In Aerials, the team continued to navigate tariff headwinds and execute mitigation efforts in their supply chain and improve operational efficiency. As expected, our price/cost position improved in the second quarter, and we believe the full year will be price/cost neutral based on the visibility we have within our backlog and our ongoing cost-out actions. Before turning to our 2026 guidance, let me provide an update on our strategic review of the Aerials segment. We are pleased with the progress we are making. We have interest from multiple parties and are working towards an outcome that maximizes value for our shareholders. We do not have any specific details to share at this time, but we will update you as the process unfolds. Based on our second quarter performance, our backlog coverage and synergy pipeline, we are raising our full year guidance. The increase reflects strong first half execution overall, increased volume in Aerials and improved performance in Materials Processing. We now expect sales of $7.9 billion to $8.2 billion, adjusted EBITDA of $960 million to $1.0 billion, adjusted EPS of $4.70 to $5.10. And with that, I'll turn it over to Jen to walk through the financials in more detail.
Thank you, Simon, and good morning, everyone. Let's review our second quarter results, starting with consolidated performance on Slide 4. Consolidated sales, including the results of Specialty Vehicles, were $2.24 billion, up $751 million or 51% as reported. On a pro forma basis, excluding the sale of the Cranes and Midwest businesses, sales increased $175 million or 8.5% with growth across each of our segments. Adjusted EBITDA margin was 12% compared to 11.8% on a pro forma basis in the prior year. Adjusted EBITDA increased by $26 million, driven by healthy demand for our products, operational execution and realized synergies in spite of significantly higher tariffs compared to this time last year. Adjusted earnings per share was $1.37, including a net benefit of $8 million from IEEPA tariff refunds plus a one-time unfavorable customs-related accrual. Working capital continues to improve. Net working capital declined to 13.2% of sales compared to 16.7% in the first quarter and 22.8% a year ago, primarily driven by the merger with REV Group. We generated $128 million of operating cash flow and $101 million of free cash flow within the quarter. Net debt ended the quarter at $2.28 billion, including $407 million of cash on hand and net leverage improved to 2.3x net debt to 12-month adjusted EBITDA. We also returned $20 million to shareholders through dividends in the quarter. Turning to segment performance, starting with Environmental Solutions on Slide 5. Environmental Solutions sales increased by $26 million or 5.9% versus the prior year to $456 million. Growth was driven by strong demand and increased shipments in Terex Utilities, which more than offset temporary softness in demand for ESG. Despite the temporary unfavorable mix, the segment reported an adjusted EBITDA margin of 17.5%, down 250 basis points year-over-year due to the aforementioned unfavorable mix, coupled with production ramp-up inefficiencies and lower absorption in ESG. Moving to Materials Processing on Slide 6. Materials Processing sales increased 11.1% or $47 million to $464 million, driven by healthy demand, especially for mobile crushers in the U.S., supported by infrastructure, data centers and other industrial projects. Adjusted EBITDA margin expanded 440 basis points to 18.8%, reflecting a favorable product mix and price-cost discipline. One-time benefits contributed approximately 180 basis points to the margin performance within the quarter. Turning to Specialty Vehicles on Slide 7. Specialty Vehicles sales increased $38 million or 6.2% to $650 million, driven by improved throughput in fire. The adjusted EBITDA margin improved 210 basis points to 14.5% compared to last year, reflecting favorable mix, operational efficiencies and price realization, partially offset by cost inflation. Turning to Aerials on Slide 8. Aerial sales increased 10.9% year-over-year to $673 million, driven by demand from national accounts as supported by mega projects. Adjusted EBITDA margin was 5.7% in the quarter, down 340 basis points from last year, which had significantly less tariff impact. As expected, Aerials improved margin sequentially in the second quarter by 560 basis points, reflecting improving price-cost dynamics and higher production volume. We are on track to be price-cost neutral for the year. The IEEPA refunds we received in the quarter were offset by a one-time unfavorable customs accrual. Please note, Terex is not accruing for future refunds not yet received. Turning to Bookings on Slide 9. As Simon mentioned, consolidated second quarter bookings were $2 billion, up $400 million or 25% year-over-year on a pro forma basis. In Environmental Solutions, bookings were $417 million, an increase of 18% versus last year's quarter, mostly driven by utilities. We expect bookings in utilities to be solid for years to come, and our focus is to ramp throughput to meet the accelerating demand. In ESG, bookings were up year-over-year, which could indicate momentum building going into 2027. Having said that, given the conversations with our customers and suppliers, we no longer expect a material second-half pre-buy of RCVs ahead of 2027 EPA regulations. As a result, we're updating our second-half segment revenue outlook to low single-digit growth. Materials Processing second quarter bookings of $469 million increased 18% on a pro forma basis. While aggregates demand was the main driver, bookings also increased meaningfully in Material Handling. MP ended the quarter with $599 million of backlog, up $232 million or 63% year-over-year, supporting an updated full year outlook of low double-digit sales growth. This implies high single-digit year-over-year growth in the second half. Specialty Vehicles bookings were $588 million in the quarter, up 9% versus the prior year, led by the previously announced City of Chicago order. Increased throughput drove higher sales and lowered the segment's backlog as intended. We expect this segment will execute against this backlog and our outlook remains high single-digit revenue growth for the year. Finally, Aerial second quarter bookings of $530 million reflects 71% growth versus last year, mostly from national customers tied to large funded projects and infrastructure and nonresidential construction. Aerial ended the quarter with $914 million in backlog, an increase of $200 million or 28% versus the prior year. Given Aerial's first half performance, healthy bookings and backlog visibility, we are updating the full year outlook to low double-digit sales growth. Now turn to Slide 10 for our update to the consolidated 2026 outlook. We're operating in a complex environment with many macroeconomic variables and geopolitical uncertainties, and results could change negatively or positively. The outlook we are providing today reflects our current portfolio and does not account for any cost to achieve the synergies, purchase accounting adjustments or other nonrecurring items. Today, we are increasing our outlook for the year with 2026 sales expected to grow approximately 7.4% at the midpoint on a pro forma basis to a range of $7.9 billion to $8.2 billion. We now expect pro forma EBITDA to grow by approximately $124 million or 14.5% year-over-year to between $960 million and $1.0 billion or 12.2% EBITDA margin at the midpoint. Included in our EBITDA outlook is approximately $28 million of synergies that we're well on our way to realizing. Updated guidance reflects 22% incremental adjusted EBITDA margin conversion at the midpoint pro forma despite a dynamic tariff environment. We anticipate interest and other expenses to be approximately $185 million based on average debt outstanding of $2.7 billion. The effective tax rate for the full year is still expected to be 21% despite favorability in the first half of the year. We now expect 2026 EPS between $4.70 and $5.10 with slightly more earnings per share in the third quarter and a typical seasonal step down expected in the fourth quarter. Please note, the share count for the second half will be approximately 114 million. Finally, we expect to deliver $300 million to $350 million of free cash flow in 2026. With that, I'll turn it back to Simon for his closing remarks.
Thanks, Jen. I would like to thank everyone again for joining today's call just to quickly summarize what we shared today. We see strong demand from most of the markets we compete in, and we see clear momentum from the execution of our strategy. The REV integration is progressing as planned. Our synergy pipeline is building and the new Specialty Vehicles segment is improving throughput quarter after quarter. Environmental Solutions is well positioned with its manufacturing know-how, digital offering and multiyear demand in utilities. Materials Processing is executing effectively and together with Aerials benefiting from investments in infrastructure, data centers, manufacturing and overall power generation. We are raising our full year guidance because of the performance we delivered in the first half and the visibility we have in the backlog and the momentum we're building. Taken together, these results demonstrate the strength of the new Terex, a more diversified, more resilient and higher-performing company with clear opportunities to grow, improve margins, generate cash and create value. I want to thank our global team members for their dedication, our customers and dealers for their partnership and our shareholders for their confidence in Terex. And with that, we'll turn the call over to the operator for questions.
分析師問答
Your first question is from the line of Mig Dobre from Baird.
Maybe I would like to start with double-clicking a little bit on Environmental Solutions here. Can you give us a little perspective as to what's embedded in that low single-digit revenue outlook — revenue growth outlook, I should say — how you think about the refuse business versus utility? And I guess the second part here, just the guidance seems to imply revenue compression in the second half. How should we think about the effect that would have on margins for this segment?
Yes. Mircea, I'll take the first one, and I'll let Jen weigh in on your second question. So yes, from a top line perspective, for the segment overall, obviously, strong bookings, 18% year-over-year, sequential also growth in bookings, 20% versus prior quarter. I know you asked about refuse, but part of Environmental Solutions is obviously also utilities. We see a lot of accelerating demand in utilities, and we're expanding capacity to keep up. In ESG, which is the refuse collection vehicle business within Environmental Solutions, we actually saw bookings were up as well year-over-year and sequentially. And we do see momentum building for 2027. When we look at that business, we look at bookings trends, we look at fleet utilization, we look at telematics, we look at what customers are telling us. And we clearly see that in the first half, maybe even starting late last year, there was probably a little too much fleet in the system. It's not that America is producing less waste or that there are fewer garbage trucks on the road. But there was some rebalancing that needed to happen between supply and demand. We think that happened in the first half and is now mostly behind us as we see bookings coming back up. That's the first piece. The second piece: in our initial guide, we assumed there was going to be some pre-buy activity in the second half of 2026 going into 2027 when the new engine emission regulations come out. We now think that will actually spill over into 2027 as some of those changes are grandfathered and delayed by a couple of months. So we don't see as much of an uptick in pre-buys in the second half as originally assumed. We still think that bookings will sequentially recover. We still think that 2027 is most likely a growth year for refuse. We just see it being delayed by a couple of months because of the delay in pre-buys. Jen, do you want to weigh in on the margins?
So from a margin perspective, we expect Q3 to be very similar to Q2 given that top-line growth will continue to be driven by utilities, and they have a very different margin profile. But we do expect that from Q3 to Q4 there will be a step-up in the margins at the segment level, driven by favorable product mix, favorable customer mix and then the inefficiencies I mentioned in my prepared remarks, especially in utilities, to be behind us. So those are the big three drivers in terms of the step-up in the margin.
I appreciate that. That's helpful. And my follow-up, maybe on Specialty Vehicles, and this is kind of a bigger picture question. As you're starting to operate this asset and working with the REV team, I'm curious as to what you're discovering in terms of opportunities for either manufacturing efficiencies or being able to use some of the scale that Terex has that could bring to this business on a go-forward basis. I do understand that you have communicated on the synergies near term and also the capacity additions that you have. So my question extends beyond that, if possible.
Yes. I'll let Jen talk about the synergies. But yes, very pleased with how the integration is going. It's just been five months now. We're very pleased that they booked a record quarter in terms of EBITDA performance. Mircea, you know this business and the momentum that team was building over the last two to three years before we merged with REV. We were obviously focused on maintaining that momentum and continuous improvement, and that's what has been happening so far in the first five months. It's the same leadership team operationally that runs Specialty Vehicles today that was running REV before the merger, and we continue to improve throughput. We were up again in units produced in the second quarter. With the acquisition of ESG, we think we acquired one of the best Specialty Vehicles manufacturers in the industry. Our game plan has been to leverage that manufacturing excellence in high mix, low volume from ESG to help Terex Utilities and Specialty Vehicles. You see Terex Utilities' margins are coming up, and we expect the same manufacturing know-how to help Specialty Vehicles going forward. At the end of the day, it's about continuous improvement and reducing the number of hours per truck. The immediate focus is on keeping the momentum in Specialty Vehicles, and we're very pleased with how the integration is going and how the synergy pipeline is building.
Yes. From a financial standpoint, we committed $28 million of synergies for the eleven months post-merger. We have realized about 20% of that in Q2 with very good visibility of converting the remaining 80% in the second half of the year with a sequential step-up quarter-over-quarter. So like what Simon said, we're very confident in the integration and the way that translates to synergies dropping to the bottom line.
Your next question comes from the line of Jamie Cook at Truist Securities.
I have two questions. First on Specialty: could you elaborate on what you're seeing in the fire truck business? I think backlog for total Specialty was down about 1%. Your peers are experiencing declines. Your growth has been better. So if you could elaborate there in terms of backlog orders and the outlook for fire truck. And then my second question is on Aerials. Just trying to understand where the margins in the quarter were relative to your expectations. And given we're raising the outlook for Aerials, how are you thinking about the setup for margins in the back half of the year?
All right. I'll talk about the fire truck backlog, and then Jen can talk about Aerials margins. Quite honestly, Jamie, we want that backlog to come down because our customers are waiting a long time for their trucks, and we are focusing on ramping up throughput, which is what we're doing. We are making another step in Q4 when our capacity in Ocala comes online for ladder trucks and when capacity for S-180 pumpers — a low lead-time semi-custom product — comes online in Brandon, South Dakota. We're pleased with our bookings; we secured a large order from the City of Chicago. Our bookings continue to grow. What's more important for us is throughput: if the backlog comes down, our book-to-bill should stay below 100% in Specialty Vehicles by virtue of lead times improving. The mission is to get lead times down. We think a more sustainable number for us and the industry is to get lead times back to about a year or so. That's the mission, and we think the trend will be over the next 24 months where you will see a consistent below-100% book-to-bill as lead times improve.
Jamie, on Aerials' question, from a margin perspective for Q2 they came in better than expected. As I mentioned in my prepared remarks, in Q2 we had favorable customer accruals in Aerials. Without that accrual, we would have achieved 8.3% adjusted EBITDA. Overall, from a year-over-year perspective, it's still a relatively tough comp because last year the tariff impact began later; we had less tariff impact then than this quarter. What we believe is important is the sequential improvement: we showed a 560 basis point quarter-over-quarter sequential improvement, despite an unfavorable mix. As Simon mentioned, we saw more nationals in our shipments in Q2. For the second half of the year, we expect to continue to see quarter-over-quarter margin expansion from Q2 to Q3 and a seasonal step down from Q3 to Q4 driven by fewer scheduled deliveries. We expect to continue to drive improved price-cost dynamics, such that we are full-year price/cost neutral for the Aerials business. Year-over-year, taking into consideration the higher tariffs and the one-time customer accrual, that's about a $70 million headwind that we're absorbing while driving cost actions and price realization.
We see a lot of positive momentum in Aerials purely from a top-line perspective, and we see that continuing into 2027. Our focus is sequential improvement and that's what the team is delivering at the moment.
Your next caller is from the line of Angel Castillo from Morgan Stanley.
On the Aerials thread here, you talked about some of the incremental bookings largely being from nationals. So a couple of things: one, what are you hearing from the independents on timing or general demand from those customers and the implications that might have to your margins in the second half? And then separately, are you seeing anything as we think about the nationals in particular — as this demand starts to pick up from their CapEx — any ability to take market share or general shifts in market share there?
On the independents, as we said, we saw the first signs in Q1 and continued those in Q2 where independents' bookings sequentially continue to improve. They are more tied to private construction and commercial jobs, which tend to be more interest-rate and input-cost sensitive. We'll have to see the long-term impact of inflation and macro. Europe is probably a little more vulnerable and hints at stagflation in some markets, while we see the U.S. market as more resilient. We think the independent bookings pattern will continue to improve, which is encouraging. Nationals grew faster than we had assumed in the first half, and that's where the revised top-line guide is coming from. With nationals, there's a bit of an unfavorable mix, but in terms of market share, we typically don't talk about market share on public calls. I do believe in the Genie value proposition: the team has made strong progress with a customer-centric approach and I believe they are on a great commercial run.
On 2027 dynamics that led to the push-out of that pre-buy on refuse: do those changes, including phased rollout of engines from OEMs, have implications on your ability to standardize certain equipment on the fire side? One of the strategies was to create a more standardized vehicle around some of these new engines. Any implications on delivering on that standardization? And separately, do potential penalties or the cost of those engines have any material impact on your financials, or is that effectively passed through to customers?
Yes, the engine switchover is expected in 2027 and will likely be more phased. Some engines, like the X10 or other platforms, might go sooner or later depending on the platform. We anticipated this for some time, and the legacy REV team began designing toward where the puck was going. As those engines are introduced, it will allow us to further optimize our bill of material, designs and commonality, which will be an efficiency gain for us.
From a financial standpoint, there's no material impact to tariffs from the EPA regulation timing. Any cost changes related to engines are largely passed through from OEMs, so we don't bear them. In Environmental Solutions, if and when the EPA regulation takes effect, there could be potential supplier flexibility benefits. There's no material financial impact for Aerials and Materials Processing on this EPA regulation given their exposure.
Your next question is from the line of Tim Thein at Raymond James.
First question on the Materials Processing segment: if we think about margin progression for the year, the expectation coming into the year was sequential margin improvement. You called out a 180 basis point one-time benefit in Q2. Excluding that, is sequential improvement still a reasonable assumption for the balance of the year, or were there factors that pulled performance into Q2? How should we think about the shape for the rest of the year?
We're very pleased with Materials Processing performance in the first half. Q2 year-over-year margin expansion for MP was 440 basis points, and excluding the one-time benefits it's still a strong 270 basis point year-over-year improvement and better than Q1 as well. That's driven mainly by favorable product and geographic mix and price-cost discipline. Looking into the second half, I would say a normalized EBITDA around 17% excluding the Q2 one-timers is reasonable. There could be a marginal step down because we've seen an uptick in material handling orders, which is a slightly lower-margin product, but overall it's a healthy margin profile. We expect full-year incremental margin, excluding the one-timers, to be above our normalized incremental margin.
Materials Processing is executing very well on price-cost discipline, and that's helping the segment as bookings pick up. Execution has been strong this year.
On the Aerials strategic review, is there any sense of timing — is this a 2026 announcement potentially, or could it slip into next year? I know there are many factors, but any timeline color would be helpful.
There is no predetermined timeline. We're focused on making the right decision and properly executing the review. We're pleased with the progress, we have interest from multiple parties, and we're laser-focused on working toward the best outcome for shareholders.
Your next question comes from the line of David Raso at Evercore ISI.
Just a quick clarification on EPS cadence. Is the thought a flat sequential cadence across Q2 and Q3 and then a step down in Q4? I want to make sure I understand the framing.
David, yes. Based on our revised guidance and outlook, we've achieved 48% of our EPS in the first half of the year. From a quarterly phasing perspective, if you back out the one-time customer accrual, the adjusted EBITDA at the Terex level is in line with that. It's fair to say Q3 will be very similar to Q2's profile with a seasonal step down in Q4.
On the guide raise: the revenue guide is up by $250 million, but EBITDA only up $15 million. Is that solely a function of mix? Aerials margins are below other businesses. Are there other changes affecting margins?
Yes, David, that's exactly right. The top-line growth is primarily driven by Aerials coming up to low double-digit growth, while the segment with the highest margins, ESG, is now expected to low single-digit grow. That mix change explains the modest EBITDA increment on the revenue increase. Even with the revised guide, at the Terex level we're seeing 22% incremental margin year-over-year on a pro forma basis. Three of our four segments are operating at mid- to high-double-digit EBITDA. We are absorbing significantly higher tariffs and the customs accrual totaling about $19 million and still delivering that incremental margin, which is a strong performance.
In summary, nothing changed negatively in your view; it was truly a mix issue that drove a modest EBITDA bump for the revenue. Is that fair?
Exactly. You're right, David.
Your next question comes from the line of Kyle Menges at Citigroup.
I wanted to dig into MP a little more and specifically international markets, which are more important for MP than others. What are you seeing in international markets within MP and any impacts from the Iran conflict? Broadly, where would you characterize those markets in the cycle? And assuming North America is your most profitable market, is it fair to say that as international markets rebound it could be somewhat of an unfavorable mix impact?
Terex has changed; over 80% of revenue is now in North America. Two businesses with significant overseas exposure are MP and Aerials, but even within MP, North America is the largest market followed by Europe and then Asia. Europe started promising in Q1 and cooled a bit in Q2 — it's touch-and-go. European economies are more sensitive to the current dynamics; they're more export-driven and sensitive to input costs, fuel and inflation. So we see some softening in Europe, though still growth, and that's baked into our MP guide. India and Australia are other large markets and are actually strong: Australia is driven by mining activity and India by infrastructure investments. We have a big MP presence in India and a reasonable presence in Australia, so both are accretive. Europe is a bit soft. In terms of margin impact, it's a wash; I wouldn't say overseas markets are uniformly dilutive.
On Aerials, now that it's gaining momentum and returning to growth, does that change how you're thinking about the strategic fit of that business at all, and might it help interest from potential buyers?
Not really. This is a strategic review with long-term implications. How one quarter evolves versus another doesn't change our strategic approach. It's encouraging that Aerials is cycling up, but it doesn't materially alter our long-term strategic view.
Your next question is from the line of Steve Volkmann from Jefferies.
I wanted to circle back to the capacity additions you're doing in fire and in utility. Are there other capacity additions happening as well? When do we expect those to come online and get up to normal run rates?
I would say 2027 for normal run rates. In utilities, we still have some under-absorption because we're ramping up, but by the end of the year and certainly into 2027 we should be in a favorable spot absorbing the assets we're putting in place. Similar story for Ocala and Brandon: mostly coming online in Q4 and getting to run rates in 2027.
Is it conceivable by the end of 2027 that you'll be back down to roughly a one-year backlog or lead time for these businesses?
Not in fire by the end of 2027; that will probably take about two years to fully bring the backlog down by a full year. But we are aiming to get lead times down to about a year in fire, and that's a sustainable target over the next 24 months.
Your next question is from the line of Steve Barger at KeyBanc Capital Markets.
As the quarter progressed, I heard more investor concerns about municipal spending. What is your muni-facing sales force telling you about funding and demand visibility for the back half and into next year?
We don't see those concerns. We've seen a consistent pattern and cadence in municipal spending for the last ten years. We don't see any slowing; we see sequential growth and consistent demand.
Do you track inquiry-to-order conversion rates? How is that trending across fire trucks and refuse trucks?
Yes, we track that in all businesses. Typically it's a pretty fixed ratio and we don't see that ratio changing materially; if anything it might be slightly up but not material. The center of gravity in fire is throughput and building the trucks in our backlog. It's more of a supply-focused business right now; as lead times come down, we'll naturally shift more to demand focus.
Did you talk about trends in standard or semi-custom versus custom products?
Yes. We introduced the S-180 semi-custom pumper, which is being well received. It's a lower lead-time option that customers are adopting. In that category, we see the inquiry-to-booking ratio increasing.
Your next question is from the line of Jerry Revich from Wells Fargo.
In Environmental Solutions, margin performance is pretty good this year considering the production ramp and capacity adds in utilities. As you think about the business in 2027, can we approach 20% margins as under-absorption normalizes and you get returns from the utility capacity additions? How are you thinking about the path to 20% plus margins in this line of business?
A strong performing segment. We see sequential improvement in ESG and accelerating demand in utilities. There's synergy between the two businesses: ESG's high-mix, low-volume manufacturing expertise is helping utilities ramp up. You've followed us for a long time and can see where utility margins were and where we are now; the sequential progress is encouraging. We're not ready to guide for 2027 yet, but we're pleased with the progress.
Simon, are you willing to comment on the 20% plus margin target and how much progress you think you'll make toward that in 2027?
I think it's a little premature to quantify that. I'd prefer to wait until we provide guidance for 2027.
There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Simon Meester for closing remarks.
Thank you, operator. If you have any additional questions, please follow up with Jen or Drew. Thank you for your interest in Terex. Operator, please disconnect the call.
This concludes today's call. Thank you for attending. You may now disconnect.